Food Prices, Quality, and Quality's Pricing in Supermarkets versus Traditional Markets in Developing Countries*

Abstract

Supermarkets are spreading rapidly in developing countries. The diffusion is occurring in three waves. The first wave was in South America, East Asia (outside China), and South Africa, in the early 1990s; the share of supermarkets in food retail went from roughly 10-20% in 1990 to 50-60% today. The second wave was in Central America, Mexico, and Southeast Asia, taking off in the mid 1990s, and reaching 30-50% today. The third wave was in China, India, Vietnam, parts of Africa such as Kenya, taking off in the 1990s to early 2000s, reaching 1-20% today (Reardon et al.). There is a third and even fourth wave just emerging in parts of South Asia and Africa where supermarkets are still a tiny niche (Reardon and Timmer), such as in Madagascar (Minten). As supermarkets diffused and competed over the past decade, they have gradually adopted procurement system modernization, such as buying in bulk to lower costs and thus offer competitive prices, and imposing private standards to raise quality (Reardon and Timmer). There has, however, been no review of emerging evidence of whether supermarkets charge higher or lower food prices or offer higher quality than traditional retailers with whom they compete, and what price they charge for that quality differential if it exists. This article addresses this gap first by reviewing emerging evidence on supermarket-traditional retailer price and quality differentials, and then focusing in on a late third-wave case study (of

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