International value chains have long played a critical role in shaping global food production and consumption patterns. In recent decades however, their scale, nature and geographical scope has evolved significantly. Lower transportations costs and technological innovations in information and communication technologies have enabled firms to coordinate their production and distribution across multiple locations, leading to the establishment of highly fragmented production networks. The digital revolution, through the development of big data, artificial intelligence or machine learning is attracting new firms, changing the nature of trade and investment.
The geography of value chains has also evolved significantly. Responding to rapid changes in diets, and growing demand from urban populations, corporate players are redirecting their investment towards emerging economies while new actors in large producing countries, such as Brazil or Indonesia, have become global players. Major consolidation has also occurred in all other stages of the food value chain from agricultural inputs through to retail. The demands end-consumers place on the food system are also shifting with growing emphasis placed on environmental and animal welfare performance.
Some of the largest corporate players in the food system have proven to be remarkably resilient. The likes of Cargill (trader), John Deere (machinery), Unilever (processed food) and Nestlé (dairy) have been active since the inception of modern industrial agriculture.1 Their business models and emphasis on scale, efficiency and volume have played no small part in shaping global food production and consumption patterns today.
In the past two decades, however, global food production has significantly tilted towards Asia, particularly China, and other parts of the developing world. For example, ChemChina, a state-owned Chinese company, has bought a Swiss agrochemicals and seeds company named Syngenta. China’s largest food processor, manufacturer and trader COFCO (China National Cereals, Oils and Foodstuffs Corporation) has also acquired commodity traders from Singapore (Noble) and the Netherlands (Nidera). Outside Asia, two Brazilian firms are now leading global producers of meat. BRF, formerly Brasil Foods, owns factories in Argentina, the United Arab Emirates, the Netherlands, Malaysia, the United Kingdom, Thailand and Turkey. The other Brazilian player, JBS, has acquired some of the largest meat producers in the United States such as Swift and Pilgrim’s Pride. Meanwhile, the digital revolution, big data, machine learning and biotechnology are attracting new players to the sector, including IBM, Microsoft and Amazon.
Corporate concentration in the food sector is not new – especially in commodity trade. The four major corporations that produce, process, transport, finance and trade food and agricultural commodities are famously known as the ABCD representing respectively: from the US, Archer Daniels Midland (ADM), Bunge and Cargill, and from France, Louis Dreyfus Commodities. Together they account for some 90 per cent of the global grain trade.
Corporate consolidation is also occurring at the national level. In the US, for example, the number of pesticide manufacturers has fallen from 70 in 1960, to eight major multinational players in 2000, to just four controlling the bulk of the US market today.2 Several factors are driving this trend including: the rise of biotechnology and the fixed costs of meeting regulatory approval for new biotech innovations; the even higher cost of bringing new agrichemicals, such as pesticides, to market amid stricter regulations worldwide on health, safety and environmental impacts for both new and existing products3; and the proliferation of patents on critical compounds and processes upstream – a trend that necessitates further vertical integration as pesticide manufacturers may simply acquire the companies that own the intellectual property that they want to use.4
Markets and mergers
Today, the market structure of the food sector is again in the spotlight, following mega-mergers that involved InBev/Anheuser-Busch ($57 billion) (2008), AB InBev/SABMiller($100 billion) (2015) and Heinz/Kraft ($100 billion) (2015) in the food and beverages sectors as well as Dow/Dupont ($130 billion) (2015) although Dow was spun off in April 2019, Bayer/Monsanto ($66 billion) (2016) and ChemChina-Syngenta (2016) in seeds and agriculture chemicals.5 The merged companies in commercial seeds and pesticides could be supplying almost all the genetically modified (GM) plants. They also likely own the bulk of plant-related patents at the European Patent Office.6
Given the lack of competition in the production of seeds and agrochemicals, due to vertical integrations and existing cross-licencing agreements, the worry is that prices of seeds and pesticides will rise. For example, corn and soy seed prices for US farmers could increase by around 2 per cent and cotton seeds by nearly 20 per cent with the Bayer-Monsanto merger alone.7 The two firms were already leading suppliers of GM cotton seeds and they produced almost all of the herbicide-tolerant and insect-resistant traits in GM cotton and canola seeds.8 Meanwhile, questions abound over the future market structure and business model of crop nutrition and fertilizer production following the merger of Agrium and PotashCorp to create Nutrien in 2018.9 The new company has nearly 20,000 employees and operations in 14 countries.
