Anything else? : a Global Value Chain power analysis of the fresh food supply chains of Carrefour Market, Albert Heijn and Tesco

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ANYTHING

ELSE?

A Global Value Chain power analysis of the

fresh food supply chains of Carrefour Market,

Albert Heijn and Tesco

MASTER’S THESIS

Political Science: International Relations University of Amsterdam

W.A. van de Haar

Supervisor: Dr. Robin Pistorius

Second reader: Dr. Hein-Anton van der Heijden January 30, 2015

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Chapter 1: Introduction

It is in exchanging the gifts of the earth that you shall find abundance and be satisfied.

(Khalil Gibran, The prophet, ‘On buying and selling’, 1923)

1.1 Introduction to the topic

Sustainable development of the food chain has gained attention from multiple actors: governments, NGOs1_{, researchers… All look at the sustainability}

of the market, of agriculture, of the food chain. Nonetheless, there is disagreement about which criteria are suitable and which are unsuitable to measure sustainability (Buchholz, et al., 2009; Elghali, et al., 2007; Moldan, et al., 2012). Therewith comes the lack of academic and societal regard for the motivation of the ‘big players’ in the fresh food chain in the field of sustainable agriculture. It is argued in this thesis that the meta supermarket chains – the big players in the food chain – have a role of power to play in the fresh food supply chains to the benefit of sustainable agriculture, but as a consequence of the lack of academic research there is little knowledge about this role. The extent of power2_{, then, of the meta}

supermarket chains in this observance stirs up curiosity: what, if anything, does the power of the meta supermarket chains entail? And to what extent is this power exerted over the fresh food supply chains to the benefit of sustainable agriculture? Furthermore, since the publishing of the Brundtland report (WCED, 1987), it has been argued that the term sustainability has become a ‘container concept’ over the years. Sustainability in the Brundtland report covered economic contribution, societal responsibility and environmental performance (Krajnc & Glavic, 2005, p.

1_{Non-governmental organisations}

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551), but today many have conceptualised sustainability in different ways, by virtue of which discordance exists about which information and which actions will have impacts on sustainable development. Additionally, it is possible that short term profit motives of the big supermarkets overshadow their urge to engage in sustainable business. This also applies to sustainable agriculture in fresh food chains. The current thesis scrutinises the extent of power of the meta supermarket chains and how this power is exerted over fresh food supply chains to the benefit of sustainable agriculture. It focuses on Western Europe, a region of the world in which the meta supermarket chains have established themselves over the last two decades and in which their omnipresence is now an integral part of the landscape, or ‘streetscape’3_.

1.1.1 The power grip of the meta supermarket chains on

agricultural production

The critical intersection for this research lies in the literature about sustainable agriculture and the omnipresence of the meta supermarket chains. Firstly, the thesis argues that sustainable agriculture literature is written from a producer-driven chain perspective in which the producer decides what it produces and how it produces. Secondly, sustainable solutions for agriculture are approached from the bottom level of the chain, where the question is not so much whether agriculture can be made more sustainable, but which transition path to suitable sustainability can and should be followed (Consumers International, 2012; Goodman & DuPuis, 2002; Heffernan & Hendrickson, 2005; Rigby, et al., 2001; Tallontire, 2007).

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1.2 The research question

Nonetheless, when the power of the big supermarket chains is taken into account, the question arises whether these transition paths to sustainable agriculture are reasonable and at the same time feasible. If the big supermarket chains determine the production of the farmers, then the agricultural firms might not have any other choice than to conform to those requests in order to survive. Producers are the ones who can decide upon the scale at which they produce, but in order to supply to all the supermarkets of a chain4_{they have to produce in large}

volumes (personal communication Hertzberger, 2014). If so, then how free are these farmers? Hence, does the growing power grip of the supermarkets on the agricultural production chains foster or impede sustainable developments? In other words, how is the buyer-driven fresh food chain compatible with sustainable forms of agriculture? To investigate this issue, the following research question is leading in this thesis:

To what extent and how can meta supermarket chains exert power over fresh food supply chains to the benefit of sustainable agriculture?

1.2.1 The subquestions

To investigate this, four subquestions have been formulated, which will structure and lead the remainder of the thesis. These are:

 What is the power of the meta supermarket chains and how can this be analysed in the context of global value chain analysis?

4_{In a country or region.}

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 What is the contribution of the meta supermarket chains to sustainable developments in agricultural food supply?

 Why does scale matter in analysing the extent of power that meta supermarket chains exert over the food supply chains and how does this show with Carrefour Market, Albert Heijn and Tesco?

 What are the recent or current developments in agricultural fresh food production to the benefit of sustainable agriculture and do meta supermarket chains exert power over these developments?

These subquestions are developed to come closer to an answer to the research question. The first subquestion leads to an understanding of the global value chain analysis when applied to the meta supermarket chains. The second subquestion leads to an understanding of the efforts conducted by the supermarkets to the benefit of sustainable agriculture. This can point to a certain extent of sustainable identity of the meta supermarket chains. The third subquestion leads to an appreciation of the scale matter in analysing the extent of power of the meta supermarket chains. Scale matters because of economic, environmental and socio-cultural factors, but the conceptions that agricultural business and supermarkets have of sustainability and scale are also important: those determine the production volume and hence those can influence the ability of suppliers to supply to supermarkets. Scale is included here, for scale is a central issue between the power of the supermarkets and sustainability: they are potentially well positioned to connect scale to sustainability. The fourth subquestion analyses the recent developments in the agricultural fresh food production to the benefit of sustainable agriculture and the extent to which the meta supermarket chains have exerted power over these developments. This will lead to an understanding of the activities conducted by the supermarkets

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regarding sustainable agriculture and sustainable products. Together these four subquestions will help to answer the main research question, taking into account multiple angles regarding the extent of power of the meta supermarket chains and developments in the fresh food chain to the benefit of sustainable agriculture.

