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Food, Inc.
Corporate concentration from farm to consumer Bill Vorley

Summary
Over half of the population in the developing world is rural and 2.5 billion people worldwide depend on agriculture for their livelihoods. Although the food chain as a whole is very profitable, the terms of trade for primary producers have declined, the gap between producer prices and retail prices has grown, andfamily-scale farmers are finding themselves excluded from higher value markets and facing livelihood crisis. The roots of low farm prices lie in oversupply. This is driven not just by subsidies and ‘dumping’ of surplus products on world markets, but also by a complex interplay of trade liberalisation and intense global competition; deregulation and the end of international commodity agreements; newtechnology; reduced transportation costs; debt; lack of alternatives; and, last but not least, market power concentrated in the hands of powerful buyers in the trading, processing and retailing industries. These combine to ensure that in many agricultural commodity markets, price no longer regulates production. Producers, whether of bananas or milk, coffee or pigs, are faced with ‘immiserisinggrowth’, which means they must produce more but earn less. This is not only the trend in commodity exports from the developing world, such as coffee, but is also felt keenly by suppliers to domestic markets worldwide. The marginalisation of agriculture is a profound threat to sustainable development. Many see agriculture as the means to reduce poverty and to deliver multiple benefits such aspreserving a rich diversity of cultures, wildlife and landscapes. If the economic tide of the food system continues to slide away from farming, then those expectations will not be met. Much attention has been focused on market distortions caused by protectionist trade policies. But even if unjust trade rules were to be reformed, disparities in bargaining power, scale, market access, information or accessto credit may still entrench anti-poor and anti-rural bias in markets. Coffee growers continue to face a market in which three companies account for 45% of roasting activities. Four companies control 40% of cocoa grinding, while in soy and livestock the same three companies have the lion’s share of crushing and feed production along the entire chain from South America to Europe. Mostsignificantly, producers and processors face a global supermarket sector where the top 30 companies account for around one third of grocery sales. Nationally the top five supermarkets often account for 70% or more of grocery sales. Why does it matter that so few companies control such a large proportion of the world’s food production, processing and retailing chain? The key issue is the trend towards verticalcoordination of agrifood chains, whereby key agents such as a food processor or retailer sets the ‘rules of the game’ for participating in the chains. Vertical coordination gives great power to those firms coordinating the particular commodity chain. This power can override market-based transactions, with big implications for pricing and the wholesale market. Vertical coordination also creates‘insiders’ and ‘outsiders’. The suppliers who have deep enough pockets, low enough costs and the right kind of technology to meet rapidly changing requirements in volumes, standards and new product development can benefit as ‘insiders’. Their environmental and social performance credentials may also be higher than average because they have the capital and economies of scale to invest in such practices.The majority of smaller and family-scale enterprises (the ‘outsiders’) are left as residual suppliers to bulk commodity or wholesale markets, at a time of reduced state support in the form of safety nets. Supply chains are developing in such a way that a large number of competitive and relatively powerless suppliers face a few large buyers. Farmers are playing to the rules of perfect...
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