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A. . 2.2.3.. 1 in...» a... .. new}? . x n é. . . 5.. . .ywu.mm.mws§m¢x? mo? .i’ I: . a}... LIBRAR Y I Michigan State . University This is to certify that the thesis entitled ALTERNATIVE WHOLESALE FACILITY ARRANGEMENTS FOR FRESH FRUITS AND VEGETABLES IN THE BUENOS AIRES METROPOLITAN REGION presented by Norberto Frigerio has been accepted towards fulfillment of the requirements for Ph.D. degreein Agricultural Economics £25m?” 2% flit; Major professor Date 63% ‘le I t: / 9’73 ‘ Slims - mint-23m BUUK BlNDERY INC. ' lBRARY BINDERS 1 flfiwaflfl-W‘“! ‘: ABSTRACT ALTERNATIVE WHOLESALE FACILITY ARRANGEMENTS FOR FRESH FRUITS AND VEGETABLES IN THE BUENOS AIRES METROPOLITAN REGION By Norberto Fri gerio Buenos Aires is a large urban conglomerate of more than eight million inhabitants that extends over a land area having an average diameter of thirty-seven miles. The wholesale produce distribution system that serves such an extensive and populated region is very complex. The operation of large wholesale produce markets, particu- larly the main one, in the inner city has imposed increased economic and social costs on market and nonmarket participants. Moreover, the existing wholesale produce distribution system probably uses more resources than would be necessary to employ a better organized distribution system. The Buenos Aires Central Market Corporation, an autonomous agency having the responsibility of building a new central wholesale market in the Buenos Aires Metropolitan Region, has planned the con- centration of all wholesale transactions of fresh fruits and vege- tables in a single wholesale market. This project has been questioned by the business community. .,“‘ H“? T...“ \g“ Norberto Frigerio This study has been centered around three main objectives: 1. lb describe and analyze the urban distribution system for fresh fruits and vegetables in the Buenos Aires Metropolitan Area; 2. To make a.preliminary estimation of how the projected new central wholesale market and an alternative wholesale facility arrangement would affect product marketing costs; and 3. To identify issues and needs for future analyses in order to provide relevant information for more refined public deci- sions on fresh fruit and vegetable marketing policies. The description and analysis of the existing distribution sysumIfOr fresh fruits and vegetables was largely based on secondary data. A.survey of broad product line wholesale markets was undertaken widxthe objective of assessing pricing efficiency and measuring Idmdesalers' marketing margins in apple and pear trade. Cost com— lfiuisons of different wholesale facility arrangements were made by Shmfle budgeting procedures based on the information produced by several consulting firms under contract with the Buenos Aires Central Market Corporation, by different government offices and by a private finnin the real estate business. A cost comparison of the Existing System with the Project and zidecentralized wholesale facility arrangement of either four or five Produce wholesale markets, assessing direct market facility costs and {Reduce retailers' transportation costs, has led to the following conclusions: Norberto Frigerio l. The estimated operational costs for the proposed Project system are considerably higher than they are in the Existing System. The difference in operational costs between the Project and the Existing System is so large that it suggests that even when adding other indirect and social costs to the Existing System, the Project either will be a higher cost wholesale facility arrangement or at best will not offer a clear operational cost advantage over the Existing System. Such an outlook makes it difficult to justify a $42,800,000 investment without further analysis of the cost effects. 2. A decentralized wholesale facility arrangement appears to be a lower cost alternative to the Existing System than the Project's single market proposal. 3. A four wholesale market distribution system appears as a lower cost wholesale facility arrangement than a five market wholesale arrangement. 4. A more comprehensive, long—term marketing prOgram would be required to achieve the objectives set up by the Buenos Aires Central Market Corporation of improving efficiency in fresh fruit and vegetable distribution and of reducing produce retail prices. The construction and operation of a new whole— sale facility should be complemented with other projects or programs having the common goal of reducing marketing costs through improved market coordination. Experience shows that marketing facilities alone do not provide the changes that lead to an improved marketing system. ALTERNATIVE WHOLESALE FACILITY ARRANGEMENTS FOR FRESH FRUITS AND VEGETABLES IN THE BUENOS AIRES METROPOLITAN REGION By Norberto Frigerio A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1973 .. .- 'wc “o s”, ”.-N ‘i‘u. u... . ..,., u - v r t, . ‘ 1 .l‘ I 1/; \ I ‘\ ‘\ 3 ACKNOWLEDGMENTS Special recognition is expressed to Dr. Harold Riley, my major professor throughout my graduate studies, for his assistance during the various stages of the thesis development. His valuable comments, enlightening discussions, patient review of several thesis drafts and generous dedication of his time deserve my deepest appreciation. Acknowledgment is also due to Dr. Kelly Harrison, Dr. Donald Henley and Dr. James Shaffer, thesis committee members, for their suggestions and probing criticisms of the thesis drafts. I also appreciate the critical review of early drafts of my thesis by Dr. Darrell Fienup and Dr. Eduardo Trigo and the assistance of Dr. Ignacio Tanderciars. I rec0gnize the cooperation of the authorities and function~ aires of the Buenos Aires Central Market Corporation who permitted access to their available information. Sincere thanks are due to Ing. Agr. Enrique Turano and Mrs. Lidia Garcia from the Buenos Aires Central Market Corporation, Dr. Dieter Link, F.A.0. technical assistant to the Buenos Aires Central Market Corporation, Mr. Luis Chiodo from the Municipality of Buenos Aires, Ing. Eduardo Kornreich from D.K.C. Comercializacion, Ing. Agr. Mario Barreiro and n e. \I o -'.V. who I01 . w. n i. \I I‘- Ing. Agr. Juan Carlos Limongelli from the Facultad de Agronomfa y Veterinaria, Universidad de Buenos Aires. I feel also particularly indebted with retailers and whole- salers, who generously gave of their time and provided information on their business Operations, and with all those unnamed who made this thesis possible with their contribution. I also acknowledge the economic support of the Ford Founda- tion, who provided me with a fellowship through most of the period of graduate study, and the economic assistance of the Department of Agricultural Economics of Michigan State University and the Fulbright Commission during the final stage of the research effort. A word of gratitude is particularly due to my wife Norma, for her patience and remarkable confidence throughout the long period Of graduate studies. This recognition is extended to our families, for their help and encouragement, and specially to my mother-in-law, Victoria, for her company and assistance during a difficult period Of our stay at Michigan State University, and to my children, Paul and Juan Bautista, who lovingly shared our experience. iii ..,. w... TABLE OF CONTENTS LIST OF TABLES . LIST OF FIGURES Chapter I. INTRODUCTION Problem Situation . Alternative Strategies to Solve the Problem Objectives of the Study . A Framework of Analysis and Reference Organization of the Research II. SOME ECONOMIC CHARACTERISTICS OF THE BUENOS AIRES METROPOLITAN AREA AND ITS PRODUCE-SUPPLYING REGIONS . . . . . . . . . Food Expenditures and Consumption Patterns Consumption of Fresh Fruits and Vegetables . Factors Affecting Trends in Demand for Food and Marketing Services P0pulation Characteristics Income, Employment and Transportation Projections of Consumption of Fresh Fru1ts and Vegetables ons Main Characteristics of the Producing RegiA ea Supplying the Buenos Aires Metropolitan r Summary and Conclusions iv Page . viii xiv \me N00 16 17 19 29 Chapter III. RETAILING . . . . The Buenos Aires Food Retailing System Recent Changes in Food Retailing . Fruit and Vegetable Retailing Operating Characteristics Comparative Prices and Margins Procurement Practices Location of Purchases Frequency of Purchases Modes of Transportation . Other Purchasing Practices of Produce Retailers . Procurement Practices of the Modern Retail Industry . The Retailer-Wholesaler Relationships Produce Retailers' Purchasing Problems . Retailer's Attitude Towards the Existing Wholesale Arrangement . . . . Summary and Conclusions IV. PRODUCE WHOLESALING Description and Analysis of the Existing Physical Wholesale Market Facilities . . . . The Abasto Market Area The Dorrego Market The Sal6n Mayorista 3 de Febrero Market Other Produce Wholesale Market Facilities . Recent Changes in Produce Wholesaling Facilities. organization and Operation of the Wholesale Produce System . . . Produce Market Flows Legal Form of Organization 0 f Wholesaling Firms . Page 50 SO 56 S9 63 66 75 76 76 79 81 81 83 83 86 87 90 9O 93 96 97 99 101 103 113 Chapter Types of Wholesaling Firms . Size of Firms and Degrees of Concentration Pricing Practices and Margins Summary and Conclusions V. ISSUES CONCERNING THE JUSTIFICATIONS FOR THE PROJECT PROJECT . . . . The Project The Economic Feasibility of the Project The Attainment of the Objectives of the Project Alternative Wholesale Facility Arrangements VI. A PRELIMINARY COST COMPARISON OF ALTERNATIVE WHOLESALE FACILITY ARRANGEMENTS . . An Appraisal of the Existing Wholesale Public Market Facilities A Comparison of Operational Costs of Alternative Wholesale Facility Arrangements Direct Market Facility Costs Retailers' TranSportation Costs Transportation Costs of Produce Retailers in Alternative I Cost Imputed to the Time Spent by Retailers When Traveling to Make Purchases of Fresh Fruits and Vegetables Discussion and Qualification of the Operational Costs Estimated . Capital Requirements of the Project and the Alternatives Sensitivity of the Decentralized Wholesale Facility Arrangement to the Addition or Subtraction of a Wholesale Market . Conclusions . VII. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS Conclusions of the Cost Comparison of Alternative Wholesale Facility Arrangements Reassessing of the Scope of the Project in the Light of the Objectives Stated by the Buenos Aires Central Market Corporation . . . Recommendations . . . vi Page 114 119 126 139 142 145 147 153 156 161 162 165 167 174 174 178 179 185 188 194 197 201 306 Chapter Page BIBLIOGRAPHY . . . . . . . . . . . . . . . . . 211 APPENDIX..................214 vii Table II-l. II-3. LIST OF TABLES Distribution of Expenditures by a Typical Industrial Worker Family in 1960 . Percentage of Income Spent on Food by Different Socio-economic Levels in the Federal District and Greater Buenos Aires in 1965 Percentage Distribution of the Food Expenditures by Socio-economic Level of Families in the Buenos Aires Metropolitan Region of Argentina, 1965 . Annual per Capita Consumption of Fresh Fruits in the Buenos Aires Metropolitan Area Annual per Capita Consumption of Fresh Vegetables in the Buenos Aires MetrOpolitan Area Annual per Capita Consumption of Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area Percentage and Total Annual per Capita Consumption of Major Product Grouping of Fresh Fruits and Vegetables in the Buenos Aires MetrOpolitan Area Total Population of Argentina and Population by District in Selected Census Years . . . Alternative Projections of Population Growth in the Buenos Aires Metropolitan Area Income per Family and Percentages of Population Living in Low, Medium and High Income Areas in the Buenos Aires Metropolitan Area of Argentina in 1970 viii L; Page 20 20 21 23 31 (N [J 34 Table II-11. II-12. II-13. II-14. III-1. III-2. III-3. III-4. III'S. III—6. III-7. Projected Consumption of Fresh Fruits and Vege- tables in the Buenos Aires Metropolitan Area in Selected Years . Market Share of the Province of Buenos Aires as a Supplier of Fresh Vegetables for the Buenos Aires Metropolitan Area . Current Yield Levels and Average Annual Increases in Yields of Selected Fruits, Vegetables, Export and Industrial Crops Taking Place in Argentina During the Period 1940/41-1970/71 Distribution of the Increase in Refrigerated Warehousing Capacity During the Period 1965-1970 Among Selected Argentine Provinces . . Comparison of Store P0pulation, Average Annual Sales per Store and Distribution of Total Area Sales by Type of Store and Location in the Buenos Aires Metropolitan Region of Argentina in 1963 . . . . . . . . . . Composition of the Retailer Populationoof Ferias and Mercados in Operation During 1963 in the Federal District A Comparison of the Average Number of Persons per Food Retailer by Area for the Census Years 1954 and 1964, Buenos Aires, Argentina . Number and Market Share of Different Types of Produce Retail Sh0ps in the Buenos Aires MetrOpolitan Area of Argentina in 1971 . Average Daily Volume Sold of Fresh Fruits and Vegetables by Type of Store in the Federal District . . . . . . . . . . . Average Daily Volume of Fresh Fruits and Vegetables Sold in Greater Buenos Aires by Type of Retail Store Composition of the Labor Used by Produce Stores in the Buenos Aires Metropolitan Region in 1963 . ix Page 41 44 46 S3 55 55 6O 62 62 64 Table III-8. III-9. III-10. III-11. III-12. III-13. III-14. III-15. III-16. III-17. IV-l. Comparison of the Number of Persons Employed per Type of Produce Retailer in the Federal District and Greater Buenos Aires Distribution of Produce Stores by the Number of Persons Working at Them Trend Equation Results for Relative Differences in Weekly Calculated EXpenditures Between Different Types of Traditional Retail Outlets and Self-Service Stores in the Buenos Aires Metropolitan Market During 1967-1969 . Average Relative Differences in Weekly Expendi— tures for all Food Products and for Fresh Fruits and Vegetables in a Typical Market Basket, Between Different Types of Traditional Stores and Self—Service Stores in the Buenos Aires Metropolitan Market Between 1967 and 1969 Monthly Income Statement-~Average Independent Produce Retailer, January and February, 1971 Produce and Overall Gross Margins for the Different Types of Self-Service Food Retailers Operating in the Buenos Aires Metropolitan Area of Argentina Place Where the Supplier of the Retailer is Located . . . . . . . . . Frequency of Purchases by Produce Retailers in the Buenos Aires Metropolitan Area Different Modes of Transportation of Produce Retailers in the Buenos Aires Metropolitan Area Most Important Procurement Problems of Different Types of Produce Retailers in the Buenos Aires Metropolitan Area in 1972 Central Wholesale Markets Selling Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Region of Buenos Aires in 1972 Page 64 65 68 7O 73 74 77 78 80 84 102 The Table IV-2. IV-3. IV-4. IV-5. IV-6. IV—7. IV-8. IV-9. IV-IO. Annual Tonnage of Fresh Fruits and Vegetables Marketed in the Buenos Aires Metropolitan Area in 1970 . Tonnage of Fresh Fruits and Vegetables Marketed in the Buenos Aires Metropolitan Area of Argentina by Place of Transaction and Shipping Region . . . . . . . Tonnage of Fresh Fruits and Vegetables Handled in Wholesale Market Areas Located in the Buenos Aires Metropolitan Area in 1970 and Sales Distribution Between Retailers and Other Operators . . . . Distribution of Fresh Fruit and Vegetable Wholesaling Firms by Legal Form of Business Ownership . . Importance of Different Types of Wholesale Firms Dealing in Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area by Product Group Structure of Wholesaling in Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Region for Selected Commodity Specialized Firms Being Totally or Partially Supplied from Outside the Region (1969) . . Number and Distribution of Employees Working in Produce Wholesaling Firms in the Buenos Aires Metropolitan Area Space Occupied by Produce Wholesalers in Fresh Fruits and Vegetables in the Buenos Aires MetrOpolitan Area by Broad Commodity Specialization . . Average Prices in Argentine Pesos Paid for the Box by Produce Retailers for Different Sizes of Apples of the Red Delicious Variety, Brand "A,"Commercia1" Quality, by Type of Broad Product Line Market . xi Page 106 108 109 114 118 120 124 125 129 Tdfle IV-ll. IV-12. IV-l3. IV-14. VI-l. V142. VI-3. VI-4. VI-S. Summary of Significant Price Differences Between Markets and Between Shipments for Citrus Fruits . . Average Price Variations in Argentine Pesos and "t" Values Obtained When Testing Price Dif— ferences for Apples and Pears Within Wholesale Markets Average Price Spread Margin Between Auction Prices and Prices Made by Wholesale Operators Selling Fresh Apples, Variety Red Delicious, Brand "A" in the Buenos Aires Metropolitan Area Average Price Spread Margins Between Auction Prices and Prices Made by Wholesale Operators Selling Fresh Pears, Variety Williams, Brand "A" in the Buenos Aires Metropolitan Area Estimated Annual Rents and Other Overhead Costs of the Existing Wholesale System Rents and Other Overhead Costs of a Four Wholesale Markets System (Alternative I) Direct Market Facility Costs of Different Wholesale Arrangements for Fresh Fruits and Vegetables in the Buenos Aires Metro~ politan Area . Retailers' Annual Transportation Costs Generated by Different Wholesale Distribution Systems for Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area Costs Imputed to the Time Spent by Produce Retailers in Traveling to and from Wholesale Markets When Making Purchases in Selected Wholesale Facility Arrangements Comparison of Operational Costs of Selected Wholesale Facility Arrangements xii Page 132 136 138 138 169 172 173 177 179 180 "l i l.‘ Table VI—7. VI-9. VI~10. VI-ll. Al. A2. A3. A4. A5. A6. Costs Imputed to the Time Spent by Produce Retailers in Traveling to and from Wholesale Markets When Making Purchases in Selected Wholesale Facility Arrangements Including the Cost Imputed to the Congestion of Wholesale Markets in the Existing System . . Value of the Land and Salvage Value of Wholesale Facilities Freed by the Project and the Alternative . . . . . . . New and Net Investment Required by the Project and the Alternative . . A Comparison of Operational Costs and Investment in Selected Decentralized Wholesale Facility Arrangements A Comparison of Some Operational Costs and the Investment Required by Selected Wholesale Facility Arrangements . Distribution of Retailers' Annual Purchases of Fresh Fruits and Vegetables Between the Four Central Wholesale Markets of Alternative I . Number and Type of Vehicles Traveling From the Different Districts Where Retailers are Located to the Four Wholesale Markets Where Retailers Make Purchases in Alternative I Total and Average Distances Traveled, Average Total and Total Costs by Type of Vehicle and Total Transportation Costs in a Four Produce Wholesale Markets Distribution System (Alternative I) in the Buenos Aires Metropolitan Region Influence of the Distance Traveled on Average TranSportation Costs, by Type of Vehicle, for Selected Produce Distribution Systems Value of the Land Devoted to Wholesale Produce Markets Depreciated Value of Wholesale Facilities . xiii 1% Page 183 185 186 187 189 IN) h.) It; Figure II-l. II-2. IV-1. IV-2. VI—l. LIST OF FIGURES The Buenos Aires MetrOpolitan Region Showing the Federal and Greater Buenos Aires Districts . Main Produce-Supplying Regions of the Buenos Aires Metropolitan Area Location of Wholesale Produce Markets in the Buenos Aires Metropolitan Region Market Flows of Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area and Related Structure in 1970 Location of Produce Wholesale Markets in Alternatives I and II xiv Page 18 40 92 104 166 “ I I u.‘ N- H“. ... H V. 5" v. ‘- .u N. CHAPTER I I NTRO DUCT ION PrOblem Situation Each year the Buenos Aires Metropolitan Region receives over two million tons of fresh fruits and vegetables. Most of the supply comes from producing regions throughout the country but some tropical and off-season crOps are imported from neighboring countries. This tonnage is received and distributed by twenty—three wholesale markets. Over eight million consumers in the metropolitan area as well as many interior cities and towns are served by this wholesaling system. Some of the wholesale markets have been recently built, but most of them were established many years ago and operate in old facilities unsuited for modern produce handling. Important wholesale markets, including the largest one, the Abasto Proveedor Market, are located in the center of the city in heavily congested areas which lack the necessary parking facilities. Problems of urban development and traffic congestion developed with the growth of population, which passed from 700,000 inhabitants in 1891 (date of inauguration of the Abasto Proveedor Market) to more than eight million in 1970. The problems of traffic congestion became more acute during the 19605 because of the very rapid expansion l .. ‘1 I. I. .'. ‘A‘ Jet! a. n In. n. 1“ \ ‘L of private car transportation and of bus services. Since most of the wholesale markets located in populated urban areas lacked space for ex- pansion, many wholesalers have converted old residences into warehouses where they carry on their business. Logistical inefficiencies and aes- thetic problems developed in and around the markets. Bars, restaurants and warehouses for different market-related activities spread into the surrounding areas. Since retailers' vehicles have to be loaded and unloaded adjacent to the wholesale facilities, product wastage accumu- lates in the streets during the periods of market operation. One of the main features of the food distribution system in the Buenos Aires Metropolitan Area is that the number of retail outlets has apparently increased at the same pace as population while historical trends show a relative reduction in the number of retail stores in other countries. The great number of middlemen plus the widespread feeling that wholesalers and retailers were taking advantage of spatial oligOpolistic positions has generated an anti-middleman mentality. Spatial oligopolistic positions were brought about by the lack of space for expansion in old wholesale facilities and by the slow rate of growth of building construction due to legislation freezing urban housing rents. The leaders of the community claimed that middlemen were taking advantage of both consumers and producers whenever retail prices rose or farm prices declined without paying due attention to Supply and demand conditions. Thus, middlemen became the scapegoat for the deteriorating income position of wage earners after 1955, that had actually been brought about by contractionary government policies attempting to drastically reduce the annual rate of inflation and to improve the balance of payments. Several attempts by the government in I I ”I .‘ pd ‘I A §.|. .-.. n.- | . s , I ‘v‘ ‘ . v \ '1 N 1,: u3control retail prices or to enforce fixed marketing margins failed toimprove the situation not only because the government lacked fluameans to enforce it effectively but also because this legislation left‘fluestructure of the industry unchanged and did nothing to hemaproducers to get organized in order to increase their bargaining power.1 The structure of produce retailing and wholesaling forces a huge number of low volume transactions between retailers and whole- sahns and a substantial volume of transactions between primary and secondary wholesale operators. On the average, each of about 23,000 retailers is serving only 300 people in the Federal District and 400 pmnfle in the rest of the Metropolitan Region. This small-scale structure of retailing is associated with a fragmented wholesale system which includes several layers of wholesalers (receivers, jobbers, truckers) along the marketing channels. Produce wholesaling is characterized by a complex structure: there are four specialized wholesale market facilities, two auction markets where fresh fruits and vegetables are sold by description and nineteen broad line pro~ duce wholesale markets. However, most of the largest receivers who present a high degree of'commodity Specialization, are located out- side wholesale market areas. This structure has brought about other undesirable consequences: a.difficult price formation process, because of the large number of transactions taking place in different _k 1D. K. C. Comercializaci6n, "Un Modelo de Competencia Intertipo para la Comercializacién Masiva de Alimentos en el Area AmtrOpolitana de Buenos Aires," Buenos Aires, 1968. I..‘ “U. “I. u U! a“ u .j. \‘o u‘ Iflaces at different times and little price transparency of trans- actions for most products. Though the government has recurrently resorted to different finmm of control on food market operations, two attempts to influence fluestructural characteristics of the food business were made during the 19603. First, several pieces of legislation to promote the development of supermarkets were enacted.1 Second, the decision to lnfild a new central wholesale market for the whole Buenos Aires lkmropolitan Region was taken upon recommendation of a French tech— rfical consulting mission. However, the convenience of this last decision has been greatly questioned by the business community who has raised two main questions. First, will this new market reduce marketing costs? Second, if distribution costs are actually reduced, will the benefits be passed on to consumers and farmerS? Fresh fruits and vegetables are important items in the Argen- tine diet. A survey made by the National Development Council (CONADE)2 in 1965 showed that fOOd expenditures represented 61.1 fl percent of the family income for the lowest socio—economic group‘3 1See Eduardo Trigo, ”Structural Changes in the Food Retailing Market in the Buenos Aires Metropolitan Region of Argentina During the 1960—1970 Decade" (unpublished Ph.D. dissertation, University of lfisconsin, 1972), pp. 77-85. 2Consejo Nacional de Desarrollo (CONADE), ”Encuesta de Cbnsumo de Alimentos en la Capital Federal y Gran Buenos Aires,” Buenos Aires, 1968. 3 . . . . . . Soc1o-econom1c levels were determined by con51der1ng income and occupational and educational levels of the family head. and 16.9 percent for the highest socio-economic group. Expenditures for fresh fruits and vegetables represented 15.2 percent of total food expenditures for the lowest socio—economic group and 22.0 per— cent for the highest socio-economic group. This gives a clear indi— cation of the potential beneficial impact of a reduction in food retail prices on low income consumers. However, both low and high income consumers will benefit from a reduction in produce prices. High income groups, who already allocate a large proportion of their food expenditures to fresh fruits and vegetables, will mainly benefit from the price decline without significantly increasing the quantity demanded. Low income groups will benefit both from a lower level of prices and a higher level of consumption. Alternative Strategies to Solve the Problem Different and conflicting approaches to solve the problem have been advanced: one position, supported by the Buenos Aires Central Market Corporation (CMCBA) claims that one new central whole— sale market substituting for the present twenty~three wholesale facil— ities would solve the overall problem and achieve several economic objectives, namely, price transparency of transactions, reduced prices to consumers and higher prices to producers. There is also the claim that the New Central Market would increase agricultural Productivity and would benefit international trade.1 Price trans~ parency of transactions would be achieved by physically concentrating ——_ 1CorporacicSn del Mercado Central de Buenos Aires (CMCBA), Bejcripcio'n del Proyecto del Mercado Central de Buenos Aires, Buenos Aires, Mayo 1970. ";=T< .I I“ uu‘ Inc‘- . .-‘M' ! up. .._‘ ‘. buyers and sellers in one place. Under this scheme, it is claimed dun cost reductions would be obtained by the elimination of a signi- ficant number of wholesalers and the adoption of more efficient handling methods. Another position, supported by people in the trade and by mmm professionals, is that wholesale distribution markets cannot be afimunated without causing a major disruption of the distribution system. They argue that elimination by law of distribution markets wouhilead to more undesirable distribution procedures (truck jobbersL Inuess either the structure of retailing or the procurement practices ofretailers were modified. It is their view that price tranSparency oftxansactions could not be achieved without grading, package standardization and an efficient communication system. To the extent that a new central market would reduce marketing costs, they observe that the difference between lower costs and prices would be inter- nalized by distributors without being passed on to consumers and/or pneducers. They believe that distribution markets fulfill an emonomic function under the present structure of retailing, and tniority should be given to grading, package standardization and nmrket information as a means of improving market performance. While ‘Hfis group does not deny the need to build new central markets, they stress the need of concurrent and complementary changes throughout the marketing system. They also call attention to the importance of studies that should be undertaken before making decisions and on the .521 ...‘ ‘vl ‘I a" w. ‘A w. lack of personnel trained to carry out research in the field of agricultural marketing . 1 Objectives of the Study The main questions raised by the decision to build a new central wholesale market serving the whole Buenos Aires Metropolitan Region are the following: Will the new wholesale facility reduce marketing costs? Will the projected new central wholesale market be the least- cost solution to the existing problems? If the wholesale facility actually helps to reduce distri- bution costs, who is going to capture those benefits? Moreover, how is the operation of the projected New Central Market (or any other wholesale facility arrangement that can be devised) going to affect the different market participants? Is the new wholesale market going to be built solely as a solution to the problems brought about by the evolution of the com- mercial structure, or is it intended to serve as a policy instrument within a broader, longer-term marketing program attempting to in- iquence the direction of change of the commercial structure to achieve some development goals? In trying to give answers to some of these questions, this research effort has been centered around three main objectives: 1Asociaci6n Productores de Frutas Argentinas, Letter to the Secretary of Agriculture, Dr. Lorenzo Raggio, dated in Buenos Aires on November 28, 1969; also Jorge A. Bovino, Member of the Citrus National Advisory Committee, Letter to the President of that Committee, Dr. Lorenzo A. Raggio, dated in Buenos Aires on November 1969. 1. To describe and analyze the urban distribution system for fresh fruits and vegetables in the Buenos Aires Metropolitan Area; 2. To make a preliminary estimation of how the projected new central wholesale market and an alternative wholesale facility arrangement would affect produce marketing costs: and 3. To identify issues and needs for future analyses in order to provide relevant information for more refined public decisions on fresh fruit and vegetable marketing policies. A Framework of Analysis and Reference This study attempts to make a preliminary assessment of how Luban distribution costs for fresh fruits and vegetables (Cd) would be affected by the operation of a single central wholesale market mulby an alternative wholesale facility arrangement. A framework of analysis showing the basic functional relationship between the cfifferent variables that directly or indirectly affect produce (fistribution costs is presented below. It will also serve as a ffiamework of reference for the reader to place the descriptive analy~ sis of different variables within the broader context of the study. Urban produce distribution costs, the cost of marketing fruits and vegetables from their arrival to wholesale market facilities until they are delivered to the retail shops, are broadly defined to include direct market facility costs (0d), the indirect operational costs (Oi) that are influenced by the structural characteristics of produce wholesaling and the social costs (Cs) brought about by the ' 1 4n: “. upa‘ u-v. ‘I‘h‘ I.- h. locational characteristics of produce wholesale market facilities (Equation 1). Cd = fCOd, Oi, Cs) (1) Direct market facility costs (0d) are made up of rents and other overhead costs and are a function of the size of the investment committed to wholesale market facilities (I) and the rate of interest reflecting the social value of capital (i) (Equation 2). 