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Commodity Chains and Networks in Emerging Markets: New Zealand, 1880–1910

Published online by Cambridge University Press:  13 December 2011

Ian Hunter
Ian Hunter
Affiliation:
IAN HUNTER is lecturer in the Department of Management and Employment Relations at the University of Auckland Business School.
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Abstract

This consideration of how innovation was exploited in primary processing industries during the period of the second industrial revolution draws on case material from frozen-meat and dairy-processing industries in New Zealand between 1880 and 1910, examining how entrepreneurial networks successfully created commodity chains for the exportation of produce to U.K. markets. Latin American commodity chains are considered as a counterpoint. What is suggested is that despite the absence of large-scale firms and significant foreign capital, New Zealand producers, relying on network-based organizational forms, successfully entered overseas markets, capitalizing on information sharing, rapid diffusion of technology, and loose alliances that exploited complementary skills and assets.

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Articles
Information
Business History Review , Volume 79 , Issue 2 , Summer 2005 , pp. 275 - 304
Copyright
Copyright © The President and Fellows of Harvard College 2005

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References

1 There are exceptions to this. For example, see Cox, Howard, Mowatt, Simon, and Prevezer, Martha, “The Firm in the Information Age: Organizational Responses to Technological Change in the Processed Foods Sector,” Industrial and Corporate Change 11 (Jan. 2002): 135–58.CrossRefGoogle Scholar See also Cox, Howard, Mowatt, Simon, and Prevezer, Martha, “New Product Development and Product Supply within a Network Setting: The Chilled Ready-meal Industry in the UK,” Industry and Innovation 10 (June 2003): 197–217.CrossRefGoogle Scholar On page 212 the authors suggest a similar proposition to the one argued here, namely, that networks with complementary assets can exploit revealed consumer demands.

2 Immanuel Wallerstein, Historical Capitalism (London, 1983), 16.Google Scholar

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7 See, for example, John Talbot's comparative article on commodity chains in coffee, tea, and cocoa, which discusses this point. Talbot, John, “Tropical Commodity Chains, Forward Integration Strategies and International Inequality: Coffee, Cocoa and Tea,” Review of International Political Economy 9 (Nov. 2002): 701–35.CrossRefGoogle Scholar

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21 In 1881, for example, from total imports of £6,162,011, the top five classes of imported goods in New Zealand were, in rank order: drapery and apparel including ready-made clothing, hats, and caps (£1,030,738); sugar (£555,175); hardware and machinery (£265,623); tea (£250,765); and spirits (£212,409). Calculated from figures in the section on imports and exports in Statistics of the Colony of New Zealand for the year 1880 (Wellington, 1881).Google Scholar

22 See, for example, Gardner, W. J., “A Colonial Economy,” in The Oxford History of New Zealand, 2nd ed., ed. Rice, Geoffrey W. (Auckland, 1992), 57–86.Google Scholar

23 For New Zealand, Rankin's discussion of this trend is one of the best informed. See Rankin, K., “Manufacturing Output in New Zealand: 1870–1940,” Nedlands: Department of Economics, University of Western Australia, 1992.Google Scholar

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25 See Cuff, Martine E., Totara Estate: Centenary of the Frozen Meat Industry (Wellington, 1982), 31–54.Google Scholar

26 New Zealand producers also assumed a first-mover advantage in the imported frozen-beef market in the United Kingdom between 1882 and 1892. Thereafter, they were eclipsed by Australian imports. See Perren, Richard, The Meat Trade in Britain, 1840–1914 (London, 1978), 213, table 10.3.Google Scholar

27 Miller notes that in Argentina, where Britain was the leading trading partner, British businessmen had concentrated investments in government loans, railways, utilities, commercial banks, meat-packing plants, and land-amounting to almost 10 percent of Britain's total overseas investment in 1913. Miller, Rory, Britain and Latin America in the Nineteenth and Twentieth Centuries (London, 1993), 5.Google Scholar

