Agricultura 1970

Development and Change, 7 (1976), 413-443

How Agribusiness Operates in Underdeveloped Agricultures: Harvard Business School Myths and Reality

Ernest Feder

The purpose of this article is fourfold: to examine some of the effects of the modernization of underdeveloped agricultures, capitaliststyle, resulting from the economic activities (overseas investments) of private international agribusiness firms; to compare the claims made by some of the apostles of agribusiness with reality to explain why the much- needed intensification of land uses to produce more output results, under the impact of foreign capital and technology transfers, in a sharply increased decapitalization of underdeveloped agricultures, highly erratic markets and the destruction of the remnants of the peasant sectors; and to demonstrate that the earnings and repatriation of profits from the underdeveloped countries to transnational corporations engaged in agricultural activities are incompatible with the development of the former.

AGRIBUSINESS LOOKS AT AGRIBUSINESS

In the industrial countries, the expansion of capitalism into the agricultures of the underdeveloped countries goes under the name of agribusiness. It stands for modernization of agriculture capitalist-style

This article is based on a paper prepared for tkhternational Research Seminar on the Political Economy of Food, Tampere Peace Research Institute, Tampere (Finland) 9-11 April 1976. The empirical information is based in part on my Strawberry Imperialism, An Enquiry into the Mechanisms of Dependency in Mexican Agriculture (Institute of Social Studies, The Hague, February 1976; to be published).

41 3

414 Ernest Feder

by big business. By big business is meant not only the multinational concern engaged directly or indirectly in agricultural activities or in agricultural-related industries and services, but also the private international bank; the international lending organization; the philanthropic foundation; and the national development agency - all engaged in assisting modernization directly or by providing the infra- or superstructure for the activities of multinational concerns.

Big business and the apostles of agribusiness look at agriculture as one enormous aggregate of actual and potential business enterprises in which capitalists have the most important function to play and in which people - particularly the peasants - are nonentities, anony- mous cogs in the giant wheels of business firms:

Agribusiness has rapidly become recognized as the most important economic enterprise in the world, employing over 60 percent of the worlds econ- omically active population. As we have defined it at the Harvard Business School, it consists of all the participants in a vertical food system from input supplier to farmer to processor to distributor to ultimate consumer. 2

Agribusiness in Lat in America, from which the above quotation is taken and in which the terms peasant o r rural worker are not once used, continues as follows:

Agribusiness involves those individuals and organizations engaged in the production, processing, transport, storage, financing, regulation and marketing of the worlds food and fibre suppliers. In effect, agribusiness is a seed-to- consumer system composed of a series of closely related activities that together enable agricultural produce to flow from the farm to the market place . . . Action and decisions taken at one point in the system impinge on the other segments . . . The interactive nature of the system and the need for close coordination is largely a result of the unique agronomic characteristics of agribusiness. (emphasis supplied)

The author argues that businessmen (rather than governments) are best able to coordinate the system:

The underlying premise of this book is that by taking a commodity systems approach to agribusiness, public and private managers will be better able to work together in dealing with the interrelatcd tasks and problems throughout the entire vertical structure from farm supplier to ultimate consumer. This book focuses on the one function that cuts across the entire system and ties it together: management. Effective management is a critical factor in the achievement of a viable food and fibre system which in turn is a major de ter minant of rbe economic growth of developing countries. (emphasiss~pplied)~

Agribusiness in Underdeveloped Agricultures 415

From these paragraphs it is not clear what agribusiness actually is. It seems more like a new definition of agriculture in Harvard Business School terminology. A few points stand out, however. First there is the commodity approach, a pure and traditional businessmens approach. It is the opposite of overall planning. If there is any planningat all in the agribusiness system, it is done by management on a commodity system basis, for the people participating in the system. The commodity approach does not necessarily mean a commodity system referring only to one single commodity, although this might be read into agribusiness definition by agribusiness. It can and often does include a series of commodities which may be competitive or complementary. A single firm may deal in strawberries, melons, onions, citrus fruit, livestock and other products. The tendency of agribusiness is t o diversify the commodity system into an aggregate of several commodities as the size of the firm expands. This results in some diversification of the underdeveloped. agriculture. But it is a diversification suigeneris, not for the benefit of producers or the nation, but for the benefit of agribusiness since losses in one commodity can be offset by profits in another, so that the risks of any single commodity venture can be shifted to the underdeveloped producers or handlers.

Secondly, agribusiness relies on the social structure as it exists in the underdeveloped countries. This is implicit. But the reader of agribusiness literature obtains no idea of the agricultural society into which this new system is being injected and of the forces in favour or against development. One suspects that agribusiness experts consider it irrelevant. What matters is that management monopolises capital and knowhow and transfers them to the various lower-level actors in the system in the underdeveloped countries principally for the health of agribusiness itself: agribusiness is interested in the rural society in which it operates only to the extent that it employs some components that are useful and necessary for it. If there is development as a consequence of the operation of agribusiness it is a function of the successful activities of the firm. The welfare of the firms conditions the welfare of the underdeveloped agricultures: a Trickledown scheme of world-wide scope.

All this we knew already from the study of the functioning of capitalist enterprises in agriculture. New is only the vocabulary.

What is basic, but not clearly expressed, is that agribusiness looks towards vertical or horizontal integration (or both) of agricultural activities (production, processing, marketing and export) under the control of a single firm or a combination of the-least-possible-number

416 Ernest Feder

of interrelated firms. One characteristic element is for processing or assembly plants to extend credit and other inputs wherever possible to producers on the contractual understanding that the producers must deliver their output to the lendershppliers under pre-arranged terms of sales, although firms may increase their supplies through direct purchases from other producers securing their own financing, or through their own production operations. Productiop contracts are essential for processing or assembly p l an t~ .~They offer a guarantee of %abundant supplies at minimum risks - risks being shifted to producers or local handlers since their decision-making power with respect to production and marketing is reduced to an absolute minimum as the agribusiness firms acquire at least locally a monopoly status in the commodity system. Production contracts are particularly desirable from the agribusiness point of view in the case of perishables because there the producers bargaining power is at its lowest.

A MORE COMPLETE VIEW OF AGRIBUSINESS

Actually agribusiness is a misnomer, and it must be questioned whether the economists of the agribusiness school fully understand the nature and implications of agribusiness. The modernization of underdeveloped agricultures is characterized by the take-over of and control over all the various agricultural activities in specified modernized agricultural commodity sectors by large and medium-sized multinational concerns - food concerns properly speaking or concerns which have branched out from other activities - where the production contract system may be only one element. Agribusiness firms achieve take-over and control through massive, combined transfers of capital and technology into agriculture and agriculture-related industries or services. In this process, local producers, capitalists and handlers are assaulted and controlled in the production and marketing of commodities and all the services that accompany them, and in the procurement of inputs. The various multinational concerns all work towards a single objective: t o make the underdeveloped agricultures dependent on the industrial countries and their multinational concerns and to exercise monopoly control over man and product. It is therefore ingenuous or misleading to maintain, as one Harvard Business School economist does, that

International firms, by definition outsiders, are likely to be innovators. The education of their management [&I is on a level with that of highly developed countries, and their access to corporate financial resources may be


at lower interest rates. Through corporate research they generate innovations and through worldwide contacts they disseminate them. A recent study of multinational corporations discloses that the flow of technolo is almost exclusively unidirectional from developed to developing countries, Q

because this hides both nature, reason and objective of the action of multinational firms. There is obviously more to agribusiness than mere dissemination of innovations.

The previously mentioned book Agribusiness in Latin America, a collection of case studies from Central American countries, gives partial insight into what is involved in agribusiness in the wider sense. Here is one summarized case study; others are given in Table 1.

