Globalization of Agribusiness and Developing World Food Systems
The issue of the global concentration of agribusiness is crucial to the future of the food systems of developing (and poor, non-developing) countries. These countries have been a target of corporate investments from the outset of the industrial food system. This process has been uneven—at different times corporate investment has focused on one or another part of the food system. Today, this uneven and often uncoordinated foray of metropolitan corporate capital is still subjugating the agriculture and domestic food markets of many developing countries, particularly smaller, peripheral ones undergoing rapid urbanization, to the needs of global agribusiness. For some of the larger developing countries, however, national capitalists are the principal force behind the emerging urban food system. In addition, the state has been playing a key role in the consolidation of the urban food system in certain emerging economies.
Foreign participation in the food industry was once typically concentrated in the more sophisticated food segments geared to the emerging urban middle class and to exports, primarily to wealthy countries. Because of lack of patent protection, there was little foreign private capital investment in the genetic inputs industry. Thus, the nascent private seed industry, especially maize, was restricted to the non-GMO (genetically modified organism) hybrid markets. Foreign direct investment was also largely absent until recently from the retail sector.
Responses to Decreased Market Growth in Developed Countries
A profound shift occurred in the 1980s and 1990s in the patterns and extent of the transnational corporate penetration of the agrifood systems of developing countries. From the mid-1970s, per capita food consumption of basic staples in the developed world was reaching saturation, and overall growth suffered from the effects of the end of the baby boom. This led to a rapid process of concentration and development of oligopolies (where a few companies control a large portion of the market) as the key condition of continued growth.
This slowdown in growth in food purchases in the developed countries was partially offset by a number of new initiatives. The introduction of an increasing number of unprocessed specific varieties (instead of selling undifferentiated commodities), led to a truly unbelievable proliferation of processed food products, and a segmentation of markets. A new wave of investment promoted “non-traditional exports”—particularly seafoods, fruits, and vegetables, either off-season or exotic—from developing countries to metropolitan markets. There was also renewed attention to the potential of the domestic markets of developing countries where higher demographic growth rates and rapid urbanization were creating ideal conditions for food corporations to offset the slowdown in growth in developed country markets. In earlier periods, Latin American countries were the main focus of investments directed to domestic markets within the periphery. Now, attention was being redirected to Asia where many developing countries were experiencing sustained high growth rates.
During the 1980s, biotechnology, heavily dependent on patents, was revolutionizing the genetic and agrichemical inputs sectors. Concerted lobbying by these and the pharmaceutical sectors led to the developing countries’ acceptance of patents on food and as a precondition for joining the WTO. The seed, fertilizer, and chemical inputs sectors, particularly of those developing countries with an increasingly large-scale and export-oriented agriculture, as in the Southern cone countries of South America, were subject to new waves of market pressure from foreign-based transnationals.
But the input sectors were not the only areas for investment. There was a rapid growth of transnational involvement in the retail food sector of the South, which had been mainly owned and organized on a domestic basis. Some European corporations, particularly Carrefour, had entered developing country markets as early as the 1970s. However, it was only in the 1990s that a more generalized foreign corporate penetration of the retail sector got under way, first in highly urbanized Latin America and then in key Asian countries. European retail led the way here but was then accompanied by the U.S. Wal-Mart colossus. Urbanization in developing countries also brought with it a shift in lifestyles and food habits favoring the rise of convenience foods, which, in turn, stimulated the expansion and large-scale entrance of foreign corporations into the fast-food sector.
Concentration in Global Food Systems
The changing global dynamics of demand and the acceptance of the “free market” liberal approach by developing countries led to an increasing presence of multinationals in all phases of agrifood systems. This now includes direct foreign investment in land and water resources, stimulated both by the moves to grow crops for agrofuel feedstocks and by concerns with food security in an increasingly uncertain environment for world commodity trade.
Significant concentration of control of food and agriculture had already occurred in most advanced capitalist countries. In the United States, concentration ratios for the top four or five firms have been calculated for the major upstream inputs (materials, resources, energy, fertilizers, etc.) and downstream outputs (farm products, processing, and sales markets). The main segments have ratios averaging well over the 40 percent level—considered the threshold for a market oligopoly—and often in the 70-80 percent range. More recently, researchers have identified very high levels of concentration in the retail sectors of Europe and the United States.The major agricultural commodities that make up world trade are also subject to high levels of concentration—grains and oils, coffee, cocoa, and bananas. In addition, a substantial proportion of trade is now organized and coordinated by lead firms. This is particularly the case for the so-called non-traditional exports (seafoods, fruits, vegetables, and flowers), very often under the direct control of large-scale retailers. As much as a third of overall trade can be accounted for by purchases between the subsidiaries of the same firm, where prices are determined by fiscal (including tax) considerations.
