there are variations depending on what type of product is examined. For example, if we were to follow a french fry through its various stages, we would begin with russet potato seeds and the companies that supply them. Next, we would examine the firms that grow the russet potato, followed by the manufacturers that process the potato into cut, frozen french fries, which then move to final sale. At the retail end, restaurants, supermarkets, and institutions like governments and schools all buy large quantities of frozen french fries. In addition, restaurants purchase the fat needed to fry the potatoes before they are consumed.
At each segment of the chain, there are dominant firms that play key roles. The lead-firm buyers of french fries (e.g., McDonald’s, Wendy’s, Wal-Mart) are supplied by large manufacturers of french fries (e.g., McCain Foods, J.R. Simplot), which purchase russet potatoes from big growers/shippers (e.g., United Fresh Potato Growers of Idaho) that receive seeds, herbicides and pesticides from crop science firms (e.g., Bayer Crop Science). Understanding the french fry chain helps us to explain the nutritional properties of french fries, how they are marketed to different sets of consumers, and at what price. However, “lead firms” aren’t necessarily present in every segment of the chain. Lead firms must have a critical marketing, technological, or financial edge that permits them to set the standards or specifications for other companies they deal with. Absent this advantage, even quite large companies may find themselves relegated to the role of commodity suppliers of bulk products, with relatively thin profit margins and little capacity to influence the activities of other firms in the supply chain.
GVC analysis maps the interaction between global and local value chains
Each stage of the food production system connects countries on a global scale, and these connections are driven by the practices of lead firms in developed countries. In Figure 1, we highlight the interaction of global and local food value chains in developed and developing countries. Within the global value chain in developed countries (the top four boxes), we find global agro-businesses, TNC food manufacturers, global fast-food franchises, and global retailers. These segments of the chain are linked to each other at the global and local levels. Global agro-businesses, like chicken, potato and lettuce farms, operate transnational subsidiaries across the world or they buy crops from small and medium-sized farms in local economies. They then supply TNC food manufacturers, which in turn sell their processed goods to fast-food chains and global retailers.