The Transformation Of The Global Agri-food System And Policy Implications

The transformation of the agri-food system has taken place over the past century. The driving force of the changes is the role of supermarket, which significantly altered the supply chains from production, processing, procurement to retail. The market power has transferred from the upstream sectors to the downstream sectors, and the retailers have dominated the negotiations with suppliers. Since the 1990's, multinational retailers have started to expand markets of developing countries due to the loosening policies on foreign investment. The changes led by supermarkets accelerated the modernization of retailing as well as stimulating conflicts of suppliers and retailers, this also have had a dramatic effect on smallhold farmers of developing countries.Supermarket own brands has become an important strategies for modern retailers, and the most potential growth category is fresh food. By offering privately own brands retailers are successful in making higher profit margins, differenciating products from the competitors as well as strengthening the negotiation power. Another essential strategie for modern retailers is making private standards, which could meet consumers'increasing demands, segment the markets, lower management cost and reduce risks. When public standard is absent, private standards are able to cater to the social demand of food safety; when public standards exist but are not applied well, private standards play the role of delivering extra messages of quality to consumers. The game theory models show that the best strategies for government and retailers are:retailers make private standards prior to government, where the private standards are equal to the social standards.From a macro prespective, the transformation of agri-food system have two major effects, which are concentration and vertical integration. The trend of concentration on the supply chains are strong, covering production, processing and retailing. The vertical integration phenomenon saves enterprises transaction costs, increases the profits and diversifies the products. Concentration and vertical integration make it easier for government to supervise food safety, improve consumer welfare and make better use of social resources, however, it also results in the imbalance of rent distribution along the supply chains. In some cases, smallhold farmers are excluded from modern agricultural procurement system.From a micro perspective, the global commodity chain theory has become a popular approach to research the agri-food supply chains by focusing on one particular agricultural commodity. The approach links micro analysis with macro analysis and discusses a topic from the four dimensions, respectively input-output structure, geographical territoriality, the governance structure and institutional make-up. The global commodity chain theory attaches importance to the different characteristics of enterprises, reveals the interactions of production, private standards and public policies on the supply chains. This paper discusses the theory and applies it on two empirical studies regarding coffee and soybeans.The space of public policies has been decreased in globalization, however, due to the characteristics of agriculture and the imbalance of rent distribution, it is necessary for governments to intervene with public policies. In western countries, the major measure governments use to regulate retailing is implementing anti-monopoly laws and legislations to restrict the misuse of market power. In contrast, the anti-monopoly law system was absent when developing countries opened retailing market to multinational supermarkets, which led to severe conflicts. Therefore, governments of developing countries tend to adjust retailing policies according to different situations. In China's case, the policy implications include improve anti-monopoly legislations, value the quantity of foreign investment rather than quality, carefully handle the process of "wet markets transformed to supermarkets". The effects that agricultural transformation had on smallhold farmers is one important issue as well. Smallhold farmers are having difficulties participating in the modern agricultural procurement system because of the shortage of capital and technology and incomplete information. The policy targets are to improve smallhold farmers' production technology by implementation of government-run projects, to create a combination of public regulations and private regulations to govern the market, to protect smallhold farmers from the free agricultural trade and to help smallhold farmers to participate in the modern procurement system by founding producers'marketing alliance. With regard to the problems in China, it is suggested that the government makes use of multinational enterprises' market power and vertical integration to find smallhold farmers a sustainable future.This paper is divided into five sections. The first section analyzes the change of market power on the supply chains and its effects, and then discusses retailers'strategies of supermarket own brands and agri-good private standards. It also explores supermarket evolution in developing countries and the trends, including a comparative study between China and India. The second section adopts a macro perspective to discuss the effects of the transformation of agricultural system, which are concentration and vertical integration, and then compare the cases of the U.S, U.K and developing countries. The third section looks into the global commodity chain theory and applies it to coffee and soybean sectors, which adopts a micro perspective. In the fourth section policy implications are given, suggesting how government should act to intervene in the agri-food supply chains to ensure a balance of efficiency and equity, which include retailing policies and policies regarding smallhold farmers. The conclusion summarises the creativity of the paper and the future research directions.