presentation 17.09

SUPPLY CHAINS OF SUPERMARKETS AND THEIR IMPACT

ON VEGETABLE FARMERS IN SRI LANKA: AN EXPLORATORY CASE STUDY

Sarath S. Kodithuwakku and

Jeevika Weerahewa

INTRODUCTION

Majority of the farmers are smallholders Located in relatively isolated areas

Access to competitive markets difficult and costly

Traditional Vegetable Supply Chains (TVSC)

Characterized by various sources of inefficiencies

Large number of intermediaries- Lack of accountability among each other

30 to 40% of post harvest losses- low farm gate prices and higher retail prices

Existence of credit bound relationships-lack of bargaining power to the farmers

To investigate into

(a) Whether the emergence of supermarkets has created vegetable supply chains that are different from existing traditional supply chains (TVSC)

and if so

(b) The nature of such emerging supply chains

and

(c) The impacts on the primary producers vis-à-vis traditional supply chains

OBJECTIVES

METHODOLOGY

Case Study Strategy was Adopted: Study consisted two stages

Stage one :

To investigate the existence and the nature of Emerging Supermarket related Supply Chains (SVSC)

Stage two:

To investigate the Impacts of newly emerged supply chains on farmers vis-à-vis TVSC

Stage 1 Stage 2

Sampling Supermarkets : purposively

to capture the variability:

- number of outlets

- geographical spread

- ownership structure-number of years in the business

Actors involved: snowball sampling

Study Sites: The two locations with Supermarket Vegetable Procurement Centres (SVPC )in Upcountry of SL

Hanguranketha: Simple random sampling

Nuwara-Eliya:

Exit-poll

Snowball sampling

(30 farmer suppliers to SVPC & 30 non suppliers to SVPC from each location)

Method of Data Collection

TVSC: Secondary data

SVSC :semi-structured interviews, direct observations

semi-structured interviews

direct observations

FINDINGSStage 1: The Nature of Emerging Supermarket Related Vegetable Supply Chains (SVSC)

Nature of SVSC associated with supermarkets varied with the size of the supermarket chain (no. of branches per chain)

Three main categories identified: Small: supermarkets with one or two outlet

Medium: supermarket chains with a branch network of about 7-8 outlets

Large:

SVSC of Small and Medium Scale Supermarket Chains:

Mere extensions of the existing TVSC They procure vegetables:

either from the TVSC through intermediaries (i.e. vegetable supplier)

or from

Collectors who buy vegetables from farmers (at the prevailing farm gate prices) and sort and supply high quality produce directly to supermarkets

The Supermarket Chain with the largest branch network:

Created an alternative supply chain through regional procurement centres (SVPC)

Positive AspectsPost-harvest losses comparatively low:

Transfer of ownershipMethod of transportation-Usually in freezer trucks, using plastic crates (as opposed to usage of gunny or polypropylene bags in traditional supply chains that are transported through lorries)

Positive Aspects Cond.

Higher degree of transparency and accountability among the actors involved throughout the chain

Less number of intermediaries

Presence of quality consciousness along the supply chain

Quality related price signals passing down to farm level

Negative Aspects

Price advantages -only by the (privileged set of) farmers who supply directly to the supermarket

Stage 2: The Impacts of Emerging SVSC on Farmers Vis-à-vis TVSC

Operations and Impacts:

SVSC -relatively more efficient and effective compared to traditional supply chains

Context specific variations in the two study sites

Most of the farmers are exclusive suppliers to a supply chain of their own choice despite the availability of a range of selling options

(except in the case of farmers who supplied directly to super market who also supplied to one other supply chain)

Hanguranketha Nuwara-EliyaSVSC+ A limited # of variants of TVSC (connected with the country’s main whole sale markers viz., Colombo, Dambulla Dedicated Economic Centre (DDEC) and Katugasthota-Kandy)

More variants of TVSC + SVSC + other alternative supply chains

(TVSC connected via wholesale mkts in Meegoda and Thambuthhegama + supply chain operated by a group of companies3 with higher price benefits to farmers)

Suppliers to SVSC also supplied to one other TVSC

Other farmers: exclusive suppliers1 to a TVSC of their own choice (long standing mutually beneficial2 and/or credit bound relationships)

A higher range of actors compared to Hanguranketha- more competitive market environment

No exclusive affiliation of farmers

Choice in the order of priorityDDEC, Colombo, Katugasthota-Kandy

No such priority

94 % of farmers of vegetable suppliers of SVPC were full time farmers

Suppliers to the SVPC - Mostly part time farmers4 (of which majority are collectors)-less benefits to farmers

IMPACT of the SVSC

Supermarket collecting centres - offers relatively higher prices (for higher quality produce)in both localities

Extension activities- By the managers/agents of SVSC (solutions and advice to problems related to crop husbandry practices in both locations)

Has created opportunities for farmers to venture into alternative agriculture.

