Pepsico’s guaranteed price corn purchases from small farmers in Mexico

An article in the International Herald Tribune (February 22, 2011) describes Pepsico’s guaranteed price purchase (upfront) of corn from small farmers in Mexico. The farmers use the contract to buy seeds, fertilizer and equipment. Buying from these farms close to its plants means that Pepsico is shielded from transport costs which fluctuate a lot. The revenues from corn preempt the need to emigrate to the US and reduce the incentive for marijuana production. The higher prices paid means that farmers can save and pay taxes. Sets of farmers in the cooperative even talk about getting a tractor to further improve productivity, the article says.   Are such contracts the norm when entering into developing country markets with fragmented agricultural ownership ? Is a total supply chain view a requirement to justify the contract price i.e., taking into account reduced transport costs, better quality, reliable supply etc ?

About aviyer2010

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