Of supermarkets and small farmers
Globalization also spurring concentration of food processing and retail trade
The trends towards dietary convergence and adaptation described in the previous article have in part been fuelled by the increasing concentration of global food processing and retail trade, relates SOFI 2004.
Latin America and Asia, the regions where these trends have been most pronounced, have experienced explosive growth both in investments by transnational food corporations and in the proportion of food sold through supermarkets. Between 1988-1997, foreign direct investment in the food industry increased from US$743 million to more than US$2.1 billion in Asia and from US$222 million to US$3.3 billion in Latin America, FAO figures show -- outstripping by far the level of investments in agriculture.
Over roughly the same period, the share of food sales in Latin America and in East and Southeast Asia made through supermarkets more than doubled. "In Latin America, supermarkets increased their share of retail food sales by almost as much in one decade as it took them 50 years to do in the United States," notes SOFI 2004.
In Asia, the supermarket boom started later but took off even more quickly, adds the report. In just two years, from 1999 to 2001, the share of supermarkets in sales of packaged and processed food in urban China increased by more than 50%.
Transnational food companies played a big part in this supermarket boom, FAO adds. Between 1980 and 2001, each of the five largest global supermarket chains -- all of them based in Europe or the United States -- expanded the number of countries where it operated by at least 270%.
Implications for small farmers
According to SOFI 2004, these changes have major implications for the food security of millions of farmers and labourers in rural areas, who make up the vast majority of the world's chronically hungry population. For them, the globalization of food industries and the expansion of supermarkets present both an opportunity to reach lucrative new markets -- and a substantial risk of increased marginalization and even deeper poverty, FAO explains.
Over recent decades, a handful of vertically integrated, transnational corporations have gained increasing control over global trade, processing and sales of food. The 30 largest such chains now account for about one third of food sales worldwide. And in South America and East Asia, the supermarket share of retail food sales has ballooned from less than 20% to more than 50% over the past decade. The biggest of these, most of them owned by multinational giants, today control 65 to 95% of all supermarket sales in Latin America.
"The increasing dominance of supermarkets has yielded greater consumer choice, more convenience, lower prices and higher food quality and safety for urban consumers," FAO observes in SOFI 2004. "It has also led to consolidated supply chains in which buyers for a handful of giant food processors and retailers wield increasing power to set standards, prices and delivery schedules."
Risks and opportunities
At the same time, the globalization of supermarket procurement has also created unprecedented opportunities for some farmers in developing countries, the report adds.
In Kenya, for example, exports of fresh fruits, vegetables and cut flowers for sale in European supermarkets have soared to more than US$300 million per year. Smallholders who grow for the export market enjoy significantly higher incomes than nonparticipating households, FAO has found. A recent study by the Organization found that if non-participating rural households were able to take up growing horticultural crops for export, their poverty rate would decrease by approximately 25%.
But as the scale of Kenya's exports has grown, the share produced by smallholders has dwindled. Before the horticultural export boom in the 1990s, smallholders produced 70% of vegetables and fruits shipped from Kenya. By the end of the 1990s, 40% of the produce was grown on farms owned or leased directly by importers in the developed countries and another 42% on large commercial farms. Smallholders produced just 18%.
Similarly, domestic supermarket chains in the developing world are shifting towards contracts with a limited number of suppliers who can meet their requirements, leaving many smaller producers out in the cold.
"Smallholders face many obstacles to joining the ranks of preferred suppliers for supermarkets," remarks SOFI 2004 "Meeting standards for quality and reliability may require substantial investments in irrigation, greenhouses, trucks, cooling sheds and packing technology."
Empowering small producers
Supermarket transaction costs may be significantly higher for negotiating and managing contracts with small producers. Smallholders who have succeeded as suppliers for supermarkets have generally overcome these obstacles by forging cooperatives or enrolling in "outgrower" schemes. Often they have benefited initially from information, training and start-up funds provided by public and private sector development initiatives.
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