From Local to Global: International Trade and Value Chains

This chapter shows how local and national food systems are interconnected through trade, storage and processing, forming a global system that links each country’s producers and consumers. We define the concept of comparative advantage and extend our analytical diagrams to explain the prices observed in international trade, including the influence of transportation costs and commodity storage on price levels and price volatility in each country. We address the role of tariffs, quotas and other policies, showing their impact on income distribution within each country and the incentives they create for political leaders to restrict trade, and describe the extent and nature of policy interventions that shape each country’s role in the global food system. The second section of the chapter addresses the institutional arrangements and value chains in each country that link agricultural producers to end-users. Individual enterprises often seek horizontal integration in the provision of different things over a larger geographic area, and may also seek vertical integration in controlling their own source of supplies and marketing to end-users. The alternative to integration is for enterprises to specialize in their own domain, and make transactions with each other through markets whose institutional structure and governance influences the risk of market failure in terms of quality assurance, pricing and market power. The institutional context for each activity along the value chain also influences its environmental externalities, worker rights and health impacts, creating the need and opportunity for social accounting of the full costs and benefits of each product.