Multinational supermarket chains in developing countries: does local agriculture benefit?

There is no consensus in the empirical literature on how entry of multinational supermarket chains affects farmers in developing countries. Econometric analyses struggle with causality issues and are unclear about the channel of effects. We quantify the dynamic effects of supermarket expansion on agriculture within a structural framework that clarifies the adjustment mechanisms involved. The model specification allows for endogenous interaction between agricultural productivity and supermarkets' choice of suppliers. Based on numerical simulations, two results emerge. First, we offer a possible interpretation of the conflicting evidence in the empirical literature. Whether farmers benefit from supermarkets or get stuck in a low productivity trap depends on the extent of local constraints related to production capacity and market access. Second, supply chain development initiated by supermarkets can help farmers escape the low productivity trap. While supermarkets face a short-run cost to supplier upgrading, they gradually gain from more productive local suppliers.     

Have coffee producers benefited from the new domestic cherry market? Evidence using panel data from Rwanda

The article assesses the effects of the new domestic cherry market on coffee‐growing households in Rwanda using panel data. Findings from combined first differenced with instrumental variable specification and other estimation methods provide evidence that farmers who sell to the cherry market do not increase their expenditures compared to farmers selling to the traditional parchment market. The different time lags in terms of when farmers started selling to the new cherry market may explain the lack of statistically significant differences across the two groups. It is possible that farmers will adjust their expenditure patterns in subsequent periods after year‐over‐year market trends become more apparent to them.     

Multinationals vs. Cooperatives: The Income and Efficiency Effects of Supply Chain Governance in India

The impact of multinational firms on the domestic agricultural sector in developing countries is controversial, in particular in India. Relying on a unique set of household‐level data from the state of Punjab, we study the biggest dairy company in the world (Nestlé) in India and compare its vertical spillover effects on upstream suppliers to other market channels (informal sector and cooperatives). We find that farmers that supply informal channels are less efficient and earn lower profits per dairy animal than farmers supplying the cooperative and the multinational sector. Furthermore, we find that farmers using the multinational channel are more efficient than farmers in the cooperative channel, but equally profitable. Hence, we do not find that supplying the cooperative channel is more beneficial for local dairy farmers than supplying the multinational channel. Overall, however, dairy productivity and profitability levels are still dramatically low, with substantial scope for dairy development.     

The role of input vouchers in modernizing the fresh fruit and vegetable market in Turkey

Contractual arrangements between farmers and traders aiming at providing input/credit in return for output selling have been widely studied in the literature on agricultural economics. Nonetheless, there is one issue, which is barely mentioned in the literature: how to enforce the contract terms when traders offer credit in cash rather than input advances? This article aims to describe an innovation in farming contracts, used by fresh fruit and vegetable wholesalers in Turkey, which involves a kind of private voucher system. Drawing on original data collected from wholesalers—a segment in the supply chain hardly covered in the literature—we investigate the factors determining contract adoption using a two‐limit Tobit model. Our results suggest that this private voucher system contributes to supply chain coordination and facilitates smallholder farmer participation in export and supermarket channels, which are growing rapidly in this developing country.     

Farm-gate tomato price negotiations under asymmetric information

This article provides an empirical analysis of farm‐gate tomato price negotiations under asymmetric information. Regression models are estimated to analyze when and by how much sellers stick to their initial ask prices and what explains the variation in the initial ask–offer price spread. Detailed information on 66 farm‐gate tomato transactions and daily tomato wholesale price data from the central vegetable market in Addis Ababa are used for the analysis. Estimation results show that farmers are less committed to their initial ask price when the buyer speaks out the transaction price first, when their quality perceptions of the tomatoes being transacted differ from those of the buyers, and when their tomato farm is at a large distance from the main road. Sellers stick more to their initial ask price when they know that the central market price is high. The initial ask–offer price spread decreases when the buyer speaks out the initial negotiation price first, but increases in the difference in quality perception between buyer and seller, and in the quantity of tomatoes being transacted.     

