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Are transnational corporations developing or exploiting less developed nations? An inquiry into the agribusiness in Central America Dr.

Tim Sandle (timsandle@btinternet.com) This article examines the operation of agribusiness in Central America. Agribusiness is the totality of different operations and actors which link up the global food supply chain. agribusiness is an example of the globalisation process in that increasing global interconnections have created a demand for lower priced goods in supermarkets. Central America, through its relatively similar populace and countries, provides a compact area for study. This article discusses the major actors in the agribusiness (including TNCs, WTO and the US government) and examines whether the dynamic of the agribusiness is towards development or exploitation for Central America. This is discussed through two different theories aimed at understanding the developments: liberalism and Dependency Theory. This essay then proceeds to examine recent events, such as international protests, which indicate that the future may be taking a different course in Central America. The conclusion of this article is that the operation of the agribusiness tends more towards the exploitation rather than the development of Central American countries. However, the rise of anti-globalisation protests may represent a different way out of poverty. The area of study is the operation of the agribusiness in Central America. This region has been selected because it is a zone with a long colonial history (primarily under? [especially deriving from] Spain) and one that is experiencing rapid change. Countries of particular interest are El Salvador, Guatemala and Honduras. These states have spatial ties and political-economic similarity. Spatially, the three are commonly labelled the Northern Triangle (due to their former links with the now dissolved Central American Common Market). Economically, agriculture is their main export and mode of employment (being based primarily on plantations owned by TNCs). Politically, each is relatively new to democracy (El Salvador and Guatemala as late as 1992 and 1996 respectively; CIA, 2003), although the continuance of death squads in El Salvador makes democracy a some what contested concept. Each has a right wing government keen on pursing neo-liberal policies that promote the private sector and transnational trade links (Woodward Jr, 1995; Siela, 1985: 125).

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Figure 1: Map of the region (source: Chiquita web-site)

Many different TNCs are active in Central America. These include the United Fruit Company (which has had a base in Guatemala since 1901); Castle & Cooke and Del Monte. It has been estimated that 50% of agricultural exports from the Northern Triangle go via TNCs to the USA (Barry, 1992). These corporations are the motor of agribusiness. The agribusiness incorporates, according to Keen (1995), the entire agricultural process from production, through processing, to marketing. It also includes the businesses that supply machinery, seeds and agri-chemicals (seamless and fully integrated control of the food system from gene to supermarket shelf, Hefferman, 2000). Frank (1981) notes that the agribusiness employs 60% of the worlds economically active population and owns 80% of the land used for growing cash crops (crops for export). The agribusiness is dominated by TNCs which operate on a global scale and are continually aided by advances in transport, communications and technology. Thompson describes multi-(or trans) national corporations as the epitome of global capital(1989:9). Although the agribusiness in Central America has been present for a century controlling production and distribution of coffee, sugar and bananas (refer to Table 1 below), during the past ten years there has been an intensification of production as global markets have expanded. The agribusiness is not just to be the operation of TNCs, for other actors play important roles. The rules for global trade are set by the WTO. The most important rule promoting the agribusiness has been trade related intellectual property rights, particularly in the field of biotechnology. One of the first items to patented under these laws (under the former GATT regime) was the Arabica coffee bean which resulted in states in Central America having little choice other than to purchase this

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particular type of bean because of its dominance in the world market (Morrio, 1994). [where does it originally grow and from whom do they have to purchase the seeds?] The WTO has continued to alter the playing field. The recent Agreement on Agriculture has further liberalised the global agriculture markets (Ainger, 2003: p9). The UN bodies involved are: UNCTD12 and UNFAO. These promote the free market and internationally agreed trading rules or as one UN paper puts it: the dynamics of world trade are rapidly changing and all countries must gear up to keep pace with it (UN, 2003). The biggest single player in Central America is the USA. The US government? has links with most of the TNCs [operating in Central America?] and by-passes its own free market philosophy by offering the agribusiness generous subsidies. The USA also has an arguable dominance in bodies like the UN, WTO and the World Bank as well as a long history of political interference in Central America. Besides military intervention, the US has promoted private sector development, particularly since (or under?) the Reagan Administration in the 1980s. [source?] Recent examples of growing US interest include the state tightening its grip on the region through NAFTA, which has driven wages down in Mexico by 30% (1994 2000) and the proposed extension of NAFTA into a giant internal market through the FTAA3 (Gonzalez, 2001: 150). The FTAA last met in November 2002 amidst riots from protestors from across Central and South America. The protests were a new force which Nicaraguan farm worker, Maria Elena Siquiera, called: not a consultation or a dialog, this is a statement of implacable opposition to the FTAA by all the peoples' of the Americas (Food First, 2002). In examining the agribusiness and its impact upon Central American countries the arguments which attempt to explain what is happening generally fall into one of two areas: either that the operation of global agricultural TNCs are developing these states or they are exploiting them. Both development and exploitation are contested terms. By development, the UN definition is taken: a reduction in debt; economic self-sufficiency; providing power and energy; health; education; literacy and so on (UNDP, 2003). In contrast, exploitation is the net extraction of wealth and

