note on facts about corporate retail

From: Shankar Gopalakrishnan <shankargopal@myfastmail.com>
Date: Tue, 29 Nov 2011 09:59:45 +0000
Subject: note on facts about corporate retail


Friends

Below and attached is a note based on data compiled a few years ago on
corporate retail.  The idea is to use available facts to respond, in brief,
to the nonsensical claims of the neoliberals.  Please use it and the
available information wherever useful.

Thanks
Shankar

*The Government's Claims About Corporate Retail and the Reality*

(Shankar Gopalakrishnan)

*This is a summary note based on data collected earlier. A more detailed
argument can be found in this article: "**Corporate Retail: Dangerous
Implications for India's
Economy<http://independent.academia.edu/ShankarGopalakrishnan/Papers/192952/Corporate_Retail_Dangerous_Implications_for_Indias_Economy>
**", published in Economic and Political Weekly on August 8, 2009.*

In the flood of rhetoric following the government's decision to permit FDI
in retail, the actual reality of what this will mean is being lost.  For
that it is necessary to look at international data and what it shows about
the claims being made.  Commerce Minister Anand Sharma's letter offers a
good place to start. His claim can be summarised as follows:

  -

  Corporate retail fueled by FDI will result in investment in cold chains
  and therefore in lower prices by "eliminating middlemen."
  -

  Corporate retail will not threaten small retailers, who find "innovative
  ways to coexist", and will generate employment
  -

  Corporate retail will benefit farmers and producers by ensuring a
  "remunerative price."
  -

  Corporate retailers will remain restricted to some areas and some
  sectors.
  -

  There are already corporate retailers in India and there is therefore no
  problem in permitting FDI.

*Every one of these claims is not justified by the available data.*

*Lower Prices and Investment in Cold Chains*

  -

  In the sector that requires cold chain infrastructure most - fruits and
  vegetables -* *data from developing countries often shows that *p**rices
  in supermarkets are generally **higher **than from existing retailers*.
  Certainly, there is no data that shows consistently lower prices from
  corporate reatilers. Thus:
  -

     In Thailand, they are estimated to be 10% higher1 <#sdfootnote1sym>.
     -

     In Argentina, data showed consistently higher prices for fruits and
     vegetables in supermarkets (the difference being about 14% through the
     1990's), though this difference was falling2 <#sdfootnote2sym>.
     -

     In 2000, in Mexican supermarkets, prices of lemons, tomatoes and
     oranges were significantly higher than in traditional markets,
while in all
     other fruits and vegetables they were identical or slightly
higher3<#sdfootnote3sym>
     .
     -

  In Vietnam, in 2002, it was found that* *prices in supermarkets across
  all categories were around 10% higher4 <#sdfootnote4sym>.
  -

  The concentration of power in the hands of a few companies by no means
  leads to lower prices. In the US, *supermarkets raised tomato prices by
  46% between 1994 and 2004 while real prices paid to producers fell by 25%
  *5 <#sdfootnote5sym>.


  -

  In the Indian experience, the entry of corporate chains into wheat and
  grain procurement has coincided with increased speculation and increased
  prices.
  -

  Regarding investment in cold chains and reduction in wastage, it should
  be remembered that the *international food industry –* controlled by the
  same chains currently advertised as sources for FDI – *wastes almost
  half of the food it procures**6 <#sdfootnote6sym>**.*


*No Effect on Small Retailers or Employment in Retail*

*The Minister and the government here is playing a simple verbal trick. *The
fact that some retailers "continue to coexist" does not *in any way *mean
that *most* small retailers will not be pushed out of business.

  -

  *Indeed, the data is exactly opposite to the claim that there is no
  evidence of harm to small retailers*. Here are citations and figures:
  -

     Brazil: in fruits and vegetables, share of street markets declined by
     27.8% between 1987 and 1996; in dairy sales, share of dairy
stores fell by
     27.8% and open air markets by 53.3%7 <#sdfootnote7sym>.
     -

     Argentina: Number of small stores dropped by 64,198 between 1984 and
     1993 – 30% of the shops in the country8 <#sdfootnote8sym>. *Employment
     in retail sector dropped by 26% in the same period.*
     -

     Chile: between 1991 and 1995, 'traditional' food and beverage
     retailers declined by approximately 20% in all segments9<#sdfootnote9sym>
     .
     -

     Indonesia: between 2002 and 2003 – just one year – number of
     'traditional' grocery stores fell by 154,148 stores, or
9%10<#sdfootnote10sym>
     -

