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Asian Journal of Agriculture and Development, Vol. 6, No. 2 51 The Transformation of Food Retail in the Philippines Glory Dee Romo University of the Philippines Mindanao, Philippines Email: [email protected] Larry Digal University of the Philippines Mindanao, Philippines Email: [email protected] Thomas Reardon Michigan State University, USA Email: [email protected] ABSTRACT From a small base by the end of the 1990s, modern retail (the chains selling at least some food) in the Philippines grew very rapidly in the 2000s, at thrice the rate of the country’s GDP growth. Reaching 13 billion USD of overall sales by 2010, 5.25 billion USD of this amount came from food sales. While much of the policy debate about market development focuses on export markets, we will show that supermarkets in the Philippines already sell twice the value (volume priced at export prices) of food that is exported – and modern retail is growing faster. Modern retail has reached 45 percent of urban food retail – already beyond the share of the middle class in the population, and about 35 percent of the national food market – from a tiny fraction of that fi gure two decades ago. Modern food retail is itself rapidly transforming – with a rise of fresh produce sales, industry concentration, format diversifi cation off-mall into formats that permit greater market penetration, and emerging procurement system modernization. While traditional food retail (and even most aspects of modern food retail) in the Philippines track international experience, the lack of major foreign presence even after retail foreign direct investment (FDI) liberalization in 2000 is a puzzle about which we present hypotheses. Given the already large and increasing importance of food retail modernization in the Philippines, this theme should enter the agrifood research mainstream and be the subject of systematic fi eld survey analysis in order to start discerning its impact on consumers, farmers, wholesalers, and processors. 52 Glory Dee Romo, Larry Digal and Thomas Reardon THE TRANSFORMATION OF FOOD RETAIL wholesale, and a third in the retail segment. IN THE PHILIPPINES This implies that the latter is important to food costs and food security for the large share of Starting from a common traditional food the population that is urban (nearly half in the retailing system of small shops, wet markets, Philippines) and the many rural households and hawkers (as was similarly common that are net buyers (Balisacan 2000). Moreover, in the US, Western Europe, and Japan), a retail transformation appears to cause or at “supermarket revolution” took off in the early least encourage changes in upstream segments to mid-1990s in developing countries (Reardon (processing, wholesaling, and farming). et al. 2003; Reardon and Timmer 2007). The Such changes may be in sectoral structure, spread of supermarkets has taken place – and technologies, in institutions, or organization of continues to do so – in three waves. the food system. The fi rst wave countries experienced Despite the growing importance of the supermarket sector takeoff in the early to mid- modern food retail sector in the Philippines for 1990s. These include much of South America the overall agrifood economy [noted in various and East Asia outside China and Japan, self-published consulting reports, working paper Northern-Central Europe and the Baltics, bulletins, newspaper and magazine pieces, and and South Africa. These fi rst wave countries conference papers in the grey literature, such saw supermarket diffusion in a single decade as PDFI (1999), Digal and Concepcion (2004), that took some fi ve decades to happen in the Cabochan (2005), IBM (2007), Nielsen (2008), U.S. and the U.K. The second wave countries and Macabasco (2009) and others], there has include Mexico and much of Southeast Asia, been only one refereed academic journal article Central America, and Southern-Central Europe. on the subject – that of Digal (2001). This The third wave countries are those where the body of grey literature as well as the limited supermarket revolution did not take off until academic work on the subject has posited that the late 1990s or early 2000s; these areas modern retail has been growing quickly, with include parts of Eastern and Southern Africa, its take-off mainly in the late 1980s and early some countries in Central and South America, 1990s. It has also been observed that retail “transition East Asia” (China and Vietnam), formats have tended to change over time, Russia, and India. The modern retail in a subset and that procurement systems appear to be of the third-wave countries, especially China, modernizing with greater direct procurement Vietnam, Russia, and India, is growing very from processors and some emerging relations quickly, often at three to four times the rate of with specialized wholesalers, concessionaires, their rapidly growing GDPs per capita. and agribusiness companies as suppliers. The transformation of food retail Besides the dearth of treatment in the in developing countries is an important academic research literature, there are several development research topic in part because it important gaps in information in the existing treats change in roughly a third of the agrifood literature; namely: economy – as value chain research estimates 1) The journal article by Digal treats only that about a third of the value-added and the 1990s. We show in this paper that costs occur in the farm segment of the food while modern retail grew quickly from supply chain, a third in the processing and a small base in the 1980s and 1990s, Asian Journal of Agriculture and Development, Vol. 6, No. 2 53 it was very small by the end of the on upstream actors in the supply chain). We 1990s compared to what it has become shall address the following sets of issues: by 2010. Thus, the local academic First, and the main issue addressed by the literature does not capture the recent paper, is what does empirical evidence show decade of deep and rapid change. concerning the following: (a) growth of modern 2) Where it offers quantitative food retail sales including overall “banner sales”, assessments, the literature tends to be that is, food and non-food sales; (b) change in based on industry experts’ guesses of the product composition of sales over food the size of sales (such as that of fresh product categories with diversifi cation above produce), or the use of offi cial data that and beyond the traditional (for modern retail) does not allow breakdown by types category of ambient processed, into frozen and of formats or product categories of chilled (dairy, meat, fi sh), beverages, and fresh sales and are not easily available for fruits and vegetables; (c) change away from the each year. The literature also does not traditional base of department stores toward present statistics with cross-year data a format diversifi cation into hypermarkets, that show modern retail growth rates, supermarkets, and convenience stores; (d) sales by format, distinction of food spatial diffusion of modern retail away from sales of various categories compared to its initial base mainly in Metro Manila (MM) overall sales, and the gross productivity into other regions (i.e., into other provinces in of retail (in terms of sales per sq meter). Luzon, Visayas, Mindanao); and (e) change 3) Until now, literature in the Philippines in gross sales per square meter as a rough presents some company websites proxy for productivity. Note that based on the and key informant/case studies of international literature that we refer to when procurement system change, but presenting the results and recent-historical there is as yet no published study information from the Philippines, each of these about the procurement systems for fi ve axes represents an axis of modernization of either processed or fresh foods by a food retail, and an impetus for and step toward substantial cross section of modern further modern retail diffusion. retailers. Second, while we fi nd that the Philippine 4) There is as yet no published survey- situation and the modernization of retail in the based study of farmers, processors, country shares many characteristics with other or wholesalers involved in supplying developing countries, there are particularities modern retail compared with those that it has in common with relatively few other are not. developing countries that are also experiencing This paper seeks to make a contribution to retail transformation. Of interest is the the literature on modern retail in the Philippines continuing central role of domestic capital mainly by presenting new data addressing the in the transformation, while elsewhere retail fi rst two sets of gaps noted above (growth and FDI has played a far larger fomenting role. We composition of modern retail), and briefl y explore the issue of the determinants of retail reviewing existing case studies and hypothesis- transformation that the country shares with presenting literature on the third and fourth most other developing countries, which ones gaps (procurement system change and impacts are unique to the Philippines, and why. 54 Glory Dee Romo, Larry Digal and Thomas Reardon Third, and treated most briefl y in the paper the third way because the small individual due to scant empirical evidence, we review the shops in the traditional sector may be formally (mainly gray) literature on the modernization registered small grocers, or be informal shops of the Philippines’ procurement systems of or stalls, or mobile carts or hawkers. Moreover, processed and fresh foods which may have modern retail may also be small stores such as impacts on processors, wholesalers, and a chain of convenience stores. Below then we farmers – the impacts of which have not yet defi ne and justify the set of segments we range been published in the Philippines. These points under traditional and modern.

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