the global fresh fruit and vegetable system: an industrial organization analysis william h....

The Global Fresh Fruit and The Global Fresh Fruit and Vegetable System: Vegetable System:

An Industrial Organization An Industrial Organization AnalysisAnalysis

William H. FriedlandWilliam H. Friedland

Ms. Rachel KarsentyMs. Rachel Karsenty

Food, Culture and Agriculture

The Global Fresh Fruit and Vegetable System: The Global Fresh Fruit and Vegetable System: An Industrial Organization AnalysisAn Industrial Organization Analysis

I.I. The The restructuringrestructuring of an of an industryindustry as it as it globalizesglobalizes

II.II. The The processprocess by which firms become by which firms become transnational in charactertransnational in character

IntroductionIntroduction

● ●1960s: start of the studies about the 1960s: start of the studies about the phenomenon of the multinational and phenomenon of the multinational and transnational corporationtransnational corporation

● ● Analyse of corporations’ general effects on Analyse of corporations’ general effects on society (eg Third World nations)society (eg Third World nations)

Analyse in terms of their organization and Analyse in terms of their organization and operationoperation

● ●They rarely provide access to independent They rarely provide access to independent investigators → concerns that trade secrets will investigators → concerns that trade secrets will be reveald and will help their competitors be reveald and will help their competitors

The basic argument:The basic argument:

- As the globalization of the FFV industry has As the globalization of the FFV industry has begun, a handful of firms have emerged that begun, a handful of firms have emerged that have become transnationalhave become transnational

- Even if many of them still have a national Even if many of them still have a national base, various firms within the industry are base, various firms within the industry are themself global in characterthemself global in character

3 basic segments in the market of FFV:3 basic segments in the market of FFV:

- ProducersProducers

- MarketersMarketers

- DistributorsDistributors

It is the It is the distribution segment that is distribution segment that is globalizingglobalizing with the increased of production with the increased of production of FFV for long-distance and of FFV for long-distance and intercontinental distribution and marketing.intercontinental distribution and marketing.

Change and its Causes Change and its Causes in the FFV Systemin the FFV System

Industrial Revolution + urbanization = problem of Industrial Revolution + urbanization = problem of provision of food for newly urban populationsprovision of food for newly urban populations

Before Industrial Revolution most people produced Before Industrial Revolution most people produced their own foodtheir own food

Industrial Revolution→lenght of the working day + Industrial Revolution→lenght of the working day + unavailability of land→preclude self-production of foodunavailability of land→preclude self-production of food

Results: Results: - food had to be brought from rural agricultural settings food had to be brought from rural agricultural settings

to the new urban locationsto the new urban locations- Rise of specialized production of foods: sugar in the Rise of specialized production of foods: sugar in the

Caribbean, wheat in eastern EuropeCaribbean, wheat in eastern Europe


As urban population grew, As urban population grew, new production locationsnew production locations entered into entered into grain productiongrain production for the export marketfor the export market::

- CaliforniaCalifornia- The U.S. MidwestThe U.S. Midwest- ArgentinaArgentina- CanadaCanada- AustraliaAustralia

→→For the first time in world history a truly globalized food system For the first time in world history a truly globalized food system began to emerge.began to emerge.

→→Transnational firms specializing in the distribution of grains (Cargill, Transnational firms specializing in the distribution of grains (Cargill, Dreyfus and Bunge) began to emerge as well.Dreyfus and Bunge) began to emerge as well.


Processing of food importantly grew + Processing of food importantly grew + technology of food preservation improved technology of food preservation improved (particularly canning)(particularly canning)

→ → emergence of transnational food-emergence of transnational food-processing firms (Nestlé, Heinz, and processing firms (Nestlé, Heinz, and Campbell)Campbell)

When frozen food technology appeared When frozen food technology appeared the canning industry withered. the canning industry withered.


The most recent stage in food consumption is The most recent stage in food consumption is the the increase in the demand for FFVincrease in the demand for FFV..

Before the 20th century urban population ate Before the 20th century urban population ate fresh produce fresh produce only seasonally.only seasonally.

The major change began with The major change began with bananasbananas because it’s a tropical fruit that because it’s a tropical fruit that can withstand a can withstand a long transportation linklong transportation link between producer and between producer and consumer.consumer.


In the U.S. since the 1920s, commodity after In the U.S. since the 1920s, commodity after commodity began to be available on a year-commodity began to be available on a year-round basis:round basis:

- Lettuce by coordinating production in different Lettuce by coordinating production in different locations locations

- Tomatoes: grown in different locations, Tomatoes: grown in different locations, harvested when « mature green ,» and shipped harvested when « mature green ,» and shipped to local ripeners (heat and gaz the tomatoes to local ripeners (heat and gaz the tomatoes with ethylene gas, a natural plant ripener)with ethylene gas, a natural plant ripener)


In the 1980s two major developments have created a In the 1980s two major developments have created a fundamental change:fundamental change:

- The extension of the production season through plant-The extension of the production season through plant-breeding programs, changes in horticultural practices, breeding programs, changes in horticultural practices, and the development of many production locations.and the development of many production locations.

- The expansion of varieties of fruits and vegetables, The expansion of varieties of fruits and vegetables, particularly tropicals.particularly tropicals.

During the 1980s a lot of tropical exotic fruits and During the 1980s a lot of tropical exotic fruits and vegetables were introduced on the international market vegetables were introduced on the international market (guava, kiwano, lychee, passionfruit, chicory)(guava, kiwano, lychee, passionfruit, chicory)


The developement in the FFV system have The developement in the FFV system have been driven by:been driven by:

- The health-food movement and concerns about The health-food movement and concerns about food safety,food safety,

- The developement of production capacity The developement of production capacity through the export of capital and technological through the export of capital and technological expertise,expertise,

- The establishment of capital-intensive « cool-The establishment of capital-intensive « cool-chains, » which maintain chilled temperatures chains, » which maintain chilled temperatures from origin to consumer.from origin to consumer.