     Latin America: supermarkets now control 60% of food
retail11<#sdfootnote11sym>
     .
     -

     East Asia other than China: 63% of processed / packaged foods
     controlled by supermarkets, estimated 30% of fresh
foods12<#sdfootnote12sym>
     -

  The oft-cited example of China is irrelevant, as Chinese food retail
  entirely different* *(good citation is this13 <#sdfootnote13sym>):


  -

     From 1959 till late 1980's, private retail trade essentially banned
     in cities, all retail was taken over by public state owned enterprises
     -

     In 1992 (rise of supermarkets just beginning), state owned large
     networks accounted for 41.3%, cooperatives / collectives 27.9%
and private
     enterprises (i.e. Small retailers mostly) 20% of market – hence
completely
     incomparable to Indian situation
     -

  *In all situations big retailers begin with rich population but do not
  remain confined to them – always attempt to expand into smaller towns,
  reaching poorer segments etc*. As in this quote, describing Latin
  America, Asia and Africa in general: "there has been a trend from
  supermarkets occupying only a small niche in capital cities serving only
  the rich and middle class to spread well beyond the middle class in order
  to penetrate deeply into the food markets of the poor." 14<#sdfootnote14sym>


*Benefits to Farmers*

Most purchase for corporate retailers occurs through contract farming. This
actually has negative impacts on most farmers.

  -

  *All studies of contract farming and corporate food retail state that
  small and marginal farmers are unable to access the supply chain.* Here
  are four citations: Vietnam15 <#sdfootnote15sym>, Chile16<#sdfootnote16sym>,
  and two for across the world17 <#sdfootnote17sym>,18 <#sdfootnote18sym>,
  as well as a 2005 FAO study19 <#sdfootnote19sym>. More than 90% of
  India's rural population has less than 2 hectares of land and 79% are
  either landless or own less than 1 hectare. Practically all of these people
  will be excluded from the corporate supply chain.
  -

  *Those left out of corporate sourcing may find themselves competing for
  a much smaller market and essentially being driven out of existence. *Thus,
  i*n Argentina, the number of dairy farms fell from 40,000 in 1983 –
  around the time when corporate transformation of the supply chain began -
  to 15,000 in 200120 <#sdfootnote20sym>.*
  -

  *There is no reason that purchases by a small number of companies is
  going to lead to higher prices for producers. *An Oxfam
study21<#sdfootnote21sym> shows
  that real export prices for South African apples fell by 33% from 1994 –
  2004, and Florida tomato growers found their real prices falling by 25%
  over same period – while consumer prices in the US rose by 46% at the same
  time. Data currently says that four or five companies control 40% of the
  international trade in several types of produce, including grains,
  edible oils, coffee, cocoa and bananas.
  -

  The same study by Oxfam shows that* conditions for agricultural workers
  in supermarket suppliers is very bad*, because of the intense pressure
  placed on farmers to reduce prices, guarantee 'quality standards', handle
  last minute changes in contracts and absorb discounts, promotions, etc.
  passed on to them.
  -

  *Abuses of power by corporate retailers* include:
  -

     delayed payments (example from Argentina here22 <#sdfootnote22sym>)
     -

     arbitrary quality standards (Oxfam 2004 study cited above has very
     good examples including, for instance, sudden demands that
apples should be
     exactly 65 mm rather than 63 mm),
     -

     passing on of costs for discounts and promotions to producers (Vietnam
     23 <#sdfootnote23sym>, for instance),
     -

     and simple default on contracts, as has happened in India (several
     studies, some with a lot of data; a summary reference is Jayati Ghosh and
     CP Chandrasekhar here24 <#sdfootnote24sym>)
     -

  Global sourcing of fruits and vegetables puts intense pressure on
  producers to reduce prices to compete and to satisfy the requirements of
  the corporate retailers (FAO 2005 study)

*Corporate Retailers Already Exist, So FDI Will Not Cause Additional Damage*

This is simply an irrelevant argument. The small presence of corporate
retailers in India's markets today is a reflection of the fact that *in
themselves, corporate retailers offer nothing in the sense of
**retailers **that
allows them to outcompete the existing system**. *This is why the entry of
FDI has been shown to be the single determining factor that permits
large-scale expansion of corporate retail in developing countries.

The large quantities of money that FDI provides permit retailers to
displace existing suppliers and establish monopolies or oligopolies when
purchasing produce; to absorb losses and hence fix lower prices until the
competition is wiped out, whereupon prices will be raised (i.e. predatory
pricing); and to pressurise governments into bending regulations and
subsidising their activities (the latter is already visible among existing
corporate retailers).

