GLOBALIZATION IN THE FOOD INDUSTRY The impact on market structures and firm strategies

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GLOBALIZATION IN THE FOOD INDUSTRYThe impact on
market structures and firm strategies

• Arjen van WITTELOOSTUIJN
• October 19 2007

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Introduction

• Two misunderstandings (a) mixing up different
  types of globalization and (b) countries cannot
  benefit from competitive advantages
• Emphasis on economic globalization in the
  Ricardian sense
• Focus on meso level of market structures and
  micro level of firm strategies

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Review

• Quite a few studies on globalization and / or
  liberalization in the food industry (see, e.g.,
  European Review of Agricultural Economics and
  Food Policy)
• But, all in all, a focus on the macro level of
  countries and regions
• Consensus globalization and / or liberalization
  promote(s) welfare in the longer run, both in the
  developed and developing world
• Key mechanisms lower prices (consumer surplus)
  and international specialization (producer
  surplus)

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Some stylized facts

• FDI growth outpaces trade growth
• Developing world is catching up
• The leading food companies are growing
• Low large-firm sales share (about 3 only)
• Trade is not that important (about 10 of sales)
• Favorite path to growth is by acquisition
• Consumer preference (taste) convergence
• Regional differentiation
• Niche development (bio-energy, eco-food, health
  )
• Impact on market structures and firm strategies?

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Market shares in food processing
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Global sales shares Big Six in 2002
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Cumulated sales growth 1998-2002
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Classification of globalization effects
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Resource-based theory

• Supply side
• Exploitation economies
• (Scale and scope)
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  Market structures
• Firm
  strategies
• Resource shapes
• (Centre and periphery)
• Demand side

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Market structure examples
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Firm strategy examples
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Market form examples

• Condensed resource space and scale economies
  
• Oligopoly
• Condensed resource space and scale diseconomies
• Perfect
  competition
• Tailed resource space, scale economies and scope
  diseconomies
• Fringe
  oligopoly

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Impact of globalization

• Globalization
• Exploitation economies
• Market structures
• Firm strategies
• Resource shapes

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Two baseline propositions

• Proposition 1 (exploitation economies)
  Globalization will increase the opportunities to
  reap scale and scope economies.
• Proposition 2 (resource shapes) Globalization
  will increase taste convergence and the love for
  variety, implying larger peaks and expanded
  peripheries.

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Three market form propositions

• Proposition 3 (market concentration)
  Globalization (a) will increase market
  concentration in the food industry, from which
  (b) a subset of the generalist food companies
  across the value chain will benefit.
• Proposition 4 (market density) Globalization (a)
  will increase market density in the food
  industry, from which (b) a subset of incumbent
  and many newcomer specialist food firms across
  the value chain will benefit.
• Proposition 5 (specialist viability) (a) The
  density effect will be stronger than the
  concentration effect, implying that (b)
  particularly specialist viability in the food
  industry will increase in the slipstream of
  globalization.

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Consumer taste convergence and love for variety

• Tailed resource space with increasing peak and
  expanding periphery

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Example of the US beer brewing industry
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Bottom line

• GLOBALIZATION AND
  REGIONALIZATION
• Higher concentration and
  higher density
• Large-firm growth and
  small-firm viability
• Multi-product generalists and
  single-product specialists

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• THANK YOU VERY MUCH FOR YOUR ATTENTION!