A first step toward understanding effects of participation in supermarket sup- ply chains is establishing the circumstances of suppliers before they began sup- plying. We have extremely rich recall data on supplier productive assets, market participation, and production. In this section we use descriptives to character- ize the production and market behavior of suppliers before they sold to the supermarket and to build some intuition for the depth and breadth of a suppli- ers’ relationships with supermarkets. Is the supermarket recruiting from a rel- atively technologically sophisticated population of horticulturalists or are sup- pliers drawn from the population of smallholders concentrated in basic grains production?
Our sample consists of 466 nonsuppliers, 231 continuous suppliers and 152 discontinued suppliers who both entered and exited the supply chain between 2001 and 2008. Table 3.2.1 disaggregates the 396 suppliers by the supermar- ket chain supplied and presents the mean relationship tenure, both by chain and by whether the farmer exited the supply chain or was still a supplier in 2007. The mean supply relationship for suppliers still working with a super- market in 2008 was a little over two and a half years and discontinued suppliers a little more than one and a half years. Our samples of both current suppliers and discontinued suppliers are dominated by farmers supplying Wal-Mart (or
Wal-Mart’s predecessor, Ahold).6 Few farmers supply multiple chains simulta-
neously, in fact Wal-Mart has policies actively discouraging its supplier farmers from working with the company’s competition.
6The supermarket category Other in Table 3.2.1 is mostly the retailer PriceSmart, which has
one store in Managua. The category Multiple largely consists of farmers who moved from supplying Wal-Mart to supplying La Colonia.
Contracts are generally verbal agreements specifying quantities of specific quality product to be purchased from the farmer by the supermarket buyer at a future date or according to a future schedule. Prices at the date of the transac- tion are often set explicitly or set with respect to reference traditional markets; minimum prices are also often set, so the farmer knows the lowest possible price that he will receive for his production. In the case of NGO-organized farmers, a written contract is sometimes negotiated with the NGO for a specified aggregate quantity and purchasing schedule.
Table 3.1: Mean duration of supply relationship, by supplier status and supermarket chain
n Mean supply (s.d.) min max
relationship duration (years) Wal-Mart Current suppliers 168 2.70 (1.94) 0 7 Discontinued suppliers 144 1.67 (1.33) 1 7 La Colonia Current suppliers 34 2.88 (1.95) 0 7 Discontinued suppliers 2 1 (0) 1 1 Other Current suppliers 10 1.9 (1.29) 1 4 Discontinued suppliers 6 2.17 (2.40) 1 7 Multiple Current suppliers 32 3.69 (2.01) 1 7 Discontinued suppliers 0 Total 396
Pre-supermarkets, suppliers are an extremely heterogeneous set, cultivating a range of crops with a variety of technologies and production intensities. Ta- ble 3.2 distinguishes between farmers who grew basic grains before supplying
the supermarket, farmers who were already growing the crop that they would ultimately sell to the supermarket, farmers that both grew basic grains and the sourced crop before supplying, and farmers who grew neither (mostly coffee or cash crops). One hundred thirty-two farmers grew basic grains but not the sup- ply crop (33.3 percent of all suppliers) while 208 (52.5 percent) suppliers had some experience growing the crop they were ultimately contracted to supply to the supermarket. However, more than three-quarters of all suppliers (and three quarters of all suppliers with some experience growing the sourced crop before the contract) were rain-fed, without irrigation, prior to the supermarket. Evidence in Table 3.2 suggests that, though more than fifty percent of suppliers had some prior experience growing the supplied crop, many were not growing at the scale or the frequency required by the contract. Farmers who grew ba- sic grains and not the supply crop prior to the contract are mostly farmers who entered the supply chain through NGO projects. Farmers in our sample have supplied a wide range of horticulture including: tomatoes, lettuce, small green peppers, cabbage, cucumber, onion, broccoli, fresh herbs, carrots, beets, green beans, radish, etc.
Table 3.2: Supplier production and irrigation prior to supermarket supply contract.
Basic grains Supermarket Both Other Total
only crop only
Irrigation before
becoming a supplier 32 28 24 11 95
No irrigation 100 84 72 45 301
Once these largely rainfed farmers enter the supermarket supply chain, nei- ther their production nor their marketing behavior is exclusively concentrated in the supermarket relationship. Data from 2007 suppliers indicate that the majority supplied one crop to the supermarket while selling two crops in non- supermarket markets and growing a mean of four crops. Discontinued suppli- ers grow and market, on average, the same number of crops as current suppli- ers. Table 3.2.1 presents the mean total number of crops grown and total num- ber of crops sold by suppliers in 2007, disaggregated by the number of crops the supplier sold to the supermarket in 2007. Non-suppliers grow and market a significantly smaller number of crops than current or discontinued suppliers.
The crops gown by suppliers and the transaction frequency described in this section suggest that farmers will need access to the resources, geographic and household, to permit extended production schedules. A plausible selec- tion model and empirical strategy therefore must consider place and household characteristics simultaneously, a task to which we now turn.