Global Agrifood Value Chains and Local Poverty Reduction: What Happens to Those Who Don't Plug In?

Structural changes in the global agrifood value chain have transformed food production in developing countries including Indonesia. One element of this is the spread of supermarket retailing. By increasing the demand for and returns to higher quality produce, this development has the potential to improve living standards in a sector where poverty has been persistent. Many studies have shown the magnitude of price premiums available to farmers who sell to supermarkets. However, little attention has been paid to how the introduction of a supermarket retailer affects those farmers who continue to sell to traditional market channels. Our data suggests that in regions where there are both modern and traditional buyers, competition effects result in the immiserization of farmers who continue to sell to traditional markets. This result underlines the fact that while sectorial transformation has desirable poverty reduction potential, actual impacts are lumpy. The distribution of farmer participation in a region may result in a case where the upgrading of agrifood supply chains can increase poverty in the absence of policy interventions.