Facilitating Smallholder Farmers’ Market Access

In the OIC Member Countries

financial services), the downstream segments of the food system (including the retailers,

processors, and wholesalers in developing countries) started to attract a larger flow of

FDI. Supermarket chains based in Europe, North America, and other developed countries,

facing market saturation and intense competition in home markets, began investing in

developing countries, attracted by the much higher margins to be made.

The expansion of supermarkets in developing countries in the last 10–15 years brought

sweeping changes to agri-food markets. Prior to the spread of supermarkets, most

transactions took place in spot markets such as traditional wholesale markets. Spot

markets are not conducive to coordinating the quantity, quality, and timing of supply and

demand, which is an important requirement of the modern retail sector. The advent of

supermarkets encouraged a shift from relying on spot markets to working with

specialized/dedicated wholesalers, who cut transaction and search costs and also enforce

private standards and contracts on behalf of the supermarkets. Supermarkets and their

wholesalers also rely more frequently on contracting and vertical coordination to source

produce.

Under such arrangements, producers enter into forward agreements,

sometimes at a predetermined price, for the production and supply of agricultural

commodities in return for production support (technical advice, inputs, and/or finance)

from the purchaser (wholesalers, processors, retailers, or exporters). In this way,

purchasers can better coordinate supply and demand.

Another distinguishing feature of modern agri-food systems is their emphasis on

compliance with grades and standards, which affects farmers in developing countries

through multiple channels. For example, farmers producing fresh and processed products

for export must increasingly meet quality and safety standards, especially if they are

supplying markets in European, North American, and other developed countries that

strictly enforce such standards. Supermarkets and other buyers are also more likely to

expect their farmer-suppliers to meet a widening array of private standards. As the

modern food retail sector expands, compliance with grades and standards is also enforced

more thoroughly in domestic markets (although to varying degrees).

The present and future environmental impacts of agri-food systems are also receiving

much more attention. Many certification programs now incorporate environmental

standards in addition to normative, social, and labor standards. For example, growing

numbers of farmers supplying a range of beverage crops (such as coffee and cocoa), as

well as commodities such as oil palm, must comply with environmental standards focused

on preserving forests, natural habitats, and biodiversity. As agri-food systems are more

widely recognized to be major users of natural resources, their impact on climate change

and their carbon footprint are facing closer scrutiny.

Reardon and Timmer (2007).

The agri-food sector as a whole is estimated to contribute to some 23 percent of global resource use, 18

percent of greenhouse gas emissions, and 31 percent of acidifying emissions (Blandford 2013).