In smaller market segments, there are even higher levels of concentration involving duopolies and even monopolies. And, although global food cartels have formed, often in oligopolistic markets, formal collusion is not necessary. Leading firms can adjust their respective behavior, creating an informal control over the market. The issue of market concentration, however, is not limited to individual markets. The major firms grow both horizontally (in like sectors) and vertically (integrating both downstream suppliers and upstream markets for a given industry)—leading to concentration and economic power that extends to broad sections of the agrifood system. It is this activity across market segments that transforms market concentration into a greater position of strategic economic power. Vertical and/or horizontal integration is now being complemented by strategic alliances with firms in complementary areas. This development is particularly noticeable in the agricultural inputs and primary processing/trade sectors.
Global corporate investment in the food industry was initially overwhelmingly within the leading industrialized blocs. While some firms established an international presence as early as the latter half of the nineteenth century, a more across-the-board incursion of foreign direct investment began in the 1980s. Leading agrifood transnationals are now increasingly geared to a global food commodity market.
The New Position of Emerging Countries in the Global
As mentioned earlier, two broad tendencies transformed North/South relations since the 1970s. In addition to being a source for traditional tropical exports, developing countries became increasingly important in the supply of the components of what has been called the “nutritional transition”3—the shift to a high animal protein diet (including seafoods) and the increasing consumption of fresh fruit and vegetables. This has provided opportunities for the expansion of domestic food companies in a few countries. Brazil and Argentina, together with Thailand, became major suppliers of animal feed and meat. Particularly in the white meats sector (poultry and pigs), this gave rise to domestic agribusiness firms—Sadia and Perdigão in Brazil, and the Charoen Pokphand Group in Thailand. More recently, there has been a similar surge of domestic firms in the red meat sector, with the Brazilian firm JBS/Friboi becoming the world’s largest firm in that sector. The Charoen Pokphand Group similarly embarked on regional foreign direct investment.
Foreign investment and increasing coordination have also transformed developing countries into major suppliers of seafoods, with a key driver being the explosion of shrimp-based restaurant chains in developed countries. This has involved new transnationals, such as the animal (and fish) feed company Nutreco, the entry into this sector of leading firms from the agricultural inputs and genetics sectors, such as Monsanto, and the emergence of domestic players.
Fresh fruit and vegetables have been piloted mainly by firms for which this previously unorganized market segment has become a key to establishing consumer loyalty. Early forays into the domestic markets of developing countries often had the character of enclave-type activities, with few or no linkages to their economies. Alternatively, they were aimed at a specific niche. Now, under the aegis of retail, the transnational objective has become corporate takeover of the domestic food systems of developing countries as a whole. In addition, this penetration now includes the large developing countries, often with strong states, with already consolidated agrifood companies, and with very distinct traditions and food habits. It also occurs in a context in which developing countries have become competitive suppliers in a number of markets, providing opportunities for the transformation of their leading domestic players into global actors.
Brazil in the New Global Agrifood System
While investments in Africa and Central Europe may change the equation in the coming decades, Brazil is emerging as the global supply source for a range of strategic agrifood commodities. As of 2007, it was the world’s leading exporter of red meat, poultry, sugar, coffee, and orange juice; the second largest exporter of soybeans, soy meal, and soy oil; the world’s third largest exporter of corn; and the fourth largest exporter of pigs and cotton. Its total cultivable area amounts to 340 million hectares, of which sixty-three million are currently under crops and 200 million dedicated to pasture. There are some seventy-seven million hectares of frontier land available without encroaching further on the Amazon forest or the Pantanal wetlands (the largest in the world). To this, we should also add the availability of agricultural land in Bolivia, Paraguay, and Uruguay, and the increasing integration of key agricultural sectors of Brazil and Argentina. While Northern markets are still important, other developing country markets accounted for more than 50 percent of Brazil’s agrifood exports in 2005. Although Brazil has strong national agrifood corporations, its domestic market—third in size in the developing world, behind China and India—is also a major target of global corporate investment.
Key multinationals have had an important presence in the Brazilian agrifood industry since its birth—Nestlé, Unilever, Anderson Clayton, Corn Products Company, Dreyfus, and the Argentine transnational Bunge y Borne (now simply Bunge). They were later followed, as different markets matured, by Kraft, Nabisco, General Foods, and Cargill from the United States, and United Biscuits, Bongrain, Danone, Parmalat, and Carrefour from Europe.
