The Supermarket Revolution in the Asia/Pacific


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Prof Tom Reardon's talk from the Australian Agricultural & Resource Economics Society's event "Reframing the Food Agenda: Setting the Scene for Australia" held August 19, 2011

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The Supermarket Revolution in the Asia/Pacific

  1. 1. The Supermarket Revolution in the Asia/Pacific<br />Implications for Food Security and Australian Aid and Export Strategies<br />
  2. 2. Thomas Reardon, Michigan State University & IFPRI/MSU Joint Program “Markets in Asia”<br />
  3. 3. 1. Asia/Pacific Food Economy Context <br />While trade is important and growing: 95% of Asian Food Economy is domestic market <br />… 5% are imports or exports<br />b) While grain is important to food security: grain is about 25% of Asia’s food; the majority (75%) is milk, meat/fish, oil, pulses, produce<br />
  4. 4. d) While the rural areas are important: 50-75% of Asia’s food market is urban<br />e) While the productivity of the farm sector (“upstream” in supply chain) is crucial for food security: but 50-70% of the food price is formed after the farmgate in the supply chain<br />… “downstream” (retail)<br />… “midstream” (wholesale/logistics and processing)<br /> These off-farm segments have been relatively neglected in the food security debate<br />
  5. 5. e) A common view of the food markets and supply chains of developing countries of Asia/Pacific is that they are traditional, stagnant, sleepy…<br />…. But we find the downstream and midstream segments are transforming in a DOUBLE REVOLUTION:<br /><ul><li>A Modern Food Market Revolution: A “Supermarket Revolution” (fastest in the world in history) </li></ul>… + rapid rise of modern large processors <br />… + rapid rise of modern wholesale/logistics firms<br /> Accompanied by Quiet revolution in traditional supply chains<br />… not just in “high value agriculture” (non-staples) <br />… but also in rice & other staple foods<br />
  6. 6. 1. Asian Supermarket Revolution: 3-5x faster than GDP Growth<br />
  7. 7. b) Supermarket section in Asia concentrating + multinationalizing<br />…global multinational firms (like Metro, Carrefour, Tesco, Walmart)<br />… plus rapid emergence of regional multinationals like Dairy Farm International (HK based)<br /> FDI will probably accelerate (retailFDI was last week liberalized in India…)<br />
  8. 8. c) Spreading in waves from the rich .. to the middle class… into the food markets of the poor<br />d) Spreading in waves from big cities .. to secondary cities … to rural towns/villages<br />… there are even now rural supermarket chains emerging in China and India<br />
  9. 9. f) Spreading in waves over product categories:<br />… processed foods and rice, <br />… to semi-processed foods: meat, dairy.<br />… to (already, recently) fresh fruits and vegetables <br />… but faster/earlier than in Latin America, Europe, and the US <br />… in the US it took 40 years before supermarkets sold any fresh fruits and vegetables…<br />
  10. 10. 2. “Midstream” in the supply chain: Processing & Wholesale/Logistics<br /> Processing + wholesale/logistics “co-evolving” in symbiosis with supermarkets: mutual re-enforcement<br />2.1. Modernizing Processing Sector: <br />a) Rapid growth, <br />b) concentration <br />c) multinationalization (global multinationals but also by Asian multinationals like the giant CP (Thailand)<br />d) technology change (capital/labor ratio increase)<br />e) Branding & packaging<br />
  11. 11. 2.2. Rapid modernization of wholesale & logistics in Asia:<br />rapid overall expansion of wholesale markets: example from China & India<br />… and modernization of Wholesale markets: Inner Mongolia Wholesale Market<br />b) Technology change in wholesale/logistics: huge investment in truck fleets, warehouses, cold storages<br />
  12. 12. c) rise of specialized modern wholesalers (such as Bimandiri on Java) that act as dedicated procurement agents for supermarket chains<br />d) Rapid disappearance of traditional marketing system: reducing role of traditional village brokers <br />
  13. 13. e) Multinationalization/regional integration of wholesale/logistics <br />… “follow sourcing”<br />… regional multinational wholesalers <br />… regional and global sourcing hubs of retail chains (with inter-Asian trade within procurement networks)<br />Prediction: Intra-Asia-Pacific Trade will grow to far dominate Asia-Europe & Asia-US food trade in next 20 years<br />
  14. 14. 3. Procurement System Modernization<br />re-organizing: distribution centers + national/regional sourcing networks<br />standardizing: private standards<br />dis-intermediating and re-intermediating:<br />… direct procurement/contracts <br />… use modern wholesalers<br />
  15. 15. 4. Impacts on Supply Chain in Asia/Pacific <br />Most of the impact is of supermarkets <br />… on food processors and wholesalers<br />… and via the latter on farmers<br />b) Included: Small farmers with needed assets (irrigation, roads, credit, education) & medium farmers<br />c) Included: dynamic/commercializing zones<br />d) Excluded: resource-poor small farmers<br />
  16. 16. 5. Impacts of Supermarket Revolution on consumers’ food security<br />Emerging evidence: Reduced Cost of Food<br />Emerging Evidence: Increased Food Safety<br />c) Hypothesis: Reduced Volatility of Food Prices<br />d) Hypothesis: Increased availability of food<br />
  17. 17. 6. Australian aid implications<br />Invest midstream: Public-Private Partnerships<br />Invest upstream in farm and agricultural support services<br />Differentiate aid strategy for two zones/groups <br />… there are poor farmers in both zones<br />Use jujitsu/jieli-dali on the food market transformation! <br />… examples of Corfo/Chile, China’s 2x100 Program, and ACIAR innovations in supply chains<br />
  18. 18. 7. Australian export implications<br />Asian food market is a huge opportunity: growing 5-7 x faster than that of Europe or US<br />Supermarket Revolution + food processing and wholesale modernization: together have vastly increased the accessibility of the Asia/Pacific market<br />
  19. 19. c) Australia is well-positioned for fresh meat & produce exports, and grains<br />d) Challenges: growing competition, need for:<br />… scale <br />… branding<br />… de-seasonalization<br />… one-stop shop variety of supply<br /> Key role of north-south (in Asia) joint ventures<br />