0d = f(I, i) (2) The size of the investment in wholesale market facilities will depend on the volume of fresh fruits and vegetables flowing through \flxflesale markets (V) and the degree of technological deveIOpment in fimedesign, construction and operation of wholesale market facilities (2) (Equation 3). I = f(V, Z) (3) The volume of fresh fruits and vegetables flowing through vdmlesale markets depends on the per capita consumption of fresh fimfits and vegetables (C/N), the size of pOpulation in the area served Inrthe wholesale distribution system (N) and the structural charac— teristics of produce retailing (Rs) (Equation 4). v = f(C/N, N, Rs) (4) The per capita consumption of fresh fruits and vegetables is Eifhnction of the price of fresh fruits and vegetables relative to the price of other food items (va), the per capita income (Y/N) and the structure of employment in the Region (E) (Equation 5). «at. m. e. "A‘- N-.. ¢\ 10 C/N = f(va, Y/N, E) (5) The size of indirect operational costs depends on how the design of wholesale facilities and the organization of produce whole- salecfistribution affects retailers' procurement costs (Rp), handling cosu;(Ch), the cost imputed to the time Spent by truckers to off- load (Tu) and intra-urban transportation costs brought about by transactions between wholesale operators (Ti) (Equation 6). 01 = f(Rp, Ch, Tu, Ti) (6) Retailers' transportation costs depend on the structural characteristics of produce retailing (Rs), the number of wholesale nmrket facilities (an), the locational and traffic suitability of wholesale markets (Wlt)1 and the mode of tranSportation of produce junchases made by retailers (Tm) (Equation 7). ! Rp = f(Rs, an, Wlt, Tm) (7) Handling costs are a function of the completeness and flexi- bility of wholesale market facilities (ch),2 that may constitute a restriction on the use of some handling techniques, and on the wage and interest rates (w and i, respectively) that should be taken into account to adopt handling techniques using production factors in | ‘ 1The locational and traffic suitability will depend on: ‘ (1) the accessibility to highways and the availability of rail 1 connections and (2) the easiness of access to the wholesale stalls and exits from the wholesale facility. ZThe criterion of completeness and flexibility of physical facilities takes into account the availability of Space for parking, d1sp1ay, unloading of vehicles, product storage and for expansion of wholesale facilities. i: -. 11 proportions that reflect their relative costs, subject to the con- straints imposed by the design of wholesale facilities (Equation 8). Ch = f(ch, w, i) (8) The cost imputed to the time that truckers bringing produce into the Region must spend to off—load depends on the locational and traffic convenience of wholesale market facilities (Wlt), that in— fluences the amount of time Spent by truckers to reach and get into wholesale market facilities; and on the completeness and flexibility of wholesale market facilities (ch), that affects the time spent by truckers to off—load directly through the availability of Space and facilities to unload produce, and indirectly acting as a restriction on the handling techniques that can be adopted (Equation 9). Tu = f(Wlt, ch) (9) Intra-urban transportation costs brought about by trans~ actions between produce wholesalers is a function of the number of wholesale market facilities (an) and the locational and traffic convenience of wholesale markets (Wlt) (Equation 10). Ti = f(an, w1t) (10) The number of wholesale markets (an) depends on the size of area (A), the locational characteristics of the population in the area (N1) and the structural characteristics of produce retailing (RS) (Equation 11). an = f(A, N1, Rs) (11) .|'- 'DI M n a... tr. u‘, ‘t‘r 12 Social costs are a function of the number of wholesale market facilities (an), that will affect the process of price formation and of their locational and traffic convenience (Wlt) that will affect both market and non—market participants (Equation 12). Cs = f(an, Wlt) (12) Finally, an equation summarizing the variables that affect urban produce distribution costs is presented below: Cd = f(va, Y/N, E, N, N1, A, Rs, Tm, an, Wlt, ch, z, w, i) (13) Most of these independent variables are predetermined variables. We will be concerned in assessing their value at present and the expected future changes. Some of the variables that can be used as policy instruments to influence distribution costs and the evolution of the commercial structure are the structural character- istics of produce retailing (Rs), the mode of transportation of produce purchases made by retailers (Tm), the number of wholesale market facilities (an), the locational and traffic suitability of wholesale markets (Wlt) and the completeness and flexibility of the wholesale market facilities (ch). Different combination of these variables can be used to affect the organization of produce distribu~ tion depending on the policy objectives, the scope of the program and the longer—run underlying goals of society. Organization of the Research The description and analysis of the existing distribution 5Ystem for fresh fruits and vegetables is largely based on secondary 3 l:., ‘Oll. .I’F“ .-.-b. ..o. .ub‘ -tu 5 o c.. --.«'. - 'nhu . u. “5'. e‘. -u “. ‘3: ’Il ‘- *1 i I M T7 data. The bulk of such information has been produced by several consulting firms under contract with the Buenos Aires Central Market Corporation. A survey of produce retailers by Guillermo Bravo and Associates1 produced very valuable information. The process of entry into the food retailing business of the larger—scale, broad product line self-service stores was analyzed and evaluated by Eduardo Trigo.2 The information generated by the Bravo survey was supple— mented by twenty—seven in-depth interviews with produce retailers and series of informal interviews with wholesalers and retailers in order to obtain a first-hand feeling on the procurement problems faced by retailers handling fresh fruits and vegetables. Though this study certainly enjoyed the advantage of having a substantial amount of readily available secondary information on produce wholesalers, there were two main problems: First, a census and several surveys of produce wholesalers, made before this study started, precluded a new survey of wholesale handlers in fresh fruits and vegetables having any chance of success. Second, a problem of inconsistency between different sources of information had to be overcome. An additional problem appeared during the development of the research. A study of broad product line wholesale markets having ————._______________ 1Guillermo Bravo y Asociados, ”Encuesta a Comerciantes Minoristas de Frutas y Hortalizas," Buenos Aires, Enero—Febrero, 1971. 2 . . Tr1go, 92: c1t. I on: 0 p." 1 on: >105] 0.. u I .o‘ .45 14 the objective of assessing pricing efficiency and measuring whole— salers' marketing margins in apple and pear trade, had to be inter— rupted when the government established fixed marketing margins by decree. However, the limited data that were gathered proved to be very useful in evaluating price relationships among and within markets. Cost comparisons of different wholesale facility arrange- ments were made by simple budgeting procedures based on the informa— tion produced by several consulting firms under contract with the Buenos Aires Central Market Corporation, by different government offices and by a private firm in the real estate business. The thesis has been organized in the following manner: Chapter II presents a general description of conditions external to the urban food distribution system with some assessment of changes that will affect the future organization and operation of the system. This chapter provides information on the size of area (A), the per capita consumption of fresh fruits and vegetables (C/N), the size and location of population (N and N1, respectively), alternative projections of population growth and of the volume of fresh fruits and vegetables flowing through wholesalers (V), and per capita income (Y/N) and employment (E) in the Buenos Aires Metro— politan Area. Chapter III is a description and analysis of food retailing With a more detailed treatment of the structural characteristics of produce retailing (Rs) and related procurement costs (Rp), prac- tices (Tm) and problems. 15 Chapter IV contains a description and analysis of fresh fruit and vegetable wholesaling, with particular attention to the number of wholesale market facilities (an), their locational and traffic suitability (Wlt) and the related institutional complex, product flow patterns, the organizational characteristics of private sector wholesalers and some aSpects of market performance. Chapter V presents a more detailed discussion of the issues raised by the decision to build a new central wholesale market, anticipating how indirect operational costs (Oi) and social costs (Cs) could be affected by different wholesale facility arrangements. Chapter VI summarizes a cost comparison of different whole— sale facility arrangements, trying to give answers to some of the issues raised in the previous chapters through the estimation of direct market facility costs (0d), produce retailers' transportation costs (Rp) and the size of the investment (I) in the different wholesale facility arrangements. Chapter VII constitutes an attempt to put the conclusions of Chapter VI in perspective, analyzing the role of the new whole— sale facility in the context of a more comprehensive marketing pro— gram and suggesting the studies that may be needed for more informed public decisions affecting the organization and performance of produce markets. «I.» .u n, n... CHAPTER II SOME ECONOMIC CHARACTERISTICS OF THE BUENOS AIRES METROPOLITAN AREA AND ITS PRODUCE SUPPLYING REGIONS The objectives of this chapter are: first, to identify the levels of per capita consumption of fresh fruits and vegetables in the Buenos Aires Metropolitan Area; second, to describe the economic characteristics of the Buenos Aires Metropolitan Area that will in- fluence the future demand for fresh fruits and vegetables and the volume of produce that will flow through wholesale markets; and third, to present the main characteristics of the produce supplying regions that may affect the organization of fresh fruit and vegetable dis~ tribution in the Buenos Aires Metropolitan Area. The Buenos Aires Metropolitan Arealis composed of two main areas: 1. The Federal District, the central core of the urbanized area and the site of the national government; and M 1Only the information that is considered to be relevant for the purposes of the study is presented. For a more detailed description of the Buenos Aires Metropolitan Area see Trigo, g} c1t. .4}: .- ,.“ I..~, u 'H. .n.. ~i.. .i.._ IN . - (I! 17 2. Greater Buenos Aires, a suburban area constituted by nineteen 2 . "partidos"l from the Province of Buenos Aires (Figure TI-l). The Buenos Aires MetrOpolitan Area, with a pOpulation of {£350,000 inhabitants in 1970, ranks fourth by its size among the cities of the world behind New York, Tokyo and Paris. Since colonial times, Buenos Aires has been the cultural and political capital of lhgentina. As the City has increased in absolute size and relative importance there has tended to be growing concentration of wealth and income flows to the Buenos Aires urban-industrial complex. Buenos Aires has become a large and dominating part of the Argentine economy iuth 53 percent of the peOple employed, 38 percent of the industrial firms and 56 percent of the value of production. This has led to increasing pressures for government policies to improve the relative eunumuc and social positions of other regions of the country. How- mnuy improvements in the Buenos Aires food supply system could favorably affect a sizable percentage of the total national population Food Expenditures and Consumption Patterns The levels of consumption of fresh fruits and vegetables must be considered within the framework of the level and composition of total consumer exPenditures. Food expenditures of a typical indus— trial worker family, composed of the parents and two children, ‘— 1A "partido" is an administrative unit whose municipal govern- nwnt is located in the main city or town of the unit. This unit of government closely corresponds to a county in the United States. 2The National Planning System has defined a new economic unit the Buenos Aires Metropolitan Region, by incorporating six more "partidos" from the Province of Buenos Aires to the Buenos Aires Metropolitan Area, ’ 18 [:] Greater Buenos Aires :3 Federal District 0 10 20 30 L——~ 1 1 I Scale: 1 inch = 9.2 miles Figure II-1.-—The Buenos Aires Metropolitan Region Showing the Federal and Greater Buenos Aires Districts. I 0-,. ....l ,.‘ . “‘- M 19 represented 59.20 percent of total expenditures in 1960 according to the cost of living survey undertaken by the National Institute of Statistics and Census (INEC) (Table II~1). This figure, however, reflects the level of expenditures of the low income segment of the pOpulation. A survey on consumption done by CONADE in 1965 provides information on the percentage of income spent on food by different socio-economic levels (Table II-Z). The distribution of food expendi- tures between food products by socio-economic levels is presented in Table II-S. Families in the lowest socio-economic level spend 61 percent of their income on food. According to what could be expected, the consumption of bread and cereals declines and that of fresh fruits and vegetables increases, reSpectively, as a function of increasing income. ansumption of Fresh Fruits and Vegetables There are three main sources of information with regard to the per capita consumption of fresh fruits and vegetables: (1) The survey made by the National Institute of Statistics and Census (INEC) during the whole year of 1960 covering 1,419 families living in the Federal District. (2) The survey undertaken by CONADE during the period September 25—December 5, 1965, covered about 1,200 families of the Federal District and Greater Buenos Aires. Answers were classified by socio-economic levels taking into account the income level of the family and cultural and occupational position of the head of the family. The values produced by this survey were adjusted 20 TABLE II-l.—-Distribution of Expenditures by a Typical Industrial Worker Family in 1960. Expenditure Items Percentage of Total Food - 59.20 Clothing 18.70 Housing 5.10 Transportation 2.51 Recreation 2.00 Medical Services 1.49 Education 1.46 Other 9.54 Source: INEC, Cost of Living in the Federal District, 1960. TABLE II-2.-—Percentage of Income Spent on Food by Different Socio— economic Levels in the Federal District and Greater Buenos Aires in 1965. . . a Soc1o—econom1c Levels Average 1 2 3 4 5 6 % of Income Spent on food 61.1 49.7 36.3 31.0 24.1 16.9 39.6 —.____ Source: CONADE, ”Encuesta de Consumo de Alimentos en la Capital Federal y Gran Buenos Aires," Buenos Aires, 1968. a c O o Soc1o~econom1c levels are ordered from lower to higher levels. TABLE II-3.--Percentage Distribution of the Food Expenditures bv 21 Socio—economic Level of Families in the Buenos Aires Metropolitan Region of Argentina, 1965. Product 9 O a Soc1o-econom1c Levels . Average Grouping 2 3 4 5 6 Bread and Cereals 13.6 11.4 10.4 9.3 10.3 7.3 11.0 Meat, Fish and Sausages 33.5 37.6 37.4 37.7 35.1 39.5 36.7 Milk and Dairy Products 11.1 11.2 11.9 12 2 12.4 10.5 11.7 Fruits and Vegetables 15.2 16.2 17.5 17 4 18.1 22.0 16.9 Beverages 11.1 10.0 8.8 7.9 7 l 5.8 9.2 Other 13.5 13.6 14.0 15 S 17 0 14.9 14.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 __ Source: Trigo, pp: cit. a . . Soc1o—econom1c levels are ordered from levels. lower to higher Ipa b-Iv In! ... 1———_______—f 22 lnrthe Central Market Corporation technical staff in order to avoid the seasonality bias. (3) The apparent consumption of vegetables in the Buenos Aires MetrOpolitan Area.was estimated by researchers of the Agronomy School of the University of Buenos Aires. The method annoyed consisted first, in taking the records of the volume of produce arriving in the specialized markets (potatoes, garlic and onions) and in one of the main full—line concentration markets in the Federal District (the Dorrego Market) during the period January— December, 1970; second, in estimating the share of the Dorrego Market hithe total volume of produce introduced into the area and calcu— lation of total volume introduced; third, estimation of the population in the area of influence of the concentration markets in the Buenos Aires Metropolitan Area; finally, the per capita consumption figures were calculated.1 The figures produced by the above-mentioned sources of information are reproduced in Tables II-4, II-S and II-6. The figures produced by the National Institute of Statistics and Census survey in 1960 were used by the Central Market Corporation to make projections of future consumption. Several reasons were advanced to explain this decision. First, use of these figures that were low would avoid overexpansion of a new market facility. Second, the figures of the CONADE survey were adjusted to avoid seasonality with data from only one market and were considered less reliable. Thirdly, the structure of consumption emerging from both sources is Similar in the sense that different groups of products have similar g 1M. Barreiro y J. C. Limongelli, "Analisis de Aprovisiona- miento Horticola de la Ciudad de Buenos Aires, ” Tecnologla Alimentaria, Nos. 28- 29, July October 1971; and 30, November~December 1971. 1:12 ‘01 u 23 TABLE II—4.--Annua1 per Capita Consumption of Fresh Fruits in the Buenos Aires Metropolitan Area. Sources Product CONADE 1965 INEC Original Adjusteda 1960 kilograms/capita Bananas 18.1 19.3 17.0 Apples and pears 23.6 27.0 19.5 Apples 23.2 24.1 16.1 Pears 0.4 2.9 3.5 Citric Fruits 49.7 37.0 22.4 Oranges 31.2 19.8 12.5 Grapefruits 9.4 6.8 1 3 Tangerines 2.3 5.0 " 2 Lemon 6.8 5.4 1.4 Drupaceous Fruits 1.6 1.3 4.1 Apricots 0.4 0.8 Peaches 0.3 0.3 2.4 Prunes 0.6 1 4 Grapes —— 0.7 6.3 Pineapples 3.7 1.8 0.7 Other 0.7 0.7 3.1 Total 97.4 87.8 73.1 k Source: SCET COOP—MERCASA, "Evaluacién del Consumo de la Zona de Influencia del Mercado Central," Documento BH, Unpublished Report, Buenos Aires, April, 1970. aAdjusted by the Buenos Aires Central Market Corporation to avo1d seasonality bias. '.x- .- . dbl I. ..l "in. \- 24 TABLE II-5.--Annua1 per Capita Consumption of Fresh Vegetables in the Buenos Aires Metropolitan Area. Sources Product CONADE 1965 INEC FAV—UNBA Original Adjusteda 1960 1970 kilograms/capita Potatoes 77.9 63.7 73.5 50.4 Sweet potatoes 7.7 7.7 8.9 6.2 Onions 14.7 8.3 8.7 13.3 Garlic 0.2 0.4 0.2 2.0 Leek 1.4 0.9 0.7 2.3 Tomatoes 13.7 11.1 14.9 21.6 Peppers 2.0 5.4 2.6 3.0 Carrots 7.4 5.6 3.6 11.4 Garden beets 2.2 1.6 1.2 2.6 Summer squash 5.4 3.4 3.0 6.1 Squash pumpkin 5.0 5.6 5.1 3.5 Lettuce 14.3 12.4 8.7 20.4 Chard 10.3 8.8 10.2 11-9 Spinach 3.7 2.2 1.6 1.1 Cabbage 0.9 0.7 1.6 2.6 Cauliflower 1.2 1.8 1.0 1.5 Celery 0.9 1.2 0.7 0.8 Fennel 0.4 0.2 0.6 0.3 Parsley 2.4 2.4 2.7 Green peas 7.7 7.7 8.9 6.2 Beans 1.3 0.4 1.6 4.1 Artichokes 4.7 0.9 0.9 0.7 Sweet corn 1.3 0.4 1.6 4.1 Radishes 2.1 1.5 0.8 1.4 Eggplant 0.7 2.6 1.3 1.9 Others 29.7 29.7 15.0 Total 216.6 183.8 173.7 172.4 Sources: CONADE, "Encuesta de Consumo de Alimentos en la Capital Federal y Gran Buenos Aires,” Buenos Aires, April 1968; CMCBA, E1 Consumo de Frutas, Hortalizas y Pescado en el Area Metropolitana, Buenos Aires, 1970; M. Barreiro y J. C. Limongelli, "Analisis del Aprovisionamiento Hortfcola de la Ciudad de Buenos Aires," Tecnologia Alimentaria, 28—29, Julio-Octubre 1971; SCET COOP-MERCASA, "Evaluacidn del Consumo de la Zona de Influencia del Mercado Central,” Documento BH, Unpublished Report, April 1970. aAdjusted by the Buenos Aires Central Market Corporation to avoid seasonality bias. 25 TABLE II—6.--Annua1 per Capita.Consumption of Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area. Sources ProdUCt CONADE 1965 INEC Original Adjusteda 1960 Kgs/capita Kgs/capita % Kgs/capita % Fruits 97.4 87.8 32.3 73.1 29.6 Vegetables 216.6 183.8 67.7 173.7 70.4 Total 314.0 271.6 100.0 246.8 100.0 —_ Source: scar COOP-MERCASA, "Evaluation del Consumo de la Zona de Influencia del Mercado Central," Documento BH, Unpublished Report, Buenos Aires, April 1970. aAdjusted by the Buenos Aires Central Market Corporation to avoid seasonality bias. in: clv 7. 26 weight in total consumption. Also, though the fresh fruit and vege— table per capita consumption figures for the Federal District esti- nwted by the INEC in 1960 may overestimate the actual consumption of the lower income population of Greater Buenos Aires, it was assumed that the differences in per capita consumption of fresh fruits and vegetables between the Federal District and Greater Buenos Aires would fade by 1970. Finally, projections of future consumption made on the basis of the INEC sample would be considered to be provisional until data of a 1970 INEC survey including 2,290 families living in Greater Buenos Aires became available to revise them.1 However, differences for some product groups are important and deserve comment. The percentage corresponding to each group of products in total per CaPita consumption is presented in Table II—7. The difference between the INEC and the adjusted CONADE surveys are fairly important for potatoes, tomatoes, citric fruits, apples, pears and grapes. Both 1960 and 1965 were years of oversupply of potatoes, so that lower relative prices for potatoes may have stimulated the quantity demanded. Furthermore, the lower income INEC sample would probably consume more potatoes than higher income residents and with rising incomes there may be some shift from potatoes to other foods. This WOUId help explain the exaggerated weight of potato consumption in the INEC survey. Figures for citric fruits seem to be too low in the INEC survey, since they are lower than the apparent nat1ona1 ¥ 1CMCBA, E1 Consumo de Frutas, Hortalizas y Pescado en el- - A, 539? Metropolitana, Buenos Aires, 1970 and SCET C30: giggiio 'EValuaciSn del Consumo de la Zona de Influenc1a eA'res .1970. Central," Documento BH, Unpublished Report, Buenos 1 ’ 27 TABLE II—7.--Percentage and Total Annual per Capita Consumption of Major Product Grouping of Fresh Fruits and Vegetables in the Buenos Aires MetrOpolitan Area. Sources PrOdUCt CONADE 1965 INEC (Adjusted)a 1960 Total % Total % kgs kgs Potatoes and sweet potatoes 71.4 26.3 82.4 33.4 Garlic and onions 8.6 3.7 8.9 3.6 Tomatoes 11.1 4.1 14.8 6.0 Lettuce, chard and spinach 23.4 8.6 20.5 8.3 Other vegetables 69.5 25.6 47.2 19.1 ALL VEGETABLES 184.0 67.8 173.8 70.4 Bananas 19.3 7.1 17.0 6.9 Citric fruits 37.0 13.7 22.3 9.0 Apples and pears 27.0 10.0 19.5 7.9 Grapes 6.3 2.5 Other fruits 3.8 1.4 8.0 3.3 ALL FRUITS 87.1 32.2 73.1 29.6 ALL FRUITS AND VEGETABLES 271.2 100.0 246.9 100.0 Sources: CONADE, ”Encuesta de Consumo de Aline“?Os en lascapgégl Federal y Gran Buenos Aires," BFePOS Alres’ 19: ’ 1 1960 Survey of 1,419 families 11v1ng 1n the Fe era District. aAdjusted by the Buenos Aires Central Market COTPOTation to avoid seasonality bias. u- 1.. IVA u c\. 28 consumption.1 On the other hand, figures of per capita consumption cflfapples and pears seems to be too high in the adjusted CONADE survey.2 However, the adjusted CONADE figures may constitute a better basis to make projections of future consumption than the 1960 INEC figures, not only because the CONADE figures are estimates of consumption in a more recent date, but also because the INEC samples has generated information on the consumption levels of a relatively low income segment of the population of the Buenos Aires Metropolitan Area and may understate the actual average per capita levels of consumption of the whole population. It is also convenient to emphasize the limitations of the available information. The figures presented account for levels of consumption of fresh fruits and vegetables during short periods of time. Changes in supply affect prices of individual commodities and through the substitution effect bring about changes in demand for other commodities. More research is badly needed in this area of food consumption. In any case, the levels of per capita consumption of fresh fruits and vegetables are fairly high and exceed consumP‘ tion levels in the United States, even when adding the higher con— sumPtion of processed fruits and vegetables to the latter. Annual per capita consumption of fruits and vegetables in the United States has been estimated as 83.8 and 98.2 pounds of fresh fruits and fresh g 140.5 kgs. per capita and per year according to the Argent1ne FrUit Producers' Association. d be 13.5 kgs. per capita 2 O - tlon woul . National apparent consumP ded by the Argentlne and per year according to the figures PIOVi Fruit Producers' Association. 29 vegetables, respectively, and 97.5 and 106.1 fresh-equivalent pounds of processed1 fruits and processed vegetables, respectively, in 1966, adding up to 385.6 pounds or 175 kilograms.2 This compares with 250 to 270 kilograms per capita in the Buenos Aires Metropolitan Area. Factors Affecting Trends in Demand for Food and Marketing Services Population Characteristics The Federal District and Greater Buenos Aires present sub- stantial differences with respect to their urban characteristics. The Federal District, with an area of 79 square miles and 3 million inhabitants, is characterized by a high density of population and a predominance of multi-family housing units. The urbanization re- Sponse to population pressures is by expanding vertically, since not only are new lands not available but there is also a felt need for more green space. Greater Buenos Aires, with a much larger area (531 Square miles) and 5.4 million inhabitants, shows a much lower population density and expands horizontally, single family housing units being the dominant element of the suburban configuration. The concentration of population in the Buenos Aires Metro— POlitan Area has been steadily increasing during the last century, passing from 13.4 percent of the total national population in 1869 to 35.7 percent in 1970. This trend must be given particular con- Sideration because population is the variable that together with the _k 1All forms-"canned, frozen and dried. 2 aris, 1970, P- 39- OECD, Food Marketing and Economic Growth. P 30 structural changes taking place in food consumption and distribution nmst be taken into account to estimate the volume of fresh fruits and vegetables that will flow through wholesale markets. The rapid growth of the Buenos Aires MetrOpolitan Area has been due in part to internal migration. During the period 1914-1947, the Argentinian Provinces showed a rate of population growth that was consistent with the birth and death rates, but the rate of growth of Greater Buenos Aires already showed a trend for concentration ‘ around the Federal District. During the period 1947-1960 spatial ‘ redistribution of population constitutes the dominant feature in Argentine demography. The average rate of growth was 2 percent for the country as a whole and 3 percent for the Buenos Aires Metro- politan Area. But while pOpulation in the Federal District remained k stable, population in Greater Buenos Aires showed a phenomenal annual average rate of growth of 5.53 percent (Table II—8). The annual average rate of growth of pOpulation in Greater Buenos Aires declined to 3.51 percent in the 1960-1970 period, which is still relatively high. The increase of pOpulation in Greater Buenos Aires in absolute terms in the 1960-1970 period is by far the highest among the Argen~ tine Provinces and ranks second in percentage terms to the Province of Santa Cruz, which is the least pOpulated province in Argentina. Thus, Greater Buenos Aires constitutes the main growing point in Argentina and is able to attract important flows of domestic migrants, while the Federal District shows a stabilized population. If these trends are sustained we can expect that the overall increase 31 TABLE II-8.--Tota1 Population of Argentina and Population by District in Selected Census Years. Average rate of growth of p0pulation between District Census Years census years (80) 1970 1960 1947 1914 1960-70 1947-60 1914-47 Thousands TOTAL 23,364 20,013 15,893 7,885 15.4 17.2 20.4 Federal District 2,972 2,967 2,981 1,576 2.0 0.4 18.7 Buenos Aires 8,775 6,766 4,274 2,067 25.8 33.9 21.1 Greater Buenos Aires 5,380 3,772 1,741 458 35.1 55.3 35.4 All other "partidos" 3,394 2,994 2,533 1,609 12.6 12.5 13.5 Catamarca 172 168 147 101 2.4 10.0 11.4 Cordoba 2,060 1,754 1,498 735 16.1 11.8 20.7 Corrientes 564 533 525 347 5.6 1.1 12.4 Chaco 567 543 430 46 4.2 17.4 48.8 Chubut 190 142 92 23 28.6 31.9 36.4 Entre Rios 812 805 787 425 0.8 1.7 18.1 Formosa 234 179 114 19 26.9 33.3 43.0 Jujuy 302 242 167 78 22.4 27.5 22.1 La Pampa 172 159 170 101 .0 4.9 15.2 La Rioja 136 128 111 80 6.1 11.2 9.9 Mendoza 973 824 588 278 16.6 25.1 21.7 Misiones 443 361 246 54 20.3 28.4 39.0 Neuquen 155 110 87 29 33.8 17.6 30.4 Rio Negro 263 193 134 42 30.4 27.0 31.6 Salta 510 413 291 142 21.0 26.0 20.8 San Juan 384 352 261 119 8.7 22.3 22.6 San Luis 183 174 166 116 5.1 3.9 10.6 Santa Cruz 84 53 43 10 45.9 15.7 37.8 Santa Fe 2,136 1,885 1,703 900 12.5 7.6 18.7 Santiago del Estero 495 477 479 262 3.9 0.5 17.8 i Tucuman 766 774 593 333 1.0 19.8 17.0 1 Tierra del Fuego | Antartida e islas l del Antlantico Sura 16 11 s 2 33.1 56.9 20.4 | _k Source: INEC, 1970 National Census on Population, Families and Housing. aMartin Garcia Island included in this district. L.’ 1,. a .& ‘i' 32 of population in the Buenos Aires Metropolitan Area will take place in Greater Buenos Aires in the future. Two projections have been made with respect to population growth: one, taking the historical rate of growth ("natural" rate of growth hypothesis), the other assuming state intervention to foster economic growth in the rest of the country in order to slow down the rate of internal migration from the rest of the country to the Buenos Aires Metropolitan Area (contrived growth hypothesis). Projections for both hypotheses are shown in Table 11—9. TABLE Il-9.-—Alternative Projections of Population Growth in the Buenos Aires Metropolitan Area. Natural Growth Contrived Growth Year Hypothesis Hypothesis (Inhabitants) (Inhabitants) 1970 8,350,000 8,350,000 1980 10,420,000 9,820,000 1990 12,730,000 11,540,000 2000 15,700,000 13,410,000 —__A Sources: National Census 1960 and 1970; CONADE, Organizacion del Espacio de la Region Metropolitana Esquema Director Afio 2000, Buenos Aires, 1969; CMCBA, El Consumo de Frutas, Hortalizas y Pescado en el Area Metropolitana, Buenos Aires, 1970. The natural growth hypothesis shows that population would almost double in the Buenos Aires Metropolitan Area during the period 1970-2000. However, as mentioned before, structural changes repre~ senting important modifications in incomes, employment, transportation and food retailing will also affect the future demand For fresh a. n n‘! ‘0 . In! ,- In 33 fruits and vegetables and the organization of produce distribution. The structural changes taking place in food retailing that may in- fluence the volume of produce that will flow through wholesale markets mull be discussed in Chapter III. We will now consider how changes in income, employment and tranSportation can influence the patterns of fresh fruit and vegetable consumption and distribution in the Buenos Aires Metropolitan Area. Income, Employment and Transportation A cross-section of per capita income levels among families within the Metropolitan Area was estimated in March 1970 by the High- way Planning Department of the Public Works Ministry. The survey included 9,000 families. The Metropolitan Area was divided in 40 different sub—areas: The Federal District in 19 and Greater Buenos Aires in 21. Though the data may not be a good indicator of income levels because responses were not as complete as expected, it can nevertheless be used to show income differentials among the areas.1 The Buenos Aires Metropolitan Area does not constitute a homogeneous region with respect to income (Table 11-10). The central citv is an area of middle to high incomes, while in the suburban areas middle and low income families constitute the majority. We can expect that future increases in consumption of fresh fruits and vegetables due to rising per capita incomes will mainly take place in Greater Buenos Aires. Though the total consumption of fruits and vegetables may h 1Argentina's national per capita income was estimated by the Central Bank of Argentina as $751.12 in 1969 (constant U.S. $ of 1960). 34 TABLE II-10.--Income per Familya and Percentages of Population Living in Low, Medium and High Income Areas in the Buenos Aires Metropolitan Area of Argentina in 1970. Income Average Federal Greater Whole Areas Income District Buenos Aires BAMA U$S ----- Percentages ----- lbw 1,942.22 8.78 31.71 23.40 Medium 1,287.04 50.71 60.23 56.78 lfigh 2,849.34 40.51 8.06 19.82 U$s U$S U$S Average 2,355.69 2,475.23 2,247.53 2,355.69 Source: Ministerio de Obras Publicas de la Nacién, Direccién Nacional de Programacién y Control, "Estudio Preliminar del Trans- porte del Area Metropolitana," Buenos Aires, Argentina, 1970, as reported by Trigo, pp: cit., pp. 27-28 and 236—37. 