Pollitos SA (Chicks Inc). This is a chicken breeding operation in the Central American state of Taragua, owned by one Alvarez, who entered the poultry business shortly after he graduated from the University of Florida where he obtained a Masters degee in Poultry Science. His first problem was that he didnt have any capita! with which to start the business. He was to get a bank loan of $3,000 (presumably US dollars) and a Florida-based exporter sold me 3,000 layer chicks costing $0.42 a piece with six months to pay for the chicks. I also bought poultry feed during the first half year because the supplier sold it to me on credit . . . The supplier said it would be impossible for me to make the same quality feed as his large international company did at a cost of $3 per hundredweight. But I did . . . The Florida office had originally sold me the chicks with which I started my egg farm. After several discussions with these e%povters, we formed a 50-50 joint venture incubating operation in Taragua. My new partners were not interested in investing in the farm, only the incubator, so I kept my farm and sold eggs to the incubator. We imported incubating equipment worth $20,000 that had a hatching capacity of 200,000 fertile eggs per month. The business expanded; In 1968 there was a tremendous upsurge of incubator operations in me neighbouring countries . . . All this resulted in everyone running around practically giving their chicks away: they were selling on credit like crazy . . . In 1969 the other large egg producer in Taragua also set up its own incubator . . . In 1969 there was an egg production glut in the market in Taragua and as a result egg prices plummeted . . . Because of the difficult situation, m y American partnen decided that they wanted to sell out their share of the incubating business, I agreed to buy it. Looking around for sales, Alvarez found that of the 30 farmers that I visited . . . 27 of them just simply didnt have the money to buy the chicks. They were broke. But he is thinking of buying another, larger feed mill and that would represent another sizeable investment. (emphasis supplied)

Although this case and others summarized in Table 1 are designed to demonstrate the miracles which agribusiness heaps on the underdeveloped agricultures, they unintentionally give cause for alarm. If the cases are typical here are some tentative conclusions:

Tab

le 1.

Som

e C

hoic

e C

ases

of

Agr

ibus

ines

s in

Cen

tral

Am

eric

a

Co

un

try

Typ

e of Business

Name o

f Com

pany

C

omm

ents

Cos

tadu

ra

Poul

try

Proc

essi

ng

Avi

cola

SA

;r: W

Gon

zale

z is

engi

neer

by

prof

essi

on.

Star

ted

busi

ness

as

a ho

bby.

Now

w

as b

uyin

g ev

ery

Frid

ay 7

500

chic

ks f

rom

a c

ompa

ny i

n th

e US w

hich

s

eem

ed to

go t

o ex

tra

effo

rts

to g

ive

Avi

cola

qua

lity

chi

cks

. 32

wom

en

in c

harg

e of

killi

ng; t

heir

wag

es e

qual

8%

cent

s (US) p

er c

hick

en k

illed

and

pr

epar

ed.

Whe

n ki

lling

man

y ch

icke

ns,

two

wor

k sh

ifts

wou

ld h

ave

been

ne

cess

ary.

It

was

pos

sibl

e bu

t dif

ficu

lt to

obt

ain

mor

e w

omen

wor

kers

for

th

e se

cond

shi

ft.

It w

as f

or th

is re

ason

tha

t we

thou

ght i

t con

veni

ent t

o se

t up

a m

odem

sla

ught

erho

use

whe

re w

e co

uld

mec

hani

ze t

he p

roce

ss.

The

su

perm

arke

ts r

epre

sent

ed 20% of A

vico

las

sale

s. C

onse

quen

tly

Gon

zakz

vi

site

d Po

ultr

y E

quip

men

t In

c.,

a co

mpa

ny i

n Fl

orid

a th

at m

anuf

actu

red

the

equi

pmen

t fo

r th

e m

echa

nize

d pr

oces

sing

of

chic

kens

. D

urin

g hi

s vi

sit

the

sale

s m

anag

er s

how

ed G

. th

e op

erat

ion

of a

sla

ught

erin

g sy

stem

with

a

capa

city

fo

r pr

oces

sing

60

0 ch

icke

ns p

er h

our.

G.

was

am

azed

at

the

effi

cien

cy o

f th

is o

pera

tion

and

thought th

is w

ould

be

a st

ep f

orw

ard

for

his

com

pany

. The

syst

em w

as t

o be

intr

oduc

ed w

ith s

ubse

quen

t div

isio

n of

la

bour

an

d so

me

incr

ease

in

empl

oym

ent.

The

sla

ught

erin

g eq

uipm

ent

incl

udin

g a

refr

iger

atio

n ch

ambe

r co

st a

bout

US$122,000

(spe

cial

pri

ce a

s a

sale

s pr

omot

ion

for

this

new

equ

ipm

ent

mod

el).

The

equ

ipm

ent h

ad th

e ad

vant

age

that

it

coul

d be

eas

ily e

xpan

ded.

With

an

inve

stm

ent

of o

nly

US$24,000

all

the

nece

ssar

y eq

uipm

ent

to i

ncre

ase

capa

city

up

to 1200

chic

kens

per

hou

r co

uld

be o

btai

ned

and

only

12

addi

tiona

l em

ploy

ees

wou

ld n

eed

to b

e hi

red.

(Pou

ltry

) In

c.

Sand

uras

Pa

ckin

g Pl

ant

Em

paca

The

ca

se

stud

y co

nclu

des

on this

poin

t, le

avin

g th

e re

ader

unc

erta

in

whe

ther

the

equ

ipm

ent

was

act

ually

pur

chas

ed o

r ho

t. S

ince

a l

oan

had

been

of

fere

d by

th

e C

osta

dura

D

evel

opm

ent

Ban

k it

is

to b

e as

sum

ed

that

the

deal

wen

t th

roug

h.

Com

pany

exp

ort

beef

, m

ainl

y to

the

US.

Pla

nt h

as e

quip

men

t to

deb

one,

pr

oces

s by

-pro

duct

s, r

efri

gera

te a

nd f

reez

e. E

mpa

ca s

ells

its

mea

t to

10 US

im

port

ers-

wbo

lesa

lers

who

in t

urn

sell

to w

hole

sale

rs o

r ret

aile

rs.

5 :

2 5 8 a

Tur

bia*

Tur

bia*

Mea

t Pac

king

Pla

nt

Car

nes

SA

Juan

Pas

os,

rece

nt g

radu

ate

of C

entr

al A

mer

ican

Sch

ool o

f M

anag

emen

t, is

ge

nera

l m

anag

er.

Bus

ines

s ex

port

s fr

esh

and

froz

en m

eat

to t

he U

S an

d Pu

erto

R

ico.

Pla

ns o

n se

tting

-up

feed

lot

for

10,0

00 h

eads

. In

vest

men

t es

tim

ated

by

a gr

oup

of

Arg

entin

e ca

ttle

cons

ulta

nts

and

the

Nat

iona

l A

gric

ultu

ral

Ban

k of

US$

160,

000.

Mac

hine

ry a

nd e

quip

men

t fo

r a

feed

m

ill

US$

400,

000.

T

he

case

st

udy

conc

lude

s on

th

is

poin

t w

itho

ut

intim

atin

g w

heth

er t

he p

lans

wer

e ca

rrie

d ou

t.

(Mea

ts ln

c.)

Mea

t Pac

king

Pla

nt

Igos

a

Nic

arag

ua

Ric

e Pr

oduc

tion

Mos

t mod

ern

mea

t pac

king

pla

nt i

n th

e ;-,

-ion

and

one of t

he b

est d

esig

ned

in t

he e

ntir

e w

orld

, exi

sts s

ince

197

1. R

efri

gera

ted

war

ehou

ses

for

bone

less

m

eat

can

stor

e 70

0,00

0 Ib

s. T

otal

cos

t U

S61.

4 m

illio

n. E

xpor

ts m

ainl

y to

th

e U

S, b

ut f

irm

has

im

port

quot

a tr

oubl

es, O

ffer

fro

m I

srae

l to

purc

hase

f

oreq

uart

crs

and

oth

er it

ems

to b

e pa

cked

in

poly

ethy

lene

bag

s.

Out

com

e of

pla

ns n

ot s

peci

fied

.

Prom

otio

n by

Nat

iona

l B

ank

of N

icar

agua

of

dom

esti

c ri

ce p

rodu

ctio

n.

Dur

ing

the

earl

y 19

60s

a sm

all

grou

p of

far

mer

s be

gan

plan

ting

rice

usi

ng

mod

ern

irri

gatio

n an

d m

echa

niza

tion

tech

niqu

es.