Although foreign capital has long been a key component of Brazil’s agrifood system, there appears to be a certain natural division of labor with national firms and the cooperative sector responsible for basic staples and multinationals occupying the “middle class” consumer segments and foreign trade—all under a more general tutelage of state regulation. Whole industries remained solidly domestic—sugar, coffee, and milk. The restructuring of the global animal protein complex after the Second World War, and the temporary United States embargo on its agricultural exports in the early 1970s after surprise Soviet Union purchases threatened domestic supplies, provided a unique opportunity for the emergence of a soy and white meats sector in Brazil under the control of domestic firms. Successive frosts in the Florida orange groves were to provide the stimulus for the emergence of an export-oriented orange juice sector also under the control of domestic firms.
A major poultry complex emerged in Brazil in the 1980s, made possible by the combination of an explosive growth in the domestic market, the availability of new technology, and the opening of important export markets, particularly in the Middle East. Domestic firms became consolidated and the largest of these—Ceval, Sadia, and Perdigão—assumed a leading role in the expansion of animal feed, particularly the soybean portion. They became important players in the development of the crushing industry on the new frontier land opened up by the advances of public sector research that created soy varieties adapted to the vast savannah regions of Brazil’s interior. Brazilian firms also began to challenge multinational hegemony in the more brand-dominated markets of margarines and vegetable cooking oils. By the end of the 1980s, Ceval was the largest soy processor in Latin America, responsible for as much as 20 percent of total production.
All this was to change in the deregulated climate of the 1990s, with national firms being displaced by transnationals, particularly in the soy complex. Ceval was bought by Bunge, and Perdigão, along with Sadia, retreated from the soy sector, the latter selling its operations to Archer Daniels Midland (ADM, marking this company’s entry into Brazil). Some regional players have survived, and a new group around the now State Governor of Mato Grosso, Blairo Borges Maggi, has established a firm position in the expansion of soy in the north of the country. The majority of the country’s soy crushing and trade, however, is now in the hands of the four leading global players—Bunge, Cargill, ADM, and Dreyfus. Crucial to their dominance has been the control of these groups over fertilizer supplies, both in Brazil and globally, a key input for grain and oil seed production. Decisive, too, has been their access to financing at a time when public credit was in retreat. Perdigão and Sadia remain leaders in the white meats sector, but there has been a strong entry of transnational companies—with Doux the leading French poultry producer, ARCO from Argentina, Cargill, Bunge, and most recently Tyson from the United States now accounting for around 20 percent of Brazil’s exports in this sector.
This transnational takeover of large portions of the soy complex has been complemented and accelerated by radical changes in the control and sale of seeds. The public agricultural research system was decisive in the development of varieties, allowing the advance of the soy frontier into Brazil’s savannah region. This was complemented by the emergence of a national private seed industry which dominated the then new hybrid technology. Biotechnology and the recognition of plant protection rights and patents led to a rapid transformation of Brazil’s private seed sector, so that it is now dominated by the transnational corporations Monsanto, Syngenta, and Dupont, and to the weakening of the public research system, which, in many respects, has become tributary to these firms’ proprietary control over strategic genes. A strong social movement and NGO resistance, including a legal battle, was waged to block the introduction of transgenics (GMOs, i.e., seeds with genes introduced from other species). Nevertheless, these seeds now dominate soy production and are advancing in corn and cotton. Similar processes have occurred across most sectors.
The U.S. Sara Lee Corporation and a range of European firms have moved into coffee, particularly the coffee-roasting sector, and have now established a dominant position in the important domestic market. Foreign investment is now becoming particularly notable in the sugar/alcohol complex, involving traditional and non-traditional actors, especially global investment funds. It is predicted that, within a decade, this sector, until recently almost exclusively domestic, will be dominated by global firms. However, domestic groups, such as Cosan and Copersucar, have recently also been involved in major restructuring, and it is possible that important Brazilian firms will maintain a strong foothold. With the exception of the sugar/ethanol complex, this transnational onslaught has largely taken the form of acquisitions that squeeze out local firms and accelerate concentration. Concentration has not reached U.S. levels but most sectors are moving rapidly towards oligopoly conditions.
This is nowhere more evident that in the retail sector. We saw above that Carrefour entered Brazil as early as the 1970s, but a more wide-ranging transnational offensive began in the 1990s, particularly the early years of the current decade. Wal-Mart is positioning itself to become the leading player in Brazilian retail by the end of the current decade. At this time, three firms—Pão de Açúcar (a national firm but with a 50 percent participation by the French company Casino), Carrefour, and Wal-Mart—control the sector, accounting for some 40 percent of total sales and eliminating regional Brazilian retailers.
