Theme 2

The food consumer and supply

chain

Dr Chen Nan
Successful businesses have adopted a
customer-oriented philosophy.

“Unhappy customers don’t always complain to

you. Instead, they sound off to ten other existing
or potential customers of yours. What could be
worse for your company’s health?”
Kuglin F. A. (1998)
 1 Consumer value
• Consumer choice is driven by
– Individual preferences
– Attribute content
– Prices
A product can be conceptualized as a bundle of
attributes. Value is delivered through product’s
attributes. Consumer choose a product that
delivers desired attributes for the lowest price

Consumer value = Level of attributes/Price

 Food Quality in Agri-food Value
Chains
Food Quality: bundle of attributes of a product
or service that bears its ability to satisfy stated or
implied needs，includes——
 Safety requirement is the prime food quality
attribute
E-coli, Pesticides
 Nutrient requirement

 Sensory requirement
(Smell, Taste and appearance)
 Origin of the product
– Origin of production,
– How it is produced
– Environmental impact,

• Ethical requirement- Animal Welfare, Labour

welfare

• Availability of the product at the right time in

the right place and desired amount

• Price to quality ratio

 Some attributes are tangible, others are
intangible.
 Some are evident and can be easily
perceived and assessed by customers.
Other attributes are not as easily evident
at point of purchase unless tested or
used.
 Yet sometimes neither by using the
product one can be sure if the promised
attribute is actually there.
Some scholars like to think of products
and services as “satisfactors”——Yet
one could argue that value is delivered
by certain attributes of the product and
not by the product itself.

Value as well as quality is in the eye of

the beholder.
 2 The Supply Chain
Reasons for supply chain management
 From prehistoric time people have tried to
establish long-term trusting relationships with
others in business.
 Last century was, there appeared possibilities to
produce and distribute products cheaper and
quicker.
 Globalization of world trade and product
availability has created, on one hand, a high level
of customer perceptions and on the other hand,
high-level business competition.
 physical distribution management, which includes
warehousing and transportation issues, has been
integrated with manufacturing, procurement and
order processing. This is the logistics stage of
integration.
 Requirements appeared to include the
consideration suppliers and customers. At this
stage, when considerations “jumped over” intra-
business boundaries to inter-business boundaries,
that Supply Chain Management appeared.
Supply chain management defined

 Agribusiness encompasses the entire value

chain from supply of farm inputs, on farm
production of food, fibre and fuels,
processing, marketing and through to the
consumer and the broader political, social,
economic and financial context that shapes
the value chain.

 Also called supply chain, industrial chain

Unique characteristics of SCM
 The term SC may be applied when all business
processes, from end users through to original suppliers,
are considered as one integrated system.
 If firms in the existing system don’t integrate their
business processes to optimize performance of the
entire system, we can’t call this system a “supply chain”
without misunderstanding. To be precise we will define
those systems as “supply systems”. Generally we may
talk about “partly integrated supply systems”.
 We will use the term SCM for a wholly integrated supply
system. SCM differs from other management
disciplines by its business philosophy where particular
business interests are considered through common
interest of the supply chain as one competitive structure.
 Chain of agents adding value to commodities
(primary products) to satisfy consumers wants
and needs.
 The food value chain is the network of
stakeholders involved in growing, processing,
and selling the food that consumers eat—from
farm to table
 The series of processes, operations and
entities that help to take the food from its raw
material state to our plates
“The value chain describes the full range of activities
which are required to bring a product or service from
conception, through the different phases of production
(involving a combination of physical transformation and
the input of various producer services), delivery to final
consumers, and final disposal after use”
(Kaplinsky and Morris, 2000)
 The following questions must be considered
while going through the readings.
 What is value?
 How is it created?
 What does it take?
 Who creates value?
 Who gets what?
 Does it pay to create value?
 How do you know?
 Value Addition

Value can be added in agri-food value chains via

the following ways among others;
– Low cost
– Quality – safety, grades and standards
– Product differentiation
– Technology innovation
– Delivery times, flexibility, terms, conditions, etc.
– Strategic partnerships
Complexity of SCM
 SCM has the following components:
 Planning and control
 Work structure

 Organisation’s structure

 Product flow facility structure

 Information flow facility (IT) structure

 Product structure

 Management methods

 Power and leadership structure

 Risk and reward structure

 Culture and attitude

Cooper, M. C. [et. al.] (1997), 9.