3In U$S, March 1970. . in _‘_______7 35 also increase in the Federal District with rising levels of income, we can anticipate a process of substitution of processed fruits and vegetables for fresh fruits and vegetables, so that the consumption of fresh fruits and vegetables, being already high, may even decline. We conclude that the expected changes in demand due to rising levels of living also suggest that the future increase in total consumption of fresh fruits and vegetables will largely take place in Greater Buenos Aires. An increase in the demand for processed fruits and vegetables such as dehydrated and frozen potatoes, frozen vegetables and canned fruits and vegetables can also be anticipated with the increasing participation of women in the labor force and rising per capita in— comes. While in 1960 the active labor force in the Buenos Aires MetrOpolitan Region was composed of 26 percent women and 74 percent men; in 1969 these figures were 34.1 percent and 65.9 percent, reSpectively.1 Marketing channels for processed fruits and vege~ tables are likely to by-pass produce wholesale markets, since these are standardized products that can be bought by description. The expected changes in income and employment will increase the demand for convenience foods mainly in the Federal District, tending to reduce the per capita consumption of fresh fruits and vegetables in that area. The Buenos Aires Metropolitan Region is characterized by an underdeveloped highway infrastructure. Except for a few miles of freeway type highways, the most important traffic arteries are m 1Trigo, pp: cit., pp. 14~18. % 36 avenues that have been converted to one direction traffic and suffer traffic jams at peak hours. Most streets are narrow and overloaded with motor traffic as a consequence of the spectacular increase in private auto transportation. The number of cars in the Buenos Aires Metropolitan Region increased from 203,752 in 1960 to 639,416 in 1970, an increase of 214 percent. The number of cars in the 1960— 1970 period less than doubled in the Federal District, while car numbers increased more than six times in Greater Buenos Aires. In 1970 the number of families per car was 3.7 in the Federal District, 3.9 in Greater Buenos Aires and 3.8 in the Buenos Aires Metropolitan Region.1 The suburban railroads, the subways and the bus system make up the public transportation system in the Buenos Aires Metropolitan Area. The bus system is the most important mode of public trans- portation and is used by 1,333.5 million passengers annually or 64 percent of the total. This percentage may be closer to 70 percent at present since buses substituted for tramways and trolley buses that disappeared from the city.2 The expansion of the bus system has also contributed to increased traffic congestion. The implications for our study of the data presented above are two-fold: First, the increased traffic congestion resulting from the car boom and the expansion of the bus service makes more difficult the operation of the central wholesale market facilities 11bid., pp. 21-22. 21bid., p. 25. r__— 37 5 located in the inner city. The main market, located close to down- town Buenos Aires, has been forced to rearrange its working schedule to meet the parking regulations of the city and to avoid active nmrket operation at commuting hours. Second, the greater availability of private cars certainly facilitates the expansion of large scale, broad product line retail stores, that necessarily need a larger area of influence than the traditional retail stores to constitute a viable business activity. 1 Projections of Consumption of Fresh Fruits and Vegetables On the basis of the INEC figures on per capita consumption of fresh fruits and vegetables in the Federal District in 1960, projec— tions of consumption were made by the Buenos Aires Central Market Corporation considering two different rates of growth of income and of population. The four different projections that result from com— bining the rates of growth and population were averaged providing single estimates of consumptions for 1975, 1980 and 1990 (Table II-lll With reSpect to 1970, the total consumption of fresh fruits and vege— tables would increase 19 percent by 1975, 32 percent by 1980 and 66 percent by 1990. Main Characteristics of the Producing Regions Supplying the Buenos Aires Metropolitan Area Argentina has an extensive land area and wide range of cli- mates and soils, combined with a low population density. Consequently, Argentina produces nearly all its food needs and exports the surplus. Except for some tropical and off—season cr0ps that are imported from 38 TABLE II—11.--Projected Consumption of Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area in Selected Years. Projected consumption (tons/year) Product 1975 1980 1990 Potatoes and sweet potatoes 754,000 804,000 974,000 Garlic and onion 88,000 99,000 124,000 Tomatoes 148,000 165,000 204,000 Other vegetables 669,000 749,000 949,000 All vegetables 1,659,000 1,817,000 2,251,000 Banana 174,000 197,000 252,000 Citric fruits 232,000 264,000 340,000 Apples and pears 202,000 231,000 295,000 Other fruits 149,000 169,000 220,000 All fruits 757,000 861,000 1,167,000 511 fruits and vegetables 2,416,000 2,678,000 3,358,000 Source: CMCBA, E1 Consumo de Frutas, Hortalizas y Pescado en el Area Metropolitana, Buenos Aires, 1970. a 9:1 «'4 A 1‘ DUI . . fl iv I‘ vs '1 he '1' % 39 neighboring countries, most fresh fruits and vegetables come from commercial farms located in specialized producing regions within the country. The main vegetable supply region for the Buenos Aires Metro- politan Area is the Province of Buenos Aires1 (Figure II-Z), which provides the bulk of the leafy vegetables, 74 percent of the potatoes, 87 percent of the garlic, 21 percent of the tomatoes and 7 percent of the onions.2 In addition to some other crops (Table II~12), 57 percent of the tonnage of vegetables introduced into the metropolitan market comes from the Province of Buenos Aires. The second main supplier of fresh vegetables is the Province of Santa Fe (Figure II-2), with 12 percent of the total volume received in the Buenos Aires Metropolitan Area. The proximity of these provinces to the market and the highly perishable nature of many of these products, such as leafy vegetables, are the most important reasons explaining why the provinces of Buenos Aires and Santa Fe are the main suppliers of fresh vegetables for the Buenos Aires MetrOpolitan Region. It is worth noting that in spite of this nearness to the market whatever sorting (there is no product grading) and packaging is made takes place almost exclu- sively at the farm level. 1To some extent these districts overlap because of one being an economic unit and the other, a political unit. 2Corporacic’m del Mercado Central de Buenos Aires, ”Analisis de la Produccién de Frutas, Hortalizas y Pescado con Destino al Mercado Central," Unpublished Preliminar Report, Buenos Aires, 1971. 40 . ii. J .\ SO \x \‘0’2 1 Salta. / ‘phw _...1 gir] \\OSQ ”‘4‘ S-an \\ C Ttlgusltiago lChaco/ “\magg del ;“"-r C} - C\a" /I I» . A La \\psterOISa11ta/ 49,32 0 e SanRioja\/- \ /Fe 39‘?» Juan\\ r, 2 1c . RUS G HP/EE \— «\Cérdoba£ (Emu: G ,APES‘kfijinsl) / ,Rfo POTATOES D’ UPES /_, CITRUS AND DRUPACEOUS FRUITS A 7: chosw l .. ‘ Buenos BUENOS AIRES "GREEN BELT" \ :3 LaJ Aires Ne . ué‘ i Pampa I POTATOES a \EPP PLE§_\ I EXABS "p GARLIC / R10 ( /’ Negro ‘ fl_—-_— 1Tucuman Chubet 2Misiones 3City of Buenos Aires (Federal --'— :3 District) #1 ég ”Territorio Nacional de la Tierra Santa del Fuego, Antartica e Islas del Cruz E; Atlantico Sur. E Note: Islas del Atlantico Sur 53 include Orcadas del Sur, It Georgias del Sur, and Malvinas. lg Figure 11— 2. -—Main-Produce Supplying Regions of the Buenos Aires Metropolitan Area. 41 TABLE 11—12.--Market Share of the Province of Buenos Aires as a Supplier of Fresh Vegetables for the Buenos Aires Metropolitan Area. Product % Product % Product % Cauliflower 97 Garlic 87 Celery 65 Radish 97 Garden beet 87 Green peas 51 Artichoke 95 Sweet corn 87 Summer squash 48 I Cabbage 93 Leek 83 Tomatoes 21 ] Spinach 93 Lettuce 74 Squash pumpkin l7 Fennel 92 Potatoes 74 Sweet potatoes l7 Chard 9O Carrots 69 Pepper 8 8 Onions 7 Source: CMCBA, "Analisis de la Produccidn de Frutas, Hortalizas y Pescado con Destino a1 Mercado Central,” Unpublished Preliminar Report, Buenos Aires, 1971. pa 1" ‘o 42 The production of fresh vegetables is not scattered throughout the provinces of Buenos Aires and Santa Fe but it is concentrated in locations particularly well suited for the production of each crop when taking into account soils and climatic conditions (Figure II-2). However, regional specialization in the production of fresh vegetables does not make a significant contribution to reduce assembling costs because vegetables are produced in fairly large commercial farms and most producers send their production to wholesale markets on consign- ment. Sales to rural assemblers are of importance for crops such as onions, garlic, tomatoes, squash and potatoes. Seventy percent of onion sales, half of garlic and tomato sales and one—fourth of potato and squash sales are made to assemblers.1 The production of potatoes is concentrated in the southeast of the Buenos Aires Province and the Rosario region in the province of Santa Fe, located 250 and 180 miles, respectively, from the Federal District. Garlic production takes place under irrigation in the south of the province of Buenos Aires, 400 miles from the Federal District. 0ne~fourth of the tomatoes supplied by this province is also produced in the south, while one—third is harvested in the Buenos Aires "green belt" and the rest in other regions of the province (Figure II~2). Transportation of vegetables is usually made by truck. Rail transportation accounts for 25 percent of the volume of squash supplied in the Buenos Aires Metropolitan Area, 20 percent of the onions and 1CMCBA, "Analisis de la Produccién de Frutas, Hortalizas y Pescado con Destino a1 Mercado Central," Unpublished Preliminar Report, Buenos Aires, 1971. Al, '35“ .-.J 'puI ”J'- e’u. . u— e. ~Au - v- -n A s 1 4p. 43 15, 10 and 5 percent of the sweet potatoes, tomatoes and potatoes, reSpectively. The leafy vegetables are transported exclusively by truck; all important producers of leafy vegetables own trucks and transport their own production to wholesale markets. Fruit production is also regionally Specialized. Apples and pears are mainly produced in the Rio Negro Valley and in Mendoza. Grapes in the Cuyo region (Mendoza and San Juan), citrus fruits in the Litoral region (Entre Rios, Corrientes and Misiones) and in the North of the country (Tucuman,Salta and Jujuy), peaches, prunes and apricots in the North east of the province of Buenos Aires and in Mendoza and bananas consumed in the Buenos Aires Metropolitan Area are almost exclusively imported (Figure II-Z). The Specialized fruit producing regions are relatively far from the Federal District. When weighing distances by the market share of each region as a fruit supplier of the Buenos Aires Metropolitan Area, the average distance is close to 600 miles. Fruit tranSportation is largely made by truck. The share of railroads in fruit transportation is only significant for citrus fruits produced in the northeast region of the country, ranging from 40 to 80 percent of the traffic. Farms producing fresh fruits and vegetables show a high rate Of adoption of new technology when compared with traditional export crops and the ”industrial" cr0ps (i.e., sunflower, tobacco and cotton). The most important fruits and vegetables by the levels of production and consumption have had high average annual increases in yields, While the traditional export and extensive crOps show more stable yields, during the period 1940/41-1970/71 (Table 11-13). It. It! 1 . . v I. . . ‘5. nub .- n.. TABLE II-l3.-—Current Yield Levels and Average Annual Increases in Yields of Selected Fruits, Industrial CrOps Taking Place in Argentina During the Period 1940/41-1970/71. Vegetables, Export and Current Yield Level Average Annual Crop Five Years Increases in Yields Average 1966/67-1970/71 1940/41-1970/71 (kgs/ha) (kgs) 06 Oranges 15,416 338 3.83 Grapefruits 13,128 184 2.10 Tangerines 10,074 134 1.36 Lemon 13,302 112 1.12 Apples 12,670 207 1.74 Pears 8,600 — 41 —0.49 PeaChes 8,264 107 1.81 Prunes 5,690 63 1.33 Potatoes 11,161 197 2.48 Artichokes 19,040 253 1.93 Common Beans 7,418 195 3.88 Tomatoes 16,980 107 0.70 Garlic 4,896 34 0.78 Onions 14,480 - 57 —0.35 Wheat 1,214 9 0.72 Maize 2,222 14 0.77 Sunflower 802 4 0.54 Tobacco 1,021 1 0.09 Cotton 864 4 0.53 Source: MAG, Direcci6n Nacional de Economia y Sociologia Rural, Series EStadisticas Retrospectivas de las Especies Agricolas Culti- vadas en la Republica Argentina, Periodo 1940/41 1970/71. 0’. c O ... Jo; IN a. ’u 1!‘ ~1- ‘\ 11. 45 Fruits are subjected to greater quality classification and standardization than vegetables. Grading and some degree of package standardization exists for apples and pears, thus complying with the quality requirements oftfluainternational market.1 Grading regulations are also available for citrus fruits but not yet enforced. However, large firms have been practicing quality selection for some years and twing different commercial brands to make a distinction between dif— ferent qualities. Selection by size is a common practice and large firms have also resorted to a higher degree of processing in citrus fruits including washing, coloring and waxing of fruit for fresh consumption, and juice production. The rate of adeption of new technology in the marketing of fresh fruits and vegetables in the producing region level has been slow. The major innovations have been: 1. The adoption of bin boxes in harvesting which has permitted reduction of harvesting costs. About half of apple PTOduceTS and packers have adopted this system, but the process of adOption is just starting in citrus production. es capacity 2. The important increase in refrigerated warehous that took place in the period 1965-1970 was mainly concen- ( I trated in the producing regions of R10 Negro, Neuquen and Mendoza (Table 11—14). This has made it possible to store and cool apples and pears immediately after harvestlng, 1Fifty percent of the apple production moves into the export market. 46 TABLE II—l4.-—Distribution of the Increase in Refrigerated Warehousing Capacity During the Period 196541970 Among Selected Argentine Provinces. Share (%) of Total Refrigerated Increase Area Warehouse Capacity 1965-1970 1965 1970 8 Whole country 100 100 58.6 Rio Negro 25 39.2 152 Federal District 32.1 20.4 2 Buenos Aires 19.3 14.6 22 Mendoza 13.7 15.2 78 Neuquén 2.8 5.5 196 Source: Alberto M. Arizu et al., Comercializacidn de Manzana y su Abastecimiento en_lafCapital Federal y Gran Buenos Aires, Unpublished Report, Facultad de Agronomia y Veterinaria de Buenos Aires, Buenos Aires, 1971. contributing to increases in product quality. Also, packing plants can operate during longer periods of time, whereby selection and packing can be postponed, avoiding in this way to pass to the buyer the losses that usually take place when the product is stored already packed. 3. The most modern packing plants are being constructed by the citrus industry. The National Bank will probably make a line of credit available to buy imported processing equipment. There is the perspective that some plants could be Operated by small producers on a cooperative basis. 4. The initial adoption of one-way cardboard boxes may have a major impact on the operational efficiency of produce Li_______ a N: § 1 n h v 0 s q .- b ‘s ‘ 47 wholesale markets. Storage of two-way wooden boxes takes a large amount of Space that might otherwise be available for product display, selling and storage1 and makes more difficult the Operation of already congested produce wholesale markets. Therefore, the adoption of one-way cardboard boxes may in- crease the capacity of the existing markets or reduce the space required to move a given volume of fresh fruits and vegetables to a new market. 1 Summary and Conclusions The Buenos Aires Metropolitan Area, one of the largest urban conglomerates in the world, is a large and dominating part of the Argentine economy. This had led to increasing pressures for govern- ment policies to improve the relative economic and social positions of other regions of the country. However, data on population and per capita consumption of fresh fruits and vegetables indicate that improvements in the Buenos Aires produce supply system could favorably affect a sizable percentage of the total national population. The location and size of a new produce wholesale facility will be related to existing marketing conditions and expected changes in the commercial structure. Traffic congestion already makes diffi- cult the operation of wholesale markets in the inner city. Expected changes in population, incomes and employment affecting future con~ sumption of fresh fruits and vegetables and demand for convenience, suggest that the future increase in demand for fresh fruits and ‘_ 1Estimated as 30 percent of the commercial Space at the Dorrego Market. 1 !\ veg: he} 48 vegetables will largely take place in Greater Buenos Aires. Since the Buenos Aires Metropolitan Region is an extensive land area having an 1 average diameter of 37 miles, the locational problem deserves parti— cul ar consideration . The size of a new produce wholesale facility will also depend i on the changes that may occur in food retailers' procurement prac— tices as a consequence of the structural changes taking place in food retailing. The structural characteristics of food retailing and the procurement practices of produce retailers will be analyzed in the . next chapter. Fruit and vegetable production takes place in large Special- ized commercial farms. Growers producing fruits and vegetables show a higher rate of adoption of new technology than traditional export and extensive crOp producers. A large proportion of fresh vegetables are produced close to the market in the Provinces of Buenos Aires and Santa Fe. However, whatever sorting is made takes place in the pro— ducing zones. Fruit production takes place far away from the Buenos Aires Metropolitan Area. The average distance between fruit produc- ing regions and the Federal District is 600 miles. The transportation of fresh fruits and vegetables is largely made by truck. These characteristics of fruit and vegetable production and transportation may be conditioning to some extent the structural characteristics of produce wholesale distribution that will be discussed in Chapter IV. The initial adoption of one-way boxes if rapidly diffused could make a major contribution to increase the capacity of existing produce wholesale markets by making available for alternative uses the “1* __ _ ____, 49 the space that is devoted to box storage at present. The size of new market facilities required to handle a given volume of fresh fruits and vegetables could be reduced by the rapid adOption of one—way cardboard boxes. a: g I CHAPTER III RETAILING In the first part of this chapter a brief description of the food retailing system in the Buenos Aires Metropolitan Area, including recent changes, is presented in order to provide a background for later examination of the wholesaling system. In the last part of the chapter the main characteristics of fruit and vegetable retailing will be described and the procurement practices of produce retailers and the retailer-wholesaler relationship will be discussed. The Buenos Aires Food Retailing_System1 Food retailing in the Buenos Aires Metropolitan Region is characterized by a large number of retail outlets. There were 34,025 food and beverage retail shops in 1963 according to the Commerce Census. These retail stores can be classified into three main cate— gories: small independent stores, stalls in plaza type retail markets and self-service stores. It is possible to distinguish different tYpes of stores within each of the above mentioned categories: 1 . . . . . . This subsection draws primarily from Trigo, pp: Clt. 51 1. Small independent stores a) b) C) d) e) f) "Almacenes" ("corner" grocery stores) "Carnicerfas" and "mercaditos" (butcher shops) "Fruterias" and "verdulerias" (produce shops) Bakeries Fish ShOps Specialty and delicatessen stores 2. Retailers operating stalls in plaza type retail markets a) b) Ferias (roadside or street markets) Mercados (retail markets) 3. Self-service food retailers a) b) C) d) Superettes Independent supermarkets Chain stores Large discount stores. Small independent stores and stalls in plaza type retail markets are traditional retail outlets, while self—serV1ce stores constitute the modern retail sector that entered the retail bu51ness during the 19605. . - h ve The main characteristics of independent corner stores a been summarized by Trigo:1 1. They sell a narrow line of products. 2- The size of the stores run from 300 square feet in the Smaller stores to about 1,500 square feet in th e larger ones. 1Trigo, 9p: cit. 52 3. In general they are located in buildings that were not designed for business purposes; in many cases garages or simply front rooms of homes. ! 4. Their equipment requirements are small. In general they consist of services or service display counters, racks of shelves to store and diSplay the goods and, when the type of products sold requires it, scales and some cooling facilities. { With the exception of larger Stores, cash registers are not common . 5. Storage facilities are usually very small given the low volume of operation. They are reduced in most cases to a small back room, and for many products the display shelves also serve as storage. 6. In most of the cases the procurement is at the intermediate wholesale level. Manufactured food stuffs are the exception, moving directly from manufacturers to retailers by way of manufacturer-owned wholesale operations, for about 50 percent of the total. The relative importance of the different types of traditional stores is shown in Table 111-1. With the exception of produce shops, average sales per type of store were much higher in the Federal District than in Greater Buenos Aires in 1963. Produce shops were the smallest retail stores as measured by the annual volume of sales. 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' Sh Oaivdiwigpdgs R) // \ Matanza (3 I Der z .---'-’( MERLO \(/ / \ / /~/ \\ \/ /'/ \ / / \ ~‘B’tde Zamora?> 9 \ /. \ >MATANZA // \ D -/\ / " \x “ /’ \ \ . / \ / / / \ M PAZ \\ / \ 07,4,“me \ RERAZATEGUI \\ D / \\ f < \ /’ / / \ \ r’ / < \ K \ / \ ALMTE. \ \ \ ( \ BROWN / ) ' \ / \ > ./ \ \ «E. ECHEVERRIA \ /\/F VARELA / / \ \ / / \ . / /' \V\\ /,/’ \ \ ( . \ /’ \ “/’/ \ \ '/ \ \ /\/ \ )'/ GRAL LAS HERAS \V/ < / \ / / \ / ( I \ / \ \ \ ,z' \ \ \ /V ‘\ / / \I . /‘ / / \. '\ / < \.> \\ ///’ CANUELAS 1 S. VICENTE //' ‘\,/ 1 ’/' \ | / \ | /'\./ \ \ ’1 Figure IV-l.--Location of Wholesale Produce Markets in the Buenos Aires Metropolitan Region. Source: CMCBA, Los Mercados Mayoristas de Frutas y Hortalizas del Area Metro- politana, Buenos Aires, 1971. than 250, Market at Proveedox creased 1 khOlESal: Sales, at The main to fruit. \ lag C0nd n Lapital 93 b) Supplying region specialization c) Auction markets Large-size, broad product line markets selling annually more than 250,000 tons include the Abasto Proveedor Market, the Dorrego Market and the recently built 3 de Febrero Market. The Abasto Proveedor is the major produce wholesale market in the city and de- serves to be described in some detail. The Abasto Market Area The Abasto Market is a private development with the Operators renting the wholesale stalls. It was constructed in 1891.1 At that time the population of the Federal District was less than 700,000 inhabitants. The market was close to a railroad station where fruits and vegetables coming from the north of the country were unloaded. The area covered by the market was 14,000 m2. There were about 211 stalls of 50 m2 each. Also, there was a 4,000 m2 basement for pro— duce and package storage. About 1936, when the population had in- creased to 2,500,000 inhabitants, the market was expanded with the construction of a new concrete building having a main floor for wholesaling, a second floor for retailing, first basement for meat sales, and a second basement for banana ripening and package storage. The main new floor was devoted to vegetables and the old facilities to fruits. The Abasto Market is located on 21,000 m2 of land. 1This description draws heavily on CONADE, "Informe sobre las Condiciones de Comercializacién de Productos Alimenticios en la Capital Federal y Gran Buenos Aires,” Buenos Aires, 1965. Usable wholesa 10,500 pedestt wuim on the takes 1: to whol harket hesa1 parking covers 50rroun Operate f100r 5 ISStauI ities, Eateria reshipp f 94 Usable floor Space within the building is about 50,000 m2. Fruit wholesale facilities occupy 9,200 m2. Vegetable wholesale-facilities, 10,500'm2. Thus, the space left for the traffic of vehicles and pedestrians in the main floor is extremely low (1,000 m2). A meat auction takes place on 8,000 m2 in the basement. The retail section on the second floor covers 10,000 m2. The access to this section takes place by rolling stairs. On this floor, office Space is rented to wholesalers. Another 6,000 m2 section, an annex to the Abasto Market for auction sales, was vacated and Operations transferred to the Saldias Market on May 6, 1963. This section is used as a public parking facility at present. Another annexed refrigerated warehouse covers 8,000 m2. As volume increased, the market gradually spread into the surrounding area. It is estimated that eighteen important wholesalers operate outside the market independently of the Abasto Market and have floor Space totaling about 7,000 m2. The area has a number of bars, restaurants, another refrigerated warehouse, banana-ripening facil— ities, warehouses for produce storage, as well as storage of packing materials. A number of warehouses are used for receiving, sorting and reshipping produce to other parts of the country. This market is characterized by severe traffic congestion. The streets serving the area are narrow and were not designed or con- structed to carry the number and volume of vehicles using the market. Corrientes Avenue, the southern boundary of the market, which is the most important access to it, is also one of the most important avenues running east and is naturally congested not only during commuting pick'ups h initially no direct at truck. Tl the market :echanical :arket am and regetz ieal dire< Tl tracks ma: Ei htv-fi' noon. Ho‘ made from from othe Days of to Fridays; tors and 031’. Ret Other mar 0:00 PM, traffic c lbasto ME 95 commuting hours but also most of the day. Parking of trucks and pick—ups has taken place as far as 500 meters from the market. ThOUgh initially the market was served by underground rail tracks, there is no direct rail access at present and all products are moved in and out by truck. There are also problems for the movement of vehicles within the market. All loading and unloading is done by hand as there is no mechanical equipment. Public parking areas are not provided in the market and parking space is very inadequate. Farmers bringing fruits and vegetables into the market have no selling facilities and must deal directly with the commission merchants or sell to wholesalers. The regulation governing the hours of the day during which trucks may unload has lengthened the hours of market operation. Eighty-five percent of fruit sales take place between 2:00 A.M. and noon. However, it must be noted that fruit purchases by retailers are made from 2:00 A.M. until 8:00 A.M., while purchases by wholesalers from other markets and reshippers take place from 9:00 A.M. till noon. Days of main activity for local buyers are Mondays, Wednesdays and Fridays; Sundays are also busy because of sales to out—of—town opera— tors and reshippers. Vegetable sales take place twenty-four hours per day. Retailers buy from 2:00 A.M. to 8:00 A.M. and wholesalers from other markets and reshippers from 9:00 A.M. until noon and from 6:00 P.M. till 10:00 P.M. This working schedule and the problem of traffic congestion give a clear indication that the operation of the Abasto Market imposes significant social costs on an important area of the city. The :arlet have reasons: (1 3:” the count '12) direct l central who ‘:;~' descript Auc Abasto Marl 3n Tuesday: citrus fru functions 1rganized Street, 0., :arket art hate sons are inCl‘e titted, b “err hi 96 The volumes of fresh fruits and vegetables handled at this market have been declining during recent years because of several reasons: (1) marketing of produce coming from the northwest region of the country by a producers' association at the Saldias Market; (2) direct marketing Of products to other large- and medium-size central wholesale facilities; and (3) increasing volume of fruit sales by description in auction markets. Auction sales by description of fruits take place in the Abasto Market. The Argentine Fruits Producers Association has auctions on Tuesdays, Thursdays and Saturdays. The bulk of these sales are citrus fruits, but apples and pears are also sold. This auction functions in the first basement of the Abasto Market. Another auction, organized by the Argentine Fruit Corporation, takes place on Anchorena Street, outside of the Abasto Market but still in the heart of the market area, on Mondays, Wednesdays and Fridays. Apples and pears have constituted the bulk of sales, but sales of peaches and prunes are increasing. Sellers Operating in these auction markets are com— mitted, because of the association regulations, to either sell all or a very high proportion of their output in them. The Dorrego Market The Dorrego Market is the second major produce wholesale market in the Federal District. This is a city-owned and administered market. Operations started in 1930. The area covered by the market is 54,132 m2 of which 41,216 m2 corresponds to the area in operation and 12,916 m2 to a recently built section that has remained un- occupied because the announced plans for the New Central Market would close : ities ahini marks the i and ' no: He‘de 103 tral 360' If” :1‘ (D 97 close all other produce wholesale facilities. Fruit wholesale facil— ities occupy 6,158 m2, vegetable wholesale facilities, 7,256 m2; administration offices and bank, 915 m2; parking space, 4,859 m2; and 22,028 m2 are left for vehicle circulation. This market has a refrigerated warehouse managed by the market authorities which is only slightly used because of administrative problems. It has been suggested that a wholesalers' association could improve management and increase the use of this facility. There also are scales for trucks that are not employed because their slow mechanical Operation would retard market traffic and delay trading. The Dorrego Market has no direct rail access. However, the market is adjacent to an important piece of land that is owned by the National Railroads and close to the Colegiales Railroad station and to a terminal railway siding. The city has asked to have the privilege of using the neighboring piece of land for market expansion. However, this property, where a Slum has developed, was transferred to a private university. The Dorrego Market does not face any serious problem of traffic congestion. Wholesalers are willing to finance expansion of the market. The decision has been taken to occupy the recently built section. IE? Salon Mayorista 3 de Febrero Market This market is owned and operated by a cooperative society. It started Operating in May, 1971 and has become the main market in Greater Buenos Aires and one of the most important in the Buenos Aires MetrO‘ 344,0 narle case, and n nithi trafl innrc that , . .318 , I‘ESt for that the 98 Metropolitan Area. The annual volume sold has been estimated as 344,000 tons, though this figure may not be reliable Since this market has been in operation for little more than one year. In any case, it can be compared with the Dorrego Market by the volume sold and would rank second to the Abasto Market. The usable floor space within the building is 52,000 m2. Located in the 3 de Febrero County, traffic access to the market is not very good though it can be improved. However, access to the wholesale stalls is fairly good so that trucks can comfortably get into the market to load and unload. The land area is 36,000 m2. The market operates in a new concrete building which has four naves corresponding to four internal streets being 270 m long and 12 m wide. Along the street sides there are sidewalks and display and selling Space for 240 wholesale units of 49 m2 each. There are a few phone lines for the whole market, public restroom facilities for men and women, two bar-restaurants and offices for the Cooperative Bank of Caseros and for the wholesalers are under construction in the second floor as well as a cafeteria and restaurant. The arrangement of the wholesale stalls is poor in the sense that wholesalers selling the same products are scattered throughout the market. The facilities include twenty—four banana-ripening rooms of 80 m2 each. Outside the market there are 3,000 m2 for vehicle Parking. An estimated 1,000 vehicles come into the market daily. There is no direct rail access to the market and no farmers' market facilities have been provided. Handling of merchandise has not been mechanized. About 600 men are employed in unloading operations. There is piece of Other Pn Market F' sales ra Turdera, around t Aires Ma this gro retail r are the Greater 18 an 0] Covered ThOFEh t acceSSes narrow g Tho intg PHSSage, Units, osmed b: BUenos , 99 There is a project to build a refrigerated warehouse in a neighboring piece of land that is occupied by a slum at present. Other Produce Wholesale Market Facilities Medium—size, broad product line markets have average annual sales ranging from 15,000 to 130,000 tons. The Avellaneda, Quilmes, Turdera, Liniers, Mor6n, Frigomer and Beccar markets form a belt around the Federal District (Figure IV-l). The Ciudad de Buenos Aires Market, located in downtown Buenos Aires, is also included in this group but this facility is more and more evolving towards a retail market. The Avellaneda and the Ciudad de Buenos Aires markets are the more important medium-size broad product line markets. The Abasto Avellaneda Market has been the main market in Greater Buenos Aires until the 3 de Febrero started operations. This is an old market built in brick and inaugurated in 1930. The area covered is only 6,000 m2 but the annual volume sold is 120,000 tons. Though the market is close to two important avenues which serve as accesses to the Federal District, streets surrounding the market are narrow and usually crowded with vehicles. There is no parking space. Two internal streets cross in the market and there are some internal passageways for buyers to have access to the different wholesale units. There are farmers' market facilities. The facilities are owned by the Avellaneda District and operated by a private firm under lease until 1979. There is no direct railroad access to this market. The Ciudad de Buenos Aires Market is located in downtown Buenos Aires. The annual volume sold has been estimated at 132,000 market w in more of Opera traffic annually Abasto l lélez 8; include; 5316 ma: O‘med DI Bedlty -- lation: COHCEn+ 100 132,000 tons in 1970 but may be substantially lower at present. This market was inaugurated in 1894. At present, retail sales take place in more than 50 percent of an estimated area of 10,000 m2. The hours of Operation are from 2:00 A.M. to 9:00 A.M. to avoid regular city traffic congestion. This is a private market. Small-size markets sell less than 15,000 tons of produce annually. They have only a local influence. The Demarchi, Ricceri, Abasto La Matanza, Abasto Lomas de Zamora, Abasto Vicente L6pez, Vélez Sarsfield, Intendente Grondona and Valentin Alsina markets are included in this category (Figure IV-l). Broad product line whole- sale markets are private operations with the exception of the city- owned Dorrego and Intendente Grondona (San Fernando) markets. The Specialized concentration markets include the two com- modity—Specialized markets that are owned and administered by the nation: the Nacional de Papas and the Nacional de Hortalizas, where concentration of first wholesale transactions in the Federal District in potatoes, and in garlic and onions, respectively, is legally required. The Provincial de Frutas (Tigre) is a wholesale market facility owned by the Province of Buenos Aires where farmers of the nearby Parana River Delta sell the fruit produced in that region. The Saldias Market is located at the Saldfas railroad Station of the Belgrano National Railroad. A producers' association sells by auc~ tion fruit and vegetable production (mostly tomatoes, peppers and citrus fruits) from the nOrthwest of the country arriving at Buenos Aires by rail. There are two auction markets located in the Abasto Market area where producers' associations sell fruit by description. Produce concentration In complete line c arennde in 1a: sale facilitie that are broug duce retailers ofthe informs densed in Tabj Recent Change \ W Thee undergone sor Valentin A15: 1971- The 3 in the Bueno Change, in C Olllon Suppli “0151311233 ; transaCtion bECauge of of the 3 dc Volumes of traffiC C01 SeTiOUS W1 VEgetables 101 \ Produce retailers seldom make purchases at the specialized concentration market because they prefer to buy where they find a complete line of fresh fruits and vegetables and also because sales are made in large lots in auction markets. Therefore, these whole- sale facilities do not suffer the problems of traffic congestion that are brought about by the convergence of a large number of pro- duce retailers on a wholesale market facility. A significant part of the information concerning wholesale produce facilities is con- densed in Table IV-l. Recent Changes in Produce WholesalingFacilities The existing wholesale facility arrangement has recently undergone some important changes. Two new wholesale markets, Valentin Alsina and the 3 de Febrero markets started operating in 1971. The 3 de Febrero has become one of the main wholesale markets in the Buenos Aires Metropolitan Region. Its location, not by chance, in Greater Buenos Aires makes it possible for potato and onion supplies to bypass the Nacional de Papas and Nacional de Hortalizas markets, where physical concentration of first wholesale transactions on these products in the Federal District takes place because of a legal requirement. As a consequence of the operation of the 3 de Febrero Market, other wholesale markets face declining volumes of operation. This in turn implies that the problem of traffic congestion may temporarily be relieved but may become more serious with rising levels of consumption of fresh fruits and vegetables. t < 7131.3 l"-1.