Supermarkets Small Farmers and International Migration How Complex

Supermarkets, Small Farmers, and International Migration: How Complex Structural Changes Affect Food Security in Latin America Amy Damon Assistant Professor of Economics Macalester College Minnesota Economics Association, October 2013

Three Changing Trends in Latin American Food Systems 1. Changes in food marketing 2. Rise in obesity in the face of persistent malnutrition 3. International migration

Major Changes in Food Markets Food retail groups in Latin America: • Small full service stores (independent on the street) • Traditional markets (plaza markets) • Small self service stores (convenience stores) • Large self-service stores, super markets hypermarkets • There has been a major rise in supermarkets in the region at the expense of small shops and plaza markets. • Now 50 -60% of national retail sectors in LAC are supermarkets. • This is even the case in poor countries.

Plaza Market Cuzco, Peru Artist: Robert Harding Images

Supermarkets

Why are supermarkets growing so fast? Demand side: • Urbanization • Women into the workforce • Increase in real income • Increased demand for non-staples (income elasticities) • Increased availability of refrigeration • Increased access to cars

Why are supermarkets growing so fast? Supply side: • Trade liberalization • Reductions in the regulations of FDI – US and European chains invested heavily. • National supermarket chains change their format/size to compete with large international chains

Percent of Food Sales in Each Channel Supermarkets or hypermarkets 2005 2006 2007 2008 2009 2010 50. 03 50. 36 50. 85 51. 13 51. 08 Specialist Retailers 17. 54 17. 26 17. 06 16. 84 16. 61 19. 57 Independent Retailers 24. 62 24. 5 24. 39 24. 28 24. 17 22. 77 4. 73 4. 78 4. 85 4. 91 4. 96 6. 1 Convenience Stores

Big names in Latin America’s food retail sector • Mexico is Walmart’s third largest world market after the U. S. and the U. K. , and accounted for around 6% of its global sales in 2010. • Walmart is seeing double digit growth in LA. • Other big players: Carrefour (France), Casino (France), Cencosud (Chile)

Outcomes of changing retail sector Who benefits: - Middle/high-income urban consumers. - middle/large wholesalers - international retail corporations Who loses: - small and medium size farmers

Outcomes of changing retail sector • Supermarkets must provide cost cutting and consistency, and increased product quality and diversity. • This means procurement must change and must reduce transactions costs with better coordination among the actors in the supply chain. • These incentives mean these supermarkets procure from large areas, handle larger volumes, work with suppliers whose scale, capital, and managerial capacity can meet these needs. (Smaller producers must invest). • The supermarkets have bargaining power.

Outcomes of changing retail sector • Supermarkets are procuring less through traditional wholesale markets and more with direct farmers and their own distribution centers. • This is mostly because of the grades and standards issue – big producers can provide consistency. • Supermarkets often pay producers 45 -60 days after delivery.

Food security dichotomy: malnutrition and obesity

Malnutrition in Central America-DR

At the same time…. .

Global Obesity

The New Food Problem in Latin America: Overweight and obesity prevalence in Latin America, 2005 Overweight Obesity Source: Age-standardized prevalence of overweight (kg/m 2) and obesity (kg/m 2) by country (2005). WHO Global Infobase, United Nations

Mexico changes in obesity

Nutrition Transition

Reasons for rise in obesity Neoclassical economic explanation (Lakdawalla et al): • welfare-improving technology facilitates economic growth causes a drop in relative food prices - increasing caloric consumption, • while at the same time these changes lead to a reduction in caloric expenditure from work activities.

Large Structural Changes • Nutrition transition • Migration – increases boys risk of obesity, but not girls. • Urbanization • Changes in technology

International Migration

International Migration and Food Security • What are the connections? – Changes in agricultural production • Increases liquidity but decreases labor – Changes in household income – increases – Changes in family composition – Changes in food preferences – Decreases insurance and liquidity constraints.

Food Policy in Latin America • Conditional Cash Transfers – Reduces some measures of malnutrition up to 25% (Paes-Sousa et al, 2011 in Brazil). • Many other programs to fight malnutrition. • Obesity policy is harder.

Thank you! Questions? Comments?