Book review: Christoph Scherrer and Ismail Karatepe (Eds) (2021). The Phantom of Upgrading in Agricultural Supply Chains: A Cross-country,Cross-crop Comparison of Smallholders

The Evidence: What Facilitates Upgrading?

The rich primary evidence collected in the book, as well as each contribution’s analysis of secondary evidence, suggests that GAVCs do not automatically translate into economic or social upgrading for participating smallholders and farmworkers. Instead, outcomes for upgrading depend on a large number of factors including crop characteristics, the domestic macroeconomic and policy environment, as well as end markets. For instance, value chains for perishable commodities put producers in a precarious position that reduces their bargaining power; markets for organic and certification-complying commodities provide relatively higher margins to them; and a conducive policy environment that facilitates GAVC integration decreases costs of entry. Crucially, the various studies find that state support and collective action are necessary for any positive outcomes for smallholder producers integrated into GAVCs.

Economic upgrading includes inter alia adopting processes that satisfy private standards and global certifications, using more industrial inputs and machinery, as well as producing “value-added” crops. Authors find that across countries and crops, economic upgrading is often available relatively easily to large-scale producers who are able to undertake the initial fixed investment. Scale benefits then provide positive and larger margins to large-scale producers. Moreover, social upgrading does not necessarily accompany economic upgrading for the large numbers of smallholders who, nevertheless, undertake the investment, by organizing themselves into cooperatives. In all studies collected in the volume, farmworkers received next to no benefit from cultivating export commodities on others’ lands. On large mechanized farms with the highest margins, capital-intensive production has decreased labor absorption, leaving only skilled jobs for a few participants. On small-scale farms with higher labor absorption, employment remains overwhelmingly temporary, seasonal, casual, and dependent on migrant labor. Conditions of work on exporting and certificate-compliant farms are not observed to be any better than those catering to domestic markets. In fact, temporary and casual farmworkers in a given region were often found completely unaware if the farms they worked on were complying with international standards.

Since GAVCs do not automatically create the conditions for upgrading to follow, authors have identified two critical features that can improve outcomes for upgrading: (a) support provided by the government and (b) collective action by smallholders and farmworkers. State support can take the form of providing infrastructure for warehousing and certificate compliance, among others, and services such as electricity and extension for export commodities can reduce the steep costs that would otherwise be involved in smallholder participation in GAVCs. Furthermore, governments influence outcomes by choosing the extent to which labor and product market regulations are enforced and by intervening in the particulars of certifications. Some governments have created institutions to support export commodities of national relevance such as the Colombian National Coffee Growers’ Federation (Federación Nacional de Cafeteros, FNC) which guarantees the purchase of Colombian coffee from smallholders along with the provision of necessary infrastructure. In the second part of the book, Karatepe points out that even labor regulations and their implementation by the state play a key role in GAVC outcomes.

Collective action, on the other hand, mobilizes smallholders to pool resources to overcome barriers to participation in GAVCs. Statistical evidence across countries shows that a majority of producers engaging in production for export under GAVCs are smallholders. Cooperativization provides them the means to profitably integrate into GAVCs largely through bargaining power vis-à-vis the dominant and large players in GAVCs. Extensive political organizing among the peasants in Latin America, such as the Landless Peasants’ Movement (MST), is able to negotiate the better implementation of labor regulations and lower costs for smallholders. Similarly, 33 cooperatives for coffee growers in Colombia have been noted by contributors to provide complementary services to the FNC. Sometimes, cooperativization can allow smallholders to overcome their dependence on middlemen or large retailers, or in other words, on GAVCs themselves. Instead, they reach end-markets themselves for their differentiated products, illustrated in this collection by the case of organic rice production in Brazil’s land reform settlements. Here, families previously expelled from land were able to lower costs and reach high-end markets by producing organic rice and using their pooled resources to undertake post-farmgate transportation and marketing.

