Demand

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Demand Driven Agriculture:
Opportunities and Liabilities for
Agricultural Research
Lawrence Busch
Michigan State
University
Louis Swanson
Colorado State
University
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Central Theses
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Current Trends
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Private
Supermarket
Standards
Formation
of the WTO
Rise of New
Social
Movements
Devolution
of
the State
Shifting
Supermarket
Strategies
Private
Regulation
of Food
New Opps &
Demands
On Producers
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Other changes
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• Rising incomes
• Restructured integrated global markets
• Changing consumption/values of
consumers
• Transformation of commodity chain
stakeholders interests and relationships
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From Supply to Demand
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Supply-driven
Spot Markets
Quantities
Commodities
Demand- driven
Supply Chains
Qualities
Niches
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From Supply to Demand
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Price
competition
Government
-regulated
Non-price
competition
Industry-regulated
(w/ gov’t oversight)
Protection
oriented
Strategy oriented
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Supply Driven Commodity Chain
Farmers
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Ranchers
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Commodity
Groups
Supply
Producers
Processors/
Distributors
Supermarkets
Restaurants
Food Service
Canners
Packers
Shippers
Retailers
Input
Suppliers
Seeds
Chemicals
Machinery
Cheap
Mass-produced
Food
Consumers
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Linkages
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• Power lies with input suppliers and output
processors who run the commodity chains
• Farmers produce for ‘the market’
• Retailers are recipients of whatever
system delivers
• Retailers merely bring it in back door and
send it out the front door
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Supply-Driven Research
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• Assumes farmers are price takers
• Research permits farmers to lower
production costs
• Early adopters gain until price declines
• Result is cheap food
• Green revolution repeats internationally
what was done domestically
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Demand Driven Commodity Chain
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Demand
Supply
Producers
Processors/
Distributors
Supply
Management
to maximize
profits
Retailers
Input
Suppliers
Health
Safety
Environment
Labor
etc.
Consumers
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US Retail Concentration
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Wal-Mart now dominates with
15% of all food retail sales
• Other majors include Kroger,
Albertson, Safeway, Costco
• Top five = ~30% of market
• But competition remains severe
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The Global Big Three
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• Wal-Mart
– 5970 stores in 10 nations
• Carrefour
– 10,378 stores in 29 nations
• Royal Ahold
– 5066 stores in Europe, North America,
Latin America, Asia
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Where Profits Are Made
Light Edges
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So what do
retailers do?
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Provides Solution to Problem
of Buridan’s Ass (Cochoy)
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Demand-Driven Commodity
Chain
Private standards
Product/process differentiation
Retailer restructuring of suppliers’
businesses
Rise of private label products (20%)
Third Party audits of suppliers
Contract agriculture
Global sourcing
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Farmer Response: Alliances
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Bypass traditional agribusiness
Add value for farmers
Shared information across continents
E.g., Michigan Blueberry Growers &
Global Berry Farms (US, Chile,
Guatemala)
• Cuts out middlemen, improves price data
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Who wins? Who loses?
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Winners
• Niche/Specialty crop
producers
• Largest, much
efficient bulk
commodity producers
• ‘New age’ brokers
• Consumers(?)
Losers
• Bulk commodity
producers
• Smaller, less efficient
producers
• Old style brokers
• Spot markets
• Experiment stations(?)
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The Demise of Statistics
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• Contracted prices secret
• Data on wholesales prices no longer
available
• Statistics collected, but on ‘thin’ markets
• Results:
– Market price no longer known
– Published price unreliable
– Markets do not necessarily clear
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Demand-Driven Research
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Challenges older approach
• What constitutes good science?
• What will serve the public good?
• Who are the clientele for AES research?
• What institutional structures are
appropriate?
• What about productivity?
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The Research Community
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• New generation of researchers no longer
from the farm
• Public good issues rarely discussed
• Upstream research of little direct benefit to
farmers, but important to input suppliers
• But input suppliers are fickle!
• Links between farmers & researchers
weakened
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Opportunities
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• NGOs will continue to pressure retailers to
restructure food system
• NGOs are potential supporters of AESs
• Needed:
– New (niche) crops
– New uses for traditional crops
– Value-added products
that benefit farmers, retailers, consumers
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