Monday, 5 November 2012

Staying in the high value chain after the developed countries have gone: The case of Brazil

By Luciana Vieira (guest blogger, Visiting Fellow in the Globalisation Team, IDS)

Traditionally, developed countries have been the buyers of products manufactured in developing countries, although this has been changing lately. How can these countries ensure that they are still able participate in high value supply chains if their main buyers are gone?

Global Value Chain Approach in Brazil
One approach is to consider the Global Value Chains (GVC) analysis which tries to understand inter-firm relationships in the context of buyer and supplier. An important contribution to GVC is to understand how the workforce can get organised to have some bargaining power. In this sense, Benjamin Selwyn describes the rise of the Sao Francisco valley*, in the Northeast of Brazil, that became a successful exporter of high value fruit with public-private collaboration. He analyses the role of important stakeholders, such as unions, associations, local agencies, among others, also involved in the training and organisation that allow this region to produce more value added products (upgrading) in the global value chain.  Ben´s work certainly shows that small producers can get gains participating in global supply chains.

However, even in this unique case study, the production standards are being set by a transnational retailer who keeps much of the value added of the product. The transnational retailer’s willingness to pay a “premium price” was the driver for the workforce to organise and to upgrade. If there was no buyer paying that premium price and requiring such strict compliance with specific standards, would these workers naturally organise themselves and upgrade?

And if we look to other case studies from a GVC perspective, where there are no asset specificities such as perishability, favourable natural resources and location (lack of other available labour), would the empowerment of workforce be replicated under different conditions? Probably buyers would just source elsewhere where the standards could be met at the required price. We have seen this happen a number of times with other manufacturing products, such as the footwear industry moving from Brazil to China.

Getting trapped in the sophisticated European market
A further threat to export supply chains from developing countries (to ‘developed’ countries) is that they can get trapped or locked into more sophisticated European markets than those existing in the countries where the products originate from. Small producers may become involved in developing such high quality products that they can hardly find an alternative in their domestic market. And while these producers can upgrade technically:
  • Are they able to find other buyers for their products abroad, in order to overcome the trap of being dependent on a single buyer or market?  
  • Have they developed marketing skills and business development skills needed to this? 
My years of experience working with a number of Brazilian export supply chains tell me that, in contrast to many Asian companies, they know very little about markets, brands and pricing.

The Fair Trade example
One example is Fair Trade products. These have no appeal in Brazil where most consumers are constrained by their incomes and wouldn’t pay a premium price for this specific certification. If you consider other developing countries, for example in Africa, there is no alternative consumer market at all.

My main concern regarding such specialised export supply chains is that the economic crisis in Europe and/or the ‘buying local food’ initiatives will affect their markets in a very near future. So, from the perspective of developing country producers, there is an urgent need to transfer technical learning achieved and search/create alternative markets for their high quality products. Otherwise, there is a high risk that they will be forced to “downgrade” with all the implications that this has to the workforce and regional development.

* Listen to Ben Selwyn's seminar given at the Institute of Development Studies on 30 October 2012

For more information on this subject, visit: