In the contemporary world, food industry has evolved to a significant extent and has become an important part of the economic system that represents a vital sector of the manufacturing and mining industries. It is an essential part of the service industry as it involves the extraction of essential elements from the natural resources, including the soil, in the form of food. Food industry’s stability affects all the other economic sectors. This is because reliable food supply is important for the supply of reliable labour. The Department of Agriculture USA states “Control the food and you’ll control the people” (12). The government and powerful organizations sometimes use this as a tool to manipulate a society and fulfill their wishes. This makes the industry central to an economy’s development, and any developing economy must have a stable food industry.
The overall world’s economy is heavily dependent on the food industry. A big percentage of the international trade involves food stuff or raw materials used in the processing of foods. It contributes to a great percentage to the net GDP of most of the developing countries, and their development is more often than not dependent on this industry. It is also an extremely valuable source of employment for the world population. For instance, the European commission reports “The food and drink industry is one of Europe’s most important and dynamic industrial sectors. It is made up of about 310 000 companies and provides jobs for more than 4 million people” (9).
Subsectors of the Food Industry and Their Major Players
The food industry is grouped into a number of key sectors with distinct operations. The different sectors are, however, interrelated, and each depends on the other for existence. The different sectors have various players who control them. The various sectors will be discussed below separately highlighting their relationship with the other subsectors.
Agriculture and Farming Sector
This is the primary sector of the food industry. It is the major source of most of the raw materials for the industry. Agriculture is the mining stage where the needed elements are extracted from the natural resources. This subsector has many players, from big corporate to small scale farmers. The small scale farmers are minor players in the commercialized industry with negligible contribution.
Overall, the sector employs a large proportion of the world’s total population, especially in the low-income and developing countries. Agriculture is the primary sector for most of the developing countries’ economies and is responsible for driving development in these economies. Most African states engage in agriculture and export agricultural products, for example coffee berries, which are processed in the developed ones, and then import back to the countries in the form of finished products such as coffee. This practice gives the developed economies control of the food industry of the underdeveloped countries.
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The agricultural sector is heavily dependent on the environmental conditions of an area. Different regions are favorable for the production of various agricultural products. Thus, there is an involuntary specialization of the products that a country produces. However, the development in agricultural technology has made creation of microclimates or conditions which favor the plants growing that, otherwise, could not have been cultivated in the area possible. Scientific advancement has also made modification of agricultural produce possible. The modified crops and livestock are referred to as genetically modified organisms (GMOs). GMOs have improved productivity and enhanced tolerance to the harsh environmental conditions. This technological and scientific advancement has made diversification of agricultural production in the developed countries possible and thus reducing their dependency on other countries, which have favorable natural environmental conditions for production of these products.
The availability of advanced technology and adequate resources in developed economies has allowed them to produce commodities in surplus and have enough for export. For instance, Russia and the USA are among the Major agricultural exporters. On the other hand, underdeveloped economies lack the capacity to produce enough to sustain the needs of their population and thus remain net importers or depend on donations from the developed ones.
The major agricultural exporters control the agricultural since they have the capacity and ability to set the global food prices. The world map rated the United States as the major agricultural exporter followed by France and Netherlands. Other countries which featured in the top ten lists include: Germany, UK, Australia, Canada, Italy, Belgium and Spain. These countries directly control the world’s food industry (13). They are responsible for setting the prices of their exports and, consequently, the world food prices.
The Food Processing/Manufacturing subsector
The food manufacturing industry links farmers and agricultural companies with consumers. They purchase the agricultural products from the farmers such as raw fruits, meats, vegetables, dairy products and grains after which they process them into finished goods ready for human consumption. These products are then distributed to the end users through restaurants, groceries and other retail and foodservice outlets.
Food manufacturers have to comply with the modernization of the Food Safety Act of the year 2010. This is a sweeping law that normally steps up strength of Drug and Food Administration. In the United States, the Department of Agriculture oversees total meat and egg production aspects. The sector employs about 1.5 million people in the U.S, the third of who are in animal slaughtering and plants processing. Seafood product preparation and packaging account for only three percent of all jobs, thus making it the smallest contributor in the industry’s subsector of the food manufacturing.
This subsector is responsible for converting the agricultural products into finished products ready for use. The sector involves large corporations, which purchase agricultural products and processes them into finished goods. Different segments of the food industry are dominated by a few processing or manufacturing industries. For instance, the soft drink segment is dominated by a few multinational players such as the Coca-Cola, schwpeers, and Pepsi companies. This makes the market monopolistic and, thus, the players are able to manipulate their respective fields to their liking. For instance, the world’s soft drinks prices are hugely affected by the prices of the Coca-Cola company products, which compete unfairly with other small players and often scraping them off (Food Science 9). Other notable players in the processing and manufacturing sector include the Monsanto, Nestle and Unilever companies.