--Central h‘nole; ‘ MetrOpolitan _. Type and N859 E“ . Saecialized concentrat :arhets Nacional de Papas Nacional de Hortalizas Saldfas Pron'ncial de Frutas fiigre? . large size Abasto Proveedor Concentration. Torre Salén Mayorista 3 Febrero . llec‘i'a: size Ciudad de Stems -\ Abasto Avellaneda Abasto Horén liniers Abasto Turdera A haste Norte (Bet; Frigoner (San .‘lart Abasto Quilmes (’1 . Szall size Ficchi (Moron? Abasto La hlatanza del llirador? Demarchi fiasco Lonas de 2: limo Vicente Lon ‘(Floridal 'ele: Sarsfield Intendente Grondo: .an‘Femano‘o) aExcludes 106.0: 1()2 TABLE IV-l.--Central Wholesale Markets Selling Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Region of Buenos Aires in 1972. Annual Date of Tonna Land No. Of Sell' . Inauguration ge Area Whole- lng Type and Name Location Sold in m2 salers Hours 1970 I. Specialized concentration markets Nacional de Papas F.D. 1933 209,000 17,000 67 7 a.m.-noon Nacional de Hortalizas F.D. 1950 58,000 12,000 66 7 a.m.-noon Saldfas F.D. 1962 112,000 15,000 35 8 a.m.-noon Provincial de Frutas (Tigre) G.B.A. 1929 15,000 130,000 120 8 a.m.-noon 11. Broad product line markets 1. Large size a Abasto Proveedor F.D. 1891 624,000 22,200 540 2 a.m.-noon Concentracién Dorrego F.D. 1930 263,000 53,217 247 3 a.m.-12 p.m. Sa16n Mayorista 3 de Febrero G.B.A. 1971 n.a. 36,000 170 2 p.m.-10 p.m. 2. Medium size Ciudad de Buenos Aires F.D. 1894 132,000 13,000 150 2 a.m.-9 a.m. Abasto Avellaneda G.B.A. 1930 120,000 6,000 150 2 p.m.-9 p.m. Abasto Mor6n G.B.A. 1961 80,000 5,000 57 2 p.m.-9 p.m. Liniers F.D. 1923 28,000 6,000 80 2 a.m.-9 a.m. Abasto Turdera G.B.A. 1962 25,000 6,000 80 2 p.m.-9 p.m. Abasto Norte (Beccar) G.B.A. 1965 23,000 15,000 58 2 p.m.-11 p.m. Frigomer (San Martin) G.B.A. 1959 16,000 2,500 56 2 a.m.-9 a.m. Abasto Quilmes 0,3,A, n.a. 15,000 4,000 80 2 p.m.-9 p.m. 3. Small Size Ricchi (Morén) G.B.A. n.a 9,000 n.a. 16 n.a. Abasto La Matanza (Lomas del Mirador) G.B.A. 1962 5,000 8,000 80 n.a. Demarchi F.D. 1937 4,000 2,500 20 n.a. Abasto Lomas de Zamora G.B.A. 1958 3,000 1,200 12 n.a. Abasto Vicente Lopez (Florida) G.B.A. 1959 2,000 2.700 18 n.a- Vélez Sarsfield G.B.A. n.a. 1,000 2,700 7 3 a.m -9 a.m. Intendente Grondona (San Fernando) G.B.A. 1939 n.a. n.a. 90 n-a. Valentin Alsina G.B.A. 1971 n.a. 13.500 40 2 a.m —10 p.m~ Sources: CMCBA, Los Mercados Maygristas de Frutas y Hortalizas del Area Metropolitana, Buenos Aires, 1971; CMCBA, Informe Preliminar sobre ComercializaciSfi de Frutas y Hortalizas en Pfiblica Subasta, Buenos Aires, 1971. aExcludes 106,000 tons sold by description in auction market. No new in‘ firms can be eXPe' bility of the new Central Market C0 (wholesale) marke sale transactions Toe issues raised :ar1:et serving th the next chapter. The organ in the Buenos Air market flows will Operational chars “5111’ visualize for fresh fruits 3 J. ”flu ace Market F3 The impo: 103 No new investment in wholesale market facilities by private firms can be expected in the short run because the economic feasi- bility of the new wholesale market to be built by the Buenos Aires Central Market Corporation requires the enforcement of a 1971 law on (wholesale) markets of national interest. This law would make whole- sale transactions illegal outside the projected New Central Market. The issues raised by this decision to have a single produce wholesale market serving the entire Buenos Aires Region will be discussed in the next chapter. Organization and Operation of the Wholesale Produce System The organization of the wholesale produce distribution system in the Buenos Aires Metropolitan Area is a complex one. Produce market flows will be described before presenting the structural and operational characteristics of produce wholesalers in order to more easily visualize the operation of the wholesale distribution system for fresh fruits and vegetables. Erpduce Market Flows The importance of the product flows handled by different types of wholesalers, the importance of transactions between different wholesale operators and between wholesale facilities, and the related structural characteristics of produce wholesaling can be more easily understood with the aid of the diagram presented in Figure IV—Z.1 *_ 1A similar figure was kindly forwarded to the author by Dieter Link, FAO consultant to the Buenos Aires Central Market Corporation. However, modifications were introduced in the structure of wholesaling that are the sole responsibility of the author. 0 wMHZC VLLG~TCG: NWO 0 WHHv CU— A. — CCFs cua vull‘.pufur..l ..:...p- Col (\L (Cut . . 1 CZ_>H:U:~_ Wu~tm cUOL:; ‘1 2.. who—32...: 3:..mOHOSS Hmhmn; EM: Mom HduOF . mELT. MO WQQ>MQ mmCOLU madam 1.31:2. 0073. U2: LODEJZ mCOu VCfihJOFE. 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N~u:~:~ T.3N2:.u .J:U> ~42: ”nu NJLK .,~nv.0.N~\ -No amuwCEAvK‘l I I VI>N .QQMNSN. . 109 .Hnmfl 2H mcoflumhoao womeoum .toaom 8:32:95 .22: .03: movmonoz moH oHnOm mocoflom>homno % mmumoSUCm .fiz Hun mowe=umm .< owm H.HN ow m.wn com m.Hm ONH m.wo owm ommuhom omn a.mm ovw m.Hv on o.N ON m.nm own oummn< muwxnwe mafia posuoem waoam 2 OS 2 I I I I 03 2 8»: 3. 2: om I I I I 02 8 0.223. ma ooH mH I I I I ooH mH ammuahu we Hammfiomz oo 00H 00 I I I I ooH oo mmmfifimupox we Hmcofiumz omm mm omm w ow I I ooH 0mm magma ow Hmcofiuwz muoxems :Ofiumhucoocoo venfifiwfioomm a mHoumhmmo uoxwmz pothz A. .HOSPO we whofifimuwm so mHmeHOrE ad 0HmmmH0r§ ou ucoumnw< :H Hmuok on monm uoflucw: ommccoe won< :mumfiomoupoz mwhfi< monoSm ocp Cw woumuoq mmoh< vexed: ofiwmoaogz CH pea cm mmeoe coo.fiu mnoumnoao Rogue use mnofiflmumm :oozuum cowuacflaumfim woamm new onmfi cw mm a mu muothz onmoHogz J between w structure character volume in by commoc market a: important atomistic ment pra( is under: that way tional r1 line. The volu] by broad the figu tons 501 Fruit pr gerated OperatOr this vol leaving OPEratoI tong are to Super 110 between wholesale Operators because of this particular structure of distribution. Therefore, one of the market’s characteristics is that 1,036,000 tons or 47 percent of the volume introduced by wholesale operators is received either by commodity—Specialized wholesalers located outside wholesale market areas or in specialized concentration markets. Other important characteristics of this distribution system are the atomistic structure of retailing and the traditional procure- ment practices of retailers. Given those characteristics it is understandable that 85 percent Of the volume introduced in that way be sold to broad product line markets where tradi- tional retailers can find in one place a complete produce line. The volume sold to Operators other than traditional retailers by broad product line markets total 640,000 tons. However, the figure presented for the Abasto Market includes 106,000 tons sold in auction and by description by the Argentine Fruit Producers Association. This tonnage moves from refri— gerated warehouses to various broad product line markets and Operators located outside wholesale market areas. Therefore, this volume should be deducted from the previous figure, leaving 534,000 tons sold by broad product line markets to Operators other than traditional retailers. Since 135,000 tons are sold to reshippers and exporters and 125,000 tons to supermarkets and institutional consumers, the actual volume subject tO resale between broad product line markets (’4 would be 2 tons sold markets a! tors local subject tc Only a ha' retailers discourag the diffi enough to fact does moving th tional re the V01uh tons 0T 8 aTEa to c selling 5 Lifliers 3 retailers by the r, to other than the Medium_s 111 would be 274,000 tons. Adding up to this figure the 876,000 tons sold by receivers located in specialized concentration markets and outside wholesale markets to other wholesale opera- tors located in the region we get the total annual volume subject to resale or 1,150,000 tons. Only a half of the Abasto Market sales are made to traditional retailers. It is usually considered that many retailers are discouraged from making purchases in this market because of the difficulties in getting parking space and to get close enough to the market to load their vehicles. However, this fact does not deny the importance of the volume physically moving through the market sold to operators other than tradi— tional retailers, 331,000 tons,1 representing 29 percent of the volume subject to resale. The Dorrego Market sells 80,000 tons or about 20 percent of the volume traded in the market area to operators other than retailers. The Liniers Market selling 40,000 tons to Operators other than retailers. The Liniers Market selling 40,000 tons to operators other than retailers in 1970, may have been substituted in this function by the recently built 3 de Febrero Market, whose present sales to other wholesale Operators may turn to be much more important than the 40,000 tons quoted for the Liniers Market. Medium-size broad product line markets make sales to operators other than retailers, totaling 120,000 tons. '—_ 1This figure excludes the 109,000 tons sold by description by entine Fruit Producers Association. It is 315 included in Table market areaS, 0f and 335,000 tons adjacent to those by traditional IE by other operatOI sale handlers in located outside v 30,000 tons by e) institutional cor aarkets by self—s one-and-a-half m: chases in wholes. 2P ....ount to 1,625, nqlw JMHL‘ o k . .It lI‘OEl SECO‘ “ . 0’31"?“ at handlers The stud 1.4.. ' ~ .rstribution svs Its ma VIIO I ' lune introduce q. tither by commod n . Wit areas or , "rulers. This ‘ t l 'lholesalers tile \Iari OUS bro 112 is It is also possible to appraise from the study of the figures fled in Table IV-4 that 2,550,000 tons are traded in wholesale t areas, of which 2,215,000 tons are sold in wholesale markets 35,000 tons or 13 percent of the volume is sold in stalls located ant to those markets. One-and—a—half million tons is purchased 1ditiona1 retailers and 1,050,000 tons, 41 percent of the volume, er operators, including 640,000 tons purchased by second whole— andlers in markets, 150,000 tons by second wholesale handlers d outside wholesale market areas, 85,000 tons by reshippers, tons by exporters and 125,000 tons by self—service stores and utional consumers. Adding up the 125,000 tons purchased in s by self—service stores and institutional consumers to the d—a—half million tons purchased by traditional retailers, pur— in wholesale markets by operators other than wholesalers would to 1,625,000 tons, of which 850,000 tons or 52 percent would be from secondary handlers and the difference 775,000 tons, from I handlers (Figure IV—2). The study of product flows shows that the produce wholesale rution system in the Buenos Aires Metropolitan Area is very Its main features are: (l) Forty-seven percent of the introduced in the area by wholesale operators is received )y commodity—specialized wholesalers located outside wholesale areas or in product— or regionally—specialized concentration This is the main cause Of transactions between produce ers. (2) The total annual volume subject to resale through ous broad product line markets can be estimated as 274,000 tomS, this figur the area and 24 (3) Large'size t tinguiShEd from tion] markets nc by the lal‘ge "01 of-town bUYETS‘ ooints is much 1 but the informal an estimation of Finally, may conceal subs commodities. Fr greenbelt may i while fruits com two-stage wholes legal Form of 01 holesaling Firr The dist firms by legal i The unincorporat COlmodity specie tom of business to , Ins 0f legal c 5611108 fruits a frui t3 and veget 113 this figure representing 8 percent of the volume handled in rea and 24 percent of the total volume subject to resale, and arge—size broad product line (concentration) markets are dis— ished from medium- and small-size broad product line (distribu- markets not only by their larger volume of operation but also e large volume of sales to large retailers, reshippers and out— wn buyers. The volume of direct receipts from country shipping 5 is much larger in concentration than in distribution markets e information available is not sufficiently detailed as to make timation of those volumes by type of broad product line market. Finally, it is worth noting that the product flow diagram anceal substantial differences in distribution channels by iities. Fresh vegetables produced in the nearby Buenos Aires belt may tend to move directly from farms to final wholesalers, fruits coming from long distances may tend to go through 3 age wholesale system. Form of Organization of aling Firms The distribution of fresh fruit and vegetable wholesaling by legal form of business ownership is presented in Table IV—S. incorporated firm prevails in all groups as defined by broad ty specialization and constitutes the clearly dominant legal business ownership in fresh vegetable wholesaling. Other f legal organization have been adopted by 26 percent of firms fruits and by the 28 percent of firms selling both fresh and vegetables, but by only 7 percent of the firms dealing in TABLE IV-5-"Di Pi Legal1 Form Business Owner Unincorporat ed Single ovmer proprietorshi Partnership Other forms of organization \ Total \ Source: CorpOI Mayori \_ fresh vegetable cooperatives ar Acciones," tha1 capital having as well as some tutes an indicz fruits, since 1 better suited 1 Times of Whole: Wholes: the f0110wing I 114 iv E IV—5.—-Distribution of Fresh Fruit and Vegetable Wholesaling Firms by Legal Form of Business Ownership. Commodity Group Specialization Legal Form of iness Ownership Only Only Both Fruits and Fruits Vegetables Vegetables — - — - Percentage - — — — orporated 74 93 72 gle owner prietorship (54) (70) (36) tnership (20) (23) (36) forms of legal ganization 26 7 28 ‘otal 100 100 100 :e: Corporaci6n del Mercado Central de Buenos Aires, El Censo Mayorista, Buenos Aires, 1971. l vegetables. These forms include incorporated societies, Iratives and a form called the "Sociedad en Comandita por nes,” that defines the relationships between members supplying a1 having limited liabilities and members supplying management 11 as some capital having unlimited liabilities. This consti~ an indication that the larger firms are those dealing in fresh 5, since they have adopted a form of organization that is r suited to operate in the import and export business. of Wholesaling Firms Wholesale operators can be characterized by considering he volume they handle and their supply sources. On that basis llowing classification, that is summarily presented in Figure IV-2 and < product flows die I. may account i a) 33555 in ft of th haul tons per Y tion. cent Area, impor Sales RmOUn in an 600,0 annua 115 ,3 re IV-2 and can be better conceptualized with the aid of the act flows diagram, has been devised as a general guide:1 1. Primagy handlers. Direct receipts from country shipping points account for at least 50 percent of their supplies. a) Receivers. Direct receipts from country shipping points in full carlots or trucklots account for almost the total of the volume they handle. There are seventy important handlers, one-third of them receiving more than 10,000 tons annually and the rest between 5,000 and 10,000 tons per year. They have a high degree of commodity specializa— tion. Their sales distribution is the following: 59 per- cent to secondary handlers in the Buenos Aires Metropolitan Area, 34 percent to buyers from the rest of the country or importers from other countries, and 7 percent to retailers. Sales by auction in the Saldias and Abasto markets2 would amount to 250,000 tons and sales in stalls and warehouses in and outside wholesale market areas would add up to 600,000 tons making a total of 850,000 tons. Average annual sales per receiver are 12,150 tons. m 1Sources: CMCBA, "Estudios del Nivel Mayorista," Unpublished ; CMCBA, "Sintesis del Nivel Mayorista," Unpublished Report; "Estudio de los Mayoristas de Reventa,” Unpublished Report; )OP-MERCASA, "Resultado de una Encuesta Parcial a los Mayoristas tas y Hortalizas," Documento BK, Unpublished Report, June 15, 2 . . . Sales by description take place in two auctions in the Abasto Area. b) 3353; about purch locat maini locat t0 0t retai total sales 5,000 3' W 0f their BUenos A1 a) Jobbe ——___ cent the r trati Or on of th jObbe with 01‘ 3V FeCei {Eggs Clusi 116 ,3 b) Receiver—jobbers, This type of wholesale handler receives about one—half of their supplies from producing regions, purchase 30 percent of the volume handled from receivers located in or outside wholesale market areas and the re— maining 20 percent is purchased from other receiver—jobbers located in or outside wholesale market areas. They sell to other receiver-jobbers, to different jobbers, and to retailers. There are about 800 receiver—jobbers, with total annual sales of 1,160,000 tons, or average annual sales per firm of 1,450 tons. They seldom handle more than 5,000 tons per year. Secondary handlers. Wholesalers buying more than 50 percent of their supplies from other wholesale operators located in the Buenos Aires Metropolitan Region: a) Jobber-receivers. These wholesalers receive only 20 per- cent of their supplies from country shipping points. For the rest, they buy about 40 percent in specialized concen- tration markets and from other first handlers located in or outside wholesale market areas, and another 40 percent of the volume handled constitute purchases from other jobber—receivers. There are about 900 jobber—receivers with annual sales ranging between 700,000 and 800,000 tons, or average annual sales per firm of 833 tons per jobber- receiver. Most sales are made to retailers. b) Jobbers. Wholesale handlers getting their supplies ex- clusively from within the Buenos Aires Metropolitan Area. This jobbe whole in sc jobbe Most whole (3) WhOIESal “thy take title salers other th; I"landleflihile c< hceon ConSignI Traders Signi fil fnnts buSiness thefresh Veget andcommission ofthediffETen areexcluSiVely bv 117 This type of wholesaler makes purchases from receiver- jobbers and jobber~receivers, located either in or outside wholesale market areas and sometimes from receivers and in some cases from producing areas. There are about 1,000 jobbers, with average annual sales of 400 tons per jobber. Most sales are made to retailers. Several categories of wholesale handlers can be distinguished within this type: (1) Small wholesale Operators with market stalls, usually highly Specialized by commodity. (2) Wholesalers Operating in facilities outside wholesale market areas, selling a narrow vegetable line includ- ing potatoes, and sometimes garlic and onions. Some also handle sweet potatoes. (3) Truck jobbers, with no stalls. Wholesale firms can also be characterized by whether or not ke title to the merchandise they handle. Traders are whole- other than producers taking title to the merchandise they while commission wholesalers are operators that handle pro- consignment and charge a fixed commission for their services. significantly outweigh other types of wholesalers in the fresh business and are as important as the commission wholesalers in sh vegetable business (Table IV-6). Commission wholesalers mission traders follow in importance. However, the importance different groups change from market to market. Some markets lusively producers' markets. The Saldias Market is operated oducers' corporation and the Tigre Market, owned by the TABLE IV-6-"m1" in 1 Met: Type of Fin Producers T ‘ a :raders Comission whole: Producers, commi: wholesalers am Producers and tr: Corrission whol e: and producers Commission whole: and traders \ Total \ zouree: Corporm Mavoris: \ a hholesai cnandise thev hm 118 K IV-6.—~Importance of Different Types of Wholesale Firms Dealing in Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area by Product Group. Commodity Group Specialization ype of Firm Only Only Both Fruits and Fruits Vegetables Vegetables — - - - Percentage of Firms — - - - ers 6 7 9 5a 60 34 34 sion wholesalersb 8 36 18 ers, commission esalers and traders 2 2 7 ers and traders 10 3 10 sion wholesalers aroducers 1 3 6 1 ‘ion wholesalers raders 13 15 16 al 100 100 100 Corporacién del Mercado Central de Buenos Aires, El Censo Mayorista, Buenos Aires, 1971. aWholesalers other than producers taking title to the mer- e they handle. b . Wholesale operators that handle produce on con51gnment and fixed commission for their services. Province of Buen nearby Parana Ri markets are domi the Liniers and the Dorrego and There is no inf W of Concentratic It is 1' PTOduce wholes: Structural Cha Vide meaningfu PTOduce Wholes group will be tions and the dealing with and PEars, p0 garlic and or generated by fresh fruits tion of firm the firms in 1 Selling fr I o 2’500 to 4 1 than 1.000 SC Mayorist as 119 vince Of Buenos Aires, is the place where fruit growers of the rby Parana River Delta take their production for sale. Other kets are dominated by producers and commission wholesalers such as Liniers and 3 de Febrero markets. Most wholesale Operators in Dorrego and Nacional de Papas markets are commission wholesalers. ere is no information on the volume handled by each type of firm. §_Of Firms and Degrees Concentration It is important to appraise the degree Of concentration in rduce wholesaling because of the relationship that may exist between *uctural characteristics and market performance. In order to pro- le meaningful figures on the degree of concentration prevailing in >duce wholesaling, the relative firm sizes by product or commodity rup will be analyzed. Table IV-7 shows the relative size of Opera- ns and the degree of seller concentration for Specialized firms ling with six types Of products: bananas, citrus fruits, apples pears, potatoes and sweet potatoes, tomatoes and peppers, and lie and onions. The information presented in Table IV-7 has been erated by the study of a group Of 240 first wholesale handlers in ;h fruits and vegetables interviewed in 1970, including the popula- r Of firms selling 10,000 or more tons per year and samples1 of firms in the strata selling less than 10,000 per year.2 I‘ 1The samples included 90 percent of the firms annually ing from 5,000 to 9,999 tons, 60 percent of firms handling from ‘0 to 4,999 tons per year, 20 percent of firms annually selling 1,000 to 2,499 tons and 10 percent Of the firms selling less 1,000 tons per year. 2SCET-COOP/MERCASA, ”Resultado de una Encuesta Parcial a los ristas de Frutas y Hortalizas,” 22: cit. mCOHCO weaned m00u6uoo u003m . m . e . . ‘ UCd Udahsc c mOOuoEOF c mQOucuOL adOL a 0~QL< muMShL mSRuML mmcwcmm .mmomuu COHMOZ 0:9 OUAEQSC Eekk fiOfiuLQJM quafiuhfil ho XH~GUOF wcwom WEEML UGNHaGfiUOQW XHfiDOEEOU COfiNOK CCHddOlOLUOE MOLm< WCEUDQ 02H 2% m0~2flHON0> UCQ mafifikl SWOMK Cfl MCfiHGWQHOSR N0 QKDHUDKUWII-BI>H QQQ flcm muwsh H mcfiom meuflm wouflaefioomw quvOEEou u :monm :M mewfimmoaonz mo unspeakumuu .B->H u4n.rw ~ LET; L Au :0 .— THSC whh 7.. .n .~ ~4:~.. LUCZ:OZI l r .0. l\a K .-\\~m|~4\.~. .mponmoHoxz co mamcou momH .oum mo gonads omesm>< mm ow mm NNH mm SN 8 m9. 3335 menopo>oum wo Hones: Hence mH mm m no vH mm HH mmH monopo>oum Sufi: r m r H r N r N mooonmEo meHmm mo genes: ommno>< Hm Hm om E 3.. as R mom $0335... meHam mo Hones: kuOH mH mN o mm 0H on HH NmH Hoccomhom monm gqu - m r N u v r m mooonmEo o>Hp renuchHEww mo Hones: ammuo>< M om Nm 5H ov me mum um on meoonmEo o>Hp l ranpwHaHEwm mo Aeneas Hmuoe mN mm mm 0N 0H noH oH on Hoccomnom o>HumnuchHeum :sz . ”mEHHm mo senesz oo . . H mmN ooH NmN ooH mum ooH onm H mmo>onEo mo genes: Hmuoe ooH mmH . ooH mum ooH Hwo ooH mHn H mEHHw mo nomads HmpOH . moHnmuomo> moHnmuemo a e . > e muHsnm . cam muHSHm :pom o >Hco o cho a Hmuob cOHumaHHwHoomm macaw qupoEEou wholesalers ar employees, two The sp Table IV-9. 0 one-half of fr Operate in are broad comrnodit and in both fr handling only both fresh fru fresh fruits c only 4 percent After characteristic Practices and 125 wholesalers are large firms having on the average four administrative employees, two sales employees and three stevedores. The Space occupied by produce wholesalers is presented in Table IV-9. One-third Of wholesalers in fresh fruits and vegetables, one-half of fruit wholesalers and two-thirds Of vegetable wholesalers Operate in areas of less than 50 square meters. By looking at the broad commodity groups, again wholesale firms dealing in fresh fruits and in both fresh fruits and vegetables are larger than those randling only vegetables. Twenty-two percent of firms dealing in 30th fresh fruits and vegetables and 14 percent of firms selling Fresh fruits operate in areas of more than 100 square meters against >nly 4 percent of the firms selling only fresh vegetables. After having discussed the structural and some Operational :haracteristics of produce wholesaling, we will now consider pricing wractices and margins. ‘ABLE IV-9.--Space Occupied by Produce Wholesalers in Fresh Fruits and Vegetables in the Buenos Aires MetrOpolitan Area by Broad Commodity Specialization. Space gccupied :ifii: Veggizgle ggzhe::::hsfigit (m ) Wholesalers Wholesalers and Vegetables - - - - Percentage - - - - > space reported 14 22 16 .49 54 65 39 1-99 18 9 23 ‘0-199 10 3 10 0 and more 4 l 12 Jrce: CMCBA, El Censo Mayorista, EB: cit. Since f Buenos Aires Me was considered whether there w markets. ConSL' tion when estin cluded the cost without raising price different tribution leve' the existence . second area of Wit price dif each transacti sellers and th imPortant to d ”PTChandise ar transactions t A sum: the author dur mPted in ear] Inflation: €51 \ l SCET. Costos de Deg. 126 r ping Practices and Margins Since fresh fruits and vegetables are distributed in the nos Aires MetrOpolitan Area by twenty-three wholesale markets, it considered important from the very start Of the study to know ther there were significant price differences between wholesale kets. Consultant firms to the Buenos Aires Central Market Corpora- n when estimating distribution costs for the existing system in- ded the cost Of moving products through a second wholesale stage hout raising the question of whether this process resulted in ce differentials between the first and the second wholesale dis- )ution levels.1 Therefore, a main research task was to determine existence of price differentials among wholesale markets. A >nd area Of research was to determine whether there were signifi— : price differences within wholesale markets. Since the price of . transaction is established by bargaining between buyers and ers and there are no market reports on prices, it was considered rtant to determine whether one or several prices for the same handise are determined in the same physical space where the sactions take place, namely a wholesale market. A survey of wholesale markets was personally undertaken by author during January and February 1972. The survey was inter- :d in early March because the government, in an effort to curb .tion, established fixed marketing margins by decree. Thus, the LR 1SCET-INTERNATIONAL/MERCASA/INTECSA/SIE, ”Estudio de 105 5 de Desabastecimiento," Unpublished Report, Julio de 1971. anormt 0f info: The survey cov' usually consid' and 3 de Febre‘ markets, usual Ciudad de Buen These tive weeks per with holiday5~ holidays prove months, genera toward summer Argentine Frui and Friday mor transactions 1 Prices were re and 3 de Febre avoiding to re same procedure prices during started Opera‘ the early hou‘ the Abasto, C: Operation dur: aPPles and pe mg prices be 127 >unt of information produced was less than that originally planned. 2 survey covered three large broad product line produce markets rally considered to be concentration markets--the Abasto, Dorrego l 3 de Febrero markets and four medium-size broad product line ’kets, usually considered distribution markets—~the Avellaneda, ,dad de Buenos Aires, Liniers and Beccar markets. These markets were surveyed every other day in two alterna— e weeks per month. The starting week was selected to avoid weeks h holidays. This turned out to be the right procedure because idays proved to be strong demand shifters during these summer ths, generating strong population migrations out of Buenos Aires ard summer resorts. Auction prices were first recorded at the entine Fruit Corporation for apples and pears on Monday, Wednesday Friday mornings. These were considered to be base prices for the sactions taking place during the following twenty-four hours. es were recorded during the afternoon for the Dorrego, Avellaneda 3 de Febrero markets selecting the hours of greater activity, ding to record prices during the starting and closing hours. The procedure was followed with the rest Of the markets, recording es during the first hours of the night at the Beccar Market that ted operations at 7:00 P.M. (summer time schedule) and during early hours Of the following day, between 4:00 and 7:00 A.M. at basto, Ciudad de Buenos Aires and Liniers markets that were in tion during the night. Most prices recorded were those of s and pears that were the most suitable merchandise for compar- rices because of being graded and subject to a greater package standardizatio lots specifyin Prices of peac grading and th that the sizes same actual si relevant comp: M test the null ences between Prices for ea Variety and Ill two-way analy prices and an results ‘15 pl The r httween comes only two cas< rejeCtEd at 1 that the ave: than in cone. Ther Mite diffEr reason is til of a distrib COme fI‘Om th 128 standardization. Prices for apples and pears were recorded for case lots specifying variety, brand, quality, type of box and fruit size. Prices of peaches and prunes were initially recorded but the lack of grading and the great number of varieties and brands and the fact that the sizes showed on the boxes did not necessarily represent the same actual size for different packers made it impossible to have relevant comparisons. Price differences between markets.