The market for farm equipment has also undergone significant changes triggered by a combination of scale and digitalization including precision farming and robotics.10 The three largest players – John Deere, CNH Industrial (part of the Fiat group) and AGCO – account for 50 per cent of the global market. The digital revolution will likely bring further disruption to the sector.
Further downstream, the failed attempt by Brazil’s 3G Capital, a private equity firm, to acquire Unilever in 2017 through Heinz-Kraft also highlighted the vulnerabilities of traditional food giants. In addition to fast-shifting consumer trends, these corporations also face the demands of global capital for ever higher operating-profit margins as well as increasing market dominance.11 In just the past 15 years, through cost-cutting and mergers and/or acquisitions, 3G, with partners such as Berkshire Hathaway, have created the world’s largest beer company, third-largest fast-food chain and fifth-largest food processor.
Investor interest in innovations across the meat production supply chain has grown in recent years not only in response to environmental problems, especially deforestation and climate change, but also concerns about animal welfare, labour conditions and public health. Less than 10 per cent of all meat produced globally is traded internationally12 as most meat is produced for domestic consumption. The top five meat producers are JBS (Brazil), Tyson Foods (US), Cargill (US), Smithfield – now part of China’s WH Group – and BRF (Brazil). Much like in other parts of the supply chain, a number of major acquisitions have occurred in the meat sector over the past two decades. These companies are also often major beneficiaries of government subsidies whether in the form of low-interest loans, government procurement, or low feed prices.13
Chicken meat provides another case in point. The global appetite for poultry is on the rise. Today, the largest producers are the US, Brazil, the EU and China with the US accounting for 20 per cent of global production. These same countries are also the largest consumers – home to over half of total domestic consumption.14 Global exports are expected to grow from large exporters like Brazil (33 per cent) and the US (28 per cent) as well as the EU, Thailand and Ukraine, to meet Asian demand, for example from Japan, Hong Kong and the Philippines, as well as rising consumption in developing markets in Africa.15
Much like the rest of the food landscape, the concentration of poultry production has also increased in countries like the US, Brazil and China. The four largest global poultry producers – JBS, Tyson Foods, Cargill and WH Group – now share over half the US market – up from around two-fifths in 1991.16 The Guardian reported that more than 97 per cent of US chicken farmers work under contract with a large producer who also supplies the farmers with feed, medication and other inputs.17 In Brazil, BRF alone processes one-third of the country’s poultry. It is also active in Europe, Argentina and in halal markets in the Middle East and Turkey. In China, the number of poultry farms fell from 100 million in 1996 to 35 million in 2005 – a 70 per cent drop in less than a decade18 – in line with the trend towards industrialization and intensification.
Concentration is also found on the retail end of the value chain, and not only in the developed economies, but increasingly in emerging markets. The market share of supermarkets has risen from 5 per cent of all retail sales to 50 per cent in less than 20 years in Latin America and Southeast Asia for example.19 This is in part because governments in many low- and middle-income economies have reduced barriers to investment to attract international companies and to incentivize modern food retailing – not least to cater to their increasingly urbanized populations – whether in China, Indonesia or Nigeria. And while the biggest grocery chains are still based in the US and Europe, they are now seeking shares in overseas markets.
These consumer-facing retailers – through their proximity to customers as well as their purchasing power – exert significant influence over the shape of specific food supply chains. As of 2019, Walmart remains the world’s largest food retailer accounting for just over 6 per cent of global food retail sales alone. Nearly a quarter of the company’s revenue comes from its 29 foreign operations. Costco, Kroger, Tesco and Ahold Delhaize come next in the global ranking of food retailers. In the EU, the 10 biggest grocery chains – four German, four French, and two British – account for almost half of total food retail sales. Some of these retail giants are also undertaking mergers and acquisitions to boost their market power in the supply chain. The UK’s Tesco – now the 10th largest global retailer including non-food sales20 – merged in 2018 with one of the UK’s largest food wholesalers named Booker. Tesco’s ‘strategic partnership’ with France’s Carrefour from 2018 also pooled their combined spend in a collaborative procurement programme with a view to lowering prices for their own private-label brands.