“农户+合作社+超市”模式下的农产品价格形成研究——以北京番茄市场为例

农超对接有效缩减了农产品流通环节,有利于建立农户与零售商之间稳定的购销关系,有利于稳定农产品价格,促进农产品市场健康发展。文章基于“农户+合作社+超市”模式,以蔬菜产品为例,分析农超对接模式中的农产品价格形成。研究发现:农户与蔬菜合作社之间的议价能力是决定农产品价格形成的关键;在农户对番茄收购价格议价能力大于合作社的情况下,以完全成本计算的番茄理论均衡收购价格最接近番茄实际收购价格;在合作社目标利润率为15%的情况下,番茄均衡零售价格最接近其实际零售价格。     

Are local market relationships undermining organic fruit and vegetable certification? A bivariate probit analysis

This article investigates how an organic fruit and vegetable farmer's choice to use direct‐to‐consumer market channels impacts his/her decision to be certified organic. First, we model the decision to be certified organic as a conditionally independent decision from the farmer's chosen market channels. Second, we estimate the probability of certifying organic as an endogenously determined marketing decision to the choice of market channels, and use a bivariate probit specification to model this decision. Empirical evidence indicates that the decision to certify is endogenous to the chosen market channels. We show that farmers selling direct to consumers are less likely to certify organic.     

Sales location among semi‐subsistence cassava farmers in Benin: a heteroskedastic double selection model

In much of rural Africa, high transaction costs limit farmers’ market participation and thus their potential for income growth. Transaction costs can affect not only whether a farmer sells product but also whether sales occur at the farm gate or at a market. If production behavior is related to a chosen sales location, then analysis of interventions can be improved by explicit consideration of the decision of where to sell. This article develops a double‐selection model that explains consumption and production decisions by semi‐subsistence farmers who first decide whether to be a seller and then whether to sell at the farm gate or at an off‐farm location before deciding on production and consumption. The study tests the validity of this dual‐criteria model against a single‐criterion model in which a grower first decides to be a seller and then decides production, consumption, and sales location simultaneously. The results suggest that the dual‐criteria model provides more information than the single‐criterion model using a sample of cassava producer in Benin.     

Small producers,supermarkets, and the role of intermediaries in Turkey's fresh fruit and vegetable market

A wide range of empirical studies show the extent to which the rise of supermarkets in developing countries transforms domestic marketing channels. In many countries, the exclusion of small producers from so‐called dynamic marketing channels (that is, remunerative ones) has become a concern. Based on data collected in Turkey in 2007 at the producer and the wholesale market levels, we show that intermediaries are important to understanding the impact of downstream restructuring (supermarkets) on upstream decisions (producers). Results show first that producers are not aware of the final buyer of their produce, because intermediaries hinder the visibility of the marketing channel, thereby restricting a producer's choice to that of the first intermediary. Econometric results show that producers who are indirectly linked to the supermarkets are more sensitive to their requirements in terms of quality and packaging than to the price premia compensating the effort made to meet standards. Therefore, the results lead us to question the role of the wholesale market agents who act as a buffer in the chain and protect small producers from negative shocks, but who stop positive shocks as well, and thereby reduce incentives.     

From Circle of Poison to Circle of Virtue: Pesticides,Export Standards and Kenya’s Green Bean Farmers

In response to growing consumer concerns, developed‐country governments have reduced permissible pesticide residue levels in food. Many food retailers have developed even more stringent private food safety protocols relating to pesticide use, storage and disposal and passed them on to their suppliers. Exporters in developing countries enforce these developed‐country pesticide standards (DC‐PS) by subjecting farmers to close monitoring. This study explores the effects of enforcing compliance with DC‐PS on smallholder farmers’ pesticide‐related health costs. Results suggest that enforcing DC‐PS encourages farmers to use protection that lowers pesticide‐induced morbidity, hence reducing farmers’ health costs from pesticide exposure. The study concludes that there are health benefits to family farmers from complying with DC‐PS beyond the acknowledged income generation from selling fresh produce in premium export markets.     

资产专用性、专业化生产与农户的市场风险

专业化生产要求的专用性资产投资会增加交易费用、市场风险以及不确定性.农户作为我国农业生产经营的主体单位,家庭分散经营的特点决定了其抵御市场风险的能力有限.本文以广东徐闻"蕉贱伤农"事件为例,分析了农户专业化生产的资产专用性及面临的市场风险,并进一步提出了化解农户专业化生产市场风险的相关建议.     