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30 Various New Zealand firms were of this nature. See, for example, the accounts of the retailer Hallenstein Brothers and the brewer James Speight & Co. See Gordon, Donald, Speight's: The Story of Dunedin's Historic Brewery (Dunedin, 1993)Google Scholar; Brasch, Charles and Nicolson, C. R., Hallenstein: The First Century, 1873–1973 (Dunedin, 1973).Google Scholar

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33 When George Gray Russell and John Macfarlane Ritchie reorganized their fledgling mercantile company in 1873, they were already investing in land and trading in New Zealand wool and wheat; sugar from Mauritius; Chilean flour; and Indian tea. Profits were substantial in the buoyant colonial market. On the first year's trading of £28,000, the profit was £8,000. Parry, Gordon, N. M. A.: The Story of the First 100 Years: The National Mortgage and Agency Company of New Zealand Ltd., 1864–1964 (Dunedin, 1964), 24.Google Scholar

34 See, for example, “Warnock: 100 Years of Value and Service, 1886–1986,” Wanganui Newspapers Commemorative Supplement (Wanganui, 1986).Google Scholar

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36 See remarks by Sir Fox, William, in New Zealand Parliamentary Debates (NZPD) 35 (1880), 541Google Scholar.

37 Also interesting to note were the products that remained unexported to any significant degree. These included flour, potatoes, fruit, and most noticeably, timber. Though produced in large numbers, these items were consumed in the local economy, due to demand from the resident population. For instance, timber exports in 1910 were £408,112, amounting to a total of 81,988,227 super feet. Yet this was barely a quarter of the timber production in the economy, which was approximately 363,699,688 super feet, at a wholesale value of £2,699,888.

38 All calculations are based on figures from the section on exports and imports, in Statistics of the Colony of New Zealand, respective years.

39 Marshall, Alfred, Principles of Economics (London, 1910), 284–90.Google Scholar

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41 This is the sense in which the network concept is used in this discussion. See Ville, Simon and Boyce, Gordon, The Development of Modern Business (Houndmills, 2002), 264.Google Scholar Trust can be defined as an interdependence that exposes the agent to the potentially opportunistic behavior of a business partner; however, the expectation is implicit that this vulnerability will not be abused. See Lane, Christel, “Theories and Issues in the Study of Trust,” in Trust within and between Organizations: Conceptual Issues and Empirical Applications (Oxford, 1998), 3–5.Google Scholar Chapters 3 and 6 by Casson, Mark and Kirby, Maurice, respectively, in Entrepreneurship, Networks and Modern Business, eds. Brown, Jonathan and Rose, Mary (Manchester, 1993Google Scholar), also highlight these aspects of networks, accentuating the role of finance, information, and trust.

42 Working as a coordinator of resources, the entrepreneur acted in a pattern described by economist Jean Bapiste Say. Say, Jean-Baptiste, A Treatise on Political Economy or The Production, Distribution and Consumption of Wealth, transl. Prinsep, C. R. (Philadelphia, 1821), 332.Google Scholar This entrepreneur-centred network is similar in construction to the agent-led monocentric pastoral network described by Ville and Fleming. See Ville, Simon and Fleming, Grant, “The Nature and Structure of Trade-Financial Networks: Evidence from the New Zealand Pastoral Sector,” Business History 42 (Jan. 2000): 46.CrossRefGoogle Scholar The entrepreneur-led network, rather than reflecting the flow of information and finance, the feature stressed by Ville and Fleming, highlights the importance of the entrepreneur as coordinator and director of resources.

43 See Casson and Cox, “An Economic Model of Inter-Firm Networks,” 191–94.

44 Cyclopedia of New Zealand, vol. 1 (Wellington, 1897), 704, 826–27.Google Scholar

45 Gore, Ross, Levins 1841–1941: The History of the First Hundred Years of Levin and Company Limited (Wellington, 1956).Google Scholar For a list of agencies handled in the firm by 1883, see pp. 64–65.

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47 Christchurch Press, 17 Jan. 1884, 3.