Having collected impressive evidence on smallholder integration in GAVCs, the book is instrumental in disproving the overly optimistic, although dominant view, on the potential for inducing economic growth and development, promoted by international organizations such as the World Trade Organization (WTO), the World Bank, and the IMF (the last especially through their Structural Adjustment Program [SAPs]). The contributors identify the kind of interventions—both on the part of government and smallholders’ collectives—and acknowledge the diversity of industrial policy designs that may support successful integration in GAVCs (even if they are not referred to as industrial policy per se). Hailing from all continents of the Global South, the contributors also identify key structural limitations of such integration. Industrial policy is only as effective as the will of state actors. As the progressive deterioration of implementation of key laws in Brazil under Bolsonaro’s government shows, political infrastructure is often shaky.

In the second part of the book, Scherrer (co-editor) points out that the support provided for GAVCs and certifications by the USAID in the United States or GIZ in Germany ensure that transnational corporations are provided with vast supply from large numbers of smallholders, such that any associational power from a small collection of smallholders is completely overcome. In the same vein, concentration of market power in the downstream sectors of a chain is also a barrier to social upgrading for smallholders; the relative bargaining power of farmers falls when the markets they sell to are controlled by a few corporations. This renders smallholders and farmworkers subservient to a dominant buyer. International trade agreements reinforce this pattern by making the requirement of foreign exchange earnings through agri-exports, more urgent and acute. Similarly, the IMF’s structural adjustment policies and sovereign debt reliefs often include agri-exports as a conditionality.

All this means that the book’s main thrust is encouraging Southern countries in their sovereign capacity to adapt to emerging GAVCs by selecting appropriate industrial policy tools and tailoring them to changing circumstances and geopolitical shifts. Collective action and cooperativization, on the other hand, can ensure such policy tools are enacted by the ruling government, and that a safety net is provided by pooled resources in the face of uncertain market outcomes that invariably accompany GAVCs. While these measures provide some room for beneficial integration, the contributors and editors of the book point out that the contemporary neoliberal policy environment and market structure have impeded important means of social upgrading for farmers. In particular, price volatility in sales to middlemen or directly to transnational procurers is an unrelenting concern and puts any margins and incomes received from cultivating export commodities at great risk, so much that rarely any smallholders surveyed across the three continents produced solely for export. The domestic market remains an important safety net even for tropical export commodities like coffee.

Some Alternative Perspectives on Agricultural Supply Chains

This book makes it worthwhile to further examine the potential for development that GAVCs can stimulate. In what follows, I will place the volume’s contribution to the larger debate on GAVCs. First, it is important to highlight, as the editors do in the second part of the book, that value chains are more than just “dyadic business-to-business” connections. In fact, they have also been described as production “networks” and even value “systems” in the academic debate. The nature of these systems themselves determines the extent to which countries of the South can cooperate or compete on such industrial policy. Relatedly, the industrial policy pursued by national governments to encourage GAVCs cannot be appreciated in isolation, they must be weighed against alternative policy priorities such as land use and ecological management, as well as the labor force employed in agriculture.

It is useful to flag that in some notable academic conversations on GAVCs, their emergence in the “neoliberal” era that began in the 1970s has been viewed as a continuation of the international hierarchy of nation-states following the colonial period. The emergence of the contemporary GAVCs is understood to be inextricably linked to the “forced” breakdown of international cooperation agreements and developmentalist national institutions across the South, in favor of the free trade and free market framework. So, the emergence of contemporary GAVCs themselves was made possible by a series of domestic and international institutional changes. A striking individual example is the breakdown of the International Coffee Agreement (ICA) that contributors to the book point out is a key reason behind the current price volatility and uncertainty in coffee production, especially for the Latin American exporting countries, Brazil and Colombia.

The breakdown of the ICA left coffee producers and exporters in a lurch, prices plummeted, and there was a massive redistribution of power toward transnational corporations in the coffee sector, such that the share of income retained from the sale of coffee by the grower dropped drastically in the quinquennium following the breakdown. At the same time, a multitude of “income deflating” mechanisms, reduced global prices for Southern commodities, increasing the concentration and centralization of capital in transnational corporations. This has prompted some scholars to conceptualize value chains as “value systems” which reinforce imperial hierarchies among nation-states.

