Food Exporters In Global Value Chains: Food For Thought

This paper offers a firm level perspective of global value chain participation in the food industry. Exploiting a very rich and original dataset, based on a 2011 survey of 25,090 Italian firms operating in manufacturing and related services, we characterize the food industry, describing its main strengths and weaknesses, and analyze the links between the probability to export and the value chain participation. Stylized facts on food global value chains and the Italian food industry are singled out. Italian food processing firms offer an ideal setting to study whether entering a value chain helps the internationalization of small, often high quality, firms. Italy is well known for gourmet food, but is despecialized, since it has a substantial trade deficit in the sector. Food processing firms are very small, on average with less than seven workers, and when in value chain, their distribution is skewed towards downstream activities, with a much lower share of subcontractors than of own-branded and final firms. After having described and characterized the sector, we estimate the probability to export of food processing firms and the role of value chains. Our results show that participating in a value chain significantly increases the probability to export. This is particularly true for small firms in the industrial food value chain and for firms positioned downstream. Participating in distribution chains, for instance being able to sell products through large supermarkets, also significantly contributes to internationalization. Our results have important implications in terms of trade policy: tariffs and other protection measures are cumulative when intermediate inputs are traded across borders multiple times. Hence, protection can end up in a significantly higher cost of the finished good. This shows the importance to “think value chain” when discussing trade policy.