Retail companies as integrators of value chains in developing countries: diffusion, procurement system change, and trade and development effects

This paper discusses the rapid rise of supermarkets in developing countries. The expansion of supermarkets alters the market facing farmers, and has the potential to substantially transform the nature, composition, and volume of domestic market commerce as well as trade. These trends present both opportunities and challenges for development that require careful programme and policy attention.This report covers the patterns, determinants, and effects of that retail transformation, as well as the strategic implications for governments, civil society, and donors. Questions addressed in the report include:what are the patterns and determinants of the diffusion of supermarkets in developing regions? what are the dominant patterns of co-ordination and governance in value chains integrated by leading retail chains? what are the effects of the retail transformation on the agrifood system, in particular the first-stage processors and the farmers? what strategies can – and do – the private sector, governments, civil society, and donors undertake to help producers avail themselves of the opportunities and meet the challenges brought by the retail transformation? The report observes four overall trends in retail procurement:centralisation of retail procurementa shift from exclusive reliance on traditional wholesale sector to use of non-traditional – specialised/dedicated wholesalers and logistics firmsa shift toward preferred suppliers the rise of private standards and private enforcement of public standards.The report argues that the centrepiece of programme and policy thinking should be on methods to upgrade small/medium farmers and processors to meet the requirements implied by the adoption of the four trends above by supermarket chains and their main processors and wholesalers. This would include:building physical and human capital: upgrade technology with asset-specific investments needed to meet volume, consistency, and quality and safety standardsbuilding of organisational capital: developing producer marketing organisations and greater supplier-supermarket linkagesbuilding institutional capital: developing a code of commercial conduct as well as addressing the gap between public and private grades and standards.