Transformation of the Agrifood Industry in Developing Countries - The Oxford Topic of Food, Politics, and Society - page 796

First, there was a set of demand-side factors that determined demand for processed
foods and transaction-cost saving in retail shopping. Important among these were
incomegrowthandemergenceofmiddleclasses(Ravallion2010),urbanization,1 and
women entering the outside-home labor force. The ability of consumers to use modern
retail in turn was enabled by the diffusion of refrigerators and vehicles, as well as better
infrastructure.Urbanizationandincomegrowthalsogaveimpetustogrowthofwhole-
salemarkets(fromfragmented,dispersedorigins).
Second, there were two sets of policy interventions partially driving transformation.
On the one hand, there were public investments in wholesale markets, logistics plat-
forms, processing parastatals, and state retail chains. These operated mainly in the
1960s-1980s(butsomecontinuedbeyondthat)andinvolved: (a) heavyinvestmentby
governments in public wholesale markets, first for grains, and then for produce, meat,
andish;(b) heavyinvestmentbygovernmentsinparastatalsthathadwholesale(pro-
curement)arms,aswellascapacityforprocessing/millinganddistributiontothepopu-
lation,sometimesviastateretailchainssuchastheFairPriceShopsinIndia,thestate
grain stores in China, and so on. This development also gave rise to public certification
of or operation of slaughterhouses.
heseinterventionsweredrivenbybothcontextandperceptions: (a) therecurrence
offood-securitycriseswasperceivedtobelinkedtodistributionconstraints;(b) rapid
urbanization,layingopenanincreasinglylargeurbanpopulationtofood-supplycon-
straints and vicissitudes, and required the efficient delivery of volumes, much larger
thaninthepast,offoodtourbanareas;(c) rapidriseinincomes(intheirstandsecond
wavecountries)gaveriseto—basedonBennett'sLaw—rapidincreaseindemandfor
meat,ish,fruitsandvegetables,anddairy;(d) perceptionthatsupplychainsfromrural
areas were fragmented and traditional (with what would later be termed “high trans-
actioncosts”),rifewithexploitationandspeculationfromavariciousmiddlemen,and
that urban markets were poorly served by a smattering of truck markets and small grain
markets.
Third, there was a set of supply-side factors grouped around investment into the
segments. The surplus for this investment came first from colonial enterprises (for the
exportorientedagrifoodindustrialenclavesandplantations)andthestate(ininvest-
mentinpublicwholesalemarkets,andparastatalprocessingandretail)andlaterfrom
state-ownedenterprises(SOEs)inthemodernsector,investmentbyprivatedomestic
conglomerates,andforeigndirectinvestment(FDI).helatteris,inturn,afunctionof
relative saturation in sending countries (South Korean retailers into China, Thai proces-
sorsintoVietnam,UKretailersintoAsia)combinedwiththeattractionoftheinvest-
ment sites, itself a function of the aforementioned two sets of factors.
Fourth, there was a set of supply-side factors grouped around production- and
procurement-system modernization by modern-sector irms in the three seg-
ments, which created efficiency gains that further increased their competitiveness
vis a vis traditional firms. These included investment in scale of production to reap
economies of scale and scope in processing, marketing, and procurement, and in
procurement-systemmodernizationsuchasuseofdistributioncentersandwarehouse