Local versus Foreign Capital in Brazilian Agrifood System
What preliminary balance sheet can we make of the current dynamic of foreign transnational corporations’ attempts to dominate the Brazilian agrifood system? At first sight, the global advance of metropolitan players seems irresistible.
In some regions and sectors, however, transnational dominance seems less inexorable. The sharp shift in Brazil’s agricultural frontier—moving from the Southern States to the Center-West and now to the North of the country and requiring new investments in processing, transport, and logistics—may open the way for national players to extend their influence, particularly given the importance of public investments and state support. Brazil has had some success in the development of its own transnational agribusiness corporations. Both Sadia and Perdigão, in the white meat sector, have initiated foreign investments in Europe and elsewhere. Leading national players in the sugar/ethanol sector are also investing in Latin American and African countries. In the space of a generation, the convergence of a series of favorable internal and external factors has led to the emergence of new players in the red meats sector—JBS/Friboi, Bertin, NS Marfrig—which have successfully dominated the national market and are now advancing regionally and globally.
Tyson, Conagra, or Cargill might, of course, eventually absorb the Brazilian players, both in the white and the red meats sectors. Nevertheless, it would seem that factors under the control of national governments are still decisive in determining the degree of foreign transnational domination, particularly in sectors where national capital has specific advantages in terms of knowledge of the terrain and know-how in dealing with complex agricultural supply chains. The successful consolidation of national players, however, only reproduces the oligopoly structures characteristic of the dominant transnational players. In order to stay competitive, they will need to transform themselves into transnational corporations. The consolidation of developing country transnationals is important—both from the perspective of lessening the economic power of the core capitalist countries and to the extent that it reinforces the influence of developing country governments in the construction of the emerging global food order. However, for the farmers and public it will make little difference whether the oligopolies are in the hands of Brazilians or foreigners.
China: The New Focus for Agribusiness
The large size of China’s imports, exports, and domestic urban food market has made it a focus of foreign investment, particularly of downstream activities such as processing and retail. In contrast to Brazil and many Latin American countries that readily adopted neoliberal reforms, China remained outside the WTO throughout the 1990s and was able to maintain greater control of trade and investment flows. The Chinese government has traditionally conditioned foreign direct investment on the establishment of joint ventures with local capital and agreements on technology transfer.
Although China’s agriculture has responded remarkably to the new demands of an increasingly urban middle class of some 150-200 million, it is now heavily dependent on soy imports, a dependency that will likely extend to other key commodities—corn, dairy products, poultry, and red meat—as land and water resources become scarcer, and as lower tariffs and a loosening of state control are put into place. China is a key exporter of seafood, fruits and vegetables, and processed food products. The main driver of its agrifood system, however, is the increased domestic market resulting from rapid urbanization in the context of sustained and high economic growth. And in 2008, China became a net food importer for the first time. In only ten years, it has become not only the world’s leading soy importer but also now accounts for more than 50 percent of global imports, a percentage that is projected to increase steadily in the coming decade. China imports unprocessed grains, rather than the meal imported by European countries. Global traders have, therefore, sharply increased their investments in crushing facilities in China, taking advantage of the greater deregulation of this market following WTO membership.
A new crushing industry has emerged in China’s coastal region, and some estimates put the global traders’ share here at 70 percent, led by ADM/Wilmar in partnership with COFCO, the largest state grain company, followed by Cargill and Bunge. Domestic soybean production, largely situated in the Northeastern provinces, has stagnated at some 16 million tons, and the pulverized crushing industry (for soy oil production) that served this region is in crisis, although some domestic firms, like the Huanong Dalian group, are now restructuring and investing also in the coastal regions. In addition to supplying the expanding Chinese domestic market, it appears that China is becoming the principal base for soy meal exports to the rest of the Asian region and particularly to Japan, whose crushing industry is also investing there. The advance of the transnationals is provoking reaction among the domestic soy sector and apparently also at the state level. Imported soy is cheaper than domestic production, creating greater margins for the international crushers and leading local firms also to source from imports at the expense of local production. Both a national and a regional soybean association were formed in 2007 and a call has been made for restricting foreign investment in grain storing and processing facilities.
The food price rises of 2007-8 have sharpened criticism of the global traders, and there is evidence that China is now reviewing its policy on foreign direct investment. Chinese investments in vast agricultural projects in Asia, Africa, and Latin America, aimed at exports to its domestic market, point to the adoption of an alternative strategy for ensuring food security that may eventually challenge the hegemony of the global traders. Such a strategy, however, is not without its risks, and the hostile reactions to similar investments on the part of South Korea in Madagascar serve as an alert.
