I F A S Demand Driven Agriculture: Opportunities and Liabilities for Agricultural Research Lawrence Busch Michigan State University Louis Swanson Colorado State University I F A S Central Theses I F A Current Trends S 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 I F A Other changes S • Rising incomes • Restructured integrated global markets • Changing consumption/values of consumers • Transformation of commodity chain stakeholders interests and relationships I F A From Supply to Demand S Supply-driven Spot Markets Quantities Commodities Demand- driven Supply Chains Qualities Niches I F A From Supply to Demand S Price competition Government -regulated Non-price competition Industry-regulated (w/ gov’t oversight) Protection oriented Strategy oriented I F Supply Driven Commodity Chain Farmers A Ranchers S Commodity Groups Supply Producers Processors/ Distributors Supermarkets Restaurants Food Service Canners Packers Shippers Retailers Input Suppliers Seeds Chemicals Machinery Cheap Mass-produced Food Consumers I F A Linkages S • 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 I F A Supply-Driven Research S • 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 I F A Demand Driven Commodity Chain S Demand Supply Producers Processors/ Distributors Supply Management to maximize profits Retailers Input Suppliers Health Safety Environment Labor etc. Consumers I F A US Retail Concentration S • 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 I F A The Global Big Three S • 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 I F A S Where Profits Are Made Light Edges I F A S So what do retailers do? I F A S I F A S Provides Solution to Problem of Buridan’s Ass (Cochoy) I F A S 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 I F A Farmer Response: Alliances S • • • • 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 I F A Who wins? Who loses? S 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(?) I F A The Demise of Statistics S • 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 I F A Demand-Driven Research S 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? I F A The Research Community S • 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 I F A Opportunities S • 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