S.

Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
The Chain Perspective in Food Supply -
reasons for its emergence
and some basic features
Dr. Susanne Hofmann
Humboldt-Universitt zu Berlin,
Faculty of Agriculture and Horticulture
Economics of Horticultural Production
susanne.hofmann@agrar.hu-berlin.de
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Drivers of change in the food sector(1)
1. Increasing competition
Globalisation/opening of the markets
Excess capacity in retail and partly production
Advance of retail chains
growing shares of supermarkets in total food sales
all around the world
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Advance of retail chains:
Top 10 World 2007
Rank Company Country
Turnover
in Tsd Mio
EUR
Turnover
abroad
in %
(2005)
1 Wal-Mart Stores Inc. USA 287,57
1)
22,4
2 Carrefour S.A. France 103,24 52,4
3 Metro Group Germany 74,83 51,7
4 Tesco Plc UK 73,30 23,1
5 The Kroger Co. USA 53,81
1)
0
6 Schwarz-Gruppe Germany 51,87 43,3
7 Seven & I Holdings Co. Ltd. Japan 51,12 34
8 Costco Wholesale Corp. USA 50,94
1)
20,5
9 Target Corp. USA 50,49
1)
0
10 Aldi Gruppe Germany 47,07 44,7
1)
1 USD = 0,73 EUR (average 2007)
internationalisation of retail
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Advance of Retail Chains
Rank Company Country
Turnover in
Tsd Mio EUR
11 Aeon Co Ltd. Japan 46,79
12 Groupe Auchan France 45,87
13 Ahold N.V. Netherlands 45,76
14 Sears Holdings Corporation USA 43,83
1)
.
.
30
.
.
Delhaize Group
.
.
Belgium
.
.
20,22
.
.
60 GOME China 9,99
61 Lotte Shopping South Korea 9,87
.
71
.
Suning
.
China
.
8,11
72 Shinsegae South Korea 8,08
. . . .
101 Whole Foods Market USA 5,07
1)
.
104
.
China Resources Enterprise
.
China
.
4,97
106 Pick 'n Pay South Africa 4,89
109 Shoprite South Africa 4,79
.
111 Lianhua China 4,69
1)
1 USD = 0,73 EUR (average 2007)
source:Lebensmittelzeitung, based on Planet Retail, 20 June 2008
http://www.lz-net.de/rankings/handelwelt/pages/show.prl?id=272
growing share
of organised
sales channels
for food
all over the
world
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Customer preferences for sales outlets
Criteria for choice of sales outlet (most important criterion)
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What do you consider when you decide where to buy food usually?
Please name the three most important criteria (in their order of
importance)! (supported)
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Drivers of change (2)
2. Changing customer demand
changes in life styles and food cultures
differentiation in income and demand (convenience
products, food safety, health, internationalisation)
differentiation away from the centre
Price
Quality
premium
brands
no name/
discount
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Drivers of change (3)
3. Technological progress
Logistics
Production technology and innovations
Communication and information technology
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
... and on the other side of the scale:
Persisting problems also in developing countries
high postharvest losses along food chains
food safety risks due to overuse of pesticides and
fertilisers
quality problems (whose quality standards count?)
variable production facilities and know-how
overuse of resources
government policies often merely quantity-oriented
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Result: Changes in organisation and
governance of food supply chains
more specialisation (division of labour)
more coordination
more standardisation (private standards stricter than
public laws!)
From competition between
firms to competition
between value chains
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Value chain
The value chain describes the process of value
creation from raw material through purchasing,
production, processing, distribution up to the
customer. It includes all transportation, storage
and administration activities lying between. It also
includes the increase in value having been carried
out in every step.
(Bokelmann, 2007)
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Example: Distribution of value-added in the
value chain for Yoghurt
Raw milk value
12 cents
Processing of the
raw milk
24 cents
%
Value-
added tax
5 cents
Retail
trade
13 cents
Packing
10 cents
Sales costs of the
Dairy (marketing,
Transportation) 5 cents
2 cents
Selling price
71 cents
Source: Federal
Institute of milk
research, adapted
Natural
Biol
Yoghurt
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Supply chain - value chain?
Value chain =
rather focussed on
interdependancies and
relationships
system view
approach for analysis
and development
Supply chain =
more focussed on
technical functioning
origins from logistics
supply chain
management as a
business management
tool
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
The value chain looked at from an
organisational perspective
Optimum Optimum Optimum
pack.
Sort
/stor
tran
sp
sour
cing
prod
ass
Out
let
Com
miss
Tran
sp
Ctl
Stor
Production Processor Retailer
Overall optimum?