The

ne

w

f&m

s en

coun

tere

d se

vera

l dif

ficu

ltie

s in

ada

ptin

g U

S ri

ce p

rodu

ctio

n te

chno

logy

bu

t la

ter

the

Ean

k w

as c

onvi

nced

tha

t th

is t

ype of r

ice

fann

ing

coul

d be

ca

rrie

d ou

t su

cces

sful

ly.

Plan

was

to in

crea

se i

rrig

ated

and

mec

hani

zed

rice

pr

oduc

ing

area

sh

arpl

y. T

he M

inis

try

of

Agr

icul

ture

w

ith

the

aid

of

Lou

isia

na S

tate

Uni

vers

ity p

lann

ed t

o es

tabl

ish

an e

xper

imen

tal r

ice

stat

ion

in 19

67, u

sing

am

ong

othe

r ira

riet

ies

thos

e of

RR

I (P

hilip

pine

s, R

ocke

felle

r-

Ford

Fou

ndat

ion)

. C

onte

mpl

ated

inv

estm

ents

fir

st y

ear

incl

ude

2 tr

acto

rs,

2 ha

rrow

s,

reve

rsib

le

dick

er,

leve

ler,

harv

este

r,

trai

ler,

fo

r a

tota

l of

US$

76,0

00; s

econ

d ye

ar:

trac

tor,

lev

eler

, har

vest

er f

or t

otal

of U

S$51

,000

(b

oth

figu

res

also

in

clud

e ir

riga

tion

equi

pmen

t).

Oth

er i

nput

s in

clud

e fe

rtili

zers

, ins

ectic

ides

, he

rbic

ides

, etc

. r

\o

*Nam

es o

f co

untr

iesf

icit

ious

in th

e bo

ok.

Souc

e: A

ustin

, Agr

ibus

ines

sin

Lat

in A

mer

ica.

420 Ernest Feder

(1) Local agribusiness entrepreneurs are US trained or have US values regarding ways of conducting business and the use of resources.

(2) The inputs stem from the US or some other industrial country and amount to sizeable investments. Once a business, activity has started successfully, pressure to expand output increases so that more costly inputs are sold in something of a chaotic manner. This is bound to lead to highly erratic behaviour in the local market, in terms of gluts and price drops, particularly if the foreign venture is oriented towards exports and dependent upon foreign market demand, as I explain more fully below.

( 3 ) If capital is transferred, a foreign investor may withdraw and let the consequences of erratic markets be borne exclusively by the local entrepreneur. Thin indicates that erratic market behaviour in the underdeveloped agriculture is of relatively little concern to suppliers of foreign technology and capital: to the former, because they have already beeen paid for the technology, there being absolutely no risk if the funds originate from local lending agencies; to the latter because they can pull out when market conditions become unfavourable. Agri- business is good business even if matters g o wrong locally.

(4) The foreign supplier of capital and technology is mobile; the local agribusinessman immobilized.

(5) Pressures towards automation are constantly present and employment creation is of even less concern to foreign capitalists and innovators than if they were investing at home rather than in the underdeveloped, labour-surplus economies. Employment creation of technology and capital transfers is less important than the repatriation of profits.

Hence the argument that agribusiness attempts to wed developing country needs to agribusiness interests is inoperative to the extent that it equates individual capitalists needs with developing country needs.

Agribusiness in Underdeveloped Agricultures 42 1

CAPITAL TRANSFERS AND THE MOBILIZATION OF LOCAL RESOURCES

The modernization of underdeveloped agricultures implies the transfer of foreign capital into agriculture and into agriculture-related industries or services. The capitalists are multinational corporations, multinational banks or international lending agencies and others. Multi- national corporations can be very large concerns - e.g. a giant food canning concern with global sales in many countries in several conti- nents reaching up to several billion dollars annually, operating through subsidiaries, joint ventures, or firms operating under licence agree- ments -- or mediumsized concerns which operate only in a few countries with sales not exceeding a few hundred million dollars. Most studies have been concerned only with the former. Medium-sized multinational firms are often linked up with giant concerns.

Capital transfers take place in agriculture itself and result in coi~trol over land. Control is direct if capital is sunk into arm land: buying up land or obtaining a concession over an agricultural area, be it for agricultural or other purposes. Such capital transfers have traditionally taken place in the plantation sectors, but now occur on an immense scale, eg . in livestock enterprises or in the staple food sector, and may account to several hundred million dollars annually .l Control is indirect, but no less effective, if land is rented or operated under contract through the production contract system, Here foreign capital is transferred through rentals or credit. A less clear-cut case is when an international lending agency or some philanthropic foundation lends capital for development projects. Undeniably it affords the agencies remote control over the land via its control over the execution and performance of the project. All these transfers are more or less in the nature of fixed investments.

Once foreign capital has been sunk into agriculture, there is an almost 100% probability that it will be followed by transfers into agricultural industries and all kinds of related services. Such transfers exceed the former by a wide margin, The investments required are likely to be costly and in excess of requirements (i.e. with large unused capacity) and the functioning of the capitalist system requires an unusually large number of (from the social viewpoint) unnecessary services (e.g. advertising, legal services etc.). These investments are needed to control not only production but also distribution. They are necessary mechanisms to repatriate profits in open or disguised form back to the headquarters of the multinational concerns. Capita2 transfers into agriculture-related industries and services enable multi-

422 Ernest Feder

national corporations to obtain a fuller measure of control over all agricultural activities at all levels. I t can be assumed that capital transferred into agriculture and into the agriculture-related industries and services comes by and large from the same or from closely inter- twined sources.

Foreign investors also transfer operating capital. The total amount of foreign operating capital to keep farm production, processing, handling and distribution going is likely to be greatly in excess of fixed capital, depending on the commodity. For example, operating capital to keep a labour-intensive fruit or vegetable industry in operation may be considerably more in excess of fixed capital investment than in a livestock enterprise. While fixed investment is a prerequisite for the control over the commodity system in its totality, operating capital is a prerequisite for the control over the productive processes. This becomes clear in the case of the production contract system. Credit and other inputs furnished by a processing plant or dealer are the mechanism whereby the latter can manipulate the work and performance of the growers as rigorously as in a traditional agriculture a hacendado or plantation management could control tenants, sharecoppers or wage workers through cash advances or company stores. The same is true with respect to operating capital furnished by foreign capitalists to processing plants or dealers.

One claim is that the production contractsystem preserves the autonomy of the growers in underdeveloped agricultures and that there is a sort of partnership between processing plant and producers:

. . . agribusiness firms may suggest a pattern of coordination that makes them less objectionable to local government and indusq and possibly more beneficial than local firms. The coordinating device . . , is called a production contract whereby a grower agrees to plant, cultivate and harvest specified crops for delivery to a contracting processor. While preserving the autonomy of the grower, the contract provides the grower with access to technological, managerial and marketing assistance. l4 (emphasis supplied)

To understand why this is a misrepresentation, it is necessary to know the nature of the contracts extended to growers. There may be some variation in the terms of the contracts depending on the type of commodity - an important criterion being the degree of perishability of the commodity involved - and with respect to the amount of land under contract for a single producer. But contracts are likely to be one- sided with respect to the ability of the processor/buyer to violate their terms at will. A one-sided contract is one in which the obligations are mostly (or all) on the side of the growers and few (or none) on that of


the processors/buyers ; which is incomplete and vaguely worded. A typical case is a contract where the grower is obliged to deliver his output under conditions determined subsequently unilaterally by the buyer and where an obligation by the processor/buyer to accept the output at prearranged terms is absent.' This enables the processor/ buyer to accept or reject the growers' output as he pleases or to impose penalties in terms of price or quality discounts. This is to a large extent the result of the lack of growers' associations which processing plants systematically prevent from being organized, the lack of adequate government support for the growers, particularly small growers, and the inability of the growers to control weights, quality and prices paid. When a processing plant extends credit to a grower, it may live up to the contract until the moment when the loan has been repaid or nearly repaid. Once assured of repayment, the buyer feels himself freed of the obligation to accept any additional output at 'agreed-upon' conditions and will try to obtain the production at the cheapest possible price by using all kinds of 'tricks'. The penalty imposed upon the grower will vary in intensity in accordance with market conditions. If there is a glut, the buyer may refuse the output altogether; but he may penalise the grower even before he has repaid his loan.

