Food industry structure in Norway and Denmark since the 1990s

Food Policy 69 (2017) 110–122

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Food industry structure in Norway and Denmark since the 1990s Path dependency and institutional trajectories in Nordic food markets Bjørn Klimek a,⇑, Henning Otte Hansen b a b

International Research Institute of Stavanger, Stavanger, Norway University of Copenhagen, Department of Food and Resource Economics, Copenhagen, Denmark

a r t i c l e

i n f o

Article history: Received 11 March 2016 Received in revised form 10 March 2017 Accepted 14 March 2017

Keywords: Food industry structure Agri-food chain Food mergers and acquisitions (M&A) Path dependency Institutional change Nordic food markets

a b s t r a c t Structural changes in Norwegian and Danish food industry since the 1990s is analysed as a path dependent response to the neo-liberal turn. Norway entered the 1990s as a protected market and Denmark as case of an export oriented industry. These developmental strategies are rooted in early 20th century industrialisation and influenced by institutional transformations in the 1990s, such as EU and WTO. Mergers and acquisitions (M&A) are studied in the context of changing political environments. Explaining two different trajectories, we combine path dependency theories and a Polanyi inspired ‘varieties of capitalism’ framework with corporate strategy theories on food industry M&As. We identify two different types of path dependent development, a self-reinforcing in Denmark and a transformative ‘breaking point’ in Norway. Ó 2017 Elsevier Ltd. All rights reserved.

1. Introduction This paper compares two cases of structural developments of the agri-food industries. Developments of Norway and Denmark are analysed as a path dependent process. We trace shifts in both countries since the EU Single European Act, implemented in 1992. The single market impacted on Denmark as a member (world market competition), and on Norway as a non-member (protectionist, high cost country), associated via the European Economic Area (EEA) agreement (1994). Structural development refers to the size and number of companies, to concentration, internationalisation or specialization and covers the whole agri-food chain. We study strategies of mergers and acquisitions (M&A), since M&As directly contribute to structural changes. We combine corporate strategy theories with an institutionalist political economy framework arguing that M&A driven structural developments correspond to institutional transformations. We perceive market institutions as a historical result of recurrent double movements (Polanyi, 1944) in capitalist history. Integrating the three analytical levels of firm strategy, sectoral market dynamics and historical institutional embeddedness, we shall show that structural devel-

⇑ Corresponding author. E-mail addresses: [email protected] (B. Klimek), [email protected] (H.O. Hansen). http://dx.doi.org/10.1016/j.foodpol.2017.03.009 0306-9192/Ó 2017 Elsevier Ltd. All rights reserved.

opments in the two cases represent two different types of path dependent development. While both countries are neighbors in the Nordic area, even unified as a single state for 300 years before 1814, agri-food policies differed through history. We consider both economies as coordinated Nordic models, historically marked by an ability to establish institutional frameworks based on negotiated agreements between various stakeholders. But presently, Norway has one of the most protected and subsidised agricultural systems among the developed economies and food production mainly focus on national supply. Denmark, on the other hand, early pursued export strategies and has become home country to transnational food companies. Both developmental paths have deep historical roots and the differences between them have persisted through policy adjustments through pre- and post WWII industrialisation. Interestingly, farmer cooperatives are the key to structural development in both countries, though with very different outcomes. In Norway, farmer cooperatives are crucial pillars of world market separation. In Denmark, they are the key to global expansion. We start by discussing methodology and data (Section 2), thereafter developing our theoretical combination of corporate strategy concepts (Section 3.1) and the institutional approach (Section 3.2). We proceed by discussing the institutional and historical paths of both countries (Section 4). Empirically, we conduct a macroqualitative study, enriched by interviews with top management in both industries (Section 5). In the conclusion (Section 6) we

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argue that future research on agri-food industries should pay attention to institutional contextualization rather than relying on formal theories of industrial organization.

2. Methodology and data set This study applies qualitative methods. We do not rely on data set observations, but on what Brady et al. (2006) call ‘‘causal process observations”. We relate to local research frontiers concerning M&A driven structural change in agri-food chains, but apply contextualizing perspectives (Mjøset, 2009), especially by studying the institutional frameworks within which the structural changes occur. Our analysis shuttles between three levels: our interview data stem from firms, we study structural change at the sectorial level, and institutional frameworks both at the sectorial, national and international levels. At the international level or main focus is on regional integration institutions (EU). Institutional analysis builds on secondary sources. We treat our Norwegian and Danish cases as cases of structural change in agri-food chains under the influence of national/regional European institutional changes since the early 1990s. In line with grounded theory methodology (Glaser and Strauss, 1967; Mjøset, 2009:52), we compare the two cases with reference to the relevant properties, developed through institutional analysis. Our explanations are thus at the middle range (as specified in Pawson, 2000). Our main empirical input is 19 information gathering interviews with top management in both industries, 13 in Norway and six in Denmark. The informants were chosen as main responsible decision maker in different companies or sector representatives which contributed with general expert knowledge. The interviews were conducted between April 2012 and May 2015. They were mainly focused on the strategic meaning of food industry M&As in the context of internationalisation since the 1990s. Additionally we supplement the study with other empirical data, such as sector specific statistics, export development and growth data covering the period since the 1990s. Our comparisons are developed around our core category of industry structure and structural development, thus accounting for market dynamics in both economies. Since grounded theory is always developed with reference to a specified context, we intend our findings to be valid for the specific macro-context, which is Norway and Denmark since the 1990s.

since the early 1990s promoted structural development in these two categories, as specified in the analysis (Section 6). M&A activity directly affects all the mentioned parameters of industry structure. Some studies analyse macro-economic determinants of food industry M&As (Muehlfeld et al., 2011; Herger et al., 2008), the impact of food industry M&As on employment and wage (Ollinger et al., 2005), and, above all, there is a number of studies of the US food industry (Connor and Geithmann, 1988; Padberg et al., 1989). Some studies apply a value chain perspective arguing that M&As differ between food processors, retailers and the food service sector (e.g. Adams et al., 1997). Connor and Geithmann (1988) sum up the following motives and effects of M&As: diversification, eliminating competitors, concentration, bargaining power, and company size. Adams, Love and Capps argue that ‘‘the food industry has many characteristics that differentiate it from other industries and may have unique factors motivating its merger activity” (Adams et al., 1997:1; see also Hansen, 2013 – The uniqueness of food markets). Through a literature review they identify the following motives for M&A activity in manufacturing industries: efficiency gains (scale economies, specialization, cost reduction, synergy), managerial motives (growth or revenue growth, foreign growth, reduce risk, managerial self-interests), monopolistic motives (dominance, less competition, increased market share gives increased profits, barrier to market entrants, vertical integration), speculative motives (periods of uncertainty, new arising technologies, speculations on prospective asset prices), and additional motives (antitrust laws) (Adams et al., 1997:4f). This brief discussion above shows that research in this field, qualitatively or quantitatively, largely converges with Hansen’s model, which we present here (Table 1). The main difference is that Hansen conducted qualitative research and saturated the model in several studies for post WWII Danish development. We investigate the strategic situation of agri-food M&As because they directly contribute to structural development affecting all the parameters presented above. We treat M&A strategies as crystallizations of broader sectorial tendencies. The economic drivers behind M&A activity can arise from inside the company, or from the outside through market dynamics. Generally speaking, growth and economic performance are the drivers behind M&As, and these again serve to explain structural development. Following