-—The main objective was to :est the null hypothesis that there were no significant price differ— ences between concentration and distribution markets. Average daily )rices for each different fruit size Of a given quality, brand, box, Variety and market, were pooled by type of market and subject to a :wo—way analysis of variance. Ten tests were made, five using apple urices and another five using pear prices. An example of test esults is presented in Table IV-lO. The null hypothesis of no significant price differences etween concentration and distribution markets was not rejected. 1n nly two cases (using apple prices) could the null hypothesis be ejected at the 0.10 level of confidence. However, it must be noted hat the average price was slightly lower in distribution markets ran in concentration markets. There are two main reasons to explain why no significant rice differences were found between different market types. One :ason is that concentration markets perform to some extent as part ’ a distribution system. A significative volume of apples and pears rme from the producing areas to refrigerated warehouses in the TABLE IV-10.-- m 1. Average Pr Fruit Size 88 100 125 163 Average \ 2' AnalYSis 0: Source 0 Variatio: \ Between ma- BetWeen si ETTOr TOtal \ Ciuda fOr t *Signi 129 lLE IV-10.—-Average Prices in Argentine Pesos Paid for the Box by Produce Retailers for Different Sizes of Apples of the Red Delicious Variety, Brand "A", "Commercial" Quality, by Type of Broad Product Line Market. r Average Prices by Type of Market and Fruit Size Market Type Fruit Size Large Size Medium Size Avera e (”Concentration") ("Distribution") g 88 27.33 27.72 27.52 100 30.00 29.67 29.83 113 36.50 34.25 35.37 125 34.00 40.00 37.00 163 32.00 34.50 33.25 Average 31.97 33.23 32.60 \nalysis of Variance Results Source of Degrees of Sum of Mean F Variation Freedom Squares Square letween markets 1 3.98160 3.98160 0.80415 ietween sizes 4 121.76788 30.44197 6.14830* Error 4 19.80513 4.95128 Total 145.55462 e: Survey of the Abasto, Dorrego, 3 de Febrero, Avellaneda, Ciudad de Buenos Aires, Liniers and Beccar markets conducted for this study, January and February, 1971. *Significant at the 0.10 level of confidence. Buenos Aires l4 markets1 and l tant producers pears to commi reason is that counts when hi to permit secc transportatior and still serj small case 101 We cor reasonably efj tinEllish betwe that the resuj there are no 5 distribution I paid fOr smalj Howeve reduced moon lots for Whicl We and Na: ferences betw. oased on info- 130 1! Buenos Aires Metropolitan Area are sold by description in auction narkets1 and bought by wholesalers in all markets. Also, some impor- :ant producers not selling through the auction markets send apples and rears to commission wholesalers in several markets. The other main reason is that secondary wholesale handlers get important price dis- :ounts when buying in large lots. Price discounts may be large enough :0 permit secondary handlers to pay for intra—urban handling and :ransportation costs and other secondary wholesale handler's costs .nd still sell at prices that are about the same as those charged for mall case lots in the large produce markets. We conclude that the pricing system for apples and pears is easonably efficient in the sense that retailers are able to dis- inguish between different combinations of sizes and qualities and iat the results of the statistical tests show that in most cases rere are no significant price differences between concentration and .stribution markets for narrowly defined products when quoting prices Lid for small single case purchases. However, given the limitations imposed on the analysis by the duced amount of information gathered and by the small size of the ts for which prices were quoted, these preliminary results using ale and pear prices were supplemented by the study of price dif— ~ences between wholesale markets for citrus fruits. This study was ed on information provided by an important citrus producer who 1About half of the volume of apples and pears consumed in Buenos Aires Metropolitan Area is sold by description in auction :ets. distribUted M The same meTCh each market. kets in exact1 by variety and market because Average daily analysis of Va from September different peri analyzed to te However, given those varietie September that Analys in Table IV-ll ficant price d markets at the 9.05 level of analyzed are 5 representing 6 C xerenees betwe :tributed his production among several broad product line markets.1 : same merchandise was delivered to one commission wholesaler in :h market. The different fruit sizes were sent to the various mar— s in exactly the same pr0portion and the prices were reported daily variety and type of box. These prices were pooled by type of ket because shipments were not delivered to each market every day. rage daily prices by type of market were subjected to a two-way lysis of variance. The information covered a four—month period n September 2, 1971 until December 30, 1971. Each variety covers ferent periods of time. Price variations between shipments were lyzed to test the existence of daily or weekly price fluctuations. ever, given the nominal prices used, this test was restricted to ;e varieties coming to the market during the months of October and :ember that showed a stable general price level. Analysis of variance results for citrus fruits are summarized ‘able IV-ll. Only two out of seventeen cases studied showed signi- nt price differences between concentration and distribution ets at the 0.01 level of confidence and none is significant at the level of confidence. Four cases or about 23 percent of the cases Vzed are significant at the 0.10 level of confidence and the rest asenting 65 percent of the total, show nonsignificant price dif— rces between concentration and distribution markets. Average 1The three large—size markets-~Abasto, Dorrego and 3 de r0——were included as well as the medium-size--Liniers, Turdera, r and San Martin——and the small size—-Valentin Alsina and Villa 11i—-making a total of nine markets. TANE IV-ll.-- Level 0 Significa K 0.01 0.03 0.10 Nonsignificam UlO Total \ \\ 0.01 0.05 0.10 \‘ . ‘ ‘ 310 Tom Source; Prit 132 SLE IV-ll.—-Summary of Significant Price Differences Between Markets and Between Shipments for Citrus Fruits. Between Markets Number of Cases Si::¥:%C::Ce Oranges Grapefruits §::§:;:::s’ Lemons Total 0.01 2 - — _ 2 0.05 - - — ~ - 0.10 2 1 l — 4 significant at .10 3 3 3 2 11 Total 7 4 4 2 17 Between Shipments 0.01 - - 1 - 1 0.05 — - l - 1 0.10 — — — l l ignificant at 10 4 2 l — " Fotal 4 2 3 l 10 :6: Price data provided by an important citrus~producing firm. prices are big significant pr found. Thus, thesis of no : distribution 1 rejection of With reflect price several weeks My one case dence while a It is “Id Citrus f; box, We are : FTom twenty- Products, on of the Mill and distribu cases aVerag Were “0 addi the 0'05 1e\ Significant ””389 prlc distributior Res- Spite of so 133 prices are higher in distribution markets in the two cases where significant price differences at the 0.01 level of confidence were found. Thus, when citrus fruits are selected to test the null hypo- thesis of no significant price differences between concentration and distribution markets we get further empirical evidence that prevents rejection of the null hypothesis. With respect to price differences between shipments that reflect price fluctuations for periods ranging from a few days to several weeks during the months of September and October of 1971, only one case out of ten was significant at the 0.01 level of confi— dence while another was significant at the 0.05 level of confidence. It is worth noting that when narrowly defining apples, pears and citrus fruits by varieties, brands, qualities, sizes and type of box, we are in fact generating a large number of different products. From twenty-seven analyses of variance correSponding to those products, only two or 7.4 percent of the tests, permitted rejection 3f the null hypothesis of no price differences between concentration 1nd distribution markets at the 0.01 level of confidence. In these :ases average prices were higher in distribution markets. There rere no additional statistically significant price differences at he 0.05 level of confidence and in only six cases differences were ignificant at the 0.10 level of confidence. In these six cases verage prices turned out to be higher in concentration than in istribution markets. Results of the analysis of variance tests show that, in >ite of some volume subject to resale, price differences between concentration a fruits selected account for abc and vegetables. sense that the) fact that the r twenty-seven d' the broad prod markets, and t between the di that the prici Spite of havir Only one broar The q* to all fresh Cannot becaus sense. Moreo Particular Cp markets) name allction marke lots, Provid: HOWe aPple ’ PEar Sible t0 hat 134 :oncentration and distribution markets are not significant for the fruits selected for the study. Apples, pears and citrus fruits account for about 20 percent of the total consumption of fresh fruits ind vegetables. Therefore, these results are also significant in the :ense that they are valid for an important section of the market. The ’act that the merchandise has been so narrowly defined as to generate .wenty-seven different products, that the market sample included all .he broad product line concentration markets and eight distribution larkets, and that in general no significant price differentials etween the different types of markets are found, leads us to conclude hat the pricing efficiency is in this respect remarkable and that, in pite of having so many wholesale market facilities, there is in fact nly one broad market for these products. The question remains of whether these results can be extended 0 all fresh fruits and vegetables. The answer is that they probably annot because there is no information to support a statement in that ense. Moreover, other fresh fruits and vegetables do not enjoy the articular characteristics that distinguish the apple, pear and citrus arkets, namely, grading, some degree of package standardization and action markets where large volumes are sold by description in large )tS, providing in this way some degree of price transparency of cansactions. However, the degree of pricing efficiency found in the ‘ ' t it would be pos- )ple, pear and Citrus fruit markets suggests tha . ' t -ble to have pricing efficiency extended to other produce marke s with grading, reports or 52 PIES survey of whc differences c interrupted 1 box price di Febrero Mark. (Table Ill-12 between A835 between A50. the Dorrego and 38. Aver against the market. The it Can be se eXtremEIY 1c fOund to be for apples ; ficant at tl ”me empirir more stantial G . a 135 ‘l ith grading, package standardization and either a system of market eports or sales by auction or both. Price variations within markets.--A second objective of the urvey of wholesale markets was to observe whether there were price ifferences within markets. Again the fact that the survey had to be iterrupted reduced the amount of information available. Average per )x price differences for apples ranged between A$l.lS at the 3 de abrero Market and A$3.00 at the Avellaneda and Beccar markets ”able IV—12), with prices per box of apples more frequently ranging :tween A$35 and 45. Average price differences for pears ranged tween A$O.S7 at the Ciudad de Buenos Aires Market and A$2.40 at e Dorrego Market, with prices commonly fluctuating between A$28 d 38. Average price differences within each market were tested ainst the null hypothesis of no price differences within each rket. The results of the "t" tests are presented in Table IV—l2. can be seen that for some markets the number of observations is :remely low. Price differences within wholesale markets were .nd to be nonsignificant at the 0.10 level of confidence, except apples at the Dorrego Market where price differences were signi— ant at the 0.02 level of confidence. The tests presented provide a empirical evidence of a reasonable pricing efficiency for the a standardized product markets. Gross Margins.--Price spread margins were determined for es and pears. These products, in addition to the advantage of TABLE IV-12.- Market Abasto Dorrego 3 d8 Febrero Avellaneda Beccar Ciudad de BU e. Aires \ Source: Slim! Ciud. for . hte: Number in the *Slgn- 136 BLE IV~12.——Average Price Variations in Argentine Pesos and "t" Values Obtained When Testing Price Differences for Apples and Pears Within Wholesale Markets. Apples Pears ”A" Brand All Brands Market Average Price "t" Average Price "t" Variation Variation $A $A Lsto 1.25 0.642 1.57 1.332 (a) (7) rego 2.00 3.463* 2.40 1.153 (6) (14) e Febrero 1.15 0.930 0.86 1.476 (20) (10) llaneda 3.00 1.473 1.17 0.867 (6) (6) :ar 3.00 2.000 -— -- (4) lad de Buenos res 2.19 1.164 0.57 1.152 (16) (7) ce: Survey of the Abasto, Dorrego, 3 de Febrero, Avellaneda, Ciudad de Buenos Aires, Liniers and Beccar markets conducted for this study, January and February, 1971. Number in brackets corresponds to the number of observations in the sample. *Significant at the 0.02 level of confidence. presenting a h and vegetables receivers char Aires MetrOPO] Market, where tion of their firms in stall The b: apple and pea: .‘larket during prices for sun narrowly defi: during the su period.1 The actual gross retailers, a out-of-town b A130, an acco APTOportion “Did ripenir Price Tables lV-13 anall'Sis of \ and Si 25 WeI‘G tor allllles a1 \ l R8f< 137 p senting a higher degree of standardization than other fresh fruits vegetables, are sold by description in two auction markets. Large eivers channel the bulk of their apple and pear sales in the Buenos es Metropolitan Area through the Argentine Fruit Corporation Auction ket, where sales take place in lots of 50 to 200 boxes. A propor— n of their sales, not greater than 30 percent, is sold by the same ms in stalls located in wholesale markets. The basic data to estimate price spread margins were records of 1e and pear prices at the Argentine Fruit Corporation Auction et during the period of January—February 1972 and the average ces for small sales to retailers in wholesale markets of the same rowly defined merchandise. These average prices were estimated ing the survey of wholesale markets that took place during the same iod.l The price spread margins estimated in that way overstate 1al gross margins because, even when most sales are made to small Lilers, a proportion of the sales is made to larger retailers and tof—town buyers who get price discounts on those larger purchases. ., an account has not been taken of produce losses and spoilage. oportion of pear sales is made at marked-down prices because of d ripening and deterioration. Price spread margins by quality and size are presented in as IV—13 and IV—l4 for apples and pears, respectively. A two-way Isis of variance showed that price differences between qualities :ize were significant at the 0.01 and 0.05 levels of confidence .pples and nonsignificant for pears at the same level of 1Refer to page 126. TABLE IV-13.--l l l 1 Quality "Elegido" "Comercial" 'Tomun” Average \— TABLE lv—14 .- M \ QUality \ ”Elegidou .tomercialn "COmUnH AVerage 138 kBLE IV-13.--Average Price Spread Margin Between Auction Prices and Prices Made by Wholesale Operators Selling Fresh Apples, Variety Red Delicious, Brand "A” in the Buenos Aires Metropolitan Area. T L [g Gross Margins Size Quality Large Medium Small Average legido" 18.05 12.13 19.95 15.08 bmercial” 27.89 24.04 32.58 27.77 Dmun” 24.18 18.59 25.95 22.51 erage 21.29 15.32 26.22 19.57 SLE IV—l4.--Average Price Spread Margins Between Auction Prices and Prices Made by Wholesale Operators Selling Fresh Pears, Variety Williams, Brand "A" in the Buenos Aires Metropolitan Area. Gross Margins and Economies of Mass Buying Size Quality Large Medium Small Average egido” 17.58 11.93 12.66 13.27 nercial“ 20.00 12.39 9.75 11.55 run” 9.77 11.55 15.40 11.91 ‘age 13.92 11.92 11.89 12.29 ce: Price records of sales by description at the Argentine Fruit Corporation Auction Market for apples and pears and survey of wholesale market facilities (January-February, 1971). confidence. T distinction be apples but do with wholesale not so importa The dc facilities shr obsolete by t] COh‘lpleteness . ability of so then could be Operation of borhoods is i nonmarket par another 10Cat freed for all One ( distribution number of tr: DI‘OUght ab 011' that 47 perc politan Area Markets or b clalizat‘mn‘ 139 confidence. These results suggest that wholesalers and retailers make distinction between different combinations of qualities and sizes for apples but do not make such differences for pears. In—depth interviews pith wholesalers confirmed that differences in quality and size were not so important in pears as in apples. Summary and Conclusions The description and analysis of the existing wholesale physical acilities shows that even though most wholesale market facilities are bsolete by the criteria of locational and traffic suitability, the iompleteness and flexibility of physical facilities and the avail— ;bility of support facilities, the operational conditions of some of .hem could be improved with additional investments. However, the rperation of some wholesale markets in highly populated central neigh— orhoods is imposing increasing external diseconomies on market and onmarket participants. These operations should be transferred to mother location. In this way, valuable pieces of land would also be reed for alternative uses that might have a higher social value. One of the alleged major flows of the existing wholesale .stribution system for fresh fruits and vegetables is the excessive lmber of transactions between wholesale operators. This is largely ought about by a structure of distribution whose main feature is at 47 percent of the volumes introduced in the Buenos Aires Metro— 1itan Area is received either in commodity—specialized concentration rkets or by large receivers who are located outside wholesale market eas. These large firms also present a high degree of product Spe- alization. This structure forces a degree of commodity specializatio place a group large retaile line must mal< finding it in ient because larger receix The s duce wholesai Wholesale f1: number of 181j Commodity gr. market Share Auct provide some Significant Within thOSe apples, pear pricing em extEnded to that other I workable pr]. Standal‘dizzn 140 :5 specialization by secondary wholesale handlers, who do not find in one place a group of large receivers selling a broad product line. Also, large retailers or out—of—town buyers looking for a complete product line must make purchases at the large—size broad product line markets, finding it impossible because of lack of sufficient time or inconven— ient because of higher procurement costs to directly deal with the larger receivers. The structural and some operational characteristics of pro— duce wholesaling indicate that there is a large number of small wholesale firms of the family type of business operation and a small number of large, highly organized firms within each major product or commodity group. These large receivers, who may have a sizable market share, must be aware of their mutual interdependence. Auction sales by description of the more standardized fruits provide some price transparency of transactions. Furthermore, non- Significant price differences between broad product line markets and within those markets were found to be the predominant situation for apples, pears and citrus fruits, showing a reasonably satisfactory Pricing efficiency. Though these results probably cannot be readily extended to other fresh fruit and vegetable markets, they suggest that other product markets could be better organized and have a more workable pricing efficiency once product grading and packaging standardization are adopted and an effective communication system is ' f instituted. The case study of apples and pears and the analy51s O price data f: pricing effi: The that there In primary rece procurement the developn tated in thi ' was; ’5; ..._z 141 price data for citrus fruits also indicate that it is possible to have pricing efficiency in a decentralized wholesale facility arrangement. The information presented in the last two chapters points out that there may be important external economies in having the large primary receivers operating in one or a few wholesale markets. The procurement practices of large retailers and out-of—town buyers and the development of broader product line wholesalers could be facili— tated in this way. The fruits and v been present the largest 8,350,000 1. Since 1947’ region Combi trate in am ill the Ride: horizontau: The Sell’ices br. per CElpita a Significa f0? new who populatim CHAPTER V ISSUES CONCERNING THE JUSTIFICATIONS FOR THE PROJECT The main characteristics of the marketing system for fresh ruits and vegetables in the Buenos Aires Metropolitan Region have zen presented in the preceding chapters. Buenos Aires is one of re largest urban conglomerates in the world. The population, 350,000 inhabitants in 1970, has grown very rapidly, particularly nce 1947, due to the natural rate of growth of population in the :gion combined with domestic migratory flows that tended to concen— ate in and around the Federal capital. The city expanded vertically the Federal District, where a dense urban structure developed, and rizontally in Greater Buenos Aires. The increase in the demand for food and for food marketing rvices brought about by a fast growing population, rising levels of r capita income and expanding market area required the addition of significant number of food retail outlets. This created a need r new wholesale produce markets that, following the pattern of Julation settlements, were built in Greater Buenos Aires, making a >wn of wholesale market facilities around the Federal District. 142 Howe lacked space to satisfy 1 the Federal spread into became highl 19605 when 1 urban highw; substantial PTOduce mari Also, as th Crease, the Buenos Aire Pro 1"Etailers w Closest bro their 0pm V Shin Ther Stores faci sections. The VeEEtableS tion market sma11 numb: Side whOIes carving 01 143 p However, the wholesale markets located in the inner city lacked space for an orderly, planned expansion of market activities 0 satisfy the increased demand for fresh fruits and vegetables in he Federal District. Thus, market and market-related activities pread into the area surrounding these wholesale facilities, which ecame highly congested. This problem was made worse during the 9605 when private car transportation rapidly expanded while the rrban highway network remained underdeveloped. As a consequence, :ubstantial social costs are imposed by the operation of wholesale »roduce markets in highly populated central city neighborhoods. 150, as the operational costs of wholesale market facilities in— rease, the cost of marketing fresh fruits and vegetables in the \ uenos Aires Metropolitan Area will be rising over time. Produce retailing is characterized by a large number of small etailers who make produce purchases several days a week at the losest broad line produce wholesale market. Many retailers use reir own vehicles to haul the merchandise they buy to the retail rip. There is also a small number of self—service retail food :ores facing difficult procurement problems in their produce :ctions. The wholesale distribution system for fresh fruits and :getables is a complex one. There are four specialized concentra- on markets and nineteen broad product line markets. There is a all number of large produce receivers, most of them located out- e wholesale market areas, and a large number of small wholesalers rying on business in wholesale market stalls and in old residences adjacent to v brought about volume of trz that alleged] greatly reduc there is lit1 The l concentrating fruits and v: characterist: sale markets 5316 market 3f design (w, We the ab. Structural c‘ 3f the Chang nodes of tra adjust Spont This ficatlon Of benefits ass 355633ng it ObjectiveS S the “0’18th E. .mally, it 144 p jacent to wholesale markets. These structural characteristics have ought about two undesirable consequences: (1) there is a substantial lume of transactions between primary and secondary wholesale handlers at allegedly results in high distribution costs which could be eatly reduced in a better organized distribution system; and (2) ere is little price transparency of transactions for most products. The Buenos Aires Central Market Corporation's Project of -ncentrating in one location all wholesale transactions in fresh uits and vegetables implies that the structural and locational aracteristics of produce wholesaling, namely, the number of whole- le markets (anj, the locational and traffic suitability of whole— le market facilities (Wlt) and their completeness and flexibility design (ch) are the policy instruments that would be used to lve the above-mentioned problems. This solution assumes that ructural changes in produce retailing would take place independently the changes to be introduced in produce wholesaling and that the les of transportation of produce purchases made by retailers would ust spontaneously to the new situation. This chapter will discuss several issues concerning the justi- ation of the project. One issue is how broadly the costs and efits associated of the project are going to be considered in ssing its economic feasibility. A second issue is whether the ctives set up to justify the project can be achieved solely by construction and operation of a central wholesale market. 11y, it is necessary to consider alternative solutions to the same problem cost alterna The public agenc ment, the Pi of Buenos Ai Wholesale me new wholesal to the horde land area is 5316 market future expar In 1 would have ; fish market meXed Slip] Streets, 24 Stage of de' facilities, The Capita Cos Operating C em“ by r spoilage th DOSsible‘ 145 h ame problems to find out whether the project constitutes a lower ost alternative. The Project The Buenos Aires Central Market Corporation, an autonomous ublic agency created in 1967 by joint action of the national govern— ent, the Province of Buenos Aires and the Municipality of the city f Buenos Aires, has the responsibility of building a new central holesale market to serve the Buenos Aires Metropolitan Region. The ew wholesale facility will be located in Greater Buenos Aires close ) the border with the Federal District (Figure VI—l). The total and area is 549 hectares, of which 210 will be devoted to the whole- 1 tle market and the rest, 339 hectares, will be kept in reserve for rture expansion of the market and the market—related activities. In the first stage of development, the wholesale facility tuld have a fresh fruit and vegetable market area (18.5 hectares), a sh market (0.9 hectares), an administrative center (2 hectares) and nexed support facilities. Parking lots would cover 39 hectares; eets, 24 hectares; and railroad sidings, 30 hectares. In a second ge of development, a refrigerated warehouse, banana-ripening ilities, flower and egg market facilities would be added. The main direct costs of the new wholesale facility are ital costs (investment in land, new facilities and equipment) and rating costs. The main direct benefits are the income flows gen— ted by rents and fees and the reduction in product losses and ilage that new handling methods and storage facilities will make sible. The would be: I 30 fish who] license rigl gas and sert dollars per (such as pr< perfect div: utilities a] nanager and The according tr ment of sevt Prices, an ; greater pri- that holdin farmers Con government . Tel'eals tha mark” DErf \ 1 P . Ad FOJeCtO Me ~lres, Marz del 2C0 M 3L. 146 The main income sources of the projected new central market would be: (1) rents charged on 1,200 produce wholesale stalls and 50 fish wholesale stalls, estimated at $4.3 million per year; and license rights on banks, parking lots, restaurants and cafeterias, gas and service stations and other business, estimated as one million dollars per year; (2) fees on general services of perfect divisibility (such as product storage); and (3) a fee on general services of im- perfect divisibility, mainly the expenditures in general services, utilities and the salaries paid to the board of directors, the market manager and his staff and Unspersonnel for several market departments.1 The Operation of the new wholesale facility would permit, according to the Buenos Aires Central Market Corporation, the achieve- ment of several objectives including a reduction in retail produce prices, an increase in farm prices of fruits and vegetables and a greater price transparency of transactions.2 These objectives show hat holding food prices down and improving the income position of armers continue to be, as in the past, a matter of concern for the overnment. However, the decision to build a new wholesale market eveals that after previous failures trying to directly regulate arket performance,3 the attempt will now be made to influence prices 1Adolfo E. Buscaglia, ”Analisis de la Factibilidad Financiera, rojecto Mercado Central de Buenos Aires,” Informe Preliminar, Buenos ires, Marzo 1969. 2Corporacicin del Mercado Central de Buenos Aires, Projecto glgMercado Central de Buenos Aires, Mayo 1970. 3 . L. J. Chiodo et al., 22: Cit. and costs by the conceptu: mentality an works. Uncle reductions v wholesalers more capital sible to si approach to sale handle Ihe project iect ratio: actions w0' buYers and Wholesale through us side a new saling in wholesa1e T for fresh marketing can beg \ 147 and costs by modifying the structure of produce wholesaling. However, the conceptualization of the project reveals both an anti—middleman mentality and some particular beliefs on how the marketing system works. Under the new central market scheme, it is argued that cost reductions will be brought about by the elimination of most secondary wholesalers in fresh fruits and vegetables and by the adoption of more capital intensive handling techniques, which would make it pos— sible to significantly reduce the number of porters. The project approach to the problem assumes that the services of secondary whole- sale handlers are unnecessary costs to the distribution process. The project also tends to disregard unemployment problems. The pro- ject rationale also anticipates that price transparency of trans- actions would be achieved by physically concentrating products, buyers and sellers in one wholesale facility. Such concentration of wholesale transactions in the new central market would be expected through new legislation1 that would make wholesale transactions out— side a new central market illegal. This rule would apply to whole- saling in an area defined by the "perimeter of defense” of the new wholesale facility. The decision to build and operate a single wholesale market for fresh fruits and vegetables and the implicit beliefs on how the marketing system performs raises several economic and policy issues. The Economic Feasibility of the Project The assessment of the economic feasibility of the project can be approached in two ways: (1) by a simple profitability 1 a . Ley de Mercados de Interes Nac1onal, 1971. analysis, co without maki on market an of internal costs and be Usin ices paid by the project fees to cove than they ar the second a wbolesalers TEtaiiers an Alternative1 Onto Pl‘Oduce difffirence w distribution Producers Or The Project than tritiCal iss Olltside the the mm A AdminiStrati 148 analysis, comparing the internal costs and revenues of the project without making any attempt to quantify the effects of the new facility an market and nonmarket participants; and (2) by expanding the analysis if internal costs and revenues to include also the indirect and social :osts and benefits brought about by the project. Using the first approach, the rents and fees on general serv- ices paid by produce wholesalers constitute the expected benefits of the project when its feasibility is assessed. However, rents and fees to cover other overhead costs may become higher in the project than they are in the existing system. If this is the case, when using the second approach the difference becomes a cost to be borne by wholesalers in the first place, but that can easily be passed onto retailers and consumers as higher produce prices charged to them. Alternatively, the higher direct market facility costs can be passed into producers by paying them lower produce prices. Therefore, this difference would constitute a marginal cost that is imposed on the [istribution system and would be finally borne either by consumers or Iroducers or both. The possibility that overhead costs become higher in the roject than they are in the existing system may be one of the more ritical issues. Since produce wholesale operations will be illegal utside the Buenos Aires Central Market in an area including most of ie Buenos Aires Metropolitan Region, the Buenos Aires Central Market iministration will be in a position to monopolistically fix rents +d fees to cover even an inefficient market administration. H0w the New Cen broildef Cri ma)’ still C indirect 0P terion of e that the pr better Off to be Consi tion C05“ {3) trams?" whOleSale f the market The labor inten: by the pm) to employ C' may not redl tires Metro] where these range Of all be undertak' factor ptOP‘ done, a 5181 149 However, even if rents and other overhead costs are higher in the New Central Market than they are in the existing system, under the broader criterion of economic feasibility, the new wholesale facility may still constitute a lower cost alternative if it helps to reduce indirect operational costs and social costs. Thus, the broader cri- terion of economic feasibility takes into account the external effects that the project would bring about, making some market participants better off and some others worse off. The indirect operational costs to be considered are: (1) handling costs; (2) intra—urban transporta— tion costs brought about by transactions between produce wholesalers; (3) transport costs for retailers making produce purchases in the new wholesale facility; and (4) transport costs for truckers arriving at the market to off-load. The substitution of capital intensive handling techniques for labor intensive methods is both an economic and social issue raised by the project. Although the new wholesale facility has been designed o employ capital intensive produce handling techniques their adoption ay not reduce handling costs because factor prices in the Buenos ires Metropolitan Area differ from factor prices in the countries Jhere these techniques are now being used. Since there is a broad ‘ange of alternatives to improve handling efficiency, studies should e undertaken to determine which handling techniques give the optimum actor proportion given the factor prices in the area. Unless this is one, a significant number of porters would lose their jobs and would e made worse off, without providing an economic justification for uch a decision. 