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Governance and Trade in Fresh Vegetables The Impact of UK Supermarkets on the African Horticulture Industry
International trade in horticulture products has increased markedly in the past two decades changes in dietary habits stemming from increased health awareness, together with demand for convenience foods, have accelerated year-round consumption of fresh fruit and vegetables and the sale of an increasing variety of prepared foods in industrialized countries. Some increasing variety of prepared foods in industrialized countries. Some African countries have been able to benefit from this trade. Between 1989 and 1997, the value of exports of fresh vegetables from sub-Saharan Africa to the European Union ( EU ) increased by 150 percent.
Fresh vegetables are a good example of a non-traditional agricultural export crop, and they illustrate the potential for agricultural diversification and production of high-value crops. Nevertheless, this trade links African producers and exporters of high-value crops. Neverthless, this trade links African producers and exporters with very large European retailers. Food retailing has been a cause for concern. Doel ( 1996 ), for example, describers the pressures suffered by suppliers to large retail chains in the UK, while Thrupp ( 1995 ) has suppliers to large retail chains in the UK, while Thrupp ( 1995 ) has documented the impact on Latin American growers of production of non-traditional export crops for the North American market.
This study analyses the trade linkages between producers and exporters of fresh vegetables in Kenya and Zimbabwe and UK super markets . It takes up the concept of governance in global commodity chains developed by Gereffi ( 1994 ) in order to examine how the competitive strategies of the supermarkets have led to particular governance structures that determine not only the types of product to be produced, but also production and quality systems, the extent and location of post-harvest processing and structure of the horticulture industry in Kenya and Zimbabwe. Two basic questions are posed. First, governance: how is the fresh vegetable chain structured, transmitted to the various actors in the chain ? Section II discusses the concept of governance and its relevance for the analysis of trade. Section III analyses the way in which governance is exercised. Second, consequences for African exporters and producers : how has involvement in the chain transformed the production and processing of fresh vegetables in Kenya and Zimbabwe ? More specifically, what types of firms are included in the chain or excluded from it ? Section IV examines how meeting the requirements of the UK retailers has influenced the nature of the horticulture business in Africa, focusing specifically on the cases of Kenya and Zimbabwe Section V considers the limitations of the analysis.
II. GOVERNANCE IN COMMODITY CHAINS
The global commodity chain concept is just one of a number of approaches to inter-firm relations that drawn on the simple idea that the design, production and marketing of products involves a chain of activities divided between different enterprises. Various authors have developed this idea in different ways. For example, Hopkins and Wallerstein define a commodity chain as ' a network of labour and production process whose end result is a finished commodity' ( 1994 : 17 ), and apply it to the changing organization of the world economy. Porter uses the terms value chain and value system to discuss company strategies in terms of the management of relationships with other firms, agruing that : 'Competitive advantage is increasingly a function of how well a company can manqge this entire system. Linkages not only connect activities inside a company but also create interdependencies between a firm and its suppliers and channels' ( Porter, 1990 : 43-4 )
Ruigrok and van Tulder ( 1995 ) discuss the restricting strategies of leading global firms by using the concept of 'industrial complex' in which the core firm organizes suppliers, workers and dealers, and maintains relations with financiers and governments. Similarly, Wilkinson has analysed the knitwear industry using the concept of 'productive system' : it is possible to described as a " productive system " the combination of design, product development, marketing production and retailing by which product progress from their conception to the final consumer. In the markets for knitwear different types of " productive systems " co exist and compete ( Wilkinson 1995: 1 ) Each of these authors takes the idea of a chain of inter-firm linkages and their characteristics. Their different perspectives and priorities generate different but overlapping concepts.
Gereffi took as his starting point th work of Wallerstein, but his concept of global commodity chains (GCCs) contains three new elements which are particularly useful for the analysis in this study. First, Gereffi has emphasised the fact that chains frequently involve cross-border co-ordination of the activities if independent firms. Secondly, Gereffi has emphasised the fact that chains frequently involve cross- border co-emphasised the issue of governance, drawing attention to the fact that large retail and brand name companies create inter-firm networks characterized by a high high degree of co-ordination. Campbell and Parisotto have expressed this point in the following way :
Much international trade in goods ans services cannot be thought of as a multitude of arm's -length transactions between countries. Instead, trade is organized within a structure or system of international production. In this sense, it is 'internalized' within the common ownership of multinational enterprises, or 'quasi-internalized' within a system of governance arrangements that links firms together in a variety of sourcing and contracting arrangements. Much international trade can therefore be said to be situated somewhere between 'markets' and 'hierarchies' ( Camphbell and Parisotto, 1995 : 1 )
Thirdly, Gereffi has highlighted the increasing role played by international buyers, retailers, and brand-name companies in the trade of labor-intensive manufactured products such as garments ( Gerffi 1994 ). In recognition of this, he distinguishes between two basic types of commodity chain. On the one hand , there are 'producer driven ' chain governance is exercised by companies which control key technology and production facilities.On the other hand, there are buyer, driven chains in which retailers and brand name companies exercise key governance functions. They focus their own activities on design. retailing and marketing, as well as the organization of the chain itself. They define what is to be produced, but do not produce it themselves. The role of this type of non-manufacturing company in defining trade opportunities for developing countries is one of the central arguments of gereffis work.
