Faculty of Veterinary and Agricultural Sciences

FOOD90041 The Politics of Food

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Surname Granda
Given Name Stalin
Student Number 1026174
Masters Course Food and Packaging Innovation
Topic No. 1
Word Count (excluding reference list and 1812
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Practices and Strategies of Agri-food corporations used to increase their profits and market
share while exercising power over producers.

As of the industrialisation period, large agri-food companies use capitalist conglomerate policies
(Sage, 2012) to gain more share participation and profits worldwide increasingly (Hefferman,
2000). The top ten agri-food corporations hold the following market share globally; seeds 67%,
food and beverages processors 26%, agrochemicals 89%, grocery retail 40% and biotech 66%
market share (ETC Group, 2008). Nevertheless, these companies seek to increase their market
share and profits. Given the size and integration throughout the food system, these companies have
seized influence, and concentrated power over the market, enabling them to take some strategies
and practices in place quickly (McMichael, 2014). Each of these is along the global agri-food value
chain. Clapp (2016) describes three segments (i) input supply companies (seeds, chemicals and
machinery), (ii) food production (trade and processing firms) and (iii) distribution to consumers
(retail and foodservice firms). This essay will discuss the main strategies applied, including vertical
and horizontal integration, biotechnology, intellectual property rights, contract farming and fixed
standards adopted by agri-food corporations.

In America, the economy related to input supply for industry upstream, like seeds, farm chemicals
and machinery has come to a few players (Olivier De Schutter, 2011). The same happens
downstream regarding food storage, transport, processing, manufacturing, packaging, among
others. Hightower in (Carolan, 2012) says corporate power can even influence the US Department
of Agriculture. For instance, Cargill whose management is criticised for being restricted (ETC
Group, 2008), other companies employ a strategy on seeds designed biotechnologically to grow
one cycle of harvest only, making farmers purchase new seeds each season (Harl, 2003 and
Constance, 2014). As farmers depend on agriculture to drive their economies (Gumbert & Funchs
2018), they are willing to pay any rise on seed and fertiliser price. These strategies are pushing
farmers into a "pesticide treadmill" (Hefferman, 2000) which means they depend on developments
of both seeds and chemicals to produce a healthy crop (Kelloway et al., 2019).

Additionally, the agricultural input industry, upstream in the food chain, GMO seeds are designed
to work with specific brands of herbicides and pesticides (McMichel, 2015 and Sage, 2012). These
have strategically been protected by IP laws, holding patents for their name-brand seeds
(Gumbwer, 2018 and Clapp, 2009). Top pesticides firms also produced seeds, for instance,
Monsanto span both seeds and agrochemical markets, in 2014 made US$ 15.86 billion in revenues
and the US $ 2,7 billion in profits (ETC group, 2008).

In terms of grain processing and commodities trading, four firms have gone vertically integrated.
These are Cargill, Archer-Daniels-Midland, Bunge and Louis Dreyfus (ABCD) (Holt-Gimenez,
2000 and McMichael, 2014). In which farmers purchase inputs, process raw material and products
like animal feed and corn syrup (Wiebe 2012 and Blesky, 2018). Thanks to increasing
consolidation of firms, the prices of farm inputs has increased faster than the prices farmers can
sell out of their crops (Carola, 2012). Favoured by being the old-time grain trades, nowadays they
deal with a wide variety of food and agricultural business (Hefferman, 2000). The so-called ABCD
companies also are landowners, livestock producers, processors, bulk commodity shipper,
investors and more (Schutter, 2011). As a result, they have a single market and influence power
over the supply chain (Gumbert, 2018).

Insistently agribusiness firms identify various opportunities to extract surplus value out of farm
inputs (Parker & Scriniss, 2015 and Sage, 2012). Even when farm commodities are expensive,
farmers also spent more on seeds, fertilisers and agrochemicals (Kelloway, 2019). Agrochemical
concentration inputs are the most concentrated food sector whose profits at this top-level leads to
down wages and working standard throughout the industrial food system (Harl , 2003 and Clapp,
2009). Thus, profits come from squeezing on all side's farmers as they need a large corporation
covers fuel, fertilisers, chemical, antibiotics, seeds and equipment, at fixed prices (Carolan, 2012).
Precisely on farm equipment, two companies hold almost half of all tractors in the USA. These
companies possess copyright law benefits, which forbid farmers to edit tractor software; in other
cases, farmers cannot change the engine or modify their tractors (ETC group, 2008 and Kelloway,
2019). Therefore, equipment repair has become another essential revenue stream for large
manufactures. As in the case of John Deere, which in 2018 posted USD 37,4 billion in annual
revenue, nevertheless, it is after merging companies or acquire smaller manufacturers (Kelloway,
2019).

Contract production is a practice that enables companies to effectively surround producers

(McMichael, 2014), by proving inputs upstream of supply chain and downstream in taking delivery
of outputs from primary production. As in the case of independent producers like meatpackers,
due to contracts with agribusiness firms as they owned slaughters and meat-packer facilities,
another effect is the loss of market control (Kelloway, 2019 and Schutter, 2011). This reflects the
concept of vertical integration, which enhances market and buyer power as in the case of America's
hog slaughter industry in which major meatpacking firms have built a web of agreements through
joint ventures and alliances (Kelloway, 2019). This is a problematic situation that imbalances the
power between meatpacker and independent producers (Gumbert, 2018). Very often, meat and
dairy producers have vulnerable buyer power since they are demanded to sell their products at
optimum standards as quickly as possible, to be able to make room for new production cycles
(Sage, 2012 and Kelloway, 2019). Consequently, there is no chance to hold to get better prices.
For instance, milk producers, since 2014 have seen fallen the milk price by 40 per cent, below the
average farms' break-even point (Kelloway, 2019). Many of these producers are under the Dairy
Farmers of America (DFA) organisation (a co-op meant to counterbalance the concentrated
power); however, their executives address most of the sales to Dean Foods, because of internal
deals between representatives (Kelloway, 2019 and Gumbert, 2018). DFA handles 30 per cent of
the national raw milk supply with higher shares in many regions making farmers accept their terms.
As a result, both executives of entities make more money by paying DFA farmers less (Kelloway,
2019).

Among other strategies, there is (i) the Land-grab, promoted by elites. This idea claims that
"unproductive" land needs to be modernised if not, it would legitimise the expulsion of subsistence
producers (Schutter, 2011). Another practice was reported in 2018 by USDA found JBS had ripped
off cattle producers by shorting them on payments for their livestock. (Kelloway, 2019). Cross-
subsidisation practices concentrate capital; farmers very often paid a per-animal fee which
companies use to support product promotion and research (Wiebe, 2012).

On industrial production, the considerable demand requires standardisation to uniform all kind of
products like wheat, pigs, tomatoes, and other food (Gumbert, 2018 and Hefferman, 2000).
Standardisation is achieved by manipulating the genetics plus controlled environments; this goes
back to seeds, animal feed and fertilisers (McMichael, 2014). That is why food processors and
food manufactures have merged to exert also power over a range of different sectors within the
supply chain (Kelloway, 2019 and ETC group 2008). Large manufactures instead make deals with
equally large firms like supermarkets to have better prices (Hotl-Gimenez, 2018). However, since
large retailers play a role as gatekeepers between suppliers and consumers using contracts and
specifications, they can be considered authorities within the food regime (Gumbert, 2018 and
Parker, 2015). As such, supermarkets have determined private quality standards (Parker, 2018 and
Constance, 2014). Leveraging this authority allows them to exercise power over food producers
and for setting prices (Parker, 2015). In addition, they own some home-brands targeting to affect
overall food prices offered in their facilities (Belesky, 2018). As a result, supermarkets have
become interested in vertical integration too. They are willing to coordinate contracts directly with
farmers and food manufactures (Constance, 2014), implying to bypass wholesalers and other
intermediaries (Sage, 2012). This aims to take over the roles of competitors grocery retailers,
wholesalers, primary producers and food manufactures. The strategy is simple the fewer buyers in
the market, the larger the possibility to set the price (Harl, 2003). This is key when a dominant
buyer that suppliers and producers must rely upon is easily able to be a price-setter for the goods
(Kelloway, 2019). These private standards are often used to filter the food producers, as well as
under what conditions the production is (Hefferman, 2018 and Schutter, 2014).

In this way, supermarket structural power over suppliers, allow them to make an interface between
consumers insights and producers interest (Paul and Steinbrecher, 2003). That suggests being the
case in Australia, where the food-retail market is very concentrated (Parker, 2015), two major
retailers together control eighty per cent of the shares (Carolan, 2012). The corporate food regime
very often displaces producers unable to compete with subsidised market power (McMichael,
2014), i.e. when fresh produce goes rot, large retailers have two aids, one claim compensation to
producers and two subsidise the cost with other products within the firm (McMichael, 2014 and
Constance, 2015). This allows them to bypass the wholesale sectors altogether, and indirectly
instruction food manufactures/ food processors to pass on tighter margins/standards to producers
(ETC group, 2008). On the side of retailers, standards allow market access for farmers food
processors worldwide (Parker, 2015). Producers and processors, private standards benefit large
actors that can afford documentation and certification, which guarantees stability and volume in
their productions (Sage, 2012). In contrast, small food producers let them make management
decisions in order to secure sales (Scott, 1980). For instance, Wal-Mart's power is so vast that it
has made suppliers and producers complied their very own company's standards under a contract
(Gumbert, 2018). Regarding food service, in America, this industry is the US $51 billion worth
(Kelloway, 2019), including cafeterias and restaurants for hospitals, schools, stadiums, corporate
headquarters, government offices. The strategy is slotting fees to access deals with the stakeholders
(Kelloway, 2019 and McMichael, 2014).

In conclusion, because agri-food companies are vertical and horizontal integration, they can
quickly carry out practices and strategies along the food system. Very often these are at the expense
of farmers whose inputs like seeds, animal feed, fertilisers, pesticides and herbicides are sources
offered by a single firm. In the next stage of food production, producers have little market power
as large firms have merged to manipulate price and production terms, which is observed in the
meat industry frequently. Concerning to supermarkets, they have also concentrated their market
power by making deals with large manufactures in combination with private standards. Moreover,
large food retailers, as intermediaries between farmers and consumers in a wide range of
subsectors, from inputs to food processing, have also adopted several practices, most used contract
production. To accomplish the goal of profits and participation through the food supply chain is to
concentrate power and be involved in most segments, plus squeezing every single added value
from seed to the plate.
Reference List

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