The Globalization megatrend

Globalization is defined as the increasing integration of economies and societies around the world, transcending the boundaries of nations, particularly through international trade and the flow of capital, ideas and people. Globalization includes the transfer of culture and technology, and the development of international regulation.

Globalization embraces economics, politics and culture, as all regions of the world gradually and to a varying extent have been integrated into a global economy comprising all sectors including industry and agriculture – and not least the broad agro-food business.

Globalization is a politically disputed concept, particularly regarding the relationship between the developed (rich) countries and the developing (poor) countries and the effects it leverages on the economic power balance in the world. Globalization influences many aspects of international relationships and developments, also on other major trends.

A key characteristic of globalization is that it transcends national boundaries. Coupled with liberalization, it opens markets for free trade and increased competition, developing more interdependent world markets of goods and labor, services and finance. Trade is the hallmark of globalization, and the volume of world trade has grown much faster than the world economy as a whole over the last five decades.

Proponents of globalization argue that it impacts favorably on productivity and economic growth worldwide, and that it opens new opportunities for developing countries. That can lead to poverty reduction and economic development. International finance organizations have been proponents of liberalization and globalization, with the World Bank holding the opinion that globalization could spur faster growth in average incomes in the next 25 years than in the past quarter of a century, with developing countries playing a central role.

Opponents of globalization claim it threatens or hurts social conditions and the environment, that it favors developed countries and multinational companies, threatens traditional ways of life and local cultures, as well as carrying threats to human health by spreading diseases. Critics argue that it undermines the sovereignty, especially of smaller and economically weaker countries. Globalization has been spurred by years of liberalization in international relations, including deregulation of markets.

The agricultural sector has been increasingly influenced by globalization, with both the input and the output sides of the agro-food value chain being integrated into the global markets. An example of the global interdependency was demonstrated by the sharp increase of world food prices in 2007/2008. This was closely connected to a parallel rise in energy prices – and how that affected several markets in large parts of the world.

It is commonly expected that agriculture will be further integrated, and move towards increased competition and expanded industrialization. Globalization and competition spur technological innovation and knowledge sharing, which again contributes to more productive agriculture better able to meet growing demand for food. Whereas traditional agriculture is characterized by being labor-intensive, productive agriculture is highly knowledge-intensive. Although less productive and profitable agriculture is threatened by globalization, also because of unfavorable policies, the commercialization of agriculture following globalization may transform subsistence farming into sustainable agriculture, linked to local and global markets.

Global industrial enterprises – multinational companies – such as Yara constitute a key part of globalization. They invest and produce in several countries, trade around the world, transfer and share technology and knowledge. With the globalization of agriculture, global players in the agro-industry have become ever more important, producing and distributing such essentials as fertilizers and seeds, and procuring and processing products from the farms. As is the case with the input side of the value chain, the food processing, trading and retail industries have become global players that contribute to the globalization of the entire agro-food system.

Yara is a global company within a global industry, operating in a global market – and an integral part of the increasingly globalized agro-business. As a fertilizer industry company with the world’s broadest global market presence, Yara is heavily influenced by globalization at the same time as it contributes towards it through the company’s international production and trade and its transfer of knowledge to its operations, partners and customers.

Operating worldwide, both with regard to manufacturing and marketing, Yara benefits from the internationalization of markets, and from the harmonization of regulations as well as standards following multilateral policy processes, another important part of globalization. For example, the issue of global warming and climate change is a major one for Yara, where the company takes an interest in contributing to environmental solutions, and in the development of multilateral regulations.

Another key issue affecting Yara is energy supply: The production of and trade in energy, starting with oil and gas and continuing with electricity, is highly international. With such an energy-intensive process as the production of ammonia, Yara depends on secure deliveries of energy, mainly natural gas, and locates its production close to sources and supplies of gas. Just as the price of gas fluctuates, the price of mineral fertilizers is subject to major changes in the global market.

Globalization has a major impact on Yara, operating on the global scale that it does. The impact comes directly through international trade, as a consequence of the multinational character of the finance and resource market and indirectly through the effects of globalization on Yara’s major stakeholders, the world’s farming community.