The governance exercised by such companies has consequences not only for the inclusion and exclusion of firms in the chain, but also for the opportunities they have for upgrading -moving into more sophisticated functions within the supply chain or into the production of more sophisticated commodities. Gereffi ( 1991 ) sees upgrading as the process by which industries in developing countries acquire both new skills through export manufacturing and establish links with new commodity chains that can use these skills. In the garments industry, for example, upgrading involves not only a shift from the assembly of cut parts into garments to provide a 'full -package' service that supplies a complete garment, but also a shift in buyers, from manufactures outsourcing part of their production to retailers loooking to buy a complete product ( Gereffi 1999 : 52-3 ).
But why should a commodity chain have to be 'governed' at all ? Why do international buyers not use arms-length market relationships that do not require costly investments in governance and provide greater the increasing use of product differentiation strategies in developed country markets means that retailers derive competitive advantage from selling non-standardized products that are not generally available in the market, competitive strategy increases the need for supply chain governance. On the one hand, the supplier requires ever more complex information about changing market requirements, as well as assistance in meeting changing product specifications. On the other hand, the risks to the seller from poor quality products, deliveries, delays, etc, are considerable.
Secondly, governance requirements increase when developing country producers have difficulty in meeting the requirements of developed country markets. Keesing and Lall argue that :
A major problem associated with the marketing of manufactured exports from developing countries is that products made in a developing country for export to a developed one are generally quite different from the analogous products made for the domestic market ...... As a result of these systematic product differences and changing order by order on what is needed.... Often instructions on these points latter are still in experienced, either buyers or someone must teach the details of procurements, quality control, inspection, packing, shipping documets required, sizes and size assortments, and much else different from what is done in production for the local market ( keesing and Lall 1992 : 178 ).
The need for governance is reinforced in certain markets by increased concern with labour, environmental and product safety standards, either through legal obligations or consumer, government and NGO pressures. These increase the responsibility of the retailer for what happens in the supply chain.
Product differentiation and more complex product requirements need not, by themselves, create a need for close management of the supply chain. In situations where manufactures are technically competent and have good example, retailers might be able to purchase high-fashion Italian shoes through arm's - length market relations. Similarly, complex supply chains for products such as computers can be governance is required when the supplier lacks technical competence or market knowledge . Market failures in the area of information about markets and the provision of services to producers, together with the need to co-ordinate different parts of the supply chain require intervention by the retailers. Generally speaking, this option is only open to larger retailers, or to specialist international traders who have the resources and knowledge to manage international supply chains. Taking as given that large retailers, or to specialist international traders who have the given that large retailers and bran name firms have deliberately eschewed supply chain, this study will consider the consequences of this control for producers and exporters of fresh vegetables.
III THE GOVERNANCE OF THE FRESH VEGETABLES COMMODITY CHAIN
Over the past 30 years, one of the most striking features of the retailing of fresh food in the United Kingdom has been the increasing dominance of large supermarkets. According to gray and Khleih, 'Specialist greengrocers and fruiteres had a 46% market share ( of the UK market ) in 1980 but this had fallen to 26% by 1991 ( 1997 : 30 ). This process continued in the 1990s.
By 1997,the multiple stores ( supermarkets and major retail chains ) accounted for 76 percent of UK fresh fruit and vegetable sales ( Fearne and Hughes, 1998 : 29 ). the horticulture value chain linking UK consumers and affected by this process of retail concentration Whereas imported horticultural produce was previously channeled primarily through wholesale markets, the largest UK retailers now control 70-90 percent of fresh produce imports from Africa.
The dominance of the supermarkets in UK food retailing reflects a broader process of retail concentration that has been associated with radical transformations of supply chains. Supermarkets came to exercise increasing influence on commodity chains across a wide range of products. They developed their own brands, in competition with industry leaders such as Heinz, Kellogg and Schweppes. They developed sophisticated logistics systems, as described by Womack and Jones ( 1996 ), and they played a decisive role in developing products and supply channels. Generally speaking, large retailers have avoided direct involvement in production. They specialize in marketing and in the organization of supply chains.
Supermarket retailing is characterized by oligopolistic competition. A small number of retailers battle for customer loyalty and market share, using product differentiation and heavy advertising as major weapons, even though the predominance of competitor-oriented reactive strategies undermines these attempts at differentiation . During the 1990s, the supermarkets were able to expand market share at the expense of smaller competitors. A combination of a market strategy based upon product quality and variety and heavy investment in both retail outlets and logistic systems proved successful.
Fresh fruit and vegetables were a key area of competition between supermarkets, and the characteristics of competition between supermarkets were decisive for the rapid development of the African fresh vegetables trade. While food product as a whole are income inelastic, fresh fruit and vegetables are purchased disproportionately by higher-income consumers and fresh produce is crucial for attracting and retaining such customers :
Fresh product has become what retailers describe as a destination category-fresh fruit and vegetables is one of the few product categories ( along with fresh meat and wine ) for which shoppers will switch stores. It is also one of the two remaining categories ( along with meat ) which is virtually all own label and thus over which they can expert considerable influence and control. As a result, over the past fifteen years, the fresh produce department has moved from the back of the store to the front and has doubled its shelf area in store... [ Fearne and Hughes, 1998 : 5 ]
Estimates of the growth prospects for the fresh fruit and vegetable market as a whole vary, but sales of speciality vegetables and prepared fresh food grew considerably in the 1990s. Fearne and Hughes [1998 : 5 ] estimated that sales of speciality vegetables have increased by 21 percent in volume terms during the period 1993-96,. They also drew attention to the rapid growth in sales ready-to-cat, pre-washed salads, whose sales increased by 34.3 percent in value terms between 1994 and 1996 [ Fearne and Hughes, 1998 : 25 ].
