10CHAPTER Globalization in food and agriculture The preceding chapter focused on the role of trade 10.1 Globalization as an ongoing and trade policies as driving factors for increasingly process integrated markets. This chapter on globalization will expand the analysis by identifying the other Globalization refers to the ongoing process of rapid main factors that drive global economic integration global economic integration facilitated by lower and analyse their main effects on food and agricul- transaction costs and lower barriers to movements ture. These are presented in three major sections. in capital and goods. It has shown itself in a The first part provides a definition of the process of growing interdependence of the world’s economies, globalization, placed in its historical context. rapidly rising trade flows, increases in capital Emphasis is given to the importance of factors that movements and an increasing internationalization reduce transaction costs, notably on the impacts of of production, often organized within and between new transportation and communication technolo- multinational corporations. To a large extent, glob- gies. The second section presents the main features alization has been brought about by a massive of globalization in agriculture, and discusses why reduction in transaction costs, which in turn was some countries have been successful in integrating made possible through more efficient transporta- their food and agricultural economies into the tion and communication facilities as well as innova- rapidly growing world markets, but also why others tions in organizing complex logistical processes. have largely failed to do so. This includes factors Trade and capital flows have also been boosted by a such as openness to trade and capital flows, ability systematic reduction in trade and investment to adopt external expertise and technologies, but barriers. This process has brought about massive also the importance of factors relating to a income gains for those who participated. Broadly, country’s geographic location or its infrastructure the integration into a larger and more competitive endowment. The third part presents the options, market has increased the returns to investment for the potential and the limits that developing coun- producers and provided consumers with a greater tries are facing for future integration into global variety of products at lower prices. food and agriculture. This process of growing integration of the world economy has also given rise to numerous 265 concerns. Most prominent is the concern about the The first wave of globalization during the second growing marginalization of entire countries or soci- half of the nineteenth century. The first wave of etal groups within countries. There are in fact rapid global integration began in the second half of many countries that have been left out of the the nineteenth century and was brought about by a overall economic integration and growth process, combination of breakthroughs in transportation in some cases, despite sincere efforts to open up to and communication technologies. Trade between foreign trade and capital flows. Over the 1990s, continents was boosted by the shift from sail to rapidly integrating economies recorded a per steamships, which resulted in a tremendous decline capita income growth rate of more than 4 percent in transatlantic transportation costs as well as faster p.a. while the income available per person in less and more reliable connections. Trade in agricul- integrated countries shrank by 1 percent annually tural commodities, typically bulky, perishable or (World Bank, 2001e). The rapid growth in agricul- both, enjoyed a particular boost. Transatlantic tural trade has given rise to concerns that diseases trade in grains and oilseeds – previously circum- and pests will be hard to control and contain at the scribed by high transaction costs – shot up sharply. local level. Moreover, there are sociocultural This brought new land into production, most concerns that globalization could destroy the notably in the Midwest United States and some cultural heritage (including dietary habits) as well parts of Australia. as traditional societal and social links that have Agricultural trade was further accelerated by evolved over centuries. Finally, there is widespread the advent of the railways, which resulted in a concern about a growing economic, social and further and sharp reduction of transportation costs cultural dependence on a few dominant countries within continents. Lower transaction costs height- or corporations, which are seen to have the poten- ened competition and brought about not only a tial of disempowering entire societies. significant downward pressure on prices, but also a While the term “globalization” has been coined growing convergence of commodity prices across only recently, its driving forces and its principal continents. For example, in 1870, a bushel of wheat impacts are of older date. Similar developments, sold for 60 cents in Chicago but for double that albeit of a more limited scope, have characterized price in London. The difference was largely a global economic development in the past. In result of high transportation costs from Chicago to particular, innovations that reduce transaction London. With railroads and steamships,1 transport costs (better transportation and communication rates between Chicago and London fell to 10 cents technologies) have always had a strong accelerating a bushel between 1865 and 1900 and the price impact on global integration. A look back also differentials for wheat declined accordingly suggests that the process of economic integration is (Henderson, Handy and Neff, 1996). a non-continuous one. It is often a process of waves The decline in transaction costs also had signif- that occur when new technologies are widely icant impacts on the overall volume of interconti- adopted around the world. Similarly, trade and nental trade, market shares and income. United investment liberalization is being negotiated and States exports of grain and meat to Europe, for implemented in rounds. The two developments, instance, increased from US$68 million in 1870 to technological change and liberalization, can be US$226 million in 1880, which boosted farmers’ mutually reinforcing and create particularly notice- incomes in the United States and the welfare of able waves of globalization. The current wave of consumers in Europe. The new transportation globalization is driven by major technological facilities also reduced costs for internal shipments breakthroughs in transportation and communica- and, together with cheaper food supplies from tion technologies (notably the Internet, mobile tele- abroad, increased food security at the local and phone technology and just-in-time systems) in regional level. For the first time in history, this tandem with various efforts to liberalize interna- brought about years of “lower agricultural produc- tional trade and investment flows. tion without famine” in Europe (Tilly, 1981). 1 Between 1850 and 1913, global overseas transportation capacity increased by more than 500 percent. At the same time, tankers and vessels with cooling facilities vastly expanded the range of products exchanged within and across countries and continents. 266 GLOBALIZATION IN FOOD AND AGRICULTURE Lower transportation costs also affected labour decline in trade aggravated the internal economic mobility and labour costs. Sixty million people situation, and the depression in the United States migrated from Europe to North America and intensified and engulfed much of the rest of the Australia to farm the newly available land. As land then economically integrated world. was abundant, it created an opportunity for many immigrants to earn an income that exceeded by far The second wave of globalization, 1945-80. The the wages they used to earn in Europe. In Europe experience gathered from the reversal to protec- itself, in turn, it created a relative labour shortage tionist policies during the interwar period gave an and an upward pressure on wages both in absolute impetus to a new wave of internationalism after the terms and relative to land prices. Overall, immi- Second World War. The new wave of trade liberal- gration led to a narrowing of differences in wages ization was, however, more selective both in terms in all globalizing regions. “Emigration is estimated of countries participating and products included. to have raised Irish wages by 32 percent, Italian By 1980, developed countries’ barriers to trade by 28 percent and Norwegian by 10 percent. in manufactured goods had been substantially Immigration is estimated to have lowered Argentine removed, but barriers for developing countries' wages by 22 percent, Australian by 15 percent, agricultural products had been lowered only for Canadian by 16 percent and American by 8 percent” those primary commodities that did not compete (Lindert and Williamson, 2001). Indeed, migration with agriculture in the developed countries. By was probably more important than either trade or contrast, most developing countries had erected capital movements. trade barriers against imports from each other and from developed countries. The backlash after 1914. With the end of the First The resulting effect on trade flows was very World War, trade policy went into reverse and uneven. For developed countries, the second wave many nations stepped up border protection. The of globalization was a spectacular success. Freer increase