Multinational supermarket chains are revolutionising food retailing in developing countries, and while consumers are flocking to the new stores, farmers in developing countries are having a hard time getting into the supply chain, indicates a new survey from the International Food Policy Research Institute. Aaron Priel reports.

Supermarkets are expanding and putting the squeeze on small farmers right across the developing world, from Accra to Rio de Janeiro to Ho Chi Minh City. Supermarkets in cities throughout Africa, Asia and especially Latin America “are opening with breathtaking speed in country after country,” according to a survey conducted by the International Food Policy Research Institute (IFPRI).

The market share of supermarkets in food retailing is surging, according to Tom Reardon, professor of international development and agribusiness/food industry at Michigan State University. “This retail revolution poses serious risks for the developing country farmers who have traditionally supplied the local street markets,” he noted. David Hughes, professor of agribusiness and food marketing at the Centre for Food Chain Research at Imperial College in London, qualifies this: “The growth of supermarkets is good news for big farmers and efficient, well-organised farmers. For others it can be troublesome.”

In the early 1990s developing countries around the world liberalised their economies, opening them up to a wide range of foreign investments. Large supermarket chains from Europe and the US, seeing the rising incomes and urbanising populations in developing countries, rushed into these markets. Latin America has seen the fastest growth of supermarkets, since this is where incomes and cities are growing most quickly.

LatAm ahead but Southeast Asia catching up

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The IFPRI survey notes that supermarkets in Latin America achieved a rate of diffusion in one decade that took five decades in the US. “In Brazil, supermarkets’ shares of food sales went from 30% in 1990 to 75% in 2000. Market shares for supermarkets in Guatemala rose from 30% to 35% between 1999 and 2001.” East and Southeast Asia are about five years behind Latin America, but supermarkets in that region are growing at an even faster pace. Between 1991 and 2001 supermarkets’ share of retail food sales rose from 35% to 43% in Thailand and from 30% to 48% in urban China. “In fact China is experiencing unprecedented supermarket growth. The country has 3,000 supermarkets today, and investments are planned for 5 to 10 times this many in the next five to seven years.”

In India the number of supermarkets, mostly Indian-owned chains, is also on the rise, but growth is slower than elsewhere. The survey notes that a policy environment that does not permit direct foreign investment in retail chains is arresting the potentially explosive growth of such chains in India, according to Ashok Gulati, director of IFPRI’s markets, trade and institutions division.

Shoprite dominant in Africa

In Africa, supermarkets still have a small, but growing presence. They are most common in South Africa, where they account for 50-60% of food purchases, as well as in East Africa, notably Kenya, which has about 300 supermarkets. The largest food retailer in Africa is Shoprite, a South African company that has opened stores in more than a dozen countries across the continent and plans not only to add new outlets in these countries, but also to enter Angola, Ghana, and, eventually, India.

In Asia and Latin America the fastest growing supermarkets are chains from Europe and the US, including Carrefour from France, Wal-Mart from the US, Ahold from the Netherlands and Tesco from the UK The reason that the main retailers are northern European is “that they’ve got nowhere else to go. Their domestic markets are saturated, so they are looking for countries with large populations, high population growth, per capita edging toward consumer levels, high income growth, and low supermarket presence. Countries with all five of these characteristics are a good bet, and companies rush to get there before everyone else,” according to Hughes.

It is estimated that supermarkets are poised to rise in developing countries in the next ten to 20 years. “People in developing countries love the range of products, the quality and the price. Like consumers in developed countries, those in developing countries appreciate the convenience of one-stop shopping, especially as it becomes increasingly common for women to hold jobs outside their homes,” Hughes commented.

Painful learning curve for producers

The survey notes that for small producers and dairy farmers in developing countries, who usually deliver their goods to open markets or to local wholesalers, dealing with the procurement system of a supermarket chain can be a painful shock.

“The small farmer will not be the one making the decision about what to grow. That’s a fundamental change for farmers,” explains Jean Kinsey, co-director of the University of Minnesota Retail Food Industry Center. In addition, if farmers succeed in growing the goods demanded, they may find that supermarket procurement officers, or the new wholesalers that supply them, reject a high percentage of produce as being of low quality.

For goods that are accepted, payment is often delayed for up to 60 days after product delivery, too long for small farmers to wait. Small farmers also find it difficult to meet the increasing demand for certification that goods were produced using sustainable farming practices and in adherence with strict labour standards. Small farmers are also hampered by the lack of infrastructure, such as roads and transport systems, to get their goods to supermarkets.

The IFPRI survey cites several examples by which supermarkets play a creative role promoting their relationships with small farmers. “If a supermarket company has a long-term business strategy, it knows that a key to its success is the development of reliable supply chains,” ensuring that supermarkets work with local farmers for the well-being of both parties, as well as consumers.

The expansion of supermarkets in developing countries appears inevitable, and it seems certain that in the next decade consumers will buy an ever greater share of their food basket at their local supermarket. “Given the proper information, training, and infrastructure, millions of small farmers in Africa, Asia, and Latin America may find farming more profitable than ever – or they may forced out of farming altogether. There are both opportunities and threats facing small farmers,” concludes Kostas Stamoulis, chief of the Agricultural Sector in Economic Development Service of the UN Food and Agriculture Organization (FAO), as quoted in the IFPRI survey.

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