The countries of sub-Saharan Africa have found a niche in this trade. An indication of the extent of their involvement is given by Table 1, which shows that a wide variety of fresh vegetables were sourced from developing countries to UK supermarkets in spring 1999. African countries accounted for most of the produce. The market for fresh vegetables imported from Africa has increased in volume and product variety, moving from off-season supply towards an increasing year-round supply. This is not only expanded the market for imported fresh vegetables, but also led to a decisive transformation in the structure of the trade and participating firms. The governance of the chain is a key factor in this transformation. This can be discussed in terms of the positioning of the chain in the market, the structure of the chain and monitoring of and the provision of assistance to firms in the chain.
The Positioning of the Chain
The supermarkets have emphasised fresh, healthy food, ease of preparation and innovation in order to attract the high-spending, middle-class consumers. Competitive strategies have emphasised :
Quality. The supermarkets have extended the concept of self-service to fruit and vegetables, and this reinforces the need for instant, appealing produce. According to one senior supermarket manager, the produce left on the shelves by customers determines the quality standard.
Consistency. The supermarkets aim to supply the customer with a product that is consistent in appearance and taste, not only at any one time, but also preferably across the growing season.
Variety. Supermarkets have increased the variety of basic products such as tomatoes by introducing cherry tomatoes, vine-ripened tomatoes, etc., and introduced new products, such as papaya, okra and snow peas.
Processing. Supermarkets have offered an increasing range of prepared foods, involving washing and chopping of food products. Pre-washed salads and vegetables and vegetables that are ready for immediate cooking have become increasingly popular.
Product combinations. Customers can now buy product combinations such as peeled and chopped papaya packaged together with wedges of lime, and packets of vegtables combining a range of peeled, sliced and washed food that can be put straight into stir-fry dishes.
Packaging. For specialty vegetables, supermarkets have stopped presenting many products in loose form and shifted towards pre-packing produce in cellphone wrappings and trays.
Reliability of Supply. Supermarkets believe that customers will switch to other stores if products are not available at the time they go shopping. Therefore, continuity of supply is an important goal.
Price. While price is not the main focus of competitive strategies, it did become more important at the end of the 1990s as market shares reached saturation point and reactive competitive strategies limited the success of differentiation strategies.
The scope for differentiating and processing even simple products is shown in Table 2. The price charged for Class 1 ( the best ) carrots in one supermarket in the Brighton area was 39.4p per kilo for loose carrots. Putting the same carrots into bags doubled the price. The price of peeled and sliced carrots was seven times as high as the loose product, at ₤2.83p per kilo, while a new product variety, the 'mini-crunch' carrot designed as a snack, retailed for ₤6.00 per kilo. Ckearly, product processing and differentiation adds significantly to margins.
A competitive strategy based on product variety, packaging and processing would, in self, place greatly increased demand on the supply chain. The supermarkets have also had to meet regulatory requirements. In particular, the 1990 Food Safety Act requires retailers to demonstrate that they have shown 'due diligence' in the manufacture, transportation, storage and preparation of food [ Marsden and Wringley, 1996 ]. In response to the requirement to demonstrate 'reasonable' care to ensure food safety, UK supermarkets developed systems that allow products to be traced from the field to the supermarket shelf. More recently, supermarkets have come under some pressure to ensure that their production systems are socially and environmentally sound. The isssues of labour and environmental standards gained increased importance in the minds of consumers, and the UK government actively promoted the involvement of retailers in the development of standards. Retailers have become acutely aware of the damage that can be caused to their image by exposes of poor labour conditions ( particularly child labor ) and environmentally damaging production process. As a result, retailers developed codes of practice that address issues of health and safety, employment conditions, and environmental management throughout the supply chain.
The supermarkets make the key decisions about the positioning of the chain. While they frequently argue that they merely respond to customer demands and government obligations, the supermarkets make strategic decisions about how to respond to these pressures. This can be seen in differences in the range of products and the types of presentations offered to customers, even through initative behavior tends to narrow the differences between competiors. Supermarkets both anticipate and shape customer needs and make decisions about how these needs should be met. Furthermore, it was clear from interviews with importers that supermarket buyers play the decisive role in determining which products will be stocked, the packaging presentations to be used etc. Importers to devise new product and presentation ideas, but these have to be approved by the supermarket buyer.
Achieving continuous, reliable supply of a broad and changing range of products from different countries around the world requires a highly sophisticated supply chain. The governance of the chain has to deliver these performance requirements. This governance has two parts : the specifications meet the required performance standards.
The Structure of the Chain
When the UK supermarkets first began to sell fresh fruit and vegetables, they bought domestic and imported produce from wholesale markets. Such markets are suitable for standardized products whose characterstics are clear at the point-of-sale. For horticultural products, this type of half- channel network is still evident in international trade of cut flowers ( via the Amsterdam auction ) and for some fresh fruit. However, as the supermarkets began to require increasing product variety, customer-specific processing and grater knowledge of production and processing systems ( in order to reduce the risk of exposure to failings by their suppliers ), they greatly increased the degree of control exercised in the chain by reducing the number of suppliers and tightening linkages in the chain. The basic actors remained of suppliers and tightening linkages in the chain. The basic actors remained the same – African growers, African based exporters, UK importers and the UK supermarkets but the number of actors, the distribution of functions between them and the relations between them changed.
