Market Liberalization And Increasing Consumer Demand Commerce Essay


Market liberalization and increasing consumer demand in Developed countries offer attractive opportunities for agricultural exporters from developing countries. Trade in fishery products, exotics, pre-cut products, organic products and off-season fresh fruits and vegetables extend altogether new options for businesses. Yet, global market standards are stringent. Consumers in these countries and in urban areas in developing and transition economies demand safe and nutritional food, excellent quality and just-in-time delivery. This presents major challenges to producers and countries that lack state-of-the-art technologies and infrastructure. Particularly for producers in these countries, collaboration between trade partners has become increasingly important for the success of cross-border trade in the competitive market.

Supply chain management is a powerful tool to achieve this collaboration. Through supply chains, producers in developing countries and emerging economies can access market information and knowledge to hone their value-added activities. Developing cross-border supply chains is complex, however, and requires information and expertise about how to build chains, as well as communication and commitment from all the chain partners. The advantages of supply chain management are numerous, like the reduction of product losses, increase in sales, reduction of transaction costs, a better control of product quality and safety and the dissemination of technology, capital and knowledge among the chain partners. Supply chain management tools have been developed and implemented throughout the chain to guarantee optimal chain performance.

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Supply chain development not only benefits the private sector but also creates spin-offs that stimulate social, economical and environmental sustainable development in the region (employment generation, added value, decreases of product losses, etc.). Public support (e.g. development of the institutional infrastructure) plays an important role to create an enabling environment for private sector development. Public support might take the form of a public private partnership in a supply chain to share experiences, risks and bottlenecks. In developing countries and emerging economies, however, supply chain development is often hampered due to lack of governmental support. International organizations can assist these governments to upgrade cross-border trade and to link national and international partners to jointly tackle cross border trade obstacles. Institution building, raising awareness, pilot chain projects and the development of a toolkit are important activities to foster supply chain development.

This paper reviews issues of the development of supply chains with special emphasis on challenges for developing countries.

Perspectives for Chain Partners in Developing Countries

Globalization offers opportunities to developing country producers and exporters. One such opportunity is the year-round provision of fresh agricultural produce. Transnational companies, as well as retailers and importers are expanding their international operations to meet new consumer demands. This means that demand is no longer confined to local, at best regional, supply. Fresh produce can now be shipped from halfway across the world at lower costs and competitive prices. Moreover, advanced information technologies enable traders to respond quickly to changes in consumer demand and facilitate the flow of goods in today's highly complex global marketplace.

Consumers' mounting concerns regarding food quality and safety, government-implemented trade regulations and tough retail standards have increased the requirements for producers throughout the world. In developing countries and emerging economies, however, companies face particular challenges in adapting to these changing requirements.

Producers in developing countries are capitalizing on opportunities by entering into partnerships with other businesses active in the global food chain. In various cases, local farmers have linked their production activities to the interests of transnational companies, thus achieving vertically controlled operations in a cross border supply chain.

Cross-border supply chains are incontrovertibly a vehicle by which new forms of production, (on farm) technologies, labor processes and organizational relations and networks are introduced. The trade relations between Mexico and the United States are an example of how supply chains induced shifts in production methods, social divisions of labor, on-farm technologies, and can cumulatively reorganize an entire fresh produce supply system. It is through these shifts that Mexican producers have become the suppliers of North America's 'salad bowls' (Little and Watts, 1994). With the increasing scale and international consolidation of markets for agro industrial products, investments and activities in local markets are set to increase throughout the world.

Supply chains not only benefit the companies directly involved, they also stimulate social, economical and environmental sustainable development within a region or country. Cross-border supply chain development can, for example, stimulate the development of local agro-industry, employment generation, local food production, value addition to products, introduction of new technologies, decreasing product losses, increased export earnings, and improved food safety and nutrition by connecting chain partners and their activities.

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However, there are concerns that poor small-scale producers are in a disadvantageous position to adjust to new market conditions. These producers are often the least organized group in the supply chain. Most have small-scale operations, use traditional techniques, depend on family labor, and have little capital to invest. Producers with access to capital, technology and logistics may be best positioned to reap the benefits. As a result of increased competition, poor small-scale producers may turn out as the losers.

