The role of FDI in food industries, transnational corporations and supermarkets in shifting diets

Bruce Traill

Professor Emeritus

The University of Reading

Presentation at the FAO Expert Consultation on Trade and Nutrition

15-16 November 2016

Background

“Multinational retailers have followed multinational food manufacturers, soft drink companies, and fast food chains into food and drink sectors in virtually all countries and have introduced the types of supply-chain controls previously seen only in the developed world, such as tight vertical coordination, centralized purchasing and distribution, private standards, product differentiation and sophisticated marketing. Domestic firms, driven by competition and and learning from new market entrants, have followed suit.”

Trade and Investment policies

• Uruguay Round Agreement on Agriculture (URAA) (1994) and World Trade Organisation (1995)

• 200 plus regional agreements registered with WTO

• SPS and TBT measures of WTO/Codex

• Trade-Related Investment Measures (TRIMS)

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Foreign Direct Investment

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Source WIR.

Asian food retail market clusters

Discriminating Shopper Markets

Big and Basic Markets

Modern Growth MarketsMulti-Format

Source: Food Retail Formats in Asia

RETAILERS

• Supermarkets and large manufacturers are said to work symbiotically, the latter are able to supply the large volumes (at high standards) demanded by the supermarkets, which in turn are able to deliver a market for the manufacturers’ products.

• The economies of scale on both sides enable the delivery of reduced prices for processed products.

What is the impact on food consumption and nutrition?

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Impact on food consumption and nutrition

• From an analytical perspective, it is difficult to determine whether observed changes in supply chains caused dietary change or were a response to growing consumer demand for soft drinks, fast food, and packaged groceries linked to general economic development—rising incomes, urbanisation, women in the workforce etc

Hypotheses of why modern food systemshave an impact on consumption1. They lower the price of processed foods relative to traditional staples and

fresh F&V.

2. They make more foods available (e.g. chilled foods such as dairy products, processed meats, product variety, snack foods, fast foods, soft drinks). They also provide year-round availability, notably for fruit and vegetables.

3. They employ sophisticated marketing, often targeted at children, to encourage a preference for western foods

4. They enhance food safety and quality (enforcement of standards) which promotes consumer confidence in the foods supermarkets sell

5. Reduce waste in post-harvest supply chain

• Nutrition implications: more diverse diets, cheaper energy, enhanced micronutrient availability, but processed/fast foods are often energy dense with high levels of salt, saturated and trans fats. NB. In general consumers derive pleasure from these developments!

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Recent empirical evidence

• Rische et al, Food Policy 2015, Supermarket use in small towns in Kenya and food consumption. • Supermarket purchases lead to substitution to processed from unprocessed

foods (a result of prices being 5-10% lower)—a 10% increase in expenditure in supermarkets (the difference between towns with and without supermarkets) leads to about a 3.5% increase in processed food purchases; and lead to higher calorie intake from processed foods (50% to 53% for same change in supermarket usage); and average calorie intake by up to 10% (250 calories) holding expenditure fixed.

• Ease of access is the major determinant of supermarket use (including within towns with supermarkets)

• Umberger et al, AJAE 2015, Supermarket use and overnutrition in urban Indonesia• Average supermarket expenditure share is 19% by urban households

• BMI/obesity/overweight share as dependent variable: no impact of supermarket use on adult BMI

• Some evidence that supermarket use leads to higher likelihood of over-nutrition in higher income urban households

• But Gomez and Rickets (Food Policy 2015) point out that modern food systems co-exist with other forms of food chain organisation, especially in poorer developing countries.

Conclusions

• Food chains globally have modernised at different rates and to different extents in the past 20 years

• Foreign companies have been an important contributory factor

• There are logical reasons to hypothesise a number of impacts of food chain modernisation on food consumption

• Empirical evidence is difficult to obtain, and not suggestive of major impacts

• The usual ‘model’ of food chain modernisation neglects a number of other forms of food chain development involving interaction between traditional and modern actors. These may be hypothesised to have additionalimpactson food consumption