Global Production Network of Coffee - Essay Example

Global Production Network of Coffee Name Professor Institution Course Date Global Production Network of Coffee Introduction The 21st century has seen several companies cross international borders to look for new markets to conduct their business and increase shareholders’ return. The process was fuelled by opening of borders and advancement in transport mode and technology in the 21st century. According to Dicken (2015, p.11), opening of plants in different countries has made the supply chain of various companies to be fragmented and production to be spatially dispersed. The situation has complicated the attempts to fully understand the process of global production. However, the research and different literatures in the recent past have given customers and scholar a good read on forms of labour which go into producing the product or service, and how this work is globally distributed (Coe, Dicken and Hess 2008, p.274). The development has made customers to strongly know what they want and what they consume. Therefore, this essay will analyze the Global Production Network (GPN) of coffee and discuss who benefits most from the structure of this GPN. In the analysis, the essay will focus on three different aspects. First, the paper will analyze various forms of labour that go into creating the product and how is this work globally distributed. The essay will also analyze how the value is captured at each stage of production distributed along the network. Lastly, the essay will focus on the institutional arrangements that explain the structure of this GPN. Overview of Global production networks According to Selwyn (2013, p.78), Global production network is defined as an array of interconnected operations, transactions and functions in which a particular service or product is produced or manufactured, distributed and utilized in the market. In the relation to international trade, GPN entails the interconnected links and modes of production and supply chain which broaden across the national boundaries, particularly when a company expands in the global markets (Hess 2008, p.454). GPN concepts combine the actor–network theory, value chain analysis and Capitalism, which are normally the major actors within global production systems. To put the concept into action, it is how companies create value to customer through their global supplier chain which starts from suppliers, their own production, packaging, market delivery to consumption. Various forms of labour that go into creating the coffee, and how this work is globally distributed Coffee is regarded as one among the most utilized agricultural products across the globe. In fact, Daviron and Ponte (2005, p.23) stated that it is the second most utilized product after petroleum. Research has indicated that about 25 million coffee farmers and workers across 50 nations are involved in the production coffee in the world (Hasselaar, 2008, p.7). In 2012 alone, 100 million of coffee bags (60 kg) were sold in global markets making it one of the most traded products. Apparently, coffee was initially grown as the colonial cash crop, and planted majorly by wage laborers within tropical climates for colonial markets. In many cases, coffee roasters seek cheap labour, but to end up getting profits in the return. Barrientos, Gereffi and Rossi (2011, p.327) argued that the reason for this is because coffee is majorly produced in least developed countries where there is cheap labor and sold to more developed countries. However, what most do not know is that there are various forms of labour that go into creating the coffee. In fact, when consumers drink coffee, they are just completing the last link within the global chain which made the coffee possible. the simple action of drinking coffee link a consumer to peasant laborers in Indonesia, Vietnam, Brazil, Colombia, Kenya to dockworkers in Mombasa, Sa˜o Paulo, San Francisco, New Orleans among others (Levy 2008, p.943). Various labour involved in creating coffee include planting, picking, transporting to company, processing, packaging and distribution. The creation of coffee starts at farming by planting coffee seed. This is first point in global production network of coffee. Here, the labour is provided by farmers and coffee farm work who plants weeds. The farmer owners are individuals or companies with large normally employ people (farm workers) to provide labor (Baffes, Lewin & Varangis 2004, p.10). However, small scale producers normally provide labour on their own. The case of coffee production presents an economic, ideological and political perspective that global production networks are embedded. The reality is that coffee farm laborers and farm owners in developing nations are often paid poorly and only receive between 20 and 30 of the production and sale of coffee yet they play the biggest role. Coffee creation also goes through in the processing plant where coffee berries are dried. In most cases, these are normally workers brought from countries with cheap labour hence companies or corporative societies pay them poorly. Hasselaar (2008, p.12) opined that another labour is needed in the transportation or export to international trade markets and export of dried berries or beans to developed countries in Europe and America. In other words, they are suppliers of coffee drink companies like Starbuck, Baristas, Red Diamond, Nestlé and Kraft Foods among others (Hasselaar 2008, p.13). Since there are many international traders or exporters of coffees, they have low bargaining power hence are paid poorly. However, in the developed countries where second processing takes place, laborers from these countries are highly paid to provide high quality (Newsome et al., 2015, p.45). The labour situation in coffee creation communicates one thing; labour providers are not highly regarded in the value chain. In fact, in the theory of the firm, a firm is viewed as blackbox (profit maximizer) as opposed to labor providers (Coe, Dicken & Hess 2008, p.277). Most coffee producing firms in the developed countries prefers to import product or labour from low cost labour nation so as to maximize capital. The situation depicts a case where labor is not fairly compensated between least developed countries and more developed countries. In more developed countries, the cost of labour is normally high due to the fact the government sets wages, a practice which is not common in developing