CHAPTER TWO
The Rise of a Global Industrial Food Market

International trade and investment in the food and agriculture sector dates back centuries and, as noted in the previous chapter, the colonial era was important in firmly establishing globally oriented markets for some key food items. In the eighteenth and nineteenth centuries, colonial powers and early transnational corporations engaged directly in the production and trade of tropical luxury crops to serve European and later North American markets. Trade in temperate agricultural products, such as wheat, also began in the nineteenth century with the involvement of some of the early grain trading companies. These operations laid the infrastructure for the initial expansion of international markets for food and agricultural products. Developments after the Second World War further set the stage for an intensification of the globalization process in the agrifood sector.

Global agricultural trade in the period after 1945 was shaped by what rural sociologists Harriet Friedmann and Philip McMichael refer to as the post-war "food regime" in which US agricultural policies were a central influence on global outcomes.1 The United States emerged from the war as the leading economic and political power, replacing Britain which had previously occupied this dominant role in the global political economy. In this role, the policies followed by the United States were significant in shaping the world food economy in the post-war era. Its agricultural policies in particular were mercantilist in nature - that is, restricting imports while promoting domestic production, exports, and free investment abroad in a bid to maximize income from the agricultural sector with minimal competition from abroad. As the United States pursued these policies after the war, other industrialized countries began to follow suit. In this period, these countries sought to open new markets for agricultural exports through both food aid and commercial food exports. At the same time, again with the United States playing a leading role, industrialized countries sought to export the industrial agricultural model of production to the developing world, which further integrated these countries into global food markets.

These early post-war policies laid the groundwork for the highly globalized world food economy we have today. They opened up middle spaces where new practices and norms came to dominate. These included uneven agricultural trade patterns where rich countries held the balance of power, and norms of agricultural assistance that promoted industrial modes of agriculture. The world food economy that emerged in this era, however, was highly prone to instability and crisis. The 1970s witnessed a major food crisis, with soaring food prices and a rising number of hungry people, illustrating the inherent instability of a globally organized food market. By the 1980s, a slowly developing ecological crisis associated with the environmental realities of the industrial agricultural model became plainly evident. Despite the emergence of these crises, the norms and patterns of agricultural aid and trade that were established in this era continue to dominate today.

Surplus Production and the Expansion of Export Markets

North America and Europe increasingly adopted industrialized agriculture in the last part of the nineteenth century and first part of the twentieth century. This approach to agriculture was based on "scientific" farming methods developed in laboratories. It was promoted in the United States from the mid 1800s, following the establishment of government supported land grant agricultural colleges that advanced research into the technical and scientific aspects of agricultural production. The production methods that were developed, often referred to as the industrial agricultural model, involved heavy capital inputs and included the adoption of new varieties of hybrid seeds, chemical fertilizers and pesticides, monocropping (vast tracts planted with a single crop), infrastructure for irrigation, and mechanization for planting and harvesting.

The shift into more industrial agricultural methods was reinforced by agricultural policies that were brought in as part of the US New Deal economic policies in the 1930s in the face of the Great Depression. In an attempt to shake off the severe economic downturn in the agricultural sector that began in the 1920s, these policies provided government support to prop up the sector and had the added benefit of servicing farmers, a politically important constituency in the United States. A host of government agricultural policies were adopted, which included price supports that saw the government purchase surplus crops at set prices, protecting farmers from the vagaries of open markets. Other elements of these programs included production controls, crop insurance, and farm credit schemes, which were supplemented with high tariffs on specific imported food goods in order to protect domestic producers. Later, export subsidies and other programs were added to encourage the export of farm surpluses.2 Together, these policies insulated the farm sector from shifts in the broader economy, and provided incentives for farmers to stay in the business of farming. This strategy sought to protect farmer livelihoods and to secure national food supply.

Other countries followed the lead of the United States on agricultural protectionism in this era. Europe received large amounts of food aid (and fertilizer) from the United States under the Marshall Plan in the late 1940s. Europe quickly moved to increase its own production, encouraged by the European Community Common Agricultural Policy (CAP) brought into place in the early 1960s. The CAP included a variety of policies such as price supports that guaranteed government purchase of farm surpluses, as well as high tariffs (taxes on imports), and the imposition of quotas (quantitative restrictions) on food imports in order to ensure demand for domestic agricultural products. In the 1970s, the CAP added export subsidies (payments to support exports) to boost European food sales abroad.

As a major wheat producer, Canada managed a large portion of its agricultural sector through the Canadian Wheat Board, a government-run marketing board that acted as a monopoly in the sector by buying agricultural products from domestic farmers as well as selling exports abroad. Government control over the domestic and international market effectively operated as a form of price support by buying grain at an agreed price and as a form of export subsidy by selling externally at a different price. Australia followed a similar approach. Japan also protected its agricultural sector, but rather than follow the price support and subsidy policies of the United States and Europe or the marketing board approach of Canada and Australia, it imposed quotas on imports. These restrictions ensured higher market prices at home for products produced by Japanese farmers, primarily rice. Japan's policies did not initially result in large surpluses, however, as was the case in other countries.

In the 1950s-1960s, the United States and Canada found themselves in situations of massive grain surplus. The European Community (EC) was not far behind North America, and experienced surplus food production in the 1960s-1970s. Over-production of agricultural products was not new for most of these countries - surpluses had occurred in the 1920s and depressed farm prices in North America for nearly a decade before the Great Depression. What had changed was the adoption of government policies that supported domestic prices, which over time encouraged farmers to produce as much as possible, despite production controls being in place (which in many cases were deemed ineffective). As a result, the agricultural surpluses that had characterized the sector in industrialized countries became even larger after the end of the Second World War in 1945 and, within a decade, they were significant. The accumulation of agricultural surpluses in these countries became an economic problem for the governments that held them because storage costs were high.

Rather than scale back production, however, the countries with surpluses instead sought to export their excess food in order to remove it from their domestic markets. Removal of the surplus food was important because its presence on national markets put downward pressure on prices, which had negative income effects for domestic farmers. This pressure gave rise to attempts to distribute the surplus food onto global markets. Widespread hunger in the developing world in the late 1940s and early 1950s gave impetus to this strategy. Much of South Asia gained independence at this time, and producing countries saw these newly independent countries as potential markets. Surplus countries pursued these markets mainly through commercial exports as well as through food aid donations, although the two strategies were often closely tied.

The United States established its food aid program in 1954 with the passage of the US Agricultural Trade Development and Assistance Act, also known as Public Law (PL) 480. There were three titles to PL 480. Title I, which by far received the largest allocation of funds, was directed toward concessional "sales" of food to developing countries. This title effectively funded long-term loans to developing countries at below commercial rates for the purchase of US grains, mainly wheat. These exports to developing countries were considered to be food aid even though they were somewhere in the grey area between genuine development aid...