Tomato Farmer Participation in Supermarket Market Channels in Guatemala: Determinants and Technology and Income Effects

The paper shows that in a comparison between supermarket channels (working via dedicated wholesalers) and traditional channels, farmers selling to supermarkets tend to be in the upper-end of the "small farmer" category (whereas the traditional-channel growers are in the smaller end), have more capital (in particular, irrigation, which allows them to supply all year and attain greater productivity and consistency), and be much more specialized in commercial horticulture in general and in tomatoes in particular, as compared to the traditional farmers. While they have higher yields, they also have higher input use, including use of chemicals, and these greater input expenditures (accompanied by more credit and technical assistance from the chemical companies) means that their profit rate is roughly similar to the farmers in the traditional channel. They tell us that they prefer still the more demanding wholesale-supermarket channel because it offers a lower risk and lower transaction cost outlet for the variety of their qualities and grades, all year. In turn, the supermarkets, who do not buy direct but rather source from a few dedicated wholesalers, rely on this year-round supply, lower transaction costs, and consistency. While the share of supermarkets in the produce market in Guatemala is still minor, these results mean merely that the more capitalized-tier of small farmers enjoy some advantages with the new channel, but also some entry costs that the traditional farmers as of yet do not face. As the supermarket channel grows, it is expected that more and more farmers will need to capitalized in ways that will either make them competitive in the new market, or in the traditional markets that will doubtless evolve to maintain competitiveness themselves. Development programs over the medium-long run will need to take into account the changing nature of farm-level investments thus implied.