Vertical Integration within the Fresh Fruit Chain

Abstract

The “fruit trade chain” is a commonly accepted term used in the industry to describe the system of trading fresh fruit. The fruit trade chain includes procurement, production, packaging, shipment and delivery to the consumer. Within this chain, numerous components are involved: picking, grading, packing, terminals, depots, exporters, importers, and more (FPEF Advanced Manual, 2010). Within each component, failure or mismanagement of one element can affect the chain as a whole. Different commodities may contain differing components within the chain. These operations typically involve separate organizations, each accruing some margin, which is inevitably subsidized by the consumer. Even though each operation adds additional cost to the consumer, logistics are coordinated by specialists within in that commodity, allowing for the best quality of fruit to reach consumer outlets.
Recently the market, specifically the fresh fruit trade chain, is encountering the possibility of restructure through the declared intentions of mass retail merchandisers such as Wal-Mart. Through backward integration, a process that will allow for the control of all, or most, of the stages in the production and sales of their products, Wal-Mart is actively increasing its presence while also removing cost accruing players from the chain.
With, potentially, a larger share of the market, one needs to ask whether these mass merchandisers have the capacity to implement a similar process over a variety of commodities. If so, what would be the potential benefits of this channel? If there are possible benefits, are they experienced both up and down-stream? For the local industry, if undertaken successfully, what consequences will this transformed chain have on the existing logistic infrastructure? The question of the frequency of transactions and the effect of significant relationships within the chain amidst these transactions is also explored.