RuralSociology69(3),2004,pp.321–346 Copyright(cid:1)2004bytheRuralSociologicalSociety New! Improved? The Transformation of the Global Agrifood System* Lawrence Busch Carmen Bain DepartmentofSociologyand InstituteforFoodandAgriculturalStandards MichiganStateUniversity ABSTRACT The last decade has witnessed a dramatic rise in global trade in foodandagriculturalproducts.Whilemuchanalysishasfocusedontherole oftheWorldTradeOrganization(WTO)inthisprocess,wearguethatother forms of regulation are of far greater consequence. In this paper, we examine changes in the agrifood system made possible by the WTO and we assesstheriseofglobalprivatestandards.Wearguethatthenewglobalrules, regulations, and institutions implemented by the WTO have facilitated the abilityoftheprivateagrifoodsectortoconsolidateandexpandinternation- ally. Of particular importance is the growing influence of food retailers as they rapidly become more global and oligopolistic. The article concludes that today it is the private sector, and retailers in particular, together with private standards that are at the center of the transformation of the global agrifood system. Introduction Althoughglobaltradeinagriculturalproductsishardlynew(Bonanno et al. 1994), the last decade has seen a dramatic rise in global trade in food and agricultural products. In 2000 some $558 billion worth of agricultural products crossed national borders (World Trade Organiza- tion 2001). This was in no small part due to the creation of the World TradeOrganization(WTO).TheformationoftheWTOmarksthefirst time in world history that an international entity has regulated trade. ProponentsoffreetradefirmlybelievethattheformationoftheWTO will usher in a new world of global prosperity (e.g., Bhagwati 2002; HoekmanandKostecki2001).Initsmoststraightforwardstatement,by eliminating tariffs and quotas and prohibiting nontariff trade barriers, globalmarketswillformrapidly.These,inturn,willpermitarapidrise inglobaltrade,aswellasthespreadofprosperityacrossthefaceofthe *ThispaperispartlybaseduponworksupportedbytheNationalScienceFoundation under Grant No. SBR 0094618.Any opinions, findings, and conclusions or recommen- dationsexpressedinthismaterialarethoseoftheauthorsanddonotnecessarilyreflect the views of the National Science Foundation. The authors would like to thank the anonymous reviewers for their comments and suggestions. Direct correspondence to: Lawrence Busch, Department of Sociology, Michigan State University, 422 Berkey Hall, EastLansing,48824;e-mail:[email protected]. 322 Rural Sociology, Vol. 69, No. 3, September 2004 planet.Incontrast,critics—whethermarchinginSeattleandCancunor writingfromwithinthewallsofacademe—arguethatthetermsoftrade areheavilybiased toward industrialized nationsof theWest(e.g.,Shiva 2001;WallachandSforza1999).Therefore,freetrademerelyopensthe poor nations of the world to plunderby therich. In this paper, we argue that both views are fundamentally flawed in ways that are unexpected because they ignore the tacit knowledge found neither in development textbooks nor in bureaucratic offices. First,wearguethatwhilemuchanalysishasfocusedontheWTOitself, other changes in the agrifood system made possible by the WTO are likely to be of far greater consequence. In particular, the WTO has simultaneously (a) introduced a new set of international institutions1 and organizations to regulate trade, (b) made several existing but voluntary standards de facto mandatory, and (c) opened the door for greater private regulation of the agrifood sector through standards, contracts, and agreements. Second, we examine the rapid rise of private global standards, itself the result of (a) the opening of national product and capital markets to global competition, and (b) the demands of (some) consumers for productsthataresafe,environmentallyfriendly,andnotexploitativeof workersin poor nations. Thus, the diminishing ability of the public sector to regulate trade hasprovidedanopportunityfortheprivatesectortoreorganizeaspects of the market to better suit its needs. This is not to say that public regulations are obsolete; in fact, they continue to form the basis from which many private regulations operate. However, our focus here is to analyze the emergence of private rules, practices, and institutions since these are now at the center of transforming social, political, and economic relations throughout the global agrifood system. Regulating the Agrifood System Oneoftheprincipaltraditionsforexaminingchangestothe‘‘practices and rules governing food systems’’ within the agrifood literature is drawnfrom the French regulationschool (Buttel 2001). Inbrief, regu- lation theorists (see Aglietta 1979; Boyer 1990) argue that capitalism developsthroughaseriesofdistinctphaseswhereeachstagecomprises a regime of accumulation and its associated mode of social and political regulation. A regime of accumulation is defined as a stable and re- produciblerelationshipbetweenproductionandconsumption.Amode 1North defines institutions as ‘‘the rules of the game in a society or, more formally, ... the humanly devised