Globalization & the Reconstruction of the Agri-Food System
In December 2005, anti-liberalization and antiglobalization protest groups around the globe gathered in Hong Kong where the Sixth World Trade Organization Ministerial Conference was being held. Farmers’ groups that were part of the Hong Kong gathering took the position that agricultural trade rules should be impartial to all World Trade Organization (WTO) member countries and not determined by a handful of agriculture-exporting countries. What suddenly prompted these farmers to come together in this way over the issues of food sovereignty and the expansion of farmers’ rights?
In today’s complex, integrated agri-food system, which covers everything from agricultural input materials to agricultural consumer products, even farmers, who are themselves consumers of agricultural products, are not aware of where and how the raw materials of these products are made and processed. Since the late 1980s, the liberalization of the agri-food sector has been rapidly taking place on a global scale in both developed and developing countries. In short, the agri-food system is undergoing reconstruction. This is paving the way for the global integration of all social participants, ranging from farmers to consumers, transcending national borders—with transnational capital at the heart of this integration. Accumulation of “capital sans nationality” has begun to expand worldwide.1 As a result, economic power has been transferred from a particular region or the national economy to transnational corporations and multinational organizations.2
Currently, the globalization of the agri-food system is taking place on two levels—space and sector. From the perspective of space, the phenomenon of agriculture specialization can be observed in both regional and production units. From the perspective of sector, changes can be seen ranging from the directly consumed agricultural products, such as fruits and vegetables sold in local markets, to the production of agricultural products that are used as raw materials for large-scale food processing systems, such as the fruits and vegetables sold to processing companies. All told, the modern agri-food system is a highly integrated system that encompasses production of material inputs to farmers, farm production, processing, distribution, and consumption.
According to William Friedland, the agri-food complex plays a major role in controlling the linkages between farmers and consumers.3 Transnational agri-food conglomerates (TNACs) are the main force in the integration of the modern agri-food system, and transnational organizations, such as the WTO, World Bank, and International Monetary Fund (IMF) are reinforcing this. To illustrate this point, TNACs, such as Cargill and ConAgra, are doing business by transcending national borders in all areas of agricultural production, including grain processing, mixed feeds, meats, dairy products, canned fruits, cereals, and condensed drinks; they are also entering the agricultural production materials industry, such as seeds, fertilizers, and agricultural chemicals. They have realized higher profits through the economies of scale in food processing, and intensified their specialization of production to increase their control on a global scale. For example, as Jim Prokopanco of Cargill said, “Cargill produces phosphate fertilizer in Tampa, Florida. We use that fertilizer in the U.S. and Argentina to grow our soybeans. Soybeans are then processed into meal and oil. The meal is shipped to Thailand to feed chickens, which are processed, cooked and packaged so they can be sent back to supermarkets in Japan and also to Europe.”4
The Visible Giant
TNACs have been resorting to mergers and acquisitions as a fundamental tool in pursuing diversification. According to the U.S. ranking of the agri-food-related conglomerates, ConAgra is first in terms of market share in the turkey and lamb meat processing, as well as flour production, and ranks high in other food processing categories. Cargill also ranks first in the multinational grain warehousing category, which is related to grain transportation and sales, and second in processing soybeans and corn.5
In recent decades the U.S. meat processing industries have grown increasingly concentrated. The four-firm concentration ratio, that is, the market share, as a percentage, of the four largest firms in the industry, grew from 36 percent in 1980 to 81 percent in 2000 in beef processing, 34 percent in 1987 to 50 percent in 2001 in pork processing, and 30 percent in 1986 to 50 percent in 2001 in broiler poultry processing. The market shares of the four largest grain processors rose from 40 percent in 1982 to 61 percent in 2000 for wheat, 63 percent in 1977 to 74 percent in 1997 for corn, and 54 percent in 1977 to 83 percent in 1997 for soybeans.6
The concentration ratio of large-scale firms in the food and beverage industry in the United States is also showing a similar trend. In 2000, top-ranked Phillip Morris’s annual sales reached $30.9 billion, while ConAgra was second, followed by Cargill. ConAgra is the world’s fourth-largest food and beverage company with a business presence in thirty-two countries.7 It is also the largest agricultural chemical and fertilizer manufacturer in North America and it entered the seed industry in 1990. In other words, ConAgra dominates the important areas of the agri-food system, ranging from the most basic raw materials in agricultural production to retailing. Cross-subsidies—supporting competitive efforts in one market with profits diverted from operations in another market—are one of the factors that facilitate such a company’s entry into various markets. Even if it suffers a big loss in a particular market, it can still survive in the long term by showing profit in other markets. From this perspective, these giant corporations are pursuing diversification more to expand their market share than to enhance efficiency. Market dominance is now the main determining factor of survival in today’s agri-food system.
