II. THE FOOD PROCESSORS: SOFT DRINKS & HARD PROFITS

September 25, 2007

Production in the food processing industry is highly internationalized. Brand names like Quaker Oats, Del Monte and Pillsbury are household words not only in the United States but also in Western Europe and in many parts of the third world. Some food processors, like Heinz, International Multifoods, and Coca Cola, draw over 50 percent of their profits and close to half of their revenue from international operations. Increasingly the companies regard their market place as global rather than national. As the chairman of Coca Cola recently
said, "instead of there being an offshore business and a domestic business, there is a world market." (1)

The food processing industries' expansion reflects the continued growth of monopoly capitalism on a world scale. Economic power and control in the industry is increasingly concentrated and centralized as acquisitions and mergers occur among the big processors. Nestle, a Swiss-based firm and one of the world's largest food processors, recently bought Libby, McNeill, Libby, a big U.S. canning company. United Brands represents the merger of the John Morrell meat processing firm and United Fruit, while the Swift meat packing company is now owned by Esmark, a conglomerate involved in fertilizer production as well as food processing. These general developments in monopoly capitalism form the context for understanding the U.S. food processing industry in Latin America.

Today, this industry is the cutting edge of agro-imperialism in Latin America. Spanning both the urban and rural areas the foreign food
processors form the core of the region's new agro-industry. Although locally owned companies still produce much of Latin America's
processed food using traditional small scale production techniques, there is also a highly modern sector that utilizes the most sophisticated imported equipment and the most advanced marketing strategies. This sector is dominated by the transnational corporations.
We will first look at the growth of these transnationals in Latin America, and then describe the impact they have on agricultural
production in the countryside.

EARLY EXPANSION

Although the expansion of the transnational food processors in Latin America has been especially intense since 1960, a handful of U.S. processors became interested in the region's market in the 30's. To penetrate the trade barriers that many countries had erected to protect their economies during the depression, the U.S. companies set up direct manufacturing subsidiaries. The bulk of the investments were made by five enterprises-the Corn Products Company (CPC), Fleischman's (Standard Brands), Anderson Clayton, Pet Milk, and Carnation.(2) They produced vegetable oils, corn meal, yeast, and canned milk, all of which are staple food commodities in urbanizing societies.

During this early phase, the transnationals held certain advantages over local competitors. With greater capital resources and the ability to purchase and install the latest processing equipment, the foreign companies could manufacture processed food much more cheaply than local producers. At the same time, Pet and Carnation eliminated competition among themselves by forming a single enterprise, the General Milk Company, which made investments in Jamaica, Panama and Cuba. Thus, the
transnationals quickly gained ascendancy in their respective markets, a position that some of these same firms still hold.

POST-WORLD WAR II: TESTING THE MARKETS

After World War II, the expansion of the food processors received a new impetus with the development of import substitution industrialization. The decision of most Latin American governments to push local industry had a double effect on the foreign food processors:
1) It encouraged them to take advantage of the incentives offered to companies that produced for the domestic market, and 2) it stimulated
urban growth in the region, thereby creating new markets for processed foods.

As in the 30's, many transnationals went into producing staple foods needed by the growing urban populations. Cargill and International Multifoods milled wheat flour, while Borden and Kraft produced dairy byproducts. And the leading banana exporters, United Fruit and Standard Fruit, diversified into the production of vegetable oils and margarine.

During the period from 1945 to 1960 U.S. food companies introduced their snack and convenience foods to Latin America: Quaker Oats began producing its puffed wheat and rolled oats in Brazil and Colombia, while Kellogg made breakfast cereals in Mexico, and Nabisco manufactured crackers in Venezuela. The two giants of the soft drink industry, Coca Cola and Pepsi Cola, licensed local bottlers in a number of countries, and set up six subsidiary plants under their direct control.

