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Sustain / Agri-Food Network

Meeting 8: Private governance of food supply chains: who benefits, who pays?

The last AFN meeting was held on Monday 10th July 2006.
Please follow the links below to download the presentations.

  • Bill Pritchard "Small holder persistence in an era of aggressive supplier rationalisation. What we can learn from the Badagas tea growers in the Nilgiri hills of South India."
    PDF Icon Download as PDF - 749kb
  • Bill Vorley "What is the relationship between private sector governance of agrifood supply chains and the 'pro-poor' performance of those chains"
    PDF Icon Download as PDF - 1053kb
  • Richard Baines "Supermarket standards -  every little hurts!"
    PDF Icon Download as PDF - 1977kb

Summary of presentation by Bill Pritchard 

Bill noted that a number of factors were leading to the marginalisation of smallholders, including:

  • the growing power of buyers
  • de-regulation and the declining role of the state
  • the growing value of brands
  • the increasing size and power of retailers
  • rationalising the number of suppliers

Alison Askew  - South Bank University
Richard Baines - Royal Agricultural College
David Barling  - Centre for Food Policy, City University
Sarah Bowyer  - Centre for Food Policy, City University
David Buffin  - Centre for Food Policy, City University
Laura Davies  - City/Warwick Universities
Rachel Dechenne - Centre for Food Policy, City University
Jessie Dowling - Centre for Food Policy, City University
Abigail Dunn  - Centre for Food Policy, City University
George Fraser  - Centre for Food Policy, City University
David Goodman - University College Santa Cruz
Mike Goodman - King’s College, London
Vicky Jones  - Centre for Food Policy, City University
Tim Lang  - Centre for Food Policy, City University
Mia Lorenz  - individual
Bill Pritchard  - University of Sydney
Lindy Sharpe  - Centre for Food Policy, City University
Jim Sumberg  - New Economics Foundation
Bill Vorley  - International Institute for Environment and Development
Harry West  - School for Oriental and African Studies

Jeanette Longfield - Sustain

His research has looked at tea, as a commodity traded globally, and figures show that between 1998 and 2003, prices have dropped by 40%, and by as much as 50% for smallholders.  Reasons for this include:

  • oversupply
  • buyers’ ability to blend tea from anywhere into standard “recipes” for teabags (which constitute about 95% of the market)
  • smallholders’ inability, compared to large plantations, to grow to uniform “quality” standards

Two alternative solutions to the problems faced by small scale tea growers are:

  • moving into quality niche products that can command higher prices in the global market.  There is strong state support for this approach in India, though it may not be a realistic possibility in other tea growing countries with weaker or non-existent democracies.
  • moving out of the global market altogether, and constructing alternative agricultural development models based on domestic and or regional markets.

Summary of presentation by Bill Vorley

Bill noted that the power of buyers offered influence without investment (which had not been possible in the past), and that one mechanism for this influence is private standards. 

Unlike commodity crops such as tea, horticulture is a higher value crop.  Unfortunately, smaller producers are largely excluded from this sector through the following mechanisms.

  • EUREPGAP, for example, claims to be a global partnership for safe and sustainable agriculture but is, in fact, a traceability and safety system.
  • The costs of complying with EUREPGAP are very high indeed.  Small farms, without money from development funders, could spend between a quarter and a half of their profits running the EUREPGAP system, and a massive 160% of their profits to establish the procedures.  Larger farms, with development funding, need to spend a much smaller proportion of their profits.
  • Despite these costs, some small producers are keen to become accredited, as it provides access to markets, credit, technical support and so on.
  • Supermarket buyers remain unenthusiastic about including small suppliers, as they are perceived to need more effort to monitor, per unit of product.  This is a problem for suppliers, as supermarkets absorb some 80% of the fruit and vegetable market.
  • There may be more potential for “exotics” to avoid supermarket dominance, but the data are not yet available.
  • Some small African countries have invested heavily in export horticulture and are very vulnerable to increased airfreight costs, which might push production into countries closer to the European market.

Summary of presentation by Richard Baines

Richard noted that farmers only receive between 10 and 40% of the final consumer price of their product and that, even at the upper end of this range, some sectors were unable to be profitable.

  • The dairy sector, for example, is experiencing phenomenal product differentiation to create added value, but milk prices for farmers remain very low.  
  • Some labelling and branding systems aim to create value for the farmer, such as the Little Red Tractor.
  • Unfortunately, the product quality standards in this scheme simply aren’t high enough, even though they demonstrate quality control and compliance with particular systems.
  • Certification systems could, potentially, raise quality standards at little or no extra cost, as the implementation and monitoring systems are already in place.

Richard concluded with a number of questions:

  • the organic market has been the saviour of some farmers, and has added value at their end of the chain, but is the organic market reaching saturation point?
  • the organic “brand” isn’t alone in the market, and “quality” logos seem to be multiplying, but are they adding value, or simply adding costs?
  • If government regulation of quality standards was working properly, would any of these voluntary standards be necessary?

Summary of discussion

The following are among the points raised during the wide-ranging and stimulating discussion:

  • SQF is a competitor to EUREPGAP and operates largely in the USA, Australia and South America.
  • There are actually a number of competing standards, which is problematic for suppliers because the standard you pick usually ties you to particular buyers.
  • Theoretically, it is possible to comply with all the standards.  So far this has been complicated and expensive to do, but there are attempts to develop software to help suppliers (e.g. “Muddyboots”)
  • It was not clear whether the World Trade Organisation and/or the companies setting these private standards wanted them to be recognised by the WTO.  Some could see benefits in remaining “voluntary” and outside any official system, while others could see value in officially recognised standards.
  • Whatever their status, it appears that these standards, along with other developments in global agriculture and trade, are flattening the normal distribution curve of producers.  Many middle-sized farmers are either increasing in scale by being bought or buying others, to become mass market suppliers, or moving into smaller scale niche markets.
  • Moving out of global supply chains altogether is not a guarantee of survival.  Many domestic markets have been disrupted by “dumping” by low cost and/or subsidised suppliers.
  • Smallholders could still, though, enhance their prospects of survival by playing to their strengths.  Their small size means they can diversify into a range of products and services, and respond more rapidly and flexibly to changed circumstances.
  • In contrast, specialised commodity producers may be very vulnerable to market changes.  Their anonymous commodity supply chain does, however, protect them from traceability and the resulting legal liability for any problems with the product.
  • Although most of the supermarket buyers claim “consumer demand” as the justification for their standards and operating systems there are, in fact, very few mechanisms for citizens to explore what they would want from a food and farming system, give the choice.  Demonstrating that choice only through buying or not buying a particular product is a very blunt instrument.
  • The Co-op and Waitrose, as a consumer co-op and worker co-op respectively, have the opportunity to operate differently in the market, and are showing some signs of seeing the market value – as well as the intrinsic value – of longer term and more equitable relationships with their suppliers.

Possible next AFN meeting topic:
The tension between using land to grow biofuels or food.

Jeanette Longfield
September 2006

Agri-Food Network: The Agri-Food Network was launched jointly by Sustain and the Department of Health Management & Food Policy, City University in 2001 to link academics working on food and farm policy with each other and with those NGOs and think tanks which are using and commissioning research to underpin policy advocacy work.

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