Table 1 35 drivers and motives for food industry M&As. Source: Hansen (2013) Internal

3. Theory: industry structure and institutional embeddedness

Economies of scale Increase of productivity Synergies Growth goal Managerial ambitions Earnings and trade conditions Exploitation of know-how and technology Control of marketing Desire to diversify Desire to specialise Attract qualified employees

Access to cheap produce and resources Vertical integration Market closeness Market share and dominance Access to know-how Liberalisation of capital markets Positioning on an emerging market Favourable purchasing opportunities Economic growth Improved infrastructure

Passive

Risk spreading Protection of know-how and technology Excess capacity Seasonal levelling Merging is the last option to survive

Low growth Matching of customers Larger product range Removing competitors Guarantee produce supply Creation of entry barriers Competition law ‘Eat or be eaten’ Investors expect growth

3.1. Corporate strategy on industry structure Industry structure typically relates to the field of industrial organization. Here we rely on definitions that Hansen (2013:234) has developed in order to describe the structure of global agrifood industries. Note that we exclude fisheries from our analysis, thus choosing the term agri-food chain. We define food industry structure as the number and size of companies, including factors like competition, concentration, specialization, internationalisation and, particularly important, we focus on vertical integration, so that ‘‘structural development covers all links in the value chain from research and development, supply and agricultural production to processing, refining, distribution, marketing, retail, and consumption”. (Hansen, 2013:234) All these elements together, including the emergence of cluster and network style relationships along agri-food chains, represent the national or transnational agri-food complex. Two aspects of structural development are of particular importance to this study: forms of concentration and degrees of internationalisation. In both countries, market dynamics

External

Active

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Hansen (2013:304), we can identify 35 single drivers (Table 1) that can motivate companies to M&A activity in agri-food chains. M&A driven structural development can occur vertically (specialization) or horizontally (diversification) and covers the whole agri-food chain. In this paper we enlarge this model with our institutionalist emphasis on path dependence. In this way, these drivers, contextualised within the institutional framework of the respective countries, constitute the core of our argument. 3.2. Path dependence and institutional embeddedness We specify these corporate strategy theories of industry structure through the perspectives of path dependence and institutional embeddedness. We rely on two perceptions of path dependence: the self-reinforcing (Pierson, 2000) and the reactive (Mahoney, 2000) types. For institutional embeddedness and institutional change we relate to Polanyi’s double movements (Polanyi, 1944), extended into a varieties of capitalism framework with reference to his discussion of the three fictitious commodities (Mjøset, 2015; Mjøset, 2011). We finally arrive at a national contextualisation which allows us to analyse food industry structure in the specific context of the two countries since the 1990s turn. Path dependence theories aim to identify causal chains in historical analysis that is, identifying causal mechanisms between events that constitute historical chains. The point is not to explain every event with another one, but to pay attention to how early events of a path impact the likelihood of later events. Pierson defines the increasing returns mechanism as one in which the move down a given path increases the benefits relative to alternative trajectories. Or ‘‘to put it a different way, the costs of exit – of switching to some previously plausible alternative – rise” (Pierson, 2000:252). Such paths are self-reinforcing (reproductive). Mahoney (2000: 526) adds the reactive (transformative) perspective within which an earlier event is a causal mechanism generating a transformative event at a later point in the sequence. In this second perspective, a turning point in a path is a causal response to earlier events. Path dependence and institutional complementarities have been developed as a correction of neo-classical market models (Crouch and Farrell, 2004) and is applied in the varieties of capitalism literature (Hall and Soskice, 2001). We regard both perspectives as being highly relevant to the study of Norwegian and Danish agri-food at the threshold to the 1990s. Below, we will give two path dependent causal explanations of M&A strategies in both industries. As for institutional embeddedness we relate to Polanyi’s three fictitious commodities of labour, capital and land. Polanyi’s idea of a double movement, published in his book The great Transformation (Polanyi, 1944), was rediscovered by social science, and by sociologists in particular, since the neo-liberal turn in the early 1980s. Polanyi argued that any attempt of commodifying the three, given free market competition and price formation, would undermine itself, as it would inevitably result in social countermovements establishing institutional protection systems. The capitalist transformation (the self-regulating market rationality) resulted in a social counter-move addressing protection of labour, capital and land. Here we build on Mjøset’s (2015) reconstruction of Polanyi and the concept of market-organising-institutions clustered around the three factors. While Polanyi identified the one great transformation, Mjøset introduces double movements in capitalist history as recurrent transformations renewing the set of market-organising-institutions. He argues that if we distinguish Polanyi’s three factors – labour, capital and land – as ‘‘three critical areas of institutional design, we see that double movements depend on the area studied and on the result of earlier transforma-

tions” (Mjøset, 2015, 27). We regard the latter results as cases of path dependence. The neo-liberal turn of the 1980s is thus another double movement, resulting in differing institutional responses in Norway and Denmark in the 1990s. In this paper we imply interdependencies between path dependent trajectories, national responses (double movement) in the early 1990s and food industry structure. As national market-organising institutions were reconfigured in the 1990s, corporate strategists at the firm-level responded in an interplay between global market dynamics and the institutions that organise the national markets. M&A strategies and the structure of the agri-food industries correspond to this open transformative process. In the next section we analyse the state of Norwegian and Danish agri-food industries at the turn of the 1990s. 4. Norwegian and Danish agri-food before and after the 1990s Structural development of agri-food industries follows path dependent trajectories. These can roughly be connected to climatic and topographic conditions that impacted on the early industrialisation strategies of both countries. Norway developed a system of small scale farming in those limited regions within the mountainous country that allowed agricultural activities. Denmark on its part could build a competitive export agri-industrial complex based on coherent, plain and high quality arable land. As a structure of family farms was developed through the 19th century, technological innovation emerged in the interaction between farms, cooperatives and small manufacturing workshops in towns and villages (Edquist and Lundvall, 1993). Below we shall briefly trace these trajectories for the pre- and post WWII periods in both countries. A summary is given in Table 4 below. As for the present macro-economic status of the two cases, Denmark is an agricultural exporter and Norway is focused on selfsufficiency without any strong export niches. Both countries have similar cultural and linguistic roots in the Nordic area. The population is about equal (Norway 4.9 million/Denmark 5.5 million) (Nordic statistics, 2014). Norway is traditionally an exporter of natural resources (energy, fish, timber) and it has less high-quality arable land than Denmark. Denmark, on its part, has no substantial resource base, while 75 percent of total area is arable land. Table 2 shows the agricultural resource base in both countries and huge differences regarding output and productivity. The economic weight of the agri-food industries is declining in both countries, but the decline started from a higher level in Denmark. Food demand does not change much over time and productivity gains cannot compensate for low growth in demand. Typically in developed countries, the contribution of agri-food to GDP is lower than in developing countries (Hansen, 2013:76). Stepped-up demand is one way to meet these challenges. Table 3 shows the contribution of agri-food to GDP development since the 1990s and its share of total exports in the same period. Driven by oil resources, Norwegian GDP and total exports rose sharply in the period. In Norway, the contribution to GDP is less than 2%, but the agri-food value chain is one of the biggest and coherent ones in the domestic economy. In Denmark, the contribution of agri-food industries to GDP is still about seven percent and specifically its export share is large, above 16 percent. Table 2 Resource base; arable land. Source: Nordic Statistics (2014).