1— An in asl,150,000 system. It we introduced it resale becau: markets or b- outside whol wholesale 0p Aires Centre reduction 0- stage whole ing alterna ness of 1a} in large 1( 311d devote ward, \rert ing in Sma Character handicap 1 issue is r all. The \ COStOS d Julio 19 150 An important volume of fresh fruits and vegetables, estimated as 1,150,000 in 1970, moves through a two-stage wholesale distribution system. It was found that 876,000 tens, or 40 percent Of the volume introduced in the Buenos Aires MetrOpolitan Region, was subject to resale because Of being received in either Specialized concentration markets or by large commodity-specialized receivers who are located outside wholesale market areas, having as regular customers other wholesale Operators.1 The structural solution proposed by the Buenos Aires Central Market Corporation is based not only on the drastic lreduction Of wholesale markets but also in the elimination of second- stage wholesale handlers.2 This point Of view can be analyzed focus- ing alternatively on first and second wholesale handlers. The busi— ness of large receivers, producers, packers and importers, is dealing in large lots. They provide a ready market for producers and shippers and devote their economic, financial and commercial capacity to back- yard, vertical coordination of the produce distribution system. ESell— ing in small lots to a large number of retailers will change the :haracter Of their Operations, may increase their Operating costs and Landicap their role as market coordinators. However, the crucial ssue is whether secondary wholesale operators can be eliminated at 11. There are 1,900 secondary wholesale firms, representing 68 per- ent of the total number of produce wholesaling firms. The average 1Refer to Chapter IV, pp. 103-13. 2SCET INTERNATIONAL/MERCASA/INTECSA/SIE, "Estudio de los >stos de Dasabastecimiento," Unpublished Report, Buenos Aires, llio 1971. secondary l lhere is a sale firms political ' when secon traditiona take over supplying bringing F may be una functions secondary truck-jobt retailers though mar thereby In; completeb lletropoli. ices woul. from the I of fresh is less e travel fa Chase at f Costs are h’hOleS 81 e econdary wholesale firm is composed of two owners and 0.6 employees. here is a question as to whether such an important group Of whole- ale firms can be eliminated at once without creating a social or a Olitical problem. But focusing solely on economic analysis, even hen secondary wholesalers could perhaps be eliminated in their raditional way of operation, somebody in the market will have to ake over their functions and provide the services that they are upplying at present. Their main functions are bulk-breaking and ringing produce closer to the retail shop, and since large receivers ay be unable without major changes in operation to take over the unctions Of secondary wholesalers, it is highly probable that some econdary wholesalers would continue to provide those functions as ruck-jobbers. They may make produce purchases on behalf Of licensed etailers and bill for their services as freight charges. Therefore, rough many secondary wholesalers could be put out Of business (and rereby made worse Off), secondary wholesale handlers would not be >mpletely eliminated because, given the size of the Buenos Aires :tropolitan Area and the structure Of produce retailing, their serv- :es would be required by those retailers who are located far away om the new wholesale facility and purchase a relatively low volume fresh fruits and vegetables. Many retailers may find out that it less eXpensive to be supplied by truck-jobbers than be forced to avel farther and deal with large specialized wholesalers to pur~ ase a few produce bundles. Actually, how retailers' procurement sts are going to be affected by the reduction in the number of >lesale markets is one of the main issues to be considered. It transportat wholesale m to make pur portation c tailers go of nineteer average wel facility 5: the market Significan duction in Will have t0 the ext creases i; need more working c: truck-j0b' Compl‘ehen T beCause e to re1y C retailers gr°up of 152 It is very likely that produce retailers will have higher ransportation costs and will spend more time traveling in a single holesale market system than in the existing system because of having 0 make purchases at a more distant market. The increase in trans- ortation costs may be substantial. Most of the 23,000 produce re- Lilers go shopping 4.4 times per week (on the average) at the nearest f nineteen broad line produce wholesale markets. Even if retailers' Lerage weekly purchasing frequency decreases in a single wholesale acility system and even when the time retailers spend in getting into ie market, finding parking Space and getting out of the market may be Lgnificantly reduced in the new wholesale facility, the drastic re— 1ction in the number of wholesale markets from nineteen to only one .11 have a major impact in retailers' procurement costs. In addition, > the extent that retailers' average weekly purchasing frequency de- 'eases in the project, other costs must increase: retailers will ed more storage space, larger transportation vehicles and more rking capital. Also, they might be more willing to be supplied by uck-jobbers, whose operating costs must also be included in any mprehensive assessment of the project costs. Thus, a large number of small retailers may be made worse off :ause either their procurement costs would rise or they would have rely on truck-jobbers to get produce supplies. However, large :ailers may be better off because of finding in the same place a lup of large wholesalers being able to provide more variety and ,sistent product quality. Tru Area would portation c Soc number of r traffic c01 wholesale : sanitary c actions, pIOject ar Wholesale qUestion c be achiev: market an: 0f produc actually Nine Elm time the Kirk, WI 5% 153 Truckers bringing produce into the Buenos Aires Metropolitan Area would also be made better off, because of having reduced trans- portation costs due to less congestion and waiting to off-load.1 Social benefits that would make better off a significant lumber of market and nonmarket participants include: (1) reduced :raffic congestion and littering of the streets surrounding the rholesale market facilities that would cease Operating; (2) improved Eanitary conditions; and (3) greater price transparency of trans— lctions. Social benefits would also arise if the objectives of the lroject are achieved and produce prices become lower in a single ‘holesale facility produce distribution system. However, there is a uestion on whether the objectives set up to justify the project can e achieved solely by the construction of a new central wholesale arket and whether the legislation that would force the concentration f produce wholesale transactions in the new wholesale facility can :tually be enforced. The Attainment of the Objectives of the Project The objectives of the project were restated in 1972 in the >llowing way: (1) to benefit consumers by facilitating competition; 3) to make it possible for producers to directly supply the Buenos 1Truckers' waiting time was reduced by 50 percent in the ne Elms Market in the London Metropolitan Area compared with the me they spent in the old Covent Garden Market area. See J. H. rk, "The Economics of Moving Covent Garden: A Reply," Journal of gicultural Economics, XXIII, No. 2 (1972). Aires Metro distributio Hon constructic programs w: cost of th the projec include tl OI tageous t: and shoul ing funct marketing sale marl t0 promo Producin Also, St fresh c( this WO' what ca market duCe d: mere d \ )' PI‘O We. 154 .Aires Metropolitan Region; and (3) to bring about a more efficient ldistribution and price formation system. However, these objectives cannot be achieved solely by the [construction of a new central market. Investment in complementary programs will become necessary to attain the stated objectives. The 1cost of these complementary programs should be included as costs of the project or, more properly, the analysis should be expanded to include the costs and benefits of the whole marketing program. On the supply side, producers will probably find it advan— tageous to better organize the assembly and shipping of their product and should receive Special assistance if they are to take over market- ing functions so to effectively coordinate their production and marketing activities with the Buenos Aires MetrOpolitan Region whole- sale market. A program of this type could start when the time comes to promote product grading and additional marketing services in the producing regions such as hydrocooling, washing, brushing and waxing. Also, supply diversion to processing and alternative uses other than fresh consumption could be considered for some products. However, this would become a national program by its scope, going far beyond what can be achieved by the construction of a new central wholesale market in Buenos Aires. On the demand side, consumers can benefit from improved pro- duce distribution either in the form of lower retail prices or a more desired set of services being provided to them. Though a small ____ l ., Corporac1on del Mercado Central, Consurso de Antecedentes 4Pr0puestas de Evaluacion Economica y Programacion Financiera, uenos Aires, 1972. segment of home delive additional for lower 1 to bring al fruits and costs, and retail lev: b)’ wholesai form of 10x Th1 retail pri. must reduc. fresh frui‘ This would produce re' project sh. analysis, Hm is Possibl. fruits and in the sho. the main bl imPOSed 0n markets in 155 segment of the market for fresh fruits and vegetables may require home delivery and an increasing segment may be willing to pay for additional services such as washing of potatoes, the greatest need is for lower product prices. The necessary conditions for the project 0 bring about a reduction in the prices consumers pay for fresh ruits and vegetables are: (l) to reduce intra—urban distribution :osts, and (2) to foster price competition both at wholesale and retail levels so that reduced distribution costs are not internalized )y wholesalers or retailers but are passed on to consumers in the Form of lower prices. Thus, the achievement of the objective of reducing produce 'etail prices imposes on the project an important constraint. It ust reduce the direct and indirect operational costs of marketing resh fruits and vegetables in the Buenos Aires Metropolitan Region. his would be a necessary but not sufficient condition to reduce roduce retail prices. Therefore, the economic feasibility of the roject should not be assessed by the simple internal profitability ialysis. However, when all external effects are taken into account, it : possible that the direct and indirect costs of marketing fresh 'uits and vegetables remain the same or may even increase slightly the short run and the project still be feasible. In this case, e main benefit would arise from a reduction of the social costs posed on nonmarket participants by the operation of wholesale rkets in highly populated urban neighborhoods. Moreover, taking longer~run view, marketing costs in the new distribution system might rise system as An legislatio and vegeta produce wl under pub? 23,000 pr< making pr: Wholesale New Centr cost of e Cular cir I include ; Such a f because would be Central the IOCE (Wlt) a1 51°“ Vat 156 might rise less rapidly than would marketing costs with the existing ,system as Operating conditions worsen. Another issue concerns the means and the cost of enforcing legislation making compulsory that all wholesaling of fresh fruits land vegetables take place at the New Central Market. Even though produce wholesalers, retailers and tranSporters would have to Operate under public license, it may be extremely difficult to control some 23,000 produce retailers to find out where and from whom they are making produce purchases. But even if it were possible to prevent wholesale transactions in fresh fruits and vegetables outside the New Central Market (within the market perimeter of defense), the :ost Of enforcing a law that has been enacted to meet these parti— 2ular circumstances must be added to the cost Of the project. Alternative Wholesale Facility Arrangements A study of the economic feasibility Of the project should nclude a comparison with alternative wholesale facility arrangements. uch a feasibility assessment of the project is highly recommendable ecause of the size of the investment, almost $43 million, that ould be committed to the construction and Operation of the New antral Market. The project would use the number of wholesale markets (an), 1e locational and traffic suitability of wholesale market facilities (It) and their completeness and design flexibility (ch) as deci- On variables to achieve its objectives. However, even within the nge of potential solutions provided by these variables, only one alternatii A large nt provide a and to met potential distribut: 1. C1 Several a 5316 faci alternative, a single wholesale market facility, has been considered. large number of different wholesale arrangements can be devised to rovide a solution to the problems that have developed in the past d to meet future demand for produce wholesale services. Such otential solutions can be included in one Of the following wholesale istribution systems: 1. Centralized concentration and distribution, as it has been planned in the project; 2. Centralized concentration in one main wholesale market (such as the one in the project) and decentralized distribution through several wholesale markets; 3. Decentralized concentration and distribution in a system of several markets both receiving and distributing fresh fruits and vegetables. everal alternatives can be considered within the decentralized whole- ale facility arrangement: 1. To continue without a new wholesale facility and to expand and improve the operation of the existing wholesale markets; 2. To close the Abasto and the commodity—specialized concen- tration markets in the Federal District and to build a new wholesale market, leaving the other existing markets in Operation; 3. Same as #2, except for the additional requirement that produce wholesalers be located within designated wholesale markets; Oll Th select the with the p tics of ti the area bution (N system th tables. tion (N1) of employ retailing of trans; [3) The s by the p: actiODS Metropol almost d designs tration. and emp] fresh f: BUEnQS l 158 4. To close most wholesale markets, build a new one and leave only a few of the existing markets in operation. The main factors that must be taken into account in order to select the alternative wholesale facility arrangements to be compared ith the project and the existing system are: (1) The characteris— ics of the Buenos Aires Metropolitan Region, namely, the size of he area (A), the size of population (N) and its locational distri- ution (N1), and the factors external to the food distribution ystem that will affect the future demand for fresh fruits and vege— ables. The expected changes in population (N) and pOpulation loca— ion (N1), in levels of per capita income (Y/N) and in the structure if employment (E) must be considered. (2) The structure Of produce ‘etailing (Rs), retailers' transportation costs (Rp) and the mode lf transportation of produce purchases made by retailers (Tm); 3) The size of investment (I); and (4) Social costs brought about y the problems of price formation and price transparency of trans- ctions (Cs). Projections show that the population of the Buenos Aires tropolitan Region, that was 8,350,000 inhabitants in 1970, would most double during the period 1970-2000, unless the government signs and enforces policies to prevent such population concen- ation. Trends in population growth and expected changes in income d employment suggest that the future increase in the demand for esh fruits and vegetables will largely take place in Greater enos Aires rather than in the Federal District. Th land area: gestion re portation operation traveling market su] Pi produce p‘ Wholesale must be g per unit to ShOp i volume pt make smal tration r Prices a1 not offs, that won giVEn th COStS im exPeCted Greater high tre 159 ‘v The Buenos Aires Metropolitan Region constitutes an extensive land area: its diameter averages thirty-seven miles. Traffic con- gestion resulting from a tremendous expansion of private car trans- portation and from expansion of the bus services makes difficult the )peration of large wholesale markets in the inner city and increases :raveling time and vehicles Operating costs of produce retailers and iarket suppliers. Produce retailers constitute the bulk of customers making wroduce purchases in wholesale markets. Therefore, how the different *holesale facility arrangements would affect their procurement costs ust be given particular consideration. Retailers' procurement costs er unit purchased will be a direct function of the distance traveled 0 shop in a given wholesale market and an inverse function of the olume purchased. There is a large number of produce retailers that ake small produce purchases per trip. Even when a single concen- ration market may have the advantages of somewhat lower produce vices and of Offering a wider produce line, those advantages would at offset the increase in the procurement costs of many retailers lat would have to make purchases at a more distant wholesale market, .ven their small volume of purchases and the high transportation ists imposed by traffic congestion. Taking into consideration the size of the region, the pected increase in demand for fresh fruits and vegetables in eater Buenos Aires, the structure of produce retailing and the gh transportation costs that result from traffic congestion, the ader may be prone to conclude that, within reasonable bounds, produce di of wholesa bekwtwi advantage: the pTOCU‘ eliminate market pa populated and reduc retailer: ments ma to be co number 0 ability and fie) conside; do not . can be TOle in tion we in a fit c0Sts l WhOlES Wholes 160 produce distribution costs must be an inverse function of the number of wholesale markets. However, the number of wholesale markets must be kept within limits because concentration of transactions also have advantages. The number of wholesale markets must be reduced to meet the procurement needs of large retailers and out—Of—town buyers, to eliminate or significantly reduce the social costs imposed on non— market participants by the operation of wholesale markets in highly populated neighborhoods, to facilitate the process of price formation and reduce the cost of instituting an effective communication network. The size of the investment and the potential impact on retailers' procurement costs of different wholesale facility arrange— ments may be the most important criteria for selecting alternatives to be compared with the project and the existing system when the number of wholesale markets (an), the locational and traffic suit- ability Of wholesale market facilities (Wlt) and their completeness and flexibility of design (ch) are the only variables taken into consideration as policy instruments. Some wholesale markets that do not face major problems of traffic congestion and whose Operation can be improved by marginal investments could continue to play a role in a decentralized wholesale facility arrangement. This solu— tion would make it possible to significantly reduce the investment in a new wholesale facility. Chapter VI will present a comparison of some operational costs between the existing system, the project and an alternative wholesale facility arrangement that will keep some of the existing wholesale markets in operation. costs of t Existing s arrangemen Of buildin the twenty Present. PmduCe w} markets‘ I? I‘eady bee Sale mark. following markets t Ollfiration \ l Chdl‘aeter CHAPTER VI A PRELIMINARY COST COMPARISON OF ALTERNATIVE WHOLESALE FACILITY ARRANGEMENTS A preliminary assessment of the investment and operational ;ts Of two new wholesale facility arrangements as compared with the .sting System will be presented in this chapter. One alternative rangement is the Buenos Aires Central Market Corporation's Project1 building a new central wholesale market that would substitute for : twenty—three produce wholesale markets that are in Operation at :sent. The other wholesale facility arrangement is a decentralized pduce wholesale distribution system of either four or five wholesale kets. The reasons for considering a decentralized system have al- Ldy been discussed (Chapter V, pp. 157—61). The selection of whole— e markets to be included in this arrangement was approached on the lowing basis: (1) An appraisal was made of the existing wholesale kets to decide whether some of them could be selected for continued ration; (2) It was assumed that a new wholesale market would be 1Refer to Chapter V, p. 145, for an explanation of the main racteristics of the Project. 161 built to sa produce who as a specia as a first markets, a sensitivity the number 80 tion becau efficienc) investmen‘ 1. Tl examlne( 162 built to satisfy the demand that exceeds the combined capacity of those produce wholesale markets that would continue in operation and to serve as a Specialized primary receiving market; and (3) It was reasoned that as a first approximation to determine the "optimum” number of wholesale markets, a four vs. five market systems could be examined to test the sensitivity of the direct and indirect costs estimated for changes in the number of wholesale markets. An Appraisal Of the Existing_Wholesale Public Market Facilities Some wholesale markets have been selected for continued opera- ;tion because they either meet minimum requirements of Operational efficiency or their Operating conditions can be improved by marginal investments, according to the following criteria: 1. The locational and traffic suitability (Wlt) that will depend on: (a) the accessibility to highways and the availability of rail connections, and (b) the readiness of access to the wholesale Stalls and of exit from the wholesale facility; 2. The completeness and flexibility Of physical facilities (ch), taking into account the availability of Space for parking, display, unloading Of vehicles, product storage and for eXpansion of wholesale facilities; and 3. The availability of support facilities including some services such as public restrooms, restaurants, bank Offices and facilities for motor vehicle servicing. When all the twenty—three produce wholesale markets are xamined, most of them are Obsolete by the criteria selected to judge their opera bmmpmm stalls is, expansion ; few market limited pr have a pho and for ve ducts are motor vehi market ar: A resulting into the is a coma arrangeme and Othe] There arl handling to W t NOT is i Withom re810m. almost 1 Situati. 163 heir operating conditions. Access to most markets is poor and no oad product line market has rail access. Access to the wholesale alls is, in general, extremely difficult. There is no space for ansion and storage for empty boxes is a serious problem. Only a w markets have parking lots. Wholesale stalls have room only for mited product storage and diSplay. A very low proportion of stalls ve a phone line. Some markets have separated sections for fruits d for vegetables but in most cases wholesalers selling similar pro- cts are scattered throughout the markets. Loading and unloading of tor vehicles usually interferes with the flow of traffic in the rket area. All of the above~mentioned problems result in lost time and sulting high costs. Excessive time in reaching the markets, getting to the markets, unloading and loading, getting out of the markets, a common element of cost both for suppliers and buyers. The poor rangement of the wholesale stalls increases the time that retailers d other buyers must spend in making purchases. The problems of produce handling deserve Special emphasis. are are no elevated platforms at truck-bed level and no mechanical idling of the merchandise. However, in this case it is not possible say that the lack of mechanical handling results in a higher cost. is it possible to suggest the adoption of modern techn010gy hout considering the factor endowment and the factor costs in the ion. Unemployment is a continuing problem in the area reaching ost 8 percent in July, 1972. To some extent this is a transitory uation; however, capital is and will continue to be for some time a scarce r be advocat and employ OI the opera1 markets ii are the II Though ac serious t an import to the wh motor veh market tr place by recently Willingm Emblem ‘ of Whole by retai time in Saldias enoueh f impollt ar \ dESCpim 164 scarce resource and adoption of labor-saving technology should not advocated without a careful consideration of its impact on costs d employment. On the basis of a very limited investigation, it appears that e Operation of two out of three large-size broad product line rkets in the BAMA could be improved by marginal investments: these e the recently built 3 de Febrero Market and the Dorrego Market. ough access to these markets is not ideal, it does not result in rious traffic congestion and it can be improved by the pavement of . important avenue in the case of the 3 de Febrero Market. Access the wholesale stalls is fairly good and loading and unloading of tor vehicles can take place without excessively interfering with rket traffic. Both have parking space and expansion can take ace by removing the neighboring slums. The Dorrego Market has a :ently built section that is vacant and there is available space and llingness by the wholesalers to build another new section. The main >blem of the 3 de Febrero Market could be to rearrange the location wholesalers within the market so as to minimize purchasing time retailers and to stimulate price competition. Other wholesale facilities that could be kept in use for some 1e in an evolving distribution system are the Beccar and the dias markets. The Beccar Market is particularly well located, far »ugh from the projected New Central Market so as to provide an ortant service to the retailers in its area of influence by 1Refer to Chapter IV, pp. 96-99 for a more detailed cription of these wholesale markets. bringing t] is fairly ; and the me carts. Th property d town Bueno close to t the market markets he Th the WhOIe 0PeIation FBbrero a has been market p1 PTOject). Sale mar} Speciali; The 10Ca Operatio- Sale mar advantag facility 16S ringing the merchandise much closer to them. Access to the market 5 fairly good but access to the inner wholesale stalls is narrow nd the merchandise has to be hauled to retailers' vehicles in small arts. The Saldias Market, being located on a national railroad roperty does not face the traffic problems that characterize down- own Buenos Aires. Access to the market is good since the market is lose to two main avenues that border the River Plate. Access into me market does not present problems. Both the Beccar and the Saldias arkets have reasonably adequate parking facilities. A Comparison of Operational Costs of Alternative Wholesale Facility Arrangements Two decentralized wholesale facility arrangements including 1e wholesale markets of the Existing System selected for continued »eration were designed. Alternative I includes the Dorrego, 3 de ‘brero and Beccar markets and a new wholesale market, whose capacity .5 been estimated to be about one-half of the capacity of the rket projected by the Buenos Aires Central Market Corporation (the OjeCt). Alternative II includes, in addition to those four whole— le markets, the Saldias Market that would be converted from a ecialized concentration market into a broad product line market. 3 location of these markets is presented in Figure VI—l. Assessing erational costs for two alternatives of four and five produce whole- .e markets in the decentralized wholesale facility scheme had the Vantage of providing a measure of the sensitivity of this wholesale :ility arrangement to the addition or subtraction of a wholesale ‘ket. Because of the low capacity of the Saldias Market (140,000 166 ~/.\.\._\ \, I]. .v /\ ,/ \ ESCOBAR /\ \ \ \ \ - ( / / \‘ / \ /] / \. .‘ \ v \j \_,/~ \ N \ . \ \‘ i \ \3’)\ / SAKFERNANDO \. PILAR } \v/ \ Be/Acgr’. \..- \ / s ISIDRO . \ GRAL. / //’ \/"‘.\ / \\ SARMIENTO \/,z s \\/ . LOPEZ ‘~ / \ / \MARTIN \ \e/ \ /\\ 3 \ \\ \\/ \Ke \ ’ ‘M MORENO / Feb. Saldaas r / ‘\ I / /\ MORON f4? 3 de Febrero I // ‘\ \. __ / \ / AVE ANEDA .——-~-/'/? \\/ New \\ / ./ \\ MERLO 1 Wholesale .//\\ LANUS \/ QUI MES // \ // Facility 4- \ / \ _/' \ ( / / \ L. V\‘-‘ \ / / \" \\/«_/-J // \\DEZAMORA//\\ // \\ M. PAZ \\ MATANZA / \ / )/ \\BERAZATEGUI l / / \ ALMIE. \ \ \ \) / \ BROWN \ \ \ \ I \ \ . \, \\ , E.ECHEVERRIA \ /’ / ./ \ \ / \ /”(F.VARELA / ,/ V‘\ >*/ \ x’ \ / / \ / \ \ / /' \ // \ //\/\/ \ \\, \v < / \ " GRA.LAS HERAS / \ / / / . / \ \ \ ./ \ // \\3 >’ \ o / / / \ § / / ~\ \\ / \ .) \ // CANUELAS 1 s .VICENTE / \ < I /,/ .\\ : _/' ' /'\,/ \ \ /. Figure VI-l.--Location of Produce Wholesale Markets in Alternatives and II. ource: CMCBA, Los Mercados Mayoristas de Frutas y Hortalizas del Area Metropolitana, Buenos Aires, 1971. tons per costs dif significe between 1 costs of cussion : investme: sale mar' Will als imposed distribr 0f dist] in the I Invebe¢ would a: COSts a Chases Wi11 be peTSpec facilit m, $3, exPEDSe POSSibj 167 tons per year) and of its nearness to the Dorrego Market, Operational :osts differences between Alternative I and II were not found to be significant. For that reason and to facilitate the comparison Jetween the different wholesale facility arrangements, the Operational :osts of Alternative II will be omitted from the forthcoming dis- :ussion and presented below when considering the sensitivity of .nvestment and operational costs to changes in the number of whole- :ale markets in a decentralized wholesale facility arrangement. Cost comparisons of different wholesale facility arrangements rill also include the Existing System, since one of the constraints mposed on the Project (and as well on the Alternative) is to reduce istribution costs with reSpect to the Existing System. It has not been possible to make a comprehensive estimation f distribution costs so as to give answers to all the issues raised n the preceding chapter. HoWever, direct and some indirect costs ave been estimated making it possible to assess how the Project Duld affect market facility costs, produce retailers' transportation )sts and the time produce retailers spend traveling to make pur- iases of fresh fruits and vegetables. The estimation of those costs .11 be presented and then discussed as a means of gaining some :rspective of the cost implications of alternative wholesale .cility arrangements. IEFt Market Facility Costs Direct market facility costs include rents and other overhead penses (utilities, maintenance, watchmen, etc.). It has not been ssible to isolate rents from other overhead costs for most of the existing onion) pa private < costs. admly meter to the whol associat Buenos i it poss: as $31. multipl costs 0 the Exi HOh‘eVQ] \ Figure Stocki Aires‘ 168 existing markets.1 The national markets (potatoes and garlic and onion) pay a fee per ”bulto."2 The Abasto Market is owned by a private corporation that charges a rent covering all market overhead costs. The 3 de Febrero Market is a wholesaler cooperative charging a daily fee per stall. The Dorrego wholesalers pay a fee per square meter to the Municipality of Buenos Aires3 imputed to the rent of the wholesale stall and another fee per "bulto" to a wholesalers' association to cover other overhead costs. A survey Of second wholesale handlers undertaken by the Buenos Aires Central Market Corporation generated information making it possible to estimate average rental costs in distribution markets as $31.25 per square meter of commercial area.4 This figure was multiplied by the aggregate commercial area to estimate total rental costs of distribution markets. Rents and other overhead costs of the Existing System add up to $4,784,691 (Table VI-l). Rents have been estimated as $4,285,714 in the Project.5 However, this figure includes rents from fish wholesalers. These 1Location of existing wholesale markets is shown in Figure IV-l. 2A box or bag, independent of its size and weight. 