Do farmers benefit from participating in specialty markets and cooperatives? The case of coffee marketing in Costa Rica1

Historically low prices in the conventional coffee market have caused financial and social hardship among coffee farmers. In the face of this crisis, specialty markets have attracted the attention of the international donor community. These market segments have shown consistent growth over the last decade and exhibit price premiums in international markets. Therefore, if higher prices are passed on to farmers, access to specialty markets could help to alleviate the crisis brought on by low prices in the conventional sector. The present study attempts to identify the factors that determine farmers' participation in specialized markets and whether participation in these markets leads to higher prices for farmers. A two-stage model is used to analyze farmers' marketing decisions and their effect on the prices received. This procedure allows us to control for the endogeneity bias introduced by the marketing choice. Our results indicate that farmers participating in the specialty coffee segment do in fact receive higher prices than those participating in conventional channels. Additionally, we find that participation in cooperatives has a positive impact on the probability that a farmer chooses to grow specialty coffee and analogously on the prices that they receive. Based on these results, it seems that efforts to increase participation in the specialty coffee segment and in cooperatives would help to lessen some of the hardships brought on by low prices in the conventional coffee sector.     

Farm demand for quality potato seed in Indonesia

Seed is the one of the most costly components of potato production in developing countries. Since potato is a vegetatively reproduced crop, diseases such as viruses build up and yield declines as tubers are saved from one harvest for use as seed the next season. Replacing farm‐saved seed with clean seed is one means to increase yield, but information asymmetry between buyers and sellers on seed quality may restrict market supply of this input. In this article we develop a model of the seed market in which clean seed is treated as a capital good providing benefits over several seasons. To determine farm demand for clean seed, we conducted a survey of 182 potato farmers in the major potato growing areas of Indonesia to elicit their perceptions of seed quality from different sources, and derive farmers' “willingness‐to‐pay” for quality potato seed. Results indicate that the effects of information asymmetry on seed supply may be partially offset by the “reputation” of specialized seed producers. Nevertheless, marginal returns to disease‐free seed appear to significantly exceed marginal costs, indicating that improving supply of quality seed will contribute strongly to productivity growth in potato. We discuss several policy options to encourage supply and utilization of quality potato seed.     

Modernizing wholesalers and guava farmers in Mexico

This article focuses on the rapid development of the “modernizing wholesale” channel, with a study of guava traders and farmers in Mexico. This adds to a literature on modernization of food markets that has focused primarily on exports, supermarkets, and large processors and addressed less wholesale in general and rarely modernizing wholesale per se. We find that participation in the modernizing wholesale channel, relative to the traditional broker channel, requires greater land, regional, and nonland assets, as well as confers a premium controlling for quality, and spurs employment in harvesting and handling locally.     

Raising offtake from cattle grazed on natural rangelands in sub-Saharan Africa: a transaction cost economics approach

Farmers in sub‐Saharan Africa are constrained by large transaction costs associated with marketing of their livestock. However, transaction costs are often not taken into account in the analysis of factors hampering the development of livestock marketing in this region. This article empirically measures the influence of transaction costs on the offtake from cattle grazed on natural rangelands in Uganda. The study is based on the monitoring of 696 cattle transactions in three districts of Uganda from August 2004 to August 2005. The estimated models suggest that proportional transaction costs represented by the state of roads, distance to markets, and time taken to reach the market are important variables constraining market participation. In order to raise offtake from the national herd, it is essential to explicitly address these costs. One potential solution is collective action in marketing of livestock in which proportional and fixed transaction costs are reduced and shared among the group members.     

More reasons why farmers have so little interest in futures markets

The use by farmers of futures contracts and other hedging instruments has been observed to be low in many situations, and this has sometimes seemed to be considered surprising or even mysterious. We propose that it is, in fact, readily understandable and consistent with rational decision making. Standard models of the decision about optimal hedging show that it is negatively related to basis risk, to quantity risk, and to transaction costs. Farmers who have less uncertainty about prices and those with a diversified portfolio of investments have lower optimal levels of hedging. If a farmer has optimistic price expectations relative to the futures market, the incentive to hedge can be greatly reduced. And finally, farmers who have low levels of risk aversion have little to gain from hedging in terms of risk reduction, in that the certainty‐equivalent payoff at their optimal hedge may be little different than the certainty equivalent under zero hedging. These reasons are additional to the argument of Simmons (2002) who showed that, if capital markets are efficient, farmers can manage their risk exposure through adjusting their leverage, obviating the need for hedging instruments.     

