Challenges for Developing Countries
In principle, the growth of agro-food GVCs has opened the doors for developing countries at the periphery to derive the kinds of benefits that they usually expect to derive from FDI, for example, new production capacity through the establishment of direct and indirect linkages, various kinds of spillovers including technology transfer, skills upgrading, and, overall, a potential boost to employment and national income. However, to what extent both FDI and agro-food GVCs have, so far, created beneficial effects on developing economies remains questionable (Narula and Driffield 2012).
However, it is clear that where local actors that can act as partners within the GVC do not exist, or where local actors do not have the O advantages necessary to act as a part of the MNE’s network, there are few benefits that will accrue to host countries. This is a conditio sine qua non (Lall and Narula 2004). MNEs from the developed world are increasingly expanding their direct involvement along agro-food GVCs in sourcing their key inputs from developing countries in order to ensure lower cost, higher quality, variety, and so forth (Gereffi 2014). However, the opportunity of linking one to the other remains strictly limited to a few actors due to the rising trend of consolidation strategy followed by a few dominant MNEs. Indeed, the absence of domestic actors means that MNEs continue to engage directly in countries that have the requisite L advantages.
The greatest challenge for the developing countries today is that most fail to obtain access to agro-food GVCs due to the limitations related to L advantages due to weak institutions, poor infrastructure, and the unavailability of formal actors. Most of the actors from the developing world are still some individuals or family members engaged in traditional farming or small-scale processing around growing areas, not yet developed as formal entities, that is, firms. They are largely characterized by the lack of the required amount of capital to invest, the minimum level of knowledge to be able to codify MNE specifications, and the basic managerial capability that may be necessary to engage in business with MNEs along the agro-food GVCs.
The challenge for domestic actors from developing countries here is twofold: (a) gaining entry to the GVCs and (b) upgrading during participation in the GVCs. From the country perspective, the challenge is not only to offer natural resources and low-cost labor to MNEs but also to ensure a complete package of L advantages by adding infrastructure like roads, electricity, and ports, institutional framework, skilled manpower, and, very importantly, capable domestic actors (Narula and Dunning 2010).
MNEs exhibit a relatively more footloose attitude in case of NEMs. Unlike WOS, NEMs do not involve capital investment in physical assets, direct human resource obligations, social and political implications in terms of reputation, and so forth. Therefore, it is easier for MNEs to change partners along the agro-food GVCs within and between countries. The existing power asymmetry between the MNEs and the developing countries is greatly affected by this footloose attitude (Narula and Dunning 2000).
Another important challenge for developing countries is food security Actors that are engaged in production of high-value items for GVCs move away from cultivation of staple crops like rice and wheat toward growing high-value horticulture due to the higher returns. Staple crops that are needed to feed the local population are undermined by the temptation of gaining more profits from high-value crops for export. This may eventually turn into serious trouble for the developing countries if the crop choices are not made in a balanced way keeping the issue of food security in due consideration.
MNEs sometimes pursue strategies along the agro-food GVCs that may undermine the national developmental priorities of developing countries. For example, the consolidation strategy of multinational food companies and supermarket chains has been in serious conflict with the typical developmental agenda of developing countries. Similarly, the MNE strategy of achieving efficiency by taking advantage of low-cost labor and natural resources in developing countries may at times challenge the sovereignty of government policies regarding promotion of issues like better labor conditions and conservation of the environment.
Finally, it is becoming increasingly difficult for domestic actors along the agro-food GVCs, especially for those from the developing world, to cope with the growing levels of complexity of standards. Standards nowadays cover a wide variety of issues and add complexity for firms: (a) quality (appearance, cleanliness, taste, etc.), (b) safety (pesticide or artificial hormone residue, microbial presence, excessive use of preservatives, etc.), (c) authenticity (a unique origin or a traditional process), and (d) goodness of the production process (best practices related to labor, environment, wholesomeness of fair trade, etc.) (Reardon and Farina 2002: 414). This requires greater interaction between regulators, the MNE itself, other private entities like consortia, and civil society, all of which are involved with their relevant part(s) of standards. This gives rise to complexity and cost implications for small-scale actors from developing countries.