In the early 1990s, UK importers could still source produce from a range of exporters, who would buy produce from a range growers according to price and availability. By the 1990s, the linkages in the chain had become much tighter. UK based importers source produce from various countries in order to ensure year-around availability, but at any one time of year they will have one or two countries supplying produce, and in each country the importer will usually deal with one major exporter. While supermarkets may enter into exclusive arrangements with UK importers and African exporters, sourcing the whole of their supplies of particular product lines at certain times of year from just one exporter, this is the exception . Following the disruptions to production in certain African countries caused by El Nino, some importers had been encouraged by their supermarket customers to diversify their sources of supply again. The director of one leading UK importer explained that not only was he expected to diversify his sourcing and reduce reliance on his main supplier, but also that his largest customer had specified that a new source be developed in one particular country, Egypt.
The tightness of linkages in the chain does not mean that there is reciprocal dependence between supermarkets and their suppliers. While such relationships are frequently durable, each supermarket will source from a number of fresh vegetable importers. The distribution of orders between suppliers varies according to the prices offered, and supermarkets do switch between suppliers. Similarly, importers will source from various countries, and as was seen above, they may be encouraged by supermarkets do switch between suppliers. Similarly, importers will source from various to develop competing sources of supply. It was seen clearly in Table 1 that similar or identical produce was available from different countries in the same supermarket at the same time of year.
This is the 'ideal' situation for the supermarkets. In practice, there are two constraints on the full development of this degree of control. First, supermarkets have varying volume requirements. For example, when products are being promoted, or there is an unexpected peak in demand, it may be necessary to find additional suppliers, and in these cases the degree of supervision will be lower. Secondly, a high degree of control is easiest to exercise when there is a servere power a symmetry between supermarkets and suppliers. This does appear to be the case in sub-Saharan Africa, where there are various countries and exporters competing for market share. However, in the case of Spain, which is an essential source of low-cost Summer fruit and vegetables, the need to find Spanish suppliers gives these suppliers more latitude to resist supermarket demands. Some UK importers acknowledged that standards imposed on Africa growers and exporters cannot to be applied to Spanish firms.
Meeting Performance Standards
If the chain is to meet the requirements placed upon it, its performance must be monitored, and systems put in place to ensure that suppliers can and do meet standards. Producers and exporters wishing to supply the UK market need monitoring systems that ensure compliance with retail ( product quality ) and legislation related to pesticides, residue levels and food safety and ensure that there are sufficient hygiene facilities and protective clothing on site. Further, they have to allocate managerial resources to clothing on site. Further, they have to allocate managerial resources to training personnel on quality, safety, hazards and other aspects of quality assurance, as well as develop monitoring tools and evaluation criteria to satisfy their overseas customers. All export firms now have sophisticated quality assurance systems that document seed procurement, planting schedules, pesticide and fertiliser use, spraying and personal hygiene to gauarantee food safety. Yet increasingly retailers have expanded the standards that exporters must meet, moving beyond procedures to ensure regulatory compliance to addressing broader issues such as integrated crop management ( for example, Nature's Choice at Tesco ), human rights and environmental protection. In addition, in 1997 UK retailers, in conjuction Produce Working Group to develop and harmonise Integrated Crop Management standards worldwide [Miller, 1999]. This will intensify the burden of monitoring for African exporters.
The supermarkets use decisions about inclusion and exclusion to ensure that these standards are met. Before a supplier is included in the chain, it is usually subject to an audit of its facilities, and it must demonstrate that it can meet the requirements described above. Conversely, extreme cases of poor performance or major lapses in food hygiene and safety standards can lead to suppliers being excluded from the chain altogether.
Monitoring and auditing of production and processing systems is carried out by supermarkets and importers. Supermarkets usually visit African suppliers twice during the year to ensure that product is grown, processed and transported in compliance with their requirements. The seriousness with which retailers view compliance with due diligence is reflected in Tesco's formation of a 'hit squad', which is prepared to inspect any supplier without prior notice to ensure compliance [Fearne and Hughes, 1998 ] . However, short visits by supermarket inspectors to exporters and growers in Africa can only provide limited oversight. It is not possible to visit more than a few growers or farms, particularly when export farms use a variety of different production units. In fact, retailers are beginning to use third party auditors paid for by producers to ensure compliance with standards.
While the supermarkets establish the standards and carry out some direct monitoring. The responsibility for the day-to-day enforcement of procedures is generally the responsibility of importers and exporters. Importers visit their African suppliers on average three to four times of year. They usually accompany supermarket buyers as well as visit on separate occasions. In some cases importers have permanent staff in Africa, not only to ensure compliance, but also to provide technical assistance to exporters. The closeness of ties between exporters and importers is reflected in the tie-ups seen between them. Some of the largest African exporters have set up their own import companies in the UK and/or Europe in order to improve access tot he market, while some UK importers have taken equity stakes in exporters in Kenya and Zimbabwe.
THE STRUCTURE OF THE SECTOR IN SUB-SAHARAN AFRICA
The previous section has shown the outputs required from the chain by UK supermarkets, and it has analyzed the chain''s structure and decision making. How does this translate into the specific characteristics of the fresh vegetables industry in Kenya and Zimbabwe ?