Total arable land in 2012 (1000 ha) Arable land per capita in 2012 (ha) Harvest in 2012 (tonns) Harvest per ha (tonns/ha)

Norway

Denmark

816 0.16 1.084.000 1.32

2628 0.43 9.460.000 3.56

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B. Klimek, H.O. Hansen / Food Policy 69 (2017) 110–122 Table 3 Agri-food, GDP and total exports since the 1990s. Source: Statistics Norway and Statistics Denmark, own illustration.

Norway Denmark

Total GDP growth in % 1995–2012

Agri-food share of GDP 1995/2012

Total export growth in % 1995–2012

Agri-food export share 1995/2012

218% 98%

3.50% 10.35%

251% 113%

8.11% 22.07%

Low income elasticities of food demand (changes in income related to changes in consumption) are the most common explanation for the declining contribution of agri-food to GDP (Engel’s law). Food is a necessity good with low elasticities in Norway and Denmark (Edgerton et al., 1996). Elasticities below one therefore explain the decoupling of food demand from GDP growth in the long run and are in line with the macro economic data presented in Table 3. Productivity gains, increasing value added and broadening of demand (new consumers) is therefore imperative to agri-food companies in developed countries. It is mainly the possibility of broadening demand through exports that separates Norway and Denmark. This is a path dependent differentiation that goes back to the early 20th century industrialisation in both countries. The Danish export strategy allowed a response to global demand extension since the 1990s. As for Norway, low elasticities and the decoupling from GDP are crucial factors, since institutions separating the sector from the world market mainly focus on farmer’s income equalisation tied to GDP. Structural barriers to demand extension (subsidised exports) are key to understand Norwegian structural development since the 1990s. We regard both trajectories as strongly coordinated developmental strategies in the tradition of collectively oriented Nordic capitalism. In the next two sections we will briefly discuss milestones of both developmental strategies. 4.1. Norway’s institutional path before and after the 1990s For the development of the Norwegian agri-food industries we shall refer to a set of important historical decisions that above all are an attempt to maintain national supply and income equalisation. These are the cooperative marketing act of 1936 (omsetningsloven), the agricultural agreement in 1950 (jordbruksvavtalen), the income equalisation act of 1976 (opptrappingsvedtak), and the merger between the farmer cooperatives at the turn of the century. Since the 1990s, the WTO agreements and the EEA agreement are the main international regimes influencing Norwegian food production. The basic institutional features regulating Norwegian agri-food were established by the cooperative marketing act (omsetningsloven) in 1936. The act for the first time delegated administrative authority to the cooperative movement for the regulation of specified raw produce. Various administrative procedures have been established to regulate volume and to avoid overproduction. Since then, the cooperatives serve a kind of double function. They are commercial players in the markets and they maintain an administrative function regarding volume. Norwegian agri-food industrialisation is since that period centred around collectively organised domestic supply of raw produce. The early Norwegian cooperative movement intended to guarantee prices for farmers and sales opportunities in an agricultural system hampered by unfavourable geo-climatic conditions. This could be seen as a contrast to Denmark were the early cooperative movement intended to support capital intensive technology that again would serve to develop competitive exports. Later, since 1950, the agricultural agreement implied income negotiations between the Norwegian state and the two farmer associations. The agricultural agreement integrated Norwegian

1.81% 6.94%

5.78% 16.45%

farmers into the coordinated model of industrialising Norwegian capitalism through a system of target prices. Target prices are average prices that agricultural producers are permitted to obtain in the market. They are the result of annual agricultural negotiations between the state and the two main farmer associations (Norges Bondelag, organising the medium-sized farms, and Norges Bonde- og Småbrukarlag, organising the smaller farms). In these negotiations, political concerns about income equalisation between farmers and industrial workers play a role. The aim is to control domestic prices and secure farmers’ incomes, independent of changes on the world markets. Negotiated prices, import restrictions and a system of supply–demand regulation are the main pillars of the nationalisation of Norwegian agriculture. In the 1960s, we find elements of a similar system in Denmark, as there was price support for national supply (the Danish domestic market measures, see Section 4.2). However, the Norwegian system required a permanent separation from world market developments. The income equalisation act (opptrappingsvedtak) of 1976 was a national attempt to impose the income equalisation objective more strongly and thus secure that small scale farming across the mountainous country could be maintained at a time when Sweden and Denmark rationalised their agricultural sectors (Olsen, 2010). In this system of market regulation the farmer cooperatives have come to enjoy the position of semi-authorities. In the late 20th century, the collectively regulated, but still regionally organised farmer cooperatives, merged. Since these mergers, two nation-wide organised cooperatives, Tine in the dairy and Nortura in the meat sector, dominated the Norwegian agri-food industries. The cooperatives, owned by the farmers, are political semiauthorities as they regulate the market volume. Due to priceagreements (income negotiations) and collaboration in the value chains, domestic agricultural raw produce had to be exempted from Norwegian competition law §10 and §11 (Primærnæringsu nntak). Towards the turn of the century, Norwegian agricultural cooperatives were consolidated at the domestic level, as was the case in Denmark, too. Structural developments of Norway’s agri-food industry are clustered around the cooperatives and the market-organising institutions described above. In line with our account of institutional embeddedness in Section 3.2, the Norwegian model of agriculture can be seen as a countermove, based on social movements and cooperative efforts, against capitalist commodification. The target price system is, in terms of Polanyi’s double movement, an attempt to de-commodify agricultural labour and land, thereby rejecting international price formation/competition. It is this very system of target prices that has come under pressure since the 1990s. Target prices are subsidised prices and the WTO-agreements (starting in 1995), namely the Aggregate Measurement of Support (AMS) of WTO’s yellow box, requires Norway to reduce subsidies. In recent years, the partners to the agricultural negotiations agreed to exclude poultry and beef from the target price system. This is related to the limits imposed by the WTO (Veggeland, 2001; Olsen, 2010). Target prices have until now guaranteed income equalisation. Institutional features divide Norwegian agri-food into two different parts along the supply chain. The first is clustered around

