Small Farmers And Big Retail: Trade-Offs And Dynamics Of Supplying Supermarkets In Nicaragua

This dissertation analyzes contracting relationships between large-scale corporate retail and small farmers in Nicaragua between 2000 and 2008 and estimates the effects of participation this new market on household income and investment in productive assets. This research addresses three issues of central importance in the changing context of world agriculture: what are the determinants of small-scale farmers' participation in new markets evolving amid globalization? How do farmers choose among market opportunities, given that market selection now implies a varying set of investments and transaction requirements, and what are the consequences of their choices both for near-term household welfare and for investments in technologies and asset stocks with the potential to transform future income dynamics? Finally, what can be learned about modern marketing channels from the significant share of farmers who exit supermarket supply chains? The research in this dissertation validates both optimism and caution with respect to the potential of supermarket supply relationships to improve farmer welfare and stimulate productive investment. The evidence here indicates that farmers who enter the supermarket supply chain benefit from the insurance the contract provides against the significant volatility of the traditional market horticulture output price. Contracted farmers both experience significant positive effects on incomes and make significant investments in productive assets and irrigation. However, we conclude that the location of supermarket procurement basins is strongly determined by community access to roads, markets, and year-round water, suggesting that modern agri-food marketing channels may exacerbate extant rural geographic inequalities or create new ones. We find an extremely high rate of exit from the supermarket supply chain, evidence that discontinued suppliers warrant considerable more attention in future analyses of participation in and welfare effects of modern agri-food markets. We also find that farmers own participation decision is influenced by neighbors' experience and exit from the modern channel. Finally, we should remain prudent with respect to predictions of the long-term sustainability of estimated income and asset returns attributable to participation. Given the significant involvement of NGOs and the relatively early stage of the Nicaraguan supermarket sector, it remains to be seen what the regional equilibrium effects will be for the agricultural sector as more farmers enter these markets