Since the 1990s, an explosion of mergers and acquisitions among agrochemical firms, that is, seed firms and pharmaceutical firms, has led to the formation of giant conglomerates and business groupings that control these inputs. TNACs have been trying to forge ties with agricultural bio-engineering companies, which are diversifying their business portfolio by reinforcing their connections with agrochemical, seed, and pharmaceutical companies. Although Cargill has not been able to gain access to the bio-engineering industry, it has been able to strengthen alliances with Monsanto after selling its international seed business to Monsanto. Since taking over the seed company and genetic engineering companies both within and outside the United States, Monsanto now has access to a large range of genetic resources. After purchasing the seed company Delta & Pineland, Monsanto has also emerged as the number one U.S. company selling bean and corn seeds. This shows that Cargill and Monsanto, which are competitive at every level of the agri-food system, can easily merge as partners to dominate the agri-food system. Furthermore, it is said that Cargill has concluded a long-term beef delivery contract with Kroger Co., which has one of the highest market shares in food retailing in the United States.
Agri-food conglomerates are also reinforcing their dominance in the agricultural industry through the expansion of contract farming and vertical integration. Contract farming, which is becoming increasingly important not only in developed countries but also in developing countries, is basically a form of risk diversification between farmers and companies. Under contract farming, farmers provide the land and the building, which is equipped with the facilities indicated in the contract, and they also provide the labor necessary for production. Contract farming is an industrial model where companies pursue outsourcing to get the raw materials they need.
Contract farming differs from vertical integration, which takes place when the upstream stages and the downstream stages of agricultural production are brought within a single company. Examples of vertical integration include when the agricultural product processing company expands its business to the production of raw materials, or when an agricultural distribution company expands its business into the agricultural product processing area. However, both contract farming and vertical integration allow the companies to expand their control of agricultural production processes and farmers. In the United States, sugar cane and sugar beets have been produced by either contract farming or vertical integration for many years. Likewise, 90 percent of seed-producing crops have been produced in a similar manner. Broiler poultry are also mostly produced through contract farming and vertical integration, and 88 percent of turkey products are produced in the same manner.8 A few large-scale agri-food conglomerates dominate such areas as fresh fruits and vegetables. Against this backdrop, farmers are losing ground in the production area. They have fallen to the status of a laborer and the agri-food conglomerates are able to dictate the terms of their contracts.
TNACs’ Black Strategy and Revolving Doors
With the information they collect, TNACs have the ability to influence the agriculture and agricultural policies of nations around the globe. With their abundant capital they secure global sources of various raw materials. They purchase agricultural raw materials in the markets with the lowest prices, and after processing, they sell them in markets with the highest prices. Also, they endeavor to increase their profits through foreign direct investment and multinational “multi- domestic” strategies. Each production process is transformed and allocated in line with the economic environments of different countries. They allocate labor-intensive processes to low-wage countries, environmentally burdensome processes to countries with lenient environmental regulations, and capital-intensive processes to their own countries. Further, they seek excess profits by pursuing various cost-reducing or profit-increasing methods.
In the case of agricultural consumer foods, it remains difficult to design a production process that is globally uniform, unlike industrial products, and the production of agricultural input material. The consumption of processed food must generally conform to a given region’s features. This is why business strategy of the TNACs is to pursue “local production and consumption” in many countries.
