How Do International Trade and Foreign Direct Investment Affect Food
Trade and foreign direct investment (FDI) are international economic processes used by researchers to connect the global and local levels of a GVC analysis. When examining trade and FDI statistics, however, researchers must look beyond standard assumptions about large-scale flows of foodstuffs or the diffusion of Western fast-food restaurants to explain changes in consumption leading to unhealthy diets. Of particular relevance are the traded inputs in specific food value chains and the adoption at the local level of Western food practices.
FDI as a measure of foreign capital in a region is not a reliable indicator of foreign penetration in the fast-food industry. The prevailing wisdom is that FDI in fast-food chains promotes unhealthy diets in developing countries, but most fast-food TNCs operate under the “franchise model.” Franchising is a relatively inexpensive way for individuals to use the main components of the TNC’s fast-food business model (i.e., the corporate name, full product range, brands, and business strategies) without putting up large amounts of capital. The “franchisee” is the owner who bears the initial costs. In 2007, Yum! brands (which includes KFC, Pizza Hut, Taco Bell, Long John Silver’s, and A&W) had total worldwide sales of $34 billion dollars, of which $24.4 billion came from franchise sales (Yum! 2007).
FDI in global supermarkets is also increasing around the world and contributing to the consumption of processed or Western foods. However, there is only indirect evidence of the effects of supermarkets on childhood obesity. The diffusion of supermarkets in developing countries is still quite limited, and traditional retail markets remain popular (Readon et al. 2007). The impact of FDI on food consumption in developing countries is primarily indirect, and it is captured at the national and local levels through the adoption of Western products and practices by domestic food systems.
The trade of intermediate products is key to understanding how food consumption patterns may be shifting toward less healthy items at the local level. The trade of processed foods from developed to developing countries is often linked to rising obesity rates, yet the reality is that processed food is only a small portion of developing countries imports. A 2005 U.S. Department of Agriculture report highlights that only 10 percent of the $3.2 trillion in global processed food sales in 2002 were traded products (Regmi and Gehlar 2005). Most processed foods are created “in-country” and connected to local supply chains and production