To grasp new opportunities for trade and income, chain partners in developing countries - producers, processors and exporters - must adapt to the quality and safety requirements and standards of importers and retailers. To adapt, however, they first need to understand markets, strategically plan their activities, and have access to means to improve products and to upgrade production systems. Above all, to profit from the emerging opportunities, chain partners in developing countries and emerging economies must shift from an internal product orientation to an external market orientation (table 1). This is, however, a big challenge.

Table 1: Product-oriented versus market-oriented enterprises

Product-Oriented Enterprises Market-Oriented Enterprises

Focus is on product 1. Focus is on product-market


Strive is towards production Maximization 2. Strive is to maximize added value

Planning is operational 3. Planning is Strategic.

Information exchange is limited 4. Information is shared along the

Supply Chain

Whereas on the one hand there are opportunities for developing countries to benefit from increased international trade opportunities, there are also concerns that producers in these countries cannot upgrade their production system to compete on the global market and that these countries do not have the required institutional and infrastructural facilities to reap the benefits.

For meeting increasing standards, the private sector in these countries should invest and engage in new market arrangements. However, the private sector competitiveness may be limited because of inadequate support and capacities from the public sector and a lack of basic social and physical infrastructure (Farina & Reardon, 2000). Public sector support (e.g. development of the institutional infrastructure) to enhance capacity of the private sector to develop consumer oriented products and to enter new markets is therefore a requirement for successful cross border trade.

This paper reviews issues of development of cross-border agri-supply chains with special emphasis on challenges for developing countries. The next section introduces agri supply chain management and cross-border agri-supply chains. It reviews how cross-border agri-supply chains develop and flourish in today's consumer-oriented markets. Section three indicates the importance of the involvement of the public sector and the role of the government in agri-supply chain development.

Agri Supply Chain Management

Three main important market driving forces urge supply chain partners to collaborate, namely market segmentation, consumers' demand and low cost strategy (figure 1). Especially for chain partners in developing countries who wish to participate on the global market (far away markets), supply chain collaboration is of utmost importance for the connection with profitable markets and consumer's demands, the flow of information, goods, technology and capital and to limit transaction costs.

Fig 1: Current Market Driving Forces

Market Segmentation Chain Differentiation

Product & Service Differentiation

Value Added Demand

Satisfy the need for

Integrated chain care





Animal Welfare

Low Cost Strategy

Chain Optimization

The changing life-style of consumers' is driving demand for particular products such as organic, exotic, fair trade, pre-cut, ready-to-eat products, etc. This development challenges chain partners to differentiate their chain to offer value-added products and services to a particular market segment.

Consumer choices are increasingly being determined by requirements in the area of safety and health. Care for the environment, social components and animal welfare are becoming more important. Striving to sustainability is the new goal set by society. All companies in the chain should cooperate together in order to avoid loss of consumer confidence. Integral chain care and quality assurances are the key.

Supply Chains

We speak of a 'supply chain' when different actors are linked from 'farm to fork' to achieve a more effective and consumer-oriented flow of products. This paper focuses on agri-supply chains that incorporate actors from developing and developed countries (figure 2). Such supply chains may include growers, pickers, packers, processors, storage and transport facilitators, marketers, exporters, importers, distributors, wholesalers, and retailers. Supply chain development can thus benefit a broad spectrum of society, rural and urban, in developing countries.

Figure 2: Cross-border supply chain


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Retailer Industrialized Country

Food Industry

Agri Industry

Developing Country


Input Supplier

Building Supply Chains

Supply chains are not developed by itself but requires a lot of efforts and competencies of those involved. Before a supply chain is developed, certain steps have to be taken in order to formulate the right chain organization. Special care is required for the formation of cross-border supply chains as differences in business and social culture can have for instance large influences in the performance of the chain collaboration.

The first step in agri supply chain development is the analyses of the existing trade system and the trade environment (product flow, exchange levels, forces affecting the operation of the supply chain such as governmental policies, etc.). From this analysis, potential supply chain players can be identified and their function, role and relationships in the trade system can be delineated. The success of a supply chain depends on a strong chain leader. The chain leader acts as the supply chain manager. The explicit acceptance of the chain leader is very important for initial chain formation and the sustainable supply chain collaboration.