TNACs have been exercising their influence on decision-making processes related to agricultural policies for decades. This phenomenon was observed by the public during the Uruguay Round of agricultural negotiations that began in the mid-1980s. The former executive of Cargill, Daniel Amstutz, drafted most of the proposal from the United States, with input from other TNACs. Since the proposal catered to the grain trading and agrochemical companies, its main requests were to reduce subsidies to farmers and eliminate trade restrictions related to production processes.
This close relationship between agri-food conglomerates and the government is revealed by the “revolving door”: government officials find more lucrative positions within the very industries they had been charged with overseeing, while corporate executives are appointed to positions that set public policy.9 Examples include the appointment of Linda J. Fisher, Deputy Administrator of the U.S. Environment Protection Agency, to a public relations position at Monsanto, while United States Trade Representative Michael Kantor was appointed as the global public director of Monsanto. Cargill CEO Ernest Micek was appointed as a member of the Presidential Export Advisory Board, which advised the president on ways to expand exports during the Clinton administration. The Agricultural Policy Working Group (APWG) was created to administer the lobbying activities of agri-food conglomerates, such as Cargill, Monsanto, and Nabisco.10 APWG is directing millions of dollars to advertising that small farms are neither productive nor sufficiently efficient to produce for the global community.
Destruction of Agriculture by TNACs
Today’s agri-food system of large-scale agricultural production, created through the aforementioned processes, has generated many ecological problems. It also has reduced the efficiency of the inputs through single-crop production that has resulted in the use of large amounts of pesticides and fertilizers. Industrial agriculture is leading to the misuse of agricultural chemicals, threatening the rural community, reducing the diversity of crops, and promoting inequality. It is destroying the traditional agricultural communities and family farms. The foundation of agriculture worldwide is increasingly under the control of TNACs, thereby destroying food diversity and paving the way for a cheap junk food culture.
However, it is very important to understand that this is not only the case for developing countries under the control of TNACs and for farmers and consumers of importing countries, but that it also applies to the small and medium-sized farms of developed exporting countries. Even in a major agricultural product exporting country like the United States, production specialization is increasing due to the expansion of agri-food conglomerates, which, in turn, is leading to the destruction of family farms and the rapid growth of large-scale industrial farms. The top 2 percent of the farms are producing 50 percent of total sales, while 73 percent of small farms and family farms are producing only 9 percent of the total farm products.11 As a result, the number of smaller farms is rapidly declining, resulting in a situation where the prison population in the United States now exceeds that of farmers.12
By promoting specialization in agriculture, TNACs are increasing environmental degradation, reducing the diversity of genetic resources, expanding the supply of standardized production, and imposing uniformity on agricultural production. These are undermining the sustainability of agriculture in the long term. Rather than developing a rich local food culture, we are moving in a seriously distorted, uniform direction.
Of course, the basic contradiction in today’s agri-food system is not happening in the same manner in developed and developing countries. The average subsidy that the U.S. farmer and the grain trader receives is 100 times the income of the crop producers in the Mindanao Island. Developed countries have been providing a variety of subsidies to agriculture, resulting in an abundant production of cheap food. However, in developing countries where hunger is prevalent and food is scarce the result of this global system of production is to promote not the independence of the national food supply and self-sufficiency but increasing dependence. This is why flour imports to developing countries increased from a mere 10 percent in the 1950s to 57 percent in 1980, and why agricultural products emanating from developing countries are directed not at their own needs but at the wants of the rich economies managed by the TNACs. Hence the local economy in the underdeveloped economies is not expanded and people’s often dire food needs are not met.
What Should Be Done?
TNACs’ dominance of agriculture and agri-food products is growing, as we have seen, on a global scale, to the point of subsuming the entirety of agricultural production, from the provision of raw material inputs to core production and processing, and lastly distribution. As a result, governmental agriculture product price support policy and traditional agricultural trade policies that have been carried out bilaterally and multilaterally between countries are gradually becoming less effective. Agriculture is being transformed by vertical integration and diversification of TNACs in both developing and developed countries. In this context, the Korean agricultural sector, similar to those of many developing countries, is subject to the growing pressure of import liberalization.