中国农户在农地流转市场上能否如愿以偿?——流转市场的交易成本考察

农地流转是实现规模经营的重要途径,尽管中国农地流转市场发展迅速,但农户在流转市场上能否转入自己想要转入数量的土地尚无人关注。本文利用全国6省1200户2000年和2008年追踪调查数据实证分析农户的流转意愿多大程度上可以在流转市场上得以实现,进而考察流转市场交易成本的存在性、对称性和动态性。研究表明,中国农地流转市场存在明显的交易成本,因此流转市场是不完善的。具体结论:第一,流转市场存在明显进入门槛,进入市场后农户也无法实现完全调整,转入户2000年和2008年分别能实现调整意愿的24%和37%,高于转出户的19%和18%;第二,流转市场的交易成本存在非对称性,转入户比转出户面临的交易门槛高,但进入市场后转入户调整意愿实现程度高于转出户;第三,从2000年到2008年,流转市场的交易门槛显著降低了,但进入市场后调整意愿实现程度并没有显著提高;第四,农资设备和劳动力等要素市场的不完善程度更严重,因此农地流转市场发挥了将土地这种"不能移动"的要素移动起来以迎合那些"本该移动"的要素功能,提高了资源配置效率。政府应进一步提高农地产权稳定性,降低流转市场交易成本,加快农业生产社会化服务业发展,完善农村劳动力市场。     

Poor but allocatively efficient—evidence from the Eastern Amazon

This research empirically investigates the well‐known “poor‐but‐efficient” hypothesis formulated by Schultz (1964) assuming that small‐scale farmers in developing countries are reasonably efficient in allocating their scarce resources by responding positively to price incentives. Deviating from Schultz it is assumed here that scale effects explain a considerable proportion of small‐scale farmers' relative efficiency. The theoretical underpinnings of the scale efficiency concept are briefly reviewed before a normalized generalized Leontief (GL) profit function is modeled by using its output supply and input demand system to capture the joint production of cassava flour and maize by a sample of small‐scale farmers in the Bragantina region of the Eastern Amazon, Brazil. The discussion of theoretical consistency and functional flexibility is considered by imposing convexity on the GL profit framework. The empirical results confirm our revised hypothesis that small farmers in traditional development settings are “poor‐but‐allocatively efficient” by clearly suggesting considerable inefficiency with respect to the scale of operations.     

Antitrust analysis of supermarkets: global concerns playing out in local markets

This paper reviews the basic components of antitrust analysis for the supermarket industry, including definition of product and geographic markets and the measurement of market power. The analysis of prices and profits in a market structure context remains important, especially in countries such as Australia with very high supermarket concentration. Firm and brand level New Empirical Industrial Organisation models of demand and oligopoly pricing also provide insights for evaluating antitrust claims. Recent research on vertical pricing games and price transmission expand the analysis to market channel pricing issues, including coalescing power by supermarkets and food manufacturers. The issues and approaches explained in this paper are relevant for policy-orientated research on supermarkets worldwide, including Australia.     

Vertical coordination,access to capital,and producer loyalty in the Polish dairy sector

Numerous studies have shown that processing and retail industries have actively assisted farmers in joining the modern food marketing systems. Data from the Polish dairy sector show that assistance is provided not only for the traditional‐channel farmers wishing to modernize, but also for farmers already included in the modern marketing channel. Two explanations can be provided to account for this phenomenon. One, even modern‐channel farmers may lack sufficient funds to maintain required quality/quantity on their own. Two, it may be the case that even after undertaking necessary adjustments, modern‐channel farmers are more likely to quit their relationship with a processor and turn elsewhere, in which case assistance is provided to prevent them from defecting. Using farm‐level data, we investigate the impact of supply chain modernization on farmers’ access to credit and their loyalty toward processors. Our results do not provide compelling evidence to support either hypothesis, suggesting at most a partial explanation for the existence of vertical linkages between processors and modern‐channel farmers in Poland.