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The Double-Revolution in FoodSupply Chains in the Asia/Pacific   Implications for Food Security and     Donor/Government S...
• Thomas Reardon, MSU
1. Asia/Pacific Food Debate: Focus vs                 Realitiesa) Debate is focused on trade: but 95% of Asian     Food Ec...
d) Debate is focused on rural – but 50-75% ofAsia’s food market is urbane) Debate is focused “upstream”, on the farm:but 5...
e) The debate is dominated by the the conventional viewof food supply chains as traditional, stagnant, sleepy……. But we fi...
2. “Downstream” in the supply chain:       Supermarket Revolutiona) The “Supermarket Revolution” has swept   developing co...
Asian experience: 3-5x faster than               GDPG Growth Waves of modern retail           2001-2009: annual     2000-2...
b) Supermarkets Spreading in “waves” overcountries in Asiac) Gradual concentration… & multinationalization…global multinat...
d) Spreading in waves from the rich to the middleclass… into the food markets of the poore) Spreading in waves from big ci...
f) Spreading in waves over product categories:… processed foods and rice,… to semi-processed foods: meat, dairy.… to (rece...
g) Recent surveys’ evidence in China in 5 biggest cities;modern retail sells:… 79% of processed foods… 50% of rice (our re...
2. “Midstream” in the supply chain:   Processing & Wholesale/Logistics Midstream segments “co-evolving” withsupermarkets:...
… processing (continued)… emerging concentration (half of rice in Chinavia large mills)… multinationalization (global firm...
2. “Midstream” in the supply chain:   Processing & Wholesale/Logistics2.2. Rapid change in wholesale/logistics:a) rapid ov...
c) Sector still fragmented - but with emergingconcentration:… rise of modern logistics firms… massive new investment in pr...
… but also shortening of traditional supplychains:… mounting evidence of reduction of villagetrader role… and rise of dire...
d) Vertical integration:… sprayer-traders in mango sector in Indonesia,Philippines… wholesale markets in China (Inner Mong...
e) Multinationalization/regional integration ofwholesale/logistics… “follow sourcing”: multinational logistics firms“follo...
… Export/import network among wholesalemarkets in Asiahypothesis: trend toward “wholesale/logistics  market” integration ...
3. Procurement System Modernizationa) re-organizing: distribution centers +    national/regional sourcing networksb) stand...
b) Procurement modernization:… Uneven diffusion… fastest in processed,… second in semi-processed,… just starting or not ye...
4. Impacts on Supply Chaina) Most of the impact is “downstream on   midstream”:… supermarkets on traditional retailers… su...
b) Transformation of segments: coevolution,symbiosis  like “snowball rolling” supermarkets tend to source from largeproc...
 Modernize supply chains downstream &midstream… reducing transaction costs, integratingmarkets
c) Food industry transformation affects farmers,emerging findings:… IMPORTANT: Despite the conventional viewthat rural Asi...
Small farmers tend to excluded where there is mix of medium and small farms (much of Asia) Or where there are only small...
 But supply chain modernization (directpurchase, contract farming) found to raise farmincomes, decrease income variation/...
(and broad food industry  transformation) on consumers’ food     security: Emerging Evidence &               Hypothesesa) ...
Donor and Government Development       assistance implicationsa) Invest midstreamb) Invest upstream in farm and ag support...