Case study: Bovine meat
In 2016, there were around 1.5 billion live cattle worldwide and another 200 million buffaloes. Meat from both kinds of animal is processed, sold domestically – which dominates global consumption – and traded internationally as beef. In the same year, the world produced some 65 million tonnes of cattle meat and 4 million tonnes of buffalo meat – of which around 12 per cent (8 million tonnes) was exported at a value of $40 billion. Half of world production was accounted for by just the US, Brazil, EU and China with Argentina, India and Australia together representing another 10 per cent. Global trade in beef is dominated by Brazil which alone accounted for 20 per cent of exports in 2016. Australia, the US, and India accounted for another 44 per cent of global trade in 2018. China was also the largest importer of beef and veal products in the same year, accounting for 17 per cent of global imports. The US was close behind, representing another 16 per cent, while Japan and South Korea accounted for about 10 per cent and 7 per cent respectively.21
Beef markets remain significantly distorted with OECD data indicating that the product falls among the top five most heavily supported single commodities.22 Despite the EU’s recent efforts to reform its support policies, the bloc continues to provide the most support for beef followed by China, Turkey, the US, Korea, Japan and Indonesia. Although some countries have sought to ‘decouple’ support payments from production, many continue to place tariffs and other restrictions on imported beef. Such policies shield domestic producers from external competition and keep prices artificially high for consumers who are, in effect, forced to pay to support the producers in their home markets.
The EU and Japan are among the World Trade Organization (WTO) members that use high tariffs and other border measures to support domestic prices in this way. Both economies also provide payments to their producers. Other major economies, such as the US, support producers through subsidized crop or revenue insurance schemes.23 Greenville finds that if all forms of trade-distorting support were removed, levels of trade in beef would fall, while levels of trade in other meat products (e.g. pork and poultry) would increase.24 In other words, despite falling beef production in some countries as domestic support is withdrawn, supplies of beef in other countries do not increase as changes in relative prices and demand effects mean that other commodities take its place. The changes essentially result from adjustments occurring as supply and demand adapt to the removal of distortions.
Cattle production has long been associated with a number of environmental concerns. These include the loss of biodiversity associated with the expansion of ranching areas into tropical rainforest, the loss of sequestered carbon when forests are cleared and the damage caused to fragile tropical soils which are vulnerable to erosion from heavy rains after forest cover has been cleared. In recent years, however, there has also been a growing awareness that beef production and consumption are also associated with high levels of greenhouse gas emissions, and in particular, with the potent greenhouse gas methane.25
The specific context in which livestock are reared determines the environmental impact of beef production. While some environmentalists have argued that intensive beef production on large-scale feedlots harms the environment and threatens animal welfare there is evidence to suggest that these production systems can reduce their greenhouse gas emissions26 by improving how they manage their manure,27 soil and water.28 Insofar as technological innovations can improve yields, they can also reduce the emissions associated with producing a given amount of beef. In many developing countries, however, production lags far behind potential yields. This suggests that improved extension services and outreach to poor farmers will be critical in helping them manage potential tensions between environmental and social or economic goals.29
Beef production and consumption has been in the spotlight recently not just for its environmental implications but also for its impact on nutrition. Per capita beef consumption in a number of high-income countries exceeds dietary guidelines, while in other world regions, meat consumption falls below the recommended minimum. In the latter, iron and protein intake may be adversely affected as a consequence.
More broadly, cattle farming in many developing countries is important for livelihoods and food security with cattle often serving as a store of value and providing stability and resilience to producers and their communities in the face of environmental risks and other challenges. That said, globally, livestock production has shifted from traditional, small-scale production systems towards more intensive, large-scale and more concentrated systems.30 In Brazil, while smallholders accounted for more than 80 per cent of all agricultural establishments and produced 59 per cent of cow herds in 2006,31 32overall growth in agricultural land use has become concentrated into the hands of fewer players.33 The National Champions programme that ran from 2007-13 is reflective of this trend: the programme provided resources for selected ‘champion’ beef companies to acquire smaller players, amass power and increase Brazilian-owned companies’ beef exports. As of 2013, just three corporations had a 48.3 per cent share of the national market for beef processing.34
Although many low-income countries benefit from duty-free, quota-free access to developed country markets, many producers have struggled to break into markets for high-value products such as beef. This is in part because of the difficulty in proving compliance with product health and safety requirements, known in the industry as ‘sanitary and phytosanitary measures’.
Case study: Palm oil
The global food sector uses around 70 per cent of all palm oil – a commodity that can be found in half of all supermarket products.35 Palm oil is produced from the fruit of oil palm trees which are then milled and refined before being traded on the domestic and international market for end-use in a wide range of manufacturing and industrial processes – nearly three-quarters of which are related to food uses.