Included in the analysis, the performance of the supply chain should be measured according to criteria set by the chain partners (such as efficiency, flexibility, innovation, responsiveness, etc.). For international benchmarking, the present situation in the chain organization will be compared to the desired situation. Through this benchmarking, the different aspects of the supply chains can be analyzed and the critical success factors can be determined. A SWOT-analysis is conducted for the overall assessment to assess the strengths and weaknesses of the supply chain and the opportunities and threats of the supply chain environment.

Figure 3: Supply Chain Analyses



Food Industry



Chain Competence

The development of supply chains requires knowledge and expertise about chains and within chains (figure 4). Knowledge about chains concerns the functioning of chains as a whole. The supply chain strategy is of utmost important for the competitive position of all chain partners. To determine the chain strategy, it is crucial to understand the consumer and the competitive environment. Chain partners still focus mainly on internal strategies such as back-to-core and cost-cutting strategies aiming to respond to severe competition and low margins. Anticipating on consumer's demand is becoming more and more important. At the developing stage of a supply chain, representatives of the chain partners formulate the strategy of their chain.

Knowledge on chain formation prevents these chain partners from pitfalls in the process of chain formation. Chain organization knowledge assists to find the appropriate partners that complement each other. Knowledge about chains is essential to developing a workable architecture but knowledge within chains is essential for assuring sustainability. Knowledge within chains concerns the execution of specific functions within a chain, like chain marketing, logistics, information flow, etc. It is going to be crucial to all chain partners to be actively involved and to respond as fast as possible to market changes. Key factors of success for supply chain development are partnerships and integration.

Figure 4: Knowledge about chains and within chains

Knowledge with in chain

Knowledge about Chain

Chain Marketing

Chain Strategy

Chain Logistics

Chain Formation

Quality assurance

Information flows

Chain Organization

Chain Design

Added value


Chain Management


Chain Design

Supply Chain Management and its Benefits

Managing supply chains requires an integral approach in which chain partners jointly plan and control the flow of goods, information, technology and capital from 'farm to fork', meaning from the suppliers of raw materials to the final consumers and vice versa.

In order to react effectively and quick to consumer's demand, supply chain management is consumer-oriented. It aims at coordination of production processes (Lambert and Cooper 2000, Hadfield and Nichols 1999). Supply chain management results in lower transaction costs and increased margins. Because of the many activities and aspects involved it demands a multidisciplinary approach and sustainable trade relations. Supply chain partnerships are based on interdependence, trust, open communication and mutual benefits.

The advantages of the supply chain management approach are numerous. Some important advantages are:

Reduction of product losses in transportation and storage.

Increasing of sales.

Dissemination of technology, advanced techniques, capital and knowledge among the chain partners.

Better information about the flow of products, markets and technologies.

Transparency of the supply chain.

Tracking & tracing to the source.

Better control of product safety and quality.

Large investments and risks are shared among partners in the chain.

Supply Chain Management Tools

A range of new supply chain management tools have been developed over the past decade. 'Efficient consumer response' (ECR) has been developed to increase the consumer orientation and cost-effectiveness of supply chains (Kurt Salmon Associates). New management systems have been implemented to improve logistics, increase the use of information and communications technologies and boost quality management (Lambert and Cooper, 2000). New generation cooperatives are emerging, strengthening the position of farmers' groups (Cook et al., 2001) and strategic partnering and vertical alliances are cementing sustainable partnerships throughout the supply chain.

Food safety concerns have led to the development of 'integral chain-care' tools such as social accountability, good agricultural practice (GAP), total quality management, and HACCP (hazard analysis at critical control points). Implementation of such tools throughout a cross-border supply chain enables chain partners to ensure the quality and safety of their products and guarantees acceptable social chain performance. Supermarkets in India and China, for example, have initiated total quality management programs and HACCP rules for perishables like fresh fish, meat and Vegetables. Retailers have increasingly established their own quality standards which suppliers must meet. Tracking and tracing systems are used to certify the quality of products and ensure transparency in the flow of goods throughout the supply chain. Implementing such standards and systems impacts not only the organization of supply chains, but also financial aspects of chain cooperation (Cook et al., 2001).

