Demand Driven Agriculture: Opportunities and Liabilities for Agricultural Research

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Demand Driven AgricultureOpportunities 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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Demand
Supply
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Current Trends
Formation of the WTO
Private Supermarket Standards
Shifting Supermarket Strategies
Private Regulation of Food
Rise of New Social Movements
Devolution of the State
New Opps Demands On Producers
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Other changes

• 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
Supply-driven Demand- driven
Spot Markets Supply Chains
Quantities Qualities
Commodities Niches
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From Supply to Demand
Price competition Non-price competition
Government-regulated Industry-regulated (w/ govt oversight)
Protection oriented Strategy oriented
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Supply Driven Commodity Chain
Farmers Ranchers Commodity Groups
Input Suppliers
Supply
Producers
Seeds Chemicals Machinery
Canners Packers Shippers
Processors/ Distributors
Cheap Mass-produced Food
Retailers
Supermarkets Restaurants Food Service
Consumers
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Linkages

• 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

• 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
Input Suppliers
Producers
Health Safety Environment Labor etc.
Supply Management to maximize profits
Processors/ Distributors
Retailers
Consumers
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US Retail Concentration

• 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

• 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
Dark Middle
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So what do retailers do?
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Supply Chain Management
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Provides Solution to Problem of Buridans 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

• 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?

• 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

• 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

• 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

• 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

• 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