Importance and Challenge of supply chain
 Desire for cooperation

• Vital for food security

• Critical for social structure of rural communities
 Globalization——high-level business competition

• Structural change –size change—easy to integrate

• Change in consumer preferences
• Environmental awareness
• New IT, communication technologies
 Environmental and social consideration
Vital for food security
Structural change –size change—easy to integrate
 Change in consumer preferences

It is said that in the US 50% of food is either

eaten away from home or bought ready to eat.
Environmental awareness
ICT for production systems management
• Decision support systems
• Seasonal climate forecast
• Disease diagnosis New IT, communication
• Risk management technologies
• Extension and training
• Market information:
– Pricing information
– Virtual trading floors: Virtual trading floors
(VTFs) are electronic market places where
buyers and sellers connect through an
electronic network
Environmental and social consideration
– Besides content and safety of food,
consumers want to know, how food is produced
what are the environmental and social
consequences
– Food companies are adopting voluntary
certification schemes- corporate social
responsibility (CSR)
 Sectors in Value Chain
 These value activities include procurement,
production, processing, storage, distribution,
manufacturing and marketing

Input Productio Processing/ Retail/Whole

Sector n Sector Manufacturi sale Sector
ng Sector
 Input –
seed, feed, chemicals, machinery, fertiliser,
finance
 Production –
Farms, planting, breeding, storing,
greenhouses, stations.
 Processing/manufacturing
 Retail/wholesale/distribution
Supermarkets, butchers, cafes,
restaurants, dairies, department stores,
speciality shops.
Product and Information Flows

 Information flows
 Product flows
 Which is most critical?
 Which comes first?
 Aim of Food Value Chains

• The main aim of a food value chain is to

produce value-added products or services for a
given market

• The goal is to deliver maximum value for the

least possible total cost
 Scope of Food Value Chains

Encompasses all value adding activities from:

• Pond to plate
• Plough to plate
• Farm to fork
• Grass to glass
• Fibre to fashion
 3 Agri-food supply chain
Definition
 Agri-food supply chain management is the
integration of agribusiness’s, from
consumers through to suppliers of
agricultural production, that provides food
products, services and information to add
value for consumers.
 “Consumer demand for food continues to
emphasise health, variety and
convenience. However, the greatest
influence on the consumer’s choice of food
products appears to be nationality or
race” Schaffner, D. J. [et. al.] (1998).
 Unique characteristics of food value
chains
• Agri food value chains are much different from
other main stream value chains because of
biological nature
• This uniqueness has powerful implications for
mangers within agrifood value chain firms
• Understanding of these characters are
important for sustainable performance of their
firm
 Faces high production risk both in terms of
quantity produced and quality delivered
• Production risk is caused by weather , biological
aspects of production cycle
• Shorter lifespan due to perishability
• Price risk due to the volatility of supply and
demand-Price variation over time (harvesting
season)
• Heterogeneous quality- high product
differentiation
• Crop yields have greater uncertainty relative to
milk or meat yields
• Specific requirements regarding transportation,
storage conditions, quality and safety
• Need for complying with national/international
legislation, regulations, and directives regarding
food
safety and public health, as well as environmental
issues (e.g., carbon and water footprints)
• Need for specialized attributes, such as
traceability and visibility
• Lengthy production times/Gestation period
–Seasonality in consumption
–Firms closer to production experience greater
variability in profitability relative to those
downstream firms closer to the consumers
–Adulteration- risk of unsafe food due to
substandard input supplies
•Cost of recalling
•Tarnished reputation
It is not a singular chain of certain entities but a
complicated web of interconnected entities
working to make food available
 Structure of food system pp: 108
Structure of food system pp: 110
 7

Structure of food system pp: 109

 Dose the food system have a single
identifiable beginning? Is any one
participant in the food system more
important than another?
 If your answer to this question was yes,
justify your answer.

Structure of food system pp: 110 111

 Discussion Questions

• Define the term food supply chain? What are

the key components of a food supply chain?
• Explain how value can be created in agri-food
value chains?
• How understanding, unique features of agri-
food value chain can help to improve the value
chain performance?