constraints that shape human interaction’’ (North 1990:3). Global Agrifood — Busch and Bain 323 ofregulation consists ofthestate andprivateinstitutional forms, social practices, habits, and norms that regulate relationships and individual behavior toensure economicstability. Of particular importance is the regulationist analysis of the transi- tion from Fordist to post-Fordist forms of economic regulation and its accompanying regimes of accumulation. From the regulationist per- spective, the Fordist regime was dominant through the post-World War II period. Here economic accumulation was based on the mass productionandmassconsumptionofuniform,standardized,manufac- tured goods supported by Keynesian state policies and institutions. Thepost-Fordistregimeof‘‘flexibleaccumulation’’wasbornoutofthe economic crisis of the 1970s. Flexible accumulation is founded on the fragmentation of the market, since workplace and labor flexibility are required toproduce customized, non standardizedgoods and services. ThisperiodhasbeenaccompaniedbythedemiseofKeynesianismand the welfare state. Friedmann and McMichael (1989), specifically address agricultural regulation by incorporating Aglietta’s (1979) concept of historically contextualized food regimes. The concept of food regimes refers to ‘‘theriseanddeclineofnationalagriculturesaspartofthegeo-political historyofcapitalism’’(McMichael1999:4).Theauthorsarguethateach period of capitalist accumulation is linked to a different international division of labor that, in turn, creates an international system of food production and consumption (Friedmann and McMichael 1989). The post-WorldWarIIfoodregimewasbasedonKeynesianstateregulation, agricultural subsidies and surpluses in the U.S. and Western Europe, and American hegemony through the export of food surpluses and agri-industrial technologies to developing nations (McMichael 1999). The post-Fordist food regime is based on state deregulation, growing international free trade, as well as a fracturing in the marketplace for food(LawrenceandVanclay1994).Inotherwords,whilemassconsump- tion diets remain, there has been a shift towards trade and consump- tion in nontraditional foods and ‘‘niche’’ commodities, such as fresh fruits and vegetables and organic produce. In part, this shift has been in response to those consumers who reject the production methods, techniques, and products of mass consumption and are concerned about issues such as food safety, food quality, and environmental sustainability(Lawrenceand Vanclay 1994; McKennaet al.1999). The regulationist framework has been important for appreciat- ing that there are no constant, ahistorical economic principles of capitalism. Instead, capitalist economic development must be un- derstood as shaped institutionally and socially in ways that are always specific to particular historical periods (Hoogvelt 2001). However, this 324 Rural Sociology, Vol. 69, No. 3, September 2004 approach has been broadly and justifiably criticized for its overly structuralist and functionalist interpretations of capitalist development and institutions (Goodman and Watts 1994). As with other political economy approaches, it helps explain the broad conditions under which certain processes occur but tells us very little about the specifics (Busch and Juska 1997). However, recently the French regulationists haveadoptedamoremodestvisionoftheirposition;assuch,agrowing convergencebetweentheFrenchconventionschoolandthemselveshas been established (see Allaire and Boyer 1995; Boltanski and The´venot 1991; Nicolas and Valceschini 1995). Theresulthasbeentheproductionofaneo-regulationistframework that is more carefully grounded (Buttel 2001). Building on the work of other institutionalists (e.g., Granovetter 1985; Williamson 1993), the central argument of convention theorists is that rules, norms, conventions, organizations, and institutions are what ‘‘determine the content and the form of the production and circulation of commod- ities’’(Wilkinson1997:317).Intheagriculturalsector,AllaireandBoyer (1995) have demonstrated how attributes of quality, institutional innovation and conventions are ‘‘constitutive of the new ways in which markets, states and indeed capitalism itself are conceptualised’’ (Watts and Goodman 1997:5). One of their principal arguments is the emphasis on the shift to quality as the basis for economic competition. In other words, under Fordismpriceandquantityweretheprimarycriteriaforcharacterizing production. However, today the economic focus has turned to quality (Raikes, Jensen, and Ponte 2000). Quality refers to the specific at- tributes of the food or commodity itself, such as safety, nutritional content,label,productionprocesses,orbranding,thatareemphasized andregulated(WattsandGoodman1997).Atthesametime,emphasis is placed on how conventions and other institutions construct and legitimate notions of quality. The neo-regulationist and convention frameworks are particularly salient for analyzing the shift from public to private regulation in the global agrifood system. The construction of new forms of