The growth of supermarkets in Mexico: Impacts on production and transaction costs of small -scale farmers

Over the last two decades the spread of supermarkets has become a pervasive phenomenon, particularly in developing countries. By gaining a larger share of food retail sales including fresh produce, and becoming major buyers of agricultural products, supermarkets represent an important factor of change in the agrifood system. The new marketing conditions they impose on their suppliers represent opportunities for some farmers and challenges particularly for small-scale farmers who might become more marginalized since most of them are not prepared for these market changes. In this thesis, the case of Mexico was used to illustrate important changes in its agrifood system, using Transaction Costs' approach provided by the New Institutional Economics framework. Four case studies of Small-Scale Farmer Organizations (SFOs) were analyzed. Factors that influence small-scale farmers' participation in supermarket procurement systems were explored. Findings suggested that, in general, supermarkets are not a feasible market alternative in the short run for small-scale farmers of cactus pear and mango in Mexico. Although this could be the case of other small-scale horticultural farmers, more studies are needed to support this conclusion, which is based on evidence that small-scale farmers face a level of transaction costs (mainly in the commercialization process) that they cannot bear, and where traditional markets are still an important alternative. A key factor across the four case studies was the use of SFOs, whose main role was to mitigate transaction costs not only by performing the commercialization process, but also by making accessible infrastructure, formal credit, technical assistance and marketing services. It was also estimated that profits from the supermarket channel were higher than those from traditional markets. Finally, the promotion of efficient SFOs should be intensified if a direct trade between supermarkets and small-scale farmers is desired. But the promotion of SFOs must be accompanied by efficient extension and financial services that allow farmers to be more responsive to market demands. If such environment is not created, the best case scenario for the future of small-scale farmers might be the status quo, where inefficient traditional markets still play an important role in the Mexican horticultural supply chain.