“MERCATO SCREMATO”: THE IMPACT OF MULTINATIONAL COMPANIES' ACTIVITIES IN THE MILK SECTOR IN BRAZIL - THE  PARMALAT CASE

Executive summary

Azione Aiuto, 7 July 2003

This report examines the impact of the activities of multinational companies on small-hold Brazilian farmers, focussing in particular on the example provided by the Italian group Parmalat.

Published only a few months ahead of the Ministerial Conference of the World Trade Organization in Cancún , Mexico , this study is meant as a contribution to the broader debate on the pros and cons of foreign investments and on the impact of multinational companies’ operations in the south of the world.

In Brazil , the farming sector employs about 18 million people. Like in the past, Brazilian agriculture is dominated by large estates, which control 70% of the land, while small farmers -- which represent 88% of the total -- are left with the remaining 30% only. This causes widespread poverty among small farmers and landless labourers, generating serious social tensions and violence culminating in organised protests and land occupations, often brutally repressed.  

Fifty-two per cent of all the milk consumed in the country comes from small, family-run farms. These are characterised by a high degree of diversification. Traditionally, milk is mainly produced for domestic consumption. However, the sales of milk surplus are very important for the family budget.

Multinational companies, such as Parmalat, started penetrating in the Brazilian market with massive investments since the late '80s. This was facilitated by the deregulation of the milk sector and  by the liberalisation of trade in Brazil . Since 1995, Fernando Henrique Cardoso further stimulated this process by opening the country to foreign investments. Between 1989 and 2001, Parmalat acquired 27 local companies, making Brazil the company's second largest market, after Italy .

The success of Parmalat was due to the company's capacity to introduce innovative products in the local market, such as long life UHT milk. These innovations resulted in an increase of the quality of both the products and productive processes, as well as in increased efficiency for the company. However, this has also had heavy negative drawbacks on small local milk producers.

This research, conducted by Azione Aiuto in collaboration with our Brazilian partner ActionAid Brazil, has shown that the new quality standards introduced by multinationals like Parmalat in a bid to differentiate their products from competitors and obtain higher profits, have resulted in thousands of under resourced small-hold  farmers being driven out of the market. Lacking the financial capacity to live up to the newly imposed standards – which require huge investments in infrastructure – they can no longer sell their milk or are forced to accept lower prices.

Thus, between 1996 and 2002, Parmalat has excluded from the market over 23.000 farmers –second only to Nestlè which has excluded over 32.000 in the same period – obtaining as it did so a 19% increase in production.

The arrival of multinationals like Parmalat in the Brazilian milk sector has given impulse to the specialisation of farming, benefiting large agricultural estates at the expense of small family run farming. This process has been facilitated by various factors, including:

- transformations occurred in the distribution system, with the arrival of large international distribution chains which favoured multinationals over small producers;

- the gradual liberalisation of trade;

- imports from a heavily subsidised  European dairy industry; and

- the creation of MERCOSUR.

The Parmalat case is an example of how the presence of multinational companies in developing countries -- even when it does innovate local products and processes -- can have a negative impact and deepen existing social inequalities.

Azione Aiuto is urging multinational companies like Parmalat to adopt a different policy in developing countries – one in which choices are not driven by economic goals only, but take into account their potential impact on local communities.

In the case of the Brazilian milk sector, concrete support by multinationals to small farmers would be welcome, but in itself it would not be enough. Multinational companies should also promote transparent relations with the Brazilian government to encourage it to adopt concrete social measures – first and foremost a thorough land reform allowing full access to land, especially in areas of high social conflict – and put an end to human rights violations against rural communities.

Governments from industrialised countries also have a role to play in this process and they must take into account the social repercussions of their choices in developing countries, especially in the context of current negotiations on agriculture and investments at the WTO. The upcoming WTO  Ministerial Summit -- to be held in Cancún in September -- represents a crucial opportunity for the definition of policy guidelines in this area.   

For this reasons, Azione Aiuto has decided, together with other Italian NGOs, to promote a campaign for corporate social responsibility. This campaign aims at lobbying the Italian Government, during its six-month presidency of the EU, to herald the adoption by EU member states of a binding set of rules to hold companies legally accountable for their international activities.  

Azione Aiuto is also urging the FAO to undertake new analytical studies on the farming and food industry in Brazil and to promote an international forum -- including government representatives, business associations and small-hold farmers’ organizations -- to discuss the main problems affecting Brazilian agriculture.  

Such studies on the realities of rural Brazil should also be carried out by the Italian Ministry of Foreign Affair’s Overseas Agronomic Institute, with a view to achieving a better understanding of the connections between the liberalization of the agricultural and food markets, public policies on foreign direct investment, the activities of multinationals and the living conditions of farming communities -- especially those characterised by small-hold family-run farming -- and their environment.  

The full report (Italian) is available at the following web address:  http://www.azioneaiuto.it/uff36.htm For more information, please contact Nicola Borello, AzA Business Liaison Officer, tel. +39 02 74 2001, e-mail: [email protected]