Limitations of the Developing Countries along the Agro-Food GVCS
Hymer’s (1960) suggestion that the domestic actors in the agricultural sector in developing countries lack the ability to compete still holds true. Very few have the required capital, technology, access to market, and entrepreneurial and managerial capability to add extra value to their agricultural commodities. Developing countries have largely failed to transform their agricultural sector from an informally driven sector to a formally organized one. Formally organized firms are able to invest in developing and upgrading their O advantages, and formally enter into contracts to gain access to capital and technology markets. In general, the domestic actors in the agro-food sector from the developing world are informal entities, smaller in size, and do not possess the required O advantages that the MNEs usually do, or the O advantages necessary to become suppliers within agro-food GVCs.
The undifferentiated nature of agricultural commodities results in markets with low entry barriers and high competition. Due to the perishable nature of many such commodities, there remains the urgency in most of the developing countries to sell many of their agricultural products within a limited period of time, irrespective of market conditions. Establishment of cold chains, processing industries, and other forward linkage industries around the growing areas requires considerable investment, and most farmers (who are small-scale and informally organized) are unable to afford such investments, and most developing country governments are unable to generate the political or economic ability to provide these as a public good. Developing countries, in general, fail to develop such ‘simple, obvious, and useful opportunities for forward linkages’ (Hirschman 1984, c1981: 73).
Some scholars have highlighted the unequal distribution of value and income along the GVCs (Kaplinsky and Morris 2001; Gereffi 2014). They have referred to ‘immiserising growth’ to describe the situation (Kaplinsky and Morris 2001: 21) where an increase in overall economic activity with more output and more employment leads to falling economic returns. In fact, the most common puzzle that many developing countries frequently encounter in agro-food GVCs is how to achieve a balance between the agenda of growth and employment for the host countries and that of net returns for the MNEs.