A crucial question is to what extent the modernization of underdeveloped agricultures initiated by the transfers of foreign fixed and operating capital engenders the mobilization of local capital to support and enhance the new ventures. It is well known that foreign capitalists mobilize local capital in order to minimize their own inputs and maxi- mize the number of overseas business ventures. But the mobilization of local resources does not result in shifting control and decision- making processes to local capitalists. It is therefore pertinent to ask whether the mobilization of local resources occurs under similar conditions and to the same extent in the various commodity systems or, within a given system, in its various phases. Z advance the hypothesis that under certain conditions foreign capitalists may prefer to attract as little local capital as possible in order to maintain the fullest possible con tro 1.

Let me start with an example which may not be exceptional. In the Mexican strawberry industry - the largest fruit export

industry of Mexico - both fixed and operating capital are provided principally by US capitalists.'6 Fixed capital, for example, is in the form of investments in processing (freezer) plants. Production credit advanced to strawbeny producers is channeled through US brokers/ capitalists/industrialists, owners or part-owners of freezer plants, who use their own resources or those provided by US banks."

424 Ernest Feder

Operating capital is also provided in the same manner to freezer plants, regardless of ownership, Production credit ties growers to processors; operating capital for freezer plants fulfils a similar function vis-a-vis the brokers. In the beginning, funds originated almost exclusively with US brokers/industrialists. Either Mexican banks were cautious in the face of a risky luxury-crop plantation completely dependent on the US market (about 98-99% of all exports going to the US and Canada, the balance of production being consumed locally or wasted), or US capitalists systematically discouraged local lenders from entering the business. I suspect that the latter was the more important factor. I t allowed US capitalists full control over production and distribution, including exports and repatriation of profits. Later local capital entered after it appeared that the industry was profitable, but mostly as fixed capital investments. Although the strawberry industry has been going for fifteen years, operating capital is still provided mostly from US sources both for growers and freezer plants, even for the Mexican- owned plants, since they are all dependent on US brokers and US markets.* In 1974 the National Federation of Fruit and Vegetable Growers complained that some 15 [US] distribution firms [brokers] manage the bulk of the production of tomatoes, strawberries, melons and other vegetables, and asked Mexican credit agencies to step in more vigorously to put a stop to the economic dependency which is the result of US credits. Morrissy, the previously quoted author of Agricultural Modernization Through Production Contracting, confirms that in Mexico,

Actually little of this money [Mexican bank credit supplied to agriculture] finds its way into growing fruits and vegetables, especially for the fresh market, because bankers consider it too risky. Additional government money is channeled into agriculture, but little is loaned to growers of vegetables for processing, Growers for the fresh vegetable market draw most of their funds as advances from their distributors in the United States, and growers for processors draw advances from the Drocessors with whom they have contracts. . . (p.19)

In order to understand why US capitalists continue to use their own rather than local resources, one must keep in mind that transfers of capital and technology are important mechanisms to es!ablish and perpetuate an underdeveloped agricultures dependency upon the industrial countries and their multinational corporations. But they are not the only ones. US capitalists also control distribution (including export) channels, have practically exclusive access to market


information, and have long-standing close commercial (sometimes even highly personalized) business relations with market outlets in the US or other countries. In conjunction these monopolies form great obstacles to local capitalists entering the industry on equal or even on my conditions with US capitalists. It must be assumed therefore that US investors utilise as little as possible of their own capital or replace it gradually by local resources whenever this is consistent with the exercise of the fullest possible control over all or any phases of their overseas activities and the maximum repatriation of profits, given that the range of possibilities of exercising control available to them is very broad. They use their own rather than local capital if this offers the best guarantee of establishing and maintaining full control, and relax this effort only when the aggregate of the means at their disposal is sufficient so that the entrance of local capital does not present a danger to fullest control.

In the case of Mexicos strawberry industry, there are certain peculiarities which make it advisable for US capitalists to continue to use their own capital. Unlike many other underdeveloped countries, Mexico is able to marshal1 sufficient capital to organize its own strawberry industry if it set its mind to it and export the product to other markets independently of US brokers. No doubt this possibility moti- vates US capitalists to prevent the entrance of Mexican resources.2 The same may be true with respect to other fruit and vegetable commodity systems now in the hands of US businessmen. Thus the fullest possible control over an overseas venture includes the need to eliminate potential competing national ventures, if necessary through the continued employment of foreign capital, notwith- standing the great variety of mechanisms which can assure foreign investors their domination over production and distribution in a commodity system.

LIMITS OF TECHNOLOGY TRANSFERS

It is patent from previous citations from the agribusiness literature and from others below that multinational concerns engaged in the food or agricultural input business are capable of transferring the best technologies to the underdeveloped agricultures. A question of great relevance is: since agribusiness has access to the best and most modern knowhow, how much of it does it transfer? All of it? Or some of it? If the latter, why and with what effects? Under existing dependency

426 Ernest Feder

relations between underdeveloped countries and the industrial nations and their multinationals, it is inconceivable that the modernization of agriculture can be achieved without transfer of technology from the latter to the former. The more intensive the modernization programme, the more ample and varied the transfers are bound to be.

Like capital transfers, technology transfers take place a t all levels: in agriculture, and in agriculture-related industries and services. But there seems to be no such thing as a single technology transfer. The use of one foreign technology calls forth - by its own logic - the transfer of other technologies. For this reason there exists the phenomenon which I call a sequential technological package and which the modernization of underdeveloped agricultures capitaliststyle demands. Hence a modernized sector becomes dependent on foreign technologies in all its phaseseZ2 What is more, transfers of capital and technology are intimately correlated. For this reason it is appropriate to speak about a sequential capital-technology package characteristic of the modernization of underdeveloped agricultures guided by foreign investors. It is precisely the combined assault by capital and technology which makes the control by industrial nations via their multinational corporations and the other agencies fortifying the infra- and superstructure for the multinationals activities, so effective and all-pervasive. One is bound to conclude that the modernized agricultural sectors in the underdeveloped countries are but extensions (although extensions sui generis) of the agricultures of the industrial countries, become modern enclaves not unsimilar to traditional plantations but at a much higher level of sophistication.

What technologies do the multinational corporations actually transfer out of their bag of up-to-date knowhow and innovations? Probably no single answer can be furnished. The reply may differ for different commodities; for agriculture and for agriculture-related industries and services; with respect to agricultures which are just starting to become modernized as against those already dominated by foreign investors; with respect to the type of markets involved (domestic vs export), etc. But perhaps some general propositions can be found.

Let us again examine the arguments of the apostles of agribusiness and limit the discussion to the vertical integration through production contracts, admittedly a first-class mechanism to disseminate innovations from international agribusiness firms to underdeveloped producers and handlers. Emphasis is again on the fruit and vegetable sector, although I hypothesize that conditions in other commodity systems - livestock,


tobacco, rice, etc. - may not be different. Do their arguments reflect reality?

Before examining their arguments I should clarify that I am not referring here to the sterile discussion of sophisticated vs. intermediate technology. There is no transfer of intermediate technology in the sense of technology adapted to the conditions of underdevelopment (simple, less labour-saving, easy-to-repair, small, less costly technology, or however it may be defined). Under present conditions transfers of technology into underdeveloped agricultures are made into sectors which are precisely predestined and adapted for the acceptance and use of all types of modern, including the most sophisticated, knowhow and equipment or else they do not take place. The transfers are guided by the profit motive of firms producing or peddling inputs. Modernization takes place principally in the large landholding sector which is entirely suited to all such transfers in terms of enterprise size, quality of land, availability of water, monopoly access to capital (credit), benefits in terms of public and semi-public subsidies, and ability to secure labour. If small farm upits are involved, as in the production contract system, the issue is not that of sophisticated vs. intermediate technology, but of the function of technology as a mechanism to eliminate small producers because it forces smallholders as a group to adjust to the technologies. To put the issue into proper focus: technology transfers discriminate between producers; the innovators do not discriminate between levels of sophistication of technology although they may consider transferring good or bad technologies or a full or a limited range of technologies.

