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.