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The Rise of Supermarkets and Vertical Relationships in the Indonesian Food Value Chain: Causes and Consequences

  • Shyamal K. K. Chowdhury

    ()

    (International Food Policy Research Institute, USA)

  • Ashok Gulati

    ()

    (International Food Policy Research Institute, USA)

  • E. Gumbira-Sa'-id

    ()

    (Bogor Agricultural University, Bogor, Indonesia)

This paper reviews the causes of the emergence of modern retailing and the vertical relationships in the Indonesian food value chain, and the consequences of these changes on market organization and value distribution. The findings of this paper suggest that there are both demand- and supply-side factors that contribute to the emergence of modern retailing. The evolution of vertical relationships between farmers and modern retailers observed in Indonesia is a direct response to risks and quality uncertainty. In the vertical relation, large-scale retailers may earn a monopsonistic rent, and there are risks of exclusion of small-scale farmers from the emerging food value chain. However, there are alternative channels through which farmers may sell their products, albeit at a lower price compared to the modern channels, and measures can be instituted to protect them against monopsonistic rents. The findings have important policy implications for developing countries.

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Article provided by Southeast Asian Regional Center for Graduate Study and Research in Agriculture in its journal Asian Journal of Agriculture and Development.

Volume (Year): 2 (2005)
Issue (Month): 1&2 (June/December)
Pages: 39-48

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Handle: RePEc:sag:seajad:v:2:y:2005:i:1&2:p:39-48
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  1. Thomas Reardon & C. Peter Timmer & Christopher B. Barrett & Julio Berdegué, 2003. "The Rise of Supermarkets in Africa, Asia, and Latin America," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1140-1146.
  2. C. Dolan & J. Humphrey, 2000. "Governance and Trade in Fresh Vegetables: The Impact of UK Supermarkets on the African Horticulture Industry," Journal of Development Studies, Taylor & Francis Journals, vol. 37(2), pages 147-176.
  3. Minot, Nicholas, 1986. "Contract Farming and Its Effect on Small Farmers in Less Developed Countries," Food Security International Development Working Papers 54740, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  4. Digal, Larry N. & Ahmadi-Esfahani, Fredoun Z., 2002. "Market power analysis in the retail food industry: a survey of methods," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
  5. Fernando Balsevich & Julio A. Berdegué & Luis Flores & Denise Mainville & Thomas Reardon, 2003. "Supermarkets and Produce Quality and Safety Standards in Latin America," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1147-1154.
  6. World Bank, 2003. "World Development Indicators 2003," World Bank Publications, The World Bank, number 13920.
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