In this period, U.S. food processors invested more in Mexico than in any other third world country. For Mexico, the period was one of
sustained capitalist growth in both industry and agriculture. The middle class grew rapidly, and some of the food processors moved quickly to establish their brand names in the households of the new urban groups. For the agribusiness companies, Mexico was both a testing ground and a harbinger of what would occur in other Latin American countries.

THE PROCESSING BOOM

The real boom in U.S. food processing investment in the region began in the 60's. Conditions in both the U.S. and Latin America laid the basis for this expansion. In the United States, some food processors became concerned with what they called "industry maturity," i.e., the limited potential for domestic expansion. Faced with saturated U.S. markets in most standard lines of processed foods, the companies could only expand their sales and profits in two ways: 1) By increasing advertising expenditures to sell more snack and convenience foods to domestic consumers, and 2) by pushing aggressively into new markets abroad.(3) The larger food processors followed
both strategies.

Already heavily involved in Western Europe and Canada, many firms looked toward the third world, where virtually untapped markets offered unlimited growth possibilities. And Latin America, with its growing urban population and its relatively small but numerically significant middle class, proved especially enticing. Between 1960 and 1975, 33 of the leading U.S. food processors made 335 new investments in the third world, four-fifths of them in Latin America.(4)

The canning industry figured prominently in the rush abroad in the 60's, with companies like Del Monte, Heinz, Campbell, and W. R. Grace
setting up canning facilities in a number of countries. Some of the processors which had been operating in Latin America since the 30's
diversified into new areas of production, thereby becoming vast food complexes. CPC opened up nine new subsidiaries in the region in the 60's, producing an array of products ranging from ketchup, bouillon and mayonnaise to biscuits, cheeses and starches. Anderson Clayton grew rapidly in Mexico and Brazil; by the early 70's its subsidiaries figured among the largest enterprises in both countries and were listed on the local stock exchanges.(5)

THE JUNKIES ABROAD

The most notable expansion in the 60's and 70's has occurred in the production of snack and convenience foods, the "junk foods" that
have become a virtual staple in the United States.

The list of expensive, highly processed low-nutrition foods that the U.S. companies manufactured in Latin America became almost limitless. A few examples are: Kool-aid (General Foods), candies (Beatrice Foods), gum (Wrigley and Warner Lambert),. pizza mixes (Anderson Clayton), imitation cheese (Kraft), gelatin mixes (Pillsbury), puddings (Standard
Brands), and instant tortilla mix (General Mills). Between 1960 and 1975, U.S. food processors set up at least 75 new subsidiaries in Latin America to produce these types of products. At the same time many established firms expanded their product lines to include "junk" foods.

Although most of these processed foods are designed for the elite urban markets, some, like candies, gum and soft drinks, are sold to poorer
sectors of the population. In Mexico, 14 billion bottles of soft drinks are consumed every year, or nearly 5 bottles each week for every man,
woman and child. Due to extensive advertising, the vast majority of the country's people have come to adopt soft drink as an integral part of
their diets. Foreign brands control three-quarters of the market and Coca Cola alone, through its various brand names, accounts for 42 percent of the soft drink sales in Mexico.(6)

While no nation in the region has been untouched by the assault of the U.S. food processors, the companies concentrate their investments in certain countries. In the 60's, Mexico continued to attract large numbers of investors, and today it has more transnational food processors than any other Latin American country. But the most rapid expansion in the 60's occurred in Central America. Even though the five countries of the region only have a combined population of approximately 15 million people, the emergence of the Central American Common Market combined with special financial incentives offered by both the U.S. and local governments, made the region especially appealing to foreign investors.(7)

In the 70's, however, the booming markets for the food processors are in Venezuela and Brazil, both countries with rapidly growing middle and upper classes that are prime consumers of snack and convenience foods. In Brazil, where the government provides special incentives to agro-industry and maintains tight control over the labor force, the food processing industry is growing very rapidly. An executive of Adela Securities, a firm that advises potential investors in Brazil, summarized this trend:

Of every 10 visits we get from potential investors, four or five are in the food processing area. I think every single company in the business in the U.S. is down in Brazil looking at projects for the internal market or exports.(8)

MARKETING STRATEGIES AND ADVERTISING

In the United States most Americans are aware of the detrimental effects of the food processing industry. Companies like Kellogg,
General Mills and Pillsbury spend millions of dollars advertising processed foods of limited nutritional value. Studies show that these
advertisements can create life-long dietary habits that have adverse health effects.(9)

In the dependent countries of Latin America, the impact of the transnational food processors is even more harmful. They encourage people to consume Heinz ketchup, Pillsbury cookies, and Pepsi Cola, all products that provide calories rather than protein. For the millions of people on subsistence incomes, every cent spent on these products leads to the further deterioration of their already meager diets. And when the companies do produce nutritional foods, the costs are often so high
that only the affluent can afford them. Ralston Purina, for example, runs large scale egg and poultry operations in Colombia, but the cost of a dozen eggs and a kilo of poultry meat is equal to a week's earnings for over a quarter of the country's population.(10)

To penetrate both the affluent and the mass markets, the food processors use the same business tactic they employ at home- advertising. Many companies bring in their own advertising experts while others work through transnational agencies like J. Walter Thompson and McCann-Erickson. As a Quaker Oats executive in Colombia commented: "Advertising is a capitalist tool and we won't go into a
country that doesn't allow us to advertise."(11)

THE FOOD PROCESSORS AND AGRICULTURE

In many regions of Latin America, the expansion of U.S. food processing companies has spurred the process of capitalist development in the countryside. Their plants require a constant supply of high quality agricultural produce, a demand that increasingly integrates the rural areas into the web of modern agro-industry.

Their impact varies depending on the commodities they need and on the social structures in the regions where they operate. Sometimes, as NACLA has shown in its study of Del Monte in Mexico, the food processors' impact tends to marginalize peasants from their lands. But in other instances they are able to exploit small agricultural producers without depriving them of their property. To illustrate the companies' impact, we will look at their operations in two different areas - southern Peru and the Cauca Valley in Colombia.

CARNATION'S PEASANT PRODUCERS

One of Carnation's subsidiaries is located in Arequipa, a colonial city in southern Peru located in a fertile agricultural oasis surrounded
by volcanic mountains. Every day, Carnation's agents collect milk from some 7,000 dairy producers in the outlying areas, about 85 percent of whom are small peasant landowners with only a few head of dairy cattle. The milk plant, one of the biggest industries in the region, produces almost 90 percent of Peru's canned evaporated milk.(12)

Ever since Carnation set up its plant in 1942, more and more peasants have been incorporated into the company's supply system. Initially, the company competed with traditional local cheese makers for the region's milk supply, but Carnation soon drove these small cottage industries out of business by offering slightly higher prices to the local milk producers. Many other peasants, in need of a cash income to purchase simple necessities, shifted from staple subsistence crops like corn and
potatoes to producing milk for Carnation. Today, most of these peasants grow only pastures and forage crops for their cattle and are completely dependent on Carnation for their livelihood.

But their commercial relationship with Carnation has done little to improve their standard of living. Most of the peasants earn less than the minimum wage from their milk sales, live in small adobe dwellings with their cattle tethered nearby in open stables, and rely on their wives and children to help tend the cattle and deliver the milk to the collection points.

The example of Carnation's Arequipa operations illustrates one facet of capitalism's penetration into the countryside. Instead of formally breaking down the existing social structures and marginalizing peasants, food processors are able to work with the small peasant producers. But, as an extensive study of the company's operations in the region concluded, "the peasant cannot freely choose what to
produce, how to produce it, nor who to sell it to. His autonomy as an independent producer has disappeared completely, and he is formally
subordinated to the control of transnational capital."(13) The peasants, in effect, serve as quasi-salaried workers for the company, which, through its dominance of the market place, is able to exploit their land and labor.