Although the sector depends largely on the agricultural sector for raw materials, it has the power to manipulate the other subsectors agriculture included due to the few but strong players that are involved in this subsector. The players set the price at which they buy the raw material as well as the prices at which they sell their finished goods. This way they get full control of the industry. Tarver wrote in his review
“The most devilish, over-sized, greedy and disproportionately powerful corporation in the world has been able to more or less skulk between the raindrops — only a household name in households where documentaries like Food Inc. are regarded as light Friday evening entertainment. My house, for example. But for the most part, if you were to ask an average American for their list of sinister corporations, Monsanto probably wouldn’t make the cut” (16).
This argument shows how powerful multinationals control the food industry in various regions. It is a case where Monsanto Company controls the food industry in the United States.
Marketing and Retail Sector
This is the subsector responsible of availing the processed food to the consumers. It is a crucial sector which plays the role of distributing the food to the places where it is most needed. Small and large players such as chain stores are involved in this subsector. It is also crucial to note that the global food industry structure is in constant evolutions and different players in the various sub sectors must adjust so as to meet the consumer’s needs, who are demanding a higher variety of wider quality products. It is thus necessary for the players to have correct information about the market, consumer preferences and purchase habits so as to be able to handle the market efficiently. The best positioned sub-sector to gather and transmit this information upstream to other segments of the supply chain is the marketing and retailing subsector.
So as to meet consumer demands for variety, price, safety, and quality, this subsector is constantly evolving and coming up with innovative and ingenious sale formats. In the recent past, other forms of retail outlets other than the popular supermarket format such as, hypermarkets, discounters, convenience stores, and combined gasoline and grocery outlets have emerged in many countries.
Despite the existence of the many forms and players in this subsector, it is estimated that a large percentage of the total Global food retail sales which is about $4 trillion every year is accounted for by a few major players. Big supermarkets and hypermarkets account for the largest share of net global sale. Like the processing and manufacturing firms, most of the leading global retailers have their headquarters and origin in U.S. and Europe. Small retailers account for only a small share of overall food sales. The USDA informs that “The top 15 global supermarket companies account for more than 30 percent of world supermarket sales”. This is facilitated by their improved technologies and strong economies, making the retailers enjoy operating cost advantages over smaller local retailers, therefore, easily dominate the market.
The retailers are important players in the food industry. However, they do not have enough control of the industry as most of the prices of the end products are set by the processing and manufacturing firms. Their sole purpose is the collection of market information and distribution of the products.
Food service outlets
This is another form of food outlets. However, these outlets could be regarded as both end users and food retailers. They consume food from the retailers and further distribute it to the end users in small units. They are minor but important players in the food industry. Like the other subsectors, this subsector is dominated by a few multinational firms despite there being many players.
Demand and Supply of Food
The demand and supply of food in the global food market is heightened by a number of factors. These factors include; wealth distribution, population levels, types of varied lifestyles and health awareness particularly the awareness on importance of organic food. All the determinants affect the amount and quality of food that will be availed and demanded in one market. For instance, in regions where health is emphasized, organic food is highly demanded while high population areas with low wealth accumulation demand voluminous but low quality food which they can afford. In addition, there are various food supply drivers which include the supply chain quality, competition level and the target consumer’s composition.
Major Players in the Food Industry
Governments have a significant impact on the industry. They particularly affect the amount of agricultural produce in respective countries through enabling policies and incentives to the farmers. For instance, in many countries, the government is responsible for carrying out agricultural research and passing this information to the farmers through the agricultural extension officers. Their contribution is, however, within the jurisdiction of their country’s borders (Marriott 56). Private corporations are the major players in this industry. Big multinational corporations determine the flow and availability of products in various regions all over the world. The corporation uses their capacities, and monopolistic nature to set the prices of products globally.
For example, the USDA reports that “the global food processing and beverage industry is dominated and controlled by a cluster of highly powerful multinational corporations. Some of these multinational corporations include: ConAgra, Cadbury, General Mills, Krafts Foods, H.J. Heinz, Unilever and Nestlé” (Eupean Commission). In the same way, the restaurant and hotel food outlets are dominated by a number of fast food franchises across the world such as, McDonalds, Pizza Hut, KFC and Dominoes Pizza.
The excess capacity of these corporations enables them to determine the trends in the food industry. Major agricultural exporters also are important in controlling the availability of food globally since they are the primary sources. The industry is controlled by a number of players who have a presence in most parts of the world.
The interdependence and relationship of the various subsectors of within the industry is being re aligned as a result of globalization and industrialization. In response to these changes, economists in agriculture are revising their views of the traditional markets and their tools of analysis the markets. At the core of the above revision, some complex interactions are planned between agents and principles, strategic policy of trade between the competing nations and organized interdependence in the rival firms, all in a planned plague by imperfect or incomplete information structures. Add to that electronic commerce, biotechnology, as well as the reduction or increase in focus from raw agricultural goods to products that are branded, and the conclusion is that “new” economics in agriculture are needed for a rising complex “new” agriculture. This position will give the manipulators of the industry (multinational corporations) total control of the industry.
For any player to make any significant contribution to the direction that the food industry takes, the player must have excess capacity and presence in most of the global markets so as to compete significantly with the multinationals.