Globalization of the Food Industry
Total Page：16
File Type：pdf, Size：1020Kb
Globalization of the Food Industry Dennis R. Henderson The Ohio State University Charles R. Handy Economic Research Service, USDA Now, perhaps more than ever, the of other international activities such as structure and behavior of firms in the food licensing, joint ventures and strategic alli- sector are not bound by, nor classifiable ances. The result is, growing international according to, country boundaries. Indeed, rivalry, interdependence and cooperation. the food sector is rapidly evolving into a All firms, whether large or small, domestic global system. Within this global system or multinational, feel the effects and pres- firms develop, pursue, revise and refine a sures of this globalization process. This variety of strategies designed to profitably alters the competitive environment for expand the scope of their commercial firms, governments and consumers. It also activities both at home and abroad. presents great challenges for agricultural economists who monitor, evaluate and economists viewed inter- At one time, project the behavior and performance of national commerce primarily within the the agricultural marketing system. context of trade in goods. Even today, trade pervades much of the interest in international markets and appears to be the The purposes of this paper are to de- dominant concern of many legislators, scribe the global dimensions of the agricul- government officials and leaders in farm tural and food marketing system; to iden- organizations. Yet, trade is only part of tify key factors that are impacting on the the fabric of international business in the international organization and behavior of food sector and a relatively minor part at firms in the sector; and to identify that. When measured in terms of the value analytical, methodological, conceptual and of sales, direct investment in foreign af- empirical challenges facing both marketing filiates is larger than direct trade in food economists and policymakers that arise as and related goods by an order of several firms in the food sector operate magnitudes. As a result of foreign increasingly within a global, rather than investments, firms often loose their local or national, market setting. national identities. For example, many surprised to learn that Europeans are The first section of this paper focuses Kellogg's is a U.S. firm; many Americans primarily on international trade, the second surprised to learn that Pillsbury are equally portion on foreign direct investment and is a British firm. the third part on multinational firms. But, even foreign direct investment does Issues and challenges are taken up in the not tell all. Firms engage in a wide array concluding section. 21 Trade fresh fruits and vegetables and live animals, and 2) manufactured food and Data in this section come from the beverage products including fresh meat, United Nations annual D-series trade statis- fish and seafood, and distilled liquor. tics. The North Central Regional Project NC-194 extracts trade data on agricultural Global trade in bulk agricultural com- commodities and on processed foods at the modities grew from $27 billion in 1972 to four-digit Standard Industrial Classification $118 billion in 1990. The average annual (SIC) used by the U.S. Census Bureau to growth rate was 8.4 percent. In contrast, define food manufacturing industries (Day- global trade in manufactured food products ton and Henderson). This section provides grew at a faster annual rate of 9.8 percent, an overview of world trade in both raw from $38 billion in 1972 to $206 billion in agricultural commodities and manufactured 1990. As a result, manufactured food's food products (SIC 20). share of total agricultural trade has increased from 58 percent in 1972 to 64 The combined value of world trade in percent in 1990. agricultural commodities and processed food products grew from $65.4 billion in Trade in manufactured food and bever- 1972 to $323.9 billion in 1990 (Figure 1). ages is highly concentrated among a few This represents an average annual growth countries. Only nineteen countries rate of 9.3 percent. Total agricultural accounted for 89 percent of world-wide trade can be divided into two categories: imports of processed food in 1990. Japan 1) bulk agricultural commodities, including is the largest importer accounting for 12 Figure 1. World Trade in Agricultural Commodities and Manufactured Food Billion dollars 360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 1972 1977 1982 1987 1990 Manufactured Food ME Bulk agricultural commodities 22 Table 1: Leading Suppliers of Manufactured Foods and Beverages to International percent of the world total, followed by