Growing Significance of Differentiation in Agro-Food GVCs

Since the 1990s, MNEs in the agro-food sector have been structuring themselves around GVCs. Traditional agricultural commodities have started becoming differentiated products with the touch of MNE standards and brands. For instance, basmati rice is a commodity, but it can also be transformed into a differentiated product that is grown, processed, and packed to certain standards, and then endorsed by various brands or labels. Rice as a commodity is also an input to other higher value-added products, for example, noodles, rice-based wine, and other ready-to-eat food items. Similarly, coffee has evolved due to the adoption of differentiation strategies.

Differentiation strategies of these MNEs are not identical. Both Nestle and Kraft pursue mainly product differentiation strategies since their target is in-home consumption. Contrarily, Starbucks and Costa have to go beyond product differentiation and do more in terms of store ambience, personalized services, location, and so on since their target is in-store consumption (Fitter and Kaplinsky 2001) . In particular, their O advantages associated with tangible and intangible knowledge assets help the MNEs in being much more effective than domestic actors from developing countries. Fitter and Kaplinsky (2001) suggest that differentiation largely benefits MNEs, and rarely reaches the farmers from the developing countries. There are fair trade campaigns run as part of differentiation strategies by a few leading MNEs in association with some nongovernmental organizations (NGOs) where farmers who grow coffee are paid fair prices. However, the presence of fair trade coffee in the market is insignificant and accounted for less than 1 percent of global coffee sales as of May 2001 (Fitter and Kaplinsky 2001: 12).

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