Globalization has totally different meaning
November 30, 2010
This is a terribly difficult time for industries like grain-based foods that have important stakes in doing business globally as well as domestically and view globalization as a definite positive. The outcome of this month’s elections means a Congress less willing than its predecessor to look favorably on trade agreements and efforts that even hint of opening commercial relations with other nations. President Barack Obama has never been the vigorous proponent of trade-opening steps that would have been expected to accompany his efforts to bolster the domestic economy by gaining access to foreign markets. Most disturbing of all are polls indicating that more than half of Americans look askance on this nation entering into new trade agreements that would in any way promote trade-fostered competition as an economic spur.
Historically, this page has been a vigorous advocate of doing everything possible to liberalize foreign trade in the belief that every part of grain-based foods benefits from such policies. Many instances illustrate the value of trade expansion to the remotest segments of the business as well as the disadvantages of constraining trade. Recent experiences with restrictions, notably the steps taken by Russia to ban wheat exports, emphasize how important it is for nations to maintain open trade policies. The high global cost of Russia’s moves aimed at protecting its domestic wheat situation at a time of crop setbacks should convince the most skeptical grain-based foods executive of the terrible consequences of trade warfare carried out in any manner. Thanks to trade agreements that are in place, protectionism did not surface as a serious threat in response to the recent economic recession.
It may be too much to hope that the long stagnant Doha Round negotiations under the World Trade Organization have any chance of completion. In the years Doha has been negotiated, trade itself has undergone massive change, and it is this complexity that accounts for the delays. As Pascal Lamy, director-general of the W.T.O., notes, globalization itself has dramatically changed during these negotiations. In contrast to previous rounds when negotiations focused on individual countries talking with one another, the world now deals with “globally integrated production chains.” He added, “We still think in terms of Adam Smith’s world of trade between nations, but in reality most trade now takes place within globe-spanning multinational companies and their suppliers.” He added, “Instead of ‘Made in China,’ on the back of an iPhone, the label should read ‘Made in the World,’ reflecting Japanese microchips, U.S. design, Korean flat screens and Chinese assembly.”
Accepting Mr. Lamy’s “new global reality” means the position of grain-based foods differs from manufactured goods, finance and technology. Indeed, world agricultural trade has been static in response to these huge changes, largely because food for the moment is increasingly local, rather than affected by the international forces propelling other sectors. Yet, grain-based foods is aware of how the industry is being changed by the rising prominence of global food companies. Shifts like Brazilian-based companies gaining dominant roles in beer, meat and fast food and a Chinese company trying to buy one of the largest biscuit manufacturers stand out. In America where ownership of the largest bread baker is based in Mexico and where participation of non-U.S. companies has been under way for years the pivotal role of open and unimpeded trade long has been perceived as an advantage.
Once a leader in pressing for liberalized trade, grain-based foods may find itself outside the system transformed by forces like electronics, telecommunications and data processing. Many in grain-based foods, unlike other businesses, are removed from the influence of time zones in Europe and Asia. How long this will persist is key to one of the most important issues looming before the industry. That issue is understanding just how new globalization will impact wheat marketing, flour milling and baking in ways that are likely to make the future starkly different from the present.