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3 Organization and Structure of Value Chains

The shift toward high-value agriculture is accompanied by a thorough transformation of the agri-food sector. This restructuring or “modernization” of the supply chain includes: (1) the increasing number and stringency of standards – both public and private – for quality and safety; (2) a shift from a fragmented sector to consolidation in the chain (mostly at the level of processing, distribution, and/or retail); (3) a shift from spot markets transactions in traditional wholesale markets to increasing levels of vertical coordination, including value-chain finance. These structural changes have important implications for the participation of small farmers and distribution of the benefits.

3.1 Increasing Public and Private Standards

During the past decade, standards, including public regulations as well as private corporate standards, have increased sharply, especially for non-traditional export products such as fresh fruits, vegetables, and seafood, which are easily perishable. Fresh food exports to the European Union, for example, have to satisfy stringent public requirements, including marketing standards, labeling requirements, conditions concerning contamination in food, general hygiene rules, and traceability requirements. In addition, private standards, focusing on food quality and safety, organic production or fair trade, are increasingly established by large food companies, supermarkets chains, and NGOs, and play an increasingly important role in agro-food trade (Jaffee and Henson, 2005). The demand for higher food standards changed the way of doing business along the food chain.

Public and private food standards have often been claimed to act as barriers for developing countries' food exports, but it is remarkable that many poor countries experienced accelerated growth in fresh produce exports to high-income countries exactly during a period of sharply increased food quality and safety standards. For example, between 1997 and 2006 horticultural exports from Senegal increased five-fold, while the number of new sanitary and phytosanitary measures (filed to the World Trade Organization (WTO) increased six-fold over the same period.

3.2 Increasing Consolidation in Processing and Retail

Consolidation is taking place in the food industry, both in high income countries and in emerging economies. Most of this process is through mergers and acquisitions, and it applies both to food processing and retail companies. Large food companies are also spreading globally, through foreign direct investments. In this way they contribute to concentration outside of their home markets.

In many Eastern European transition countries, the five-firm concentration ratio in food retail is already high, above 60 percent in many countries. For example, the top five supermarkets in Bulgaria, Romania, and Poland represented respectively 59 percent, 61 percent, and 57 percent of supermarket sales in 2009. In most of South America, East Asia (outside China), and southern Africa, the average share of supermarkets in food retail went from only 10 to 20 percent in 1990 all the way to 50 to 60 percent by the early 2000s (Reardon et al., 2003). Also, food processing and exporting has become increasingly consolidated. For example, in Senegal the number of firms exporting green beans fell from 27 in 2002 to 14 in 2008 (Maertens et al., 2011).

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