Wal-Mart announced Thursday that they would be expand the amount of locally grown produce in its stores. The move is a part of the retail giant’s efforts to improve the efficiency of its suppliers, but will Wal-Mart benefit itself or is this just another ploy for goodwill?
“The jury’s out,” said Sunil Chopra, a professor of managerial economics and decision sciences. But, he added, “The ability to set up such a system has advantages besides obvious ones from a PR perspective.”
“Wal-Mart really has to come up with a gathering mechanism. It’s not something that they’re not capable of doing, but it will be a change in their supply chain. They will have to come up with good collection mechanisms”
The challenge for Wal-Mart will be incorporating small farms into its supply chain, which currently operates on a “large to large” model, Chopra said, where large producers supply large stores. But the move is not a complete about face. Wal-Mart, famous for its sprawling big box stores, will be adding smaller format stores in urban areas in next couple of years. “In some sense, this is the equivalent of what they will have to do with smaller format stores on the front end at the back end,” he said.
Wal-Mart’s experience in developing nations may give them a head start in integrating smaller farms. In countries like India where lack of refrigeration can be an issue, up to 40 percent of produce spoils before it’s sold, Chopra said. Furthermore, India lacks the large corporate farms that have come to dominate American agriculture. As a result, most Indian produce comes from smaller local farms.
Wal-Mart’s local produce program also has an analog in India called e-Choupal. ITC Limited, an Indian conglomerate, built the system by installing computer terminals in farming villages that allow farmers to view current commodity prices in various regional markets along with the price ITC is offering. If the farmer likes the ITC price, they can leave their harvest at the terminal. If not, they can travel to the market of their choosing. This helps ITC efficiently collect agricultural products from thousands of small farms. It also benefits farmers by cutting out the traditional middlemen who bought the farmer’s products well below market price and then resold them for a handsome profit.
ITC’s program is “taking out an inefficient middleman who is really trying to take advantage of price differentials that are invisible to the farmer,” Chopra said. Though programs like e-Choupal have greatly benefitted farmers in the developing world, it’s less certain that Wal-Mart’s program will help small farmers in the United States, Chopra cautions.
Wal-Mart also rolled out an index that will rate its agricultural suppliers on both waste and efficiency. Though some environmental groups have praised the move, Chopra said sustainability indices are tricky to get right. Many questions need to be answered in the course of their development, including how far back in the supply chain companies should measure—does a company measure only its direct impact or also that of its suppliers? And who develops the index is equally important. “What might look good for a company may or may not be good across the whole supply chain,” Chopra said.
Photo by merfam.