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[GVC#2] inclusion/exclusion: empirical evidence

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Fresh vegetables export from Africa (Kenya) to UK supermarkets
- inclusion and exclusion issue of small holder, from 75% to 18% by 1998
small holders face difficulties to maintain quality requirement of UK supermarket: consistency, maintaining post harvest, ensuring compliance with health and safety requirements
- standards set by retailers (giant supermarket) changing frequently
- monitoring ‘hit quad’
- global retailers do not trust small holders, focus on certain part of producers
- upgrading is limited
- ties up relationship exporter and retailer
Global Retail Chains and Poor Farmers: Evidence from Madagascar
Bart Minten and Lalina Randrianarison
- Global retail companies have increasing influence on developing countries through foreign investment and/or imposition of their private standard.
- The impact on developing countries, in this case Madagascar fresh fruit and vegetables small holders show evidence of benefited smallholders who participated in the contracts farming. They benefit from increasing welfare, income stability and shorter lean periods. Also improving technology adoption, better resource management and spillovers.
- exporter involves small holders (around 10.000 farmers in the Highland) with contract farming around 0.05% of the and per house hold
- technology adoption: making compost
- small farmers in global supply chain comply complex quality requirements through micro-contracts, extensive farm assistance and supervision program.
- several constraints of expaning advantages of integration to global value chain:
- indequate infrastructure so only farmers in a 120 km radius from capital city included in micro-contracts,
- low human capital cause high training cost and long duration of training.
- transaction costs are large because of individual contracts
- global retailers standard do not have impact yet to the domestic demand for high quality and high value vegetables production. Local supermarket do not engage with companies selling high standard vegetables.

1. Fresh vegetables export from Africa (Kenya) to UK supermarkets

- exclusion issue of small holder, from 75% to 18% by 1998

small holders face difficulties to maintain quality requirement of UK supermarket: consistency, maintaining post harvest, ensuring compliance with health and safety requirements

- standards set by retailers (giant supermarket) changing frequently

- global buyers conduct monitoring so-called ‘hit quad’

- global retailers do not trust small holders, focus on certain part of producers

- upgrading is limited

- ties up relationship exporter and retailer

2. Global Retail Chains and Poor Farmers: Evidence from Madagascar

Bart Minten and Lalina Randrianarison

- Global retail companies have increasing influence on developing countries through foreign investment and/or imposition of their private standard.

- The impact on developing countries, in this case Madagascar fresh fruit and vegetables small holders show evidence of benefited smallholders who participated in the contracts farming. They benefit from increasing welfare, income stability and shorter lean periods. Also improving technology adoption, better resource management and spillovers.

- exporter involves small holders (around 10.000 farmers in the Highland) with contract farming around 0.05% of the land per house hold

- technology adoption: making compost

- small farmers in global supply chain comply complex quality requirements through micro-contracts, extensive farm assistance and supervision program.

- several constraints of expaning advantages of integration to global value chain:

- indequate infrastructure so only farmers in a 120 km radius from capital city included in micro-contracts,

- low human capital cause high training cost and long duration of training.

- transaction costs are large because of individual contracts

- global retailers standard do not have impact yet to the domestic demand for high quality and high value vegetables production. Local supermarket do not engage with companies selling high standard vegetables.

References:

1 Dolan, C. and J. Humphrey. 2000. Governance and Trade in Fresh Vegetables: The Impact of UK Supermarkets on the African Horticulture Industry. Journal of Development Studies. 37(2):147-176.

2. Minten, Bart, Randrianarison, Lalaina and Swinnen, Johan, (2006), Global Retail Chains and Poor Farmers: Evidence from Madagascar, LICOS Discussion Papers, LICOS – Centre for Institutions and Economic Performance, K.U.Leuven.

Written by ibu didin

October 21st, 2010 at 7:53 am

[GVC#1] governance introduction

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Global commodity chains (GCC)concept comes from an idea that the design, production (including process and pacakging) and marketing products involves a chain of activities divided between different parties or different enterprises.

elements of GCC (Gereffi)
1. chains frequently involve cross border coordination of the activities of independent firms
2. large retail and brand name companies create inter-firm networks characterized by a high degree of coordination
3. increasingly role played by international buyers, retailers, and brand name companies in the trade of labour intensive such as garments (Gereffi, 1994)

Gereffi distinguish between two basic types of chain:
1. producer-driven: typical of capital and technology intensive industry
2. buyer-driven: retailers and brand name companies exercise key governance function

But why commodity chain have to be governed? why do international buyers not use arms-length market relationship?
1. the needs for product differentiation strategies, seller derive competitive advantage from selling non-standardized products, or not mass production, they compete not only for price but also for quality factor.
2. supplier needs complex information about changing market requirements, assistance in meeting product specifications. Governance is required when supplier lacks of technical competence or market knowledge? (is it really?).

The governance has consequences for the inclusion and exclusion of firms in the chain, and opportunities they have for upgrading – moving into more sophisticated functions within the supply chain or into the production of more sophisticated commodities.

The need for governance is reinforced in certain markets by increased concern with labour, environmental and product safety standards.

Resources:
Gereffi, G., 1994, ‘The Organisation of Buyer-driven Global Commodity Chains: How U.S.
Retailers Shape Overseas Production Networks’, in Gereffi and Korzeniewicz (eds.) [1994]

Written by ibu didin

October 20th, 2010 at 5:04 pm