For example, a demand for alternative vegetables such as Coriander leaves and Thibbatu has been created in Hanguranketha

51005150520052505300535054005450

Total average income perharvest per 0.25 arces

among farmers supplyingonly to traditional supply

chains

Total average income perharvest per 0.25 arces

among farmers supplyingto both the supermarketchain and the traditional

Inco

me

(Rs)

Figure 4: Income comparison between farmers by their selling options in Hanguranketha

Note: The graph compares the income per harvest of tomato from 0.25Ac of land by farmer types based on place of selling

Incremental average income per harvest per 0.25 acres of tomato is only about two hundred rupees

LATERAL SPREAD of BENEFITS

Hanguranketha:

Creation of a Spatial Price Variation within a Radius of 12 km in Hanguranketha

Farmers operating in close proximity to the SVSC receive higher farm gate prices from the vegetable collectors attached to TVS

In Nuwara Eliya: SVPCHas contributed to the increased competition among buyers in the location,

Has not contributed towards increasing the farm gate prices offered by the traditional supply chains in Nuwara Eliya (owing to the insignificant proportion of vegetables channelled)

Has created opportunities for farmers to venture into alternative agriculture.

For example, a market for high-value vegetables such as Cauliflower, Broccoli, Zucchini, Red cabbage

Limitations of the Supermarket Supply Chain

Only a limited number of suppliers who have direct access to such centres are able to reap its benefits.

Quantities purchased were not large enough to make a significant impact in terms of price advantages created at the grass-roots level

(According to 80 % of the farmers who supplied to SVSC the proportion of the total harvest purchased is not sufficient to generate a reasonable household income)

In Hanguranketha, only around 1 % of the total farming population has the access to SVSC and only around 29% (on average) of the total harvest of those farmers was purchased by the centre

.

In Nuwara-Eliya:

the benefits of the higher price paid by the supermarket is captured only by the intermediaries (as the majority of supplier were collector farmers)

In both localities: the SVSC has not induced the farmers to change their resource use patterns in their production practices Prevailing uncertainty on the quantities that can be sold to SVSC and the price they would receive During Market Gluts- SVSC procure vegetables from the TVSC (have further aggravated the problem) and tighten quality criteria for farmers--hampers the ability to plan ahead and reduces motivation to change the production practices in order to improve the quality to suit the standards required by the supermarket

.

CONCLUSIONS

Supply chains related to small and medium scale supermarket chains mere extensions of the existing TVSCs

The island’s largest supermarket chain has created an alternative supply chain which is comparatively more efficient and effective due to its transparency, accountability and low post harvest losses Although the emergence of the SVSCs have brought about certain benefits, the conveyance of these favourable impacts to the farm level is dependent to a great extent on the specific context in which it operates

Beneficial impacts of SVSC at the grass roots level found to be context specific and varied with the geographic location

The vegetable supply chains as a whole have become more competitive and hence the traditional supply chains also are compelled to offer higher prices in certain locations

Has induced farmers to diversify into alternative agriculture

Only the farmers who were directly interacting with SVPC were able to capitalise on the higher farm gate prices offered

Only a modest portion of the total harvest of a limited number of farmers is purchased by the procurement centre

farmers are not motivated to change their production related resource use pattern

.

some TVSC offer mutual benefits to farmers in terms of advance payments and granting loans to purchase inputs.

TVSC found to be the most assured selling option for farmers despite its weaknesses.

60%27%

13%

Figure 2: Various other Selling Options Adopted by Farmers in Hanguranketha who Supplied to Supermarket

FTo Collectors attached to Dambualla TVSC

To Colombo via Transport Agents

To Kandy via Transport Agents

54%29%

17%

Figure 3: Selling Options Adopted by Farmers in Hanguranketha who did not Supply to Supermarket

To Collectors attached to Dambualla TVSC

To Colombo via Transport Agents

To Kandy via Transport Agents

26%

6%

6%49%

13%Full time small scale farmers

Full time large scale farmers

Part time farmers

Collector farmers

Full time collectors

Figure 4: Composition of the Suppliers of Vegetables to the Supermarket Procurement Centre in Nuwara Eliya

Date of Data

Collection

Distance to the Supermarket Procurement Centre Decreases

Padiyapalalla

Dehipe Denike Rikillagaskada

Day 1 26 25 28 30

Day 2 28 32 32 34

Day 3 26 26 30 32

Day 4

30 32 32 34

Day 5

30 32 32 34

Table 1: Spatial Price Variation Created by the Presence of Supermarket Procurement Centre in Hanguranketha

Note: The data indicates the average price (Rs/kg) paid by vegetable collectors for Tomato