You Take the Risks, I’ll Take the Profits
The old economic order involved plantations and the kind of domination in which a company receiving a concession assumed all the rights (though rarely the duties) of a totalitarian State over its territory. One account of companies like Lever Bros, (now Unilever) in the Belgian Congo makes this quite clear:
The system of large Leopoldian concessions and of forced labor... brought about an enormous historical leap in the Congo. Mercilessly crushing the old African agrarian system, the finance companies proceeded to make gigantic expropriations, seizing millions of hectares, burning villages, tracking down the population far from the rivers, displacing and deporting them, forcing them to gather plantation crops at gunpoint.58
Clearly, things can no longer be done this way. As the opportunity for such brutal exploitation has waned with changing political conditions, the companies have adjusted their methods and are prepared to adjust them further. Many are still producing the traditional cash crops found on the UNCTAD list, but they are not necessarily doing it with land that belongs to them. In our time, they indeed prefer not to be encumbered with land, and even the huge traditional agribusiness kingpins like United Fruit (now United Brands) and Unilever are ridding themselves of unwanted property. One obvious reason for this is the danger of nationalization, but there are other and more subtle business necessities contributing to this changed modus operandi. In Part I we discussed the possibilities of substitutions for the major cash crops of which the developed world is taking full advantage. These considerations also affect the policies of MNCs in the Third World. We may take the example of Unilever, the world's largest importer of fats and edible oils (probably 50-70% of all the imports in the world). Unilever's consistent strategy is to be able to manufacture its soaps and margarines with whatever oil is most advantageous at a given moment. This is not only technically feasible—it is economically vital, for one should never be caught short by price fluctuations on the world market. Here is what a former Chairman of the company says on this point:
The aim is always to enable us to switch from one oil or fat to another without any loss of quality... (the various attributes of the products) must not be impaired ... Subject to that imperative, we are trying at all times to put ourselves in a position to use less of the oils and fats which are in short supply and more of those which are easier to get... Our research has, therefore, been directed for years to making us more flexible, more able to use as many different oils and fats as possible for as many purposes as possible.59
In these circumstances, Unilever has no reason to lumber itself with African plantations which may—even with very cheap labor— at times produce costlier goods than can be had elsewhere. One exellent candidate for such replacements is soya oil from the US which used to be a primary product but which is now sometimes difficult to get rid of as the by-product of a vastly expanded animal feed industry. One student of the subject even concluded that
The evolution of the edible fats and oils markets is moving towards the gradual elimination of tropical oils inherited from colonial days, since these are now in competition with products that give a good yield of meal along with low-priced oils as by-products.60
Multinationals should, above all, be flexible and ownership is not conducive to this aim. There are other ways of controlling land without tying one's assets down. One business school professor put it succinctly: "The leasing boom . . . has rendered obsolete the once prevalent ownership ethic [in Third World countries]."61
This of course does not mean that the companies no longer control both production and marketing of traditional cash crops. They are merely learning to shift the risks attendant upon agricultural production from their own shoulders to those of the host country and— more important—those of its farmers. Nestle has become the world's second largest food corporation without ever owning a single cow or a single acre of coffee or cocoa bushes.62 It prefers to let a local farmer own them, care for them, and pay for them, frequently thanks to a loan from Nestle, while assuming the more profitable activities for itself.
Here we may return to OPIC for an illustration of the modern approach to cash crop farming. OPIC has supplied equity capital and lent over half a million dollars to "Tea Importers Inc." for a project in one of the poorest African countries—Rwanda, where annual per capita income is $65. The project is to include a tea-processing factory, so it may bring in some needed foreign exchange. But who is to furnish tea to the factory?
The typical Rwandan farmer owns an acre of land or less and raises crops primarily in order to feed his own family. The project will enable some 2,500 such subsistence farmers to sell tea as a 'cash crop' and roughly half the population in the region surrounding the factory is expected to derive sales income and to benefit from the project's profit sharing plan.63
Any farmer with an acre or less of land is already having a hard time feeding his family year-round. If he uses it henceforward for growing tea, he will have no food source at all and will become dependent for his entire livelihood on the international tea market (Unilever-Lipton, Brooke-Bond Leibig, etc.). If there are profits to share, so much the better—but if there are blights, poor harvests or low world prices, then these 2,500 farmers and their families may very well starve.
In spite of the often-verified fact that cash crops are not secure sources of income, many governments are now branching out into production for export of "non-traditional" crops like those favored by LAAD. This can prove to be an even more dangerous course to pursue than the cultivation of coffee or sugar, because, unless quick- frozen, all of these new-style products are perishable. Research done to date on such ventures shows enormous profligacy in the use of resources, all of which are devoted to providing luxury items for consumption in the wealthy countries.