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Food Security & Food Supply Chains 2011

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Transcript of "Food Security & Food Supply Chains 2011"

  1. 1. The Double-Revolution in FoodSupply Chains in the Asia/Pacific Implications for Food Security and Donor/Government Strategies
  2. 2. • Thomas Reardon, MSU
  3. 3. 1. Asia/Pacific Food Debate: Focus vs Realitiesa) Debate is focused on trade: but 95% of Asian Food Economy is domestic market… at most 5% are imports or exportsb) Debate is focused on government marketinginterventions: but 95-99% is private sector(traditional & modern)… only about 1-5% is direct governmentinvolvementc) Debate is focused on grain – but grain is about25% of Asia’s food; the other 75% is milk, meat/fish,oil, pulses, produce
  4. 4. d) Debate is focused on rural – but 50-75% ofAsia’s food market is urbane) Debate is focused “upstream”, on the farm:but 50-70% of the food price is formed after thefarmgate in the supply chain… “downstream” (retail)… “midstream” (wholesale/logistics andprocessing) These off-farm segments have been relativelyneglected in the food security debate
  5. 5. e) The debate is dominated by the the conventional viewof food supply chains as traditional, stagnant, sleepy……. But we find the downstream and midstream segmentsare transforming very fast in DOUBLE REVOLUTION: Modernization: “Supermarket Revolution” + modernlarge processors + modern wholesale/logistics firms Transformation – a Quiet revolution - in traditionalsupply chains… not just in “high value agriculture” (non-staples)… but also in rice & other staple foodsI show that transformation by off-farm segment of the supply chain: downstream, midstream And its implications for farmers and for food security & development assistance in Asia/Pacific
  6. 6. 2. “Downstream” in the supply chain: Supermarket Revolutiona) The “Supermarket Revolution” has swept developing countries in the past 2 decades… take-off and rapid spread in three wavesFirst wave: South America, East Asia outside China, South AfricaSecond wave: Mexico/Central America, Southeast AsiaThird wave: China, India, Vietnam, emerging in Eastern/Southern Africa
  7. 7. Asian experience: 3-5x faster than GDPG Growth Waves of modern retail 2001-2009: annual 2000-2008:diffusion: noting when main modern retail sales annual GDP“take-off” started growth rate growth rate1st Wave (early 1990s)South Korea 10.3% 4.5%Taiwan 12.0% na2nd Wave (mid-90s)Indonesia 19.1% 5.2%Malaysia 17.2% 5.5%Philippines 17.3% 5.1%Thailand 16.0% 5.2%3rd Wave (late 90s/early 2000s)China 27.5% 10.4%India 49.9% 7.5%Vietnam 45.4% 7.7%
  8. 8. b) Supermarkets Spreading in “waves” overcountries in Asiac) Gradual concentration… & multinationalization…global multinational firms (like Metro,Carrefour, Tesco, Walmart)… plus rapid emergence of regionalmultinationals like Dairy Farm International (HKbased)
  9. 9. d) Spreading in waves from the rich to the middleclass… into the food markets of the poore) Spreading in waves from big cities to secondarycities … to rural towns/villages… even to rural supermarket chains in China andIndia … China: private and state enterprise retail chainsselling consumer durables, fertilizer/pesticides,processed food;India: “rural business hubs” (rural supermarketsthat are also “rural services platforms” for farminputs, credit, medical services, specializedextension)
  10. 10. f) Spreading in waves over product categories:… processed foods and rice,… to semi-processed foods: meat, dairy.… to (recently) fresh fruits and vegetables… but faster/earlier than in Latin America,Europe, and US… in the US it took 40 years before supermarketssold any fresh fruits and vegetables…
  11. 11. g) Recent surveys’ evidence in China in 5 biggest cities;modern retail sells:… 79% of processed foods… 50% of rice (our recent survey in Beijing)… 60% of dairy… 46% of meat… 37% of fruit…22% of vegetables Compare with Hong Kong in 2006:… nearly all of rice (was only in small rice shops in 1980s)… 59% of fruit… 52% of meat… 55% of vegetables (leap from mid 1990s, was 10-20%)
  12. 12. 2. “Midstream” in the supply chain: Processing & Wholesale/Logistics Midstream segments “co-evolving” withsupermarkets: mutual re-enforcement2.1. Rapid change in food processing sector:… rapid overall expansion… plant scale increase… technology change: capital/labor ratioincrease (India example)
  13. 13. … processing (continued)… emerging concentration (half of rice in Chinavia large mills)… multinationalization (global firms plus rise ofregional multinationals like CP of Thailand, orSingapore’s Wilmar with huge investment inoil/rice in China)… rapid increase in branding/packaging: riceexample: emerging in India/Bangladesh, alreadydominant in China cities