*The simple reality is that, if corporate retailers were simply going to
grow alongside the existing system without displacing anyone and purely
because of their better results, they would have done so already to a great
extent. Why have they failed?*

*Ignored Issues*

Most of the debate ignores the structural requirements of corporate retail
and what this will mean. Inherently, in order to make profits, corporate
retailers need massive economies of scale in order to offset their very
high overhead costs (in contrast to the low overhead, decentralised
existing system). Some of the resulting impacts include:

  -

  *Privileging good looks and long durability over taste and nutritional
  value, so as to permit price hunting and delayed sale of produce:** *The
  result is that, as is widely known, *fruits and vegetables in
  supermarkets tend to have less taste, are lower in nutritional value, and
  are often picked when unripe. *This is one reason for rapid growth of
  the "organic food" market in the industrial countries.

  -

  *Massive increase in use of energy and water for processing, packaging,
  and transport:* The international food industry is now recognised as a
  major contributor to climate change. *Better storage is certainly
  necessary, but the requirements of corporate retailers far outstrip the
  actual need. *They are not interested merely in storing of food but in
  being able to source from very long distances and in storing as long as
  necessary (in order to speculate on prices). The result is that the energy
  spent on production and sale of one kilogram of rice in the US is 80 times
  the energy spent by a farmer in the Phillippines25 <#sdfootnote25sym>.
  One fifth of all energy spent on transport in the US is spent on transport
  of food26 <#sdfootnote26sym>. Can India afford this kind of expenditure
  of energy and water?

  -

  *Sharp rise in use of pesticides, additives, preservatives and other
  chemical agents to increase the shelf life of food, with attendant health
  consequences: *For much the same reason as above. Contract farming in
  particular usually involves a sharp rise in total inputs, destroying the
  fertility of the land and leading to increased pollution and other problems.

*The growth of corporate retail not only will not address the key problems
plaguing India's economy today – it will greatly exacerbate many of them.
In particular, the crisis in agriculture, environmental destruction,
declines in land productivity, urban unemployment, price volatility and
unequal access to resources would all be worsened by unchecked growth of
corporate retail.*

*
*

1 <#sdfootnote1anc>Shepherd, Andrew W. (2005). "The implications of
supermarket development for horticultural farmers and traditional marketing
systems in Asia", Paper presented to FAO Regional Workshop, Kuala Lumpur.

2 <#sdfootnote2anc>Ghezan, Graciela; Mateos, Monica; Viteri, Laura (2002).
"Impact of Supermarkets and Fast Food Chains on Horticultural Supply Chains
in Argentina", *Development Policy Review*. Oxford: Blackwell Publishing,
Vol 20:4.

3 <#sdfootnote3anc>Schwentesius, Rita and Gomez, Manuel Angel (2002).
"Supermarkets in Mexico: Impacts on Horticulture Systems", *Development
Policy Review. *Oxford: Blackwell Publishing, Vol 20:4.

4 <#sdfootnote4anc>Hagen, James M. (2002). "Causes and Consequences of Food
Retail Innovation in Developing Countries: Supermarkets in Vietnam",
Working Paper. Ithaca, New York: Cornell University, August. Available
online at *www.cornell.edu*.

5 <#sdfootnote5anc> Oxfam (2004). *Trading Away Our Rights: Women in Global
Supply Chains. *Oxford: Oxfam.

6 <#sdfootnote6anc> "The International Food System and the Climate Crisis",
*Seedling*, GRAIN, October 2009.

7 <#sdfootnote7anc>Farina, Elizabeth M.M.Q (2002). "Consolidation,
Multinationalisation and Competition in Brazil: Impacts on Horticulture and
Dairy Products Systems", *Development Policy Review*. Oxford:Blackwell
Publishing, Vol 20:4.

8 <#sdfootnote8anc>Gutman, Graciela (2002). "Impact of the Rapid Rise of
the Supermarket System on Dairy Products Systems in Argentina", *Development
Policy Review. *Oxford: Blackwell Publishing, Vol. 20:4.

9 <#sdfootnote9anc>Faiguenbaum, Sergio; Berdegue, Julio A.; Reardon, Thomas
(2002). "The Rapid Rise of Supermarkets in Chile: Effects on Dairy,
Vegetable and Beef Chains", *Development Policy Review*. Oxford: Blackwell
Publishing, Vol 20:4.

10 <#sdfootnote10anc>A.C. Nielsen (2004). "Small Grocers in Asia Surviving
Onslaught of Retail Chains", Press Release. New York: ACNielsen, June 16.

