Food supplies in a globalising economy

Food supplies in a globalising economy The role of transnational corporations (TNCs) in food production, processing and distribution

Starter A TNC is a company or corporation with branches all over the world. The Headquarters can be based anywhere in the world but production tends to be based in newly industrialising countries due to the strong work ethic. A TNC is a company or corporation which employs over 5000 people. The headquarters and production are concentrated in MEDCs where there are more skilled workers and better communications available. However their products are transported to markets all over the world. A TNC is a global company or corporation with branches all over the world. The Headquarters and research and development tend to be based in MEDCs such as the USA or Japan where there is a skilled workforce. Production is often, but not always, based in LEDCs where labour is cheaper and there are fewer regulations.

Learning objectives • To understand the role of TNCs in food production, processing and distribution.

The role of TNCs A TNC is a company or an enterprise that manages production or delivers services in more than one country. Headquarters tend to be located in the home country with operations in several other countries, known as host countries. What has this got to do with food supply? TNCs are involved in every stage of the food industry!

Recognise these? Behind the many different brands names for foods that are consumed worldwide, there are a small number of invisible giants!

Key term: Agribusiness This is a generic term that refers to the various businesses involved in food production. E.g. farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing and sales. A small number of such companies dominate each part of the food chain in MEDCs.

Key term: Horizontal integration This is when a small number of firms operate at one stage in the supply chain (e.g. coffee growing), leading to market power and large profits. Fact! 60% of the McDonald’s meals eaten worldwide contain wheat supplied by Cargill. Look at the case study box on page 233. What does it show?

Key term: Vertical integration This is when one company either owns or controls (through joint ventures) multiple stages in a supply chain. For example, Dole owns plantations and canning facilities, and has the marketing power to shippineapples from plantations in the Philippines to consumers all over the world.

Corporate control of the global food chain The role of large agribusinesses in the agricultural market is increasing! This dominance has attracted huge criticism.

Or…

Activity: Nestle fact hunt! There are facts about Nestle hidden in the room. You have four minutes to see how many you can find!

Nestle’s role in food production Nestle is a vertically integrated agribusiness, employing approximately 281,000 people in some 443 factories worldwide. Nestle is not only Switzerland's largest industrial company, but also the world's largest food company in terms of revenue. It is the world’s largest manufacturer of pet food, mineral water and coffee, and is fast increasing its share of the ice cream market!

We are going to focus on the role of Nestle in the production, processing and distribution of coffee…

Activity: Why is has Nestle received so much criticism? On your desk is some information on Nestle. Use this information to complete your table to show the criticisms of Nestle under the headings: Social Political Economic Environmental Write in detail! You will be using this information to answer an exam question.

General problems • Use of GM ingredients. • Purchasing cocoa and coffee from ivory coast, renown for using child slavery on its plantations to reduce labour costs (109,000 children employed). • Children work punishing hours with dangerous tools, and are robbed of an education. • Demanding US$6 million in compensation from hunger stricken Ethiopia. • Unethical marketing of baby milk powder.

General problems Dominance of food supply chain means that they are able to dictate terms and conditions to small farmers and suppliers who are forced to produce more at ever decreasing margins (e.g. Ethiopian coffee farmers).

Environmental issues • Selling coffee with illegal origins (supply chain). • Nestle buy coffee which is grown illegally in The Bukit Barisan Selatan (BBS) National Park, a world heritage site in Sumatra. • The park is renown for critically endangered tigers, elephants and rhinos. Many animals have abandoned the area. • Environmental destruction in Brazil.

Food supplies in a globalising economy The role of transnational corporations (TNCs) in food production, processing and distribution Exam technique practice

Exam question 1 Name a major TNC involved in food production, processing or supplying food and outline its role in food supply in a globalising economy (4)

Exam question 1 Name a major TNC involved in food production, processing or supplying food and outline its role in food supply in a globalising economy (4) Pick apart the question – decide what the focus of the question is Nestle

What is Nestle'srole in food supply? Horizontally integrated agribusiness Largest food processing company in the world HQ in Switzerland Employs over 281,000people in 443 factories worldwide Largest manufacturer of pet food, mineral water and coffee Coffee is grown in many LEDC’s such as Indonesia, exported to USA for processing then distributed worldwide Get across the theme of a globalising economy!