Export horticulture has been one of the bright spots of African development. It has raised production standards in agriculture, created supporting industries, and provided considerable employment in rural areas. While three countries – South Africa, Cote d'Ivoire, and Kenya- account for the majority of this success, in the past decade Zimbabwe and Zambia have also experienced rapid horticulture export growth. Clearly, part of this success is attributable to European Union trade preferences, which give better access to European markets for products from ACP countries, and in the next few years this advantage will be undermined by trade liberalisation. An analysis of the likely impact of trade liberization on African horticultural exports by Stevens and Kennan [ 2000 ] suggests that this problem should not be overestimated. Most existing non-African suppliers in European markets enjoy trade priliveges similar to those of the African countries, and trade liberalisation is unlikely to impact African exporters in the next few years since current trade preferences will be maintained during a preparatory period ( 2000-2008 ) [ Stevens and Kennan, 2000 : 34 ; Morrissey; 2000 : 6 ]. Competitive threats certainly exist – the rapid rise of Egyptian fresh vegetable exports is evidence of this – but this has occurred independently of trade liberlisation.
Several recent studies have highlighted a number of factors behind Africa's horticultural boom. These includes ;
Non-interference by government in the commercial dimensions of the business.
Preferential trade agreements such as the Lome Convention.
The achievement of sub-regional/cross-border economics of clustering which provides a critical mass of activity for technical learning , market information flows, the development / spread of trained manpower.
International technical and marketing strategic partnerships which have assisted in technology transfer, logistics, market penetration, and the creation of a market identity for African products.
The effective coordination of internal and international logistics at the industry level, involving intra-firm co-operation [ Theon et al forthcoming]
Exports of horticultural products tot he UK have grown considerably since the 1980s. Kenya was still by far the largest exporter of the vegetables included in categories HS0708 and 0709 to the European Union as a whole in 1997, and Zimbabwe was the second -largest exporter. In both countries the price per ton of exports continued to rise in the period 1989-97. reflecting their growing prominence in the trade of pre-packed and prepared vegetables, salads and cut flowers to EU markets.
In Kenya, export horticulture has grown from a small trade centred on Asian vegetables ( okra, chillies ) during the 1960s to an extensive trade that delivers approximately 75 products to dozens of overseas markets [Jaffee 1995]. While Kenya's trade began with a small number of Asian-owned family enterprises, by the 1980s several well-financed exporters had entered horticulture, viewing direct sales to retailers as a way to exploit their advantages in investment, scale and market linkages. IN both Kenya and advantages in investment, scale and market linkages. In both Kenya and Zimbabwe, the fresh vegetables trade is entirely under the control of a few private individuals and companies. These exporters have changed the nature of product sourcing. Until the 1990s, the majority of produce in Kenya came from smallholders, who sold produce under spot market arrangements through intermediaries or 'middlemen' [ Harris 1992 ; Dijkstra, 1997 ]. These middlemen sold produce to small and medium sized firms, who channelled it through wholesale markets to UK retailers. However, today the majority of export horticultural produce is destined for supermarket shelves. In Kenya and other major horticultural exporting countries in sub-Saharan Africa the market share of small holder production and small export firms has declined and the industry is dominated by a few large exporters sourcing predominantly from large-scale production units.
While some producers and exporters have clearly benefited from the move toward direct super market sales due to increased access to markets and product information, many more producers and exporters have fallen out of the market. Little is known about the competences and strategies of those who have been successful in securing a position in the chain and even competitive challenges. This section examines the position of African exporters and producers in the fresh vegetable trade, exploring the capabilities required to meet the competitive challenges of the industry.
Concentration in the Export Sector
There is considerable scope for growth in the export horticulture sector. The market is expanding and there are significant opportunities for African firms to become players in overseas markets. However, inclusion in the chain is contingment upon meeting the requirements described above. These requirements have, first, favoured the concentration of the export trade in the few, large firms, and secondly, shifted production increasingly to large farms, many of which are owned by the exporters. As a result, small and medium-sized exporters, and small growers have been excluded from the supermarket chain. To compete in this trade exporters need well-developed organizational capabilities, investment in post-harvest facilities, sophisticated logistics, large volumes and close relations with European importers.
Organizational Capabilities : The demands for consistency of quality, reliability of supply and due diligence place considerable organizational burdens on Africa exporters. First, both growing and processing systems must be managed so as to produce reliable supply of high quality produce. Good management along thre chain is essential to produce good quality produce and prevent later deterioration. This requires both control of in-house systems and management of suppliers, and exporters must prove that they have the necessary control mechanisms in place. Second, regulatory requirements such as due diligence require suppliers to oversee the use of chemicals, undertake audits and develop monitoring procedures. The competitiveness of African exporters is linked to the their reputation for food safety and complying with standards involves all aspects of their business. They have to allocate managerial resources to training personnel on quality, safety, hazards and other aspects of quality assurance, as well as develop monitoring tools and evaluation criteria to satisfy their overseas customers. Large exporters can invest in the management systems to meet these requirements, while small exporters lack both the resources to ensure compliance and a management system through which to trace accountability.
Post harvest Facilities :- Staying in the fresh vegetables business requires considerable investment in post-harvest facilities. This investment arises from several factors. Firstly, the quality requirements of the UK supermarkets necessitate close management of post-harvest activities. The product deteriorates rapidly, and the post-harvest climate from farm to supermarket shelf strongly governs product quality. Products must be placed in a cool environment shortly after harvest, transported in a placed in a cool environment shortly after harvest, transported in a refrigerated vehicle to park houses, where product is cooled, graded and packed under temperature and humidity controlled conditions. Cold storage is now an integral part of the supply chain, and in both Kenya and Zimbabwe large exporters have invested in state of the art methods including chilled chlorinated water for washing.