institutions andconventionsarefundamentaltothisprocess.Privatefoodsafetyand qualitystandards,branding,contracts,certification,andagreementsare theaxesaroundwhichfoodretailers areorganizingcompetitionbased onquality.Importantly,theoutcomesoftheseprocessesarenotneutral. Ascompetition,productionprocesses,andconsumptionlinkagesinthe agrifood sector are reregulated, new winners and losers will emerge. Consequently, private regulations and institutions will be contested as different actors seek to shape the content and the outcomes in their favor.Wenowbrieflyexaminehowtheinstitutionalandorganizational Global Agrifood — Busch and Bain 325 changes that occurred with the establishment of the WTO were fundamentalto the rise of private regulations. The Ironies of Free Trade Theestablishmentofthe WTO2in1995wasmotivatedby thedesire of proponents of free trade to create a single institutional framework for worldtradethatcouldeffectively deal withtheperceivedshortcomings oftheGeneralAgreementonTariffsandTrade(GATT)(Hoekmanand Kostecki 2001). With the creation of the WTO, GATT—together with numerous other multilateral agreements—was subsumed into the new organization. GATT provided some of the most important articles that shaped the general principles of the WTO, including: National Treatment, Most-Favored Nation, and Elimination of Quantitative Restrictions(importandexportcontrols). TheWTOadministersthese agreements,togetherwithfacilitatingtradenegotiationsandoverseeing andenforcingtradedisputeresolution.Ofparticularsignificanceisthat theWTO,unlikeGATT,hasinternationallegalstatuswithenforcement powers, similar to the United Nations, and its rules are binding on all members (International Forum on Globalization, Barker and Mander 1999). Also, the WTO is not limited strictly to trade in goods; its authority has been extended into so-called nontrade-related activity. These activities include, for example, foreign investment rules, in- tellectualpropertyrights,anddomesticregulatorymechanisms,suchas services for insurance and transport, farm policy, and food and environmental standards (International Forum on Globalization et al. 1999). The WTO as Enforcer of International Standards Whileittookmanyyearstoreachagreement,thedecisiontoreduceand phaseouttariffsandquotaswasarelativelysimpleone.Afterall,tariffs andquotasareusuallyquiteobvioustoboththenationsimposingthem and to those nations subject to them. However, the negotiators who designed the WTO soon realized that elimination of tariffs and quotas couldeasilyleadtoaproliferationofnontarifftradebarriers.Moreover, unlike tariffs and quotas, nontariff trade barriers, at least in principle, can take a virtually infinite number of forms. Thus, eliminating tariffs andquotashadthepotentialtoopenaPandora’sboxofnontarifftrade barriers.Thesolutiontothatproblem,thenegotiatorsreasoned,layin aseries ofagreements that would restrict the useof such barriers. 2ForanaccountofthehistoryofGATTandthedebatesthatledtothecreationofthe WTO,pleaserefertoHoekmanandKostecki(2001)andKuttner(1991). 326 Rural Sociology, Vol. 69, No. 3, September 2004 The Sanitary and Phytosanitary (SPS) Agreement The SPS agreement covers the domain of food safety as well as that of animal health and plant pests and diseases. It requires that signatories have SPS regulations for imported products that are the same as those for domestically produced goods. Thus, one cannot have different limits for Salmonella contamination for domestic and imported foods. Similarly, one cannot prohibit entry of products containing pests already endemic to the importing country. In addition, nations are called on to employ SPS standards that have been promulgated by international standards bodies such as the Codex Alimentarius, the International Plant Protection Convention, and the Office Internationale des Epizooties. More restrictive standards are to be used only when the scientific data warrant additional restrictions. Furthermore, the agreement specifically calls on science to resolve disputes. Technical Barriers to Trade (TBT) Like the SPS agreement, the TBT agreement was designed to dis- courage the creation of nontariff trade barriers. The TBT Agreement covers such things as specific technical requirements (e.g., labeling, packaging) that could otherwise be used to reduce global trade. Here again the focus is on consistency with respect to products for the internal market and those imported. If the internal market requires labels of a certain size and shape, labels required for imports can be no different. Moreover, the TBT agreement is meant to discourage overly long and bureaucratic delays at ports of entry by promoting harmonization of technical requirements. The Agreement on Trade-Related Intellectual Property (TRIPs) TRIPswasdesignedtoharmonizeintellectualpropertyrulesworldwide. Althoughitwasinitiallysupportedbylargecompaniesintheindustrial worldtoendwidespreadcopyingofelectronicandtextileproducts,ithas alsobeenusedoflatebyothercompaniesfromindustrialnationsseeking topatentproductslongusedintheircountryoforigin.Thescandalover