Transnational Corporations and the Globalization of the Food System

Transnational Corporations and the Globalization of the Food System William D. Heffernan and Douglas Constance

TNC’s play a central role as coordinators of the food system because they are dominant actors creating a global agri-food complex based on the concept of global sourcing. • Knowing this, we are able to understand the implications of global restructuring of rural areas and food systems.

Commodity System at a Global Level • Friedmann, McMichael, Sanderson use this method to deal with the emerging global nature of the food and agricultural system. • Created by TNC’s, headquartered in industrialized countries. • Buttel and Goodman suggest that the commodity system involves the study of production of agricultural commodities. • They are a system of technical and manufactured inputs incorporated into a labor process • In this process, commodities are produced, processed, and marketed in distinctive industrial structures.

Nation-State Approach • Economists use Ricardo’s concept of “comparative advantage.” • This model ascertains what commodities each country should produce. • Modernization theory (Rostow) is based on the development of cash crops produced in developing countries. • These cash crops can be used to prime the pump of industrialized development.

Nation-State Approach (cont.) • This approach assumes that countries trade with other countries and the nation-state controls the trading process. • However, the increasingly global nature of food calls the usefulness of this approach into question. • Constance and Heffernan contend that significant forms of trade involve companies selling to other companies. • The companies are sourcing inputs and markets while countries are balancing accumulation requirements with legitimation demands.

Nation-State Approach (cont.) • Sanderson argues this nation-centric model fails to understand the underlying “dynamics of change at the level of the global system.” • Brings to attention the core of the new international division of labor: the transnational organization of the labor process. • This integration and coordination of capital across borders is organized by internationalized capital via TNC’s. • This affects the nation-states capacity to govern the process of capital accumulation, let alone to set an agenda on purposive action in food security, employment, or rural development.

Nation- State Approach (cont.) • Agriculture has been restructured in response to the demand of transnational agro-food corporations. • This shadows the idea of nations as an organizing principle of the world economy. • Nation-states reinforced by international payment system and undercut by transnational restructuring of production. • This reinforces that nation-states are not powerless, but simply needed by the TNC’s in the short term to secure access to markets.

Constance and Heffernan’s Research Project: From Commodity System to Transnational Corporation • Examines entire food system of the United States: Cross Commodity Conglomerate Analysis • Focused attention on the emerging global food system (beginnings in 1989)

The First Stage: Vertical Integration • Heffernan investigated the implications of the structure of the broiler industry for the quality of life in rural areas dependent on broiler production. • Found that farmers organized as independent or contracted farmers contributed to a higher quality of life compared to surrounding communities of hired employees.

Broiler Industry • First livestock commodity to be rationalized and integrated by capital; during WWII US government rationed beef and pork products, but not chicken. • Federal subsidies were provided to increase broiler production. • Subsidies assisted with research dealing with confinement housing, improved feed conversion ratios, genetic uniformity, and improved health conditions. • State subsidies help transform these sideline operations to integrated operations. • Used confinement production • Production contracts • Assembly- line processing

Broiler Industry (cont.) • During WWII broiler productions were located in Delaware, Maryland and Virginia. • Many independent broiler growers had marketing contracts with the US government. • As a result of wartime research, the application of science to broiler production decreased risks associated with production. • Confinement allowed for a controlled environment. • Integration of feed production, broiler production, and broiler processing allowed integrating firms to take advantage of economies of scale and reduce costs.

Broiler Industry (cont.) • Reduced costs/reduced uncertainty attracted new capital investment. • Integration progressed rapidly! (By 1960, 93% of broiler production was contracted.) • Delmarva growers did not embrace this process; when integrating firms approached Delmarva producers, they resisted and refused to be integrated. • Integrating firms moved south where desperate farmers eagerly embraced broiler contracts in order to keep their farms. • State supported growing industry • stepped in and provided Farmers Home Administration loans to build growout houses.

Commodity Systems Approach and the Broiler Industry • All firms are producing one commodity. • Components of approach are • Labor • Technology • State policies • By 1990, fewer than 60 integrated broiler firms controlled production. • Top 4 firms controlled about 45% of the industry. • Throughout the 80’s, there was a mixture of large TNC’s as well as smaller, independent firms. • Concentration of firms occurred throughout TNC’s and non-TNC firms.

Recently • In most food commodities, there has been a progression from independent production to a highly integrated system characterized by either contract or corporate production. • Broilers: by 1960, most independent production had ended. • Last two decades have been a transition from contract to corporate production.

