The Rise of Supermarkets and Vertical Relationships in the Indonesian Food Value Chain: Causes and Consequences

• Published in: Asian journal of agriculture and development Vol. 2; no. 1-2; pp. 39 - 48
• Main Authors: Chowdhury, Shyamal K, Gulati, Ashok, Gumbira-Sa’id, E
• Format: Journal Article
• Language: English
• Published: 01.12.2005
• Edition: 1362
• Series: Asian Journal of Agriculture and Development
• Subjects: Agricultural and Food Policy; Consumer/Household Economics; Demand and Price Analysis
• ISSN: 1656-4383
• DOI: 10.22004/ag.econ.165779

This paper reviews the causes of the emergence of modern retailing and the vertical relationships in the Indonesian food value chain, and the consequences of these changes on market organization and value distribution. The findings of this paper suggest that there are both demand- and supply-side factors that contribute to the emergence of modern retailing. The evolution of vertical relationships between farmers and modern retailers observed in Indonesia is a direct response to risks and quality uncertainty. In the vertical relation, large-scale retailers may earn a monopsonistic rent, and there are risks of exclusion of small-scale farmers from the emerging food value chain. However, there are alternative channels through which farmers may sell their products, albeit at a lower price compared to the modern channels, and measures can be instituted to protect them against monopsonistic rents. The findings have important policy implications for developing countries.