Links among Supermarkets, Wholesalers, and Small Farmers in Developing Countries: Conceptualization and Emerging Evidence

Thomas Reardon, Julio A. Berdegué, C. Peter Timmer, Thomas Cabot, Denise Mainville, Luis Flores, Ricardo Hernandez, David Neven, Fernando Balsevich

Presented at The Future of Small Farms, June 26-29, 2005, Withersdane Conference Centre, Wye, UK. Organized by the International Food Policy Research Institute (IFPRI/2020 Vision Initiative), the Overseas Development Institute (ODI), and Imperial College London

There has been substantial research in the past half decade investigating the rapid rise of supermarkets in developing regions and tracking the very recent and dramatic changes in their procurement systems. Both of those trends can be hypothesized to affect the wholesale sector and conditions facing small farmers. However, empirical research is only recently emerging shedding light on those effects. There is a need to lay out a framework to conceptualize the links among supermarkets, wholesalers, and small farmers, with an aim to better understand the ways in which the rise of supermarkets can affect small farmers, directly and indirectly. There is also a need to review emerging field survey evidence illustrating such links. Both of these will inform policy and program debate. This paper aims to contribute to the filling of these needs.

Besides marshaling case study evidence from several recent field studies, the paper presents a heuristic model of the choices of supermarkets, wholesalers, and farmers concerning links among them. The model combines what are usually strange bedfellows in disciplinary research: (1) industrial organization economics, (2) agribusiness strategic research, and (3) farm microanalytics. These three need to be brought to bear to analyze basic and abrupt change in food system structures,  rought by large retailers and processors, and faced by many small farmers.

We start with a review of recent evidence on the diffusion of supermarkets. We then present a model of the choice of procurement system by supermarket chains, which by extension yields derived demand for direct supply from producers or for the intermediating services of various kinds of wholesalers, who in turn choose producers. In our partial equilibrium analysis that derived demand is met by supply of products by farmers. In this paper for simplicity we don't consider processors.

Full paper at http://www.ifpri.org/events/seminars/2005/smallfarms/sfproc.asp