1.3 Aim of the research

The aim of this research is threefold. First and foremost, this thesis aims to add to the understanding of the power relations in the buyer-driven agricultural fresh food value chain, in which the buyers, in this case the big supermarket chains, have influence on the food production. It will give insights into the concentration of retail as a result from lower overhead costs for the big corporate supermarkets, more efficient distribution systems and more purchasing power. This is among other things how supermarkets gained more power compared to other players within the food chain (WRR, 2014, p. 29). However, this has not been followed by a research on the extent of power that meta supermarkets exert over the fresh food supply chains to the benefit of sustainable agriculture. This is why the thesis will aim to understand the effects which the corporate concentration of meta supermarkets have on the food producers. Secondly, it aims to analyse the current debate around the sustainable development in agriculture, by using literature regarding sustainable agriculture as a vehicle to observe the extent of the power of the meta supermarket chain. Thirdly, it aims to add to the recognition that global value chain analysis is a worthwhile apparatus to operationalise and measure sustainable development. The aim is to do this following a dedicated research design with a qualitative methodology, which is explained in Chapter 2.

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1.4 Agriculture in transition, associated challenges and

the debate about scale

Agriculture is in transition towards more sustainable production and during this transition phase agriculture is facing multiple challenges, such as reducing CO2 emissions, reducing the use of pesticides and (chemical) fertilisers

and using available soil responsibly (PBL, 2011, pp. 15-19). Next to facing challenges, debate in the sector has been ongoing about the appropriate scale for realising maximum sustainability in the agricultural sector.

1.4.1 Sustainable scale in agriculture

Scale has become a focal point: the growing world population needs to be fed and people are moving from the periphery to the cities. Farmers that stay behind, perforce, have to produce more, or differently and they have to produce on a sustainable level. The maximum sustainable scale can depend on the region, agricultural production and business organisation, when at the same time taking into account ecological, environmental, economic and social contexts (Iserbyt, 2014). But the quests for supply from the supermarkets on the one hand and the challenges that farmers face when it comes to succession of their farms on the other hand must not be underestimated in de scale debate (personal communication Lammerts van Bueren, 2015).

1.4.2 Towards a comprehensive and integrated approach

There does not seem to be one solution or vision for making agriculture more sustainable, however, in any case a comprehensive and integrated approach should prevail as to avoid landing in the ‘waterbed effect’, in which a solution in one area has a negative impact on another, resulting in a relocation of problematic issues rather than catering an answer to the problematic issues. Succeeding in that

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respect is a question with many different answers from many different angles, which means for this thesis that both the supermarkets and farmers need to make and/or implement decisions on what is sustainable agriculture.

1.5 From a producer-driven to a buyer-driven chain

Parallel to the developments on the sustainable agriculture front, the agricultural chains have shifted from a producer-driven chain to a buyer-driven chain (Ponte & Gibbon, 2005; Vorley, 2002; Ziggers & Trienekens, 1999). The

supermarkets are the buyers. It can no longer be assumed that the producer decides on what is produced; rather, in a buyer-driven chain, the big supermarket chains influence the food production. Retail has become concentrated and this concentration made the supermarkets more powerful compared to others. (WRR, 2014, p. 29). The food industry chain can be classified as a captive chain, in which an unequal distribution of power and control can be identified. An example of this unequal distribution are the demands that buyers lay upon producers and which producers cannot easily ignore, as not adhering to the demands can have negative consequences: the producers may have invested in a specific production process for that buyer. At the same time, it is argued that the buyers in the fresh food chain will face significantly less difficulties in switching from one supplier or producer to another one. (van den Burg & Overbeek, 2012, pp. 14-16). Following the assumed power of the buyers, here the big supermarket chains, they can also impact the sustainable agricultural production when buyers demand certain sustainability standards to be met at the production stage (idem, p. 29). Hence, this understanding of buyer-drivenness can add to a better appreciation of the power position that the supermarkets enjoy in the fresh food chain. This is an important basis for the remainder of this thesis.

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1.6 Motivation

The motivation for this thesis has an obvious academic and also a personal component.

1.6.1 The personal component

The personal motivation for this research has been sparked by multiple events over the past several years. Growing up in a rural area of the Netherlands, I was always aware of the importance of agriculture. With a father working in seed certification for agricultural seeds and seed potatoes for the Dutch General Inspection Service (the NAK5_{), time around the dining table was often spent}

talking about farmers and their potato crops and of course also eating these same farmers’ Bintjes, or other varieties. Fascinating as this was, life in a small town bored me. The bustling life of the big cities has always attracted me. Entering a Walmart in Florida for the first time was an experience of a lifetime: the astounding supply on the shelves was mindboggling. From that Walmart to other big supermarkets to the Albert Heijn XL, what seemed to start off as a paradise for me as a consumer rapidly came to include worries about the sustainability of the entire food chain. Stocking up supermarket shelves with products from near and far is no straightforward engagement. The proximity of the buyers from the ‘big city’ to the producers of the rural towns entered my field of interest.

1.6.2 The academic component

Academically and within the scope of the International Relations discipline I found that firstly the relationship between the supermarket as a political-economic appearance on the one hand and power as a central topic within political science on the other hand was understudied. But that was not enough, because I

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felt the need to specify this gap further in order to bring about a relevant master’s thesis. Inspiration was found in a recent publication Towards a food policy (Naar een

voedselbeleid) of the Dutch Scientific Council for Government Policy (WRR, 2014).

This comprehensive study embodies a wide range of topics and analyses the food chain as well, but it does not do this with a focus on the effects of the meta supermarket chains that trickle down the food chain. Secondly, research is conducted on the development of sustainable agriculture in all parts of the world as well as on the role of corporate actors on the world stage and on power relations, but I miss a study that encapsulates both. The combination of the above factors drove me to the formulation of the research topic and question.