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the cooperatives as shown in the discussion above. The second, the processing industry, operates under the raw material compensation (RÅK scheme). This is an attempt to protect the input of Norwegian raw produce, given free competition at the industrial level. It regulates the entry to the EU internal market. The so-called non-annex 1 products relate to the EEA agreement, which defines commodities that are subject to the raw materials price compensation. Three instruments can be applied to compensate price differences on raw materials. These are direct tariffs on imported RÅK products, price write-downs on domestically produced materials, and export subsidies that compensate for the price differences between Norwegian and international prices. But limits set by WTO also apply in these cases. The processing industry is fragmented, while the agricultural industry is clustered around the dominating cooperatives (cf analysis below, pt. 6.2.). We conclude that Norway’s agri-food chain is divided into two parts, the first (farming and agricultural industry) being nationalised and protected, the second being exposed to international competition. The WTO and EEA trade agreements of the early 1990s can be considered a turning point in Norway’s agriindustrial path (reactive path dependence) that had so far depended on separation from the world market. We develop this argument through an institutional specification of two concepts of structural developments (definition in Section 3.1). Within our grounded theory framework, we specify forms of concentration and degrees of internationalisation as properties of our core category of ‘‘industry structure and structural development”. Through our comparative analysis of the two cases below, we find that the Norwegian case is marked by two specific forms of concentration (which we label structural national growth barriers and insulated concentration), as well as by a specific degree of internationalisation (which we label connection-disconnection to the EU market). This specific form of structural development promotes market dynamics that we again relate to M&A activity. We will return to this in the analysis below (see the threefold Tables 5–9). 4.2. Denmark’s institutional path before and after the 1990s Denmark is considered a coordinated Nordic market economy, too. But Denmark’s agri-food industrialisation is largely the result of a liberal association to international markets. The cooperative movement and the agri-industrial complex played a crucial role in Denmark’s early 20th century industrialisation (Mordhorst, 2008). Below we refer to single periods in Danish development according to the Norwegian examination. As a result of late 19th century adjustments to a world economy increasingly influenced by the transport revolution (Menzel, 1988), 90 percent of total Danish exports consisted of processed agri-food products by the early 20th century, especially butter and meat for the UK market. The early agri-food industrialisation particularly depended on the liberal access to the UK export market. The political mobilisation of Danish farmers implied liberal trade policies. But in certain periods, Danish strategies of agri-food development have still implied economic interventionism and attempts to support income developments, as in the case of Norway. These interventions, however, were temporary and carried out in extraordinary times of crisis, such as under WWI and WWII (Kyed and Kærgård, 2005:121). A first and early sequence was connected to a crisis of Danish grain exports in the late 19th century. Denmark’s main traditional agri-export item was grain. But this item was outcompeted by cheaper grain from countries such as the USA, Australia and New Zealand, due to new transportation possibilities (Menzel, 1988:182). This crisis forced Danish exporters to restructure. Denmark thus became a highly efficient producer of animal products, such as butter and meat. Until World

War II, the industrial linkages that had already earlier developed in conjunction with agri-exports (Edquist and Lundvall, 1993), were further developed into world leading manufacturing and service sectors related to the agri-food industries (Senghaas, 1982:128). Basic political concerns, including those of the farmers and the two main cooperatives, focused on international competitiveness as income development in the Danish agri-food supply chain depended on access to foreign markets. The Danish profile of modernisation changed dramatically in the 1960s with the implementation of the domestic market measures (hjemmemarkedsordninger) starting in 1958. Until the 1960s agriculture was the largest export sector within Demarks economy, but after WWII terms of trade developed negative for the sector (Christoffersen, 1999:33). General Danish income rose, while the export markets of the agricultural sector stagnated and income development in that sector lagged behind (Kyed and Kærgård, 2005:122). The Danish export strategy was strained by agrarian protectionism in most of its international market in the early decades after WWII. Industrialised agriculture developed also in neighbouring countries and factor costs rose. Thus, the attempts to recover Denmark’s domestic agri-industrial complex was a major challenge and required extensive rationalisation. The first response in this situation was a domestic merger-wave. This led to the foundation of the larger dairy cooperative MD (Mejeriselkabet Danmark), which later was integrated into the present Arla system. This new period for the first time showed permanent economic interventionism to back up income policies and structural transition in the agri-food chains. The domestic market measures consisted of four elements of support to the agricultural sector: a grain measure (kornordning), direct subsidies (statstilskud), the domestic market measures (hjemmemarkedsordninger) for animal products, and tax reductions. The total support rose from 34 m. DKK (in 1959) to 1866 m. DKK (in 1970). Support increased continuously until 1973, when Denmark joined the EU and was submitted to EU internal agricultural regulations. From the early 1960s, the Danish export industries thus developed within an institutional framework that implied regulations and subsidies. In the 1960s Danish support clearly rose in aggregate terms, but they were quite moderate in international comparison. The relative Danish price support during the 1950s and 1960s was the lowest of all western industries (Gulbrandsen and Lindbeck, 1969: 39). Estimates of the Nominal Protection Coefficient (NPC) during the same period confirm that the Danish level of subsidies was quite low (Hansen, 1989:69 – Fig. 1 below). Subsidies accounted for about one-third of Danish agricultures’ income (Christoffersen, 1999:33). But note that such estimates underlie uncertainties given the broad range of factors that might influence income development. This Danish period of economic interventionism can be considered a counterpart to the post WWII Norwegian developments, particularly the general agreement of 1950. Both systems developed institutional frameworks that would integrate farmers into the social-democratic type of coordinated 3.5 3

NPC ratio

114

2.5 NPC Norway, 1.54

2 1.5 1 0.5 0

1= world market price

NPC EU (Denmark),

1.06

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Fig. 1. National Protection Coefficient since the 1990s.. Source: OECD

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capitalism, indexing incomes in the agricultural sector to general macro-economic developments. Note also that this period of Danish recovery prepared the sector for EU membership in the 1970s. We find another counterpart in Norway, namely the income equalisation act (opptrapningsvetak) of 1976. Rationalisation and EU market adaptation on the Danish side and strengthening of small scale farming across the mountainous country in Norway are comparative path-dependent developments in the early post-WWII period. As the sector depended on exports, farmers actively mobilized in favour of Denmark’s EU integration in the 1970s. In contrast, Norwegian farmers and their cooperatives mobilized against Norwegian EU-membership. Later developments were largely affected by the Common Agricultural Policy (CAP) of the European Union (EU). After Denmark’s 1973 entry into the EU, the country’s agricultural policy making has become part of European alignment process. The CAP was first established in 1962, consisting of different programs to align agricultural policies between the member countries. The CAP also organizes a system of agricultural subsidies. Danish farmers supported EU membership since EU subsidies were even higher than those organised under the domestic market measures. However, the liberal trend continued as European agriculture was increasingly liberalised. This started with the GATT negotiations of 1986, later leading into the WTO agreements in 1995. Since the 1990s, European agricultural support has been reduced. OECD data show that producer support in Norway and Denmark (EU) differs considerably. The National Protection Coefficient (NPC) is the ratio between average prices received by producers and world market prices. In 2013 Norway had an NPC ratio of 1.54 and Denmark (EU) of 1.06. The later consolidation of EU’s internal market in the 1993 Maastricht Treaty, became yet another factor that impacted on the structural development of Danish food production. Denmark’s EU membership generally implied full international integration with demand extension and competition on the domestic market. This led to structural developments that differ considerably from the Norwegian case. The EU enlargement in 1995 that made Sweden, Finland and Austria members of the union, had strong impact on the Danish food industry. In a situation of growing global competition, the Nordic food markets increasingly became an enlarged domestic market for Danish agri-food companies. Cultural and linguistic affinity between the Nordic countries facilitated the development of these markets as a home base, within which firms would enjoy stepped up consumer demand (TemaNord, 2004). The most crucial event in this Nordic expansion was the Swedish entrance into EU, which resulted in the cross-country merger between the Danish cooperative dairy MD Foods and the Swedish cooperative dairy Arla (see Section 5.4). In sum, structural development in the Danish agri-food industry since the 1990s has been a continued and path dependent process of internationally oriented food production. This is a move down the self-reinforcing path and the main contrast to Norway. As for Denmark we identify a specified comparative finding of structural development: the degree of internationalisation (Section 3.1). This can be characterized as ‘full international integration in both ways’ with global demand extension and foreign competition in the home market. This kind of integration promotes market dynamics and, again, M&A activity that differs from that of Norway. We will return to this in the analysis below (see the threefold Tables 5–9). 4.3. Summary By the 1990s, the agri-food industries of both countries had undergone domestic consolidation and left the sectors with two dominating farmer cooperatives (dairy and meat) in each of the