Creation of a transnational industry: products Creation of a transnational industry: products are grown on 5 continents for distribution and are grown on 5 continents for distribution and sale on 3 continents (North America, Europe, sale on 3 continents (North America, Europe, and Japan and Hong Kong in Asia).and Japan and Hong Kong in Asia).

Fresh produce is consumed worldwide, but in Fresh produce is consumed worldwide, but in countries, with large populations, such as countries, with large populations, such as China, India, and Nigeria, there is only China, India, and Nigeria, there is only local local production for local consumptionproduction for local consumption..

Industrial OrganizationIndustrial Organization

3 distinct elements characterize the FFV 3 distinct elements characterize the FFV industry:industry:

- There are 3 separate segments, only one, the There are 3 separate segments, only one, the distribution segment, is truly transnationalized,distribution segment, is truly transnationalized,

- The distribution segment of the industry is The distribution segment of the industry is probably (few data available) highly probably (few data available) highly concentrated→only a handful of firms have concentrated→only a handful of firms have established a global presence,established a global presence,

- There is significant variation in history, size, There is significant variation in history, size, and internal structure of the firms involved in and internal structure of the firms involved in FFV distribution. FFV distribution.


Presentation of the major players in distribution:Presentation of the major players in distribution:- DoleDole: U.S.-based transnational (known until 1991 as Castle and Cook), : U.S.-based transnational (known until 1991 as Castle and Cook),

involved in food processing, real estate, and FFV activities,involved in food processing, real estate, and FFV activities,- ChiquitaChiquita: U.S.-based, was known as United Brands,and before that as : U.S.-based, was known as United Brands,and before that as

the United Fruit Company,the United Fruit Company,- Albert FisherAlbert Fisher: British-based firm, extensive holdings in North America : British-based firm, extensive holdings in North America

(Florida and California), Great Britain, and the European Community (Florida and California), Great Britain, and the European Community (Netherlands and Germany),(Netherlands and Germany),

- Polly Peck InternationalPolly Peck International: British-based transnational conglomerate, : British-based transnational conglomerate, currently in bankruptcy proceedings and being dismantled,currently in bankruptcy proceedings and being dismantled,

- The Del Monte Fresh Produce CompanyThe Del Monte Fresh Produce Company: U.S.-based company, was : U.S.-based company, was known as Del Monte Tropical Products until late 1992. known as Del Monte Tropical Products until late 1992.

Dole, Chiquita, and Del Monte Tropical Products have histories in banana Dole, Chiquita, and Del Monte Tropical Products have histories in banana production.production.

Albert Fisher and Polly Peck International are new firms.Albert Fisher and Polly Peck International are new firms.

StructureStructure The FFV industry can be conceptualized in the shape of a The FFV industry can be conceptualized in the shape of a

dumbbell: production and marketing being the two large weights dumbbell: production and marketing being the two large weights on each connected by the narrow channel of distribution.on each connected by the narrow channel of distribution.

Production Distribution Marketing

The meaning of the metaphor:

-Production and marketing are much larger than distribution in terms of the numbers of people involved.

- Distribution, in contrast, is very capital and energy intensive (trucks, airplanes, ships, refrigeration capacity).

- The metaphor also illustrates the articulation between the 3 segments: most distributors are involved in some degree with production, but impinge on marketing only to a limited degree.

StructureStructure

Examples of partial involvement in production by Examples of partial involvement in production by distribution firms:distribution firms:

- Contracting: distribution firms contract with production Contracting: distribution firms contract with production firms, cooperatives, or individuals for delivery of firms, cooperatives, or individuals for delivery of commodities, usually with specifications as to timing, commodities, usually with specifications as to timing, quality of product, and price.quality of product, and price.

- Joint ventures: distribution firms may engage in practices Joint ventures: distribution firms may engage in practices in which all or part of the capital requirements may be in which all or part of the capital requirements may be provided by the distribution firm, with some specifications provided by the distribution firm, with some specifications on some aspects of production, quality, and the division of on some aspects of production, quality, and the division of income from the sale of the commodities. income from the sale of the commodities.

Transnational Firm Transnational Firm OrganizationOrganization

Two basic types of strategies to meet the new Two basic types of strategies to meet the new transnationalized markets for FFV have been followed:transnationalized markets for FFV have been followed:

- To build from an established commodity base, primarily To build from an established commodity base, primarily bananas, into other commodities, most frequently bananas, into other commodities, most frequently through acquisitions.through acquisitions.

- To assemble capital resources to acquire significant To assemble capital resources to acquire significant numbers of small firms (Albert Fisher) or important numbers of small firms (Albert Fisher) or important firms (Polly Peck) withestablished records in importing firms (Polly Peck) withestablished records in importing or distributing fresh produce from a variety of locations or distributing fresh produce from a variety of locations to provide broad geographical and commodity to provide broad geographical and commodity availability.availability.

ConclusionConclusion

The analysis of the FFV industrial sector The analysis of the FFV industrial sector needs considerable broadening if we want needs considerable broadening if we want fully to understand the process of fully to understand the process of transnationalization: transnationalization:

- many additional research are required,many additional research are required,

- some points as the methods of internal some points as the methods of internal organization used by the firms to implement organization used by the firms to implement their strategies needs to be clarified.their strategies needs to be clarified.

FinFin(The End)(The End)

Questions ?Questions ?

the global fresh fruit and vegetable system: an industrial organization analysis william h....

Documents

ffv system processing

ffv industry

globalized food system

food consumption

frozen food technology

market of ffv

transnational firms

character slide