Wal-Mart plants seeds of alliance with Latin farmers
Perched on less than an acre of land off an unpaved road in a hardscrabble rural area, farmer Gumercindo Ajanel would hardly seem like a Wal-Mart regular. But in fact, he’s working for the American retail giant.
On a recent morning, he proudly displayed fresh-picked cilantro and parsley he ships to the chain’s local stores. A company agronomist taught him to grow greens that are hygienic and visually appealing. Best of all, he said, Wal-Mart buys frequently and pays promptly. “That helps a lot,” said Ajanel, who employs 30 farmhands in this area about 35 miles northeast of the capital, Guatemala City.
Ajanel, 35, is a rare success story in a nation where nearly three-quarters of the population is rural and largely poor, yet being squeezed by modern economic forces. Supermarkets are rapidly displacing informal channels through which peasants traditionally sold their harvests. Growers used to hawking dusty potatoes out of the back of a truck are finding shoppers defecting to chains whose produce is clean, uniform in size and often lower in price.
Consumers are thrilled at the savings and convenience. But the trend worries some agricultural economists and development experts. Now simply growing a good crop is not enough to ensure the survival of many small-scale farms; they must get their products onto supermarket shelves.
“As the food retail and manufacturing sector becomes more and more concentrated, market access becomes the binding constraint for small producers,” said Dave Weatherspoon, an associate professor of agribusiness at Michigan State University.
In Guatemala, Wal-Mart this week unveiled a program aimed at linking more mom-and-pop growers to its supply chain. In partnership with the U.S. Agency for International Development and two nonprofit groups, the company plans to train 600 farmers over the next three years to supply produce for its local stores.
It’s good public relations for Wal-Mart, but company officials say it also helps the bottom line. Most of the fruits and vegetables the retailer sells in its 457 Central American stores are produced locally. But supply glitches have resulted in temporary shortages of products such as lettuce.
Wal-Mart wants to diversify its supplier base to keep its shelves stocked as it expands. It’s also looking to give small farmers a crack at producing niche items such as herbs that big growers can’t be bothered with and that are too expensive to import.
“It helps us ensure a supply of specialties,” said Ignacio Perez Lizaur, chief executive of Wal-Mart Centroamerica. “It does, ultimately, make business sense.”
The success or failure of this and similar efforts may determine whether thousands of farm families can remain on the land or join the millions who have migrated to urban slums or to rich nations such as the United States.
“What’s at stake for small farmers is that they may soon find they have no place to go with their produce,” said agronomist Julio Berdegue, president of the Chile-based Latin American Center for Rural Development. “The change is happening so fast that a lot of them aren’t going to be able to keep up.”
In the 1990s alone, Berdegue estimates, grocery stores in Latin America more than doubled their share of retail food sales to about 60% of the market, a figure that could be closer to 70% today. Such a transition took half a century in the United States.
Several factors are driving the trend. Free-market policies adopted by many nations have attracted investment from foreign market chains, which have found profits in a region with fewer competitors than in industrialized countries.
Arkansas-based Wal-Mart Stores Inc. opened its first store outside the U.S., in Mexico, in 1991. In Latin America, it has since expanded to Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. In Guatemala, Wal-Mart owns a 51% share in a chain of 145 stores that operate under the names Despensa Familiar, Supertiendas Paiz, ClubCo, Hiper Paiz and Maxi Bodega.
Latin America is urbanizing rapidly and more women are working, increasing demand for one-stop shopping.
A pregnant Paula Obiedo, 27, stopped by a Despensa Familiar this week in Guatemala City to buy beef in between housework and her job selling watches. She said she didn’t trust the unrefrigerated meat at a traditional market a few blocks away. With a job, a husband, two small children and another on the way, she doesn’t have time to hop from stall to stall. “Hygiene, price . . . and convenience,” said Obiedo, explaining why she has become a supermarket regular.
To meet those high expectations, retailers such as Wal-Mart are requiring suppliers worldwide to meet stringent quality standards that dictate details such as the type of seed and post-harvest handling. It’s no easy feat for large producers, much less peasant farmers with little capital or formal education.
To help bridge the knowledge gap, Wal-Mart has 40 agronomists on staff in Central America who work closely with growers such as Fermin Pec, who cultivates radishes, lettuce, cabbage and other vegetables on about 75 acres in San Pedro Sacatepequez.
“Their pickiness has helped me improve,” said Pec, who employs 100 people and has been supplying supermarkets in Guatemala since 1990.
Most of the family farmers selected to participate in the Inclusive Market Alliance for Rural Entrepreneurs project started by Wal-Mart and other groups will need a lot more hand-holding, not to mention financing to buy seed and equipment. Wal-Mart has pledged $600,000 toward the effort, the U.S. Agency for International Development is kicking in $1.1 million, and the Portland, Ore.-based international relief organization Mercy Corps is contributing $500,000. A Guatemalan rural development nonprofit group will contribute technical training.
Among the biggest challenges is building trust. Nearly four decades of civil war ended in 1996, but it left Guatemala’s countryside bristling with social tension. Land disputes are common. Farmers are accustomed to contentious relationships with produce wholesalers, who buy their harvests.
Known here as coyotes, these middlemen often take advantage of farmers’ need for quick cash by paying them a fraction of the true market price, said Douglas Ovalle, who is coordinating the alliance project. The result is that farmers have no experience with binding commitments and feel little loyalty.
“If someone offers them 5 quetzales [about 65 cents] more, they’ll sell to them,” Ovalle said. “It’s going to be a challenge to change that mind-set.”
Other small producers suspect the big chains’ “quality standards” are just a way to beat them down on price.
Working with farmers in South Africa, Michigan State’s Weatherspoon said, he realized that many had never set foot in a modern grocery store. So he took a group of butternut squash growers to an upscale supermarket, where they saw their products freshly scrubbed and beautifully arranged. He said they came away proud .
“Now we understand why the buyers are so fussy,” he recalled them saying.
Berdegue of the rural development center said mammoth supermarket chains must also change their thinking by making procurement procedures friendly to family farmers, such as paying them weekly instead of every month or two. He said governments and nonprofit groups needed to support these market-driven solutions with low-cost financing, training and other help for growers.
“We need proactive public policy . . . and [retailers] willing to adjust their business models,” Berdegue said. “The alternative for many of these small farmers . . . is selling chewing gum in the street or migrating to the United States.”
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