Transformation of the Agrifood Industry in Developing Countries - The Oxford Topic of Food, Politics, and Society - page 805

aswithtortillasinMexico(RelloandSaavedra2007),orcassava gari inCoted'Ivoire—
andindeedwithpackagedbiscuitsintheUnitedStatesinthe1880s(Levenstein1988).
The emerging penetration of rural towns by modern retail, selling branded processed
foods at a discount, may accelerate this competition (Reardon, Stamoulis, and Pingali
2007).
Second, in some cases, such as India, the processing sector was “reserved” to
SMEs,toprotectemployment.In1998,aspartofoverallliberalization,thesectorwas
“de-reserved,”andaloodofinvestmentquicklyincreasedtheconcentrationindices
anddeepenedcapital(Bhavaniet al.2006).
Third, regulations affecting the segment appeared to accelerate the pressures on
SMEs.Forexample,rezoningofcitiestoreducecongestion,applicationofbusiness
registration laws to increase municipal revenues, and application of food-safety and
hygiene regulations to food businesses have been important examples imposing special
burdens on small firms who lacked the investment surplus and access to bank loans to
shitlocation,registertheirirm,andadoptallthemeasures(suchashygienefacilities
andcementloors)neededtoconformtonewlaws.hishasoccurredinfoodservicein
Brazil,andpoultryandeggcompaniesinVietnamwithavianluregulations.hereis
mounting evidence that consumers are drawn to supermarkets as a result of food safety
concerns about small processors and traditional markets (for Thailand, see Posri and
Chadbunchachai,2006).Atertherecentfood-safetycrises,theChinesegovernment
is launching a food-safety regulatory initiative that it expects to bankrupt half the food
processing SMEs. This would even pale with the massive impact such a food law had in
theUnitedStatesin1908onfoodSMEsthroughthe1910s,suchaswiththeexitof90
percentofdairySMEsinthemaineasterncitiesjustinthe1910s(Levenstein1988.)
Fourth, while the “pie” of the sector was increasing rapidly, the massive investments
by domestic and foreign firms, creating or enlarging large-scale processors, has resulted
in out-competing many small firms. There are several reasons for this.
1. Largeirmshavethebargainingpowerandmonitoringand“resourceprovision
contract” capacity to enforce coordination of their supply chains (such as via con-
tractsandprivatestandards).heycanincreasethequalityandconsistencyof
their intermediate inputs from farmers, driving down costs, controlling for plant
size.A strikingexampleofthisisintheBraziliandairyindustry,whereprivate
standards enforced in coordinated supply chains reduced sediment and bacteria
in milk, reducing processing costs for the large firms.
2. Largeirmscanborrowmorecheaplythansmall,andforeignirmsmorecheaply
thandomestic(suchasinMexico,seeShwedel2003).
3. Inmanycategoriesofprocessing,largerplantshaveeconomiesofscale.Moreover,
a critical mass of output is needed to defend a brand, and the brand provides a
competitive attribute over nonbranded product, especially where credence goods
like food safety are involved. To these can be added economies of scope, as more
lines can be added and thus the company can create a “one stop shop” for retailers
to source the diversity they require.