11 <#sdfootnote11anc>Reardon, Thomas and Berdegue, Julio A. (2002). "The
Rapid Rise of Supermarkets in Latin America: Challenges and Opportunities
for Development", *Development Policy Review. *Oxford: Blackwell
Publishing, Vol. 20:4.

12 <#sdfootnote12anc>Reardon, Thomas; Timmer, C. Peter; Barrett,
Christopher B.; Berdegue, Julio (2003). "The Rise of Supermarkets in
Africa, Asia and Latin America", *American Journal of Agricultural Economics
*. Oxford: Blackwell Publishing, Vol. 85:5.

13 <#sdfootnote13anc>Hu, Dinghuan; Reardon, Thomas; Rozelle, Scott; Timmer,
Peter; and Wang, Honglin (2004). "The Emergence of Supermarkets With
Chinese Characteristics: Challenges and Opportunities for China's
Agricultural Development", *Development Policy Review. *Oxford: Blackwell
Publishing, Vol 22:5.

14 <#sdfootnote14anc>Reardon, Thomas; Timmer, C. Peter; Barrett,
Christopher B.; Berdegue, Julio (2003). "The Rise of Supermarkets in
Africa, Asia and Latin America", *American Journal of Agricultural Economics
*. Oxford: Blackwell Publishing, Vol. 85:5.

15 <#sdfootnote15anc>Cadilhon, Jean-Joseph; Moustier, Paule; Poole, Nigel
D.; Tam, Phan Thi Giac; Feame, Andrew P. (2006) "Traditional vs. Modern
Food Systems? Insights from Vegetable Supply Chains to Ho Chi Minh City
(Vietnam)", *Development Policy Review*. Oxford: Blackwell Publishing, 24:1.

16 <#sdfootnote16anc>Faiguenbaum, Sergio; Berdegue, Julio A.; Reardon,
Thomas (2002). "The Rapid Rise of Supermarkets in Chile: Effects on Dairy,
Vegetable and Beef Chains", *Development Policy Review*. Oxford: Blackwell
Publishing, Vol 20:4.

17 <#sdfootnote17anc>Boselie, David; Henson, Spencer; and Weatherspoon,
David (2003). "Supermarket Procurement Practices in Developing Countries:
Redefining the Roles of the Public and Private Sectors", *American Journal
of Agricultural Economics*. Oxford: Blackwell Publishing, 85:5.

18 <#sdfootnote18anc>Reardon, Thomas; Timmer, C. Peter; Barrett,
Christopher B.; Berdegue, Julio (2003). "The Rise of Supermarkets in
Africa, Asia and Latin America", *American Journal of Agricultural Economics
*. Oxford: Blackwell Publishing, Vol. 85:5.

19 <#sdfootnote19anc> Shepherd, Andrew W. (2005). "The implications of
supermarket development for horticultural farmers and traditional marketing
systems in Asia", Paper presented to FAO Regional Workshop, Kuala Lumpur.

20 <#sdfootnote20anc>Gutman, Graciela (2002). "Impact of the Rapid Rise of
the Supermarket System on Dairy Products Systems in Argentina", *Development
Policy Review. *Oxford: Blackwell Publishing, Vol. 20:4.

21 <#sdfootnote21anc> Oxfam (2004). *Trading Away Our Rights: Women in
Global Supply Chains. *Oxford: Oxfam.

22 <#sdfootnote22anc>Gutman, Graciela (2002). "Impact of the Rapid Rise of
the Supermarket System on Dairy Products Systems in Argentina", *Development
Policy Review. *Oxford: Blackwell Publishing, Vol. 20:4.

23 <#sdfootnote23anc>Cadilhon, Jean-Joseph; Moustier, Paule; Poole, Nigel
D.; Tam, Phan Thi Giac; Feame, Andrew P. (2006) "Traditional vs. Modern
Food Systems? Insights from Vegetable Supply Chains to Ho Chi Minh City
(Vietnam)", *Development Policy Review*. Oxford: Blackwell Publishing, 24:1.

24 <#sdfootnote24anc> Chandrasekhar, C.P., and Ghosh, Jayati (2003). "Is
Corporate Farming Really the Solution for Indian Agriculture?", *Business
Line*. Chennai: Kasturi and Sons, December 16.

25 <#sdfootnote25anc>"The International Food System and the Climate
Crisis", *Seedling*, GRAIN, October 2009.

26 <#sdfootnote26anc>*Ibid.*