Secondly, in the horticultural chain, market power has shifted from those activities that will lower cost to those that will add value in the chain [Boehje et. al., 1998 ]. There is a the growing tendency to push these value adding functions back along the chain to the source of supply. Today, a substantial amount of produce sold in the multiples is packed the bar coded so differentiate products, varieties, countries and suppliers. To extent that these activities are performed in the source country, they require considerable investment in perishables handling facilities and equipment.
Pushing back these functions into Africa has a number of advantages for the supermarkets. Adding value to vegetables is labor-intensive and African labor is cheaper. It reduce repackaging in the UK and enables defective products to be detected and discarded in Africa. In addition, processed products have a higher value-to-weight ratio, which reduces transport costs. Taken together, these three factors make it likely that competitiveness will rest on securing the skills and investment capabilities to add value in Africa.
Thirdly, as exporters move away from simple products towards more complex product processing and presentations, greater investment is required. Products packed in trays more complicated machinery than products wrapped in cellophane packets. Further investment is required if exporters wish to move into high-value-added activities such as ready prepared vegetables and salads. These require 'high care ' facilities that meet European hygiene regulations. One importer estimated that it would require an investment of US$500,000 to set up a processing unit for such products. These are asset-specific investments that are not easily investments that are not easily transferable to other locked into the UK retail market in order to recoup their investment.
Logistics : The retail sector demands flexibility and reliability in supply. This combination is hard to achieve. Reliability of supply is most easily achieved by keeping stocks in the system, but the supermarkets wish to minimize the time from farm to supermarket shelf and pass the costs of inventory control back to exporters [ Hughes. 1999 ]. Rapid turnover means greater feshness, and in Kenya and Zimbabwe large exporters have shifted towards JIT management techniques in order to reduce the time between harvesting, packing and delivery. They must be prepared to respond quickly harvesting, packing and delivery. They must be prepared to respond quickly to changes in supply and demand, often within 24 hours, or bear the loss of unharvested product. As a result, logistic is now a core competence in the chain and exporters supplying UK multiples must be able to respond quickly and efficiently to changing orders.
The supermarkets emphasis on logistics capability also places a premium on up-to-date market information within the supply chain. The profits of the supermarkets have been realized to a large extent by substantial investment in IT systems that track ordering and sales, identify their customer base, and organize storage, delivery and transport. The ability to finance investment in IT has given large firms a competitive advantage over those who are unable to reduce costs, trace customers, and adopt customer-specific marketing [Poole, 1997 ]. In Kenya and Zimbabwe, exporters who have adopted electronic integration have experienced significant cost savings over those who still rely on faxes or telephone communication.
Finally, the demands for rapid and reliable delivery make securing air cargo space a priority. Approximately 93 percent of Kenya's fresh horticultural exports are shipped by air and the availability and cost of airfreight have long been a central problem for African exporters [ Barren et al., 1997 ]. In fact for many large exporters, these problems have provided the impetus to gain control over the distribution process through joint ventures with freight forwarders. Yet this requires having the scale of operations to consolidate and negotiate air cargo space with commercial airlines, which small exporters do not have. Instead smaller exporters are forced to secure space on passenger airlines, which are reluctant to accept pre-booked space [ Barett et al., 1997 ]. When space is not available produce often deteriorates on the tarmac before being returned to cold storage. Small exporters have very little power against the airlines and fear that both the availability and price of cargo space may driven them out of the market. As one exporter claimed, If we start making claims against carriers for spoiled produce, the rates will start climbing. We can't afford that. This makes smaller exporter far less able to guarantee either the quality or reliability of their products in overseas markets.
Scale : The analysis so far has pointed to the number of factors, which clearly work in favour of the large exporters in the fresh vegetables industry. These include their management and investment capabilities, and their access to transport. One additional factor favors concentration in the sector : the rationalization of the supply base. When the supermarkets rationalized their supply base in the 1990s, the volumes required from their 'dedicated' exporters increased greatly. The supermarkets have reinforced this trend because they believe that only the largest suppliers can reduce costs.
Innovation : Relationship with Importers : In an industry where product development and diversification are an important source of competitive advantage, innovation has become s key source of power and security in the supply chain. Suppliers who assume responsibility for product and packaging innovation greatly increase their value to the supermarkets and minimize their risk of substitution.
The relationship between exporters and importers is crucial for innovation, particularly, since information about consumer preferences and product specifications is now transmitted through the closed channels of 'dedicated' suppliers. The development of lon-term relationships with European importers has brought several advantages to African exporters and all of the leading exporters have been involved with the same importer for between five and ten years. Increasingly, importers are taking the lead in product development, and working with their best suppliers to provide improved products, packaging and presentations. As one exporter claimed, 'Occasionally a supermarket will come up with an idea. But this is really part of our business. You have to do this. You have to provide the whole package to keep your position in the market. The exporter cannot do this alone. Cape Gooseberries, King Passion and runner Beans are all examples of products that Zimbabwe an exporters developed in concert with their respective importers. Yet the costs of innovation are borne by exporters in Africa, who can never be certain if the product will sell once on supermarket shelves. As a result, pushing innovation down the supply chain reinforces the concentration of the export trade tot hose who can absorb the potential losses from unsuccessful product innovations.
In addition, exporters are expected to participate in promotional offers. Horticultural promotions are typically give a standard on-shelf price reduction, where the cost of the product is reduced for a limited time period, or where extra produce is given away at no additional cost [ Chetwood, 1997. ]. As one exporter said, 'Sure I'm a dedicated supplier.... dedicated to paying [ the super market ] for promotions, for shelf space, for farm visits and holidays.' All of the exporters interviewed in Kenya and Zimbabwe bore the costs of product promotion. As a result, only those African exporters who have the cash flow to withstand temporary losses in anticipation of future gains can fulfill; supermarket demands for promotion.