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two countries. As parts of the distinct developmental strategies, the cooperatives have close to monopoly positions in their respective home markets. Both models of agri-food industrialisation have developed on the basis of cooperative organisation. Socioeconomic transformations in the late 19th century allowed Denmark – given its climatic and topographic conditions – to develop export industries able to compete in the world market. Norway – with less favourable geo-climatic conditions – focused on national supply, income equalisation and did not develop any strong export niches. Consequently, path dependent institutional responses at the neo-liberal turning point in the early 1990s resulted in one case still relying on world market separation (Norway) and the other case deepening its trade liberalisation strategy (Denmark). In the empirical analysis below, we investigate how M&A driven structural development corresponds to these two national trajectories. Table 4 summarizes the milestones of both countries’ historical paths. 5. Analysis: food industry in Norway and Denmark since the 1990s We will compare structural developments within five subcategories (Fig. 2). As for Norway, we identify two separate institutional stages of agri-food regulations (NO1 and NO2), according to the specific market-organising institutions presented in Section 4. We thus find that structural changes in Norway can be related to a dualism. In the Danish case, we find one coherent, embedded agrifood complex, defined by its full international integration (DK1). In both countries, we pay separate attention to how retailers contribute to structural development (NO3 and DK2). Our analysis of structural development following the 1990s transformations thus consists of five single blocs discussed below. We pay attention to motives and drivers for food industry M&A’s (Table 1), analyzing these in the context of institutional transformations since the 1990s (Section 4). We trace M&As as crystallizations of structural development. Our analysis of M&A firm strategy includes the three analytical levels presented above. These levels are: firm strategy, sectorial market dynamics, historical embeddedness and institutional political economy. This allows us to integrate present firm strategy and longer term developments, such as different types of path dependency, in our analysis below. 5.1. The Norwegian agricultural industry (NO1) The Norwegian agricultural industry (NO1) is dominated by the two farmer cooperatives organised nation-wide: Tine (dairy) and Nortura (meat). Thus, we study the cooperatives and their smaller competitors. Market-organising institutions secure a national pattern of agricultural raw produce. Structural developments since the 1990s follow the same nationalised pattern. This pattern differs from both that of the Norwegian processing industry (NO2), and the Danish agri-food complex (DK1). Patterns of structural development in the agricultural industry follow three basic characteristics. First, nationalisation results in structural growth barriers, due to the limitations defined by about five million Norwegian consumers. Second, subsidised exports from Norway are prohibited by WTO restrictions. Third, any form of competition in Norway’s agricultural industry is clustered around the two cooperatives. Table 5 illustrates the relationship between market-organising institutions, specified market dynamics and the economic drivers for M&A-driven structural development since the 1990s. Starting with the cooperatives, they are most centrally hit by constant demand and the prohibition of subsidised exports. We therefore identify diversification and foreign growth (Table 1) as

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Table 4 Milestones of agri-food development in Norway and Denmark. Climatic and topographic conditions

Agri-food development Early 20th century Industrialisation

Norway – Early industrialisation focusing on national supply – Cooperative marketing act (1930) (regulation of volume) – General agreement (1950) – Domestic consolidation

First period of European integration, 1970s & 1980s

– 1st EU rejection (1972) – Income equalisation act (1976)

Development since the 1990s: new techno-economic paradigm/ europeanisation/globalisation

– – – – – – – – –

Market-organising-institutions

Agri-food share of GDP 2012 Agri-food export share 2012 Forms of concentration (market dynamics since 1990s)

Degree of internationalisation (market dynamics since 1990s)

– – – – –

2nd EU rejection (1994) EEA agreement (1994) WTO (1995) Partly exception from competition law Growing import competition Reduction of domestic capacity Market regulation (target prices) EEA WTO 1.81% 5.78% High Structural growth barriers Insulated concentration Low Connection–disconnection to EU

– Plain agricultural land allows the development of larger and more coherent farming systems than in Norway – Agricultural land 2.628.000 ha (0.43 per capita) in 2012 – Harvest 9.460.000 tonnes in 2012 – Harvest tonnes per ha = 3.56 Denmark – Late 19th century grain crisis, conversion to animal based products – Agri-food industries leading in early Danish industrialisation – UK exports, liberal trade attitude – Domestic market measures (1960s) – European exports struggling – Domestic consolidation – EU member (1973) – GATT starting in 1986 – CAP (starting in1962) – WTO liberalisation (1995) – EU internal market (Maastricht treaty 1993) – International integration – Extension of domestic and foreign capacity – From exports to FDI – EU member/internal market – CAP – WTO 6.94% 16.45% – High

– High – Full international integration in both ways o Global demand extension o foreign completion on home marked

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Post WWII, 1950 & 1960s

– Mountainous, agricultural land is scattered across different regions, mostly only allowing small scale farming – Agricultural land 816.000 ha (0.16 per capita) in 2012 – Harvest 1.084.000 tonnes in 2012 – Harvest tonnes per ha = 1.32

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Fig. 2. Institutional market design of agri-food chains in Norway and Denmark.

Table 5 NO1; drivers for M&A’s since the 1990s. Market-organisinginstitutions

Market dynamics

Driver for M&A’s since 1990s

EEA (European Economic Area) WTO liberalisations since 1990s Domestic market regulation system

Structural growth barriers (constant demand) Insulated concentration

Diversification Attempts to foreign growth Entry barriers Domestic ‘duopolistic’ growth

main drivers for M&A driven structural development. Growth barriers push firms to grow by foreign M&As. Diversification of product range is a strategy of domestic expansion into growth categories. In 2012, Tine acquired the US-based dairy company Alpin Cheese Co. Our data indicate that this was a strategic motive to meet further WTO liberalisations. ‘‘Processing of Norwegian raw produce will, above all, be concentrated on the five million people living here. If you want to grow within such a context, you need to stand on the other foot, which is foreign acquisitions (. . .)” (strategic judgment by a representative of Tine) Diversification into processed food categories is the domestic economic driver for structural development. Today Tine’s share of processed foods is about 35 percentages.1 Nortura, on the other hand, struggles with less profitable commodity production in the fresh meat sector. Here, price is a central competition parameter. The meat cooperative is thus in a precarious situation. Private label production is growing and WTO regulations prevent any forms of subsidised meat export. But Tine, in line with its Danish peers, is trying to increase its share of processed foods and is profiting from brand development. As for the dairy cooperative Tine, the main drivers for structural development since the 1990s has therefore been to expand into foreign markets by M&As and into processed foods in the domestic market through product diversification. Looking at the smaller competitors we identify the specified market dynamic that we describe as insulated concentration. Smaller national competitors try to capture market shares from the dominating cooperatives and entry barriers are high. According to our model (Table 1) we identify duopolistic growth strategies against the cooperatives and national entry barriers as central motives for M&As. Since the late 1990s, Private Equity (PE) capital started investing in the agricultural industry, engaging in duopolistic competition against the cooperatives (Klimek and Bjørkhaug, 2015). The PE house CapMan invested in the poultry market and the PE house Reiten & Co invested in meat, both challenging Nortura. The Nordic brand platform Scandza AS, which is backed by CapVest PE, invested in dairy in competition to Tine. Common to these investments are a specific national style of duopolistic national growth strategies. An investor behind one of those acquisitions mentioned that ‘‘this is exclusively a Norwegian business case and our main goal is quite easy; being better than our main

1

According to Tine representatives.