In spite of vast domestic production, the US has become the world's largest importer of beef. Firms responding to a hunger for "meat of modest quality at prices much lower than those of American sellers" find it in Central America. Before 1960, ranching in these countries was entirely devoted to satisfying local demand, but during the decade from 1962-72, beef production increased only 5% a year while beef exports went up at least 18% annually (and have gone higher since). Since populations are also larger, the net result has been that many Central Americans have had to give up eating meat. Under normal circumstances, ranching is carried out on land good only for pasture. But in Central America, the largest latifundia owners are the ranchers, and they raise cattle on land that could perfectly well serve for food crops:
Extensive cattle raising does not take place according to the theoretical rules of optimum allocation of resources; the structure of land ownership forbids this ... Herds are not found just on the least fertile land or in the most under-equipped areas—far from it... Cattle raising has shored up the latifundia system. Ranching occupies half the arable land and uses 5 million hectares to produce what could in fact be produced on half or a third that much. It is a usurper of land and has contributed significantly to the defense of huge estates.64
Ranching for export (pet-food, fast food for people) wastes land resources and ignores the food needs of local people. New-look fruit and vegetable projects are similar in their impact. Perhaps the best proof is to be found in a book written by Professor Ray Goldberg of the Harvard Business School to extol and encourage projects of this kind.65 Goldberg, in the wake of Professor John Davis at Harvard, practically invented the concept of agribusiness and was one of the first, if not the first, to apply a systems approach to agriculture. While I personally feel that he directs his skills (and his students) towards absolutely wrong priorities, there is no faulting his thoroughness nor his talent and what he writes should be taken seriously because it is taken seriously by the US and foreign governments. His analyses of several cases of fruit and vegetable production in Central America are thus most revealing, and what they show is an alarming waste. It goes without saying that none of these products is intended for local cons
umption since export production for North American winter markets in exchange for hard currency is the goal. The word "nutrition" surfaces occasionally in the studies, but it always turns out to be the nutrition of American consumers between December and March that is involved. In contrast, the producing countries have a real nutrition problem; the average daily calorie intake is 1,930 calories in El Salvador, 2,130 in Guatemala, 2,140 in Honduras, etc.; of course the poorest people in these countries eat even less.
But leaving aside the question of export crops versus local consumption and taking these projects on their own terms, the losses of food at every stage are enormous. If the crop survives drought or maladies or poor cultivation techniques in the field, it may still rot in a packing shed or on its way to the port or in the ship that takes it to Pompano Beach. If by some miracle it arrives intact in Florida, it can still be refused because the fruits and vegetables are too small or the wrong color or simply because the broker already has enough okra or melons or whatever to sell that day. For a book that contains a great many arithmetical and statistical tables, it is a pity that these losses are nowhere added up; still it is a fairly easy task to determine that for the stages of picking and packing alone, "rejects" of melons in Honduras amounted to 81%, for cucumbers in Guatemala 82% and for melons in El Salvador 90%!66 Production costs were frequently much higher than revenues and US brokers (whom the Central American producers all consider dishonest) sometimes refused up to a third of all deliveries. Brokers only accept the produce "on consignment" when they accept it at all; this means that the producer bears the risk of spoilage or failure to sell right through to the final purchaser. Under these circumstances, producers are lucky to recoup their costs, much less make a profit.
Even "rejects" did not go to local people, although in some cases they were a source of animal feed. Goldberg explains that one of the priorities of the projects is to provide employment; however, in the case of Guatemala, 70% of the cucumber pickers are children under 15. The "sorting and grading for export was done by 27 women who were paid $0.80 per day... "67 One large grower has solved the labor problem to his satisfaction:
In order to motivate his workers in the packing stations, Sr. X has ranked them according to three categories, with different pay scales. A worker can be moved up or down at any time, depending on his work and the judgment of Sr. X.68
Senor X received free technical assistance from USAID, as did the Callejas Bros, of Nicaragua. The latter are not what might be termed "small farmers," since they invested several hundred thousand dollars in their vegetable operation and employ 440 people in menial occupations as well as eight managers. USAID did not choose to give technical assistance to any of the cooperatives or smaller farmers who lost the most money on fruit or vegetable exports, but it did help to get the ball rolling generally by co- sponsoring a seminar on air-freighting with Pan American Airways.69
In spite of huge losses of both food and capital, despite the obvious malnutrition of large numbers of local people and working conditions which would, one hopes, shock Professor Goldberg if they obtained in his own country, there is no criticism in this book (written under contract with USAID) on any of these points. The whole approach is that these projects are fundamentally beneficial and need only to have the "bugs" worked out by employing a proper "systems" approach. The countries concerned will have to invest in infrastructures and transportation networks, import better inputs, and especially devote their "educational delivery systems" (sic) to training people at every level to understand the agribusiness approach.
