Agri trans national corporations (TNCs) have been on a buying spree in the South, acquiring large numbers of local firms in recent years, according to an 84-page report
Power hungry - six reasons to regulate global food corporations¹ just brought out by the NGO Action aid International.
These corporations have also formed new global networks through joint ventures and informal alliances with other companies in the chain- from gene and seed, through production, trade and processing, to supermarket shelf increasing their market power, and their control over the way food is produced and distributed in developing countries, says the report.
A small number of TNCs are at the vanguard of this trend. They have come to dominate global and national agri food markets, and their influence is transforming agriculture in many developing countries.
This report attempts to show how these trends are having profound marginalizing effects on farmers and farm workers, and how the lack of legal accountability for TNC activities is undermining poor people¹s rights.
Agri-TNCs have acquired a large numbers of local firms in recent years. They have also formed new global networks through mergers, joint ventures and informal alliances with other companies in the chain from gene and seed, through production, trade and processing, to supermarket shelf increasing their market power, and their control over the way food is produced and distributed in developing countries.
The agrifood chain is highly profitable for the companies that dominate the industry. Many are wealthier than the countries in which they do business. In 2002, for example, Nestlé recorded profits greater than Ghana¹s gross domestic product (GDP) that year. In 2003, Unilever¹s profits were a third larger than Mozambique¹s GDP, while Wal-Mart¹s profits were bigger than the economies of Ghana and Mozambique combined.
There is a stark contrast between these riches and the living conditions of those who produce the raw materials that contribute to the TNCs¹ wealth. Across Asia, Africa and Latin America, hundreds of millions of farmers and workers, a large proportion of whom are women, struggle to survive on a dollar or two per day.
About 70 per cent of the world¹s poor people live and work in rural areas, and the majority will continue to do so until well into the 21st century (IFAD 2001). World prices for important agricultural goods have been on a long-term downward trend, with disastrous consequences for rural communities.
Prices for coffee, cocoa, rice, palm oil and sugar have collapsed by 50 per cent or more over the past two decades, with other key crops such as wheat, maize and tea also registering steep declines.
If the prices for the top ten tropical commodities had risen in line with inflation over the last twenty years, it is estimated that in 2002 alone countries producing these goods would have received an extra US$242 billion. The commodities crisis is a major cause of mass poverty and hunger in the developing world.
Often the prices that smallholders get for their crops do not cover the cost of producing them, leaving farmers and workers struggling to feed their families. Those countries where agriculture makes up a large share of GDP, employment and export earnings have the highest levels of under-nourishment.
Overall, the number of hungry people in the developing world increased by 34 million from the mid-1990s to stand at 815 million in 2002 (FAO 2004). The crisis caused by rock bottom producer prices has been exacerbated by a rise in the cost of farm inputs such as seeds, pesticides, herbicides and fertilisers.
The creation of strong global rules granting and protecting intellectual property rights (IPRs) over plant varieties and new seed technologies (such as GM seeds) has enabled TNCs to raise the prices they charge for these products. Meanwhile, the removal of state subsidies for agricultural inputs in developing countries has also increased farmers¹ costs.
Smallholders who produce for commercial markets are being caught in a price squeeze¹: companies are able to charge higher prices for agricultural inputs, and at the same time pay lower prices for farmers¹ goods.
Contrary to economic logic, declining returns for farmers often do not result in their abandoning agriculture, leading to a fall in overall production and a corresponding increase in farm gate prices.
Many smallholders respond to low prices by producing even more just to get the same returns. At the same time, smallholder farmers in developing countries have few alternative ways of securing a livelihood.
This farm crisis is not confined to the South. It is a global problem felt by producers and workers in developed countries, where thousands of small and family farms are going bankrupt each year.
Farm incomes in the UK have declined by 40 per cent over the last 30 years, and about 87,000 farmers and farm workers left the sector between 1993 and 2001. France has lost half it farmers in the last 20 years, while in Canada, net farm income has sunk to Depression-era levels.
