Value Chain Struggles

Institutions and Governance in the Plantation Districts of South India

Jeff Neilson, Bill Pritchard

• Publisher: Wiley-Blackwell
• Year: 2011
• Print ISBN: 9781405173926, 9781405173933
• eBook ISBN: 9781444355444
• Edition: 1
• Topic: Physical Sciences
• Subtopic: Geography
• Index: Geography

Adopting a 'global value chain' approach, Value Chain Struggles investigates the impact of new trading arrangements in the coffee and tea sectors on the lives and in the communities of growers in South India.

• Offers a timely analysis of the social hardships of tea and coffee producers
• Takes the reader into the lives of growers in Southern India who are struggling with issues of value chain restructuring
• Reveals the ways that the restructuring triggers a series of political and economic struggles across a range of economic, social, and environmental arenas
• Puts into perspective claims about the impacts of recent changes to global trading relations on rural producers in developing countries

Chapter One

Introduction

November 2004, Bangalore. In a downstairs conference room of the four-star Hotel Atria, a special closed session of the 46th Annual Meeting of the Karnataka Planters’ Association (KPA) is under way. The KPA is a member organization of the United Planters’ Association of Southern India (UPASI), which goes back more than 100 years to the age of British planters’ clubs on the subcontinent. A senior economic researcher from one of India’s leading universities, just returned from Europe, is setting forth a series of issues to which the Karnataka coffee industry will be forced to respond. In association with the German development agency Gesellschaftfür Technische Zusammenarbeit (GTZ), the European coffee community is developing what it refers to as a ‘common code’ for the industry. Under the code, coffee producers wishing to sell to code signatories, which include Kraft and Nestlé, will be required to extensively document the histories of chemical use on their plantations, the environmental conditions under which coffee is grown, and their compliance with labour standards. The code is perceived as essentially a means for defensive brand management by the major coffee companies, and the planters fear that it will soon become a requirement for market access. This being the case, abiding by the code may give the planters an edge in the global marketplace. Yet at the same time, implementing these systems will be costly and time-consuming, especially onerous at a time of low coffee prices when many growers are already struggling to make a living. ‘This is just East India Company imperialism in a new guise’, says one of the planters. ‘The Europeans are setting down new standards, and we have to pay the cost of implementing them.’ The planters around the table nod their heads in agreement.

September 2005, a tea factory in the village of Bitherkad, in the Gudalur district of Tamil Nadu. A crowd of 200 smallholder tea growers awaits officials representing the Tea Board of India. Smallholders have been major losers from changed priorities of international tea buyers in local auctions, who have increasingly bypassed the generally lower-quality teas they produce. The associated slump in tea prices received by smallholders is cutting deep into these growers’ livelihoods. With average tea plantings of less than one hectare each, the 15,000 local tea growers have seen their farm incomes halved, with most now receiving gross incomes of less than US$600 per year from tea. The officials have come to explain a subsidy payment scheme aimed at alleviating the desperate plight of this segment of the rural population. The scheme has been developed after considerable political agitation by growers but, when it becomes apparent that bureaucratic problems will restrict the eligibility of many growers from receiving these payments, the smallholders’ frustrations boil over. Speaker after speaker rails against what they perceive as the evils of globalized markets, industry deregulation, and low tea prices.

The meetings at Bangalore and Bitherkad express situated microcosms in the much wider process of the global restructuring of tropical product value chains. Gone are the days when the tropical products sector was anchored by state marketing boards which arranged sales according to crude quality grades and operated price stabilization schemes. These arrangements have been progressively dismantled, and into this lacuna has emerged a host of emergent forms of market exchange and coordination. As new structures have been implemented, they have reshaped income flows and cost burdens, fuelling intense debate and anxiety within producer communities. Across the world, questions are being asked about how these contemporary global value chain transformations are affecting the shape of these industries, the institutional organization of rural producers, and, ultimately, the fate of the largely impoverished agricultural communities that supply these beverages to be enjoyed by affluent consumers. Is it the case that liberalized engagement with global markets, combined with the forces of consumer activism, can provide a path out of the cul-de-sac of commodity dependence, or is this yet another false dawn in the history of developing country agriculture?

This book brings these questions to the forefront of analysis and argues, from a geographical perspective, that these issues reflect a series of value chain struggles created as place-based institutions negotiate the ability of governance structures to determine social, economic and environmental outcomes. Applying these arguments to the issue of one production site (South India), we contend that an appreciation of the significance of these struggles is fundamental to the task of understanding the broader politics of developing country export agriculture. We argue that there is no generic answer to the vital question of whether or not contemporary global market processes are contributing to improved rural livelihoods; rather, this is an outcome of sitespecific altercations and intersections between economic actors embedded in varying ways within spaces, networks and social structures. To obtain insights into the pattern of winners and losers from value chain restructuring, therefore, requires an approach to research which digs deep into the questions how and why specific economic actors relate to others in specific ways. In this book, we seek to put into action these perspectives. We deploy a specific brand of Global Value Chain (GVC) analysis – informed by a relational economic perspective and the insights of institutionalism – to emphasize the importance of place and context within the global canvas of developing countries, agriculture and trade.