A model answer? Nestle is a horizontally integrated agribusiness, and the largest transnational food processing company in the world. The headquarters are in Switzerland, but Nestle employs approximately 281,000 people in some 443 factories worldwide. Initially Nestle was founded on powdered milk, but today it is the world biggest manufacturer of pet food, mineral water, coffee and ice cream. In terms of coffee and cocoa, its role in food supply is one of production and processing, although it’s products are exported and marketed all over the world. Coffee is grown in LEDC’s such as Brazil and Indonesia and then exported to countries such as the USA where it is processed in factories. Coffee is then shipped all over the world under the name of Nescafe. Use the mark scheme to mark the answer above. How could you improve the answer?

Activity: Answer the question • Remember, the devil is in the detail! • If your answer is wishy washy and vague you will not get out of level 1. • To get into level 2/3 you need to include specific characteristics of Nestle in the context of the question.

Exam question 2 In recent years TNC’s have had an increasing role in the production, processing and distribution of food. What reservations have been expressed about the increasing importance of such companies? (15) Pick apart the question – decide what the focus of the question is

Exam question 2 In recent years TNC’s have had an increasing role in the production, processing and distribution of food. What reservations have been expressed about the increasing importance of such companies? (15) Name TNC and relate back to question Describe the problems with such companies? Can you categorise them/ back up each negative point with an example. Approach like a mini essay!

Introduction Briefly introduce Nestle, with some evidence to support that it is a TNC Swiss company Operates in 443 factories worldwide Largest food processing company in the world Largest manufacturer of pet food, mineral water and coffee

Main body Describe the reservations (negative aspects) about Nestle. Try to categorise the reservations you have identified. Stick to around 3 or 4 max! Each reservation must be firmly grounded in / supported by a detailed example or case study.

In brief… Environmental Environmental destruction and degradation Socio-economic Use of child labour Political Dictates terms and conditions to farmers

WHY? SO WHAT? Describing = link together and REASONS FOR SOMETHING RESULTS OR EFFECTS OF SOMETHING

AS A RESULT SO MEANING THAT LEADING TO THEREFORE CONSEQUENTLY CONSEQUENCES or EFFECTS Something happens… Something else happens

…of suppliers destroying protected areas of forest to grow coffee for Nescafe, a brand of Nestle. AS A RESULT A BASIC (or GATE) DESCRIPTION (Level 1) (The way in to the answer) Nestle has been criticised for using environmentally damaging processes…

...endangered species of tiger and rhino abandoning their habitat in Sumatra LEADING TO A CLEAR or STEP-UP EXPLANATION (Add some more detail to relate the point you have made back to the original question) Level 2 ...of suppliers destroying protected areas of forest to grow coffee for Nescafe, a brand of Nestle. AS A RESULT Nestle has been criticised for using environmentally damaging processes…

Many critically endangered species are under threat, including elephants, rhino and the Sumatran tiger, as they are forced to leave their habitat. Some 45,000 hectares of land have been cleared and it is estimated that there are just 400 Sumatran tigers remaining, and they will become extinct in the next decade. CONSEQUENTLY AS A RESULT A LADDER EXPLANATION (The answer is built up, and is firmly grounded in the context of a detailed case study) Level 3 20% of protected forest in the Bukit Barisan Selatan (BBS) national park in Sumatra has been destroyed. This is because coffee is being grown illegally by suppliers, then mixed with legally grown coffee beans to boost profits. The beans are then bought by companies such as Nestle and Kraft. Nestle has been criticised for using environmentally damaging processes in countries with lenient environmental regulations, such as Indonesia.

A model answer? Firstly, companies such as Nestle have been criticised for their environmentally damaging processes in countries with lenient environmental regulations. In Sumatra, Indonesia coffee is grown illegally in a protected area of forest which is home to many endangered species such as Sumatran tigers, elephants and Rhino. As a result of illegal agriculture it is estimated that 20% of the forest has been degraded, covering some 45,000 hectares resulting in wildlife abandoning the area. It is thought that the tigers will be extinct in less than a decade, yet Nestle continues to source coffee from the area.

A model answer? Now do the same for the social, economic (or socio-economic if you prefer) and political issues associated with Nestle.

A model answer? Referring back to the original question, summarise the main reservations people have about TNCs like Nestle. You could balance the argument by briefly outlining some of the more positive aspects of TNCs!

Food supplies in a globalising economy