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Problem: Competitiveness of value
chains
Competitive pressure
Pressure to economize
at all levels
Increase of
efficiency
Customer
orientation
Ability to
innovate
Mutual dependencies of
actors in the chain
Need for coordination
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Alternative forms of vertical
coordination in the food system
Farms and
Ranches
Food
Processors
Food
Retailers
(single firm)
Vertical Integration
Farms and
Ranches
Food
Processors
Food
Retailers
Open Markets
(exchange)
(exchange)
Farms and
Ranches
Food
Processors
Food
Retailers
Contracting
(Contract)
(Contract)
Kohls, Uhl 2002, S. 229
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Suppliers of
production-input
Producers
Trading
Companies
Consumers
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Physical Transport of goods
Information, Administration
Is the way from the
pre-product to the
customer organized in
a cost efficient way?
?
Do the
buyers get
the products
in the quality,
quantity and
composition
and at the
right time?
?
Example vegetable-growing:
What do we understand by an efficient
organisation of supply chains?
Are Products
always available?
Product
Development
Quality/
freshness?
Administration?
Storage costs?
Transpor-
tation-
costs?
Cost of Control?
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Management attempts to solve the
coordination problem
Integral approaches
Global Commodity Chains (GCC developing countries)
Efficient Consumer Response (ECR)
Supply Chain Management
Special approaches
Quality
Traceability
Logistics
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
The customer-
orientation
principle
ensures that all
activities in the
chain serve the
fulfillment of
customer needs.
The basic principles of Supply-Chain
Management
chain
efficiency
consumer
orientation
The integration
principle stands for the
necessity to analyse and
to form the complete
value-added chain as a
unity.
The efficiency
principle stands for
the specific
organisation of the
value-added chain
as a whole (overall
optimum).
Advantages can only be
reached by cooperation of
the chain members.
producers
consumers
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Basic assumptions and
challenges of SCM
The sum of the firms internal optima is not necessarily where the total optimum
might be. Finding the latter requires a total-system view.
Creating a win-win situation for all partners in the chain encourages them to find
better solutions for supply chain problems.
This is seldom achieved in practice!
Why?
- Distribution of power within the chain (information assymetry)
- Powerful actors force costs of improvements onto other actors
- Negotiation style focused on winning concessions from others
- Partners are not always oriented towards a common goal
- Quantification and distribution of efficiency gains???
1
2
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Methodology,
Work methodology,
Product data models,
management-systems
Processes,
Ordering,
Change management,
Responsibilities,
Organizational structures
Technology Hardware
Communications networks
Databases Application
systems (CAD, PPS etc.)
Communication behaviour
Mentality
Corporate culture
Language
Interests
Iceberg phenomenon of supply chain
management
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Duffy and Fearne (2004): series of vertical dyadic
relationships
Limitations in practice
Otto and Kotzab (2001): SCM theory not relevant to
all types of enterprises, but particularly applicable
for food chains that
- deal with perishable goods,
- have high logistics costs,
- involve several big companies,
- work in an uncertain atmosphere.
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Summary - chain perspective
Worldwide the competition on food markets increases.
This competition requires efficiency improvements be carried
out both at a single operational level and along the complete
value-added chain.
To improve the efficiency of the value-added chain, the
partners have to work together. It requires more coordination
and a system perspective.
By using integral approaches (ECR, Supply Chain
management) it is intended to achieve both a better
customer orientation and more cost efficiency.
Under the strong price competition there are only few
incentives for an improved long-term cooperation
S. Hofmann,
W. Bokelmann,
HU Berlin,
Economics in
Horticultural
Production
Reading further
Bourlakis, M. A.; Weightman, P. W. H. of (Ed). Food Supply Chain Management.
Blackwell Publishing, Oxford 2004
Cabbage, R. L.; Uhl, J. N.: Marketing of Agricultural Products. Prentice Hall, Upper
Saddle River, 2002
Journal On Chain And Network Science; www.sls.wau.nl/bk/journal
7 th International Conference on management in AgriFood Chains, Ede, The
Netherlands, 2008
Proceedings of The previous Conferences (1-7)
Kaplinsky, R. and Morris, M. (2003): Handbook for Value Chain Analysis.
http://www.bdsknowledge.org/dyn/bds/docs/395/Handbook%20for%20Value%20Chai
n%20Analysis.pdf
www.regoverningmarkets.org
Vellema S., Admiraal L. and Buurma J.S. Building linkages in theThai fruit sector:
report of a strategic thinking workshop, Rayong,Thailand, November 2004.