|Exporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.)|
|II. Economic and institutional issues in the marketing of high-value foods|
|Commodity system competitiveness|
2.10 In contrast to the burgeoning literature dealing with the performance of manufacturing sectors, the food marketing and commodity system literature devotes little attention to the issue of the competitiveness of commodity systems, except in the narrow sense of comparative costs of production, transport, etc.. A food commodity system must be competitive in two different ways in order to be sustainable and provide remunerative returns to producers, processors, and traders. First, it must be competitive with other industries or agricultural commodity systems within the same country in attracting or mobilizing resources needed for its functioning (e.g land, labor, capital, or other resources). Second, except in a totally autarkic or protected situation, a commodity system must also be competitive absolutely against similar commodity systems or industries from other countries. The commodity system may have to compete against these rivals in international markets or may be threatened by them through imports into the domestic market. This is what the literature refers to as 'competitive advantage' or 'international competitiveness'. This second form of competitiveness is of primary interest here.
2.11 Writing in the context of manufacturing industries, Porter (1990) argues that they are two basic types of competitive advantage which firms or industries may have vis-a-vis their rivals. These are:
1) lower cost of production and delivery which allows the firm/industry to underprice its competitors or to obtain superior returns when prices are at or near the level of competitors, and
2) differentiation of product through its quality and through accompanied technical or marketing services which allows the firm/industry to command premium prices and fill profitable niches in the market.
2.12 Porter argues that it is difficult, although not impossible to be both a lower cost and product differentiated supplier compared with one's competitors. This is because achieving the higher quality or level of service needed for differentiation can be very costly. While some technological or institutional methods may simultaneously reduce production and/or marketing costs and add scope for differentiation, Porter contends that competitors will imitate these innovations over the long run, forcing the firm or industry to choose which of the primary sources of competitive advantage to emphasis in its strategy. In the course of an industry's development, technical, economic, or other changes may lead to shifts from a strategy of low cost supply to one of differentiation (or vice versa). In a competitive environment, whether such a shift can be efficiently achieved may be the difference between industry (or firm) prosperity or bankruptcy. This perspective can be applied to patterns of development in food commodity systems.
2.13 In the context of export-oriented agriculture, it is important to recognize a third potential source of competitive advantage. This we may call complementary supply. This arises either when the seasonality of one's production complements rather than overlaps that of other producers or when one's own production faces far less seasonality or inter-annual variability than that of competitors. The commodity system may be in a position to service the 'offseason' market in major consumer countries, and/or capture short-term rents by expanding consignments in the face of production shortfalls in major producing/consuming countries (deriving from adverse weather, outbreaks of disease or pests, or other factors). Complementary supply is not a competitive strategy per se when considering medium-to-long-term trade development. Even when serving an 'off-season' market niche, a firm or industry must still position itself either as a low-cost or product-differentiated supplier.