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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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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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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