All of these factors taken together weigh strongly against the survival of small and medium size exporters in the fresh vegetable chain. While there are over 200 licensed fresh produce exporters registered in Kenya, only 50 are consistently operative, and the other 150 exporters exploit favourable short-term market conditions, entering and exiting the industry sporadically during the October-April peak season [ Jaffee, 1995 ]. Small and medium relationships, exporting bulk produce to wholesale markets, which is now only marginally profitable for African suppliers. The quality of their supplies has been variable and they have yet to develop the intensive supply chain relationships needed to obtain up to date information or to secure their position in the chain.
The consequences of these requirements on the structure of the industry are clearly evident in both Kenya and Zimbabwe, where the top five exporters controlled over 75 percent of all fresh vegetable exports in the late 1990s.
One exception to the tendency toward concentration may be organic produce for which there is both a price premium and a significance unmet market demand [ Fresh Produce Journal, 1999]. While the amount of organic produce has increased in the last year, the supply base in the UK is still very fragmented and supermarkets have little option but to source from smaller companies, several of which are located overseas. This means that smaller African exporters still have an opportunity to penetrate this market, particularly since organics do not presently require the scale and investment of exotic produce lines.
It has been argued that there are strong tendencies towards concentration among exporters. Are there similar tendencies towards concentration at the production stage ? There is clear evidence from Kenya and Zimbabwe that
two processes have transformed the production base. The first is the decline in small holder production. In 1992, close to 75 percent of fruit and vegetables in Kenya were grown by small holders [ Harris, 1992 ]. By 1998, four of the largest exporters in Kenya sourced only 18 percent of produce from small holders, as can be seen in Table 3, and it is unclear what portion of this output was destined for supermarkets shelves. In Zimbabwe, five of the largest exporters sourced less than six percent of produce from smallholders. The second is that there are tendencies towards vertical integration within the chain. Several large exporters that had bought in most or all of their produce in the mid-1990's have began to acquire their own growing capacity. This section explains the reasons for both these tendencies.
The decline of small holder supply : Exporters that wish to source part of their output from smallholders face a number of well-known problems that exist irrespective of the markets being supplied. These include the need to provide credit at interest rates affordable to small farmers, loan defaults and side-selling to alternative markets. Small holders also suffer from logistical constraints resulting from poor roads and unreliable transport in rural areas, which means that they are unable to maintain the quality required for UK supermarkets. In particular, smallholders supply must meet the needs of :
Consistency across production units and through the season, which means controlling variation in agronomic practices ( harvesting, crop rotation and pesticide application ) across a large number producers.
Maintaining post harvest quality and preventing deterioration, which means developing dispersed cold storage facilities close to farms.
Ensuring compliance with health and safety requirements, which means maintaining confidence in pesticide use and hygiene conditions across a broad range of producers.
- Ensuring compliance with ethical trade commitments, particularly with respect to child labor and worker safety.
- Communicating changes in procedures to a large number of producers when product or growing innovations are made.
Clearly these financial and organizational challenges have to be achieved at an acceptable cost. However, the major challenge is to convince the UK supermarkets that smallholders sourcing neither quality nor safety .
It is easy to make a case against small holders. For example, it can be argued that the transaction and supervision costs of sourcing from a large number of dispersed producers are far greater than sourcing from a small number of large producers. However, these arguments underestimate the problems associated with large size and ignore the benefits of small holder production. First, there are some commodities for which small holders have a comparative advantage. French beans, Kenya's largest fresh vegetable export to the UK, is widely considered to be less amenable to capital intensive, mechanised production due to the labor-intensive requirements in both production and packing. Second, large farms require supervision of wage labor, whereas smallholders use family labor, which is both low cost and self-supervising [Collins, 1995 ]. Third, small plots and inter cropping help to reduce problems associated with the spread of disease and wind damage. Finally, small holder sourcing is an effective response to problems of land scarity ( particularly in Zimbabwe, where land is a politically sensitive issue ) and the need to extend the benefits of the trade to broader segments of the rural populations.
In fact, two of Africa's largest horticultural exporters have shown that smaller producers can meet the quality requirements of the UK market. In both cases, the exporter has assumed responsibility for organizing growers, arranging finance, providing technical support and ensuring traceability. However, UK supermarkets remain wary of sourcing from small farmers. They realize that failure to meet food safety or ethical trading standards can result in bad publicity and undermine their position in the market place. Because of this, they believe that concentrating their growing base will reduce their exposure to risk by giving them grater control over the production and distribution process.
Vertical Integration : If smallholders are being marginalized, from what types of production units do exporters source their crops ? It can be seen in Table 3 that among a group of ten large exporters in Kenya and Zimbabwe produce was sourced equally from exporter-owned plantations and independent, large commercial farms. Yet this average figure conceals some variation in sourcing policies. Two export farms in Zimbabwe grew 100 percent of their produce on land that they owned or leased. Three of these ten companies relied entirely on production from independent farmers, almost all of which came from large farms under contract. In the remaining five cases, exporters sourced produce from a mixture of their own farms and from large farmers. Different products and/or varieties are typically grown on exporter-owned plantations and on large commercial farms. This facilities specialization and enables exporters to capitalize on climatic differences.
