Wednesday, December 29, 2004

Supermarkets and Productivity

The New York Times writes about the stunning progress of supermarket penentration in Latin America. "In the 1990's supermarkets went from controlling 10 to 20 percent of the market in the region to dominating it, a transition that took 50 years in the United States..."

The rise of supermarkets is transforming the agricultural sector, and is, of course displacing small farmers. The problem, of course, is the speed of the transformation, and not the fact that it is happening. If I ever saw a situation in which a safety net is called for, this is it. After all, it appears that there are massive increasing returns to scale in retail, as supermarkets can invest in technology and take advantage of their buying power in order to force providers to be more efficient. William Lewis does a wonderful job explaining how this happens in his book, The Power of Productivity.

After all, it is the inefficient farmers that are being displaced, because they "[lack] the expertise, as well as the money to invest in the modern greenhouses, drip irrigation and pest control that would have helped them meet supermarket specifications."

Supermarkets are putting low cost, high quality produce and other goods in the hands of an increasing number of consumers, bringing a significant improvement to the lives of many people who previously could not afford or simply had no access to high quality groceries. This improvement in productivity is most likely resulting in higher economic growth, and improved tax collection. In fact, the NYT article notes that one of the reasons small farmers cannot make a profit selling to supermarkets is that doing so puts them in the government's radar screen, and forces them to pay taxes.

Perhaps the governments should use these extra tax revenues to provide training programs and unemployment benefits to displaced small farmers. Or perhaps I am too idealistic in believing that such a program would work.


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