1 2

United Nations Conference on Trade and Development United Nations Food and Agriculture Administration 3 Free Trade Area of the Americas

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resources from a developing country, by TNCs, and a repression of development (in other words underdevelopment). This development or exploitation argument can be explored by examining two contrasting theories: liberal-pluralism or Dependency Theory. The liberal-pluralist (or neo-liberal) approach, taken by political observers such as? assumes that the nation state has had a diminishing role in the global economy. The global economy is characterised by interdependence between different (corporate?) actors and the market where the main interactions are: conflict, bargaining and decision making. This theory considers that the growing interdependence is progressive and that economies will harmonise and free trade, together with technological innovation, will lead to development. Development is seen as converting Central American states into healthy, prosperous liberal democracies (Staniland, 1985; Barry-Jones, 1988). The underlying assumption is that markets are both beneficial and desirable because they increase the amount of wealth in society. Such arguments would point towards the relative success of the Mexican economy, in the region, following its economic liberalisation and linking with the US and Canada in NAFTA in 1993 (1992?) (Baker & Associates, 2003). The key to the liberal approach is the TNC as a carrier of technology, of trade opportunities and of capital itself (Richard Nixon quoted by Sigmund, 1980). Examples include Castle & Cookes funding of a railroad in Honduras (as a transport link for its banana export business under the Dole label (Worobetz, 2000). In contrast Dependency Theory, which is located in the neo-Marxist tradition, views the world as divided into a core (the West) and a periphery (the developing world). Developing countries, such as those in Central America, are viewed as locked into poverty and dependent upon capital; constrained by competition and held back from development. According to this view, a state is constrained from developing because of heavy debts to the West. TNCs exert control by both creating competition between poorer nations and by exerting dominance over the food chain in terms of market access, control of seeds and price. This dominance prevents development because primary technology and management skills remain in the West. These constraints have been described as fostering a culture of dependency (Kolko, 1988; Baron and Amin, 1987). An example of such a dependency is with biotechnology where a nation has no choice but to buy genetically altered crops, and the herbicides that go with them, from TNCs because that is what the world market demands, thus a
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form of genetic imperialism results (Dixit, 1991). The associated ethics of the agribusiness have also been open to question. In 2001, maize in Mexico was found to be contaminated with genetically modified material and this could potentially transfer from crops to people (Ramirez, 2003: 19), Dependency Theory considers that there is a transnational capitalist alliance between the World Bank, IMF and TNCs, where many World Bank programmes are directed into funding crash crop schemes. It is argued that nation states are in fear of the TNCs because of their threats to pull out and damage the fragile economies if their directives are not followed. This, it is argued, results in the Central American countries setting their production priorities for agricultural exports, which are driven by market prices (like coffee) whilst not growing enough food (like wheat) for home consumption (Barry, 1992). Both the neo-liberal and Dependency Theory approaches have been criticised. The neo-liberal approaches [earlier you refer to this in the singular] struggle to explain the mounting debts faced by countries and their relative lack of development despite a long period of TNC activity in the region. Furthermore, they present an idealised version of the way free markets are seen to operate. The main weakness with neo-liberal theories [singular or plural?] is that free markets often fail and the people most at risk from this are poor farmers, 70% of whom are estimated to be women (Ainger, 2003: 10). Markets also often tend towards monopolisation. Recent mergers between Cargill/Monsanto and Novartis/ADM have given these corporate giants control 80% of the world seed and 75% of the world agrochemical markets (Bramford, 2003: 28). Dependency Theory has been described as simplistic and has difficulty in accounting for Newly Industrialised Countries, which have prospered? from Western technology. Furthermore, it can be argued that the Central American states have autonomy and that they have chosen the present path towards cash crop economics. Also, peasant groups have had relative success in resisting transnational dominance and forcing changes to international policy (examples of which are explored later). How well do these two contrasting theories apply to recent economic and social trends? In terms of economic developments, the data is in favour of Dependency Theory. A large part of the agribusiness is concerned with intra-firm trading rather than developing local economies. For example, the United Fruit Company diverts considerable resources through its subsidiary, the Tela Freight
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Company. Indeed, it is almost impossible to legislate for any proportion of TNC profits to stay within territorial borders and to halt capital outflow. The economies in Central America continue to have strong debt problems despite the operation of TNCs, as Table 1 indicates, where(?) the economic problems have worsened into the 21st century with capital flows moving outwards. This has been matched by farmers share of world trade declining from 40% (in 1961) to 35% (in 2001) (Ainger, 2003: 21). Some of this debt is related to falling prices of agricultural products world wide which is partly the result of a shift from a managed market to an increasingly free market (for example, the price of one pound of coffee has fallen from 64.25 US cents to 47.74 US cents between 2000 and 2002, according to ICO, 2003; Ainger, 2003: 17).

