Friday, September 05, 2003

Coffee, bananas, and oligonomy In a provocative article in the British newspaper the Guardian ("Unfair Trade Winds," May 17, 2003), the authors outline the way in which global oligonomies keep lowering prices for Third World agricultural products, causing serious financial problems for those companies' economies. At the same time, subsidized and protected US and European agricultural products are dumped on the world market below cost, hurting Third World farmers once again. Global forces, the article argues have radically altered the food chain. For example, the banana industry is dominated by an oligopoly of five companies: Chiquita, the former United Fruit (26%), Dole (25%), DelMonte (8%), Fyffes (8%), and Noboa (8%). That's 77% of all the bananas in the world. In coffee, it is much the same, though I can't find exact market shares. Kraft, Nestle, Procter &  Gamble, Sara Lee, and a German company called Tchibo. And the situation goes something like this. The big supermarket chains and Wal-Mart get the oligopoly members to bargain against each other in setting the price they will pay them. The big banana and coffee companies put the squeeze on the farmers in the various countries, shopping for the cheapest prices, and playing one country off against another. The farmers then squeeze more in the only place they can squeeze, labor costs. The products are marked up, according to the article, so that the final product can cost hundreds, even thousands, times more than the farmer gets for selling it. At the beginning of 2002, a Ugandan farmer received 14 cents (US) for 1kg of [coffee]beans. The local middleman who transported it to the mill took 5 cents profit as did the miller, and the cost of transport to Kampala added a further 2 cents, making the cost of the coffee when it arrived at the exporter's warehouse 26 cents. The exporter, operating on a tiny margin, added 19 cents to the kilo, taking the total value of a kilo up to 45 cents. Freight, and the importer's cost and margins took the price to $1.64 by the time it reached the factory of one of the giant roasting companies. But by the time the same kilo was sold in the shops in the form of instant coffee it is was worth $26.40, 7,000% more than the farmer got for it. Prices have always fluctuated, markets have always boomed and collapsed, and local farmers have always been exploited. But the globalization and oligonomization of the food industry puts a handful of firms in the best position to systematize and intensify this trend. The losers, as ever, are the disorganized many who face the deep-pocketed, agile few. It doesn't matter to food processors or supermarket customers whether the coffee beans come from Brazil or Vietnam, whether the bananas come from Ecuador or Guatemala. But the farmers can't move their operations so easily, nor can the people who work for the farmers. The foreign sales of the 100 largest transnational companies are equivalent in value to one quarter of world trade. What's more, about two thirds of all trade takes place within companies. "That doesn't necessarily mean that there is no competition, but it does mean that in global markets small, fragmented producers are competing against a handful of corporate buyers," Oxfam's recent report on global trade, Rigged Rules and Double Standards, points out. They nearly always lose, whether they are Caribbean tropical fruit growers or English apple farmers. 6:17:26 PM

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