[stop-imf] Supermarket Giants Crush Central American Farmers

[robert weissman]

[snip]

Even in economically vibrant Chile, which has invested $1.5 billion in
small-scale farming since 1990, a study of 750 farmer organizations
found that 8 of 10 had failed or survived only with continuous infusions
of government aid.

Mr. Berdegu=E9, author of the Chile study, had sought to make the
associations work in the 1990's when he was a senior government official
there. The pressure from the I.M.F. and the World Bank to allow greater
foreign investment was intended to make Latin American economies more
competitive.

"But the model did not have a social dimension at the real center," he
said. "It was trickle-down economics."

[snip]

The New York Times
December 28, 2004
THE FOOD CHAIN | SURVIVAL OF THE BIGGEST
Supermarket Giants Crush Central American Farmers
By CELIA W. DUGGER

PALENCIA, Guatemala - Mario Chinchilla, his face shaded by a battered
straw hat, worriedly surveyed his field of sickly tomatoes. His hands
and jeans were caked with dirt, but no amount of labor would ever turn
his puny crop into the plump, unblemished produce the country's main
supermarket chain displays in its big stores.

For a time, the farmer's cooperative he heads managed to sell vegetables
to the chain, part owned by the giant Dutch multinational, Ahold, which
counts Stop & Shop among its assets. But the co-op's members lacked the
expertise, as well as the money to invest in the modern greenhouses,
drip irrigation and pest control that would have helped them meet
supermarket specifications.

Squatting next to his field, Mr. Chinchilla's rugged face was a portrait
of defeat. "They wanted consistent supply without ups and downs," he
said, scratching the soil with a stick. "We didn't have the capacity to
do it."

Across Latin America, supermarket chains partly or wholly owned by
global corporate goliaths like Ahold, Wal-Mart and Carrefour have
revolutionized food distribution in the short span of a decade and have
now begun to transform food growing, too.

The megastores are popular with customers for their lower prices, choice
and convenience. But their sudden appearance has brought unanticipated
and daunting challenges to millions of struggling, small farmers.

The stark danger is that increasing numbers of them will go bust and
join streams of desperate migrants to America and the urban slums of
their own countries. Their declining fortunes, economists and
agronomists fear, could worsen inequality in a region where the gap
between rich and poor already yawns cavernously and the concentration of
land in the hands of an elite has historically fueled cycles of
rebellion and violent repression.

"It's like being on a train with a glass on a table and it's about to
fall off and break," said Prof. Thomas Reardon, an agricultural
economist at Michigan State University. "Everyone sees the glass on the
table - but do they see it shaking? Do they see the edge? The edge is
the structural changes in the market."

In the 1990's supermarkets went from controlling 10 to 20 percent of the
market in the region to dominating it, a transition that took 50 years
in the United States, according to researchers at Michigan State and the
Latin American Center for Rural Development in Santiago, Chile.

Brazil, Argentina, Chile, Costa Rica and Mexico are furthest along.
While the changes have happened more slowly in poorer, more rural
Central American countries, they have begun to quicken here, too. In
Guatemala, the number of supermarkets has more than doubled in the past
decade, as the share of food they retail has reached 35 percent.

The hope that small farmers would benefit by banding together in
business-minded associations has not been borne out. Some like Aj
Ticonel, in the city of Chimaltenango, have succeeded. But the evidence
suggests that the failure of Mr. Chinchilla's co-op is the more common fate=
.

Its feeble attempts to sell to major supermarkets illustrate how the
odds are stacked against small farmers, as well as the uneven effects of
globalization itself. Many small farmers in the region are getting left
behind, while medium-sized and larger growers, with more money and
marketing savvy, are far more likely to benefit.

Most fruits and vegetables in the region are still sold in small shops
and open-air markets, but the value of supermarket purchases from
farmers has soared and now surpasses that of produce exports by two and
half times, researchers say.

The bottom line: supermarkets and their privately set standards already
loom larger for many farmers than the rules of the World Trade Organization=
.

