Crowding mom-and-pop

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Richard Watson Todd examines the British experience with superstores and
compares it to the situation in Thailand.

A quick quiz to start. Which is more likely to lead to protest demonstrations: a military-backed govt or the opening of a shop?

If you answered a military-backed government, you’ve been reading too much reporting from Burma. In Thailand, the correct answer is the opening of a shop, if that shop is a superstore, and especially if it is a Tesco Lotus superstore.

The people protesting are the owners of mom-and-pop shops who are trying to protect their livelihood, and superstores are a serious threat.

For food sales, in 1996 supermarkets and the like accounted for 21% of total sales with traditional so-called wet markets accounting for 75%. By 2001, the supermarkets’ cut had gone up to 45%, and is now well over half. The wet markets have gone in the other direction and are now around a third of all food sales.

For all retail trade in Thailand, Tesco Lotus has 6% of all sales and is growing rapidly. When you consider that the retail sector comprises about a sixth of the whole Thai economy, this means that Tesco Lotus has about 1% of the whole economy.

At the same time as Tesco Lotus and the other superstores have been expanding, an estimated 100,000 local retail stores have disappeared. Clearly, there’s a threat to mom-and-pop shops.

Whether you think the mom-and-pop shops deserve protection or the market efficiency of superstores should be given free rein, even the large number of local shops closing could be overshadowed by a potentially far more serious consequence from the dominance of superstores.

To see what this consequence is, let us look at Britain, where Tesco, the most aggressive of the retail companies in Thailand, originates. The supermarket system, especially Tesco, has been the focus of extensive criticism in the UK on three main grounds.

First, as in Thailand, supermarkets have been seen as causing the demise of independent shops, especially butcher’s, grocer’s and greengrocer’s.

Second, supermarkets are accused of creating unnecessary movements of food. For instance, even at the height of the British apple season, over half of the apples sold in supermarkets are imported, with some travelling 20,000 kilometres. In an age of ecological awareness, it can easily be argued that such a practice is unacceptable.

The third criticism is that the supermarkets use their purchasing power to exploit suppliers. With below cost selling driving out competitors, supermarkets are in a position to dictate terms to farmers.

With milk, for example, it is claimed that supermarkets make more profit per litre than farmers receive for production. Overall, the farmers’ share of sales of food has dropped by more than a quarter in the last 20 years. Tesco, the largest chain in the UK, pays suppliers 4% less than the average.

The farming economies of the UK and Thailand are very different. Agriculture is a minuscule employer in the UK, whereas it still accounts for around 50% of the workforce, albeit not necessarily full-time, in Thailand. Farmers in the UK often sell directly to retailers, whereas in Thailand middlemen are nearly always involved.

These differences actually make the growth of supermarkets in Thailand even more of a cause for concern. As the supermarkets’ share of the food market rises, they are likely to demand lower prices from suppliers, and the middlemen are likely to offer lower prices to farmers to make up the shortfall. With such a large proportion of the Thai population involved, this is a major crisis waiting to happen.

Given the negative consequences of supermarket expansion in the UK and the likelihood of similar problems in Thailand, what is being done?

At present, under pressure from protests, the government is focusing on the first of the problems and trying to protect mom-and-pop shops. The Retail Business Act which aims to regulate the retail trade was approved by the National Legislative Assembly last month and the bill is currently undergoing scrutiny. Although the commerce minister has stated that the bill will not interfere with the business of superstores, the Act does give a legal basis for controlling their expansion.

The second issue of unnecessary movements of food is less of a problem in Thailand at present. Most consumers prefer local produce and the expensive imports which can be found in upmarket stores form a tiny proportion of overall sales.

The biggest potential problem of the growth of superstores adversely affecting farmers’ income has been ignored.

With a vast number of farmers already finding it difficult to make ends meet, action needs to be taken before a lower price for agricultural products makes life even harder. At present, government policies concerning agricultural products aim either to protect consumers by setting retail prices for staples such as sugar or are short-term measures stimulated by gluts.

While it is easy to see the superstores as aggressive predators only concerned with profit, they should be amenable to negotiations to preempt any damage to farmers, if only because it is good public relations.

Tesco Lotus is often viewed as the least socially concerned of the superstores, yet Tesco is listed on the UK Stock Exchange’s FTSE4Good index of socially responsible companies and, in Thailand, Tesco Lotus has a readily available ethical code of conduct with suppliers.

It is therefore well within the realms of possibility that Tesco Lotus and the other superstores are willing to consider ways of ensuring fair prices for farmers in Thailand, albeit not at the expense of their profits.

Before superstore dominance of the retail trade begins to adversely affect farmers, it is essential that the Ministry of Commerce and other arms of the government take the initiative to set up systems to ensure fair prices.

By : Bangkok Post