It would, of course, be a mistake to see this as a simple case of domination by the farmers of the agricultural exporting countries, including the United States, over the farms of the agricultural importing countries. Rather it is the TNACs, as part of international monopoly capital, that are opposing farmers everywhere, who are increasingly caught in the iron grip of neoliberal capitalist policies.
These conditions mean that even in countries that are large exporters of agriculture products, such as the United States, there has been mounting criticism against the market behavior of TNACs. In particular, farmer organizations representing the interests of small and medium-sized farmers’ groups, such as the National Farmers Union and the American Agricultural Movement, are actively working to pursue policies that favor family farming over multinational corporations. Such organizations are pointing out that although there are a greater number of small and medium-sized farmers, their market share is declining rapidly. Therefore, they are calling for a series of new policies to recover the share of small and medium-sized farmers and improve their business performances through stricter regulations against TNACs’ domination of the agriculture and food industries. In particular, the National Farmers Union is attempting to prevent the horizontal and vertical integration of resources and wealth of transnational companies that are threatening family farms, small and medium-sized agribusiness corporations, and consumers as a whole, and to promote fair market competition by reinforcing monitoring and regulation measures.13
Moreover, given that TNACs are increasingly accessing the genetic engineering field, not only farmers but also alternative agricultural movement organizations, environmental movement organizations, and consumer groups have been opposing genetically modified organisms (GMOs). In tandem with the antiglobalization movement, opposition against the globalization strategy of TNACs is growing. Opponents are pointing out the problems of conglomerates dominating the agriculture sector, which is public in nature, as well as food security. They are also raising concerns are also being raised that subordination of family farms both in developed countries and in third world nations to the TNACs will increase due to biopiracy by TNACs.
For the aforementioned reasons, solidarity is necessary to protest against the TNACs, whether it concerns an importing or exporting country, so that the family farms in both developed and developing countries alike will be able to protect their agriculture, as well as promote their livelihood. There should be greater international solidarity, through groups such as Via Campesino, in protesting against the TNACs’ domination of global agriculture. This is crucial if we are to secure the stability of agriculture and food security, as well as to maintain the diversity of life.
- Stephen McBride & John Wiseman, ed., Globalization and its Discontents (New York: Palgrave, 2000).
- Philip McMichael, ed., The Global Restructuring of Agro-food System (Ithaca: Cornell University Press, 1994).
- William H. Friedland, Toward a New Political Economy of Agriculture (Boulder: Westview Press, 1991).
- Jim Prokopanco, “Laying the Foundation for a Prosperous Agriculture in the New Millenium: A Cargill Perspective for the Northern Great Plains,” http://www.ngplains.org.
- Fred Magdoff, John Bellamy Foster, & Frederick H. Buttel, ed., Hungry for Profit (New York: Monthly Review Press, 2000).
- Packers and Stockyards Statistical Report (GIPSA, November 2001), http://www.foodcircles.missouri.edu/CRJanuary05.pdf.
- Food Institute Report (August 27, 2001), Alessandro Bonano, Lawrence Busch, William H. Friedland, Lourdes Gouveia, & Enzo Mingione, ed., From Columbus to ConAgra (Lawrence: University Press of Kansas, 1995), Fred, Foster, & Buttel, Hungry for Profit.
- Gail L. Crammer, Clarence W. Jensen, & Douglas D. Southgate Jr., Agricultural Economics and Agribusiness (New York: John Wiley, 2001).
- Luke Anderson, Genetic Engineering, Food, and Our Environment (White River Junction: Chelsea Green Pub. Co., 1999).
- Brewster Kneen, Invisible Giant (East Haven: Pluto Press, 1995).
- James Heartfield, “The Politics of Food: Two Cheers for Agribusiness,” Review of Radical Political Economics 32(2), 2000.
- Colin Tudge, “Profit Won’t Feed the World,” (New Statesman, November 10, 2000).