Morrissys revealing book deals with the function of international agribusiness firms with respect to the transfer of inputs and of knowhow. He begins with a discussion of capital vs. labour-intensive technologies in food processing plants which are, as is well known, less capital intensive than most manufacturing plants, and attempts to justify the plants need to use labour-replacing technologies on various economic and non-economic grounds:

Insofar as the processed foods industry is encouraged to create employment, there arises the paradox of using labour saving technologies. Although available, labourintensive methods may unwisely trade off quality for economy. First, health precautions call for the least possible direct handling of the product . . . Hand labour techniques, finally, do not produce consistent quality output; machines cannot make spontaneous judgements, but their output is consistently uniform . . . While processing firms that prefer labour saving technologies do create fewer jobs Ithis means presumably: manufacturing jobs in the processing plants], they avoid risks of damage to a

428 Ernest Feder

companys or a countrys reputation. They also stimulate farm employment and jobs in the marketing channels downstream. (pp. 61ff, emphasis supplied)

The author then explains the role of processing plants in transmitting innovative implementation of agricultural technology to growers : The explicitness of contract specifications makes production contracts a catalyst for innovations. The components of horticultural technology specified in production contracts are seeds, fertilisers, pesticides, and herbicides. Usually these inputs have to be imported. Hence,

When a grower signs a production contract, he has an ally in his efforts to use the best farm technology . . . The processor, by virtue of his interests in the success of his growers, as well as the scalar economies [sic] in dealing with many growers having the same problems, has more leverage in dealing with sources of inputs than any single grower acting independently . . . Processors enjoy economies of scale in employment of field men through whom they close the information control loop . . . The monitoring efforts of field men benefit both processor and grower. . . (p. 68, emphasis supplied)

Large processors, particularly large international processors, have the greatest chance to fulfil a useful function: International processors tend to be larger, more inclined to use contracting and to transmit innovative technology than their local counterparts . . . (p. 70) . And he continues: Both international canners and freezers use contracts as a detailed method of inducing growers to use agricultural techniques they believe best (p. 70) .

But who are the contracted growers? Agribusiness literature attempts to argue that both small and large producers are welcome in the production contract system:

Contractual coordination is effective with relatively small growers and in small developing countries where unimodal agricultural strategies are recommended in preference to the bimodal farming of corporations and subsistence growers [sic] . , . contractual coordination is a familiar procurement procedure for manufacturing firms that have long preferred to rely on suppliers to making all their own needed inputs. (Ibidem, p.4)

But in fact, agribusiness tends to be of two minds on the issue of small or large growers:

. . . the question arises as to how much technology is transferred to small growers. Processors needing a large volume of consistently high-quality commodities presumably have a preference for contracting with growers willing and able to commit large areas of land to production contracting. The larger the area under contract, the greater the administrative efficiencies for the


processors. However, Larger farms are likely t o have more technologically competent management, and little technological transfer will be gained from production contracting. Growers on small landholdings are in more need of the benefits transferred through production contracting . . . Respondent processors give evidence that they are contracting with small landholders . . . While this pairing of high-standard processors with high-competence growers is rational and appropriate, it is less likely to effect technology diffusion than contracting between exacting processors and unskitled growers . , . Fable 4.41 shows that the range of land area under contracts does indeed confirm that international processors d e d with large growers , . . (Ibidem, pp. 70ff, emphasis supplied)

Hence, the author implies that processing plants have to make a choice: to look for administrative efficiency (lower costs) or for transfusion of technologies to small growers which provides the plants with additional profits. Morrissy does not give a clearcut answer to whether the processing plants he studied actually contract more large or more small growers,23 although he states innocuously (p. 73) , All firms deal with growers who have an average of 10 ha under contract, which is a relatively modest farm operation even by the standards of less developed c~unt r ies . ~ The trouble with all these arguments is that they gibe with reality.

Technology transfers to growers may be incompatible with profits and control

In the production contract system, the agribusiness firm sees itself in the role of technical advisor and innovator to underdeveloped small and large growers for the use of inputs and management. What kind of technical advice or input can such a firm furnish? None will obviously be furnished which does not profit the contracting firms in one way or another, The firm must seek to achieve three goals which are likely to be incompatible with each other: to transfer knowhow and inputs; to make therefrom profits or secure profits for other multinational firms; and to secure the growers dependency. If the processor advances inputs in kind purchased at quantitydiscount prices, he can resell them to growers at a profit. The per-unit profit may be small, but the overall return may be significant whenever the grower has to rely on the plant as sole supplier of such inputs: it ties the grower to the plant. If advances are made in cash (credit), the plant will earn interest, but the growers are still tied to the plant. But this still does not reflect the all- round situation. The total agribusiness structure is likely to be much

430 Ernest Feder

more complex. The international firm may have a financial interest in firms producing or handling farm inputs. The larger the plant, the greater the likelihood that the firm is engaged in a whole gamut of activities and has some sort of monopoly status somewhere in the market. The firm may have interests in several commodity systems. It may have investments in several food processing plants, in ware- houses; in wholesale and retail businesses selling inputs or commodities produced and processed. The likelihood that a grower can obtain disinterested technical advice and the best quality inpats under these conditions can be assumed to be inversely correlated with the size and importance of the international agribusiness firm. This is the dismal reality. The normal complaint of growers for example in the Mexican strawberry industry, a typical agribusiness dominated by multinational brokerdindustrialists, is that technical advice, through what Morrissy calls the plants monitoring efforts of fieldmen, consists in a promotional activity for the plants preferred inputs, not necessarily those most appropriate for the grower. The plants fieldmen are salesmen above all. A plants fieldman is not a technical advisor. He is not a trained agronomist able to solve agronomic problems although he may have had years of practical experience. In underdeveloped countries not all agribusiness firms have enough fieldmen to assist all the growers.2 Only the larger growers receive assistance. It is sympto- matic that in the Mexican strawberry industry during the 1974-75 strawberry crisis a chemical was widely used at the very recommend- ation of some of the freezer plants fieldmen, although the chemical had been proscribed in the United States to which the commodity is exported. Huge losses resulted from this technical advice for many growers, most particularly small growers.

Transfers to processing plants and competition

The role of agribusiness as innovator with respect to processing plants is also more complex than one might imagine from reading Harvard Business School literature on agribusiness. The previously quoted argument that there arises the paradox of using labour-saving technologies in laboursurplus underdeveloped countries because manual labour represents a health hazard, seems to be spurious. In the industrial countries, until automation was introduced, many large food plants used manual labour to save on the wage bill and they still use it in the underdeveloped countries without risk of damage to a companys


or a countrys reputation.26 I do not wish to imply that plant management does not constantly think of replacing labour by machines. But the criterion for selection is more likely to be the cost of plant labour, or in some cases the danger of labour problems such as a labour union, not sanitation. As long as processing plant labour can be exploited in underdeveloped countries by payment of super-low wages and by violating labour-laws, as is usual, the introduction of labour-saving equipment will be postponed.

When international agribusiness firms have to face local competition they are likely to play an ambivalent role as innovators. Overseas investors will tend to favour first their own operation which will give them at least a temporary market advantage. Local firms would then be obliged to shop around elsewhere to be able to compete effectively and survive. This implies that the international firm gives up its role as innovator with respect to the local plants and forces the latter to become their own innovators. If successful, the international firm has set in motion an innovating process which benefits the underdeveloped economy all the way around even if it does not benefit the firm and may even harm it. Of course, this is not what happens. The local firm may be unsuccessful, perhaps because international agribusiness may prevent it from acquiring the innovation or acquiring it at reasonable costs, in order to maintain a dominant position in the local market. Hence agribusiness plays a function as innovator only as long as it benefits from it, and this function is but a competitive device with which to establish and maintain a dominant position in the underdeveloped economy.2

Agribusinessrole as innovator is permanent

The apostles of agribusiness and agribusiness itself consider their role as innovators as a permanent one. This is incompatible with the proclaimed desire to help underdeveloped agricultures emerge from their state of underdevelopment. Ideally, the role of innovator should be to transfer knowhow and inputs of the best quality to enable underdeveloped local growers and processing plants to engage in a process of learning. To paraphrase Morrissy : the transfers should make educated managers out of the underdeveloped entrepreneurs. Consequently, underdeveloped entrepreneurs would gradually become so effective that they would take over all the decision-making processes and become innovators in their own right, including inventors of new

432 Ernest Feder

techniques. This condition never arises. The foreign investors last intention is t o give up their permanent role as innovators. The theory that the function of agribusiness is to wed developing country needs to agribusiness interest and capabilities is mythical, because it fails to reckon with the processes inherent in capitalist expansion.

