Prof Tom Reardon's talk from the Australian Agricultural & Resource Economics Society's event "Reframing the Food Agenda: Setting the Scene for Australia" held August 19, 2011

1. The Supermarket Revolution in the Asia/Pacific Implications for Food Security and Australian Aid and Export Strategies

2. Thomas Reardon, Michigan State University & IFPRI/MSU Joint Program “Markets in Asia”

3. 1. Asia/Pacific Food Economy Context While trade is important and growing: 95% of Asian Food Economy is domestic market … 5% are imports or exports b) While grain is important to food security: grain is about 25% of Asia’s food; the majority (75%) is milk, meat/fish, oil, pulses, produce

4. d) While the rural areas are important: 50-75% of Asia’s food market is urban e) While the productivity of the farm sector (“upstream” in supply chain) is crucial for food security: but 50-70% of the food price is formed after the farmgate in the supply chain … “downstream” (retail) … “midstream” (wholesale/logistics and processing)  These off-farm segments have been relatively neglected in the food security debate

6. 1. Asian Supermarket Revolution: 3-5x faster than GDP Growth

7. b) Supermarket section in Asia concentrating + multinationalizing …global multinational firms (like Metro, Carrefour, Tesco, Walmart) … plus rapid emergence of regional multinationals like Dairy Farm International (HK based)  FDI will probably accelerate (retailFDI was last week liberalized in India…)

8. c) Spreading in waves from the rich .. to the middle class… into the food markets of the poor d) Spreading in waves from big cities .. to secondary cities … to rural towns/villages … there are even now rural supermarket chains emerging in China and India

9. f) Spreading in waves over product categories: … processed foods and rice, … to semi-processed foods: meat, dairy. … to (already, recently) fresh fruits and vegetables … but faster/earlier than in Latin America, Europe, and the US … in the US it took 40 years before supermarkets sold any fresh fruits and vegetables…

10. 2. “Midstream” in the supply chain: Processing & Wholesale/Logistics  Processing + wholesale/logistics “co-evolving” in symbiosis with supermarkets: mutual re-enforcement 2.1. Modernizing Processing Sector: a) Rapid growth, b) concentration c) multinationalization (global multinationals but also by Asian multinationals like the giant CP (Thailand) d) technology change (capital/labor ratio increase) e) Branding & packaging

11. 2.2. Rapid modernization of wholesale & logistics in Asia: rapid overall expansion of wholesale markets: example from China & India … and modernization of Wholesale markets: Inner Mongolia Wholesale Market b) Technology change in wholesale/logistics: huge investment in truck fleets, warehouses, cold storages

12. c) rise of specialized modern wholesalers (such as Bimandiri on Java) that act as dedicated procurement agents for supermarket chains d) Rapid disappearance of traditional marketing system: reducing role of traditional village brokers

13. e) Multinationalization/regional integration of wholesale/logistics … “follow sourcing” … regional multinational wholesalers … regional and global sourcing hubs of retail chains (with inter-Asian trade within procurement networks) Prediction: Intra-Asia-Pacific Trade will grow to far dominate Asia-Europe & Asia-US food trade in next 20 years

14. 3. Procurement System Modernization re-organizing: distribution centers + national/regional sourcing networks standardizing: private standards dis-intermediating and re-intermediating: … direct procurement/contracts … use modern wholesalers

15. 4. Impacts on Supply Chain in Asia/Pacific Most of the impact is of supermarkets … on food processors and wholesalers … and via the latter on farmers b) Included: Small farmers with needed assets (irrigation, roads, credit, education) & medium farmers c) Included: dynamic/commercializing zones d) Excluded: resource-poor small farmers

16. 5. Impacts of Supermarket Revolution on consumers’ food security Emerging evidence: Reduced Cost of Food Emerging Evidence: Increased Food Safety c) Hypothesis: Reduced Volatility of Food Prices d) Hypothesis: Increased availability of food

17. 6. Australian aid implications Invest midstream: Public-Private Partnerships Invest upstream in farm and agricultural support services Differentiate aid strategy for two zones/groups … there are poor farmers in both zones Use jujitsu/jieli-dali on the food market transformation! … examples of Corfo/Chile, China’s 2x100 Program, and ACIAR innovations in supply chains

18. 7. Australian export implications Asian food market is a huge opportunity: growing 5-7 x faster than that of Europe or US Supermarket Revolution + food processing and wholesale modernization: together have vastly increased the accessibility of the Asia/Pacific market

19. c) Australia is well-positioned for fresh meat & produce exports, and grains d) Challenges: growing competition, need for: … scale … branding … de-seasonalization … one-stop shop variety of supply  Key role of north-south (in Asia) joint ventures