What’s Eating Latin America?

Development Policy Review,
Vol. 20, No. 4, September 2002, Oxford

Attention Latin American shoppers: A brand-new supermarket is coming soon to a crossroads near you!

Like it or not (and some in the region don’t), the giant stores "are now dominant players in most of the agrifood economy of Latin America," argue Thomas Reardon and Julio Berdegué in the bimonthly journal Development Policy Review. Reardon, an agricultural economist at Michigan State University, and Berdegué, president of the Chile-based International Network of Farming Systems Research Methodology, examine the rapid growth of supermarkets and their effect on the dairy and produce sectors of the region’s rural economies.

In 1990, supermarkets made up 10 to 20 percent of Latin America’s retail sector; by 2000, the share had reached 50 to 60 percent. A variety of factors contributed to this growth: increased urbanization, the entry of women into the workforce, and rapid per capita income growth on the demand side, and trade liberalization and a surge in foreign direct investment on the supply side.

The growth has been quite impressive, as Reardon and Berdegué demonstrate, but many Latin Americans still frequent small markets in addition to the giant stores, for economic and cultural reasons. In Colombia, for example, patrons of small markets may shop as often as 14 or 15 times a week at small retailers and stop by a supermarket only once or twice in the same period. And there’s an advantage to picking up a loaf of bread or a bottle of wine where you’re known: Small shops or larger, locally owned markets will extend credit; the big chains generally don’t. Convenience will keep many small shops up and running for a while; for those without cars, reaching a supermarket can require a long hike.

But as the authors note, the superstores are here to stay. And as these supermarkets multiplied during the 1990s, they became more multinational in nature. In most of the region, as Reardon and Berdegué find, between 60 and 80 percent of the top five supermarket chains are global multinationals. The entry and growth of these large chains, the authors maintain, have been largely the result of increased mergers and acquisitions. With U.S. and European markets saturated and economies everywhere sputtering, multinational food retailers are facing intense pressure to shore up their bottom lines. So they have turned to Latin America — where they have been buying up local chains and entering into joint ventures with domestic companies to take over smaller regional chains and independents. "In general, the losers have been the small traditional stores and plaza markets," explain Reardon and Berdegué. "Many thousands of small shops, ‘mom and pop stores,’ went out of business…." Small dairy and produce farmers are also feeling the impact of the multinational invasion. These producers cannot meet the new quality-control standards that the giant stores are imposing. Thus, supermarkets are now dropping many smallholders from supplier lists, causing dislocation and hardship for farmers and their families.

The social and economic upheaval that has resulted from the influx of these giant stores — in addition to the financial crises that the region continues to experience — has driven policy planners back to the drawing board. The authors argue that development programs should aid the dairy and produce sectors, as well as grain producers, so they can compete for the large stores’ attention and business.

Efforts to assist smallholders, however, may be too little, too late. The multinationals seem determined to gobble up the supermarket sector in Latin America. The smallholder, both retailer and farmer, may well be doomed to follow the path of the small farmer in the United States in the 1930s: The U.S. farm population began to decline dramatically — as a result of the devastating effects of the Great Depression compounded by the advent of supermarket chains — and many who stayed could only do so with the aid of government subsidies. And Reardon and Berdegué neglect the role of imported food. Agricultural nations such as the United States are actively promoting exports of raw and processed foods to be sold in supermarkets across Latin America, as well as training management in the operation of large stores.

As supermarkets continue to gain market share through corporate consolidation, Latin Americans will have fewer choices of where to buy their food. The current shortages in Venezuela illustrate the tenuous nature of reliance on transnational supermarket chains and wholesalers to provide food — much of which is imported.