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Demand Driven Agriculture: Opportunities and Liabilities for Agricultural Research

Demand Driven Agriculture: Opportunities and Liabilities for Agricultural Research. Lawrence Busch Michigan State University. Louis Swanson Colorado State University. Central Theses. 1234567. Demand. Supply. Current Trends. Formation of the WTO. Private Supermarket Standards.

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Demand Driven Agriculture: Opportunities and Liabilities for Agricultural Research

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  1. Demand Driven Agriculture:Opportunities and Liabilities for Agricultural Research Lawrence Busch Michigan State University Louis Swanson Colorado State University

  2. Central Theses 1234567 Demand Supply

  3. Current Trends Formation of the WTO Private Supermarket Standards Rise of New Social Movements Shifting Supermarket Strategies Private Regulation of Food Devolution of the State New Opps & Demands On Producers

  4. Other changes • Rising incomes • Restructured integrated global markets • Changing consumption/values of consumers • Transformation of commodity chain stakeholders interests and relationships

  5. From Supply to Demand

  6. From Supply to Demand

  7. Farmers Ranchers Commodity Groups Supply Driven Commodity Chain Input Suppliers Supply Producers Seeds Chemicals Machinery Canners Packers Shippers Processors/ Distributors Cheap Mass-produced Food Supermarkets Restaurants Food Service Retailers Consumers

  8. 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

  9. 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

  10. Demand Supply Demand Driven Commodity Chain Input Suppliers Producers Health Safety Environment Labor etc. Supply Management to maximize profits Processors/ Distributors Retailers Consumers

  11. 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

  12. 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

  13. Where Profits Are Made Light Edges Dark Middle

  14. So what do retailers do?

  15. Supply Chain Management

  16. Provides Solution to Problem of Buridan’s Ass (Cochoy)

  17. Demand-Driven Commodity Chain • Private standards • Product/process differentiation • Retailer restructuring of suppliers’ businesses • Rise of private label products (20%) • Third Party audits of suppliers • Contract agriculture • Global sourcing

  18. 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

  19. 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(?) Who wins? Who loses?

  20. 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

  21. 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?

  22. 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

  23. Opportunities • NGOs will continue to pressure retailers to restructure food system • NGOs are potential supporters of AESs • Needed: • New (niche) crops • New uses for traditional crops • Value-added products that benefit farmers, retailers, consumers

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