Productive verticalization

Towards the end of the 20th century, the global food system underwent a profound restructuring in the spheres of production and commercialization. This general process of intensified interconnection and verticalazation has been characterized by a range of authors as a neo-liberal turn of the food system. Central trends in line with this general liberalization have been treated as a global rearrangements of supply chains (ALMÅS & CAMPBELL 2012 (2), p.293), neoregulatory reorientation by the state and the surge of transnational agribusiness corporations (OTERO 2012, p. 282; 2013, p.59), increased privatization and capital mobility (MCMICHAEL 2010, p.612) and the internationalization of commodity chains sourcing possibilities (Ibid 1993, p.201).

These developments may be regarded as sub-processes of globalization within the field of agriculture, which as Bonanno & Constance underline, are qualitatively different from internationalization processes, because they not only assume an unprecedented degree of global extension, but also imply the functional integration of production activities across the globe (BONANNO & CONSTANCE 2001, p.5-6).

McMichael emphasizes how, "agro-industrialisation increasingly replicates the spatial mobility of manufacturing systems, including the sub-division of constituent processes into global commodity chains" (MCMICHAEL 2009, p.162). The incorporation of land-abundant regions such as Brazil, into the global animal protein chain provides a good example in this respect (Ibid, p.142). The increased concentration of market structures thus feeds into the process of standardization of food products (PAULA & BASTOS 2009, p.3) which in turn amplifies their global sourcing options and incentivizes specialization and economies of scale. The notion of "world agriculture" relates to the integration of northern and southern agro-industrial production system (MCMICHAEL 2005, p.270) and to "a transnational space of

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corporate agricultural and food relations integrated by commodity circuits" (Ibid, p.

282). The accumulation which the restructuring of global agro-food chains had permitted, thereby constitutes a central trait of the present corporate food regime (BURCH & LAWRENCE 2009, p.267). This global agro-industrial complex has thus redefined producers/production as an intermediate link within long and varied production and supply chains (POTTER & TILZEY 2007, p.1293).

Though much research regarding the power relations within the corporate food system has focused on the market power of retailers, Baines (2014) accentuates the increasing weight of a core of input producers of seeds, fertilizer, and agrochemicals, along with a handful of global grain traders, within world agricultural markets (BAINES 2014, p.93). Particularly grain markets have become characterized by an extreme degree of concentration in the trading phase (FRIEDLAND 2001, p.97), as worldwide grain and oilseed production is dominated by four multinational enterprises;

Bungee, Cargill, Athur Daniels Midlands (ADM) and Louis Dreifuss. A range of takeovers and mergers around the turn of the millennium meant that ADM, Bungee and Cargill together came to control between 75% to 90% of global grain trade (BAINES 2014, p.99). The same sort of oligopolistic consolidation can be identified in this period within the sector for agricultural inputs, such as seed and pesticides (BAINES 2014, p.99), as well as the agricultural machinery sector, in which John Deere, International Harvester, Massey-Ferguson, and Ford Motor Company dominate more than 90% of world trade (MENDONÇA 2015, p.381).

This market concentration upon a few players has occurred in tandem with the trend of partial relocation of global bulk commodity production from the northern to southern global regions, with substantially cheaper access to land, water, and labor (MCMICHAEL 2012, p.688). The entry of grain traders and input providers has hereby constituted a central development within the recent bulk commodity boom in Latin America. It has not only linked this production to the world market, but also directly contributed to the proliferation of a production model oriented towards global demand.

In Brazil, agro-industrialization as a policy meant to enhance value-added activities within the sector can be traced back to the 1960 (BELIK 2007, p.156).

Ramifications of the technological developments associated with the Green Revolution meant that the North American agro-food industrial model was replicated in Brazil;

both with regards to direct production activities, but also in relation to their surrounding agro-industrial complex (PAULA & BASTOS 2009, p.7). Belik directly relates these

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developments to the entry of foreign capital and production models, due to the emerging potential of the Brazilian agricultural sector during the 1980s (BELIK, 2007, p.163).

The agricultural sector thus became ever more interconnected with food commodity chains which were directed towards insertion within global markets from the early 1990s (MULLER & MULLER 2014, p.3), and from this time and on, "agro-industrialization" became central to the official Brazilian strategy for rural development (REZENDE 1999, p.76). In line with such policy perceptions, in 1992, Embrapa also developed a "macro agro-ecological map" dividing the Brazilian landscape into 4 general categories according to whether they could be designated as fit for extraction, preservation, livestock, or farming (VIEIRA 1992, p.12). The goal with the mapping was to define each specific region according to its particular production potential, in order to facilitate a vertical integration with agricultural commodity chains, attract localized investment and thereby strengthen the sector´s competitiveness (Ibid, p.12-13).