3The Dorrego Market is a city-owned and administered market. By commercial area is meant space for display, selling and stocking of the merchandise within the wholesale stall. SAdolfo E. Buscaglia et al., ”Mercado Central de Buenos Aires, Anélisis Econ6mico y Programacién Financiera de la InversiOn,“ Vol. I, Buenos Aires, Enero 1970, p. 80. TABLE VI-l “=1: Concentr Marke Nacional c Nacional < Hortali: Saldias Abasto Pr S.A. Dorrego 3 de Febr Distribu‘ Market: 57,760 m 31.25 Tota ratio ft markets. distrib1 distrib' 169 ABLE VI«1.-~Estimated Annual Rents and Other Overhead Costs of the Existing Wholesale System. ,_* \— Concentration Direct Market Distribution Commerc1al Markets Fac1lity Costs Markets Arga CU$S) (m ) acional de Papas 73,250 Ciudad de Buenos Aires8 2,500 acional de Hortalizas 57,295 Avellangda 2’500 ’ Liniers 2,760 aldias 125,000 Beccar 8,500 basto Proveedor Abasto Mor6n 2,600 S.A. 1,576,000 Turdera 2,000 orrego 333,466 Frigomer 1,300 de Febrero 814,680 Quilmes 2,500 Abasto La Matanza 7,250 2’979’691 Demarchib 1,150 istribution Lomas de Zamorab 1,380 Markets Vicente L6pezb 1,240 7,760 m2 x2 vé1ez Sarsfieldb 1,240 31’25 $/m 1’805’000 Valentin Alsinab 6,210 Total $ 4,784,691 RicciC 2,815 Intendente GrondonaC 2,815 Tigred 9,000 Total 57,760 JTCG: SCET-INTERNATIONAL—MERCASA-INTECSA-SIE, ”Estudio de los Costos de Desabastecimiento, 92: 913:5 CMCBA, Los Mercados Mayoristas de Frutas y Hortalizas del Area Metropolitana, OR: 333:? Municipality of the City of Buenos Aires, CMCBA and concen- tration market administrators. aRetail area previously deducted. bEstimated as 46 percent of total area. This was the average :io found for the Avellaneda, Mor6n, Turdera, Frigomer and Quilmes “kets. CEstimated as the average commercial area of small-size tribution markets. dThis is a producers' market that has been included within the tribution markets only because of common estimation procedures. rents have justed to S wholesale 1 Other overl 1.5percen‘ costs were Ma five whole that the c the invest being able bYthoser recalcula- incOrpora area. Re iTltroduce could be per Squa] \ prol'ecto of 350 0 Values. Small” proPorti Slenific 81d‘v‘l‘ed. 103 Mm TécniCa Brasi 11: 170 rents have been deducted from the previous figure that has been ad— justed to $4 million in order to make valid comparisons with other wholesale facility arrangements which do not include fish wholesaling. Other Overhead costs of the Project will be covered by a fee of l to 1.5 percent Of the value of final transactions in the market. These costs were estimated as $1,333,000.1 Market facility costs for Alternatives I and II, a four and five wholesale markets system, respectively, were estimated assuming that the construction of a new wholesale market would require half of the investment committed to the construction of a wholesale facility being able to supply the whole Metropolitan Region.2 Volumes traded by those markets of the Existing System remaining in operation were recalculated. The capacity of the Dorrego Market was increased by incorporating the new section already built and an eXpanded parking area. Restrictions on the volume that these markets could trade were introduced, considering that reasonable levels of Operating efficiency could be reached up to a physical annual productivity of twenty tons per square meter of commercial area in the Dorrego, Beccar and Saldias 1Adolfo E. Buscaglia, "Analisis de la Factibilidad Financiera. Proyecto Mercado Central de Buenos Aires," op: cit. An exchange rate of 350 old Argentine pesos per dollar has been used for 1968 and 1969 values. 2It was assumed that investment in a new wholesale facility smaller than the market projected by the CMCBA would be in the same proportion as the wholesale facility capacities, since there are no Significant economies of scale within the size range usually con- sidered. See J. R. Lasuén, ”Criterios Generales de PlaneaciOn de los Nuevos Mercados Mayoristas," trabajo presentado en la Conferencia Técnica sobre Planeamiento y OperaciOn de Mercados de Concentracién, Brasilia, Octubre 18—22, 1971, p. 9. markets a de Febrer operate w and twent V retailers becomes c muemnc wholesale PSI Squat t0 the ir to rise 1 change at rent will Costs f0] mated f0] is Preset Overhead 3 Systems < that the have abOI \ baSed 0n and high. 171 markets and thirty tons per square meter of commercial area in the 3 de Febrero Market.1 It was assumed that the new market would start to operate with a physical annual productivity ranging between fifteen and twenty tons per square meter of commercial area. Volumes were reallocated among these markets assuming that retailers would minimize traveling time. However, when a market becomes crowded, some retailers having a second best alternative would make purchases in another wholesale market. It has been assumed that wholesalers at the Dorrego Market will continue to pay the same fee per square meter and other overhead costs will increase prOportionally to the increase in the annual volume traded which has been projected to rise from 263,000 tons to 456,444 tons. Rental costs would not change at the 3 de Febrero Market, while overhead costs other than rent will increase 50 percent at the Beccar Market. Market facility costs fortimenew wholesale market would be 50 percent of those esti- mated for the Project. Market facility costs for a four-market system is presented in Table VI-Z. Rents amount to $3,387,873 and other overhead costs amount to $1,397,609. Market facility costs for the different wholesale distribution systems considered are presented in Table VI—3. It can be observed hat the Existing System and the four market (Alternative I) system ave about the same total overhead costs and both are lower cost lternatives than the Project, either in absolute terms or taking 1The higher annual productivity of the 3 de Febrero Market is ased on the assumption of a higher rate of turnover of merchandise nd higher coefficient of Space used because of having more space for ustomer attention and vehicle circulation. nf..gh,e_rr_-——r$7 -,—- :~ ' 4 TABLE VI' ~—_ Dorrego 3 de Feb Beccar New Cent Tota \— SOUrce: 172 TABLE VI—2.-—Rents and Other Overhead Costs of a Four Wholesale Markets System (Alternative I). Ma ket Rents Other Overhead Costs 1‘ U$S U$s )orrego 550,597 185,205 5 de Febrero 57o ,27éa 244 ,404b 3eccar 267,000 135,000 lew Central Market 2,000,000 833,000 Total 3,387,873 1,397,609 I:_ Source: Municipality of the City of Buenos Aires; Beccar and 3 de Febrero Market Administrations; own estimations for the New Central Market taking as a basis rents and other overhead costs in the CMCBA's Project as reported by Adolfo E. Buscaglia, "Analisis de la Factibilidad Financiera. Projecto Mercado Central de Buenos Aires," 92: cit. aEstimated as 70 percent of total market facility costs. bEstimated as 30 percent of total market facility costs. WpflSHnw SmocHnw HOW WHCQEOOCNFFd‘ QHGMWwHCrtfi #Cmcrnnwhwkwc luvc V¥UCC >kw~whfih~ #QVTFG: #LkaCll Nlh\— QNQQL. 173 .N-H> paw HwH> mofinme .EmmH ”meadow N.®v w.mv w.Hv mmwbu .vamE QHNSUW. you umoo wmmnpo>o omm.moH NmH.AoH www.4HH mmev mesa HanosmEEOu www.mwe.a mmo.mmm.m Hmo.ema.a Amway mpmou pmo:Ho>o Hence aoo.amm.s mmo.mmm.s Amaze mpmoo eaoawo>o soepo mam.awm.m ooo.ooo.4 Amaze memos smegma mmpoxamz mammoHonz vv onmoHMMMxMMWCHw fiumanoua< pooMOHm one Empmxm mcfiumflxm .moa< cmpwaoaoupoz mohw< mocm3m esp cw moHnmuomm> paw museum gmmau you mucm50mcapu< mammofiogz acouommflo co mpmou spafifioaa omega: agenda--.m-u> msmaa total ove Project a Existing P the Proje Corporati transport markets . 1 from 4.4 tion, it frequenc; retailer make pro Portatio ShOp in Wt the distamce purchasi 174 otal overhead costs per square meter. Total overhead costs of the roject are 11 percent higher than total overhead costs of either the xisting System or Alternative I. etailers' Transportation Costs Retailers' tranSportation costs in the Existing System and in he Project have been estimated by the Buenos Aires Central Market orporation.1 These estimations are to be compared with retailers' ranSportation costs in a decentralized system of four wholesale arkets (Alternative I). While retailers' average purchasing frequency was reduced rom 4.4 times a week to only three times a week in the Project situa- ion, it has been assumed a four times a week average purchasing requency in Alternative I. The rationale Of such assumption is that etailers would reduce the average weekly number of trips they do to ake produce purchases in order to compensate the increase in trans- Drtation costs brought about by the increased traveling distance to op in a more distant wholesale market. Moreover, it is assumed ,at there is an inverse relationship between the increase in the stance traveled to a wholesale facility and the average weekly rchasing frequency of produce retailers. :ansportation Costs of Produce failers in Alternative I Reallocation of produce volumes purchased at different rkets.--It was necessary to reallocate retailers' produce purchases [—— 1SCET-INTERNATIONAL-MERCASA—INTECSA-SIE, "Estudio de los stos de Desabastecimiento," 22: cit. among tl consumpt the basi tailers be purcl would m: they wor that so: retaile would m explici side th estimat politan downtow 0f the i3 pres be trax mated ( Table j the Fe‘ thnal 175 '3 among the four markets of Alternative I. A homogeneous average annual consumption of 250 kgs.1 per capita was assumed for the region. On the basis of this assumption and data on pOpulation, number of re— tailers and number and type of vehicle by district,2 the volumes to be purchased at each market were estimated assuming that retailers would minimize traveling time, and, in case one market became crowded, they would move to the second best alternative. It was also assumed that some of the retailers located at the Quilmes district and all the retailers located at the Florencio Varela and Berazategui districts would make purchases at the new La Plata Market. This market was not explicitly included in the Alternative because of being located out— side the Buenos Aires Metropolitan Region. Traveling times were estimated by the National DevelOpment Council (Office for the Metro- politan Region). This agency produced a map of isocrone lines to owntown Buenos Aires. The distribution between the various markets f the volumes of fresh fruits and vegetables purchased by retailers 5 presented in Table A1. Weekly distance traveled by type of vehicle.-—The distance to e traveled by retailers from each district to each market was esti— ated on a 1:40,000 scale map and multiplied by a 1.4 correction 1This figure is based On the INEC estimations presented in able II—6. 2Data on the number and type of vehicles by district within e Federal District could not be found and was assumed to be propor- onal to the number of retailers located at each district. 176 factor to convert straight line distances into ”real" distances.1 The number and type of vehicle by district being known, they were assigned to each market taking into account the proportion of re- tailers making purchases to each market (Table A2). The "real" distance between each district and each market was multiplied by four, the weekly average purchasing frequency, to estimate weekly distances traveled and the figures obtained multiplied by the number of each type of vehicle located in a given district and making pur- chases at a given market. One-way weekly distances by type of vehicle and location of purchases were in this way determined. On the basis of these figures, total annual distances traveled by type of vehicle and average distance traveled by type of vehicle were estimated (Table A3). Average transportation costs by type of vehicle.--The average variable costs by type of vehicle estimated by the CMCBA were re- tained. However, average fixed costs were recalculated taking into account the different annual distances traveled. Average total costs by type of vehicle were estimated by adding average fixed costs and average variable costs. Results are presented in Table A4. Total retailers' transportation costs.—-The distance traveled by each type of vehicle was multiplied by the corresponding 1This correction factor, usually estimated by transport :ngineers, had been employed by the Buenos Aires Central Market iorporation to estimate distances traveled by produce retailers in ,he Existing System and in the Project and was also employed in .lternative I in order to make valid comparisons. 177 average total cost to determine total transportation costs by type of vehicle. Adding up the values obtained the total transportation cost for the alternative was determined (Table A3). Retailers' transporta- tion costs emerging from the different wholesale distribution systems are presented in Table VI—4 below. TABLE VI-4.--Retailers' Annual TranSportation Costs Generated by Different Wholesale Distribution Systems for Fresh Fruits and Vegetables in the Buenos Aires Metropolitan Area. Existing System The Project Alternative I (23 Wholesale (A Single Whole— (4 Wholesale Markets) sale Market) Markets) $10,530,000 $23,816,000 $16,605,840 Retailers' tranSportation costs generated by the different wholesale systems are an inverse function of the number of markets. TranSportation costs generated by the Existing System are the lowest and those generated by the Project the highest. Differences in retailers' tranSportation costs are substantial.1 The values found suggest that retailers' transportation costs have an important weight in total distribution costs. This serves to remind us that the most important function of second wholesale handlers located in distribu— tion markets has been to bring the merchandise close to the retail Operator. 1The increase in retailers' tranSportation costs in the Pro— ject and the Alternative with respect to the Existing System is the following: the Project: +116.2 percent and Alternative I: +57.7 percent. 178 Cost Imputed to the Tigg Spent by Regailers lien Traveling to Make Purchases of Fresh“ Fruits and Vegetables Traveling time between the center of each district and the wholesale markets where retailers make their purchases was deter- mined by using a map of isocrone lines.1 The estimated traveling times were multiplied by the number of retailers located in a given district and making purchases at a given market. The figures thus obtained were added up and multiplied by two, to account for a two— way travel. The figure thus produced is an estimation of the total traveling time spent by retailers in each round trip. This figure was multiplied by four, the retailers' average weekly purchasing frequency, so as to obtain total weekly traveling time. The total weekly traveling time, specified in hours, was multiplied by the hourly salary of a sales employee ($0.30, April, 1970) On the assumption that retailers have or would have to pay an 3 employee to keep the store Open while they were making purchases.“ The figure produced, representing a weekly value, was multiplied by fifty-two to estimate the annual cost imputed to the time Spent by retailers traveling to and from central wholesale facilities when making purchases of fresh fruits and vegetables. Values Ob- tained are presented in Table VI—S. l . . . . Times shown on the map of isocrone lines were estimated by vehicles sampling actual traveling times from different city loca- tions to downtown Buenos Aires. 2However, this must be taken as an average value, since the opportunity costs may be higher than that on one hand and unpaid family labor may fill in at a lower cost on the other hand. 179 TABLE VI-5.—-Costs Imputed to the Time Spent by Produce Retailers in Traveling to and from Wholesale Markets When Making Purchases in Selected Wholesale Facility Arrangements. Costs Im uted Existing System The Project Alternative I to p (23 Wholesale (A Single Whole- (4 Wholesale Markets) sale Market) Markets) Traveling time $1,225,876 $1,729,689 $1,513,148 The figures presented in Table VI-S show that costs imputed to retailers' traveling time are an inverse function of the number of wholesale markets. The increase in such costs brOUght about by the Project and the Alternative with respect to the Existing System are the following: the Project: +4l.l percent and Alternative I: +23.5 percent. Discussion and Qualification of the Operational Costs Estimated Once the operational costs just estimated are added up, cost differences between the different wholesale facility arrangements become sizable (Table VI-6). The Existing System appears to be the least cost wholesale distribution system and the Project the most expensive one. The different alternatives considered imply an increase in distribution costs with respect to the Existing System Of the following size: the Project: +87 percent and Alternative I: +38 percent. However, we must acknowledge that we have measured only selected Operational costs. The design of new wholesale facilities TABLE VI- 180 6.-~Comparison of Operational Costs of Selected Wholesale Facility Arrangements. Ex1st1ng The Project Alternative I System U$S U$S U$S Market Facility Costs 4,784,691 5,333,029 4,785,482 Retailers' Trans— a b c portation Costs 10,530,000 23,816,000 16,605,841 Retailers’ Travel- ing Time 1,225,876 1,729,689 11,513,148 Total 16,540,567 30,878,718 22,904,471 Source: Idem, Tables VI—l and VI-2 for market facility costs; SCET a C INTERNATIONAL—MERCASA—INTECSA~SIE, "Estudio de los Costos de Desabastecimiento," op: sit: for retailers' transportation costs in the Existing System and in the Project; own esti- mates Of retailers' transportation costs in Alternative I as reported in the text and in the Appendix; own estimates of the costs imputed to retailers' traveling time. Traveling times within the Buenos Aires Metropolitan Region estimated by the Ministerio de Obras Publicas de la NaciOn. Purchasing frequency estimated as 4.4 times per week. bPurchasing frequency estimated as 3.0 times per week. Purchasing frequency estimated as 4.0 times per week. 181 may make possible both the adoption of cost-reducing handling tech— Liques and a reduction of the time spent by truckers to off-load and ty produce retailers to shop and load their vehicles. Therefore, .ndirect operational costs may significantly affect total distribu- Lion costs. Although handling costs have not been estimated for the 'roject and for the Alternative because a Special study is required to Lelect the least cost handling techniques given the factor prices in :he area, the importance of handling costs may be partially appraised 1y estimating handling costs in the Existing System. Handling costs to unload produce have been estimated at $0.03 ter ”bulto” and $0.075 per 50 kilogram potato bag.1 On the basis of tn annual trade volume Of 550,000 tons of potatoes and 1,650,000 tons »f produce,2 annual handling costs to unload fresh fruits and vege- .ables have been estimated as $3,112,500. Handling costs incurred by 'etailers to load their vehicles has been estimated at $0.07 per bulto."3 The total number of retailers being 23,000 and average eekly purchases estimated as seventh "bultos" per retailer,4 handling OSts to load retailers' vehicles are $5,850,000 per year. Therefore, 1e annual handling costs of $8,962,500 ($3,112,500 + $5,850,000) are 1SCET INTERNATIONAL-MERCASA-INTECSA-SIE, ”Estudio de los stos de Desabastecimiento," 92: cit. 2Handling costs to load and unload vehicles brought about by ansactions between wholesalers are not included. 3SCET INTERNATIONAL/MERCASA/INTECSA/SIE, ”Estudio de los stos de Desabastecimiento," pp: cit. 4Ibid. 182 almost double the direct market facility costs in the Existing System, giving an indication that if the handling techniques that the new wholesale facility design might make possible to adOpt are in fact cost reducing, then overall market facility costs may turn out to be lower for the Project or the Alternative than they are for the Exist- ing System.' Moreover, the reduced congestion of the new wholesale facility should Significantly reduce the time Spent by truckers sup- plying the market to off-load and avoid the cost of having expensive equipment tied up. Unfortunately, information on such costs is not readily available. The difference in retailers' transportation costs when com— paring the Existing System and the Project is substantial. Even so, it may have been underestimated. The drastic reduction in retailers' weekly average purchasing frequency from 4.4 times a week in the Existing System to 3 times a week in the Project may have two un— desirable consequences: First, it would force produce retailers to incur other costs. They may have to increase the storage capacity within their stores, transport capacity and working capital. Second, it might give rise to a much greater activity of truck-jobbers, whose Operating costs should be added to the operating costs of the Project. Retailers' traveling time has probably been underestimated in the Existing System because of the excess time spent by retailers in finding parking Space and getting their vehicles close enough to the wholesale facility to load them does not Show up when using a map Of isocrone lines to make such estimation. Therefore, a new estimation —>—"m " ”“7”": "mu—m " ' ' ’ 183 of the cost imputed to the time produce retailers spend traveling to make purchases has been made on the basis of the information generated by the survey of produce retailers.1 The new estimation, $1,872,352, based on retailers' assertion of the actual time spent making pur— chases, shows an increase of 53 percent above the previous estimation making the Existing System the most expensive in terms of the time retailers must Spend traveling to make produce purchases (Table VI-7). TABLE VI-7.-—Costs Imputed to the Time Spent by Produce Retailers in Traveling to and from Wholesale Markets When Making Purchases in Selected Wholesale Facility Arrangements Including the Cost Imputed to the Congestion of Whole- sale Markets in the Existing System. 1‘ . ,1 .l‘ ‘L . n Ps1 .. w ‘5- Ma: 4;: ‘. _» r r. ‘ .. \ \- . . Existing System The Project Alternative I COStS igputed (23 Wholesale (A Single Whole- (4 Wholesale Markets) sale Market) Markets) Traveling time of retailers $1,872,352 $1,729,689 $1,513,148 We will make a comparison of the required investment on the Project and the Alternative before drawing conclusions from the information on Operational costs just presented. apital Requirements of the Project and the Alternatives A distinction has been made between the new investment re- uired by each of the proposed solutions and the net investment, stimated as the difference between new investment and the value of 1Guillermo Bravo et al., "Encuesta a Comerciantes Minoristas e Frutas y Hortalizas," pp: cit. I :‘S‘e ‘ (“é—2:, , . creases; ‘L 2. "‘ —>—_—— - ' F 'V - ‘ ., ' " ~ - ' V ‘ 14'"- -' '.~_'?"...__:—.‘;~.-1‘~_'=fi'2.—1 r 3.1: ‘ 1‘ 7 - 184 the produce wholesale markets that would be freed for alternative uses. The Project would free all Of the existing wholesale markets for other uses and the Alternative would free almost all wholesale markets excepting those that would continue in operation. The value of land occupied by existing markets has been assessed on the basis of information produced by the Municipality of Buenos Aires for the Federal District and by a private firm dealing in land transactions for Greater Buenos Aires. It has been assumed that the plots of land where produce wholesale markets are presently located, most of them in highly populated areas, will be sold in small plots. On this basis, the total value of the land has esti- mated to be $23,104,060 (Table A5). Buildings have been depreciated assuming a useful life of forty years. The current value of build— ings amounts to $5,568,770 (Table A6). These values were estimated on the basis of a construction cost of $44 per square meter in 1971.1 The total value of the resources freed by the Project and the Alternative is presented in Table VI-8. The value of land plus the residual value of wholesale market buildings made available for other uses is Significantly greater in the Project than in the Alternative. However, since new investment is 75 percent greater in the Project than in the 1Estimated on the basis of the cost of building the 3 de ebrero Market. This way of assessing the values of wholesale uilding has been employed with the objective of providing a rough stimate of the total value of existing wholesale facilities and ay conceal significant differences between the estimated and the ctual value of some wholesale facilities. A more accurate esti— ation would require a detailed assessment of the value of each of he existing facilities taking into account its potential profit- bility in alternative uses. 185 TABLE VI-8.—-Value of the Land and Salvage Value of Wholesale Facilities Freed by the Project and the Alternative. Freed by Freed by Project Alternative I Value of freed land U$S 23,104,060 17,723,500 Depreciated value of wholesale facilities U$S 5,568,770 2,075,645 Total U$S 28,672,830 19,799,145 Source: Own estimations on the basis of land values in the Federal District assessed by the Municipality of Buenos Aires and in Greater Buenos Aires by a private firm in the real estate business. Depreciated value of wholesale facilities esti- mated taking as a basis the construction costs of the 3 de Febrero Market in 1971. Alternative, the net investment is much lower in Alternative I than 1 in the Project (Table VI-9). Net investment in Alternative I is only $4,600,855 while in the Project it is $14,127,170, a difference of $9.5 million. Sensitivity of the Decentralized Wholesale Facility Arrangement to the Addition or Subtraction of a WhOlesale Market A comparison of selected Operational costs and investment between the four wholesale market (Alternative I) distribution system and a five wholesale market (Alternative II) system which includes the Saldias Market (Figure VI—l) is presented in this subsection. The bjective is to appraise how the direct and the indirect costs esti- ated and investment in the decentralized wholesale facility 186 TABLE VI-9.-~New and Net Investment Required by the Project and the Alternative. Project Alternative I — — - US Dollars - - - New investment 42,800,000 24,400,000 Value of land plus depreciated value Of central wholesale facilities made avail- able for other uses 28,672,830 19,799,145 Net investment 14,127,170 4,600,855 Source: Idem, Table VI—8. New investment in the Project as re- ported by Adolfo E. Buscaglia et al., "Mercado Central de Buenos Aires. Analisis Econ6mico y Programacidn Financiera de la Inversidn," pp: 312: Own estimation of new investment in Alternative I as reported on page 171. arrangement are affected by the addition (or subtraction) of a wholesale market. Table VI—lO presents estimates of selected Operational costs and investments for both Alternatives I and II. Increasing the number of wholesale markets from four in Alternative I to five in Alternative II increases net new investment by 40 percent ($1,822,050) and reduces the Operational costs estimated by only 1 percent ($239,197). Thus, a four wholesale market distribution system appears as a lower cost wholesale facility arrangement than the five market arrangement since adding one market to the system significantly increases net new investment without significantly reducing operational costs. 187 TABLE VI—lO.-«A Comparison of Operational Costs and Investment in Selected Decentralized Wholesale Facility Arrangements. Alternative I Alternative II (4 Wholesale Markets) (5 Wholesale Markets) U$S U$S Market facility costs 4,785,482 4,950,082 Retailers‘ trans- portation costs 16,605,841 16,232,672 Retailers' travel- ing time 1,513,148 1,482,520 Total Operational Costs Estimated 22,904,471 22,665,274 New investment 24,400,000 24,400,000 Value of land plus depreciated value of central whole- sale facilities made available for other uses 19,799,145 17,977,095 Net New Investment 4,600,855 6,422,905 Idem, Tables VI—6 and VI-8. Own estimation of investment Source: 171 in Alternatives I and II as reported on page . Conclusions On the basis of the estimation of selected operational costs, the investment required by the different wholesale facilities that have been compared (summarized in Table VI-ll) and the qualification of those estimations, the following conclusions have been reached: 1. The Existing System appears to be the least cost produce distribution system when taking into consideration only direct market facility costs and produce retailers' trans- portation costs, including the cost imputed to the time retailers spend traveling. However, produce distribution costs in the Existing System are higher than the operational costs estimated. The following indirect and social costs must also be taken into account in a more comprehensive assessment of produce distribution costs: a) Traffic congestion in produce wholesale market areas constitute a social cost since traffic delays affect other nonmarket participants. b) Handling costs in the Existing System are probably higher than those that can be attained in new and remodeled facilities with improved handling techniques that combine factors in optimum proportion given factor prices in the region, with a better layout of wholesale facilities and with the organization of traffic flows. The design of the existing wholesale markets restricts the adoption of even low capital intensive handling techniques. 189 TABLE VI«11.--A Comparison of Some Operational Costs and the Invest— ment Required by Selected Wholesale Facility Arrange- ments . E§15t1ng The Project Alternative I ystem U$S U$S U$S Market Facility Costs 4,784,691 5,333,029 4,785,482 Retailers' Trans- a b portation Costs 10,530,000 23,816,000 16,605,841C Retailers' Travel- ing Time 1,872,352 1,729,689 1,513,148 Total Operational Costs 17,187,043 30,878,718 22,904,471 Gross Investment 28,672,832 42,800,000 33,273,685 New Investment ------- 42,800,000 24,400,000 Net New Investment ------- 14,127,170 4,600,855 __ Source: Idem, Tables VI-6, VI~8 and VI-9. aPurchasing frequency estimated as 4.4 times per week. b . . . Purchasrng frequency estimated as 3.0 times per week. c . . . Purchasrng frequency estimated as 4.0 times per week. 190 c) Product losses and wastage brought about by poor handling methods. d) The social cost of having produce wholesale markets in densely populated urban areas, precluding the use of the land where wholesale markets are built for other uses having a higher social value. e) There is a substantial volume of fresh fruits and vege- tables that moves through a two-stage wholesale marketing channel, giving rise to additional handling and intra- urban transportation costs. Some of these costs may be passed onto retailers and producers in the form of higher and lower produce prices, respectively. However, until a study determines what proportion of these costs are actually passed onto retailers and producers, it is impossible to know what is the net cost of transactions between wholesale operators. 2. The difference in Operational costs between the Project and the Existing System is so large that it suggests that even when adding other indirect and social costs to the Existing System, the Project either will be a higher cost wholesale facility arrangement or at best will not Offer a clear Operational cost advantage over the Existing System. Such an outlook makes it difficult to justify a $42,800,000 invests ment without further analysis of cost effects. 3. 