Agribusiness an enemy, not ally ofgrowers

Does the underdeveloped grower find in the contracting international agribusiness firm an ally in his efforts to use the best farm technology?

Overseas investors certainly have complete knowledge of the best farming or processing technologies and quasi-monopoly experience in management knowhow or the ability to transfer the best innovations, But given the conditions under which overseas investments are manipulated and the conditions existing in underdeveloped countries, it may not be necessary and in fact may be unprofitable to transfer all the knowhow and all the best technical facilities to the underdeveloped agricultures. This is likely to have the gravest consequences.

I begin with an example. In the strawberry industry in Mexico a large number of technological and management defccts are attributable to - i.e. the responsibility of - the US brokedindustrialists of whom about half-a-dozen control production, processing and exports. Note, however, that the strawberry industry located in the nearby United States is operated at a high level of technological and managerial efficiency. Yields in California, from where most of the US produced commodity originates, have nearly doubled in about eight years (they rose by 90% between 1966 and 1974) - a fantastic performance. Both land and labour productivity in the field and in processing plants are high. All this is amply known to US strawberry investors in Mexico: they have close business ties with the US strawberry industry located in the United States and decades of experience and knowledge of US market conditions; of the US markets ability to absorb Mexican imports; of Mexicos domestic market; and of the world market. This gives them a monopoly status in strawberry management education, to paraphrase Morrissy. As these same US overseas strawberry investors practically monopolise the US strawberry industry located in Mexico, it is amazing to find in Mexico that

1 . Under their initiative, strawberries are grown in areas for which it has never been demonstrated whether they are best adapted to strawberry production or not. Capital investments were made and plantations started haphazardly, with-

Agribusiness in underdeveloped Agricultures 4 3 3

out previous soil or water tests. After 15 years of cultivation, no more is known about soil and water conditions than when the plantations first started. Once begun, they continued their precipitous course.28

2. After 15 years, there are practically no research facilities or projects, or adequate laboratories. Small local projects receive no support from US and Mexican investors. Mexican government research is inadequate. If the government were to devote larger resources to research, the benefits would accrue principally to the US investors/exporters in form of increased profit repatriations rather than increased foreign exchange earnings, as the Mexicans well realize.

3. Unrational production methods are the consequence of the integrated strawberry system itself, which implies among other things that US capitalists/ industrialists have complementary business interests beyond the immediate production, processing and export of strawberries. For example, all strawberry plants (seedlings) come from the United States. Imported varieties are adapted to United States, nor Mexican, growing condition^.^^ Research on other varieties is discouraged by US capitalists.

The reason for undermining Mexican research are that, according to US industrialists, US varieties are best suited to the US market.30 Moreover, US capitalists import or are instrumental in importing US varieties at a profit, and thereby control production and processing, or secure business allies by letting Mexicans handle the imports. Last but not least, the import of US varieties allows competition between US and Mexican strawberries to continue, since US nurseries benefit from the sale of seedlings - a sort of live and let live arrange- ment between US capitalists operating in Mexico and those in the United ~ t a t e s . ~

4. The quality of imported seedlings is not the highest. Mexican growers - particularly small growers - receive a quality inferior to that used in the United States.

5 . Cultivation practices in Mexico are inferior to Californias, even after 15 years of cultivation. Yields are low although some of the most fertile soils in irrigated districts are employed. Yields tend to decrease in the older plantation areas as soils are increasingly contaminated by disease, as a result of poor irrigation practices, inadequate preventive measures in soil preparation, and poor care of seedlings. Better cultivation practices would raise costs of production ana necessitate the transfer of more sophisticated and expensive equipment. This in turn would tend to raise prices paid to growers.

6. Decreasing yields are no particular problem to the US investors because they can be offset by shifting strawberry plantations to new, fertile and clean soils which are abundantly available. Such shifts are now actually taking place.

Here is a clearcut case of an agribusiness failure as an ally in the growers efforts to use the best farm technology. Is this an exception or can one detect some general processes at work whenever inter-

434 Ernest Feder

national agribusiness firms operate in underdeveloped agricultures, which ensure that these firms d o not in all cases, perhaps even in the majority of cases, transfer the best technology to the underdeveloped growers and processors?

It is my conviction thqt we are in the presence of a widespread phenomenon whose significance we are just beginning to appreciate to its fullest extent. International agribusiness firms operate in underdeveloped agricultures under unique conditions. Foreign capitalists in search of profitable agricultural overseas investments encounter there a peculiar set of elements which, singly or in combination, enable them to earn substantially larger profits than similar investments in the industrial countries, and to repatriate these profits wholly or partially, depending on the laws of the countries. Super-profits and their repatriation are the major reasons for overseas investment.

Keeping in mind that foreign investors occupy a dominant position in the local economy, they benefit from all kinds of low or super-low costs. These range from low land values or rentals, cheap water, low construction costs, and super-low wages of field and factory workers, to low service costs, such as transportation. To this must be added two crucial elements: the abundance of unused or under-utilized resources, mainly land, water and labour; and the possibility of pulling up stakes whenever this becomes profitab1e.j The mobility of foreign capital and technology is extremely high.3 These circumstances condition quantity and quality of technology transfers and consequently the use of physical and human resources. The primary concern of foreign investors is to seek the cheapest combination of inputs and to maintain costs at minimum levels. Hence, technology transfers tend to be made in such a manner that they will not unduly raise costs in order to keep the purchase price of the product at a low level. On& such technology will be transferred that will guarantee the continued earning of high profits and the p o w of profit repatriation. Available resources in the underdeveloped agricultures may be exploited and plundered to the greatest extent possible without investing more knowhow and technology than is strictly necessary, and by transferring only sufficient to keep production and processing going without unduly raising costs.

For example, in the agribusiness production-contract-system it may be sufficient and remain profitable to keep production at a given (even low) level of yield with a given (even relatively low) level of investment and technology (including farm management) - or even with decreasing yields as soils are used up, eroded or infested; aggregate production can be made up easily by increasing the area under cultivation


without raising costs to agribusiness and by shifting to new fertile areas, or by the greater exploitation of other resources (e.g. water, labour force). These processes are possible because of the monopoly position ; because there is normally no scarcity of cheap land, water and labour; and because the underdeveloped countries need to earn foreign exchange even under adverse conditions and find it difficult to organize alternative farm enterprises which might be more advantageous. Hence, partial or lower-quality technology transfers are bound to have dis- astrous consequences: ultra-rapid waste and depletion of natural resources, and super-exploitation of the labour force. These grow in geometric proportions with the expansion of capitalism agribusiness - style into the various commodity systems.

The same processes are likely to occur in any type of agricultural enterprise or commodity system run by foreign investors, and even under the impact of unplanned foreign technology transfers to enterprises run by national underdeveloped entrepreneurs in an agribusiness fashion.

The similarity of the action of international agribusiness firms in the underdeveloped agricultures with that of traditional estate owners with respect to the use of agricultural and human resources is striking. (For example, the traditional practice of shifting cultivation to new areas when the old soils have become depleted rather than increasing the productivity 3f the land.) The difference lies in the dramatic speeding-up of the processes. A f e w more decades of international agribusiness will irreversibly deprive many underdeveloped countries of their best and most valuable agricultural resources. We are in the presence of an unseemly but not unexpected contradiction: the much- needed intensification and diversification of land utilization in underdeveloped agricultures leads, under capitalist modes of exploitation, to their impoverishment and decapitalization and the spectre of un- avoidable famine, at speeds which are almost measurable in light-years.

