The United States and Brazil are the main players in today’s global food and agricultural markets. In both countries the agric-food systems are very large being the net exporters of food and agricultural food products and receiving large FDI level in their food industries. The United States has also invested in large proportion in foreign countries and together with brazil, the two countries have formed regional trade blocs especially during the 1990s. Brazil is a member of the Southern Common market (MERCOSUR) while the United States is a member of the North American Free trade Agreement (NAFTA). In the past few years brazil and US have entered into trade agreements and multilateral negotiations which have facilitated the creation of a free trade zone from Patagonia to Alaska known as the Free Trade Area of the Americas (FTAA). FTAA has different effects on the food industry in both Brazil and the United State’s food industry.
The developmental efforts in Brazil in terms of transportation and infrastructure systems places the region at a better place in competing with the United States food producing firms which will generally determine how the food producing firms in the US and Brazil will respond to FTAA. This is because market barriers into the entry of food industry each strategic and industrial movement are provided by the FTAA. this calls for a critical analysis of the markets product diversification, market concentration and some selected food manufacturing and how they are vertically coordinated. Such manufacturing companies include those dealing with the production of meat, coffee, grains, dairy products, sugar and orange juice (Farina 2002).
In the meat production for example the industry companies and structures tend to adopt different types of competitive strategies in the US and Brazil meat industry but are mainly determined by FTAA based on market and competition strategies. In specific the meat companies of Brazil are mainly targeted by the American firms which are becoming global for example Smithfield and Tyson Foods. This is because of the expansion of most grain producing companies to the Middle- West region of Brazil which consequently increases the consumption level of meat products at a domestic level. This might call for the need of US companies to be at a good position to take over the Brazilian dominates businesses such as Perdigao and Sadia.
Another sector is the coffee industry which in 2001 the market was mainly dominated by the ground-roasted coffee industry of Brazil with over one thousand establishments making it to have greater competitive advantage. But the problem is that the Brazilian coffee processors are not well diversified because they tend to dwell much on marketing and coffee processing. this structure has hover changed after 1998 through the acquisition of Café do Ponto leading to an increase of market share of Sara Lee to 19.2% in 2002.
These industry changes are still ongoing but it is unlikely that FTAA will have any way of indicating changes in this market. The FDI of both countries food industry is affected by the cross-border M &As. the major acquirements of food assets during the 1990s in Brazil has had a total of 60% total of M& A transactions. M& as cross boarder de-nationalization and concentration of the food industry of Brazil. This is different from the 10% of the M& A transaction of food industry of the United States as an international acquirer (Dunning 1996).
Due to FTA, the Brazilian FDI is likely to grow mainly in terms of food consumption habits and agricultural output. If there is an approval of FTAA, food processors will, be at a better place as compared ton firms in Europe which will enable them to import the Brazilian food assets. The sugar, meat and dairy industries of Brazil have the best investments opportunities for multinational companies dealing with the production of food in the country. The multinational companies are however still very much fragmented compared to the domestic companies which are; leading in the industry.
The food processors of the US are still required to consolidate their agribusiness and food positions in the coffee and grain industries of Brazil. This is because of their imperfect access to capital growth and small size since they do not control the major positions in the domestic markets. The food processing companies have the advantage of being still active through FDI even with the effect of FTAA. This therefore means that the Brazilian companies are likely to increases their food and agricultural exports not through the FDI mean to the United States (Connor and Chiek 1997).
FTAA additionally has the power to foster inter-Organizational collaboration between the firms in Brazil and US so as to bring forth their competencies and assets. The US food processors can look at how to explore a wider scope and scale of its economies by carrying out activities of high value. The advantage which the US food companies have is the development of, marketing expertise and global brand names. The Brazilian food companies on the other hand have the advantage of access to agricultural inputs lower costs of labour. They have developed effective organizational competencies for coordinating agricultural chain of production in a vertical way and backward vertical coordination in pork and poultry industries. The orange juice industry also has the advantage of better transportation in style which is efficient. These resources compliment the firm’s opportunities to increase their FDI as well as the bilateral trade.
This has a major impact on the dairy sector in terms of price support and federal income in the US dairy farmers which shows a difference in the standard between the two countries. The quality requirements of dairy marketing are more lenient in Brazil and the intuitions for enforcing them are weak. There is therefore the need for humanization of quality standard in Brazil which will require an adjustment and investments of private industries in Brazil. The removal of trade barriers by FTAA would improve trade flows, specialization and FDIs. The consumers will benefit in the end from the lowered costs of prices and high quality products.
Connor J and Chiek (1997) the Food processing industries : An Industrial powerhouse in transition NEW York: John Willey and Sons
Dunning J (1996) the Geographic Sources of competitiveness of firms PP 1-21
Farina E(2002) Consolidation Multinalizatainal and competition in the supermarket and processing sectors in Brazil Impact on the Horticulture and Dairy pp 441-04567.