Exclusion of small-scale farmers from coordinated supply chains: market failure, policy failure or just economies of scale?

Abstract

Coordinated supply chains are rapidly increasing in importance in global food markets. They are commercial tools for competitive strategies, assuring quality, food safety and better logistics. They serve high-end markets, especially in industrial countries, but increasingly also in developing countries in urban areas with relatively high incomes. However, the share of production in developing countries marketed through coordinated supply chains is still small. There is widespread fear that small-scale farmers will be excluded from coordinated supply chains. Empirical evidence is mixed; there are abundant examples of successful inclusion as well as of painful exclusion. In some cases, economies of scale are such that only large-scale enterprises can compete successfully in global markets. But, in many other cases there is no level playing field. Analysis of factors that contribute to inclusion and exclusion indicates that there are market failures and policy failures contributing to relatively weak competitiveness of small-scale farmers. Hence, public intervention can be warranted.