International agribusiness: opium or stimulant or erratic market behaviour?

Let us turn to another of Morrissys arguments:

When agribusiness commodity systems . . . are underdeveloped and un- balanced, coordination between components of the system tends to be erratic, exposing participants to wide swings in prices and in availability of goods and services. Processors need a coordinating alternative to these random market

436 Ernest Feder

movements without resorting to the extreme of extensive vertical integration. (p. 44, emphasis supplied)

The implication is: agribusiness is able, particularly through the production-contract system, to stabilize markets and prices and thereby transmit larger benefits to the growers. In industrial countries, this is uncertain ; for underdeveloped countries it is certainly incorrect. Agribusiness enhances financial risks f o r local growers, processors and dealers and acts as a disruptive, conflict-engendering mechanism. Why?

I referred earlier to the sequential technological package and the sequential capital-technology package as typical features of capitalist expansion in underdeveloped agricultures. Transfers of capital and technology start when the financial prospects for a modernized commodity system agribusiness-style are good. This is only logical: industrial capital in search of new overseas investment outlets is not likely to undertake transfers unless they generate profits and even superprofits or unless transferred technology can be paid for. Once such transfers have been initiated, the probability of further (combined) transfers by the same or some other multinational firm is high. Some local plants might also wish to get into the act. More and more producers, industrialists and handlers are anxious to participate in the profitable venture. The impetus for these transfers originates with multinational concerns, firms anxious to sell inputs, transfer innovations and control an ever-larger share of the commodity systems, and with local governments anxious to substitute imports and earn much-needed foreign exchange. The impetus will be supported by bilateral or multinational technical, financial or philanthropic organizations. The transfers do not obey any systematic development plan but are part of the logic of capitalist expansion guided by the profit motive. Hence the processes are likely to be on the chaotic side. The expansion may be successful and correspond to a real need of the local economy or industrial nation to which the commodity may be exported. All may go well. But all may not go well for ever. The transfers may result in excess capacity, over-production and market crisis. Crises imply large price and other swings - the very development which agribusiness says it wishes to prevent.34

Not all ventures turn out to be profitable, but the likelihood that multinational concerns are not greatly affected by the chaos they create in underdeveloped countries is relatively high. Inputs are already paid for and installed capacity is likely to have been quickly amortised. For the underdeveloped country, however, it may represent a consider-


able waste of scarce resources. The waste is likely to be significant, for example, whenever fixed installations are not designed for diversified activities, as in the case of a processing plant handling only one fruit or vegetable crop and remaining idle for a large portion of the year, which is not unusual. The waste is enhanced if it also adversely affects employment,

Such processes are not apt to teach the underdeveloped countries a good lesson in the rational husbandry of scarce resources or in the effective coordination between components of the system able to avoid erratic behaviour and wide price swings.

There are also other processes a t work which result in shifting business risk to the third world agricultures. The likelihood of more rather than less erratic market behaviour and of larger price swings also results from dependency of the commodity system on foreign markets. Evidently not each and every agribusiness activity is directed towards exports. But the modernization of underdeveloped agricultures is heavily oriented towards exports. This results from the control of agribusiness-multinational corporations over the production and distribution of commodities, which gives them the right to decide in which market the commodity is to be sold, the decision depending on their relative profitability (which in turn depends partly on the size and purchasing power of the market), and from the governments need to earn foreign exchange. If prices in the export market are relatively stable, the local agribusiness system may enjoy stability. But we know from years of experience that prices in the industrial countries or in world markets are highly erratic for most food commodities. A price decline in an export market is bound to cause a much sharper price decline and hence more sharply declining growers returns in the underdeveloped agricultures. The situation is most serious whenever a commodity grown in an underdeveloped country competes with production in the industrial country: during periods of glut the industrial (importing) country is likely to limit or put a stop to foreign imports. (Price rises are likely to be smaller.) In the Mexican strawberry industry, for example, the decline in US demand for strawberries in 1974-75 resulted in a drastic decline in US imports, enforced partly through US sanitary regulations, with formidable losses for Mexican producers. This appears to be a typical case,

The local decline in prices and growers returns is not only the natural consequence of the operation of the market but, in productioncontract systems, also of the ability of agribusiness to manipulate prices (downward) or to reject the growers output. Price

438 Ernest Feder

manipulations can be expected even under relatively favourable market conditions so that agribusiness can purchase the commodity at rock- bottom prices.

Finally, other points deserve to be mentioned which emphasize the vulnerability of the local economy. International agribusiness firms do not transfer their marketing knowhow. This makes local producers, processors and handlers totally dependent on the formers judgements and decisions. Secondly, the mobility of overseas investments implies that local producers or businessmen may be abandoned by the foreign capitalists and forced to carry the entire burden of the investors exit. There are three specific situations which can give rise to the withdrawal of foreign capital or technology when the overseas business ventures become unprofitable. The first is the withdrawal of capital (or technology) from a local enterprise with mixed ownership, as in the previously cited case of Pollitos SA (Chicks Inc). The foreign investor then requests total or partial repayment. This may or may not be accompanied by a financial loss for the foreign investor, but regardless, the withdrawal weakens or even destroys the local enterprise. The second case arises when the foreign firm finds that costs are rising or that legislation threatens profit repatriations. The third case arises when the firm finds costs or institutional arrangements more to its taste in another country or region. In all these situations, the local economy suffers damage. If local capital has been mobilized to support the overseas venture, it will bear the brunt of the investors action.

Agribusiness antildeasant bias

In production-contract systems the growers most likely to bear the heaviest losses are the smaller producers, particularly the smallholders. Next in line are local processors or handlers. Modernization of underdeveloped agricultures capitalist-style has a fundamental anti- peasant bias and the production-contract system is one of the mechanisms that favour large and eliminate small producers, smoothly and relentlessly, over the longer run. The preference of international agribusiness for large growers can be taken for granted. Their preference is part and parcel of a set of values acquired in the industrial countries. One of these values is that large size of enterprise is identical with efficiency.

In underdeveloped agricultures the land tenure pattern makes it difficult or impossible for agribusiness to rely exclusively on large


growers as smallholdings outnumber large holdings by a huge margin. There is normally no alternative but to extend contracts to small producers. Some underdeveloped commodity systems include almost uniquely smallholders before agribusiness enters with its production- contractsystem. The natural tendency for international food plants is to foster production concentration, i.e. to favour large growers by giving them priority and better terms in the distribution of inputs and the purchase of their output, a natural way to erode the position of small producers. However, agribusiness would in all likelihood not go so far as the total elimination of all smallholders. Its short-run strategy is more complex. Agribusiness needs smallholders in order t o give its transactions greater flexibility and will contract with small landholders - as Morrissy carefully points out, although for different reasons. Smallholders can be manipulated more easily than larger growers. It operates about as follows: if market demand is satisfactory, the plant absorbs a maximum of supplies to maximise its profit repatriations. When demand declines and the plant wishes to reject part of the production or obtain it at heavy discount prices, small growers lend themselves a great deal better to these practices. They are the ideal victims of erratic markets. Morrissy argues that the firms retain small growers because it gives them the possibility of larger technological transfers, pretending (wrongly) that the transfer of the best knowhow and technology serves to educate underdeveloped growers. But we already know that it seeks dependency of producers on agribusiness and preservation of its monopoly position. Thus, the discrimin- ato y practices of agribusiness still maintain the smallholder sector not- withstanding the constant simultaneous agribusiness-induced process of erosion to which it is being subjected. In any event, these practices keep all growers disunited, unable to organize effectively, while enhancing the economic polarization which agribusiness encounters in the underdeveloped agricultures to start with, and which is bound to create actual and potential conflict at all levels.

