VoxEU Column International trade

When trade shifts South: New upgrading prospects for horticulture suppliers in the Global South

Trade in South-South global value chains has increased significantly, driven by trade agreements among developing countries and the growth of Southern lead firms. This column uses data on Kenyan horticulture suppliers to explore whether suppliers from the Global South are benefitting from increased opportunities for economic upgrading as trade in these value chains grow. It finds that suppliers who develop multi-chain strategies across both the global North and South diversify production more and achieve higher economic returns than those who do not. 

There is now widespread consensus that participation in global value chains (GVCs) can foster economic development in the Global South (World Bank 2019). Previous Vox columns have shown how, by entering GVCs, supplier firms in developing countries can economically upgrade by making better quality products, improving production processes, and capturing more value-added (Kummritz 2015, Gereffi and Luo 2014). Participation in GVCs can also facilitate knowledge and technology transfers from lead-firms in the global North to suppliers in the global South, who can in turn benefit from improved economic returns (Baldwin and Lopez-Gonzalez 2015, Amendolagine et al. 2018).

However, there is also evidence that suppliers in the Global South are at risk of being ‘locked’ into segments of the value chain characterised by low value-adding potential and shrinking profits (Kaplinsky 2019 and Diao et al. 2021). For instance, Bohn et al. (2021) and Fu (2018) find that much of the value-added generated in GVCs is disproportionally captured by lead firms in the Global North, thereby limiting the upgrading potential of their Southern suppliers. Lead firms achieve this by governing the outsourcing of value-added tasks and distribution of profits (and risks) through stringent and costly contractual arrangements. This significantly constrains Southern suppliers’ opportunities to participate and upgrade in GVCs (Barrientos 2019). 

Shifting South: The emergence of multi-chain suppliers

Increasing volumes of South-South trade over the last decades have spurred a proliferation of South-South value chains, where both lead firms and suppliers are located in the global South. Since 2009, the Global South has exported more to other developing countries than to the developed North, with South-South trade reaching a quarter of all world exports in 2012 (Horner and Nadvi 2018). Importantly, lead firms from the North and South have been shown to govern their value chains differently, with Northern buyers requiring compliance with more stringent non-tariff measures (e.g. quality standards) relative to those demanded by Southern buyers (Pasquali and Alford 2021).

The expansion of South-South value chains has laid the ground for Southern suppliers to opportunistically and simultaneously serve multiple buyers across the Global North and South (Krishnan 2018). Such suppliers have been described to as ‘multi-chain’ (Navas-Alemán 2011). Multi-chain suppliers devise different multi-chain strategies, ranging from decisions to vary product volumes sold across different markets, to shifting product types and standards in order to maximise earnings. While there are benefits, multi-chain strategies could also result in higher costs as suppliers need to comply with concurrent governance structures (including demands for multiple standards, production processes, and rules of origin), which vary significantly across Northern and Southern markets (Figure 1). Thus, a key question emerges: Do multi-chain suppliers outperform single-chain suppliers or do the costs outweigh the benefits?

Figure 1 Economic upgrading and multi-chain suppliers 


Source: Authors’ compilation.

Evidence from Kenyan horticulture suppliers 

In a recent paper (Pasquali et al. 2021), we use transactional customs data of all Kenyan horticultural exports from 2006 to 2018 to compare the economic upgrading trajectories of multi-chain and single-chain suppliers. Transactional customs data helps us to add granularity and capture the heterogeneity of value chain linkages across firms within countries and sectors (Pasquali 2021). Kenya horticulture has been traditionally dominated by European lead retailers, with a more recent expansion of South-South GVCs. Over the 2006-18 period, horticulture exports to the global South increased by 330%, reaching approximately 38% of the sector’s total export share. Comparatively, exports to the global North have increased only slightly, with the three-year moving average over the period 2006-2018 displaying a 16% growth (Figure 2).

Figure 2 Kenya’s horticulture exports to the global North and South (thousand USD)



Source: Authors’ compilation based on ITC (2020), fruits and vegetables, HS-07 and -08.

Drawing on transaction-level export data for the period 2006-2018, we modelled the relationship between suppliers’ multi-chain strategies and economic upgrading in terms of value-added tasks (i.e. product diversification and product sophistication) and economic returns (i.e. changes in unit values). Multi-chain suppliers were also categorized across a range, depending on the share of their yearly output sold across Northern and Southern markets. We further developed novel measures to control for governance structures (level of intermediation, network stability and network size). Methodologically, we employed a combination of multilevel linear regressions (MLRs), propensity score matching (PSM) and robustness tests using two-step system-GMM. The analysis was complemented by in-depth interviews with stakeholders.

Our results demonstrate that multi-chain suppliers diversify their products significantly more than single-chain suppliers. We highlight how product diversification among multi-chain suppliers has occurred due to different seasonality and consumer preferences across Northern and Southern markets, and proactive attempts by suppliers to reduce dependence on Northern lead firms. However, in relation to product sophistication, multi-chain suppliers’ improvements were insignificant vis-à-vis single-chain suppliers. In relation to economic returns, multi-chain suppliers outperformed single-chain suppliers across all models. In sum, our study suggests that multi-chain suppliers economically upgrade more and at a faster rate than single-chain suppliers.

Policy implications

From a policy perspective, our findings suggest that the coexistence of value chains with different end-markets can result in long-term economic benefits for Southern suppliers looking to adopt multi-chain strategies. Hence, it is critical for the Kenyan government (and other countries in the region) to pursue multilateral trade agreements as a way to access Northern and Southern end-markets, rather than primarily relying on bilateral agreements with the global North – such as the African Growth and Opportunity Act (AGOA). To the extent that South-South trade presents significant non-tariff barriers vis-a-vis trade with the global North (Laget et al. 2018), adopting industrial policies aimed at facilitating trade across a combination of South-South and North-South value chains is paramount to achieve Kenya Vision 2030’s goal of empowering and enhancing small and medium exporting firms’ competitiveness. This can be achieved by providing subsidies and information to facilitate adherence to different end-market standards and connecting local suppliers to Southern lead firms.

Importantly, our research shows that transactional customs data can be used to inform such policies and customise them, thus maximising the quality of support provided to firms. Such analysis would help governments to continuously monitor supplier performance and offer incentives that engender those strategies that are conducive to economic upgrading. 

Authors’ note: This column draws on research undertaken under the umbrella of the project “Shifting South: decent work in regional value chains and South-South trade”, a collaboration between the University of Manchester, University of Cape Town, University of Nairobi, and the Ethical Trading Initiative (ETI).


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