Still, stiff competition from foreign growers is also quite real. To
enter the supermarkets of Guatemala's dominant supermarket chain, La
Fragua - part of a holding company one-third owned by Ahold - is to
understand why Professor Reardon likens them to a Trojan horse for
foreign goods.

At La Fragua's immense distribution center in Guatemala City, trucks
back into loading docks, where electric forklifts unload apples from
Washington State, pineapples from Chile, potatoes from Idaho and
avocados from Mexico.

The produce is trucked from here to the chain's supermarkets, which now
span the country. Scenes at a mall in Guatemala City anchored by Maxi
Bodega, one of the company's stores, suggest the evolving nature of
grocery shopping for Latin America's 512 million people.

On the ground floor was a sprawling, old-fashioned produce market. At
the entry, there was a shrine to its patron saint, the Virgin of
Rosario, who had plastic flowers sprinkled at her queenly feet.

The sound of women patting out tortillas and the sweet smells of ripe
tropical fruits drifted through the market as people stopped to squeeze
the avocados, sniff the pineapples and haggle for cheaper oranges.

To go upstairs was to leave Guatemala behind and enter a mall that could
be in Bangkok or New York, with its synthetic Christmas wreaths, cheap
clothing stores and oversized discount packages of napkins and
symmetrical tomatoes in plastic trays at the Maxi Bodega.

The Baldetti family exemplified the generational change unfolding here.

Delia Baldetti, an 81-year-old housewife, will only shop for produce
amid the heaps of tomatoes, chilies and papayas where she can bargain to
her heart's content. Her daughter Elsa, a 56-year-old painter, shops
both here and at Maxi Bodega, while Elsa's daughter, a 36-year-old
business administrator, only has time for the supermarket.

Elsa wistfully predicted that while the country's fragrant, raucous
markets will never disappear, they will diminish. "We'll lose some of
our identity," she said. "We're copying the foreigners."

Farmers who do not or cannot afford to change fast enough to meet the
standards set by supermarkets are threatened.

The tiny farming community of Lo de Silva clings to a steep, verdant
hillside. Slanting cornstalks look as if they would slide into the
valley if they were not rooted to the earth.

Some of the more than 300 farmers who originally belonged to Mr.
Chinchilla's co-op, the Association of Small Irrigation Users of
Palencia - known by its Spanish acronym, Asumpal - were from this
village. Only eight remain. The only product they still sell is salad
tomatoes - and they sell to middlemen, not supermarkets.

Jos=E9 Luis P=E9rez Escobar, 44, a member of the co-op, scratched out a
living for 20 years from his small field, perched in the clouds here.

But after his potato crop failed last year, he migrated to the United
States to save his land from foreclosure by the bank, leaving his wife,
Mar=EDa Graciela Lorenzana, and their five children behind. He now works
the graveyard shift at a golf course in Texas for $6 an hour so he can
pay his debts.

He had dreamed his cooperative would help him escape poverty by selling
directly to the supermarkets. "It would be magnificent," Mrs. Lorenzana
recalled of that more hopeful time. "The small farmer would not need a
middleman. But he was never able to achieve it."

A Transformation Begins

The transformation of Latin America's food retailing system began in the
1980's and accelerated in the 1990's as countries opened their
economies, often to satisfy conditions for loans from the International
Monetary Fund and the World Bank. As foreign investment flooded in,
multinational retailers bought up domestic chains or entered joint
ventures with them.

Most concern about the perils of globalization for local farmers has
focused on unfair trade competition from heavily subsidized American and
European producers.

But increasingly, supermarkets also leave small farmers exposed as the
stores spread from big cities to small towns, from well-to-do enclaves
to working-class neighborhoods, from richer countries to poorer ones.

The chains now dominate sales of processed foods and their share of
produce sales is growing. In Guatemala, supermarkets still control only
10 to 15 percent of fruit and vegetable sales. But in Argentina, their
slice has grown to as much as 30 percent, while in Brazil they control
half the market, according to Professor Reardon.