THE POLITICAL ELEMENT IN AGRIBUSINESS

To terminate, a brief comment on the social and political implications of the modernization of underdeveloped agricultures capitalist-style. The expansion of capitalism is a counter-reform and counter-revo- lutionary strategy, centred around the economic, social and political strengthening of the large landholders. Channelling resources to them in

440 Ernest Feder

the form of new capital and modern technology has the effect of widening the already existing gap in wealth, income and power between the land monopolists and the peasant^.^ This conscious strategy, supported by a multitude of agencies, is clearly politically inspired. It is bound to increase the contradictions inherent in the underdeveloped agricultures through the relentless eviction of smallholders as a result of increasing concentration of land ownership, through the rise in rural un- and underemployment, and deterioration of the conditions of wage employment. It is therefore bound to increase the revol- utionary potential of Third World agriculture.

NOTES

1. For the purpose of this article, I have used two books as representative of Harvard Business School mentality; James E. Austin: Agribusiness in Latin America (Praeger, New York, 1974), and J . David Morrissy: Agricultural Modernization Through Production Contracting, The Role of Fruit and Vegetable Processors in Mexico and Central America (Praeger, New York, 1974). Although these two documents refer to Latin America, there is no reason to think that agribusiness acts differently in other parts of the world.

2. Ray A. Goldbergs foreword in James E. Austin: Agribusiness in Latin America. This book has an introductory note by Henry J . Heinz I1 (of the multinational food concern Heinz Co.), Chairman of the Agribusiness Council, a non- profit organization dedicated to bringing the resources and capabilities of agribusiness firms to bear on economic development. The council identifies and facilitates the development of investment opportunities for its members and assists with the investigations that lead from the first pre-feasibility studies to the final investment decision. I t attempts to wed developing country needs to agribusiness interests and capabilities.

3. Ibidem, pp. 1 and 2. 4. Production contracts are only one aspect of agribusiness, as I point out

below. 5 . For more details, see my The New Penetration of the Agricultures of the

Underdeveloped Countries by the Industrial Nations and their Multinational Concerns (Institute of Latin American Studies, University of Glasgow, Occasional Papers No. 19, 1975).

6. Morrissy, Agricultural Modernization, pp. 53 f. 7 . To put the imagination of the reader to a severe test, the book uses

invented names. 8. This is unusual. The poultry-feed business (mainly Purina) is one of the

large multinational undertakings in Latin America and other parts of the world.


9. This is a very interesting aspect of agribusiness, namely, the involved and complex legal arrangements (setting up of several companies or cooperatives, each with specialized functions, profit-oriented or non-profit organizations etc.) partly for purposes of evading taxes. For more detail see S. Williams and J.A. Miller: Credit Systems for Small-Scale Farmers (Studies in Latin American Business No. 14, Bureau of Business Research, Graduate School of Business, University of Texas, 1973).

10. Austin, Agribusiness in Latin America, pp. 14 ff. 11. In the previously mentioned case Pollitos SA, for example, the US

12. See footnote 2. 13. There is no way of estimating the quantity of these transfers. Their

money value does not reflect the amount of land into which the capital is sunk because land in underdeveloped countries is cl.*ap even if some of the best is included. Some land can be obtained for a song.

14. J. David Morrissy, Agricultural Modernization, pp. 4 f . Incidentally the picture of such an idyllic relationship is contradicted by another passage by the same author (p 45) which runs as follows:

The processor, as contractor, sets the specifications, and at harvest time judges the degree to which the grower has achieved them; this gives con- siderable authority to the processor. Tension is inherent in the processor- grower relationship . . , However, this tension is offset by the advocacy attitude [sic] of processors who assist growers to use improved technology. As a consequence harvest yields of quality crop increase and prices accordingly [sicl decrease. (Emphasis supplied).

investor withdrew and was paid off by the local entrepreneur.

This double-talk is amusing for the reader, though less so for the producers, as I try to demonstrate in the text below. The most amusing is the logic that a grower who receives benefits from the advocacy attitude of processors must accordingly accept lower prices for more and better outputs - a case of per- verted textbook economics totally unrelated to reality.

15. In Mexico such contracts are called contratos leoninos, treacherous contracts, and I assume that they do not differ from contracts in other industries elsewhere. In Morrissy, pp. 64-65, there appears a typical contract and the author states (p. 63) that international firms use the same contract overseas as they do in the United States. (The typical contract refers to US growers and a processor.) This may be true in a few cases, but the statement is highly suspect.

16. The term Mexican strawberry industry is a misnomer. What is involved is a US strawberry industry located on Mexican soil.

17. In some cases, Mexican banks will provide credit with a specific guarantee of the freezer plants.

18. In hindsight, local bankers and capitalists were wise not to get involved, because of the recurrent near-catastrophic crises (1970-71 and 1974-75) during which strawberry producers, particularly small producers, suffered heavy losses. Mexican capital entered at a time when US demand for Mexican imports was very strong. The Mexican government subsequently invested heavily in government-owned freezer plants, but suffered severely during the most recent crisis.

For US capitalists the situation is more complex. They may lose on their fixed investments during periods of glut, but losses are insignificant if their

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capital is amortised. (Fixed investments in freezer plants can be amortised in a very short period of time, say 1-4 years.) If US capitalists are simultaneously plant-owners and brokers - the bulk of the exports is actually handled by a handful of US brokers/industrialists - they can make up their losses on fixed investments as brokers obtaining a commission on sales. The larger US firms are able to shift most of the risks of erratic market behaviour to smaller firms or to Mexican-owned plants, and of course to the Mexican producers, particularly small growers. As a result, an increasing proportion of output and exports is handled by a decreasing number of US firms.

19. I estimate that the ratio of US to Mexican capital is roughly between 4 : l and 3:2.

20. The ratio of US to Mexican operating capital may be in the neighbour- hood of 8:l or 7 : l .

21. Under existing conditions Mexicans are unable, for example, to export strawberries directly to other (say European) markets. Mexican strawberries are now exported to Europe by US Brokers, as if they were USgrown. The omni- presence of US capital in the Mexican processing plants makes independent exports now impossible.

22. To some extent, these transfers are also mechanisms to repatriate profits. 23. Morrissys argument is cagey. He presents two tables: one showing the

lowest percentage of the contracts by processor type - which means presumably the contracts involving the 10 percent of growers with the least hectares - where the international processing firms average 14.5 ha per contract; another with the highest 10 percent where the average grower has 133 ha. This means very little. however. Let us assume that there are 100 growers under contract. The lowest 10 percent has 14.5 ha per grower; the highest has 1 3 3 ha/grower. But the total hectares for the lower group would be 145 ha, for the higher group 1330 ha. The author does not say this, however (p. 73). Could anyone still pretend that the international agribusiness firms prefer small growers? If they contract small growers it is usually because they do not have much choice, although as I shall show later they tend to eliminate the small growers by a variety of tricks.

24. This seems debatable if one considers that fruit and vegetables are grown on irrigation land. Most smallholders have much less land and only few have irrigated land. Actually, the author is applying industrial rather than less developed countries standards.

25. The fieldman have an additional function which is not so much a transfer of knowhow as a prodding or control function, transmitting to growers the orders of the contracting plants.

26. The argument that health hazards are introduced by the use of manual labour is vicious: it shifts responsibility of any defective merchandise to labour, when it belongs to management. In many cases, defective food merchandise reaches the market because, in the inordinate search for profits, management often accepts raw material which is on the borderline of required quality.

27. A different situation prevails when an international agribusiness firm is not involved in the production or processing of food in the underdeveloped agriculture and is only interested in selling inputs at a profit. It might appear that this would lead to competitive conflict between the various types of firms. But more o f e n than not such conflict is apparent, not real, because of the close interconnection between the firms and the working arrangements they have


among themselves. In any event, if conflict there is, it does not benefit the underdeveloped agricultures.

28. My statements are based on the opinions of agronomists, are borne out by experience and performance, and have been verified by field studies. For details see my Strawberry Imperialism, Chapters V and VI.

29. Strawberries are highly sensitive to difference in micro-ecological conditions and must be adapted to the region in which they are planted.

30. One well-known strawberry expert maintains that consumers are unable to distinguish between one variety and another. Strawberries are not purchased by consumers on the basis of variety. US capitalists grow US varieties for reasons of conve

Agricultura 1970

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