Tea, Coffee and the Crisis in Tropical Commodities

The subject matter of this book is set against a backdrop of massive global inequality. Across the world, tea and coffee production have traditionally provided the agricultural mainstay for tens of millions of people living in tropical upland areas. It is commonly the case that producers of these two crops have few viable economic alternatives, and numerous tropical countries have come to rely heavily on these products for export incomes.

For much of the past two decades, low tropical commodity prices have impacted severely on these developing country producers and, in the frank admission of former French President Jacques Chirac, there has been a ‘conspiracy of silence’ in terms of concrete measures by the world community in dealing with these issues (UNCTAD, 2003: p. 45). This silence has occurred not for want of evidence. The collapse of coffee and tea prices provided impetus for extensive documentation of the distribution of economic returns within tea and coffee value chains. Publications with such provocative titles as Bitter Coffee (Oxfam, 2001), Stolen Fruit (Robbins, 2003), Robbing Coffee’s Cradle (Madeley, 2001) Bitter Beans (Chattopadhayay and John, 2007) and There is Blood in the Tea We Drink (John, 2003a) served to emphasize the plight of farmers. Mostly these studies focused on the fact that coffee and tea growers are at the base of value chains in which the overwhelming proportion of economic returns flow to developed country interests. Accordingly, consideration of the human cost of the crash of tea and coffee prices cannot be divorced from broader analysis of how these sectors are inserted within global value chains. Thus, the transformations in these products tell a story of wider significance for comprehending the global political economy of agriculture and, in particular, whether developing countries face a brighter or harsher future.

Getting to the core of these questions requires some preliminary contextual discussion. Until the 1990s, the international trade in these products was extensively regulated by various bilateral and multilateral agreements that set out terms, conditions and flows of exchange. These structures were advanced to a greater degree in coffee, where the International Coffee Organization (ICO) negotiated the insertion of ‘economic clauses’ within a series of multilateral International Coffee Agreements (ICAs). In this regime of managed trade, signatory countries agreed to purchase coffee only from producer countries that complied with export quotas. The effect was to enable producer countries to manage the volume and sources of product reaching the world market at any one time, thus encouraging the maintenance of relatively healthy prices and ensuring (through country-based quota allocations) that all signatory producing countries shared in the export trade. As long as the ICAs were ratified by all major coffee producers and the key consumer countries in the capitalist world, the regime provided a powerful instrument for improving the structural condition of coffee producers in world markets (Talbot, 1997a).

In tea, the first International Tea Agreement was entered into by pro ducers’ associations in North and South India, Ceylon and the Dutch East Indies in 1933. (African producers, then only minor producers, implemented only part of the scheme.) Governments were responsible for enforcing export quotas and were subsequently involved in negotiating inter governmental agreements. However, due primarily to political differences amongst producer countries in the late 1940s, the delicate process of determining appropriate export quotas was never successful and the agreement was abandoned in 1955 (Griffiths, 1967). Nevertheless a de facto regime of managed trade emerged in this industry because of the role of Cold War bilateralism, with Indo-Soviet barter trade agreements having particular importance to the subject matter of this book.

Such political arrangements provided the dominant institutional architecture for the tea and coffee trade from the 1950s to the late 1980s, before changing radically in the 1990s. In coffee, the pivotal shift occurred in 1989, when the US administration of President G.H.W. Bush rejected a new ICA. Given the weight of US buying power, this decision effectively brought to a close the era of managed trade in coffee. In tea, the shift was defined by the restructuring of international trading alliances following the collapse of the Eastern bloc. As far as South India was concerned, the end of the Cold War saw the demise of the erstwhile bilateral agreements that benefited Indian tea producers. During the 1990s, the market conditions through which South Indian producers sold tea to the former communist states became progressively less lucrative, with significant impacts on industry viability.

These changing political conditions of trade occurred hand in glove with dramatic shifts in economic power within these industries. Throughout the 1990s there was a spate of mergers and takeovers in the global beverages sector which created new corporate entities with enhanced global reach. This process advanced further in coffee than tea, because global coffee sales are dominated to a greater degree by developed country markets featuring global brands and supermarket sale channels. (As discussed in Chapter 3, global tea consumption continues to be dominated by developing and middle-income countries.) Steady consolidation of the international coffee industry meant that by the mid-1990s, eight traders controlled a majority of the coffee imported into Europe, North America, Japan and Australia (Talbot, 2002a: p. 220). This coffee was then sold to roasters, five of which accounted for 69 per cent of global coffee sales (van Dijk et al., 1998: p. 52). For instant (soluble) coffee the degree of concentration was higher still, with Nestlé alone having 56 per cent of global sales (van Dijk et al., 1998: p. 53). In developed market segments of the tea sector, comparable processes took place. In the UK, three brands accounted for 58 per cent of tea bag sales in 2006 (Mintel, 2007).

