The SupermarketRevolution in Developing Countries Policies for “Competitiveness withInclusiveness”, an article by Thomas Reardon and Ashok Gulati discusses the impact on each segment.
1. Supermarkets are having benefits of scale economies and low cost structure due to their business model which they pass on to consumers in the form of lower prices of goods for no change in quality. Given the fact that food products constitutes major share of sales in supermarket and are having inelastic supply as well as demand, lower prices for same/similar quality goods provides higher satisfaction and welfare to consumers. This also benefits economy in fighting inflationary tendencies.
2. For retailers in unorganized sectors, the authors say that the share of the unorganized retailers declines at different rates in different countries. From the point of view of an economy this is a good signal because with increasing formal sector in economy it becomes easy for government to regulate markets, taxation and food quality.
3. At a time when supermarkets have become too large to regulate abuse of power is a widespread problem. For example, Wal-Mart globally sold goods worth $473.1 billion for financial year 2014 which is more than agricultural GDP of India ($ 334 billion).This was also evident in case of Wal-Mart wherein it paid $25 million to lobby senators of US and India to gain greater access to market in India
(Ramanna & Muthuram, 2013).
According to report submitted to EU, supermarkets hold a major share in
national food market of Europe and this power concentration in hands of few
players leads to abuse of power affecting consumers and suppliers (Consumers International, 2012).
Though author does not talk about the abuse of power by multinational
supermarket chains but indirectly discusses it in the form of challenges
supermarket poses to suppliers. Author
says “Supermarkets pose a challenge to suppliers by pressing them for
consistency and quality of supplies which in turn requires higher investment by
the processors, market intermediaries and farmers to upgrade the standards of
their products and services”. For an underdeveloped or developing country it is
good to some extent that this will alleviate the problem of low quality
standards in those countries but at whose cost? For large size suppliers and
market intermediaries, it is possible to follow at ease the standards that
supermarket demands but for small players it becomes increasingly difficult to
survive as supermarket grab bigger share of the market.
Farmers need to invest heavily due to poor public good provisioning in developing countries that makes transaction cost of entering the commercialized markets increasingly high for subsistence farmers
& Meijer, 2005). If government does not help theses
small farmers with subsidies to invest then their existence is threatened.
Hence giving the supermarket power to decide the livelihood of small farmers is
not good in context of food and livelihood security.
I conclude here with my words that “benefit edge of the sword is blunted while cost edge is too sharp to harm the nations”.
Consumers International. (2012, July 17). The relationship between supermarkets and suppliers - summary. Retrieved from http://www.consumersinternational.org/media/1035307/summary,%20the%20relationship%20between%20supermarkets%20and%20suppliers.pdf
Pingali, P., Khwaja, Y., & Meijer, M. (2005, October). Commercializing Small Farms: Reducing Transaction Costs. Italy. Retrieved December 04, 2014, from ftp://ftp.fao.org/docrep/fao/008/af144e/af144e00.pdf
Ramanna, K., & Muthuram, V. (2013, September ). "Wal-Mart Lobbying in India?" Harvard Business School Case 114-023.