191 A decentralized wholesale facility arrangement should be given serious consideration because of the following reasons 1 a) b) d) Retailers' tranSportation costs increase much less in the Alternative than in the Project, even when retailers' purchasing frequency has been assumed to be four times a week in Alternative I and only three times a week in the Project. Retailers’ transportation costs will account for a sizable proportion of total distribution costs in any wholesale facility arrangement that drastically reduces the number of produce wholesale markets while taking present transportation modes as given. Retailers' traveling time to make produce purchases is lower in the proposed four—market decentralized wholesale facility arrangement than in either the Project or the Existing System. Direct market facility costs in Alternative I is about the same as in the Existing System and lower than in the Project. New investment and net new investments are substantially lower for the Alternative 1 decentralized wholesale arrangement that keeps some of the existing wholesale markets in Operation as compared with the Project. 192 e) Even if there should be some volume of fresh fruits and vegetables subject to a two-stage wholesaling process, the resale costs in a decentralized system of a few wholesale markets that both introduce and distribute produce would probably be much lower than they are in the Existing System. f) When the estimated Operational costs of the three market facility alternatives are more fully analyzed and the net cost of resale and the indirect and social costs are taken into account for the Existing System, it appears that a decentralized produce concentration system of a few wholesale markets might be the least cost produce wholesale facility arrangement. g) Although the new wholesale facility in the decentralized wholesale facility arrangement will be smaller than the New Central Market projected by the Buenos Aires Central Market Corporation, it will be large enough to meet the procurement needs Of out—of—town buyers, secondary wholesale handlers and the growing larger scale food retailing sector and as well the needs of large producers selling in auction markets and of small producers selling in producers' market facilities. h) A four wholesale market distribution system appears as a lower cost wholesale facility arrangement than a five market arrangement since adding one more wholesale 193 market to the system increases the net new investment without significantly reducing operational costs. The new wholesale facility should be looked at as an opportunity to generate a flow of innovations concerning not only technical change, i.e., improved storage and handling techniques and traffic conditions, but also and even more important to introduce institutional and organizational-managerial changes having the final effect Of bringing about a greater market coordination We will discuss this opportunity in the next chapter. j * . :"WTru : "4-2 ‘ ' 4' - -_..-_ _. - -. CHAPTER VII SUMMARY, CONCLUSIONS AND RECOMMENDATIONS Introduction The Abasto Market, which still is the main produce wholesale market in the Buenos Aires Metropolitan Area, was inaugurated in 1891, when the population of the City of Buenos Aires was 700,000 inhabi- tants. Since then, the pOpulation of Buenos Aires increased very rapidly and by 1970 it had passed the eight million figure. The city expanded vertically in the Federal District, where a dense urban Struc— ture of multi—family housing units developed, and horizontally in Ereater Buenos Aires. This urban conglomerate now covers an extensive .and area, having an average diameter of thirty—seven miles. The high rate of growth of population and the rapid expansion f the urban area called for the construction of new wholesale markets. he largest wholesale facilities were located in the inner city. Dis- ribution needs imposed the addition of new produce wholesale markets ich, following the pattern of population settlements, were built in eater Buenos Aires, making a crown of produce distributing facilities ound the Federal District. 194 195 The operation of large wholesale produce markets, particularly the main one in the inner city, has imposed increasing social costs on market and nonmarket participants. Problems of urban development became more acute as the increase of population, rising per capita incomes and the development of the motor vehicle industry during the 19603, resulted in a tremendous expansion of private car tranSporta- tion, greater demand for fresh fruits and vegetables and a more dense urban structure. Traffic congestion prevails within wholesale market facilities and in wholesale market areas. Produce wholesaler opera— tions using old residences as warehouses and market-related logistical services (bars, restaurants and warehouses for several purposes) Spread into the areas surrounding wholesale market facilities. Loading Of retailers' vehicles outside the wholesale markets not only contributes to increased traffic congestion but also brings about the littering of streets with product wastage. Other problems have developed because of the structural charac— teristics of produce wholesaling. There are twenty-three wholesale markets and some of them Specialize in the trade of one or a reduced number of commodities. Also, there is a large number of produce whole- salers, most of them carrying on business in stalls located within or adjacent to wholesale markets, but the largest receivers are located outside wholesale market areas and present a high degree of commodity specialization. These structural characteristics have brought about two undesirable consequences: First, produce distribution probably uses more resources than it would be necessary to employ in a better 196 organized distribution system. Second, there is little price trans- parency of transactions for most products. The Buenos Aires Central Market Corporation, an autonomous government agency, has been charged with the reSponsibility Of building a New Central Market in the Buenos Aires Metropolitan Region. The Corporation‘s program calls for the concentration of all wholesale transactions of fresh fruits and vegetables in a single central whole- sale market. Fresh fruit and vegetable wholesale transactions would be made illegal outside the New Central Market. The wisdom of the solution proposed by the Buenos Aires Central Market Corporation has been questioned by the business community. It has been alleged that the elimination of the existing wholesale markets would disrupt the distribution system for fresh fruits and vegetables without reducing produce distribution costs. Moreover, the compulsory concentration of wholesale transactions in a single central wholesale market is considered an unacceptable trade restriction. This study has been centered around three main Objectives: 1. To describe and analyze the urban distribution system for fresh fruits and vegetables in the Buenos Aires Metropolitan Area; 2. To make a preliminary estimation of how the projected new central wholesale market and an alternative wholesale facility arrangement would affect produce marketing costs; and 197 ;. 3. To identify issues and needs for future analyses in order to provide relevant information for more refined public decisions on fresh fruit and vegetable marketing policies. The description and analysis of the existing distribution system for fresh fruits and vegetables was largely based on secondary data. The bulk of such information has been produced by several con- sulting firms under contract with the Buenos Aires Central Market Corporation. A survey of broad product line wholesale markets having the objective of assessing pricing efficiency and measuring wholesalers' marketing margins in apple and pear trade was undertaken in January 1972. This study had to be interrupted in March 1972 when the govern— ment, in an effort to curb inflation, established fixed marketing margins by decree. However, the limited data that was gathered proved to be very useful in evaluating price relationships among and within markets. 1 Cost comparisons of different wholesale facility arrangements here made by simple budgeting procedures based on the information pro- duced by several consulting firms under contract with the Buenos Aires Central Market Corporation, by different government Offices and by a rivate firm in the real estate business. Conclusions Of the Cost Comparison Of Alternative Wholesale Facility Arrangements According to the Buenos Aires Central Market Corporation, the oncentration of all wholesale transactions Of fresh fruits and vege— ables in a Single central wholesale market would permit the 198 achievement Of several Objectives including a reduction in retail pro— duce prices, an increase in farm prices of fresh fruits and vegetables and a greater price tranSparency of transactions. Since fresh fruit and vegetable wholesale transactions would be made illegal outside the New Central Market, the external diseconomies imposed upon highly populated neighborhoods by the operation of wholesale produce markets would cease and valuable pieces of land and the existing wholesale market facilities would be made available for alternative uses. More— over, the new legislation forcing the concentration of wholesale pro— duce transactions at the New Central Market would constitute an Op- portunity to eliminate from the business a large number of secondary wholesale Operators whose economic contribution to the market process is implicitly assumed to be very little. Supporters of the Central Market Project believe that distribution costs would be reduced in this way. It is also expected that price formation will be facili— tated and the collection and dissemination of information on produce prices and volumes of trade would be easier, less costly and more accurate. However, taking into account the size of the Buenos Aires Metropolitan Region, retailers' high weekly average purchasing fre— quency and low produce volume purchased per trip, and the high trans- portation costs imposed by traffic congestion in most of the Buenos Aires Metropolitan Area, it is apparent that secondary wholesale handlers and produce distribution markets are fulfilling an economic function. Moreover, taking into consideration: (1) the size of region; (2) the future increase in demand for fresh fruits and 199 '1 vegetables; and (3) the procurement practices of small produce re- tailers who constitute the bulk of buyers in wholesale markets, there is a high likelihood that a decentralized wholesale arrangement of a few wholesale markets would be a lower cost produce distribution al— ternative than the Project. A decentralized wholesale distribution system would also avoid problems in dealing with displaced whole- salers and affected market workers. A cost comparison of the Existing System with the Project and a decentralized wholesale facility arrangement of either four or five produce wholesale markets, assessing direct market facility costs and produce retailers' transportation costs, has led to the following conclusions: 1. The estimated Operational costs for the proposed Project system are considerably higher than they are in the Existing System. The difference in Operational costs between the Project and the Existing System is so large that it suggests that even when adding other indirect and social costs to the Existing System, the Project either will be a higher cost wholesaling arrangement or at best will not offer a clear Operational cost advantage over the Existing System. Such an outlook makes it difficult to justify a $42,800,000 invest- ment without further analysis of the cost effects. 2. A decentralized wholesale facility arrangement appears to be a lower cost alternative to the Existing System than the Project's single market proposal. The main advantages of a 200 decentralized wholesale facility arrangement that keeps some of the existing wholesale markets in operation are a much lower capital investment and much lower procurement costs for retailers as compared to the Project. Its main disad- vantage with respect to the Project would be a more difficult price formation process. An effective communication network would be required to have an integrated market operation, overcoming in that way the physical discontinuity of the different wholesale facilities. A more complete analysis, including all indirect and social costs, should be made to further determine if a decentralized wholesale facility arrangement of a few wholesale markets has lower distribu— tion costs than the Existing System. When the number of broad line produce wholesale markets is reduced from nineteen in the Existing System to only one in the Project situation, there is a substantial increase in retailers’ transportation costs, even when the average pur- chasing frequency of produce retailers has been assumed to decline from 4.4 times a week in the Existing System to only three times a week for the single central wholesale market proposal. A four wholesale market distribution system appears as a lower cost wholesale facility arrangement than a five market wholesale arrangement since adding one more wholesale market to the system significantly increases the net new investment without significantly reducing operational costs. Cor dis Si‘. 201 Reassessing the Scope of the Project in the Light of the Objectives Stated by the Buenos Aires Central Market Corporation The objectives set up by the Buenos Aires Central Market trporation take into account both the goals of efficiency and income .stribution. These are common goals in the development process, ane in addition to a sustained increase in per capita income, a less sewed income distribution is also considered to be a prime objective. Market processes, when viewed as the main mechanism to co- rdinate and stimulate production and consumption, are a suitable tool 0 increase economic productivity and bring about a desirable income edistribution. By reducing food prices, there would be a shift of he relative flow of income towards low income families who have igher propensities to consume and lower propensities to save.1 Improved marketing performance during the process of develop— ment seems to arise from the mutual interaction of innovative changes n technology, institutional environment and in the organization and anagement of marketing firms.2 In this context, the construction M 1See, for example, Charles Slater, Harold Riley et al., arket Processes in the Recife Area of Northeast Brazil (East Lansing, 1ch.: Michigan State University, 1966), Chapter 1; Harold Riley, ally Harrison et al., Market Coordination in the Development of 16 Cauca Valley Region~-Colombia (East Lansing, Mich: Michigan :ate University, 1970), Chapter 1; Harold Riley, ”Improving Internal irketing Systems as Part of National Development Programs” (paper resented at the First Interamerican Conference on Marketing and >cial Economic Development in Latin America, Cali, Colombia, lY 2-5, 1972). 2Kelly Harrison, ”DevelOpment, Unemployment and Marketing Latin America” (paper presented at the Agricultural Development uncil Workshop, Palo Alto, California, April 13—15, 1972). 202 and operation of a new wholesale facility should be complemented with other projects or programs having the common goal of reducing market— ing costs through improved market coordination. Experience shows that marketing facilities alone do not provide the changes that lead to an improved marketing system.3 In the first place, public action should create a favorable environment so that producers, wholesalers and retailers can plan the introduction of innovations to take advantage of market oppor- tunities. To facilitate this, it will be necessary to further develop standards for product grading and to increase the degree of package standardization. An effective communication network should also be instituted. A market reporting service that rapidly dis- seminates accurate information could make an important contribution to reduce market uncertainty, a common element that adds to costs in poorly coordinated marketing systems. Also, produce grading, package standardization and market information programs are highly desirable and deserve priority because their benefits will accrue to market participants throughout the country and not only to the Buenos Aires Metropolitan Region. Secondly, it is extremely important to understand that the new wholesale market, more than a physical facility, should be a market—coordinating institution and will require, for its success as such, the involvement of market participants. If a favorable 3Michigan State University, Fomenting Improvements in Food Marketing in Costa Rica (East Lansing, Mich.: Research Report N0. 10, Latin American Studies Center, Michigan State University, 1973), p. 2. c111 C011! Cen inc pa] 118‘ 35 203 1’ climate of cooperation is to prevail, present legislation making it ompulsory that produce wholesale activities take place in the New entral Market should be repealed or at least not enforced. Rather, ncentives should be created so that wholesalers develop a sense of articipation and belonging and find it desirable to move to the ew market. Moreover, if important modifications in the organization d operation of wholesale firms are to be introduced and a greater 'holesale-retail coordination is to be achieved, publicly supported vrograms for providing credit, managerial training and technical ssistance will be required.1 These programs will not succeed unless n environment of understanding and cooperation between public of- icials and market participants is developed and sustained. Finally, public action should help to bring about those hanges in the organization and managerial operation of private arketing firms that appear to be desirable. The potential develop- ent of voluntary chains, retailers' cooperatives and corporate food etailing chains and the extent to which these retail organizations uld bypass produce wholesale markets deserves Special study. Volun— ry chains not only may bring about more rational practices of food olesale distribution but also may constitute the type of retail ganization best suited to consumers' shopping patterns and more le to meet the constraints imposed by the high urban density of the ty of Buenos Aires and the underdevelopment of the urban highway 1See, for example, Corporacion de Abastos de Bogota, S.A., lan de Ejucucién de la Corporacién de Abastos de Bogota, S.A. riodo Enero 1971—Julio 1972,” Bogota D.E., Colombia, pp. 31—35. 204 network. It has been claimed that a rather long time would elapse Defore voluntary chains engage in centralized procurement practices for fresh fruits and vegetables because wholesale firms would find it more profitable to devote more effort to gain patronage in the early stages of voluntary chain development than dealing with produce pro— turement problems.1 However, it would be possible to promote the Location of the wholesale warehouses of the food retailing chains Ldjacent to the New Central Market, which would be part of a Regional *ood Distribution Center. This may have important external effects. he nearness between the produce wholesale market and the wholesale 'arehouses of food retailing chains on one hand, and transactions in ’resh fruits and vegetables made easier by product grading, package tandardization and probably more stable prices (because of more torage capacity at the new wholesale market) on the other hand, would onstitute important stimuli for voluntary chains to engage in entralized procurement practices for fresh fruits and vegetables. 150, to the extent that the new wholesale market will trade in other erishable foods, the incentives to have the wholesale warehouse ocated in the Buenos Aires Food Distribution Center would be greater. The more progressive wholesale firms may fulfill a critical ole as market—coordinating firms by transmitting the right informa— ion and incentives so that the combination of foods and services fiat best reflect conSumers' preferences are produced. The impact of much better coordinated retailer-wholesaler relationship on “—-——————— 1Dieter Link, ”Repuesta a la Nota de Analisis de Proyectos Etra- Sudconsult, " Unpublished Report, Buenos Aires, 1973. dist lint wil tha whc wa: 205 istribution costs deserves special consideration. Broad product ine wholesalers being able to provide delivery, among other services, Lll drastically reduce retailers' transportation costs and the time iat retailers spend making produce purchases. The improved retailer- olesaler relationship will certainly contribute to reduce produce astage and losses and will probably transfer the bulk of those losses tom the retail shop to the wholesale warehouse where more produce >rtage and packaging would take place. More comprehensive, long—term marketing planning is necessary > avoid the problems brought about by a marketing network that rolves spontaneously and to create a favorable environment so that ereting firms can plan to take advantage of available market oppor- lnities. The discussion of several economic issues in Chapter V 1d the preliminary cost comparison of different wholesale arrange— :nts in Chapter VI give some indication of the advantages of a more Imprehensive analysis of marketing problems. Moreover, they give . affirmative answer to Hyde's question1 on the potentially greater nvenience of considering a new central market not as the solution ,t rather as a tool, among others, to improve food distribution ‘ficiency within a broader marketing program. Finally, the exper- nce of many national and international agencies shows that market- g systems improvement will proceed slowly unless public action ovides sustained, long-term support to facilitate diagnostic N 1Martin Hyde, ”Analisis Economico y Financiero para Estudios Factibilidad de Proyectos de Mercados Mayoristas" (trabajo esentado en la Conferencia Técnica sobre Planeamiento y Operation Mercados de Concentracién, Brasilia, Octubre 18—22, 1971), 15—16. 206 2, studies of market systems, the planning and implementation of market reforms and the evaluation of the emerging market performances. However, such a prOgram, because of its broader scope and longer—term objectives would require the cooperation of several dif— ferent public agencies and private firm associations. The coordina— tion of their efforts towards the achievement of a common goal would 3e a major task if such a program is to be successful. The Buenos \ires Central Market Corporation, representing the commitment to oint action by the Ministries of Agriculture and Domestic Trade, :he Province of Buenos Aires and the Municipality of the City of Buenos Aires, appears to be an institution initially well—suited o fulfill that role. However, the private interests of producers nd marketing firms should also be given representation for a more lemocratic process of decision making. Recommendations Due to the broad scope of this study, it has probably raised are questions than it has answered. Perhaps its main contribution iY be to point out those aspects related to the construction of a 5w wholesale facility that are relevant for more refined public cision making and that require further research. With that in nd, the following recommendations are made: 1. A wholesale facility arrangement of a few wholesale markets should be given particular consideration as an alternative to the Project. One of its main advantages over the Project is that it avoids a major increase in retailers' procurement costs. In addition, if those of the existing produce wholesale 207 markets that can meet minimum requirements of operational ef- ficiency are allowed to continue in operation, then the required investment in a new wholesale facility will be greatly reduced. The anticipated future volume of products to be moved through the new wholesale facility should be carefully estimated. For example, a 20 percent excess capacity in the single market dis- tribution system would unnecessarily increase direct market facility costs due to an $8.5 million over-investment. Even in the lower investment four market alternative, a 20 percent ex- cess capacity would unnecessarily commit almost $5 million to excess physical facilities. The size of the investment and the potential cost of miscalculations call for a detailed justifi— cation of the projected capacity for the new wholesale facility. The additional studies required for a more accurate estima- tion of the capacity of the new wholesale market would be aimed towards assessing the potential evolution of the commercial structure and should include: a) Accurate estimations of present levels of per capita consumption of fresh fruits and vegetables for different socio—economic groups and of income consumption relationships. b) Projections of future consumption of fresh fruits and vegetables in different income areas of the Buenos Aires Metropolitan Region. c) Estimation of the probable evolution of the consumption of processed fruits and vegetables by resorting to a d) e U 1 cross-country comparison. The correlation between the degree of processing of fruits and vegetables and levels of per capita income can be estimated. A higher correlation seems to exist between the degree of substitution of pro- cessed fruits and vegetables and the following variables:1 1) the degree of participation of women in the labor force; 2) the relative levels of domestic employment; 3) the degree of availability of household durable goods. An analysis of the potential development of corporate food retailing chains, voluntary chains and retailers' co- operatives and of the extent to which they can bypass produce wholesale markets. The main variables to take into account would be: 1) the trend towards a broader product mix; 2) the trend towards retailers' association; 3) the nature and importance of the support they may receive from the government; 4) the ability and willingness of growers to fulfill long-term production contracts with a high degree of product specification. Projection of the total volume of fresh fruits and vege- tables that would flow through wholesale markets and partial volumes to be consumed by the different income J. R. Lasuén, "Criterios Generales de Planeacién de los Mercados Mayoristas" 9p: cit., p. 5. 209 2 areas of the Buenos Aires Metropolitan Region. This information will make it possible to assess the loca- tional advantages or disadvantages of the different wholesale markets. The potential impact on wholesale facility capacity of a rapid adoption of one-way cardboard boxes should be esti- mated, since storage of empty, two-way wooden boxes may require about 30 percent of the commercial space. The operational costs and price margins for wholesaling services for different products handled through various markets channel arrangements such as one—stage vs. two— stage Vfliolesaling, auction selling vs. sale by inSpection of the entire lot, should be assessed in order to provide information for a more accurate estimation of produce distribution costs. Studies should be made of wholesale facility and equipment combinations that best fit current and anticipated future capital labor price relationships. The types of wholesale services to be provided at the new wholesale market should be carefully examined, particularly if it is to be a balancing factor in a four or five market wholesale facility arrangement. The new market might not only serve traditional produce retailers, but also could be the location of auction facilities, a receiving market for long—haul shipments that can be diverted to other ; 210 distribution markets in and around the Buenos Aires Metro- politan Region1 and broken down for distribution (first-stage wholesaling) to large chain-store buyers, reshippers and exporters. Studies should determine the types of food retail outlets best suited to the shopping patterns of the Buenos Aires consumers. This study should also assess the extent to which shopping patterns are determined by the urban structure and by the socio-economic characteristics of the population. The objective would be to provide information for public decision on the types of retail outlets that would be promoted to have a more desired mix of food retailing services. An information program to promote marketing changes, to encourage effective participation of private firms and public agencies, to broadly inform consumers of the nature of the changes being made and the anticipated benefits to them, should be carefully planned and executed. 1For instance the new La Plata Market which is closely ad to Buenos Aires. % BIBLIOGRAPHY BIBLIOGRAPHY L1H, J. Industrial Organization. 2nd ed. New York: John Wiley and Sons, 1968. .rreiro, M.’y Limongelli, J. C. "Analisis de Aprovisionamiento Horticola de la Ciudad de Buenos Aires." Tecnologia Alimentaria, 28-29 (July-October, 1971) and 30 {November- December, 1971). 'avo, Guillermo y Asociados. ”Encuesta a Comerciantes Minoristas is Frutas y Hortalizas." Buenos Aires (Enero—Febrero, 71). LScaglia, Adolfo E. "Analisis de la Factibilidad Financiera. Prejecto Mercado Central de Buenos Aires,” Informe Pre- liminar, Buenos Aires (Marzo, 1969). et a1. ”Mercado Central de Buenos Aires. Analisis Economico y Programacién Financiera de la Inversi6n.” Vol. I. Buenos Aires (Enero, 1970). "Encuesta de Consumo de Alimentos >nsejo Nacional de Desarrollo. Buenos Aires, en la Capital Federal y Gran Buenos Aires." 1968. e Comercializacién de ”Informe sobre 1as Condiciones d 1 Federal y Gran Buenos Productos Alimenticios en la Capita Aires.” Buenos Aires, 1965. - ”Organizacién del Espacio de la Regi6n Metropolitana. ESquema Director Afio 2000." Buenos Aires, 1969. l ’rPoraci6n de Abastos de Bogota, S.A. "Plan de Ejecuci6n de la Corporacién de Abastos de Bogota, S.A. Periodo Enero 1971 — Julio 1972." Bogota, D. 5., Colombia, pp. 31—35. "Analisis de la do con Destino a1 Buenos >rp0raci6n del Mercado Central de Buenos Aires. Producci6n de Frutas, Hortalizas y Pesca Mercado Central.” Unpublished Preliminar Report. Aires, 1971. 211 Wu. , a”, W“~,.~p_..._ .. e 212 Corporaci6n del Mercado Central de Buenos Aires.‘ Concurso de Antecedentes y Propuestas de Evaluacién Economica y Pro— gramacion Financiera. Buenos Aires, 1972. . Descripci6n del Projecto del Mercado Central de Buenos Aires. Buenos Aires, Mayo, 1970. El Censo Mayorista. Buenos Aires, 1971. . El Consumo de Frutas, Hortalizas y Pescado en el Area Metropolitana. Buenos Aires, 1970. "Estudios del Nivel Comprador." Unpublished Report, 1971. "Estudios del Nivel Mayorista." Unpublished Report, 1970—71. ”Estudio de los Mayoristas de Reventa.” Unpublished Report. ”Estudios y Observaciones sobre los Mercados." Unpub— lished Report, 1970-71. Informe Preliminar sobre Comercializacion de Frutas y Hortalizas en Pfiblica Subasta. Buenos Aires, 1971. . Los Mercados Mayoristas de Frutas y Hortalizas del Area Metropolitana. Buenos Aires, 1971. '.K.C. Comercializacion. ”Un Modelo de Competencia Intertipo para la Comercializacion Masiva de Alimentos en el Area Metro- politana de Buenos Aires.” Buenos Aires, 1968. arrison, Kelly. ”Development, Unemployment and Marketing in Latin America.” Paper presented at the Agricultural Development Council Workshop, Palo Alto, California, April 13-15, 1972. yde, Martin. ”Analisis Economico y Financiero para Estudios de Factibilidad de Projectos de Mercados Mayoristas. _ Paper presented at the Technical Conference on the Planning and { Operation of Central Wholesale Facilities, Bra5111a, Octubre 18-22, 1971. irk, J. H. ”The Economics of Moving Covent Garden Market: A 7 Reply.” Journal of Agricultural Economics, XXIII, No. _ (1972). isuén J. R. ”Criterios Generales de Planeaci6n de los Nuevo: , Mercados Mayoristas." Paper presented at the TeCh21§E 1e— Conference on the Planning and Operatlon of Centra 0 sale Facilities, Brasilia, Octubre 18-22, 1971. 213 ink, Dieter. "Respuesta a la Nota de Analisis de Projectos Cetra- SudConsult." Unpublished Report. Buenos Aires, 1973. lichigan State University. Fomenting Improvements in Food Marketing_ in Costa Rica. Research Report No. 10. East Lansing, Mich.: Latin American Studies Center, Michigan State University, 1973. Ministerio de Agricultura y Ganaderia de la Nacién. Direccién Nacional de Economia y Sociologia Rural. Series Estadisticas Retrospectivas de las Especies Agricolas Cultivadas en la Republica Argentina. PerIOdo 140-41, 1970-71. Riley, Harold. "Improving Internal Marketing Systems as Part of National Development Programs." Paper presented at the First Interamerican Conference on Marketing and Social Economic DevelOpment in Latin America, Cali, Colombia, May 2-5, 1972. ; Harrison, Kelly et a1. Market Coordination in the DevelOp; ment of the Cauca Valley Region-~Colombia. Research Report No. 5. East Lansing, Mich.: Latin American Studies Center, Michigan State University, 1970. SCET COOP-MERCASA. ”Evaluacién del Consumo de la Zona de Influencia del Mercado Central." Documento BH. Unpublished Report. Buenos Aires, 1970. ”Resultado de una Encuesta Parcial a los Mayoristas de Frutas y Hortalizas." Documento BK. Unpublished Report (June 15, 1970). SCET-MERCASA-INTECSA+SIE. ”Estudio de la Mecanica de la Formacion del Precio." Vol. II. Unpublished Report. Buenos Aires, Junio, 1971. "Mecénica de la Formacion del Precio. El Impacto de la Creaci6n del Mercado Central de Buenos Aires sobre los Precios de Distribuci6n Hortifruticola." Unpublished Report. Buenos Aires, June, 1971. "Estudio de los Costos de Desabastecimiento.” Unpublished Report. Buenos Aires, July, 1971. Slater, Charles; Riley, Harold et a1. Market Processes in the Recife Area of Northeast Brazil. Research Report No. 2. East Lansing, Mich.: Latin American Studies Center, Michigan State University, 1966. rigo, Eduardo. 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