THE CAUCA VALLEY

Some two thousand kilometers to the north, in Colombia's semi-tropical Cauca Valley, a different scenario is unfolding. This fertile river
valley, near the once-rich silver mines of southern Colombia, was formerly dominated by large latifundia which raised beef to supply the
mines, and in more recent times, by traditional sugar plantations. On the fringes of these large estates were thousands of small peasants, some of them subsistence farmers, and some relatively prosperous cacao and coffee producers.(14)

During the past two decades, modem agribusiness has advanced rapidly in the valley. Today, nine foreign-owned food processing plants operate in, or near, the provincial capital of Cali, and their emergence, combined with the expansion and modernization of the sugar plantations, has transformed the region's agriculture. Here, unlike southern Peru, the upheaval caused by the expansion of capitalist agriculture has led to the expulsion of tens of thousands of peasants from their lands.

Ralston Purina was among the first foreign food processors to adversely affect peasant agriculture. In the early 60's, the company set up a plant to produce animal feed concentrates made from sorghum and soybeans, neither of which were grown extensively in the valley. To
obtain the needed crops, the company contracted mainly with an emerging group of agricultural enterprises - commercial operations that used modern agricultural techniques,and had the resources to qualify for credit from private banks and state agencies. These large scale commercial operations encroached onto both hacienda and peasant holdings, renting or purchasing land as they expanded. As a result,
the amount of land dedicated to sorghum production alone rose from 12,000 hectares in 1964 to 55,000 in 1975, while the growth of staple foods produced by peasants declined.(15)

At the same time, these modern farms went into the production of commercial corn for CPC and Quaker Oats, both of which manufactured a variety of corn-based products, such as corn meal and corn flour. The small peasants who traditionally produced corn for local consumption were bypassed by the companies. But this did not mean that they continued to provide the local population with this important staple, for the pressures of commercial agriculture soon drove most of these smaller producers out of business.

In the late 60's and early 70's competition for the valley's agricultural resources grew even more intense with the expansion of the large,modern sugar mills. Vast areas of land were turned over to sugar production, and the peasants were caught between the agricultural
entrepreneurs who wanted more land to produce sugar, and those who wanted to continue producing crops for the food processors. In some cases, the peasants simply sold their lands to expanding commercial operations. In other cases, peasants were forced into bankruptcy when their crops were purposely destroyed by chemical sprays and their irrigation waters polluted. Many peasants lost their lands as a result of renting their plots to producers, who demanded to be paid for
improvements they made on the lands at the expiration of the contract. Most peasants could not afford the exorbitant fees, and were forced
to turn over their lands.(16)

By the early 70's, the social situation became explosive in parts of the valley, as peasant organizations developed and land invasions were threatened. The U.S. Agency for International Development (AID) along with the Colombian government tried to alleviate the peasant unrest by setting up an agricultural assistance program in the valley. It provided peasants with financial and technical assistance so they could switch to the commercial production of corn, sorghum and soybeans, all crops that could be used by the food processors. But the program was unsuccessful, and in fact assisted the continued expansion of the large scale capitalist farms. Many peasants, in the switch to commercial production, became heavily indebted and could not repay their loans.(17) As a result they were compelled to sell their lands.

With the boom in international sugar prices in the mid-70's, Quaker Oats and CPC lost their corn supply in the valley as the larger commercial farms switched to sugar cane. But both companies have quickly adjusted to the situation by encouraging corn production in the outlying regions in the valley and by importing it from other regions of Colombia.(18)

THE DISPOSSESSED

The landless peasants, however, are not able to adjust as easily as the food processors. Many now work on the sugar plantations at subsistence wages, or migrate to other areas looking for jobs. In one village (ironically called Villarrica, or rich village), the peasants remember when they could at least feed their children from the small plots they once farmed. Today, over half of the children in Villarrica and in the
surrounding villages suffer from malnutrition. One old peasant woman described her plight: "Our land is gone, my husband is dead, and my
son, on the days he finds work in the sugar fields, earns only 60 pesos ($1.80) for working from five in the morning to six at night."(19)

Those who go to the valley's major cities and towns looking for employment find a situation that is almost equally as bleak. The growth of modern agribusiness displaces far more people in the countryside than it is able to absorb in the cities. The nine foreign-owned food processing plants, which number among the valley's largest enterprises, employ less than 2,000 workers. Their plants use the most modern imported machinery, and therefore require relatively few employees.

