Supermarkets, international trade and farmers in developing countries: evidence from Madagascar

Large supermarkets can have an increasing influence on developing countries, through foreign investments and through the imposition of their private standards. Although the impact on developing countries and poverty is often assessed as negative, this paper shows that almost 10,000 vegetable farmers in Madagascar producing for European supermarkets benefit from higher welfare, more income stability and shorter lean periods.Despite major hurdles such as geography, bad local infrastructure and low rural education levels, the paper reveals that many small farmers issued with micro-production contracts and extensive farm assistance and supervision have been able to meet the high quality standards and food safety requirements demanded by the supermarkets. The authors analyse the contract mechanism which has been used in flexible and niche-market supply chains over the last 15 years, and draw out implications for farmers. They find significant effects on improved technology adoption, better resource management and spillovers on the productivity of the staple crop rice.How can the benefits of this model be extended to incorporate other small farmers in Madagascar? The limiting expansion factors are:high transport costs due to poor road infrastructurelarge transaction costs, which are even higher than in competing developing countrieslow human capital, causing high training costs for the in-field supervisors of contracted farmersthe importance of trade agreements/export zones, particularly for European and American markets. Will Madagascar be able to effectively compete in these regions in the future?a domestic demand for high quality produce has not materialised. Local supermarkets don't require high quality standards and are hesitant to engage in contracts where this is emphasised.Despite many of the above limitations, the positive results of this study lead the authors to conclude that, given the right incentives and contracting systems, small farmers in developing countries - and in Africa in particular - can participate successfully in emerging high-quality value chains.