1.7 Research structure

Chapter 2 lays out the foundations of this research: the research design, consisting of the global value chain analysis strategy which is used to examine the three case studies conducted, which are in turn conducted and executed according to the cross-case case study method. Chapter 3 will look at the power of the meta supermarket chains placed in the context of the global value chain analysis. It dives deeper into the input-output structure, geographical scope, governance and institutional context of the food chain in order to deduct answers that help understand the nexus of this research and to map out how exerted power and control of the meta supermarket chains can be identified. Chapter 4 highlights the contribution of the meta supermarket chains to sustainable developments in agricultural fresh food supply. The scale issue regarding sustainability is discussed in terms of necessity and of a decoupling between the agricultural fields and the farmers. The chapter focuses on the position of the powerful buyers in relation to the farmers of fresh food products in dairy, vegetable and arable crops and

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livestock farming in the cases Carrefour Market, Albert Heijn and Tesco. The thesis ends with conclusions, a discussion and suggestions for further research.

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Chapter 2: Research design

The research design and appurtenant methodology used to conduct this research are qualitative in nature. This research design has a clear purpose: to infer that what it intends to demonstrate and/or prove (Gerring, 2007, p. 71). Data is collected from multiple sources.6_{The research design in the thesis consists of a}

strategy and a method, both used to examine and execute the three case studies. These are explained in more detail below.

2.1 Adequacy of the research design and methodology

The Global Value Chain (GVC) analysis is used as a strategy to systematically investigate the cases. In the light of the thesis it is the most adequate way to bring transparency in the fresh food chain to the surface. By distinguishing different elements in the fresh food chains the role of the meta supermarkets in the fresh food supply chains can be uncovered. Transparency is then an important first step, because transparency makes it possible to come to agreements and commitments towards sustainable improvements with producers and suppliers (personal communication Hertzberger, 2014). The qualitative method pursued in this thesis is the cross-case case study. Specifications of the GVC analysis and of the cross-case case study method are elaborated upon below.

2.2 The research strategy: Global Value Chain analysis

This paragraph discusses the GVC analysis, as advocated by Gary Gereffi7

(see for example 1994; 1999; 2001; 2005; 2008; 2009; 2011; 2012; 2014). This thesis looks at the value chain around fresh food and supermarkets and as argued in the

6_{Primary, secondary, as well as tertiary sources are used, including academic literature, policy} publications, proposals, legal documents, video’s and semi-structured interviews

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introduction, the food chain can be seen as a captive chain. The kinds of power and control are unequally divided in captive chains and the buyer can make demands upon the producers (van den Burg & Overbeek, 2012).

2.2.1 Asymmetrical power relations in the fresh food chain

Gereffi, et. al. (2005, p. 87) have aptly described the asymmetrical power relations in captive supply chains. The degree of power asymmetry and explicit coordination is high: at the base of the supply chain, the farmers in this research, producers have few capabilities. This gives the buyer more control and power and this is then also the reason why the GVC strategy is suitable to answer the lead question. For this thesis, this means that the meta supermarket chains decide what they buy from the farmers. In that sense they can influence what the farmers produce. The power and control asymmetry within the fresh food value chain will be measured according to a four-armed typology mapped out in the GVC analysis literature. An illustration of the current food chain is given below, after which the GVC analysis and its typology used to measure power and control are explained.

2.2.2 A sketch of aspects in the food chain

Traditionally, looking at market orientation was done by regarding the determined set of aspects of customers, both current and potential, as the characteristics of the company in a certain market (Grunert, et al., 2005, p. 429). A shift in this perspective took place in the late 1990s, when interests in looking at market orientation from a value chain perspective arose (Langerak, 2001). An notable change in this respect is the evolution in demand, which is linked to scale. This evolution holds that distribution channels and markets have the power to change the production scale of certain products8_{(Marsden, et al., 2000, p. 430).}

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2.2.2.1 Increasing vertical coordination and CSR practices

Other authors mention the increasing closer vertical coordination –how the product moves from producer to consumer– of the supply chain of agri-food sectors in developed nations (Young & Hobbs, 2002, pp. 428-429). Yet another development in the food chain is the increasing emphasis on CSR9_{practices that}

involve all actors in the chain, from producer to supplier, logistics and consumers. CSR practices in the food chain are important because of the relatively high visibility of the food chain, which is furthermore a reason why ethical concerns about the farmers and their products rise to the surface (Maloni & Brown, 2006, pp. 35-36).

2.2.2.2 Call for transparency in the fresh food supply chain

Following the above, it becomes clear that the food supply chain is both complex and dynamic (Trienekens, et al., 2012) and that transparency in the food chain is called for (Beulens, et al., 2005). This thesis will add to the transparency of the fresh food chain, by looking into the power that is exerted over the fresh food supply chain by the meta supermarkets to the benefit of sustainable agriculture. Supply chain network transparency holds that a supply chain is transparent when all stakeholders in the supply chain network have a common understanding of both product and process related information and all stakeholders have the same access to this information when a stakeholder requests this kind of information (Hofstede, 2002).

2.2.2.3 Towards exposure of the role of the meta supermarket chains

The thesis is then in need of a strategy to expose the role of the meta supermarket chains. GVC analysis is the foundation for the examination of the

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three cases in this research and when applied in the next chapters, it will bring to the surface the stages and actors in the food value chain, based upon which the extent of the exerted power of the meta supermarket chains over the fresh food supply chain to the benefit of sustainable agriculture is investigated.

2.2.3 Global Value Chain analysis

A global trend can be deducted from the move towards sustainable supply chains. Global supply chains today ought to think beyond the frontiers of financial considerations of dependable supply. Sustainability, at the same time, has become the key consideration for actors in supply chains. Collaboration between suppliers and producers is seen as a requirement to embody sustainability within a supply chain and in order to do so, both horizontal and vertical capacity building within the supply chain are necessary. (SustainAbility, UNEP & UNCG, 2008).