  14. 14. 2. “Midstream” in the supply chain: Processing & Wholesale/Logistics2.2. Rapid change in wholesale/logistics:a) rapid overall expansion: wholesale markets in China & India grew to 4000-5000 by 2000s from only 100’s in 1960sb) capital/labor ratio increase in wholesale: trucks, warehouses, cold storages
  15. 15. c) Sector still fragmented - but with emergingconcentration:… rise of modern logistics firms… massive new investment in private logistics(along with public investment)… rise of specialized modern wholesalers (suchas Bimandiri on Java) that act as dedicatedprocurement agents for supermarket chains
  16. 16. … but also shortening of traditional supplychains:… mounting evidence of reduction of villagetrader role… and rise of direct purchase from farmers bywholesale market traders & mills(vegetables/Shandong,rice/Heilongjiang,tomato/Indonesia,rice and potato/India)
  17. 17. d) Vertical integration:… sprayer-traders in mango sector in Indonesia,Philippines… wholesale markets in China (Inner MongoliaWholesale Market)
  18. 18. e) Multinationalization/regional integration ofwholesale/logistics… “follow sourcing”: multinational logistics firms“following” retail chains and large processors toAsia (to “fast track” supply chain development)… regional multinational wholesalers (setting upacross countries to coordinate trade)… sourcing hubs (of retail chains) (with inter-Asian trade within procurement networks)
  19. 19. … Export/import network among wholesalemarkets in Asiahypothesis: trend toward “wholesale/logistics market” integration in Asia/Pacific regionHypothesis: Intra-region trade – and competition – will come in 2 decades to eclipse food trade (except for soy) with rest of world
  20. 20. 3. Procurement System Modernizationa) re-organizing: distribution centers + national/regional sourcing networksb) standardizing: private standardsc) dis-intermediating and re-intermediating:… direct procurement/contracts… use modern wholesalersChina examples: 10 leading supermarket chainsin Beijing source rice mainly direct from big millsMetro example: Star Farms direct procurement
  21. 21. b) Procurement modernization:… Uneven diffusion… fastest in processed,… second in semi-processed,… just starting or not yet started in fresh produce(especially use of specialized wholesalers acting asselection/contracting agents)… follows the “waves” described earlier
  22. 22. 4. Impacts on Supply Chaina) Most of the impact is “downstream on midstream”:… supermarkets on traditional retailers… supermarkets on processors… supermarkets & processors on wholesale 85% of what supermarkets sell is processed orsemi-processed (mirrors food consumptioncomposition in Asia)… most procurement system modernization hasoccurred in processed/semi-processed productprocurement
  23. 23. b) Transformation of segments: coevolution,symbiosis  like “snowball rolling” supermarkets tend to source from largeprocessors, less from SMEs (Beijing chain’ssuppliers: 1000 to 200)… effect on SMEs also by new food safetylaws/China Logistics companies investment helps largeretail and processing to develop Processors & supermarkets source directfrom each other and farmers and reduce role ofsmall wholesaler
  24. 24.  Modernize supply chains downstream &midstream… reducing transaction costs, integratingmarkets
  25. 25. c) Food industry transformation affects farmers,emerging findings:… IMPORTANT: Despite the conventional viewthat rural Asia/Pacific is homogenous, tinyfarms, traditional context: reality is sharpinequality in farm sizes and non-land assetdistribution… and there are 2 rural Asias:dynamic/commercializing zones and hinterlandareas
  26. 26. Small farmers tend to excluded where there is mix of medium and small farms (much of Asia) Or where there are only small farms, those poor in non-land assets are excluded… except (RARELY) where they are in effective coops
  27. 27.  But supply chain modernization (directpurchase, contract farming) found to raise farmincomes, decrease income variation/risk, butrequire investments of farmers
  28. 28. (and broad food industry transformation) on consumers’ food security: Emerging Evidence & Hypothesesa) Reduced Cost (Delhi example)b) Increased Safety: Ability to monitor, keep cold chainc) Reduced Volatility: marketintegration/distribution networks/logistics bymodern food industry - can – reduce price volatilityd) Increased availability: increase profitability tofarmer to increase productivity & qualityinvestments
  29. 29. Donor and Government Development assistance implicationsa) Invest midstreamb) Invest upstream in farm and ag support servicesc) Build Institutions and public support systemsd) Differentiate strategy for two zones/groupse) Use jujitsu/jieli-dali on the food market transformation!… examples of Corfo/Chile, China’s 2x100 Program,and ACIAR innovations in supply chains
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