Although the term “supply chain” is most often used, the editors of the volume choose “value chain” to emphasize movements of value generated in the production of export agricultural commodities, across different actors involved at each node of the chain. Yet, it is not just the economic actors involved in the chain that determine movements of value; institutional mechanisms, global finance, and even violent repression are used to determine the balance of power in GAVCs. Moreover, as is hinted in the book, the impact of GAVCs extends far beyond producers involved in them; they affect spot market transactions for domestic sellers, as well as employment and wage outcomes across the Southern rural economy. The alternative perspectives on GAVCs make that case. This shows why the mainstream view which suggests that economic and social upgrading are always, as a rule, promoted by GAVCs—a view endorsed by international organizations—is unsound.

Let us examine upgrading. On the one hand, GAVC-induced economic upgrading is a loose term that encompasses measures like adopting industrial inputs, moving to “value-added crops,” or producing according to private certifications; defining economic upgrading is so difficult that authors have identified economic upgrading as “you know it when you see it.” Economic upgrading appears to be a circular notion which is, for smallholders, akin to integrating into GAVCs themselves. On the other hand, social upgrading seems to be largely absent unless collective action asserts the interests of smallholders and farmworkers, or governments subsidize their integration and undertake strict regulation. Here too, volatility in both the product and labor markets have led to fickle benefits that fail to “trickle down.”

Within the overall context of imperialism and the ascendency of the international oligopolistic system, upgrading within GAVCs—for petty producers—is a non-sequitur. In the case of agriculture, transnational corporations or agribusinesses are able to organize and structure value chains such that surplus can be extracted in a multitude of ways. In this process, wages are diminished and profits are squeezed. Financial and speculative activity on commodity markets, ecological negligence, and unsustainable extraction of natural resources are key elements of such a structuring.

Implications for Contemporary Industrial Policy

Given the neoliberal policy climate highlighted above, the policy space to pursue welfare or promote upgrading with GAVCs for Southern nations is significantly constrained by the international order. At this point, it is useful to emphasize again that the costs of industrial policy (pecuniary or otherwise) must be weighed against other desirable policies. This is especially true due to the tight constraints on the fiscal space of developing economies which hamper the scope and implementation of a host of social welfare policies across the South.

First, let us take note of the considerations that domestic GAVC policy must take into account. Benefits from smallholder integration in terms of price premiums appear to dwindle as more smallholders are integrated in the chains. Facilitating integration in GAVCs in the interest of foreign exchange earnings might come at the cost of unstable incomes of smallholders, while employment and working conditions for farm workers remain unaffected. Cooperatives have evolved (as in the case of Colombian coffee) from providing price stability to smallholders to facilitating the adoption of process modernization to avail price premiums in the market. But the effective use of pooled resources is also limited by supply gluts that occur as a result of increasing numbers of smallholders and farm workers. In addition, rising GAVC integration has been accompanied by increasing deforestation and the loss of control of the state over land use planning for ensuring domestic food security.

Second, GAVC policy in the neoliberal era must be compared with the land and agricultural policies that it has replaced. Prior to the 1970s, the popular and dominant form of agrarian policy was centered around land reform, that is, the equitable redistribution of land. This was essential to alleviate rural distress, boost productivity, and develop the domestic market. Although this has largely been replaced by the market- and GAVC-led policy in the neoliberal era, the necessity for land reform is far from obsolete. In fact, a clear conclusion of the book under discussion is that GAVCs favor large-scale producers instead of the small-scale owners or agricultural workers, even as it enables transnational corporations to gain from supply gluts provided by smallholder producers. This gross inequality and price uncertainty is at least part of the reason for the proliferation of the dependence of agrarian workers on other sources of income and has reinforced the need for agrarian policy based on the redistribution of land. A more detailed discussion on the land reform is not possible here, suffice it to emphasize that state support for agriculture, smallholder producers, and farmworkers comes in many forms, not all of which are compatible with each other.

The Phantom of Upgrading in Agricultural Supply Chains is an important contribution to the ongoing debate on the development potential of agricultural supply or value chains. It assesses the impacts of private certifications and standards, as well as production for export on “upstream” and small actors in the rural economy. Their findings that VCs in agriculture generate positive outcomes for incomes and work only through the intervention of peasant mobilizations through the cooperative, and state infrastructural support, prompt a deeper engagement with policy alternatives, and national priorities in the global production system. At the same time, the rich fieldwork and the discussion of power at different stages of the chain have redirected our focus on the systemic imperatives that have produced the GAVC.