2.2.3.1 Increasing emphasis on the sustainability of the food sector

The increasing emphasis on the sustainability of chains also holds for the food10_{sector and therefore value chain analysis is a useful tool to help answer the}

research question. A value chain is understood as an integrated chain, which controls the supply chain from the product concept until the end-user holds the product in their hands. The chain is constantly evaluated for end-user relationships and profitability. (Vorley, 2002, p. 7). Activities across a value chain need to be optimised and coordinated by supplying information (Dekker, 2003, p. 1). Value chain analysis is then a valuable means to look into this supply, because it looks at the different activities that actors do or do not undertake (Sturgeon, 2001).

10_{And beverage sector.}

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2.2.3.2 The importance of governance in value chain analysis

Within the value chain analysis approach the concept of governance is a central theme. Governance, in this thesis, is the implicit or explicit enforcement of certain guidelines or parameters by some players in the chain, under which other players in the chain are to perform. Every chain both needs and has a form of governance: without governance a chain is only a series of different market relations. Governance matters in understanding how gains are distributed along the chain, but governance is also important in the learning curve in which producers are situated when they have access to the lead firms of a chain: the lead firms are demanding in terms of reducing costs and acquiring high quality standards. Another reason is that chains in which producers are involved are led by a small number of buyers, so it is important for the producers to have access to these buyers through the lead firms. (Humphrey & Schmitz, 2001). The value chain analysis strategy can usefully be applied to the food chain to improve the performance, relationships and profitability of the supply chain (Taylor, 2005).

2.2.3.3 Gereffi: Tool to answer the lead question

Since the main actor in this thesis is the meta supermarket chain, it is also the main perspective for the thesis and the starting point for analysis. However, it is vital to identify all the actors and stages in the GVC. Gary Gereffi has written extensively about GVC analysis. Gereffi has been able to conjoin shifting power relationships within GVCs like no other. Gereffi’s work, which includes the four GVC dimensions which are discussed in the next paragraph, is both useful and fitted for this thesis: his four dimensions allow for breaking down the elements of the meta supermarket chains by providing building blocks that can be taken apart and put together again, depending on findings and interpretation of power and control. This thesis looks at the fresh food value chain and thus a value chain

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analysis is most suitable to conduct the research. Gereffi has engaged in extensive research on global value chains and has that way established the elements through which developments in chains can be analysed. Gereffi’s work is therefore qualified and capable in the current thesis to deduct asymmetrical power relations from the scrutinised value chain, with the aim of identifying the extent of power of the meta supermarket chains to the benefit of sustainable agriculture.

Gereffi’s GVC approach

The GVC analysis will provide a framework which is used to analyse the extent of power exerted over the fresh food supply chains by the meta supermarket chains. GVCs in the words of Gereffi et al. (2001) focus on the relative value of activities that are needed to take a product or a service through distinguished stages of production11_{; that are needed to deliver the product to end-users; and}

finally that are needed to dispose the product.

Four dimensions to analyse power and control within GVCs

Four dimensions have been developed to analyse the power and control of lead firms with GVCs (Gereffi & Fernandez-Stark, 2011). These four dimensions in turn are important as they are the blocks which need to be filled out in order to evaluate the asymmetrical power relations within the fresh food captive chain. The dimensions of Gereffi’s GVC analysis are the input-output structure, geographical scope, governance and institutional context.

Dimension 1: Input-output structure

The input-output structure has two parts. The first is to identify the prime segments12_{or activities in a GVC. This part maps out the value added at each}

11_{The stages of production involve inputs of producer services as well as physical transformation.} 12_{Segments can for example be production, distribution and marketing.}

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(additional) stage in the GVC. In the identification process it is crucial to study the evolution, trends and organisation of an industry. Data13_{and information can then}

be linked to create a chain, showing the main activities of that industry. The second part is to identify the structure of companies and their dynamics under each identified segment of a GVC. Specific dynamics and characteristics include preferred suppliers and sourcing practices, but also the type of companies: small, medium, or large; private or state-owned; and domestic or global. (Gereffi & Fernandez-Stark, 2011).

Dimension 2: Geographical scope

The geographical scope concerns the scales at which GVCs operate: these can be global, national, regional or local. In today’s environment different activities of GVCs are typically executed in different parts of the world. The geographical scope of a GVC can be identified by finding the lead firms in each segment. Finding leading firms in one country can point to a national-level chain, for example. (ibid.).

Dimension 3: Governance

The governance element of the GVC analysis has been mentioned earlier in this chapter, however not in the context of GVC analysis. Through governance analysis the control and coordination of a chain can be understood when different actors in a chain have different powers to wield. (ibid.). The distinction between the buyer-driven and the producer-driven chains also falls under the governance scope (Gereffi, 1994). As argued earlier, the fresh food supply chain is a captive chain14_{(Gereffi, et al., 2005, p. 84). Nonetheless, the governance structure of a chain}

13_{Data can be primary or secondary.}

14_{This has been determined by measuring the information complexity between actors in the chain;} by how production information is classified and by the competences of the suppliers.

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or industry can change over time or even vary between stages of a chain (Gereffi & Fernandez-Stark, 2011). Next to revealing inter-firm coordination, looking into governance structures through the use of case studies uncovers how governance structures evolve over time. This, then, can make it possible to anticipate change in GVCs. (Gereffi, et al., 2005, p. 90).

Dimension 4: Institutional context

Finally, institutional context is about the globalisation which is shaped by international, national and local policies and conditions in every stage of the GVC. Dynamics of local institutional, social and economic nature are the framework in which GVCs are nested. Adding to GVCs is then dependent on these local dynamics, which include tax and labour regulation and subsidies on the institutional level, labour availability and labour skills on the social level and the availability of key inputs such as accessible infrastructure on the economic level. Examining the institutional context of a GVC is done through reviewing the relevant stakeholders15_{. When these are marked off in the value chain and their}

institutional roles are explained, the impact of the different facets of the institutional context on social and economic results can be identified and analysed. (Gereffi & Fernandez-Stark, 2011).

