The rise and fall of the "middleman": intentional intermediation within the supply chain. Part 1

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In the first part of this article for the NX-FOOD blog, food innovator and entrepreneur Júlia Dalmadi explains the historical and sociopolitical factors that formed the food system as we know it, explores the scope and challenges of the modern supply chain and looks for the most feasible ways to feed the growing population while ensuring the fair value distribution for all the supply chain participants.

Why did the farmer cross the road?

For hundreds of thousands of years, the biggest problem of humankind was to keep the population of small nomadic communities close to food sources. With the domestication of plants and animals agriculture was born. That allowed our forebears to stay in one place and civilized societies started shaping. The evolution of these societies resulted in villages that later turned into towns and towns evolved into city-states.

The citizens that used to practise all kinds of activities — foraging, hunting or fishing, making tools and shelters — narrowed their speciality to craftsmanship or farming. Self-sufficiency faded and trade evolved to a greater extent. The new challenge became how to bring food to the people. The delivery of sufficient quantities and quality of food required complex governance.

With time short and independent product transfers altered into more unified, longer-term and larger scale operations. The expansion of empires resulted in a global food system that was organized on a grand scale to feed local economies. With the evolution of trade networks, standard measures were established and money for payment was introduced.

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Disruptions that formed the current food system

Science and technology had a major impact on our food system. The Industrial Revolution didn’t only change the way how the food was grown, processed, preserved and transported but as well generated more disposable income to be spent on nutrition. Innovations in preservation methods, like canning and freezing, combined with agricultural intensification enabled the global trade of affordable food products and increased food security.

Political factors, like colonization and war, had a huge impact on non-equally distributed ownership of food systems and their intermingle on a global scale. The redistribution of surplus food produced by industrialized agriculture lead to today’s conventional food system (CFS) which aims to quickly and cheaply feed a huge amount of people. Industrialized agriculture relies on economies of scale. Efficiency is ensured by lowering production costs and often compromises of local ecosystems by growing more yielding crops.

And even though the modern global trade system allows the industrial society of developed countries to eat anything at any time and at any place, the benefit-oriented approach drastically decreased biodiversity.

The scope and challenges of the food supply chain

The scope of food supply chain extends from farms, as the first origins of food products, to fork, as the last point of consumption. Nevertheless, it involves the following three industries: the agriculture and farming industries as raw materials providers; the food processing industry which transforms raw materials into food products, and the distribution industry which is responsible for the logistics. The journey of food involves so many participants — producers, harvesters, processors, consultants, agents, temporary workers, retailers - that their impact becomes small and almost unnoticeable.

Each stakeholder has their own challenges. Farmers struggle with volume and consistency constraints and have little visibility to the end consumer. If the added value cannot be communicated up the chain and monetized they have little to no incentive to adopt better but more costly farming methods. The continuously changing supply and demand make distributors’ life more difficult and they are pressured to provide more transparency to the origin of the product when documentation is heavily paper-based or non-existing.

The retail sector is facing increased competition from online food providers and struggles to provide local options with unpredictable supply. Both grocery chains and restaurants are expected to provide detailed on-demand information about the food they sell in order to justify premium prices.

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Uneven value distribution

The food supply chain or food system moves food in domino-like motion from where it is produced to the point of consumption or disposal. The final price paid by the consumer is determined by multiple participants in the food supply chain. By removing trade barriers single markets created more opportunities and larger reach for the supply chain participants. On the other hand, it resulted in increased international competition and structural changes that decreased the bargaining power of the less mobile actors in the chain, in particular, farmers.

The misuse of such differences may lead to the directive and unfair trading practices (UTPs) where the value is distributed exponentially and once each participant takes their share, the farmer ends up with less than 10% of the retail price.

According to the European Commission, the value added for agriculture in the food chain was 31% in 1995 and decreased to 24% in 2005, mainly for the benefit of other food chain actors. The available Eurostat data shows that in 2011 the majority of added value was taken by the food processing sector (28%) and food retail and wholesale (51%), leaving only around 21% share for the farmers.

The European Commission has an interest in improving the functioning of the food supply chain in the European Union and established an Agricultural Markets Task Force (AMTF) in 2016 that made in particular three recommendations, namely, to address unfair trading practices, increase market transparency, improve cooperation among farmers. These recommendations helped the Commission to introduce an inception impact as­sessment and a public consultation on the improvement of the food supply chain in 2017.

In April 2018, the Commission proposed to ban the identified specific UTPs: late payments for perishable food products, last minute order cancellations, unilateral or retroactive changes to contracts and forcing the supplier to pay for wasted products.

The Common Agricultural Policy (CAP) modernization proposal about improving farmer’s position in the value chain and addressing UTPs is now submitted to the two co-legislators, the European Parliament and the Council.

The coexistence of “large-scale” and “short-chain”

Evan Fraser is the Director of the Arrell Food Institute, the Scientific Director of the Food from Thought Initiative and holds the Canada research chair in Global Food Security at the University of Guelph. His food security initiative, Feeding the 9 Billion, provides insights around issues of our current food system. The proposed solutions to the global food crisis, as well as the supply chain problems, include science and technology, pro-active governmental policies, more equitable food distribution and local food systems.

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Theoretically, both the global trade of commodities (aka. conventional food system) and the emerging alternatives of regional distribution can play a significant role in developing a local food system and creating a market for local foods. Even though the current conventional food system aims to feed the continuously increasing population, its environmental, social and economic sustainability has been raising concerns. In contrast to intensified farming, monocultures and enormous use of fossil fuels, the guiding principles of alternative food systems (AFS) are fewer food miles and intermediation between producers and consumers, smaller scale but greater biodiversity.

Community supported food systems and Short Food Supply Chain (SFSC) require the farmer placing themselves closer to the consumer and includes several practices that can be summarized into three categories: geographical proximity, disintermediation and information richness between producers and consumers. FairChain Farming means farmers and workers earn living incomes and wages by managing profitable farms and getting involved in value-added activities, like processing, packaging or producer participation in brand value creation. Organic food systems reduce dependence on chemical inputs and underline the concern for transparency and information.

The following video highlights the importance of consumers’ and policymakers’ role and  recommends a balanced approach wherein “our food security will be enhanced if all of us are able to draw from both global and local systems.

This is the first part of the article “The rise and fall of the “middleman: intentional intermediation within the supply chain”. The second part is available here.

About the author

About Júlia Dalmadi (photo-julia-dalmadi_new.jpg)

Júlia Dalmadi

Júlia Dalmadi is a food entrepreneur, soon-to-be food innovator and food tech expert. Having completed her education in International Hospitality, Júlia has worked in aviation and hotel revenue management. Later she became a product manager at SnapShot the company introducing game-changing tech solutions in the hotel industry. Since 2015 she has been also managing her artisan food business, Pelmeni Slam in Berlin.

Currently, Júlia is pursuing her Master degree in Food Innovation in Italy and looking for the best way to combine her expertise in tech and food.

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