Sharpened requirements for standards have prompted public and private actors to establish a variety of initiatives to build or strengthen agri-supply chains. (Box 1) describes one of these initiatives, the Netherlands-based Agri Chain Competence Center (ACC).

Role of Government in Agri-Chain Development

As shown in the previous section, supply chain development does not occur by itself. It requires effort and commitment from all chain partners. Supply chain development not only benefits the private sector but also creates spin-offs that stimulate social, environmental and economical sustainable development within the region (employment generation, added value, decreases of product losses, etc.). Public support plays an important role in the development of supply chains to create an enabling environment for private sector development.

However, in developing countries and emerging economies, supply-chain development is often hampered due to lack of government support for communication and transport infrastructure (e.g., roads and ports), agricultural research and extension services, and financial institutions. Indeed, developing country governments rarely actively encourage cross-border supply chain development with policy incentives. Agricultural trade may instead be frustrated by price controls, disruptive fiscal and monetary policies and inward-oriented development strategies. The integration of agricultural trade into the World Trade Organization (WTO) commitments is also far from complete. In the meantime, sanitary and phytosanitary (SPS) measures, depressed global prices due to export subsidies and tariffs, and quotas and strict safety and quality regulations imposed by importing countries continue to exclude poor countries that do not or cannot adapt.

In fact, governments can improve the environment for agri-chain development by:

Organizing platforms for public and private actors to exchange information on bottlenecks in cross-border agricultural trade. The ultimate goal here is to formulate and implement policies (e.g., product and production standards, codes of conduct) to stimulate cross-border agri chain development.

Investing in transportation, communication and electricity.

Offering incentives for sustainable use of production resources.

Offering subsidies or co-financing supply for high -risk investments.

Establishing and enforcing a commercial code that includes property rights and fair and expeditious judicial processes for resolving contract disputes.

Assembling a body of knowledge on supply chains through supported research institutions or programs.

This knowledge inventory could then be used to develop a set of tools and lessons learned for firms at the start of supply chain development.

Public-Private Partnerships

Government support might take the form of a public private partnership in a supply chain. Public private partnerships aim at win-win situations and are thus beneficial for the society at large and for private sector entities. Public -private alliances are generally defined in contractual relationships in which the partners agree to cooperate in pursuit of a common goal. Contributions are made on both sides and risks are shared.

The public research institute might contribute by developing and testing new technologies, tools, models, and instruments to improve the performance of the supply chain, usually financially supported by government. The private firms can access this knowledge. As such, public research is driven by private-sector demand; it facilitates the private sector's access to knowledge and, intended, fosters private-sector development. Government's role in public-private partnerships can be as co-financier of a supply chain project, as creator of an enabling environment (e.g., through provision of research and physical infrastructure) and as mediator in trade negotiations.

Box 1: The Agri Chain Competence Center

ACC supports public-private partnership in supply chain projects. ACC's goal is to improve the competitive position of agro-industry by stimulating the development and utilization of supply chain knowledge. ACC initiates pilot projects in which private companies collaborate with research institutes to develop and implement innovative chain concepts. ACC activities fall into five categories: Raising awareness about the supply-chain approach and about the importance of public private partnerships Connecting chain partners to develop pilot projects related to supply chains linking private and public parties to jointly tackle specific chain problems Co-financing or seeking funds to develop pilot projects Disseminating experience and knowledge gained in pilot projects through the Internet and publications ACC assists the private sector, governments, and research institutes in jointly creating an enabling environment for cross-border trade opportunities, linking these partners to reduce bottlenecks. In many areas, such as food safety and applied technology, various forms of public private cooperation are found to be necessary and co-funding is usually desirable.

International organizations

International organizations such as the World Bank, World Trade Organization, Food & Agricultural Organization, international research institutes, etc. can assist national governments of developing countries and emerging economies with special and sustainable public interventions to upgrade cross-border trade. These interventions can include national strategy for the development of the private sector, implementation of trade policies, institutional capacity building, analysis of particular agro-systems, supply chain analysis of particular products, training courses in supply chain development.