Over the last 40 years, worldwide production of palm oil has climbed steadily from 5 million tonnes in 1980 to over 60 million tonnes in 201636. By 2050, it is expected to quadruple, reaching 240 million tonnes. The expansion in palm oil production has been facilitated by public and private sector policies and institutional structures that encourage investment in both agricultural production and downstream processing. In 2018, Indonesia accounted for over half of total production, followed by Malaysia (28 per cent), Thailand (4 per cent), Colombia (2 per cent) and Nigeria (1 per cent).37 Smallholder farmers are critical to the commodity’s production globally: more than 3 million smallholders account for 33 per cent of the world’s palm oil.38 In Indonesia alone, smallholders manage about one-quarter of the country’s oil palm plantations.39
In response to rising demand, trade in crude palm oil and derivatives is growing rapidly. In the US, for example, use of palm oil has doubled since 2005, as manufacturers seek alternatives to trans fats.40 Three-quarters of global palm oil production is exported. Since 1980, Indonesia’s palm oil exports have grown at an average rate of around 8 per cent annually, though between 2000 and 2009, exports increased by almost 11 million tonnes or roughly 27 per cent each year. Together, Asia and the Middle East attract nearly 57 per cent of total exports. India, China, Pakistan and the EU are the biggest importers.41 The US, in contrast, accounts for only 3 per cent of global palm oil imports.42
Most countries apply relatively low tariffs on imported crude palm oil (CPO) and refined palm oil (RPO). In the EU, CPO is taxed a 1.9 per cent and RPO at 9 per cent. In China tariffs are at 9 per cent and 8.5 per cent respectively. India provides slightly higher border protection, mainly to protect its domestic vegetable oil industry. In 2015, the country increased its import duties from 7.5 per cent to 12.5 per cent for CPO and from 15 per cent to 20 per cent for RPO. To encourage investment in palm oil processing facilities within the country, Indonesia provides an export tax exemption on RPO. That said, when the crude oil price slips below $750 per tonne, export taxes are also removed on CPO to boost global demand, which has been the case since early 2017.43
The palm oil value chain – from production, to processing, to trading – is dominated by a handful of conglomerates (e.g. Wilmar, Musim Mas, GAR, Cargill). Many of these groups source palm oil from their own plantations as well as from third-party suppliers. Wilmar and Sinar Mas produce over 50 per cent of palm oil in Indonesia, with 41 per cent of their raw material coming from smallholders.44 Five major groups control about 60 per cent of Indonesia’s national production but their market shares in processing and trade reach about 90 per cent of total supply.45
The producers and traders of palm oil include a number of companies that are worth more than $5 billion, ranking them among the world’s largest publicly traded companies. Examples include ADM, Wilmar, Sime Darby Plantation, Bunge, IOI, Kuala Lumpur Kepong and Olam. In general, traders purchase palm oil from the companies that manage palm plantations and produce crude palm oil (CPO) and palm kernel oil (PKO). But the largest companies in this sector are also the most vertically integrated. Wilmar and IOI, for example, are not only among the largest plantation owners and refiners, they are also active upstream in research on production of chemical compounds derived from vegetable fats (oleochemicals).46 About 70 per cent of global refining capacity is controlled by seven companies, all of which, are based in Asia.47 While some processing and refining takes place in Indonesia and Malaysia, most occurs in the countries of consumption, and in China, where transnational corporations manufacture products for consumers around the world.
Unlike in the tea and coffee markets, palm oil processors and traders supply a diverse and highly fragmented range of end-users in the food, chemical, pharmaceutical and cosmetic industries. Oxfam estimated that the 10 largest food and beverage companies in the world use only around six per cent, roughly 3.5 million tonnes, of worldwide palm oil supply.48
Case study: Rice
In 2017, global production of rice grown in paddies, as opposed to TKTK, was 770 million tonnes, around half of which, was produced in just two countries: China and India.49 Developing countries account for more than 97 per cent of all production although the US and Japan are among the top 20 producers. In 2016, only around 40 million tonnes of rice milled equivalent was traded internationally (approximately 5 per cent of the total production of paddy rice) at a value of around $20 billion. Five countries alone account for over three-quarters of all rice exports – with India and Thailand as the two biggest exporters, followed by Vietnam, the US and Pakistan. Rice imports are much less concentrated, with the largest importer (China) representing only 7 per cent of all imports, followed by Saudi Arabia, Iran and the United Arab Emirates.
According to OECD figures, rice markets remain highly distorted with no other single commodity receiving more support and protection in the years since the 2011 food price spikes.50 Government policies in China, Indonesia, Japan and Korea account for the lion’s share of total single commodity support for rice with China alone providing more than half of this total. It is also important to note that the OECD methodology for measuring distortions captures both border measures, such as tariffs, and agricultural domestic support. This means that high levels of tariff protection in countries such as Japan are reflected in the OECD’s calculations as are Beijing’s subsidies to producers. However, concerns about fiscal and environmental sustainability have nonetheless prompted China to reform support schemes for rice and other grains as government support for minimum prices on the domestic market has led to ballooning stockpiles and other problems.51 New types of domestic support programmes seek to improve the market orientation of the farm sector while continuing to support rural incomes and address the disparity between rural and urban areas.