The massive buying power of these companies dovetailed with institutional shifts in market exchange. On the one hand, the rise of sophisticated market institutions, based around electronic data exchange and the Internet, effectively globalized the processes of buying and selling tea and coffee. Moreover, the expansion of the futures trade in coffee (for reasons explored elsewhere in this book, futures exchanges have not taken off in the tea sector) has facilitated significant financialization of the industry (whereby traders participate in these markets not just to procure product at a given future price, but as part of wider strategies for financial asset management and speculation). This is a far cry from the situation that existed up until the 1980s when the mediations of government-to-government trade (via quota allocations and national marketing board sales) shaped the flow of economic returns to individual countries. On the other hand, the enhanced scope and reach of multinational companies has encouraged new protocols for product grading and certification. Spearheading this latest phase of industry coordination and regulation is a concern by downstream retailers and brand owners to specify key value chain requirements with respect to quality, food safety, and the ethical basis of production. Although mostly developed as ‘voluntary’ conditions for producers, increasingly these requirements have taken on a life of their own and become de facto mandatory global standards for export participation. The Global-GAP scheme (known as Eurep-GAP until September 2007)¹ is a case in point. Established in 1997 as an initiative of European consortia of food retailers seeking to formalize food standards with the primary aim of instilling greater consumer confidence regarding food scares, its scope and breadth of adoption has evolved to the point where it is becoming a regulatory foundation for much international agri-food trade. Entwined within these developments is a new politics of audit, whereby the ability to export is predicated on the ability to document and authenticate. Such private sector initiatives evidence the rise of a system we label global private regulation; the enforcement of rules and standards on upstream producers by downstream private sector actors. These rules dictate how farmers gain their livelihoods, how they interact with the environment and how their local production systems and trade networks are structured.

The implied assurances and monitoring capabilities that underlie these varied initiatives bring to the fore the entwinement of global private regulation with the technologies of traceability – the imposition of compliance regimes which authenticate production trails from ‘seed to supermarket’. Global private regulation and traceability together shape developing countries’ capacities both to participate in, and extract benefits from, international agri-food trade. Theoretically, in an economic context of low world market prices for undifferentiated agricultural commodities, the authentication of product standards and credence attributes (the latter relating to the social and economic basis of production; claims such as ‘cooperativelygrown’, ‘organic’, and ‘no forced labor’) could provide defences that act as points of distinction in crowded marketplaces. Whether and how this labelling contributes to improved producer well-being remains, of course, a vexed question. Consumers may pay more for such attributes but it is not always clear whether (or to what extent) upstream producers share in these price premiums. Moreover, from producers’ perspectives, developing the capacity to respond to such market signals is often costly and difficult. As we explore in this book, this is precisely where the importance of the institutional environment takes form; the ways that producers are embedded within institutional environments can help or hinder their capacities to participate in these chains.

Tea and coffee are quintessential examples of the type of tropical agriculture that sustains the livelihoods of rural economies across the developing world. Although developing countries have diversified their agri-export baskets over the past decade, tropical commodity exports remain a vital mainstay of countless agricultural communities. This book’s attention to tea and coffee, therefore, corresponds to a crucial element of developing countries’ participation in world markets. By extension, its conclusions hold meaning for understanding the changing conditions through which developing countries are inserted within the global economy.

Governance, Institutions and Struggle

Our approach to addressing these questions seeks to bridge key divisions in recent analyses of global value chain restructuring in developing country agriculture. Currently, dominant research approaches into these issues tend to encourage polar opposite interpretations. According to one line of argument, the dismantling of state-centred arrangements and their replacement by global private regulation ultimately benefits producer countries because it removes barriers to the efficient transmission of price signals. The supposed invisible hand of the market weeds out inefficient from efficient operators, and rewards the latter. On the other hand, an alternative line of argument, generally associated with critical traditions of social science, suggests that global private regulation empowers the capabilities of large, globally mobile, corporations to impose their will and thereby exploit spatially grounded producers.

Arguments can be deployed on behalf of either of these positions, but both are prey to the charge of essentialism. Cursory observation of developing country agriculture suggests neither that all producers are being immiserated, nor are all benefiting. The shining successes of global market engagement invoked breathlessly by pro-market advocates are counterposed by dependent enclaves mired in the cul-de-sac of servicing export markets under exploitative conditions. Moreover, enumerating any list of ‘winners’ and ‘losers’ from global market engagement is a tenuous exercise, because of the speed at which fortunes can be reversed in response to spatial shifts in chain structures. By any account, the engagement of developing country agriculturists with global value chains reflects a volatile and readily reversible patchwork of apparent successes and failures.