While the new dynamic of global trade has tended to reinforce Brazil’s agricultural commodity export profile, China has established itself as an important exporter of “consumer oriented” and processed foods—even though, as in the case of soy, it tends to import raw materials. Global corporate investment complements this dynamic, as foreign firms are attracted both to China’s domestic market and to its role as a regional exporter. Here, again, the promotion of foreign direct investment has led to the entry of a wide range of transnationals and regional firms in food processing. To date, only about 5 percent of China’s supermarket products is imported, a situation that, however, may well change as global retail supply chains are put into place.
At the high-value-added end, as in the case of the chocolate industry, for which China is now the second largest market, investment by transnationals has largely led to a takeover by such global players—Dove, Cadbury, Hershey, Ferrero, and Barry Callebaut. In other sectors, however, the entry of foreign firms has been challenged by local and regional actors, after they copied the new competitive practices introduced by global corporations. Global players from Europe in dairy and drinks ceded ground to the leading regional players in the Chinese market—President from Taiwan, Charoen Pokphand from Thailand, Sinar Mas from Indonesia, and Kerry from Malaysia. Domestic firms were also strengthened in this process.
Foreign investment by global corporations is well entrenched in the food service sector, which has grown at over 10 percent annually for some fifteen years, and tends to rely on transnational food processors such as ADM for their ingredients. Yum Brands has some three thousand outlets (KFC, Pizza Hut, Pizza Hut Home Service, East Dawning Restaurants) in five hundred cities, and aims to be market leader “in every significant food service category in mainland China.”
China’s reputation as a processed food exporter, already tarnished by earlier scandals, has been severely damaged by the identification of melamine contamination, initially in animal feeds and later also in milk-based baby foods and soy ingredients. It is not clear what the long-term impact will be on China’s food processing industry, but the Japanese food industry has seen this as an opportunity for increasing its influence, using its high food standards as a marketing advantage.
It is retail, however, that will define the dynamic of China’s role in the global restructuring of the agrifood system. In the 1990s, it seemed that foreign efforts to dominate the sector had failed. However, the situation has changed dramatically in the current decade, as the combination of hypermarket and convenience stores promoted by the key global players—Carrefour, Wal-Mart, Macro, Metro, and Tesco—has put the leading domestic players on the defensive. In addition, the consolidation of modern retail and the expansion of Wal-Mart may open the way for increased imports of consumer food products, a strategic goal of the U.S. food industry. At the same time, leading domestic retail chains are also internationalizing, as in the case of Lianhua, which expanded to Europe in 2003.
In the 1990s, China encouraged transnational corporate investment in partnership with domestic firms, and global players are now firmly in place in trading, food processing, and retail. The major global seed firms—Monsanto, Dupont, Syngenta, and Limagrain—are also involved in joint ventures with Chinese seed companies and research centers. While new regional actors have emerged, the historic global traders seem to have successfully repositioned themselves around the new Southern Cone-China axis. Their success, however, is beginning to provoke warning signals, particularly as China is completing its adjustment to the conditions of WTO membership. In 2008, China enacted legislation, removing fiscal incentives for foreign direct investment, a measure interpreted as part of a broader strategy to inhibit such investment and promote the international competitiveness of Chinese business. In 2008, investment by Japanese and European corporations fell 20 percent and by the U.S. 10 percent. These measures coincide with China’s aggressive investment plans to establish agricultural supply bases in Asia, Africa, and Latin America to lessen dependence on the uncertainties of global trade.
The rate at which a global agrifood system is being consolidated is still uncertain.20 Nevertheless, there has been a long-term trend toward the reproduction of the oligopoly structure of the United States and European markets on a global scale. Although the Brazilian and Chinese cases make clear that the promotion of domestic agribusiness corporations may be possible for some economically strong emerging economies, allowing them to defend their national interests, this is obviously only achieved by copying the scale of operations and oligopoly structures of the global corporations. In addition, the changes in Brazil and China suggest that the leading domestic players in even the larger countries are assuming a subordinate role in global restructuring, under the leadership of the rich-country transnationals. Moreover, even if the preservation and growth of domestic agribusiness proves feasible for a few large, emerging economies, such as Brazil and China, it is clearly not a viable path for the many smaller countries across the world that are too small and too poor to compete on this basis. The issue of economic power and concentration in food systems thus remains a vital concern of civil society, trade unions, and international bodies.