Global Issue Paper No. 29
By Jayson Cainglet, December 2006
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Introduction:
An hourglass consists of two wide glass bulbs placed one on top of the other, which are connected by a very narrow tube. As we commonly know it, one of the bulbs (top bulb) is filled with sand, which flows through the tube and onto the bottom bulb at a very slow pace.
Bottleneck is, literally, the neck of a glass or bottle. In most cases, the neck is much narrower than the body or mouth of the bottle.
Bottlenecks aptly describe the previous global agrifood system of numerous small farmers and small producers (body) as compared to a few processors/millers (bottleneck). The concept can also be applied to the situation of a few sellers/wholesalers and retailers (bottleneck) against the numerous consumers/customers (body).
The current global agrifood system is slowly going from a "bottleneck situation" to one of "hourglass", wherein a few dominant agrifood retailers (very narrow tube) control both the supply side/numerous producers (top bulb) and demand side/numerous consumers (bottom bulb).
The situation has now become one, wherein the entity that controls the prices for suppliers (keeping prices below competitive levels) is the same entity that controls the prices for customers (keeping prices above competitive levels).
While there are a number of developments, mostly corporate takeover of the whole agrifood system, this paper is solely focused on the phenomenal emergence of giant retailers and their control of the agrifood commodity chains. From a mainly European and North American concern, the market power of giant grocers have expanded to both Asia and Latin America, and more explosive growth in these regions are expected in the next 5-15 years. A number of literature have predicted that the Asian region will acquire more than 40 percent share in the global food retail market by 2020.
China alone is bound to be the second largest food retail market, behind only the US. Estimates also predict the Chinese grocery market will grow by 65 percent to US$ 456 billion (£240 billion) in the next five years. The majority of international retailers that have entered the market have made huge headway in the primary cities of Shanghai, Beijing, Tianjin and Guangzhou. International retailers present in China are Auchan, Carrefour, Ito-Yokado, Metro, Tesco and Wal-Mart. India is also being predicted to become the 4th largest grocery retail market by 2020. Supermarket expansion is also predicted in Africa.
The same is the case with the Latin American region. In Brazil, the market share of the top four grocers (all with foreign counterparts) is already 36 percent. Many of these agribusinesses are expanding their reach beyond Brazil and into the rest of the region. To date, the top 30 retailers in Latin America control 29 percent of the retail market. In Eastern and Central Europe, the top five supermarkets have 23.1 percent of the food retail market, all of them foreign-owned.
As early as 2003, the Food and Agriculture Organization (FAO) has already warned that small farmers in Africa risk being swept out of agriculture by a wave of supermarket expansion. In South Africa, supermarkets already account for more than 55 percent of national food retail. Kenya has some 200 supermarkets and 10 hypermarkets, equivalent in sales to some 90,000 small shops and accounting for up to 30 percent of food retail. There is already an explosion in the number of supermarkets in certain parts of Southern and Eastern Africa over the past five to ten years.
This paper looks at the current debates and discussions as regards competition policies at the multilateral and regional levels; and at some country specific updates, as they relate to curbing the market concentration of giant retailers. Competition policy, as defined and used in this paper, is, in theory, any of the enabling laws, guidelines, policies or regulations designed to ensure that competition in the marketplace is not limited or controlled for the benefit of only a few entities (i.e. market power of corporations in the era of globalization) in a way that is detrimental to society in general.
Lastly, this paper puts forward a number of framework-based approaches as we look into solutions and alternatives to the current competition policy regime, which does not negate, but, in fact, further strengthens the market concentration of agrifood retailers in the commodity chains. How should we unclog or unblock the bottlenecks and the hourglass’ narrow tube? Should we just find a bigger bottle with a wider bottleneck? Should we just find an hourglass with a much wider tube that connects both bulbs? Or should we just break the bottles and hourglasses and replace them with something else? However, the question remains: how and when can this be done?
This paper hopes to contribute to the ongoing eco-fair trade project of the Heinrich Boell Foundation, Misereor, Wuppertal Institute, and other current or upcoming civil society and social movement advocacies and engagement, on the growing market power of global agribusinesses.