competitor.” (Norwegian investor, interview) Today the poultry market is spilt between the cooperative (Nortura, about 65%) and the PE backed challenger (about 35%). Entry barriers into the protected market prevent foreign competition. In 2009, the brand platform Scandza acquired ‘Synnøve Finden AS’ which is the only dairy company outside of the Tine system producing cheese with national brands and its own production plants. Entry barriers are thus another driver. We hold that such investments illustrate the unique national pattern of structural development in the Norwegian agricultural industry. Since the 1990s, we observe that agricultural industry expects exposure to further liberalisations. We identify national structural growth barriers as a driver of M&As and one major pattern of structural development since the 1990s. We find that this strategic firm behaviour constitutes a turning point in Norway’s agri-industrial path (reactive path dependence), which aims to maintain efficient and competitive companies in an insulated, small market. The agricultural cooperatives reduce capacity in the domestic market. The case of Tine shows an increase of capacity in foreign markets. WTO regulations block exports of their Norwegian products, and this explains Tine’s strategy. Smaller national competitors try to act as first movers, challenging the position of the cooperatives in a process of duopolist competition. 5.2. The Norwegian processing industry (NO2) As for the processing industry, we study those Norwegian brand houses that operate in the Norwegian and in the EU internal market. Brand houses focus on the maintenance of brand portfolios and do not engage in competition with the farmer cooperatives. The management logic behind brand portfolios is to grow either through expansion of one strong brand or through brand segmentation. Brands shape consumer loyalty, give unique selling positions and allow for scale economies specifically on the marketing level (Barwise and Robertson, 1992). Strong brands have position one or two in the markets (according to sales volume). This gives bargaining power in negotiations with the supermarkets. Norwegian brand houses in that category compete with global players such as Nestlé or Unilever. The specific market dynamic affecting M&A activity is the ‘connection-disconnection’ to the EU internal market. We identify diversification of brand portfolios, foreign growth, and market share and dominance (Table 1) as the main enforcing drivers for M&A activity since the 1990s. Diversification is crucial for brand strategies since strong portfolios lead to increased market shares and dominance. Norwegian brand houses try to diversify brand portfolios, as their international peers do. But the specific situation of Norwegian brand houses since the 1990s is one in which internal and external market dynamics do not allow them to operate their brand portfolio effectively inside and outside of the domestic market. We describe this market dynamic as connection-disconnection to the EU market and in terms of structural development this is a specific degree of corporate internationalisation (Section 3.1) specified in the Norwegian institutional context. Norwegian based companies operating internationally are at comparative disadvantage because their international peers operate in bigger and liberalised markets. The processing industry operates in an institutional framework that protects inputs of Norwegian raw

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produce while approving international competition at the industrial level. Companies are connected because they compete with European peers and they are disconnected since they cannot operate at the same level. The leader of a Norwegian brand house expressed this as follows: ‘‘I actually will claim that the EEA agreement or our ‘no’ to the EU forced the big Norwegian food corporations to substitute exports or export ambitions with acquisitions within the EU. We had exports to Sweden. But this was hampered when Sweden became a EU member and we did not. So we started to acquire businesses in Sweden, we acquired many businesses in Sweden, and we have merged them. We probably would not have done that if we had not been outside of the EU. We would rather have continued with exports from Norway, maintaining only a sales organisation in Sweden. We would not have run factory production in Sweden. This would have allowed us to increase the scale of our Norwegian units (. . .)” (a company leader) Some of the Norwegian brand houses have grown to such a size that the other two market dynamics of growth barriers and insulated concentration affect M&A strategies indirectly, too. Competition among well-functioning brands is strong, something which raises barriers to organic growth in the market. This is an incentive to grow by M&As rather than extending the market. In sum, the processing industry does not rely only on input of Norwegian raw produce, which is what the cooperatives do. Brand houses since the 1990s try to enter the EU internal market, but confront competitors that produce at a larger scale. The main driver for structural development is therefore the specific connection-disconnection to the EU internal market. We find that this is a particular pattern of internationalisation. This is one of our main comparative findings concerning market dynamics at the sectoral level. We also find that this pattern of internationalisation, and the firm strategies that it implies, confirms our argument of a turning point in Norway’s agri-industrial path (reactive path dependence).

Table 6 NO2; drivers for M&A’s since the 1990s. Market-organisinginstitutions

Market dynamics

Driver for M&A’s since 1990s

EEA (European Economic Area)

Connectiondisconnection to EU market

Diversification

WTO liberalisations since 1990s Domestic market regulation system

Foreign growth (EU internal market) Market share and dominance

guarantee the supply of produce and to control critical supply chain assets. Critical assets accrue in situations of insulated concentration where retail chains depend on national supply. Table 6 summarizes the relations between our specified market dynamics and drivers for M&As in the Norwegian market. The vertical integration situation is quite differentiated with Coop and Rema 1000 engaged in direct ownership, and Norgesgruppen largely operating with contract production and strategic partnerships. One basic reason for vertical integration is communication with consumers and marketisation of single product categories. Different retail concepts like price competition (discount) or qualitative product variation (supermarkets) require that the supply of produce is in line with marketisation (consumer communication) in retail stores. Our data indicate that such differentiated supply of produce is limited, or at least threatened, by the market dynamic that we describe as insulated concentration. Such insulated concentration – where food production relies on the national arena – encourages the development of critical supply chain assets, and these appear as particularly interesting to acquisitions and ownership. The case of Rema 1000 acquiring two smaller domestic poultry producers is an example that directly relates to category development and marketisation of chicken in retail stores. In sum, the Norwegian retailer segment is differentiated, but ownership in the processing industry is an obvious vertical integration option. This is a contrast to the Danish sector, as we will discuss below.

5.3. The Norwegian retailer segment (NO3) 5.4. The Danish agri-food complex (DK1) The market-organising-institutions of Norwegian agri-food production influence the structure of the retail segment in at least two ways. First, the nationalised form of competition in the agrifood chain is a direct influence on the product range and shelf space. Second, and more indirectly, entry barriers also create barriers to foreign retail chains struggling to enter into the Norwegian market. The Norwegian retailer segment has, in line with international developments (Burch and Lawrence, 2005, 2007; Olsen, 2010), gained a dominant position and is currently undergoing huge restructuring. Until recently four retail chains were operating the Norwegian market: Norgesgruppen (39%), Coop Norge (23%), Rema 1000 (21%) and ICA (11%).2 In 2014 Coop announced the acquisition of the Swedish owned ICA chain resulting in a tripartite market. With ICA’s exit, just three Norwegian domestic retailers are left in the market, as the German discount chain LIDL failed in its attempt to enter the market already in the early 2000s. This is a pattern of insulated concentration (one of our specified comparative findings) and explains M&A activity in the retailer segment. The main driver of retailers’ backward ownership in the agri-food chain is vertical integration. Our data indicate that the specific market dynamics of insulated concentration push single retailers into vertical ownership. The main objective is to 2 Market share in percentage according to Nielsen company 2012 (Nielsen report, 2012).

