Impact of Food Retail Investments Evidence from Czech Republic, Slovakia, Poland and Russia

1. Impact of Food Retail InvestmentsEvidence from Czech Republic, Slovakia, Poland and Russia Liesbeth Dries – K.U.Leuven EastAgri 2005 Annual Meeting, Rome, 28 February 2005

2. Goal & methodology • Goal: tot analyse the impact of food retail investments on food systems in CEE countries • Methodology: • Countries: Czech Republic, Slovakia, Poland and Russian Federation • Food chains: FFV & Dairy • Interviews with retail chains; wholesalers; processors & farm survey (Czech Republic)

3. Retail Transformation in CEE:Supermarket growth

4. Retail Transformation in CEE:Supermarket growth

8. Retail Transformation in CEE • Dramatic rise in market share of supermarkets and modern retail sector • Multinationalization • Concentration • Inter-country as well as intra-country supermarket diffusion • Important changes in procurementsystems

9. Implications for supply chain: procurement system changes • Initially: retailers buy from local wholesalers and importers • Shift to centralised procurement systems: Build distribution centres

10. Change of procurement system • Shift toward cross-border systems: • Coordinate procurement over Distribution Centres in different countries of operation: • Ahold Central Europe • Tesco ‘International Purchasing Dept.’ • To what extent? E.g. Tesco/Metro – CEE products for UK/German supermarkets

11. Change of procurement system • Shift toward specialized/dedicated wholesalers (specialized in product category, dedicated to supermarkets) • Shift toward preferred supplier systems to select producers meeting quality and safety standards and lower transaction costs • Evidence survey Czech Republic: 30% suppliers WS & 60% suppliers SM have contracts (preferred suppliers)

12. Change of procurement system • Shift toward private safety and quality standards • E.g SISPO Czech Repblic • E.g. Eurep-gap (international chains – international standards)

13. Public versus private standards - traceability

14. Private standards - quality

15. Private standards - quality • Significant higher quality delivered to SM • Growth in high quality production 2000-2003 for growers supplying SM since 2000 • Decline in high quality production 2000-2003 for growers delivering to local market in 2000

16. So: • Increased demands on: • QUALITY (and safety) • VOLUME • And: COORDINATION

17. The development of producer marketing organisations: CZ • Developments in Food Retail sector are main driving force behind organisation of farmers: • 4 out of 5 interviewed Producer Marketing Organisations for FFV indicate as main reason for their establishment: to gather sufficient quantity and product varieties to satisfy the requirements of big supermarket chains

18. Potential benefits of PMO to growers • Bargaining power • Services • Extension service (55%) • Storage, sorting, packaging facilities (60%) • Access to information (73%) • Facilitated access to inputs through payment guarantee program with input suppliers • Preferred position to apply for bank loans (repayment certainty) • ...

19. Retailers & vertical coordination may be positive for key weaknesses • Key weaknesses of farm sector : • Shortage of finance for investments • Quality • Access to high value markets • Retail investments and coordination with supply chains may assist farms in these areas

20. Retail assistance to farms ? • Direct effect: available evidence indicates that modern retailers introduce assistance packages “if they have to” to secure quality supplies. E.g. • Berdegue et al (Central America) • Reardon et al (Croatia) • Dries & Reardon (Russia) • Indirect effect: Eg. Poland: Dairy companies focusing on high-quality markets (incl. EU export markets and the modern retail sector) are frontrunners in offering assistance to small farms; market channels targeted to informal markets and low quality sales copy programs later or not at all.