The international organizations can also stimulate public -private partnerships by linking national and international research institutes, governments and the private sector to jointly tackle obstacles for cross-border trade and to benefit from opportunities.

Developing cross-border chains

As been indicated, different stakeholders play an important role with the developing of cross border supply chains (private companies, government, research institutes, international organizations and public-private initiatives). Figure 5 portrays the four types of activities that can be undertaken to foster supply chain development by these stakeholders:

Awareness raising to gain stakeholder involvement in the (emerging) chain

Institution building, encompassing both public and private partners

Pilot projects, to provide insights and expertise

Tools, by which experience and knowledge are disseminated to stakeholders

Fig 5: Cycle for supply chain Development

Awareness raising Activity

Institution Building

Tools & case Description

Chain pilot projects

Raising Awareness

Experience shows that seminars or workshops are effective ways of bringing agencies of the public sector together to learn about the opportunities and issues involved in supply chain development. These agencies meet to identify and discuss trade opportunities for their country in the global market, as well as potential benefits to society, such as generation of employment and income for the rural poor.

Awareness rising can also be undertaken among partners who have decided to collaborate in a supply chain. Seminars, for instance, provide opportunities for the partners to get acquainted and build up relationships. Chain partners discuss bottlenecks, opportunities and their future roles in the supply chain as they exchange information about their own situations. Research institutes and governmental agencies take part in these discussions and cooperate in a search for the best supply chain solutions.

Institution Building

Institutions that stimulate supply chain development are essential since the development of supply chains is complex and requires knowledge about chains and within chains. In many countries, these institutions do not exist or are very weak. Strengthen existing public institutions or creating new ones may enhance public and private parties' ability to solve supply chain problems jointly.

The institutions act as intermediaries and recognize the common interest of an entire sector of the economy and that is familiar with the areas of competence of research institutions and universities in this field. This intermediary plays an important role in the establishment of public private partnerships. It stimulates demand for knowledge, assist in formulating research questions, match demand and supply for knowledge, disseminate lessons learned and fund (part of) chain pilot projects and programs (see also Box 1).

Pilot Projects

In pilot projects, partners collaborate to identify and solve problems in their supply chain. 'Learning by doing' and 'learning from best practices' are common methodologies in such projects. Chain partners discuss and analyze their operations looking for practical ways to, for example, reduce costs and improve food quality and safety. Information is also disseminated, for example, on new technology and know-how and on means to improve collaboration among chain partners.

Best practices from other regions and agri-chains can provide insight into best approaches for solving particular problems or to ways of benefiting from new opportunities. Best practices derived from pilot projects have shown partners how they might improve quality, certification, logistics (reduction of lead-time and storage), information exchange, consumer responsiveness and innovation.

The pilot-project approach should preferably be bottom-up. Initiatives for improving vertical chain coordination should come from the (potential) partners in the chain, to increase the chance of their being implemented in practice. A typical pilot project lasts one to three years and consists of a four-phase cycle of orientation/analysis, definition, implementation, and monitoring and evaluation.


Pilot projects are market-oriented; to ensure that supply chain activities are adapted to consumer demands. By executing projects systematically, experience gained can be compared and tools developed for application in other supply chains. Experiences and knowledge can be translated into case descriptions and into tools and materials for training courses and seminars. Best practices can be distilled into lists of 'dos and don'ts' for projects to improve the workings of supply chains.

Public and Private Responsibilities

In the day-to-day reality of business, supply-chain formation is not about creating equality between trade partners, but about creating sustainable and interdependent relationships. The private sector should have the lead in creating viable supply chains.

The government plays an important role in cross-border trade. Governments have a two-fold responsibility. The first is to create a good climate for private investment in supply chains. The second is to create an environment in which the poor and smallholders can gain income, employment and reliable supply of consumer goods through supply-chain development. This can entail that governments provide the poor with access to resources and reduce market failures that are obstacles to the poor.

This paper has indicated that both parties, private and public, bear responsibilities for cross border supply chain development.