In much of Africa, the dominance of large exporters has given rise to growing numbers of large, commercial farms. As competition has intensified, many small and medium-sized exporters have shifted to growing crops for the large exporters rather than shouldering the risk of exporting. This was clearly seen in the case of pumpkin Ltd., a Kenyan grower, whose failing margins forced them to withdraw from direct exporting and supply a leading Kenyan exporter instead. This is a trend also seen in other African countries. In the Gambia, for example, close to one third of export farms sell the majority of their produce through Radville farms, which is owned by a transitional corporation with an import subsidiary in the UK [ Little and Dolan, forthcoming ]. This trend is likely to continue as more and more large commercial farms find it difficult to secure overseas market contacts and aircareo space.
Despite the increase in large commercial farms, exporters still source at least some of their produce from their produce from their own farms. As one Zimbabwe an exporter claimed. 'It is absolutely imperative to control your own production to attract business from the multiples. There are three main reasons for this. First, control over one's own production guarantees continuity of supply and reduces the risk of losing suppliers to competitors. Secondly, possessing at least some land for growing crops provides the exporter with knowledge about production issues and innovation and problem-solving capabilities . In an industry increasingly characterized by innovation and the need for rapid problem-solving, these are important. Thirdly, some exporters ( and their associated importers ) believe that vertical integration provides grater control and greater scope for reducing costs.
According to one leading UK importer, a key factor in losing a supermarket contract was the fact that its main African supplier had no losing a supermarket contract was the fact that its main African supplier had no production facilities of its own. As a result, the African supplier had no production facilities of its own. As a result., the African supplier purchased one of its competitors ( with financial assistance from its UK importer ) in order to gain access to land.
It seems likely that the concentration of production on large units will continue. The early entrants to the industry started with small-scale production. In contrast, new entrants into industry in sub-Saharan Africa entered the horticulture trade with well-established capabilities and market linkages, as well as substantial investment in post-harvest facilities. Zimbabwe, for example, did not begin exporting horticultural products until the 1980's but came into the market with the scale and investment to attract the multiples, Similarly. The recent boom in imports of fine beans from Egypt has been based on pre-existing capabilities in growing the less sophisticated bobby beans. When supermarkets and importers wish to develop new sources of supply, they look for producers that already have the potential to meet the exacting requirements of the fresh vegetable chain.
Upgrading and Security in the Supply Chain
The previous sections have shown how African exporters have struggled to keep pace with market trends and best practice in the industry. Several exporters have managed to develop intensive relationships with overseas customers and exert greater control over the supply chain through their integration of freight forwarding and importing activities. These larger, more aggressive producers/exporters have diversified their marketing outlets, providing year-round products to supermarket chains, and increasing their sales to other regions in Europe and the Middle east. In essence, these exporters have acquired a broad range of functions and have secured a valuable position in the horticultural supply chain.
Upgrading opportunities have arisen partly from the re-positioning of the fresh vegetables chain by the supermarkets. A continuing emphasis on healthy eating, food preparation and ease of use has led to a product diversification and more complex and extensive processing. In the 12 months following the survey of supermarket shelves whose results are shown in Table.1 signs of product development were evident, organic produce sourced from Egypt could be found at one supermarket, along with ready-to-microwave product combinations from Kenya. At the same time, some upgrading has taken place as a result of a transfer of functions within the chain from the UK to Africa, as in the case of the transfer of packaging and labeling to Africa exporters.
This type of upgrading differs in one important respect from the upgrading in manufacturing described by gereffi associates upgrading with a shift of customers and marketing outlets. Higher-value products are sold to different types of retailers. In the fresh vegetable chain, the same retailers are redefining their product ranges and creating upgrading opportunities.
Yet upgrading is a complex process. As Gereffi [1995 ] notes, as industries become globalized, exporters face shorter time periods in which to exploit their competitive advantage. The rewards for the early innovators of new varieties, presentations and packing are extremely short-lived and virtually every developing virtually every developing country in the world a suitable climate is now trying its hand in the export horticultural trade. [ Hirst, 1994 ]. The dominant position held by Kenya just a few years ago has been challenged by the entry of new African producers such as, Zimbabwe, Zambia and Tanzania, and by the growing importance of producers closer to the European market ( and hence with significantly reduced freight costs ) such as Egypt. It is a characteristic of buyer-driven commodity chains that buyers will seek new sources of supply, and interviews with UK importers indicated clearly that their supermarket customers excepted them to find new sources, particularly in order to remain competitive on price. Quite justifiably, exporters in Kenya and Zimbabwe fear being pushed out of the market by new entrants or at the very least forced yo accept lower margins.
As new market entrants challenge Africa's position as an early innovator, it becomes imperative that export firms be proactive in market and product diversification. According to Boehije et al. 9 1998] in the supply chain lies in processing resources and capabilities that are not easily substitutable. In the short term, established exporters have some protection from the competence and relationships that they have built up over time, including knowledge of production and post harvest processes ; investments in specialized facilities ; and relationships based on trust and reciprocity with overseas customers. These capabilities decrease their vulnerability to substitution within the supply chain, either from within Europe or from another external supply source. In the long term however, expanding product range and the services offered appears to be most secure path to long-term viability and the maintenance of sufficient margins. Product differentiation may involve greater skill in production, post-harvest care and logistics, greater capital investment, and/or greater innovation capabilities. This requires strategic thinking, networking, and changing the orientation of export activities to new markets with different demands. Put simply, the African exporter cannot afford to stand still. Their competitiveness, and the ultimate developmental potential of the sector depends upon it.