For those who do find work in the processing plants, the conditions are highly exploitative. Many of the workers are employed for only 59 days and then laid off so the company does not have to register them as
permanent workers and pay them social security benefits. And as in other Latin American countries, the food processors take advantage of the large pool of unemployed workers by paying only the minimum wage
required by law. As one woman said who was waiting to be hired at the gates of the CPC plant: "We have to work for the minimum wage
here because there are no other jobs."(20)

REFERENCES
II. THE FOOD PROCESSORS
1. Business Week, May 23, 1977, p. 69.
2. This information and much of the analysis for the first part of this article is derived from: M. Herold, Multinational Enterprise Data Base, Economics Department, University of New Hampshire, Durham, NH, 1977.
3. Based on an analysis of various annual reports by U.S. food processors. U.S. MARKET SHARE OF MAJOR COFFEE PROCESSORS 1975 Brand Regular Instant Company Names (70%) (30%) GENERAL Maxwell House, FOODS Maxim, Sanka, Yuban 35 51 PROCTOR & Folgers 21 8 GAMBLE HILLS Hills 8 1
BROTHERS Brothers STANDARD Chase- 4 2 BRANDS Sanborn NESTLE Nescafe, 0 30 Tasters Choice Others 32 8 Sources: World Coffee and Tea, Advertising Age.
4. Herold, Multinational Enterprise Data Base.
5. Anderson Clayton 10-K and Annual Reports.
6. Frances Moore Lappe and Joe Collins, Food First, Houghton, Mifflin & Co., Boston, 1977, p. 304. See also Robert J. Ledogar, Hungry for Profits, IDOC/North America, New York, 1975, p. 113.
7. NACLA, Guatemala, 1974, pp. 96-98.
8: Business Week, December 5, 1977, p. 81.
9. See hearings of U.S. Senate Select Committee on Nutrition and Human Needs, Diet Related to Killer Diseases. Studies on the nutritional impact of U.S. food processors are also being done by: Center for
Science in the Public Interest, 1757 F St., N.W., Washington, D.C. 20009.
10. Ledogar, p. 96.
11. NACLA interview, November, 1977.
12. The authors wish to thank Manuel Lajo for making available an unpublished study: "Empresa transnacional y desarrollo capitalista de la agricultura, La Carnation - Leche Gloria en el Sur del Peru,"
Pontifica Universidad Catolica del Peru, Departamento de Economia, Lima, Peru, 1977.
13. Manuel Lajo and Mariluz Morgan, "Economia campesina y desarrollo capitalista agroindustrial," Departamento de Economia, Pontifica Universidad Catolica del Peru, Lima, Peru, 1977, p. 11.
14. Mateo Mina, Escalvitud y Libertad en el valle del rio Cauca, Publicaciones de la Rosca, Bogota, Colombia, 1975, pp. 83-127.
15. Sociedad de Agricultores y Ganaderos del Valle del Cauca, La agricultura en el Valle del Cauca, Diagnostico, Enero, 1977, p. 31.
16. NACLA interviews in the Cauca Valley, November, 1977.
17. M. Taussig, "Peasant Economics & the Development of Capitalist Agriculture in the Cauca Valley, Colombia," Unpublished study, Department of Anthropology, University of Michigan, Sept., 1976, pp. 16-25.
18. NACLA interviews with CPC and Quaker Oats executives, November, 1977.
19. NACLA interview, November, 1977.
20. NACLA interview, November, 1977.

Tags: agribusiness, food processing industry, monopoly capitalism, transnationals


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