countries. How the value is captured at each stage of production distributed along the network How value is captured can be analyzed through value chain analysis. According to Andersen and Christensen (2005, p.1263), value chain is defined as network of the production and labour processes and procedure which its end result is often a finished product. In coffee production, global value capturing covers coffee producing company within developing world up to the point of consumption in Europe and America. Topically, the process involve retaining percentage of financial gain from the process of designing, producing, and marketing of a product across the geographical areas (Kraemer, Linden & Dedrick 2011, p.5). In the process, there must be firms which capture high value and one which capture low value. The robusta and Arabica are massive money makers for the companies such as Starbuck, Red Diamond, Nestlé, Kraft Foods and Figaro Coffee Company. Kraemer, Linden and Dedrick (2011, p.1) claimed that whilst other firms are delighted to form part of the supply chain for the greatly successful coffee, their gains in terms of dollar pales compared to that of the mentioned coffee processors and makers. However, some scholars claimed that people earn their profit based on how value is captured at different levels of supply chain. Mehta and Chavas (2008, p.282) stated the argument is that high value is captured at the last phase of supply chain. Foreign companies like Starbuck which imports coffee from other countries do not sell in that form, but rather improve it through incremental innovation. The process creates different types of coffee drinks including latte, cappuccino, mocha, macchiato, Americano, Caffè crema Guillermo and Ristretto which they use to attract different consumers. The value chain of coffee production starts at the farm with farmers and farm workers as the beneficiaries. Despite companies in developing countries being growers beneficiaries, they capture low value because they are poorly paid. The next stage is the exporting phase where international traders who are the marketer capture a slightly high value as they increase their prices in the global markets (Hasselaar 2008, p.8). Researchers claim that they get rough 35-38 percent of value in terms of finance. As stated earlier, it is the last companies which capture the highest value of 58 to 65 percent. These companies do second processing of coffee in what is known as roasting to create different and unique tastes (Hasselaar 2008, p.12). The companies highly capture value because they have cheap acquired coffee and some occasion employed immigrant workers to process coffee at low wages. The institutional arrangements that explain the structure of GPN of coffee Institutional arrangements in this perspective mean structures of control and power within the coffee production supply chain. The institution provides controls in different level and if there is no control then companies become equal. However, that is not the case in coffee production chain. Hasselaar (2008, p.19) argued that here, there is a lead company which exercise control power over other market players and determine how labour and value is capturing and distributed in the supply chain. Currently, coffee drink makers control and have bargaining power over producers. In other words, the market is structured in a manner that there are unequal partners, which are being led by a leading firm. Hess (2008, p.455) opined that at first the market relation structure created by quota systems, anti-monopoly law and international coffee agreement gave the producing countries the control. However, the abolishment of the international coffee agreement, fall of coffee marketing boards and economic disparities gave the coffee roaster the control (Hasselaar 2008, p.24). The coffee roasters now have control due to the fact that does not depend on one producer. Daviron and Ponte (2005, p.8) contended that the roasters are also having powers over international traders because they set lead time and costs. The market is therefore structured in manner that roaster is at the top followed by retailer then producers at the last level. Conclusion As the second leading consumed product in the market, its analysis of global product network is important because it gives consumer a glimpse of how their preferred product is produced and distributed across the global chain to their table. In this way, they observe opportunities and challenges associated with the production and actors of coffee. The analysis of global production of coffee has shown that there are various labour required including that of planting, picking and processing, exporting and second processing. In this process, the workers who are involved in farming, picking and first processing are paid poorly due to difference in politics of labour between devolving and developed countries. The result has made roasters to capture the highest value as they benefit from the low cost of labor. The essay has also found that the influence of roasters has made them the leading firm structure of GPN. References Andersen, P.H & Christensen, P.R 2005, Bridges over Troubled Water: Suppliers as Connective Nodes in Global Supply Networks, Journal of Business Research Vol.58, No. 9, pp.1261–1273. Baffes, J, Lewin, B & Varangis, P 2004, Coffee: market setting and policies in Global Agricultural Trade and Developing Countries edited by Aksoy A. and Beghin, J. Washington DC, World Bank. Barrientos, S, Gereffi, G & Rossi, A. 2011, Economic and Social Upgrading in Global Production Networks: A New Paradigm for a Changing World, International Labour Review, vol.150, (3–4), pp.319–340. Daviron, B & Ponte, S 2005, The Coffee Paradox: Global Markets, Commodity Trade and the Elusive Promise of Development, Zed Books Ltd, London. Coe, N.M, Dicken, P & Hess, M 2008, Global Production Networks: Realizing the Potential, Journal of Economic Geography Vol.8, No. 3, pp.271–295. Dicken, P 2015, Global Shift: Mapping the Changing Contours of the World economy, 7th Ed., Sage, London. Hasselaar, E 2008, The Coffee Global Value Chain, University of Amsterdam, pp.1-55. Hess, M 2008, Governance, Value Chains and Networks: An Afterword, Economy and Society, Vol.37, Vol.3, pp. 452–459. Kraemer, K.L, Linden, G & Dedrick, J 2011, Capturing Value in Global Networks: Apple’s iPad and iPhone, University of California. 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