Government policies tend to view rural populations as a homogeneous whole, or favour wealthier farmers. They are often blind to the enormous disparities. The wealthy industrialised farmers are connected to global markets through contracts with agribusiness; have superior access to resources; and use capital- and input-intensive production methods.
The small-scale and family are face declining returns and increased risks; lack capital, information and resources; and are vulnerable to the forces of globalisation.
Subsistence-oriented farmers and land less labourers (who are seasonal, migrant or family labourers) have little or no land; are unskilled and uneducated, with few livelihood alternatives; and make up almost four-fifths of the world¹s hungry people.
Many factors have triggered the crisis in smallholder agriculture. A complex interplay of factors has given rise to this crisis in smallholder agriculture. Over the last two decades the World Bank, the IMF and the WTO have enforced trade liberalisation in developing countries, which has intensified global competition in agriculture.
These institutions have also pressed governments in the South to withdraw state support to farmers, leaving rural producers more exposed to global market forces and vulnerable to poverty - particularly those in poorer, more remote areas.
The chronic oversupply of many farm commodities - in part caused by subsidies to Northern farmers, donor policies and the demise of global commodity agreements - has lowered the prices paid to agricultural producers, while the introduction of new technologies has increased some types of production and therefore supply.
However, these technologies generally have been targeted at large-scale farms and tend to bypass poor farmers' producers. Another important cause of the farm crisis, largely overlooked by policymakers, is the concentration of market power amongst a small number of agri food TNCs. Markets are said to be concentrated¹ when they become dominated by a small number of companies.
Concentration puts the dominant firms in a position to use and abuse their power to extract unfair profits from other players in the market, for example, by forcing down prices they pay to producers, or by shutting other companies out of the market.
In many developing countries, the World Bank, IMF and other aid donors have required states to withdraw from agricultural research, production, extension and marketing, and to allow private, for-profit actors, including TNCs, to step in. Although this removed some inefficiencies, in many instances public monopolies have been replaced by anti-competitive, private monopolies.
Over the last two decades or so, developing countries have reduced their barriers to trade and investment flows, largely as a condition of receiving aid. While liberalisation can enhance competition by enabling new goods and firms to enter local markets, it can also encourage the concentration of market power among a small number of dominant global companies, enabling them to distort markets.
Freer competition is likely to provide the greatest benefits to Northern TNCs, as they are better equipped than local firms to take advantage of market opportunities.
Policymakers tend to see large-scale companies as inherently more efficient and more competitive on world markets, and have been reluctant to contest mergers and acquisitions. As a result, corporations have grown in scale, increasing concentration, the potential for market distortions and the power of corporate elites.
The protection of intellectual property rights (IPRs) on new plant varieties and seeds have become integral to the agro-input industry. However, IPRs such as plant breeders¹ rights and patents are excessively broad, lasting up to 20 years and sometimes allowing ownership of an entire plant species.
This restricts the number of players in a market and encourages industry concentration. Control of brands, trademarks and patents also raises barriers to competition in the food manufacturing and retailing industries, allowing dominant firms to concentrate capital away from the farm, and away from the South. IPRs are justified as an incentive for investment in research and development, but in practice they are more a means of keeping competition at bay.
Action Aid recognises that the investments made by agri food TNCs can work to reduce poverty if they are properly designed and managed to support national development goals.
The problems highlighted result from a lack of countervailing action by governments to re-govern agri food markets towards more equitable outcomes. Given the benefits that flow from a thriving smallholder economy, this presents a serious threat to sustainable development.
The evidence presented in this report makes a compelling case for legally binding and enforced regulation of these companies. It shows that urgent action is needed to re-govern agri food markets towards pro-poor development goals; and hold TNCs legally accountable for their impacts on human rights and the environment. -Courtesy: South Centre.
