Processes of agro-industrialization have widespread and profound impacts at both micro and macro levels (Figure 1). These include contributions to overall economic development, alongside changes in rates of poverty linked to the
scale and distribution of changes in employment and per capita incomes among those whose livelihood is linked to the agro-food economy. These processes also encompass the quality, availability and price of food and non-food prod-ucts, plus impacts on natural resources and the environment, and sociocultural implications, among others. Thus, we might reasonably expect there to be gainers and losers from processes of agro-industrialization, such that there are likely to be significant distributional consequences of the emergence of an agro-industrial sector. What is critical in this context is to recognize and promote the conditions under which agro-industrial enterprises can make a positive and significant contribution to overall processes of economic development and to the betterment of the lives of the poorest members of society, while minimizing any negative externalities and other impacts.
Given that agro-industrialization is but one of the multiple transformations occurring in agro-food systems in developing countries, as well as globally, attri-buting observed changes to the development of an industrial agro-processing sector per se is difficult. Further, these impacts reflect the ongoing dynamics of development processes, for example, the transformation of a predominantly informal to a predominantly formal economy, and observations at any point in time merely provide a ‘snapshot’ that is soon outdated.
The impacts of agro-industrialization on value addition, exports and employment are treated at length in Chapter 3 of this volume. We will instead call attention to the effects of agro-industries on two specific aspects: power relations along the supply chains and environmental consequences of agro-industrialization.
Impacts on power relations along the supply chain
One of the key concerns related to the processes of consolidation and global-ization accompanying agro-industrialglobal-ization is the impact on power relations along supply chains and the degree to which dominant players, including agro-processing firms and their purchasing agents, operate in a competitive environ-ment or are able to exert ‘unfair’ power (Vorley and Fox, 2004). Indeed, some critics argue that agro-industrialization and related processes of concentration tend to develop in a mutually reinforcing cycle along agricultural and food sup-ply chains (Lang, 2003). Thus, as markets for higher-value agro-food products develop, a limited number of dominant firms tend to emerge that quickly
‘quash’ their smaller competitors in the formal sector while commanding a progressively greater proportion of the market as the informal sector is
‘squeezed out’. In some cases these dominant enterprises are specific to par-ticular markets, while in others their influence cuts across many geographical regions and/or product sectors. There are related concerns about the distribu-tion of rents along supply chains that are under the influence of such entities and the scope for primary producers (and especially small-scale farmers and fishers) to influence the conduct and performance of supply chains and enhance their share of value added through upgrading (Rabellotti and Schmitz, 1999;
Kaplinsky, 2000; Humphrey and Schmitz, 2001, 2003).
In the context of many developing countries, the scope for concentration of markets to bring about ‘abuse’ of market power is exacerbated by the fact that regulatory controls tend to be weak. Thus, competition policy frameworks are typically underdeveloped, if present at all, such that there is no legal basis through which the power of dominant players can be ‘reigned in’. Further, challenging business conditions (see below) tend to act as barriers to entry, especially for smaller firms that lack economic and political power to thwart bureaucratic delays in official and/or legal procedures, such as the enforcement of contracts.
At the same time, there is a need to consider the ‘counterfactual’ to these trends towards consolidation of agro-industrial sectors; that is, what would be the situation along supply chains for agro-food products were there to be no process of agro-industrialization? Further, the evolution of agro-industries needs to be viewed in the context of broader processes of transformation in global, national and rural economies (Reardon and Timmer, 2005). On the one hand, agro-industrial enterprises play a key role in the evolution of higher-value mar-kets for agro-food products, which serves to stimulate demand for the products of primary producers. On the other, in the absence of agro-industries as a key driver of supply chains for higher-value agro-food products, the power vacuum might be filled by large multinational traders. The emerging supermarket sector may also have more command over food supply chains in the absence of large agro-industries to ‘check’ their market power.
Environmental impacts of agro-industrialization
While the impact of agro-industrialization on the environment has begun to receive attention in recent years, there is relatively little supporting empirical evidence on it. Broadly, agro-industrialization usually carries with it an expan-sion in scale at various levels of the value chain. Expanded scale can come about through consolidation of existing establishments, new arrangements with small producers or firms (e.g. out-grower schemes) or new entrants (either from within the country or multinationals). It is often the case that expanded scale of operation brings about the adoption of new technologies, organiza-tional forms and management approaches, which can carry with them pos-itive environmental effects. These pospos-itive effects can be offset, however, by the degradation of the natural resource base and the production of environ-mental externalities that prevailing control capacities are unable to manage.
More broadly, it is important to recognize that the impacts of processes of agro-industrialization as a whole reflect interconnected processes of change at various levels of agro-industry from production through to distribution. Thus, Barrett et al. (2001) suggest that we should examine the environmental impacts of agro-industrialization through three distinct lenses: (1) direct effects on agriculture and upstream supply industries; (2) direct downstream effects on processing, distribution and related commercial activities in agro-industrial supply chains; and (3) indirect effects, such as income growth and other struc-tural changes.
Turning first to the direct effects on agriculture and downstream supply industries, the increases and transformations in agricultural production that accompany agro-industrialization have profound implications for land usage.
Increased production often comes about by bringing more marginal and poten-tially sensitive land into cultivation, thus leading to concerns about deforest ation, desertification and loss of biodiversity (among others), and/or the impacts of intensification via the adoption of new technologies on the existing land base.