The surge of the nascent agro-industrial grain complex occurred in large part by cultivation of the Cerrado region, through the PRODECER programme, the initial roots of which stretch back to the 1970s. The incorporation of the Cerrado thus became central to the introduction of an extensive grain and oilseed production, which increased from 29,2 million ton in 1970 to 82.8 million ton in 2000 (RODRIGUES 2001, p.3).

Soy production on the Cerrado also grew rapidly throughout the 1980´s, from a level of 15% of national production in 1981-82 to 45% in the 1991-92 harvest season (PEREIRA 1993 (1), p.7). The large expansion of grain cultivation also permitted an increase in industries for further value-added activities, such as pork and poultry production, as well as related food processing (RODRIGUES 2001, p.3). The burgeoning oilseed production model implied a high degree of dependency upon a technological package of fertilizer, industrial inputs, herbicide and insecticides and enhanced or genetically modified seeds, apart from a high degree of fuel consumption.

Brazil thereby became one of the leading consumers of herbicides and insecticides from 1970-1998, with a close to tenfold increase in its use (CAVALET 2008, p.1). The proliferation of capital-intensive agricultural production on the Cerrado came to favor large-scale farming operations, either in form of family groups or corporate entities, as they possessed the necessary financial resources, knowhow, and economies of scale to become competitive. Smaller production units often found themselves in a more difficult operational environment, and became dependent on traders for their inputs.

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(CHADDAD 2016, p.135)

As the export-oriented reconstitution of Brazilian agriculture throughout the 1990 took place in conjunction with the reduction of direct governmental support, farmers´ income became evermore dependent upon global markets (BERALDO 2000, p.3). During the process of agro-industrialization, a long range of commodity chains had reached at point at which they were internationally competitive by the turn of the millennium (VIERIA et al. 2001, p. 14). This is reflected in figure 4 below, which displays the surge of Brazilian exports in maize, refined sugar, and not least soybeans from this point in time:

Figure 4: Graph of annual Brazilian exports in thousand US$ from maize, soybeans and refined sugar from 1980-2005

Source: Author´s elaboration of data from FAO Stat.

The increased production of grains and oilseeds did not only lead to rising exports of these commodities in a raw or lightly processed form, but also spilled over into an even more accentuated growth in meat production. Maize and soybeans thereby became a readily available input to the production of beef, pork and chicken, which also underwent a very significant leap in exports from the turn of the century, as can be read from the graph in figure 5 below:

Figure 5: Graph of the annual Brazilian exports in thousand US$ from beef, chicken and pork from 1980-2005.

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Source: Author´s elaboration of data from FAO Stat

The above-standing graph also reflects the circumstance that from 1996-2007, production of animal protein experienced an even stronger growth within indices of comparative advantages, than was the case for crop production (SOUZA et al. 2012, p.70). The relative significance of export crops within Brazilian agriculture in relation to crops more broadly consumed domestically became much more pronounced towards the turn of the century. A proportionate growth in the area planted with export crops can thereby be observed in table 4 below :

Table 4: Area in million HA sown dedicated to specific crop production in Brazil in 1990 and 2000.

1990 2000

Rice 9,04 8,13

Cane sugar 9,4 10,7

Beans 11,54 9,75

Manioc 4,3 3,81

Corn 26,15 27,75

Soy 25,19 30,5

Source: IBGE, 2016a.

A decrease in the area dedicated to manioc, beans, and rice is evident during the 1990s, while a modest increase in crops with a higher export potential can be observed.

Yet, a more significant increase in the area dedicated to soy production indicates that

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the soy complex to some extend may have grown at the expense of crops destined for domestic consumption. General productivity increases in Brazilian agriculture in the period 1990-2000 meant that apart from manioc cultivation, both production of crops mainly consumed domestically, as well as those with a high export potential, rose in the 1990s, as can be seen in table 5 below:

Table 5: Volume in ton of Brazilian crop production in 1990 and 2000.

1990 2000

Rice 7.420.931 11.134.588

Cane sugar 262.674.150 326.121.011

Beans 2.234.467 3.056.289

Manioc 24.322.133 23.044.190

Corn 21.347.774 32.321.000

Soy 19.897.804 32.820.826

Source: IBGE, 2016b.

As the table reveals, both because of expansion of the area dedicated to their production, but also due to productivity increases, soy and corn production rose more than other crops during the 1990s. The growth in the production of these crops also led to a significant expansion of the meat packing industry, which both was translated into a rise in domestic consumption, but not least into increasing exports. The agricultural restructurings during this period have thereby not only been evident in terms of changing the mode and destination of rural production, but also by altering the relative composition of this production towards monoculture and products with a high potential for international commercialization.