Structural developments in the Danish agri-food complex are quite different from the Norwegian case due to the global market dynamics and Denmark’s export-developmental path. As in Norway, two Danish farmer cooperatives (Arla and Danish Crown) are the centrepieces of structural developments. But in Denmark, these firms are at the forefront of global expansionism and market liberalisation. The backdrop for Danish agri-food development since the 1990s has therefore been international trade liberalisations (WTO and EU internal market). Full international integration is a comparative category indicating world market competition and global demand extension. Agri-food adaptations had to cope with these intensified market dynamics. Both dimensions required structural adaptations and M&A strategies clearly have been motivated by these transformations. Below we discuss three different cases that exemplify steps of full international integration. First, Arla Foods (dairy) and Danish Crown (fresh meat) exemplify world market expansion of Danish based agri-food production. Second, the domestic sugar industry was consolidated, then partly split, and finally sold to foreigners. Third, the Danish poultry sector was fully acquired by foreigners, too. Table 7 summarizes market-organising-institutions, our specified market dynamics, and the drivers of M&A activity. Starting with the Danish dairy market, the farmer cooperative Arla Foods became the leading national player in the sector. Arla

B. Klimek, H.O. Hansen / Food Policy 69 (2017) 110–122 Table 7 NO3; drivers for M&A’s since the 1990s. Market-organisinginstitutions

Market dynamics

Driver for M&A’s since 1990s

EEA (European Economic Area) WTO liberalisations since 1990s Domestic market regulation system

Insulated concentration

Vertical integration Guarantee of produce supply

Foods is the result of a long process of domestic consolidation clearly driven by international integration (Hansen, 2005:84). The merger between the Danish MD Foods and the Swedish Arla in 2000 is the key example of how the challenges of global market competition were met. Cooperation between the two companies already started in 1994. At that time, the Swedish part prepared for EU membership, which followed in 1995. The Danish part was interested in developing the Swedish market (TemaNord, 2004:86). After the merger, Arla Foods rose to become one of the ten biggest dairy companies world-wide and the biggest in Europe. It had 17.200 employees and a cooperative society of about 13.650 (farmer owners) in 2002 (TemaNord, 2004:87). Currently, Arla Foods divides growth strategies into core markets (European) and growth markets (Russia, China, Middle East) (Arla, 2013). Our data indicate that in order to meet these international challenges, the main drivers of M&A activity within the Danish dairy sector since the 1990s have been positioning on emerging markets (foreign growth), scale economies, diversification, and market share and dominance. As for economies of scale, reaching critical mass and international size are conditions if Arla Foods is to maintain investment capacity within technologies and R&D. Arla Foods is also diversifying into processed food categories, as Tine is doing in Norway. Finally, size, international presence and capacity are central mechanisms to reach market dominance. Arla Foods had extended demand through Nordic, European and global market development. A central representative of Arla noted: ‘‘Trade liberalisation and new transportation technologies made it possible to develop distant markets. Today Australia imports 25% of their cheese, and Denmark has 57% of Australia’s import of blue-veined cheese – a process which has not been possible just a few decades ago.” (Representative of Arla Foods) The Danish counterpart cooperative is Danish Crown in the meat sector. Since the 1960s, the Danish pork sector had undergone domestic consolidation. In 1998, this left Danish Crown as the single dominating cooperative (Hansen, 2005:76). At that time, domestic consolidation had been exploited and the focus shifted towards international expansion. As was the case with Arla Foods, Danish Crown first followed a growth strategy into European core markets, thereafter tried to expand into Asian markets. Today twothirds of total employment is located outside Denmark (Nielsen et al., 2011). One very central driver for M&As has been access to cheap produce and resources. Price is one central competition parameter in the fresh meat market. A representative for Danish Crown stated: ‘‘Yes, the access to cheap labour costs is a central driver for international investments. A large part of processing and value adding is located in the UK, Germany and Poland, due to lower labour costs.” (Representative of Danish Crown) The Danish sugar industry has undergone a full restructuring since the 1990s, too. The history of the Danisco company goes more than one hundred years back. In the run of the 1990s, Danisco became the biggest Nordic player in the sugar industry with acquisitions in Germany, Lithuania, and Finland. The focus

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has been on ingredients for the food and beverage industry, including sugar and sweeteners. But since the 2000s, Danisco was restructured. Sugar refineries have been sold to the German Nordzucker, packaging was sold to Australian Amcor and the division of convenience was closed. The remaining part of ingredients was acquired by US-based DuPont in 2011. Danisco went through consolidation in the 1990s, then exit strategies, and finally incorporation into DuPont. The strategic drivers related to the liberalisation of the European sugar market, which was regulated through quotas and trade restrictions. Given these demand-regulating quotas, increase of productivity and access to cheap produce and resources have been central competitive strategies and motives for M&As. The final round of consolidation, with Danisco selling sugar to Germany, is related to the expectation of increasing international competition as quotas will be phased out in 2017. The customers of the sugar industry have coordinated their strategies at a pan-European level, forcing the sugar industry to match these structural developments. Danisco’s decision to incorporate parts of their ingredients production into DuPont was a logical consequence of a strategic partnership that had been established earlier. The Danish poultry sector has undergone domestic consolidation in the run of the 1990s. As a result, the poultry market was split between two national poultry producers, Danpo and Rose Poultry. Later, both companies were acquired by foreigners, leaving the Danish poultry market completely owned by two leading Nordic poultry manufacturers. Danpo is, together with Cardinal Foods (Norway) and Krånfugl (Sweden), integrated in the Swedish based system of Scandi Standard. Rose Poultry is integrated in the Finnish based HKscan group which operates in Sweden, the Baltics, and Poland. The drivers encouraging Nordic foreigners to enter the Danish market are diverse, but related to some general trends in the poultry sector. Poultry experienced organic growth in recent decades and technological development made highly automated production facilities possible. The two Danish manufactures struggled with shifting ownership, limiting badly needed capital investments. In contrast to Norway, Danish poultry was not owned by farmer cooperatives, so there was no protection against foreigners entering the market. As for the Nordic/Baltic integration, the Finish HKscan group had been a producer of pork. Danish poultry was acquired as part of a strategy of both diversification and foreign growth. Denmark had exports of frozen chicken to the Middle East, which was outcompeted by Brazilian exports. The Nordic poultry market is based on fresh meat and cooperation across the Nordic countries. European integration is thus one backdrop behind these developments. One Danish sector representative mentioned: ‘‘The Danish poultry sector lost market shares in EU, but new markets outside EU – mainly in the Arab countries – were utilized, and the total production of poultry meat was maintained.” (Danish sector representative) The strategic drivers for this Nordic integration was therefore as follows: Parts of the European markets had been developed by competitors, global competition in frozen chicken became difficult, and Nordic, non-Danish, players started to consolidate the Nordic market since the late 1990s decade and left Danish poultry owned by foreigners. In sum, M&A-driven structural development of the Danish agrifood complex is most visibly characterized by full international integration in both directions. The two Danish cooperatives (Danish Crown and Arla) took advantage of global integration, successfully catering for demand from middle-class consumers in distant Asian markets. The strategic drivers for M&As behind this expansion have therefore mainly been the wish to reach critical mass, achieving international presence through foreign acquisitions, and cost reduction strategies through acquisitions in countries