In effect, the educational delivery system, like the commodity system, must be market oriented. Educators (should) provide the participants not only with skills to carry out their responsibilities more effectively, but also with a vision of the new society into which they have been recruited.70
Perhaps it is not necessary to point out that the market orientation is that of the US market and that this new society is being determined for Central Americans by foreigners.
Ernst Feder's study on Mexican strawberry production for export71 is valuable not only for the empirical evidence it presents of waste (the soil is literally mined), dependency (all the inputs come from the US); but also because he offers the useful reminder that smaller agribusiness corporations are just as important—if not more so—as the giant MNCs everyone talks about. Their scope is geographically and financially more limited, but their transactions are the same, and taken together sometimes more important than those of the huge food firms.
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"Every time American farm workers gain a victory, they are handing agribusiness an invitation to seek its land and labor beyond US borders."
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Strawberries are a relatively recent addition to the Mexican agricultural scene, whereas fruit and vegetable production for export has been going on in the Mexican State of Sinaloa for half a century. Here the similarities with American agriculture are striking, as is the degree of incorporation into the US food system. The farms themselves are enormous: 85 landlords control 117,000 hectares, and these same families oversee input distribution, local commerce and banking. The level of technology is as high or higher than in the US and investments of $2,000 to the hectare of tomatoes are not unusual. Tractors, airplanes, laboratories, agricultural chemicals—all the inputs are American, except for the labor. Since Mexico now has an estimated 7.5 million migrant workers (many of them permanent migrants) the growers have no trouble hiring at low wages (migrants' wives and children come even cheaper and are much appreciated); even so they are increasing mechanization and by 1970 used machinery on 65% of the land. The number of landless workers in Sinaloa doubled between 1960 -1970. However powerful the landholders may be locally, they could do little without their American partners who, once again, are not the major MNCs but smaller agribusinesses, specialized wholesalers and distributors.72 Sinaloa thus serves (1) as a major market for US-manufactured farm inputs and (2) as a permanent supplier of year-round labor intensive crops to US markets.
Every time American farm workers gain a victory, they are handing agribusiness an invitation to seek its land and labor beyond US borders. Capital is mobile, whereas labor is mobile only when it suits the needs of capital (as in the case of migrant workers). Even if North American demand for these fruits and vegetables is uneven, this is of little consequence because foreign investors have very little capital tied up in growing operations and no obligations whatsoever towards their workers. Profits may fluctuate from one season to the next, but they do not disappear. Poor countries, on the other hand, assume the risks of climate, disease and poor sales; they also are increasingly willing to orient their whole societies, not just their farming sector, towards the provision of luxury crops to Northern markets a few months of the year. Goldberg's analyses show that it is not just a question of using scarce land and inputs for exports rather than food crops, but of changing infrastructures, transport, communications and even education to suit the needs of export crop systems. One must credit Goldberg with recognizing early on that for food systems to become agribusiness systems, all the different elements should be supplied at the same time, and not on a piecemeal basis. Over ten years ago, he saw that the US businessman in the Third World had an opportunity to apply "his know-how and the total market concept (his emphasis) to the requirements of various food systems of other nations"... (There is a need for an) “integrated approach to... developing food economies which recognizes that all parts of the agribusiness system—farm supplies and operations, food processing and distribution—must fit together."73
Although Goldberg's advice has not been taken to the letter—no agribusiness consortium has yet managed to take over a Third World food system in one fell swoop—in another few years his goal may be nonetheless accomplished. Fifteen years ago, the Green Revolution was still largely a gleam in the Foundations' eye. Not every sector can be as effectively nor as rapidly penetrated by Western capital as the input end of the food system
, but all are moving in that direction.
We should not assume, however, that the Sinaloa model of huge farms and wealthy landowners ready to keep migrant labor in line for the benefit of US partners will be the only model for servicing the world food system. There are signs indicating that agribusiness will try to preserve and to use smaller peasants because they are willing to supply their own and their family's labor for almost nothing. This will be especially true for the peasant who has enough land for self- provisioning and who can raise a cash crop on the land left over: whatever he makes for the cash crop, it is still, so to speak, money in the bank. There is no problem for modern management in dealing with a large number of peasants prepared to work extremely hard for a small return—far harder than plantation laborers with no stake in their yield. The company always retains the option of refusing produce not of 'export quality' and maintains at all times its superior bargaining position. This is why agribusiness increasingly favors the "satellite system" of contracting with many local farmers.
This trend on the part of food firms will also reinforce the embryonic trend in banking previously mentioned: provision of credit to smaller peasants allowing them to purchase the necessary inputs; although in some cases the agribusiness may assume the banker's role itself.