As the chains' market share expands, farmers who are shut out find
themselves forced to retreat to shrinking rural markets.

The changes would not be so troubling if the region's economies were
growing robustly and generating decent jobs for globalization's losers.
After all, supermarkets are providing consumers with cheaper, cleaner
places to buy food, economists say.

"It would be an appealing transformation of the sector if alternative
jobs could be made available," said Samuel Morley, an economist at the
International Food Policy Research Institute in Washington.

But economic growth has not kept pace with rising populations. The
number of people living below poverty lines in Latin America has risen
from 200 million in 1990 to 224 million this year. More than 6 in 10
people living in rural areas are still poor.

Given the difficulties small farmers face in doing business with
multinational corporations, traditional strategies, like providing
peasants with fertilizer and improved seeds, now seem quaint here.

Professor Reardon and Julio A. Berdegu=E9, an agronomist who heads the
Latin American Center for Rural Development, are collaborating with
supermarket researchers across Asia and Africa, as well as Latin
America, to document the trends.

In addition, a team at Michigan State has financing from the United
States Agency for International Development to help small farmers in
Central America, India and Kenya sell to supermarkets. They and other
development experts are brainstorming about what to do.

Among the ideas: Regulations requiring that farmers be paid promptly.
Enforcement of laws meant to curtail monopolies and oligopolies,
including mergers of supermarket chains. Improved security and
cleanliness at open-air markets. Infusions of credit and technical
expertise for co-ops.

But while such cooperatives are almost certainly necessary if small
growers are to amass the clout and scale to sell to multinational
chains, they have been a disappointment so far.

Even in economically vibrant Chile, which has invested $1.5 billion in
small-scale farming since 1990, a study of 750 farmer organizations
found that 8 of 10 had failed or survived only with continuous infusions
of government aid.

Mr. Berdegu=E9, author of the Chile study, had sought to make the
associations work in the 1990's when he was a senior government official
there. The pressure from the I.M.F. and the World Bank to allow greater
foreign investment was intended to make Latin American economies more
competitive.

"But the model did not have a social dimension at the real center," he
said. "It was trickle-down economics."

An Experiment Disappoints

Mr. Chinchilla, 46, drove his battered, 20-year-old pickup, laden with
crates of tomatoes, into his cooperative's spacious packing shed. The
building and the business are in decay.

The water had been cut off. Toilets no longer flushed. The roof was
missing over the bathroom, its floor covered with bird droppings. The
live-in caretakers who sort the co-op's tomatoes had only an open pail
of rainwater to wash their hands. They wore no gloves while handling the
fruit.

Typically, each farmer is growing less than an acre of salad tomatoes in
rustic greenhouses that are fast deteriorating. Their production has
plummeted because of the blight that dries out the plants, which then
yield very small tomatoes.

"We haven't found a solution," Mar=EDa Antonietta Muralles, a co-op
member, said with a shrug. "Maybe it's the water."

Mr. Chinchilla treated his plants with pesticides to no effect. "You
can't fight it with chemicals," he said. Maybe the soil itself is
infected, they speculated.

"Everything costs money," he explained - money he does not have and
cannot afford to borrow at the going rate of 21 percent. "When you don't
have access to credit, you can't expand," he said. "We don't want
anything given to us, but we need a hand."

As the farmers talked, two workers separated tomatoes by size, with the
shrunken ones far too numerous. But their co-op's hopes of selling to
big supermarket chains withered well before the plants. The co-op got
started in the late 1990's, with a small grant from the government to
upgrade the packing shed. An agronomist, Candelario L=F3pez, was given a
two-year contract, also at government expense, to advise them.

Over the next couple of years, Mr. L=F3pez helped the co-op get its foot
in the door with La Fragua and C.S.U., another major supermarket chain.
The chains have since united to become the Central American Retail
Holding Company, with 332 stores and almost $2 billion in sales in 2003.
It is one-third owned by Ahold, which had more than $68 billion in sales
last year.