The usefulness of Gereffi’s four dimensions for the thesis

Researching these four dimensions is useful in the context of the current research, for it will add to the appreciation and understanding of the position of the meta supermarkets in the fresh food value chain and it will help in breaking down the components of the extent of power which the meta supermarkets under

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study exert over the fresh food supply chains to the benefit of sustainable agriculture.

The use of power

It must be noted that the very term power has been interpreted and treated in different ways. Power in realist terms is a capacity that can be possessed by certain actors (Waltz, 2000). Such a reading can be interpreted as the dominance of one actor over other actors and looking at governance as a means to classify GVCs is then also interpreting power as a capacity that can be possessed. When this idea is taken further aback, it becomes possible to deduct that the ideas of dominance and authority both rest on assumptions of asymmetrical relationships to begin with (Hess, 2008, p. 453).

Gereffi’s use of power and its usefulness for this thesis

Following the above, Gereffi’s theoretical framework is an adequate reference for this thesis. Gereffi has been able to conjoin shifting power relationships within GVCs like no other. This has become clear in his earlier works in which Gereffi argues that governance in GVCs is about power relationships and authority which predispose the flow of material, financial and human resources within a GVC (Gereffi, 1994, p. 97). Subsequent power shifts have been elaborated upon since, in which the mechanisms that occur within chains are studied (Bair & Gereffi, 2001; Gereffi, 1999; Gereffi, 2009; Gereffi & Martinez, 1999). The possessors of power have shifted in the last few decades from the big multinational manufacturers to the big retailers as these big retailers are able to develop, modify or frame supply chains and sourcing networks. The retailers also possess the power to amend or reform product prices because they have purchasing power (PBS, 2004). This shift in power for the retailers also applies to the meta

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supermarket chains and therefore power is a paramount term in the current research.

2.2.4 What Gereffi’s GVC analysis implies for the food

chain

Specifics of the different stages of Gereffi’s GVC analysis are elaborated upon in chapter 3. However, for a general understanding of the fresh food chains in Europe in the context of this thesis it is beneficial to map out the basics at this stage. The fresh food chain under analysis looks at the connection between supermarkets as big buyers and (sustainable) agricultural production. Even though consumers can influence what supermarkets want to sell and are therefore also part of the fresh food chain, this particular section of the fresh food chain is less relevant for the research question at the moment. Elements that can be distinguished in that particular section of the food chain will only be included in the current research if the impacts stretch further down the food chain and thus beyond the supermarkets. The thesis takes the supermarkets as the starting point and not the consumer.16

2.2.4.1 Input-output structure

The fresh food value chains in Europe are typically characterised by concentrated buyer –the meta supermarket chains– and supplier or producer segments, arguably consolidating the buying power of the meta supermarket chains. The chain segments are vertically related and a small number of lead firms

16_{Even so, it can be argued that consumers also influence producers (Hunt, 2007), although} scholars stress the difference between citizens and consumers, relevant in the sense that citizens often express environmental concerns and their wish to consume environmentally and animal friendly products, but the food choices they make do not match these preferences (Dagevos & Sterrenberg, 2003; personal communication Lammerts van Bueren, 2015). Only when of added value to this research will such angles be included.

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with buying power accommodate them. Between the agricultural soils and the supermarket shelves, these are then for example producers, processors and the retailers, more elaborately described as farmers and greenhouses, semi-manufactured, suppliers, buying desks, banners and supermarkets segments (Gereffi & Lee, 2009, pp. 4, 31, 41; Grievink, 2008). The vertical coordination in the European agricultural value chains directly impacts the farmers as they have to comply with the requirements and standards invoked by the supermarket chains. On their turn these have gained influence on product development, the selection of suppliers and distribution networks. This is illustrated by the increasing amount of own-brand products17_{(Humphrey, 2006, pp. 573-574).}

2.2.4.2 Geographical scope

The meta supermarket chains Carrefour Market, Albert Heijn and Tesco all operate on national and international scales. All started out as local, or regional, supermarkets, but their rapid growth development brought them to other countries. The geographical scope of the food chain in Europe however is not only measured by the location of their supermarkets. The producers and processors of products in the supermarket shelves can be located in other parts of Europe or the world18_{. Also on the level of producers and manufacturers do own-brands play a}

role, because producers of those products are more adaptable and flexible than established-brand based companies (Burch & Lawrence, 2005, pp. 13-14).

17_{The amount of own-brand products increase rapidly in especially Northern Europe.} 18_{This depends on what is sold in the supermarkets.}

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2.2.4.3 Governance

Earlier it has been mentioned that the governance form of the food chain is buyer-driven: the meta supermarkets drive the formation of trade and production networks and they are capable of standard setting, as can be read below.

Regulatory frameworks governing quality and standards

Supermarkets everywhere and also in Europe are now setting up certain regulatory frameworks in which quality and standards are governed (Burch & Lawrence, 2005; Gereffi & Lee, 2012). An example of this is the GLOBALG.A.P.19_:

as consumers emphasised their concerns for environmental impact, health, animal and worker’s welfare and (product) safety, supermarkets began to harmonise their own standards in an independent certification scheme for good agricultural practice (G.A.P.). This scheme helps producers to produce according to these criteria to secure sustainable production, food safety, animal and worker’s welfare and other standards (GLOBALG.A.P., n.d.). This exerted influence impacts farmers in Europe, as the farmers might not have the facilities and skills to comply with the standards set by the supermarket chains. On the other hand, farmers who do have these facilities and skills might successfully engage themselves in niche markets for specific products (Gereffi & Luo, 2014, p. 18).

National buyer-groups and cross-border buying alliances

Another development in the European fresh food value chain under the governance header is the establishment of national buyer groups and cross-border buying alliances which influence procurement markets.

