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TNC-induced Growth and Relating Issues in Developing Countries
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Part of a take-home exam, discussing the role and impact of TNCs in developing countries and the problems pertaining thereto
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Part of a take-home examCourse: Globalising Cities and Hinterlands 2013/14
Grade: 97/100
a. In Lecture 3 the global food business was discussed. Moreira (2004)
differentiates three kinds of transnational corporations (TNCs) in this domain.
Which three categories of TNCs are mentioned? Provide examples and briefly
discuss their roles.
According to Moreira (2004, p.19), transnational corporations (TNCs) are “the
critical actors of globalization”. To discuss their strategies, power balance vis-à-vis
local actors and nation states, and their access to proprietary information and know-
how, it is important to distinguish among three categories of TNCs.
Production-driven corporations on the one hand include agro-food producers
such as Nestlé, Kraft Foods, Chiquita, etc., and on the other include agro-input
producers (seeds, services, etc.) such as Dupont and Dow Chemicals. These TNCs are
responsible in all processes from labour to production to management and marketing.
Their investments tend to be long-term, and their strength (as well as competitive
edge) lies in their research and development capacities. Commercial-driven
corporations, whose representatives are retail giants such as Tesco, Wal-Mart, Ahold,
etc., on the other hand, are not involved in the whole production process like the
production-driven TNCs. Indeed, they can have some local production units as
relocation is more easily done than for the production-driven TNCs, who are less
footloose due to their investment. Finally, speculative-driven corporations include
land speculators, investors and other entrepreneurs that arbitrage between regulatory
regimes. Examples of these TNCs include Soros Fund Management, Berkshire
Hathaway, and other land investors.
It is not always possible to categorise a TNC as they can be involved in more
than one type of activities/processes at the same time. Nevertheless, they are capable
of influencing the world agro-economy in many ways. The vertical integration that is
often deployed by production-driven TNCs, for example, involves the taking over of
,other, smaller businesses along the production chain in order to lower costs and gain
market shares. This can crowd out many newer, smaller farmers or food producers
who cannot compete on the ground of scales. Commercial-driven TNCs, on the other
hand, can bypass the state in certain aspects. Moreira gives the example of quality
testing to illustrate the role that these TNCs can take on (and the (market and
political) power that is associated with it). Like production-driven TNCs, they can
also crowd out their smaller, weaker competitors due to their financial strength and
market share. The availability of capital also allows them to incorporate other services
(such as online shopping) that can secure more buyers than their smaller counterparts.
Speculative-driven TNCs can influence price volatility through their speculations on
land (and also other agricultural products – think of the 1630s’ tulip mania for
example). Through other forms of speculation (such as asset stripping: acquiring
assets, restructuring and selling on for profits), they can also indirectly influence their
market values, which will have ripple effects felt by smaller holders.
In short, agro-food TNCs differ in their approaches, the segments in which
they operate, and also their degree of globalisation. Nevertheless, given their scale
and scope, the global market is predominantly oligopolistic. As such, smaller retailers,
firms and investors often find themselves at a disadvantage, if not absorbed or
crowded out by these TNCs.
b. Opponents of the growing role of importance played by these TNCs have
referred to the „land grab‟ phenomenon. One such author, Carlos Oya
(2010a, 2010b), has studied African agriculture at the level of both household
and aggregate data. On the basis of his work provide three arguments in
favour of the role of large-scale investors in agriculture/food production and
marketing for the rural poor in developing countries. In your answer also
focus on the relevance of the differentiation between stakeholders made by
Bardhan (2006).
Trade liberalisation and the Washington Consensus have produced, according to Oya
(2010a, 2010b), a wide range of impacts on African agriculture (and especially in
, Sub-Saharan Africa). Through what he called ‘social Darwinism’, i.e. the
stratification among farmers due to exposure to competition, there is greater price and
income volatility and thus inequality. This can also give rise to conflicts (over land,
for example – refer to the discussion above on De Soto’s theory’s drawbacks). The
displacement of many farmers as a result of mergers between producers, absorptions
of smaller producers, or dismantling of farming businesses, has triggered rural-urban
migration, as well as giving rise to the casualisation of labour. For many pessimists,
Oya argues, globalisation has posed more threats than opportunities, and thus pro-
liberalisation reforms are often seen in a pejorative way. Even when there are
globalisation winners, these are restricted to a precious few who are fortunately big
enough to have either a capital buffer shielding them from the negative recoils
brought about by the loss of governmental subsidies, or to tap into the global
commodity chain. This line of argument, therefore, paints a rather bleak picture for
small-scale farmers in particular and the rural poor in general in Africa.
Nevertheless, as he points out, “the process of liberalization and adjustment in
the countryside has not only left „losers‟, as winners emerge by reaping the
opportunities open by a liberalized environment with declining state regulation”
(Oya, 2010b, p.10). Indeed, globalisation and trade liberalisation have paved the way
and opened up the domestic market to foreign firms and investors, many of whom are
able to assist local farmers in more ways than one. Firstly, due to the unevenness in
progress and development between the capitalist system of the global North and
South, the latter can benefit from this existing development by tapping into it rather
than independently developing their own. That is, their existing production relations
do not need a complete overhaul to reach the level of that in the North. As long as a
group of smallholders can tap into the existing global chain, the poor in the global
South can benefit from the uneven development. This can even provide them with
second-mover advantages, avoiding the mistakes made by previous market entrants,
or building up on existing knowledge. Being the late entrants, they can also benefit
from technological spillovers and the availability of inputs that would require
substantial R&D to obtain, or not otherwise accessible at all (Bardhan, 2006). Oya
does mention two caveats, however, firstly of these small farmers becoming wage
earners whose wage is set elsewhere, and secondly the strict requirements (quality,
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