Fresh Fruits and Vegetables (FFV) Private Standards in Developing Countries: Central America Izem Mader Seminar Marketing and Trade of FFV SS 2008 Supervisor: Dipl. Agr. Ing. Linde Goetz University Göttingen

Outline  Introduction  The spread of supermarkets in Central America  Reasons of this growth  The effects of supermarkets  What are private standards  What are standards for?  Arise of FFV standards in developed countries  Transfer of FFV standards  Special case: FFV  Conclusions

Introduction  Increasing influence of supermarkets in Central America. (Costa Rica, Guatemala, El Salvador, Honduras and Nicaragua  Prevalence of private standards in DCs  Situation of farmers: Higher input use, more gross income  Supermarkets share on FFV consist only 10.7 %

The spread of supermarkets in Central America I Beginning of 1990`s (10-20 %) 2002 (50-60 %) Source: Berdegue et al.,2005 Reardon and Berdegue, 2002

The spread of supermarkets in Central America II Source:Berdegue et al.,2005

The spread of chains Chains In Central America CSU Costa Rica Nicaragua Honduras Grupo Paiz Guatemala Honduras El Salvador Mega Super Costa Rica Nicaragua PriceSmart Costa Rica El Salvador Guatemala Honduras Source:Alvarado and Charmel, 2002

Reasons of this growth  For the side of demand  The changing social and economic environment  For the side of supply  liberalisation and respect to this  foreign trade investment (FTI)  innovations in enforcement

The effects on supermarkets in Central America  Organisational (Centralisation of procurement)  Institutional (Implementation of private standards)  Technological

ORGANISATIONAL INNOVATIONS: CENTRALISATION I  Supply chain innovations;  Instead of a per store procurement systems, centralised distribution centres  shifting from traditional wholesalers to specialised wholesaler.

ORGANISATIONAL INNOVATIONS: CENTRALISATION II Procurement system innovations  Distribution system of traditional markets  Producer  Traditional Wholesalers  Wholesale markets  Distribution system of supermarkets  Producer  Retailer/Distribution Center  Individual Stores

INSTITUTIONAL INNOVATIONS: IMPLEMENTATION OF PRIVATE STANDARDS  From organisational to institutional change  Reasons to implement private standards:  competitive requirement and commercialisation  Differantiating markets  exportation  Private standards  for domestic market  are in the majority product standards  Process standards are only for Costa Rica and Guatemala

Types of actors to define and implement standards

Arise of FFV standards in developed countries  The changing purchase preferences  Information about the way of producing is a keystone for consumers to favour the product. Quality The way Of producing Appearece Of the product Conditions Of workers Low Prices Source: Henson and Reardon, 2005

Transfer of FFV standards from developed to developing countries  Uruguay Round in  The tariff on agricultural products declined down by 37 %.  Today standards are the new trade restrictions  Biggest barrier for developing countries to export their products to developed countries: process standards

Supermarket share of FFV market, by value % Source: Berdegue et al., 2005

Special case: FFV I FOR FARMERS FFV;  is a labour intensive sector  with a higher value added  generates more income and  has a relative lack of economies of scale.(Reardon and Berdegue, 2002)

Special case: FFV II FOR SUPERMARKETS FFV;  competitive tool.  for a premium shop a well organised FFV section (Alvarado and Charmel, 2002) FOR CONSUMERS FFV;  fresher on the traditional markets.  cheaper in traditional markets  The qualities that supermarkets provide is nearly the same, but the prices are % higher than at traditional markets

Conclusions  International trade and therefore the expansion of global standards is the main indicator of globalisation  After 1990s the quantity of supermarkets increased rapidly almost in all developing countries.  Classification of global standards in respect of key drivers public, private and public-private (NGOs, business). ( Nadvi and Wältring, 2002)  Private standards are not provide safety, public standards are inefficient. Biggest challenge.

References  Alvarado, I & Charmel, K (2002) ‘The rapid Rice of Supermarkets in Costa Rica: Impact on Horticultural Markets’, Development Policy Review, Vol. 20, No. 4, pp  Balsevich, F., Berdegué, J. A., Flores, L., Mainville, D. and Reardon, T. (2003) ‘Supermarkets and Produce Quality and Safety Standards in Latin America’, American Journal of Agricultural Economics, Vol. 85, No.5, pp  Berdegué, J. A.; Reardon, T. A.; Balsevich, F. and Flores, L. (2005) ‘Central American supermarkets’ private standards of quality and safety in procurement of fresh fruits and vegetables’, available at  Cacho, J. (2003), ‘The Supermarket “Market” Phenomenonin developing Countries: Implications for smallholder Farmers and Investment’, American Journal of Agricultural Economics, Vol. 85, No. 5, pp  Henson, S. & Loader, R. (2001), ‘Barriers to Agricultural Exports from Developing Countries: The Role of Sanitary and Phytosanitary Requirements’, World Development, Vol. 29, No. 1, pp  Nadvi, K. & Wältring F. (2002) ‘Making Sense of Global Standards’ Joint Discussion Paper of the Institute for Development Studies at the University of Sussex and the Institute for Development and Peace at the University of Duisburg, Duisburg

References  Reardon, T. & Berdegué, J. A. (2002) ‘The Rapid Rise of Supermarkets in Latin America: Challenges and Opportunities for Development’, Development Policy Review, Vol. 20, No.4, pp  Reardon, T.; Timmer, C.P.; Berdegue, J.A. (2004), ‘The Rapid Rise of Supermarkets in Developing Countries: Induced Organizational, Institutional, and Technological Change in Agrifood Systems’, Agricultural and Development Economics Division (ESA) FAO available online at  Spivak, S. M. & Brenner, F. C. (2001) ‘Standardization Essentials – Principles and  Practice’, New York / Basel: Marcel Dekker Inc.  Trail, B.W. (2006) ‘The Rapid Rise of Supermarkets?’, Development Policy Review, Vol.24, No.2, pp

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