19_{Formerly known as EUREPGAP.}

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Supermarkets as gatekeepers and cultivators of expanding power

Governance within the food value chain can also become apparent from the control of supermarkets of shelf space. In a sense the supermarkets are the gatekeepers of what suppliers deliver to the supermarkets (Dobson, 2003). The meta supermarket chains are able to cultivate, increase and hence expand their power because of their size and this is done through mergers, acquisitions and dispersed sourcing, own-brand products and strategic national and international collaborations (South Center & Traidcraft, 2008, pp. 7-10). Governance in favour of the meta supermarket chains in Europe is also found in the subcontracting of non-strategic activities (Frederick & Gereffi, 2009, pp. 2-3). The above arguments make the food chain a captive chain, which is characterised by the powerful meta supermarket chains and the dependent, captured, suppliers (ibid.). This claim is weakened20_{in the remainder of this thesis.}

2.2.4.4 Institutional context

The concentration of the food chain has also worried government bodies on the level of the European Union (EU). The European Parliament has requested to address the power abuse by meta supermarkets active within the European Union (de Schutter, 2010, pp. 1-2). The own-brand products are an example of this power. The consequences of own-brand products are managed by the member states; there is no EU-wide approach which deals with the potential problems. Farmers’ protests in European countries also fall under the institutional context. Farmers are susceptible to the meta supermarket chains’ buyer power, but refuse to remain toothless against them. In several EU member states public farmers’ protests have taken place against the low prices and toilsome supermarket demands (Vander Stichele & Young, 2009, pp. 19-20, 29). Governmental support

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for the export of the meta supermarket chains is also important in the food chain, as oftentimes the governments set the regulatory framework in which supermarkets can operate (Lee, et al., 2012, p. 12329).

2.2.4.5 Interpreting Gereffi’s dimensions

Looking at input-output structure, geographical scope, governance and institutional context cannot be done by treating each of those parts as boxes. The line between governance and institutional context for example is thin and, as illustrated above, sometimes findings overlap. However, the findings in the remainder of this thesis remain valuable tools to inspect the extent of power that meta supermarket chains exert over the fresh food supply chain to the benefit of sustainable agriculture and how this power is exerted, because the findings will illustrate the asymmetrical power relationships of the captive fresh food supply chain.

2.3 The research method: Case study methodology

As Gerring (2007) notes, the methodological use of case study research in political science21_{is considered the soft side of social science disciplines that have}

become increasingly harder. However, the in-depth knowledge of cases used for case studies makes it possible to elucidate and evaluate important academic points and valuable information. At the same time, a pure ‘one case’ case study is hard to bring to life: conducting case study research implies having conducted a case selection research, which can involve cross-case analysis as well. (pp. 7, 11-13). In the case of the current topic, light is shed on more than one case and therefore the current research design includes a cross-case case study.

21_{And other social sciences.}

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2.3.1 Considerations for choosing cross-case case study

research

Considerations for cross-case case study research include distinguished research goals and empirical factors. Case studies bring to the surface causal mechanisms and secure internal validity. Also, causal strength is strong and the availability of data is concentrated.

2.3.1.1 Trade-offs for conducting case study research

Trade-offs between case studies and, for example, large-N studies are inevitable. One trade-off is validity: it is difficult to secure external validity in case study research. External validity is, however, not necessarily the aim of the case study. (Gerring, 2007, pp. 37-41). As long as the researcher is aware of the limits and limitations of the chosen research design, it should be clear what conclusions can be drawn from it and what conclusions are starting points for further research. Since the aim of this research is to bring to light the extent to which meta supermarkets exert power over the fresh food supply chain, the competences of an in-depth cross-case case study are appropriate to perform the analysis of the cases.

2.3.2 Case selection

A case can be made of almost any phenomenon, as long as it is possible to distinguish limits and boundaries and as long as it is possible to infer information of the object of study (Gerring, 2007, p. 19). The phenomena under study in this thesis are Carrefour Market, Albert Heijn and Tesco. The reason for choosing meta supermarket chains22_{as cases lies in what is searched for in the research question}23_.

22_{It must be noted that meta supermarket chains do not include meta discounters such as Aldi and} Lidl. Their business differs significantly from the business of the meta supermarket chains and are therefore not comparable to the mainstream meta supermarket chains.

23_{“To what extent and how can meta supermarket chains exert power over fresh food supply} chains to the benefit of sustainable agriculture?”

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By taking each case as a starting point of analysis, it is possible to analyse the power that goes out from the meta supermarket chains down the food supply chain and to analyse developments in sustainable agriculture. The reason for choosing these particular supermarket chains is explained below.

2.3.2.1 Choosing typical cases

The chosen cases are typical cases and typical cases in a cross-case case study are representative by definition. By means of three cases weight is distributed and the representativeness of the research increases. This way, the cases aim to foster understanding into the broader phenomenon. Typical cases can be seen as examples of a typical set of values, based on what is generally understood about the phenomenon (Gerring, 2007, pp. 89-91; Gerring, 2008, pp. 648-650), in this case the meta supermarket chains.

The concentrated European retail sector

All over the world and thus also in Europe the food retail sector is becoming increasingly concentrated. At the same time, a relatively moderate number of prevalent food firms influence decisions with regard to who produces what food, when and how (Heffernan & Hendrickson, 2005). Even though European countries are very diverse when it comes to the concentration ratio of supermarkets, increasing concentration ratios as such are a continental trend (Dobson, 2003; Poole, et al., 2002). Following the above, Carrefour Market, Albert Heijn and Tesco fit the typical case paradigm. A supermarket is a relatively big self-service store, which sells general food- and non-foodstuffs and which has a growing assortment of fresh products. Supermarkets are often part of a chain which operates in a region, country, or multiple countries (Rabobank Cijfers & Trends, 2014). Supermarkets are furthermore defined as servicing one-stop grocery shopping in a store of 1,400 square metres or more, for which customers

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typically travel between 10-15 minutes to do their groceries (Competition Commission, 2000, p. 2).

