2. I FA S Demand Driven Agriculture: Opportunities and Liabilities for Agricultural Research Lawrence Busch Michigan State University Louis Swanson Colorado State University

3. I FA S Central Theses

4. I FA S Current Trends Formation of the WTO Devolution of the State Shifting Supermarket Strategies Private Supermarket Standards Private Regulation of Food New Opps & Demands On Producers Rise of New Social Movements

5. I FA S Other changes Rising incomes Restructured integrated global markets Changing consumption/values of consumers Transformation of commodity chain stakeholders interests and relationships

6. I FA S From Supply to Demand Supply-drivenDemand- driven Spot MarketsSupply Chains QuantitiesQualities CommoditiesNiches

7. I FA S From Supply to Demand Price competition Non-price competition Government -regulated Industry-regulated (w/ gov’t oversight) Protection oriented Strategy oriented

8. I FA S Input Suppliers Producers Processors/ Distributors Retailers Consumers Supply Driven Commodity Chain Seeds Chemicals Machinery Canners Packers Shippers Farmers Ranchers Commodity Groups Supermarkets Restaurants Food Service Cheap Mass-produced Food Supply

9. I FA S 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

10. I FA S 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

11. I FA S Supply Input Suppliers Demand Driven Commodity Chain Health Safety Environment Labor etc. Consumers Demand Retailers Processors/ Distributors Producers Supply Management to maximize profits

12. I FA S 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

13. I FA S 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

14. I FA S Where Profits Are Made Light Edges Dark Middle

15. I FA S So what do retailers do?

16. I FA S

17. I FA S Provides Solution to Problem of Buridan’s Ass (Cochoy)

18. I FA S 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

19. I FA S 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

20. I FA S 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(?)

21. I FA S 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

22. I FA S 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?

23. I FA S 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

24. I FA S 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