But the co-op did not manage to supply the big chains for long. The
farmers themselves were uncomfortable with the rules of the supermarket
game. They found it difficult to wait weeks to get paid. They did not
want to sell their vegetables on the books and pay taxes that sharply
cut profits. And some of what they supplied was rejected as too bruised
or too limp or too ripe.

The co-op's leaders said they quit selling to C.S.U. through its
dedicated wholesaler in 2000 after two container loads of vegetables got
held up for days at the Nicaraguan border, severely damaging the
produce. "We weren't prepared to absorb that kind of loss," said Marco
Tulio Alvizures, who then headed the co-op.

Perhaps more fundamental, co-op members had trouble consistently
delivering the quantity and quality of produce the supermarkets
demanded, a problem Mr. Chinchilla readily acknowledged.

In the case of La Fragua, Mr. Alvizures contended that the chain never
gave the co-op a chance to sell the amount it was capable of. But Jorge
Gonz=E1lez, the chain's manager for vegetables, said the small orders
likely reflected La Fragua's judgment, based on weekly evaluations, that
the co-op was not up to the task. The co-op was such a small supplier
that Mr. Gonz=E1lez could not recall all the details of their dealings.

The corporate imperative is to reward suppliers who consistently provide
what the chain requires. If the vegetables do not arrive, shelves stand
empty. "We punish farmers very hard if they don't deliver what we
order," said Bernardo Roehrs, a spokesman for the chain.

As the co-op members sought to navigate the difficult new world of
supermarkets, they lost the critical guidance of Mr. L=F3pez, the
agronomist, when his contract expired in 2001. He is now a salesman for
a company that makes high-tech greenhouses the co-op's farmers could
never afford.

A Rare Success Story

Not too far from Palencia, in the city of Chimaltenango, is Aj Ticonel,
an association of small farmers that has thrived because it has
something Mr. Chinchilla's co-op lacked: a shrewd and enterprising
businessman to run it.

But even for a savvy company like Aj Ticonel, success came not from
supplying choosy supermarket chains but rather from its ability to
exploit a global market.

Aj Ticonel sells three million pounds of mini-vegetables and snow peas
for export to the United States, but only 80,000 pounds to supermarkets.
Alberto Monterroso said he gave up on growing broccoli for La Fragua. He
found the chain bought inconsistent amounts. "There are a lot of
competitors here," he said, "a lot of small farmers trying to sell to
them, so the prices are low."

The company's success has been built instead on sales of pricey
vegetables for export. It now sells the same to La Fragua, and its
membership has risen from 40 families in 1999 to 2,000 today.

Its plant sparkles. Its 53 packers wear gloves, face masks and hairnets
as they sort slender French beans on stainless steel tables. Each box
produce is marked with a bar code traceable to the family that grew it.

Aj Ticonel sold $2.5 million worth of vegetables last year, but Mr.
Monterroso, a sociologist and deal maker with a passion for justice,
paid himself only $18,000. Most of the company's profits are plowed back
into the plant, marketing campaigns and agricultural education for the
farmers.

"I want a different country for my sons," Mr. Monterroso said. "I'm
trying to redistribute the wealth so people will live in harmony."

One recent afternoon, a big Aj Ticonel truck took a meandering path into
the hilly countryside, stopping for peasants waiting roadside with
crates of vegetables to load.

Many of them grumbled that Aj Ticonel does not pay enough and rejects
too many of their vegetables, but most had been selling to the company
for years. The evidence of their profit could be seen in new roofs,
freshly painted homes and well-clothed children.

Still, Mr. Monterroso acknowledged how hard it will be to replicate Aj
Ticonel. Three times, the company loaned money to farmers to clone
itself. Three times the farmers went out of business.

For Latin America's millions of small farmers, he offered this sobering
fact of life: "The client buys from us not because poor people produce
it, but because it's a good product."