What Carrefour Market, Albert Heijn and Tesco have in common

The cases have been chosen on their respective market shares in their home countries and on the concentration ratio (CR) score of France, the Netherlands and the UK. France’s Carrefour Market had a domestic market share of 20.6% in August 2014 (LSA Commerce et Consommation, 2014). The Dutch Albert Heijn had a domestic market share of 33.8% over 2013 (Distrifood, 2014). In the UK, Tesco had a market share of 28.7% in the weeks leading up to 9 November 2014 (Kantar Worldpanel, 2014). In their respective countries, no other supermarket chain has a bigger market share than these three meta supermarket chains. The CR score measures the percentage of market share of the top supermarkets in a country. According to 2009 data, France has a CR5 score of >50%, which means that the top 5 supermarkets in France have more than 50% of the total market share. Similarly, the Netherlands has a CR5 score of almost 60% and the UK has a CR5 score of just over 60% (OECD Competition Committee, 2014).

The typical set of values that make the cases suitable for this thesis

For the current research these numbers make them authoritative typical cases in multiple ways and additionally the cases have a typical set of values in common which makes them suitable to serve an exploratory role for the broader phenomenon under scrutiny in this research. This set of values for the typical cases include that they are big in scale and size: they all operate in other countries24_and

the home economies of the grocery retailers are among the largest and most developed in Europe, if not worldwide. The cases have also been chosen because

24_{Both European and non-European.}

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they began to overshadow other food retailers and started to dominate on the world level to get on par with the global giant Wal-Mart (Fernie, 2009, p. 63). In all cases, entering the international markets was done through acquisition of other companies and in all cases, the supermarket chains angle for becoming the leading grocery retailer (Dupuis, et al., 2006, pp. 102-104). What makes these three cases different from other major meta supermarket chains and which makes them appropriate cases for this research is that sustainability is at the heart of these three chains. The three cases are outspoken advocates of sustainable agriculture and they are, unlike others, willing to make (financial) concessions.

The representativeness of Carrefour Market, Albert Heijn and Tesco

Studying the typical cases Carrefour Market, Albert Heijn and Tesco will stimulate the intellectual appreciation of power relations within the food supply chain whilst at the same time providing intellectual appreciation of the exerted power of the meta supermarket chains and their control over fresh food supply chains to the benefit of sustainable agriculture. Because of the chosen method to execute the GVC strategy, the outcomes of the research are representative of a wider ranging set of cases: Europe.

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Chapter 3: Power of the meta supermarket chains

in the context of GVC analysis

The research question ‘to what extent and how can meta supermarket chains

exert power over fresh food supply chains to the benefit of sustainable agriculture?’

presupposes that the meta supermarket chains possess a certain extent of power which they exert over the fresh food chain. The meta supermarket chains can use this power to secure and control sustainable agriculture in fresh food supply. This chapter looks into the power of the meta supermarket chains by means of the cases Carrefour Market, Albert Heijn and Tesco.

3.1 Looking into power

Power as a central element in this thesis is looked at in an analytical and methodical manner in this chapter. Efficient understanding of the power of the meta supermarket chains aloows for further assessment of the research question. In order to carry out the power question in this chapter and to be able to place the findings into context, a general apperception of the development of the meta supermarket chains in Europe is useful.

3.2 A historical sketch of the development of the meta

supermarket chains

Never before have the living standards of humans undergone continued and sustained growth. In the old days, livestock and crops formed the millennia old agrarian cycle which fed the world population. At the start of the Industrial Revolution in the mid-19th_{century this system changed significantly for the first}

time. Ever since this revolution, improvements in technological fields have changed production boundaries in the context of modernisation. This sparked redefinitions of the role of the state and it sparked the emergence of GVCs.

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Participating in GVCs expanded the market and generated alternative opportunities for doing business25_{. These developments also intensified the}

asymmetries in information supply. (Gereffi & Luo, 2014, p. 2).

3.2.1 Influences on the agri-food system

The production of food has mainly remained in the hands of national and local levels of government, however, the (global) agri-food system has been influenced by a number of factors and developments such as retailer-driven powers (Smith, et al., 2010, pp. 140-142) like bargaining power and agenda setting power. Another development is the movement of supermarkets into other retailing spheres, for instance petrol sales and banking, as an additional way of generation resources (Burch & Lawrence, 2009, p. 277). Spermarkets (and supermarket chains) are furthermore characterised by mobility: they can move or expand to other places or countries. The same cannot be said in a similar fashion for farmers, who more often than not remain in one place rather than move to places that are economically more viable (Cheshire & Woods, 2013, p. 233). It is therefore argued that the immobility of farmers places them in a subordinate position to meta supermarket chains.

3.2.2 Developments and general trends in Europe:

1990s-today

The transition paths of supermarkets in Europe have taken form in different ways in different areas in Europe. While the current cases all have their headquarters in Western European countries, Eastern European countries have generally lagged behind with regard to supermarket transition paths.

25_{Hence, for making money and profit.}

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3.2.2.1 Developments in the Eastern European retail sector

Up to the early 1990s Eastern Europe fell under communist rule. At the time the states were the leading agents in the retail sector, although some countries also had a small-scale retail sector of considerable importance. The period that followed was marked by the privatisation of retail stores and only recently have supermarkets gained momentum in Eastern Europe, notably during the globalisation period. Investments by multinationals have given rise to all kinds of supermarket formats and this trend is still ongoing. Production and distribution schemes are strongly channelled by supermarkets which oversee the activities of their suppliers. (Dries, et al., 2004, pp. 526-527; Vorley & Fox, 2004, p. 16).