Table 1: Main Exports and Debt of three Central American countries.

State

Main Exports

Debt 1995

Debt (latest available figure)

El Salvador

45% coffee 5.4% sugar (total = 60% of export earnings) 20% coffee 13% sugar 7% bananas (total = 66% of export earnings) 40% bananas 19% coffee (total = 66% of export earnings)

$2.4 billion

$4.9 billion (2001)

Guatemala

$2.6 billion

$4.5 billion (2001)

Honduras

$2.6 billion

$5.6 billion (2001)

Source: CIA The World Fact Book 2002

Despite some economic arguments in favour of Dependency Theory, the social situation in Central America may be more complex than either theory can account for. The data suggests that free markets have not provided solutions but equally there has not been a passive surrender to global capitalism. Some global independent movements (?) exist in opposition to agribusiness activity. These include the Fair Trade Foundation, which markets coffee produced from Guatemalan cooperatives at the Va'l Quyol estate, and Max Havelarr in Honduras. These schemes challenge arguments which see all agricultural production as exploitation (Fair Trade

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Foundation, 2003). Fair trade coffee now represents 7.5% of the UK fresh coffee market (Boe, 2001; 115). Furthermore groups of peasants have stood up to the actions of TNCs, such as, the Honduran Inter-institutional Consortium for Sustainable Agriculture in the Hillsides which challenges corporations like Astra Zeneca and the use of pesticides [has it been successful?]. Similarly, the protest group, CARP has set up an internet campaign to publicise the plight of rural and community groups (Earthlink, 2002). These challenges have often come in the form of demands for land reform. Joseph Stiglitz, the former Chief Economist at the World Bank who resigned in protest at the IBRDs policies, sees land reform as the way to allow farmers to produce enough food for themselves and then to sell the excess. Land reform is seen by others as a way of avoiding environmental degradation, such as loss of top soil and avoiding contaminated ground water, which are some of the environmental consequences of intensive agriculture (Branford, 2003: 29). Other groups of farmers have protested at meetings of the WTO (Ainger, 2003:12). It must noted, however, that different groups within Central American countries have different perspectives: differences exist between waged labourers on plantations and feudal workers on the latifundios4 over what the future development should be. This indicates that the protest movement is not as united as it may initially have appeared. This article has shown the agribusiness to be a global force in influencing everything from wages of peasant farmers to goods on Western supermarket shelves. Two arguments: neo-liberalism and Dependency Theories present differing interpretations of what is happening to an agriculturally rich region like Central America: economic development or worsening debt? Both theories identify the dominant force in the agribusiness as TNCs, supported by other actors like governments (principally the USA) and economic institutions (UN, WTO, World Bank). Of the two approaches Dependency Theory has the greater explanatory power because it shows these agriculturally rich but economically poor countries exporting crops to offset debt, rather than using their agricultural resources to feed themselves [but you have not mentioned the existence of hunger] and that these debt levels are rising.