The export-oriented turn of Brazilian agriculture can be viewed as part of a central dynamic within the third - corporate - food regime, which rests upon the incorporation of new countries and productive regions into the extended agro-food commodity chains. Brazil´s incorporation into the animal protein chain is very central in this regard (MCMICHAEL 2009, p.142), as particularly the global demand for soybeans from around the turn of the millennium has led to a thorough restructuring of agricultural production according to this supplier-role within the international division of labour. The increased oilseed production has nonetheless also been translated into a

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surge in the domestic meatpacking industry. This has made it possible to capture substantial revenues from the additional value-added factor, but also made issues related to the more complicated international market access associated with this kind of products a more pressing concern within Brazilian agriculture.

The growth of export-oriented agriculture was strongly linked to the opening of agricultural markets and the entry of multinational agro-firms, which came to participate significantly in the restructuring of agricultural production (CORTE 2013; JANK et al.

2001; SCHLESINGER 2008; VITTE 2014). The presence of the global grain traders became significant from the 1990s, when they began to acquire storage and processing facilities, and grew steadily into the new millennium (ALBANO & DE SÁ 2001, p.61-62). Particularly the participation of the "ABCD" traders (ADM, Bunge, Cargill and Dreyfus) in the Brazilian crushing sector increased markedly from 16% in 1995 to 57%

in 2005 (SAUER & LEITE 2012, p.509). The market for pesticides and herbicides has undergone a similar concentration, with six enterprises controlling 70%, which also is the case for fertilizers commercialization, where 95% of the market is controlled by three groups (CORTE 2013, p.12). The traders and input providers have, to a large extend, come to substitute the state as a source for financing of rural production. By providing farmers with the necessary inputs for a still more capital intensive production model, these are paid back in form of the coming harvest, which is sold beforehand by the farmer (SCHLESINGER 2008, p.3).

Concentration of rural commodity infrastructure below the traders intensified in parallel to economic liberalization during the 1990s (ALBANO & DE SÀ 2011, p.66).

Due to the highly vertical structure of the grain and oilseed production chain, this chain has become characterized by the presence of multinational agro-firms that participate all the way from input provision to the point of export. These firms have thereby come to function as a link which both supports an export-oriented production model, but also serves to connect producers to global demand, by disposing of production on international markets. The dominant presence from farm gate to commercialization abroad of the ABCDs meant that apart from a direct control of large parts of processing, they also participated in 59% of Brazilian grain exports (SCHLESINGER 2008, p.9).

This trader core´s participation in total Brazilian exports rose from 3,9% in 1999 to 6%

in 2004 (Ibid).

A similar trend became evident in other sub-sectors of Brazilian agriculture. On average throughout the 1990s, 43% of agricultural exports had became concentrated on

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17 firms (JANK et al. 2001, p.363). Composite measures of corporate concentration suggest that by 1998, the sub-sectorial concentration on the four largest enterprises in each production branch had reached a level of 40% in the sugar sector, 85% in the poultry sector, 87% for tobacco, 72% for orange juice production, and in 48% for beef (Ibid).

The increasing significance of agro-food corporations within the contemporary food system as one of its contemporary key dynamics has been highlighted by a range of authors (GIMÉNEZ & SHATTUCK 2011, p.111; GOLDFARB 2013, p.195;

OTERO 2012; PRITCHARD 1998). The strong presence of foreign agribusiness corporations in Brazil makes it possible to view these entities as central agents in the restructuring of the sector, not at least in terms of their function as links to the global market. As stressed by Jonsson (2016, p.85), productive integration within the global food system has been associated with economic centralization and concentration, the tangible manifestation of which has become expressed as the prominence of agribusiness TNCs. These corporations have been central actors in the processes of market concentration within the input- and output parts of the Brazilian agricultural commodity chains, but also to some degree with regards to direct production/cultivation. Between 1994 and 1998, foreign ownership thus increased noticeably within different sub-sectors, as can be read from table 6 below:

Table 6: Share of total foreign ownership of different sectors of Brazilian agriculture in 1994 and 1998.

1994 1998

Tobacco 82% 90%

Soy 30% 48%

Pork 11% 40%

Poultry 8% 43%

Sugar 0% 8%

Source: Jank et al. 2001

In spite of this noticeable foreign presence, the Brazilian agricultural sector is nonetheless still dominated by firms of domestic origin within the production stage.

These companies´ expansion has occurred within the confines of the agro-industrial vertical production model, through which many have managed to capture a share of

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higher value-added activities, and engaged in offensive foreign expansion (HOPEWELL 2013, p.608). Foreign capital has been very significant by contributing to a change in the mode of agricultural production, and by establishing channels to global markets, but national rural capital has come to work along similar lines of internationalization; from a different starting point, though sometimes overlapping with activities dominated by foreign agribusiness. Hence, in spite of its insertion in the downstream activities of the national and global agricultural commodity chains, the increasing integration with global markets and their importance for further profit accumulation has redirected Brazilian agribusiness´ strategic perspectives towards strengthening its participation within these.