Markets' West Germany (11.8 percent) and the Share of World Total Share of World Total United States (11.7 percent). There is Country 1990 (percent) 1962 (percent) somewhat greater diversity among the France 9.8 3.9 leading export countries with twenty-four Netherlands 8.9 5.7 United States 8.5 8.8 countries accounting for 80 percent of all Germany (West) 6.7 1.5 international shipments (Table 1). United Kingdom 4.3 3.3 Belgium/Luxembourg 4.1 1.3 In 1990, France was the largest supplier Denmark 3.9 5.1 Brazil 3.5 6.2 of processed foods followed closely by The Italy 3.5 2.2 Netherlands and the United States. All the Canada 2.8 3.6 European Community (EC) countries Australia 2.7 4.9 Thailand 2.7 1.3 except Denmark increased their share of China 2.6 1.2 world exports since the early 1960's. In Spain 2.1 1.7 contrast, Australia, New Zealand, Brazil, Ireland 2.1 1.2 1.7 3.7 and Columbia experienced a New Zealand Argentina Argentina 1.7 4.0 large decline in their world share. The Taiwan 1.6 1.1 U.S. share of world exports declined Malaysia 1.3 0.7 slightly to 8.5 percent, but its share ap- Indonesia 1.1 1.0 1.1 1.3 accord- Norway pears to have increased since 1990 Korea 0.9 0.1 ing to recent Bureau of Census trade data. Columbia 0.9 2.5 Table 2 shows that U.S. exports of Mexico 0.9 1.8 68.0 manufactured foods increased 8 percent in Total of Above 79.7 1991 and another 12 percent in 1992 to an estimated $22.5 billion. With imports Table 2: US Exports and Imports of Manufactured Foods, 1988 • 1992. growing at a much slower rate, the United Exports Imports States will record a trade surplus in 1992 Year (S million) (S million) for the first time in recent years. 1988 16,414.2 19,399.9 1989 17,111.7 19,681.8 Intra-Industry Trade 1990 18,585.5 20,876.7 1991 20,084.4 20,806.7 There is growing theoretical and empir- 1992E 22,500.0 21,100.0 ical literature on two-way intra-industry trade, defined as the simultaneous importa- tion and exportation of similar goods. The lized cross-section data from thirty-six food theoretical literature explaining intra- processing industries to analyze the extent industry trade (See, for example, Krug- and determinants of intra-industry trade. man; Helpman), emphasizes the role of Using an index developed by Grubel and imperfect market structures, economics of Lloyd, they found that intra-industry trade scale and product differentiation. accounts for as much as 90 percent of total U.S. trade in some industries, and In a recent empirical study, Hartman, averages about 33 percent across all thirty- Henderson and Sheldon conducted a cross- six industries. section analysis of intra-industry trade in U.S. manufactured foods. This study uti- Using regression analysis, that study 23 found intra-industry trade to be positively foreign direct investment strategies than on and significantly related to: total volume of exports to access foreign markets. Unfor- U.S. trade; similarity of tariff barriers be- tunately, consistent data on foreign direct tween the United States and its trading investment(FDI) for all countries, or even partners; and economies of scope. The for all developed countries, are not estimated coefficients of seller available. Therefore, we use only U.S. in- concentration were found to be negative bound and out-bound FDI data for the food and significant. Finally, this study found processing (SIC 20) sector from the U.S. that the estimated coefficients for product Department of Commerce. differentiation and economies of scale were not significant in explaining differences in Figure 2 shows that sales from U.S.- intra-industry trade. owned food processing affiliates abroad are much larger than sales from foreign-owned Apparently intra-industry trade in food affiliates in the United States. Sales from manufacturing is as likely to occur for ho- foreign-owned firms in the U.S., however, mogeneous products as it is for differenti- are growing at a faster rate. From 1982 to ated products. In addition to two-way 1990 (latest data available), sales from trade in differentiated branded products U.S.-owned affiliates abroad grew from such as beer and wine, substantial two-way $39 billion to $75 billion. The average trade occurs in processed fruit and annual growth rate for this eight-year vegetable products (mostly as bulk product period was 8.5 percent. During this same in institutional size containers). For period, sales from foreign-owned affiliates example, during the first nine months of in the U.S. grew from $15 billion to $45 1992, U.S. exports of canned tomatoes billion--an average annual growth rate of increased 64 percent from the year earlier 14.6 percent. However, annual in-bound period to 20 million pounds. Most of this FDI outlays have declined since 1990.