3.2.2.2 The supermarket transition in Western Europe

The supermarket transition in Western Europe took place at an earlier stage. In that region urbanisation since the 1960s increased the demand for food shopping convenience. In combination with technical developments like the introduction of refrigerators in homes it was not necessary anymore to go food shopping on a daily basis. Food shopping shifted to weekly or even monthly activities. Additionally, real per capita income and the middle class grew during the 1980s and 1990s. Processed foods became demanded and economies of scale made that supermarkets were in the position to offer more variety for less than conventional retailers. This development translates into the increase of the share of supermarkets, which typically rose from 10-20% in 1990 to 75-80% in 2005. (Reardon & Gulati, 2008, pp. 4-8). Currently, the rise of supermarkets in Western Europe has come to a halt, among other reasons because the market has been saturated for years (Deloitte Research, 2004), cheaper discounters are on the rise (Felsted, 2014) and consumers are again buying groceries from different places (Lutz, 2014). Be that as it may, no other grocery retailers have larger market shares

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than supermarkets and therefore their impact is still important and regarded as such.

3.3 The status quo of supermarkets in Europe

Indeed, the production of food and its distribution have been altered at all levels in Europe and the question occurs whether sustainable agriculture in fresh food supply is secured. Sustainable agriculture is important in order to feed the population now and in the future and agriculture has to adapt to the changing European and global demographics. Notwithstanding this agricultural demand, the agricultural sector is not the only actor in charge of what crops are produced on their fields and in what way production comes to pass.

3.3.1 Trends in Europe

The supermarkets are the big buyers in the agricultural fresh food chain and therefore they have the powers to exert their influence over the entire food chain. Yet the supermarkets respond to the wishes of the customer, who increasingly often expresses environmental concerns about agriculture and who requests ‘green’ products that are sustainable in the eyes of the customer (Smith, et al., 2010, p. 141). Another trend in this respect is that the leading supermarket chains in Europe are increasingly engaged in business through preferred supplier programmes, which are managed by the supermarket chains. This is a more direct way of buying products from producers in the agricultural sector (Dries, et al., 2004, p. 548). All in all, the substantial market size of the meta supermarket chains is associated with both selling power and buying power. The power of the meta supermarket chains is asymmetrical compared to their suppliers, especially those of small and medium size (Fulponi, 2007, pp. 6-8), as they are made to fit a mould that the big retailers present them with.

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3.3.2 Consequences for the European food chain

These developments and trends have been of significant meaning to the European agricultural producers both at the national and EU level. The big grocery retailers are now able to instruct the suppliers to meet certain demands of the supermarkets, however the same holds the other way around or is in balance in the case of suppliers that only supply to one supermarket (Dobson, 2003, pp. 8-10; personal communication Hertzberger, 2014). Small and medium producers, but also bigger producers, might not survive in the long run if the return they receive is not enough to cover the production costs (Dobson, 2003, pp. 8-10). This in turn impedes innovation in the agricultural sector, which is pivotal in order to survive economically (Nieuwenhuis, 2002, p. 283).

3.3.3 Paying attention to the power of the cases

The remainder of this chapter pays attention to the power of Carrefour Market, Albert Heijn and Tesco. This is done by following the four elements as laid out by Gereffi and Fernandez-Stark (2011): input-output structure, geographical scope, governance and institutional context.

3.4 Carrefour Market

Source: Carrefour Market, 2014

3.4.1 Input-output structure

In the case of the Carrefour supermarkets the question is whether evolutions in its value chain replace existing value chains, or whether they are

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parallel to the existing chains (CNIS, 2011). Synergies between formats are potential growth opportunities which are cashed in on from a competition perspective (de Pechpeyrou, et al., 2013).

3.4.1.1 Carrefour’s capitalisation strategy

A notable dynamic seen in the case of Carrefour is its acquisition of other established supermarket chains such as Champion in 2007 and Label´Vie in 2011. In the case of Champion, for example, sales of Carrefour Market soared with 30% in Spain after 987 Champion supermarkets had been turned into Carrefour Markets. Carrefour Group is following a capitalization strategy which aims to increase the value of the intangible asset of the brand name Carrefour and that strategy has proven successful in the Carrefour Market case. Carrefour has cut expenditures on publicity and logistics (de Pechpeyrou, et al., 2013; Talay, 2012; Visseyrias, 2007).

3.4.1.2 Carrefour upstream and downstream

Other aspects of the Carrefour Market value chain are its infrastructure, human resources management, technological developments, supplies and (preferred) suppliers, internal and external logistics, commercialisation and services (Talay, 2012). For suppliers to get their products in Carrefour Markets, a number of stages must be undergone in the upstream preparations and in the downstream management and Carrefour is present at all stages, where upstream includes looking at the seasons and their crops, deciding on the crops needed, sourcing, tenders, negotiations and the final selection of suppliers. Downstream includes administration, packaging and product delivery. Demand from the customer is very important in both processes (Carrefour Group, a).

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3.4.1.3 Carrefour Quality line

The Carrefour Quality Line (‘Filiére Qualité’) is promoted by the Carrefour Group as its CSR approach. It claims to offer fresh products at the best prices through partnerships with (small) farmers and producers. Long term contractual commitments are made regarding the volumes purchased and in return the farmers and producers must ensure sustainable agriculture practices (Carrefour Group, b; Carrefour Group, 2013a). Becoming a Quality Line supplier is based on a strict accreditation scheme in which suppliers must meet rather rigorous quality standards (Zylberstsztajn, et al., 2009). Certification of the Quality Line products is consumer-oriented and the products must cover several sustainability standards as set by Carrefour such as socio-economic development in the regions where Carrefour operates, safety and environmental protection (Corsin, et al., 2010).

3.4.1.4 Carrefour’s logistics goal

Another goal for Carrefour to reach by 2016 is cutting down the logistics from 200-300 days to 20 days, through synchronised production, coordinated and neighbourhood distribution and moving production closer to customers. The images below illustrate this goal. Consolidated safety stock and minimum order requirements will be repealed and daily delivery will ensure adequate product rotation. The replenishment and reorganisation of the logistics will be managed by Carrefour itself (Carrefour Group, 2007).

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Figure 2: Carrefour’s logistics network of the last 20 years. Source: Carrefour Group, 2007