State Policy Affecting Broiler Industry • Farmers Home Administration continues to support some financing of broiler growout housing. • Land-grant universities continue broiler production research. • State subsidizes promotion of broiler exports through various programs. • Targeted Export Assistance Program

State Policy Affecting Broiler Industry • Environmental regulation involves: • High levels of water usage by processing plants and resulting sewage treatment problems • Litter disposal • Health concerns related to salmonella and other diseases • These issues highlight the conflicting role the state plays in broiler production: • Supports production • Regulates an industry that is a major environmental polluter

Broiler Industry Conclusion • Confinement production and assembly-line process reduce the “natural” aspects of commodity production. • Broiler industry is more similar to a factory process than a farm • Technology is transferable to any location where adequate feed and low-cost labor are available (taking into account supportive state policies)

The Second Stage: Conglomerate Integration • Constance and Heffernan expanded research in 1986 to other food commodities • Sought to determine which firms were dominant in each major food commodity • Methodology employs in-depth search of agricultural trade journals • Reviewed trade publications to track activities of dominant firms and establish market shares • Issues of efficiency versus power as industries move from relatively competitive structures to oligopolistic structures are focus

Conglomerate findings • Argue that firms use their economic power to reduce uncertainty as well as maximize profit • Agricultural economists have documented rise in economic concentration in food processing industries. • Findings indicate that the same firms had dominant market shares across many of the commodity sectors and that dominant firms tend to operate in concentrated markets.

Dominating Firms • ConAgra • largest turkey processor, sheep slaughterer, flour miller, seafood processor • second largest broiler processor, beef processor, pork processor, cattle feedlot, and catfish processor • fourth largest dry corn miller • fifth largest multiple elevator company

Dominating Firms • Cargill • Archer Daniels Midland • Philip Morris (General Foods, Kraft, Louis Rich, Oscar Meyer) • Tyson • Grand Metropolitan of England (Pillsbury) • Chiquita

Conglomerate findings • Only a few firms, most of them TNC’s, control the production, processing, and export of many agricultural commodities in the US. • Crisis of capital led Reagan administration’s deregulation and decreased antitrust enforcement by the US state.(1980’s Merger Mania) • During the 1980’s, the US government switched from an economic ideology which advocates high levels of government regulation to an economic ideology which advocates a climate of deregulation. • This switch was triggered by failing US hegemony in global markets.

Conglomerate findings • Firms that survived were large conglomerates diversified enough to adjust to commodity cycles, take advantage of economies of scale, and powerful enough to avoid being driven or bought out. • Livestock producers during this time were increasingly integrated via production contracts with large TNC’s. • Midwestern hog farmers had traditionally resisted production contracts, but the farm/debt crisis of the 1980’s pushed many to take a contract or lose their farm.

Nation-State unit of analysis • Several of the large firms producing broilers are not broiler firms at all, but globally integrated TNC’s. • Contract and corporate integration are progressing in the livestock industry while high levels of economic concentration are uniform in grain processing industries. • State is loosening up antitrust policies to attract capital investment and accumulation.

The Third Stage: Global Integration • Activities of TNC’s= unit of analysis in third stage • During the 1980’s, literature on globalization of the agriculture and food system was growing. • Friedmann and McMichael’s framework was useful for empirical investigations. • Framework used Aglietta’s concept of historically contextualized food regimes along with Sanderson’s concept of global sourcing.

Global Integration • Argued that TNC’s, mostly US- based, are creating a new food regime. • New regime labeled a global agri-food complex, based on global sourcing.

Global scale • The firms that dominate US poultry industry are also the most active in global poultry production. • Joint ventures of TNC’s are literally transnational: • Tyson Foods has a joint venture agreement with C. Itoh of Japan to produce broilers in Mexico for consumption in domestic markets and for export to Japan. • Tyson ships leg quarters from chickens grown in the US to Mexico for further processing for Japanese markets (cheaper labor in Mexico).

Further research • Constance and Heffernan conducted a later study focusing on TNC joint ventures in the Soviet Union, Eastern Europe, and the People’s Republic of China. • Study showed the same firms active in the food production and processing industries. • TNC’s are creating a global agro-food complex based on global sourcing of input sites and output markets.

Large Global Food TNC’s • Data shows that TNC’s have a more global vision of food system coordination than any nation-state. • Nation-states are more passive “receivers” of commodities produced through global production systems. • Local, regional, and national attempts to resist the global roles assigned based on the comparative advantage of the TNC’s.

Conclusion • TNC’s have a vision of the global economic system, including a global food system • Their unique access to information gives them the power to influence the domestic-affairs of nation-states • Nation-states depend on TNC’s for information related to agricultural production and trade

Conclusion • If part of a nation’s mandate is to provide food security for its people, then is it wise for nations (both rich and poor) to become dependent on TNC’s for food? • Alternatives remain for local organization of food: organic markets, local farmers’ markets, community supported/shared agriculture, and other nonintegrated sources. • Several authors have called for the development of a global political organization to regulate the activities of TNC’s.

Transnational Corporations and the Globalization of the Food System