A Latin American word for agricultural land owned by a land owner

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However, neither approach presents an entirely satisfactory argument given the growing anti-globalisation movements and free trade responses. Despite a generally bleak, short term economic future the growing success of anti-globalisation protests; promotion of fair trade products and protests by indigenous peasant groups, the long term future, for the Central America and sustainable, self-reliant agricultural production, may hold some promise.

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References Ainger, K.: The new peasants revolt, 2003, New Internationalist, pp9-12, No. 353, Jan / Feb 2003 Ainger, K.: Tricks of the Trade, 2003, New Internationalist, pp16-17, No. 353, Jan / Feb 2003 Ainger, K.: Food and Farming, 2003, New Internationalist, pp20-21, No. 353, Jan / Feb 2003 Baker & Associates, 2003 (US Energy Consultancy) at
http://66.28.203.113/public_service/mexican_economy.asp

Barron, P. and Amin, S. (1987): No Kidding, New Internationalist No. 167, January 1987, Oxford, New Internationalist Publications Barry, T. et al (1992): Dollars and Dictators: A Guide to Central America, London, Zed Press Barry-Jones, R. J. (1988): The Worlds of Political Economy, New York, Pinter Publishers Boe, P. (2001): Coffee, Cassell & Co, p115 Branford, S.: Cutting the wire, 2003, New Internationalist, pp28-29, No. 353, Jan / Feb 2003 Chiquita web-site, accessed March 2003 at: http://www.chiquita.com/ CIA The World Fact Book 2002 at http://www.cia.gov/cia/publications/factbook/geos/es.html Dixit, K. (1991): The Shrinking Pool, New Internationalist, No. 217, March 1991, Oxford, New Internationalist Publications, p20 Earthlink (2002) at http://home.earthlink.net/~avkrebs/CARP/#anchor4 Fair Trade Foundation web-site (2003), article concerning Guatemalan coffee coperatives: http://www.fairtrade.org.uk/campemail.htm Food First article Myths of Free Trade (2002) at
http://www.foodfirst.org/progs/global/trade/quito2002/2002-11-01-update.php

Frank, A. G. (1981): Crisis: In the Third World, London, Heinemann Gonzalez, M.: Latin America, pp148-156, in Bircham, E. and Charlton, J. (2001): Anti-Capitalism: A Guide To the Movement, Bookmarks Hefferman, A. (2000) quoted in Ainger, K.: The new peasants revolt, 2003, New Internationalist, pp9-12, No. 353, Jan / Feb 2003
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ICO (International Coffee Organisation, 2003) at http://www.ico.org/frameset/priset.htm Kolko, J. (1988): Restructuring the World Economy, New York, Pantheon Kneen, B. (1985): Captured by the Company, New Internationalist, No. 267, May 1995, Oxford, New Internationalist Publications Morrio, B. (1994): More Fight Left in the Uruguay Round, The Independent, 17th April 1994, London Ramirez, T.M..: Tainted Tortillas, 2003, New Internationalist, p19, No. 353, Jan / Feb 2003 Siela (1985) in Weeks, J. (1985): The Economies of Central America, New York, Holmes and Mier Sigmund, P. (1980): Multinationals in Latin America: The Politics of Nationalisation, Wisconsin, University of Wisconsin Press Staniland, M. (1985): What is Political Economy? A Study of Social Theory and Underdevelopment, New Haven, Yale University Press Thompson, G. (1989): The Global Economy, The Open University, p9 UNDP United Nations Development Programme (2003) at: http://www.undp.org/ United Nations Food and Agriculture Organisation (2003) at: http://www.fao.org/ag/ and http://www.fao.org/ag/ags/agsi/gtz_html.htm Woodward Jr., R. L. (1995): Central America, Microsoft Encarta, USA, Microsoft Corporation, Funk Wagnalls Corporation Worobetz, K. (2000): The Growth of the Banana Industry in Costa Rica and Its Effect on Biodiversity, University of Alberta, at http://cgi.tripod.com/adm/popunder/insite.html?member_name=foro_emaus&path=Gr owth.htm&client_ip=195.93.34.14&ts=1044813260&ad_type=POPUP&category=net &search_string=Castle+and+Cooke%2c+Honduras&id=15eaa441fb366c9b9141944e 02d16b19&member_url=http://members.tripod.com/foro_emaus/Growth.htm

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