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with lower labour costs. As for integration in the other direction, parts of the Danish agri-food complex, also those closely affiliated to agricultural raw produce (poultry), were taken over by foreigners. Structural development of the Danish agri-food complex followed a trajectory of internationalisation that we can relate to EU internal integration (core markets to Danish demand extension) and growth markets through step-by-step development of new distant growth markets. This kind of full international integration in both directions differs markedly from the Norwegian dualist agri-food chain. Danish market-organising institutions since the 1990s allowed cross-national capital flow and M&A driven structural development across one coherent agri-food complex. With reference to our third analytical level, which is historical embeddedness and institutional political economy, we find that firm strategy in the Danish context constitutes an intensified ‘move down’ an agri-industrial path based on export strategies. With reference to our two definitions of path dependence (Section 3.2), the Danish developmental strategy was able to take advantage of the new ways of organising production and global trade (a selfreinforcing path dependence). 5.5. The Danish retailer segment (DK2) The Danish retailer market is dominated by three companies. In 2012 the market was divided between Coop Denmark (37.4%), Dansk Supermarked (32.5%), and Dagrofa (15.6%). Norgesgruppen, the leading Norwegian retailer group holds a 49% stake in Dagrofa. Additionally three foreign chains operate in the Danish market and these are Rema 1000 (6.8%, Norwegian discount), Aldi (3.3%, German discount), and LIDL (2.4%, German discount). The three leading chains together have a market share of about 85% (Konkurrence- og forbrugerstyrelsen, 2014). Foreign involvement is much higher in Denmark, given that Norgesgruppen’s share in Dagrofa is an attempt to develop Norwegian chains in the market, too. Our data indicate that Denmark’s EU integration influences structural developments among retail chains in a way that is quite different from Norway. Entry barriers are lower, vertical integration proceeds by contract production or alliances, and there has been a clear trend towards de-mergers. Table 9 gives a summary of our analysis of the Danish retailer segment.

Table 8 DK1; drivers for M&A’s since the 1990s. Market-organisinginstitutions

Market dynamics

Driver for M&A’s since 1990s

EU membership

Full international integration Demand extension

Economies of scale

World market competition

Diversification

WTO liberalisations since 1990s CAP

Market share and dominance

Positioning on emerging markets (foreign growth) Access to cheap produce and resources Increase of productivity

Table 9 DK2; drivers for M&A’s since the 1990s. Market-organisinginstitutions

Market dynamic

Driver for M&A’s since 1990s

EU membership

EU international integration

De-mergers Vertical integration through partnerships, sourcing and contract production instead

Vertical integration is the main driver of M&A driven structural developments in the Danish retailer segment, too. But this time the main tendency within the sector since the late 1990s is a strategy of de-mergers and a focus on core business. Using Coop Denmark as case, this leading retail chain originally owned parts of the processing industry, but followed a de-merger strategy. The reason has mainly been comparative disadvantages. A central representative mentioned: ‘‘No, it’s getting too expansive and there are so many processors in the whole world which are bigger and transportation costs are low. By now, we can move production from one day to another and it’s just cheaper (. . .).” (representative of Coop Denmark) As is the case in the Norwegian retailer segment, the basic motivation for vertical integration is category development in the supermarkets. But in contrast to Norway, Danish retailers most clearly indicate that global sourcing opportunities in open markets make ownership of smaller industry units less attractive. Danish retailers focus on core business and use global sourcing through partnerships to integrate vertically. This is a contrast to the Norwegian retailer segment where ownership is an active strategy. While full international integration in Denmark makes possible global sourcing strategies, including global price competition, the Norwegian market allows the domestic retailers to engage in industry ownership. In sum, Danish retailer focus on core business and global sourcing strategies and there is today no substantial direct ownership. This is the most visible difference compared to Norway. Data indicate that full international integration make ownership less competitive in the Danish context. 6. Conclusions We have reconstructed structural developments in the agrifood industries of Norway and Denmark since the early 1990s. We identify path dependent patterns of structural development within the interplay of specific configurations of the marketorganising-institutions, market dynamics and the strategic motives for M&As. We finally arrive at a contextualised and path dependent explanation of the strategic drivers behind structural development in Norway and Denmark. We started with formal corporate strategy theories on agri-food M&As in Section 3 and we finally arrive at an institutionalised specification for both countries. Path dependent policy responses of the 1990s are most visible for the degree of internationalisation, which differed in both countries and that made particular responses more likely than possible others. Some of the strategic drivers, such as diversification, overlap in both countries since they relate to basic corporate strategy aims. But the analysis shows that policies that organise the markets channel structural developments into specific path dependent patterns. Firm strategies in both countries are responses to the neo-liberal turn in the 1990s. These responses are in accordance with the specific path dependent trajectories of each country. We further find that each case of agri-industrial development represent different types of path dependency: self-reinforcing in the Danish case, and reactive in the Norwegian case. Our comparative findings are summed up in Table 10. By means of comparative specification, we find that the main comparative differences in terms of structural development are (a) different degrees of international integration and (b) different forms of concentration. These are specified comparative findings based on integration of analyses at several levels (firm, sector, national political economy and regional integration), based on interview material, historical material and macro-economic data.

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B. Klimek, H.O. Hansen / Food Policy 69 (2017) 110–122 Table 10 Conclusions. Norway Market-organising-institutions since the 1990s (policies) Market dynamics since 1990s (case specific comparative findings) Strategic drivers for structural development (summarized)

– – – – – – – – – – – –

Denmark

EEA WTO Market regulation/target price system Structural growth barriers Connection – disconnection to EU Insulated concentration Diversification ‘attempts to’ foreign growth Entry barriers Market share and dominance Vertical integration (through ownership) Guarantee of produce supply (aiming at critical supply chain assets)

The Danish agri-food industry has been fully integrated in international markets; demand was extended to European and global consumers. Danish structural adaptations since the 1990s took place in a setting marked by full international competition. Operating under full world market price competition, Danishbased companies pursued global sourcing strategies. We find that Denmark since the turn of the 1990s developed along a path of export oriented food production. This is a move down the given path marked by increasing returns (self-reinforcing path dependency). As we have noted, this development must be understood with reference back to Denmark’s early 20th century specialization in agrarian exports. This specialization grew in an institutional setting marked by considerable coordinating potentials inherent in the Danish developmental policies. Dependence on world markets has formed Denmark’s argi-industrial history, and it has been marked by a rather liberal trade policy and coordination with the cooperative movement. We also find that Danish M&A driven structural developments, converge to processes described in the literature (point 3.1). Norway chose a different policy approach to EU integration and M&A driven developments are a contrast to findings in the literature (point 3.1). The EEA agreement allowed a specific degree of international integration, characterized here as connectiondisconnection to the EU internal market. Norwegian agri-food M&As since the 1990s can be characterized as a passive strategy of international step-by-step adaptation under conditions of comparative disadvantages. This also implies a passive attitude to global market dynamics. Institutions and policies that organise the national agri-food markets imply market dynamics that we describe as national structural growth barriers, as an insulated form of concentration, and a connected-disconnected degree of international integration. This results in comparative disadvantages regarding agri-industrial developments. Norway implemented a developmental path, based on insulation from world markets, already in the early 20th century, with a main focus on income equalisation for farmers. The structure of the domestic agri-food industries has since then been influenced by these measures. We find that the agri-industrial adaptations since the neoliberal turn constitute a turning point in this historical path (reactive or transformative path dependence). Thus, also the Norwegian development must be understood on the background of early 20th century agri-industrialisation. This turning point in the Norwegian path is due to technology driven transformations, and to potentials inherent in new ways of organising production that go beyond the small Norwegian market, rather than to the neo-liberalisation of the world markets only. Policies developed to back income development are threatened in both countries. Transnationalisation in Denmark goes hand in hand with a loosening of the industries from

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EU membership WTO CAP Full international integration

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Scale economies (critical mass) Market share and dominance Diversification Positioning on emerging markets (foreign growth) – Access to cheap produce and resources – De-mergers – Vertical integration (through partnerships, contract production)

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