Ugrading of Intermediaries in Fresh Food Supply Networks Dynamics in the Emerging Economy of Turkey

The term “supermarketization” is often used to describe the international diffusion of supermarkets which heavily accelerated when retail companies started to significantly invest beyond domestic borders in the beginning of the1990ies. The dynamics of the food retail sector in developing and emerging markets have caused deep modifications of the corresponding domestic production networks of fresh fruits and vegetables (FFV). Transnational retailers and also domestic retailers imitating their processes increasingly coordinate and consolidate supply networks in order to improve cost efficiency, economies of scale and product quality. In the context of these transformation processes significant challenges but also upgrading possibilities for supplier companies open up. Especially market intermediaries are impacted as they can take charge of realizing the modern retailers` high demands regarding quality, quantity and prices within the context of often traditional and fragmented production structures. Nevertheless, the vast majority of the literature on agri-food networks is concerned with either the level of retail or the level of food production, the level of market the transforming role of intermediaries and suppliers is rather neglected. Furthermore, the literature on upgrading- and knowledge transfer has a strong focus on technology driven sectors while natural resources related firms and industries, are under-researched. Using the example of the emerging economy of Turkey, the presentation analyzes the transformation of FFV value chains in the context of retail “modernization”. In the focus are upgrading processes of FFV suppliers, corresponding information and knowledge transfers between modern transnational and domestic retailers and their suppliers as well as the corresponding transforming power relations within the value chains. The analysis shows that, due to shortcomings of required products, retailers have significantly promoted upgrading of their FFV suppliers, includes functional upgrading, by a. formal supplier development programs and b. informal ways of sharing information. However, sourcing strategies of big retailers are recently changing. On the one hand, they prefer big and strongly vertically integrated suppliers that partly gained their capabilities in export markets. On the other hand, they establish own processing facilities and directly collaborate with small producers organized in cooperatives. In any case, wholesalers, which specialized according to supermarkets` needs, are in danger of being replaced and retailers are using the increasing competition among suppliers and their growing power by e.g. imposing higher shares of costs on their suppliers. We observe that a based-market form of value chain coordination during the entry phase of the transnational retailers transformed into a relational form of governance with mutual dependencies and is now becoming increasingly captive. This shows that functional upgrading can lead to a mutual dependency of supplier and buyer in the middle term but a high level of dependency of the supplier on the lead firm in the long term, which is contrary to the assumption from the literature.