For this book, accounting for such differentiation lies precisely at the heart of the analytical problem. We contend that complexity, differentiation and change should not be air-brushed out of analyses in the quest for narrative elegance. Instead, the challenge for research should be to incorporate these factors integrally to explanatory accounts. The vital question that needs to be asked is how and why economic restructuring reproduces territorial difference; why economic activity takes its particular spatial forms, and how it accrues advantage and disadvantage in different measure to place-bound interests.

Global Value Chain (GVC) analysis provides an efficacious framework for addressing these concerns. Global value chains represent ‘the trajectory of a product from its conception and design, through production, retailing and final consumption’ (Leslie and Reimer, 1999: p. 404). The object of inquiry in the GVC approach is the entirety of a product/commodity system. Its core analytical focus is on how product/commodity systems are coordinated, and how economic value is distributed amongst participants.

The GVC approach was formulated and popularized by the research of Gary Gereffi in the mid-1990s (Gereffi 1994, 1995, 1996, 1999; Gereffi et al., 1994). Initially, Gereffi set out a template method for GVC analysis² that defined the organization of product/commodity systems in terms of three dimensions: (i) an input-output structure (the configuration of purchases and sales by actors in the chain); (ii) territoriality (the geographical extent of chains); and (iii) a form of governance (the issues of how chains are coordinated and who does the coordinating) (Gereffi, 1994: p. 97). Over time, however, this framework morphed into a fourfold method including the new dimension of ‘institutional context’. This inclusion reflected the fact, observed by Sturgeon (2001: p. 11), that value chains ‘do not exist in a vacuum but within a complex matrix of institutions and supporting industries’. Correspondingly, Gibbon (2001b) enlarged Gereffi’s original ‘governance’ dimension to the more inclusive category of ‘governance and institutional structures’, while Humphrey and Schmitz (2002) formalized its relevance to GVC analysis in their research on the roles of local and global linkages. Nowadays, the GVC method is routinely characterized through this fourfold template (for instance, Coe et al., 2007: p. 97).

The consideration of ‘institutional context’ within GVC analysis adds significantly to its utility as a tool of geographical inquiry. Considered in conjunction with ‘governance’, the category of ‘institutions’ provides a useful framing device for the examination of how product/commodity systems intersect with space and place. Issues relating to ‘governance’ encapsulate the coordinating structures which connect economic actors across space; those relating to ‘institutions’ represent the multi-scalar contexts that explain how economic actors are embedded within particular geographies.

This mutual interest within the GVC approach for governance and institutions represents an oft-forgotten element of its methodology. During the past decade or so, the GVC approach has been conceptualized all too frequently as being solely about governance, leading to the misguided perception that the approach has little to say on the complex questions about why and how particular industries come to be located in particular places. Moreover, this narrow-casting of what the GVC approach actually embodies has inspired many researchers to eschew the GVC approach in favor of alternative frameworks which give the surface appearance of being more sensitive to the nuance of geographical differentiation. As we discuss in Chapter 2, the broad field of product/commodity analysis is now encumbered by a diversity of alternative models each seeking to ‘bring in’ geography in its own, unique way. We contend that much of this proliferation responds to a fallacious assumption that the GVC approach has a sclerotic insensitivity to geographical considerations, and argue that the main effect of this splintering has been to complicate scholarly endeavour within an over-determined theorization of ‘how t...

Table of contents

• Cover
• Series
• Title
• Copyright
• List of Figures
• List of Tables
• Series Editors’ Preface
• Acknowledgements
• List of Abbreviations
• Chapter One: Introduction
• Chapter Two: Re-inserting Place and Institutions within Global Value Chain Analysis
• Chapter Three: How to Make a (South Indian) Cup of Tea or Coffee
• Chapter Four: The Institutional Environment of the South Indian Tea and Coffee Industries
• Chapter Five: Struggles over Labour and Livelihoods
• Chapter Six: Struggles over Environmental Governance in the Coffee Forests of Kodagu
• Chapter Seven: Smallholder Engagement in Global Value Chains: Initiatives in the Nilgiris
• Chapter Eight: Making a Living in the Global Economy: Institutional Environments and Value Chain Upgrading
• Chapter Nine: Conclusion: What We Brewed
• Appendix A: The Role of Managing Agents
• Appendix B: The Operation and Intended Reform of South India’s Tea Auctions
• Appendix C: Restructuring of Tata Tea’s Munnar Operations
• Notes
• Bibliography
• Index