thegrantingofapatentforTurmeric,aspiceusedinIndiaforcenturies for its coagulating properties, is illustrative of the problems associated withTRIPs(Bagla1997).Whilethepatentwaseventuallyoverturned,it suggestsaconsiderableadvantagetofirmsinindustrialnations. The Dispute Settlement Process (DSP) As one might imagine, creation of a broad set of agreements of this naturehas led toanumberofheateddisputes. Underthe DSP, agreed Global Agrifood — Busch and Bain 327 to by WTO members, all nations may bring complaints. As this is an expensive proposition, in practice the DSP tends to be biased against poorer nations. Moreover, as critics have noted, the DSP takes place behind closed doors; only the results are announced to the public. Changingthisprocedurewillnotbeeasy,asitwillrequireavoteofthe members and is not merely a bureaucratic rule put into place by the WTO staff. Taken together, the WTO agreements were designed to facilitate global trade by restricting the ability of individual nations to use nontariff trade barriers. This was accomplished through the establish- mentofinternationalagreementsthatwouldharmonizestandardsand ensure that these standards were transparent, consistent, and enforce- able. Ironically, one of the most important consequences of the development of these global rules on standards has been the emer- gence of standards promulgated by the private sector. The process of making existing voluntary standards de facto mandatory has allowed greater private regulation of the agrifood sector through standards, contracts, and agreements. Separation of Food Safety, Labor, Environment, and Quality Agencies Virtually every nation on earth, and the international community, has four distinct agencies responsible for and mandated to enforce food safety, animal and plant health, environment, and labor standards.3 These agencies usually operate largely independently of each other. Furthermore, the private sector has had quality standards (sometimes aided by government, as in the case of the standards for fruits and vegetables promulgated by the Agricultural Marketing Service in the U.S.). As activists have rightly pointed out, the WTO has no brief with respect to, for example, labor standards. As noted above, the establishment of the WTO had the effect of making many voluntary standards de facto mandatory. In the past, such standards only applied to those who desired to use them. Therefore, contradictions and inconsistencies among the various categories of standardswereoftenunnoticed.However,theSPSandTBTagreements makedirectreferencetosuchstandards.Therefore,notusingthem(or some reasonable equivalent) has become exceedingly difficult. As a consequence of active enforcement of trade-related standards and the organizational distinctness of the various standards bodies, conflicts are bound to arise. For example, as Thrupp (1995) has 3Thisisnottosuggestthateverynationhasequalabilitytoenforcetheserules. 328 Rural Sociology, Vol. 69, No. 3, September 2004 suggested, adhering to U.S. phytosanitary standards could well mean dousing farm workers in another country with insecticides. Similarly, meeting quality standards might involve the useof child labor. These are pressing issues of considerable concern to various non- governmental organizations (NGOs), but also of concern to a sig- nificantpercentageoftheconsumingpublic.Assuch,theprivatesector has begun to develop its own, often more strict and certainly better integrated,setofstandards.Importantly,thesestandardsnowtranscend thehistoricaldivisionoflaborinsettingstandards.Itistothesethatwe now turn. The Rise of the Private Regulatory System The profound changes wrought by the formation of the WTO have concealed what may be far more profound changes occurring outside the system of public regulation of markets. In particular, the trade regimeintroducedbytheWTOpermitted—indeed,encouraged—large supermarket chains to become truly global in scope. Those retailers already operating across national borders began to seek out new markets more aggressively. Still other chains began to look beyond national borders for the first time (Hendrickson et al. 2001). Most of the larger chains have used a combination of strategies. On the one hand, they have increased the number of stores, opening new ones in nations previously outside their sphere of operations. For example, the French chain Carrefour has opened stores in Poland. On the otherhand, the large chains have bought (all or part of) smaller ones, allowing and even encouraging them to operate under their original name. Thus, Royal Ahold now owns 50 percent of La Fragua supermarkets in Central America. Moreover, as these retailers have increased in size, they have begun to promulgate their own private regulations, both individually and as a group. The Shift of Power from Processors to Supermarkets Inthepast,foodprocessinggiantssuchasNestle´ andHeinzdominated the food industry. Such giants could and did set the terms of contracts with supermarkets, offering a range of branded products advertised directly to final consumers. Supermarkets were largely