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Market Driven Implications

Market Driven Implications. Lawrence Busch Institute for Food and Agricultural Standards Michigan State University. Presented at National Forum on Agricultural and Environmental Management Systems, Arlington, VA, March 3-4, 2004. Central Theses. 1234567. Demand. Supply. Plan of this talk.

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Market Driven Implications

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  1. Market Driven Implications Lawrence Busch Institute for Food and Agricultural Standards Michigan State University Presented at National Forum on Agricultural and Environmental Management Systems, Arlington, VA, March 3-4, 2004

  2. Central Theses 1234567 Demand Supply

  3. Plan of this talk • New supermarket scene • Drivers • Standards • Enforcement • Implications

  4. Supermarkets • Top five US supermarket chains = 40% of market • Australia, three chains = 70% of market • UK, four chains = 70% of sales • Chile, 4 firms = 66% of market • Kenya: 2 chains with ~20 stores each • Zambia: 1 chain with 18 stores

  5. Three Giants • Royal Ahold – 10,000 stores on 4 continents • = largest supermarket chain in Germany and Mexico, 3rd in UK • Carrefour – 9200 stores in 30 countries

  6. Supermarkets But … • Competition remains fierce • Cost-cutting continues • Greater product differentiation • Consumer demand as more than buying power

  7. Supermarkets Implications: • Supermarkets responsive to consumer concerns beyond price • Improved quality and safer food worldwide • Greater variety of foods and services

  8. Supermarkets Implications: • Potential for higher profits for farmers • Concentration in supermarket sector parallels differentiation in production sector • Private standards increase …

  9. Why Private Standards? • Brand name protection (or please, not another Nike incident) • Avoidance of liability • Lower insurance premiums • “Due diligence”

  10. Why Private Standards? • Retailers as protector of consumers • Product differentiation • New Social Movements • Environment • Animal Welfare • Consumer

  11. Supermarket Strategies • Allow supermarkets to control supply • Potential for better, safer food • May benefit supermarkets at cost of suppliers • Fit well with oligopolistic competition • From price competition to non-price competition • Permits supermarkets’ positioning as protector of consumers

  12. Types of Standards Quality Store Brands Food Safety Environment GM/non-GM Kosher/ Halal Intellectual Property Appellations APHIS Animal Welfare Worker Health and Safety Fair Trade Organic

  13. Private Standards ISO 14001

  14. Third Party Certification

  15. Third Party Certification • Decline in direct state regulation • Rise of private standards • Retailers want others to certify • Let others do the policing • Shifts liability to others

  16. Implications • New emphasis on environmental effects of agricultural production • New rules for farmers and ranchers • New opportunities for profit by meeting new standards • Winners and losers

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