Comments on economics, mystery fiction, drama, and art.

Tuesday, December 28, 2004

Supermarkets and Peasant Agriculture in Guatemala

A recent article in the New York Times discusses the effects of the development of supermarkets on small-scale (peasant) agriculture in Latin America (specifically in Guatemala). The thrust of the article appears to be that changes in the retail sector have devastated small-scale producers and that the efforts of these producers to form co-ops have failed (or been doomed to failure).

What the supermarkets want is a reliable, consistent source for produce of a well-defined quality. But what supermarkets sell, their reason for existence, is a reiiable, consistent suppply of produce of a well-defined quality that is cheap. This is what they sell because this is what people who shop at supermarkets want. The benefit to consumers is the low price (which raises their standard of living), the consistent supply (which reduces uncertainty), and, often, expanded choice.

The problem is that small-scale producers individually have trouble provinding this sort of output, and, as a result, supermarkets look elsewhere. The co-ops appear to have been badly set up (undercapitalized), not well run, and unlucky. One structural problem is the lag in payments for the products of small-scale producers, but that should be easily fixed.

There are successes, and they appear to have some things in common. The first is strong management of the co-op. This makes achieving consistency and quality easier. The second is identification of a niche. By focusing, the successful co-ops find a way to make themselves valuable to the supermarkets.

Additional support for the co-ops (at least in a start-up phase) is likely to pay off. One thing not mentioned in the article, but which appears essential is providing some business/management training to the co-op managers.

Some specific comments:

"But economic growth has not kept pace with rising populations. The number of people living below poverty lines in Latin America has risen from 200 million in 1990 to 224 million this year. More than 6 in 10 people living in rural areas are still poor."

Comment: What has happened to the percentage of the population that is poor? 12% population growth would leave the percentage of the population that is poor unchanged, and I'll bet the population grew faster than that.

"Typically, each farmer is growing less than an acre of salad tomatoes in rustic greenhouses that are fast deteriorating. Their production has plummeted because of the blight that dries out the plants, which then yield very small tomatoes."

Comment: This sound s more like a production problem than a problem caused by the entry of supermarkets. Even without supermarkets, where would they have sold their product?

"The farmers themselves were uncomfortable with the rules of the supermarket game. They found it difficult to wait weeks to get paid. They did not want to sell their vegetables on the books and pay taxes that sharply cut profits. And some of what they supplied was rejected as too bruised or too limp or too members had trouble consistently delivering the quantity and quality of produce the supermarkets demanded."

Comment: The lag in payment time is an issue, but the rest of this is simply inefficient production.

"Not too far from Palencia, in the city of Chimaltenango, is Aj Ticonel, an association of small farmers that has thrived because it has something Mr. Chinchilla's co-op lacked: a shrewd and enterprising businessman to run it...The company's success has been built instead on sales of pricey vegetables for export. It now sells the same to La Fragua, and its membership has risen from 40 families in 1999 to 2,000 today...'The client buys from us not because poor people produce it, but because it's a good product.' "

Comment: The more I read, the more I conclude that the bigger issue is the difficulty that producers/suppliers face in responding to a changed marketplace. These problems would exist, in all likelihood, even without the changes at the retail level.


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