Ask an Economist: Regulating Multinational Agribusiness

Timothy A. Wise

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. A reader offered a detailed comment, partly in response to my post, “Agribusiness and the food crisis: a new thrust at antitrust.” Following is the reader’s comment (slightly edited for length) followed by a few responses to some of the important questions he raises, in particular about the limited regulation of uncompetitive practices across borders.

Q: “[There is a need for] further research on the abuse of monopoly and monopsony power of agro conglomerates…. The dismantling of commodity boards in developing countries in the 1980s in the context of structural adjustment programmes put the nail in the coffin of any attempt at regulating the commodity markets and ensuring equitable prices for producers…. The problem is that there is no universal anti trust law which can deal with the anti- competitive behaviour of TNCs and the international community has fallen … shy of adopting such legislation. Moreover, attempts at stabilizing commodity prices through negotiations between consuming and producing countries, which had begun in the 1970s in the context of the UN and UNCTAD, were subsequently shelved with the onset of the recession in the early 1980s and the emergence of market fundamentalism. Perhaps these issues would need to be revisited.”

WISE: Indeed, one of the most vexing paradoxes in international trade regulation is that those most directly benefiting from the expansion of global trade are large multinational firms yet there is no competent authority to oversee anti-competitive behavior in cross-border trade.  This is perhaps most evident in the NAFTA region, where livestock and meat markets have integrated rapidly.  The United States may have the strongest anti-trust laws of the three countries, but it has no jurisdiction over uncompetitive practices that involve, for example, multinational firms moving live animals across borders. Highly concentrated grain traders in Mexico can use their access to U.S. grain stocks under NAFTA to bid down prices for Mexican farmers, or simply refuse to make offers on the Mexican corn futures market, as they did when NAFTA took full effect in January 2008. (For a good summary of some of these issues, see IATP’s “NAFTA: Fueling Market Concentration in Agriculture.”)

At one time, there was a UN Centre for Transnational Corporations, but it was disbanded in 1993, leaving only the relatively weak UN Global Compact and the OECD Guidelines for Multinational Corporations.  Within the WTO, the “competition law framework” has meant the simplifying of national regulations that has tended to promote more of a “race to the bottom,” rather than enhanced competition authority. Developing countries shut down WTO negotiations on competition policy when it became clear U.S. and E.U. negotiators sought to use the measures to open developing country markets for TNCs. One simple proposal, which has gone nowhere, calls for transparency, i.e., just as state trading enterprises are now required to notify the WTO of the extent of their market power, so too should TNCs in agriculture be required to do the same. (Sophia Murphy offers a good summary of the issues.)

The reader points to some of the ways economic governance can offer countervailing power against TNC market power. There is indeed renewed discussion of the useful role of state trading enterprises, which suffered from widespread corruption in many countries but offered a state-centered check on TNC power. Another avenue involves intervention in global supply chains. Short of full-fledged international commodity agreements, such as the defunct International Coffee Agreement that balanced supply and demand and regulated prices, there is renewed attention to the maintenance of international stocks in key food commodities.  This can undercut the economic basis for some of the speculative behavior that drove the food price crisis, since market power relies on scarcity, or perceived scarcity. (See recent IATP report.)  Also important are efforts in the wake of the financial crisis to better regulate speculative capital’s influence on agricultural commodity prices.

The bad news is that transnational agri-food firms are larger and more powerful than ever. The good news is that the food and financial crises have put some of these important policy instruments back on the negotiating table.

One Response to “Ask an Economist: Regulating Multinational Agribusiness”

  1. Shafaeddin says:

    Just two points:
    1. There were attempts through UNCTAD to introduce “Restrictive Business Practices” and “Code of Conduct on Technology” to control the behaviuor of TNCs. After years of negotiation both were dropped under the pressure from developed countries.

    2. There has been opposing trends at the international and national levels (of developing countries). At the international level the oligopoly power of TNCs has increased as their average size in terms of sales and assets has increased significantly during the last 30 years,inter alia, through mergers and acquisition . Meanwhile,the imposition of market-oriented trade policies, liberalization and globalization has made firms of developing countries exposed to unfair competition (with TNCs), particularly due to the abolishing of marketing board, WTO agreements on TRIMs, imposition of competition laws and other “WTO plus” conditions on developing countries by International Financial Institution and donors. If EPA (Economic Partnership Agreement” takes effect, it will be the last nail in the coffin of industrialization of low-income countries the bulk of their population live under $1 a day.