Compared to other farm goods that require more extensive processing, rice has a relatively simple value chain. Prior to production, input markets (e.g. seeds, fertilizers, electricity) play an important role in shaping the rice value chain, along with services such as research and development, agricultural extension and advisory services and financial services such as credit to producers. In many countries there is a distinction between smallholder farmers and larger commercial producers. Following production, the unprocessed paddy is often purchased from smallholder producers by traders or agents, who then send the raw material for milling and processing. High-quality varieties, such as basmati, may be sent on to export markets with lower-quality rice made available to retailers and supermarkets domestically. Rice is also further processed into flour, oil, noodles, wine or other products while rice straw is used as animal fodder.
From an environmental perspective, the production, trade and consumption of rice is associated with both positive and negative consequences. Rice production systems, for example, are associated with emissions of methane – a particularly potent greenhouse gas – because it involves the anaerobic fermentation of organic matter. Global rice cultivation is estimated to account for 2.5 per cent of current anthropogenic warming because of emissions of methane.52 However, improved land and water management – such as annual draining of paddy fields – can help to reduce methane emissions associated with rice cultivation. At the same time, rice production may also deliver positive environmental benefits in the form of enhanced land and water management or the preservation of biodiversity associated with traditional landscapes. However, post-harvest losses are high in many developing countries leading to inefficient resource use as well as consequences for the availability of food on domestic and international markets.
In countries such as China, India and the Philippines, governments have historically tended to treat rice differently to other commodities due to its importance as a staple food and its role in maintaining the incomes of poor farmers in rural areas. Governments may, for example, support domestic producers by setting minimum prices, imposing tariffs or quotas on foreign-grown rice or buying large quantities of home-grown rice when supply runs high. Government-purchased rice is also often distributed through domestic food aid programmes that deliver low-cost or free rice to targeted beneficiaries. Especially in countries that lack functioning social safety nets and other mechanisms to tackle rural poverty and food insecurity such initiatives have been seen by some as enabling the poor to obtain improved access to rice and other staple grains. However, the same schemes have also often been associated with waste, inefficiency and sometimes corruption.53 In addition, some African countries have expressed concern that surplus production of subsidized rice and other grains from other parts of the world may be exported onto global markets, potentially undercutting prices from their own producers.54 From a nutritional perspective, critics have also argued that these programmes may incentivize rice production at the expense of potentially more nutritionally diverse food products such as pulses, fruits or vegetables.55
Because such a small share of total rice production is traded internationally, low-income food-importing countries can be particularly vulnerable when food prices spike suddenly – as they did, for example, in 2007-08. While a number of underlying factors contributed to that sudden rise in prices, there is evidence to suggest that export bans and other restrictions may have exacerbated existing trends to the detriment of poorer, food-importing nations. Existing WTO rules do little to prevent countries from applying such measures although some countries have proposed improving transparency – with the exemption of humanitarian food aid and monitoring price developments more closely. The latter could be achieved, for example, through the creation of an Agricultural Market Information System (AMIS).56
So far, corporate concentration and vertical integration have remained largely unchallenged. This is partly due to the positive effects associated with globalized value chains such as efficiency gains and enhanced quality, safety and resource allocation particularly when these benefits are passed on the market. On the other hand, market concentration has raised concerns regarding the control over critical resources or its effect on the relative bargaining power of small and big producers often resulting in squeezing farm income. Others fear that vertical integrations and cross-licensing agreements may result in abuses of dominant power in input markets and ultimately higher prices of seeds and pesticides. Finally, some critics point to the role of value chains in reinforcing global dependence on a few uniform calorie-dense crops suited to large-scale industrial farming at the expense of biodiversity and dietary diversity. It also arguably contributes to the consumption of high-energy and high-protein processed food, and ultimately, to the rise of non-communicable diseases such as diabetes and obesity.
As these trends consolidate, the concerns associated with market concentration and vertical integration will need to be addressed as part of a broader reform of the global food system. In particular, global food value chains will have to show that they respond to the general aspirations of societies for more sustainable, equitable and healthy food systems not only by enhancing quantity and safety of food but also by doing it in a manner that safeguards human as well as planetary health.
This article has been produced in support of the Food and Land Use Coalition’s (FOLU) Global Report (2019), to provide research and analysis to help evidence the case for food and land use transformation.