at the mercy of processors,whodeterminedthecontent,sizes,andshapesofproducts. But during the 1990s supermarkets began to expand in scale such that thelargerchainswereabletoexertmarketpoweroverupstreamactors. Astheyconsolidatedtheirgains,thebalanceofpowershiftedfromthe processors to the retailers (Marion 1998). Even the very largest food processors found that they had to accede to retailer requests, at least Global Agrifood — Busch and Bain 329 for the very large retailers. For example, Proctor and Gamble now publishes aspecial supplementtotheir annual report thatdetailstheir relationship with Wal-Mart. Similarly, Wal-Mart, now Mexico’s largest food retailer, recently withdrew Danone yogurt from the shelves of its stores there for several months in a dispute over pricing (Smith 2002). Furthermore, supermarkets have benefited at the expense of pro- cessors from several lifestyle and demographic shifts that have led to changes in consumer preferences. As a result of greater health con- sciousness on the part of some consumers, higher disposable incomes of middle class consumers, improved transportation and communica- tion,andincreasedmigrationofethnicgroupsoutsidetheirregionsof origin,consumers haveshifted some oftheir purchases from packaged goods to fresh and fresh-cut produce, fresh meat and seafood, store- baked bakery products, and fresh prepared foods (Martinez and Davis 2002;ReardonandBerdegue2002).Suchproductsarerarelybranded, and have a far greater markup than packaged products offered by the food processing industry. Also worthy of note is the degree to which retailers have avoided vertical integration, preferring instead to coordinate upstream actors without taking on the added risks of ownership (Marsden, Flynn, and Harrison 2000). This appears to be as true in Europe as it is in the United States. Oligopolistic Competition and the Making of Consumer Demand Foodretailinggloballyhasbecomemoreoligopolistic.Thisisastruein industrializednationsasitisinmiddleincomecountries(seeTable1). But even nations with relatively low per capita incomes have seen phenomenal supermarket growth. Kenya now sports two homegrown supermarket chains, Uchumi and Nakumatt, each with more than 20 storesrangingfromneighborhoodconveniencestorestohypermarkets. Zambia,withatotalpopulationof9.5millionpersonsnowboastsmore than 18 supermarkets (Giovannucci et al. 2001). However,inconformitytothetheoryofoligopoly,supermarketshave not become less competitive as a result of edging out the competition (Dolan and Humphrey 2000). Rather they have shifted from price competition to nonprice competition where variety, convenience, quality,andyear-roundsupplyareasimportantorevenmoreimportant than price. This shift away from price competition has been accom- panied by greater use of contracting to supply quality, consistency, and year-round supply (Martinez and Davis 2002). The new nonprice competition focuses in large part on the creation ofdemand.This,too,followsthetheoryofoligopoly.Aleadingfirmwill 330 Rural Sociology, Vol. 69, No. 3, September 2004 Table 1. Five Firm National Supermarket Concentration Ratios (%) Country 1993 1996 1999 2000 Austria 54.0 59.0 68.0 Belgium 60.0 62.0 66.0 Brazil 26.0 40.8 Denmark 54.0 59.0 76.0 Europe 13.8a 26.0 Finland 94.0 89.0 89.0 France 48.0 51.0 61.0 Guatemala 94.0 99.0b Germany 45.0 45.0 61.0 Greece 11.0 28.0 38.0 Ireland 62.0 64.0 54.0 Italy 11.0 12.0 25.0 Netherlands 52.0 50.0 68.0 Portugal 36.0 56.0 52.0 Spain 22.0 32.0 50.0 Sweden 79.0 78.0 95.0 U.K. 69.5c 73.2 79.8 U.S.A. 26.3 38.0 Sources: (ABRAS 1999; Agra Europe Ltd 2000; Dobson Consulting 1999; Foreign Agricultural Service/USDA 1999; Foreign Agricultural Service/USDA 2000a; Foreign Agricultural Service/USDA 2000b; Foreign Agricultural Service/USDA 2001a; Foreign Agricultural Service/USDA 2001b; Internal Market Directorate General 2002; Turcsik2000). Notes:a1990data;b2001data;c1994data. add a new product to its product mix. Alternatively, it will provide apreviouslyseasonalproductyear-round.Or,itwillexpandtherangeof productsinitsfreshproducesection.Or,itwillintroduceanexoticfruit successfully.Supermarketsareconstantlyexperimentingwithnewfresh and packaged products to entice consumers into their stores as well as to encourage repeat sales (Kaufman et al. 2000). In industrial nations, supermarkets put 30,000 new products on store shelves annually, although most fail (Food Marketing Institute 1998). But since the market is oligopolistic, supermarkets can and do copy each other with extraordinaryrapidity.Aninnovationthatissuccessfulinonechainwill soon be copied by others. This shift has also been aided and abetted by declining transport costs. Air transport costs have been reduced sufficiently that Kenyan ‘‘french’’ beans can now be harvested, washed, trimmed, packed in blister packs, bar-coded, and delivered to British retail shelves in less than one day. Moreover, for many products commonly eaten by consumers in industrialized nations, there are numerous sources of supply. All this serves to enhance the oligopsonistic character of fresh product markets.