Evidence suggests mixed environmental effects arising from land expansion and/or intensification (see e.g. Barbier, 2000; Lee and Barrett, 2000), with the multifaceted drivers of land use (e.g. other commercial uses and urbanization) making it difficult to predict the land-use impacts of agro-industrializ ation. For example, we might see very different outcomes in scenarios where broader processes of industrialization compete for land than in cases where agro-indus-trialization occurs in the context of relative plentiful supply of land.
Likewise, the environmental impacts of agro-industrialization vis-à-vis other agricultural inputs can be both positive and negative. Agro-industrialization can induce changes in the type and/or level of usage of agrochemicals (see e.g.
Dasgupta et al., 2001), which may be negative if overall usage increases, but positive if more advanced and safer active ingredients are used, with the overall impacts dependent on the relative magnitude of these two effects. At the same time, adoption of technologies leading to capital-for-labour substitution can reduce employment and generate negative income effects for some, which may necessitate the use of production practices by food-insecure farmers that are far from sustainable. However, greater vertical integration via agro- industrialization can also mean that signals reach producers that otherwise would not be trans-mitted. For instance, multinationals that procure agricultural product from devel-oping countries may be sensitive to consumer concerns over environmental impacts, and thus promote the adoption of environmentally friendly production practices, often with associated price premiums in niche organic markets (World Bank, 2005).
Processes of agro-industrialization can have critical effects on the availabil-ity and qualavailabil-ity of water in developing countries. While increases in production may imply an increase in demand for water, especially if they are associated with irrigated systems of production, Barrett et al. (2001) suggest that agro-industrialization often brings about substitution of less water-intensive and higher-value crops for water-intensive cereals, thus presenting scope for water conservation. Conversely, some of the major higher-value food exports from developing countries, for example, fresh fruits and vegetables, require large volumes of water in their production. This fact has brought about accusations that, in effect, these countries are exporting ‘virtual water’ (Orr and Chapagain, 2007). Water pollution can become an issue with respect to pesticide use and (perhaps more importantly) livestock production. Many developing countries lack the institutions needed to properly develop and implement environmental governance systems to keep such pollution in check. On the other hand, live-stock production plays an important role in converting organic matter into green fertilizer, the use of which leads to reduced application of agro-fertilizers and can lead to soil nutrient improvements and mulching that reduces water
losses. Clearly, the net effects of agro-industrialization on water use and quality are both complex and uncertain, and certainly context-specific.
Broadly, little is known about the environmental effects of direct down-stream elements of agro-industrialization, although three clear areas of concern exist: (1) air and water pollution associated with processing and distribution; (2) levels and nature of post-farm-gate solid waste; and (3) energy use. While agro-processing is typically one of the most polluting industries in developing coun-tries (Barrett et al., 2001), it is possible that processes of agro-industrialization can reduce certain aspects of its ‘environmental load’. This might occur through the de novo entry of firms with cleaner processing technologies and/or from technological upgrading by existing firms. Further, economies of scale are important in the agro-processing sector, with larger scale of operation often being associated with increased industrial concentration. Both greater scale and concentration can make it easier to regulate the environmental impacts of agro-processing operations, with larger firms being easier to monitor and to take enforcement actions against (Lanjouw, 1997; Jayaraman and Lanjouw, 2000). The trade-off, however, is that scale of operation also creates incentive for firms to lobby for less strict regulatory controls or, conversely, for larger (often multinational) firms to lobby for stricter regulations that exclude smaller (often domestic) firms.
There are a number of potentially detrimental environmental effects asso-ciated with waste from the agro-processing sector, both in the pre-industrial and industrial phases. On the one hand, there are the waste materials from processing operations, some of which may be utilizable as by-products and others that require disposal. Barrett et al. (2001) note that industrialization of agro-processing not only creates a new (and often enhanced) stream of waste, but also distributes this waste away from the point of raw material production to other locations. The scope for the utilization of waste changes over time and can be context-specific. For example, new technologies and markets can evolve that enable waste materials to be used productively. The recent development of biofuel technologies and new ways in which materials can be transformed for use as animal feed provide good examples. On the other hand, income growth and the parallel transformation of agro-industries tend to increase consumption of packaged food products. Many of these packaging materials are imported into developing countries and ultimately have to be disposed of in some way.
In many urban areas of developing countries, food packaging materials have become a major environmental issue, for example, through blocking water courses and sewage systems.
Processes of agro-industrialization have profound impacts on both the level of energy uses and the relative importance of different sources of energy, with often mixed environmental impacts. Broadly, agro-industrialization tends to lead to substitution of capital for labour, and thus increases the overall demand for energy. However, net energy savings can occur if commercial-scale process-ing, with more energy-efficient technologies, replaces less energy-efficient technologies that would otherwise occur on a smaller (and often informal) scale.
While agro-industrialization will tend to increase the demand for transport and
induce greater use of fuel, especially where it implies geographical specializa-tion, the adoption of more fuel-efficient transport modes could have offsetting effects. Moreover, given that industrialized processing facilities often locate near raw material sources, potential energy savings could be realized by ship-ping finished goods rather than raw materials.
While the direct and multifaceted impacts of the industrialization of agro-processing are uncertain, potentially the more general and indirect effects are more critical. Notably, we might reasonably expect the environmental effects