Shortening Supply Chains: Experimental Evidence from Fruit and Vegetable Vendors in Bogotá

51 Pages Posted: 14 Aug 2019

See all articles by Leo Iacovone

Leo Iacovone

World Bank; University of Sussex

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Date Written: August 12, 2019

Abstract

Small trading activities are a prevalent form of self-employment in developing countries, but their integration into supply value chains is not efficient, especially when it comes to perishable produce. This study tests a novel approach to improve their efficiency by reducing the time and cost of sourcing produce by aggregating purchases through the use of an app and centralized distribution system. Fruit and vegetable vendors in Bogotá currently travel most days to a central market to purchase produce, incurring substantial time and monetary costs. A social enterprise attempted to shorten the supply chain between farmers and vendors by aggregating orders from many small stores, sourcing directly from farmers, and delivering them to the stores. The introduction of this new service was randomized at the market block level. Initial interest was high and offering the service reduced travel time for users by almost two hours a week, reduced travel costs, and increased work-life balance for store owners. Firms offered the service saved an average of 6 to 8 percent on purchase costs, and although some of this passed through into lower prices for consumers, there was incomplete pass-through, so that markups rose. However, stores reduced their sales of products that were not originally offered by this new service, and their total sales and profits appear to have fallen in the short run, with service usage falling over time. The results highlight the potential for new technologies to solve firm coordination problems, offer a window into the nature of competition among small retailers, and point to the challenges in achieving economies of scale when disrupting centralized markets for multi-product firms.

Keywords: Retail supply chains; microenterprise competition; social entrepreneurship; randomized experiment

Suggested Citation

Iacovone, Leonardo and McKenzie, David John, Shortening Supply Chains: Experimental Evidence from Fruit and Vegetable Vendors in Bogotá (August 12, 2019). World Bank Policy Research Working Paper No. 8977. Available at SSRN: https://ssrn.com/abstract=3436478

Leonardo Iacovone (Contact Author)

World Bank ( email )

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University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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