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Demand Driven Agriculture:Opportunities 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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Current Trends

Formation of the WTO

Devolutionof

the State

ShiftingSupermarket

Strategies

PrivateSupermarket

Standards

PrivateRegulation

of Food

New Opps &Demands

On Producers

Rise of NewSocial

Movements

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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- drivenSpot Markets Supply ChainsQuantities QualitiesCommodities Niches

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From Supply to Demand

Price competition

Non-price competition

Government-regulated

Industry-regulated (w/ gov’t oversight)

Protection oriented

Strategy oriented

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SInput

SuppliersProducers

Processors/ Distributors

Retailers Consumers

Supply Driven Commodity Chain

SeedsChemicalsMachinery

CannersPackersShippers

FarmersRanchers

CommodityGroups

SupermarketsRestaurantsFood Service

CheapMass-produced

Food

Supply

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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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Supply Input Suppliers

Demand Driven Commodity Chain

HealthSafety

EnvironmentLaboretc.

Consumers

Demand

Retailers

Processors/ Distributors

Producers

Supply Management to maximize

profits

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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 MadeLight Edges

Dark Middle

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So what do retailers do?

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Provides Solution to Problem of Buridan’s Ass (Cochoy)

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Demand-Driven Commodity Chain

Private standardsProduct/process differentiationRetailer restructuring of suppliers’

businessesRise of private label products (20%)Third Party audits of suppliersContract agricultureGlobal 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