48 Ibid., 15 Jan. 1884, 3.

49 Critchell, James and Raymond, Joseph, A History of the Frozen Meat Trade (London, 1969), 205.Google Scholar

50 Ibid., 201–5.

51 Southland Frozen Meat and Produce Co., Ltd., minutes of directors' meetings 1881–86, Fletcher Challenge Archives, Series 0603, Box 1, Folder 1.

52 Southland Frozen Meat and Produce Co., Ltd., Annual Report, Jan. 1884, Fletcher Challenge Archives, Series 0625, Box 1, Folder 1.

53 Although diverting operating revenue to further expansion, the works showed a profit between 1888 and 1891. Southland Frozen Meat and Produce Co., Ltd., Annual Reports, Jan. 1889–1892, Fletcher Challenge Archives, Series 0625, Box 1, Folder 1.

54 Southland Frozen Meat and Produce Co., Ltd., Minute Book 1884, Fletcher Challenge Archives, Series 0603, Box 1, Folder 1.

55 Southland Frozen Meat and Produce Co., Ltd., Annual Reports, 1888–99, Fletcher Challenge Archives, Series 0625, Box 1, Folder 1.

56 In some respects, the information flows between these companies were a visible demonstration of what Granovetter refers to as “weak links.” See Granovetter, Mark S., “The Strength of Weak Ties,” American Journa of Sociology 78 (1973): 1360–80.CrossRefGoogle Scholar

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58 See Perren, The Meat Trade, 81, 106.

59 Figures calculated from Perren, The Meat Trade, 214.

60 By 1896 New Zealand frozen-lamb and mutton imports had dropped to 40 percent, but they rose to 50 percent by 1902. Between 1903 and 1913, the average import was 44.8 percent. Typically, New Zealand market share fluctuated in response to fluctuations in Australian imports.

61 The number of insurers and their international connections give some indication of the sophistication in this area, and among the thirty-eight insurance companies trading in Dunedin in the 1880s were the National Insurance Company, South British Insurance Company, Magdeburg Fire Insurance Company of Hamburg, New Zealand Insurance Company, Victoria Insurance Company, Transatlantic Fire Insurance Company, and the Australian Alliance Assurance Company.

62 Lind records that in Liverpool and London by 1889, storage facilities for frozen meathad a capacity of 400,000 carcasses. Smaller facilities in Glasgow, Birmingham, and Manchester added another 300,000 to that total. The ten sailing ships and sixteen steamers servicing the frozen-meat trade between New Zealand and Britain had an overall capacity of 1.2 million carcasses. Lind, Clive, The Keys to Prosperity: The Centennial History of South-land Frozen Meat Limited (Invercargill, 1981), 85.Google Scholar

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65 See, for instance, Ward, Arthur, A Command of Cooperatives: The Development of Leadership, Marketing, and Price Control in the Cooperative Dairy Industry of New Zealand (Wellington, 1975).Google Scholar

66 Of the 178 dairy factories and creameries in existence in 1894, 48 were cooperatives—the balance were managed by private interests.

67 Historian David Yerex identified four types of entrepreneurs who entered the race to manufacture butter and cheese for export consumption: merchants, landowners, agents of British firms, and farmers’ cooperatives. These were the dominant groups, but Yerex did not emphasize the merchants’ importance in the subsequent expansion of the dairy industry. Few had a farming background, yet it was their trade skills and commercial networks that enabled them to maximize this new opportunity. Yerex, David, Empire of the Dairy Farmers (Petone, 1989), 65–68.Google Scholar

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70 “Newton King Limited Centennial, 1879–1979,” Taranaki Daily News, 5 Oct. 1979. Other merchants entering the dairy industry in a similar pattern included Charles Wilkinson, Henry Manoy, and Joseph Nathan. For Nathan and the development of Glaxo, see Millen, Julia, Glaxo: From Joseph Nathan to Glaxo Wellcome: The History of Glaxo in New Zealand, 2nd ed. (Auckland, 1997).Google Scholar

71 The rise in the popularity of the cooperative form of dairy-factory ownership among farmers came about partly for financial reasons. As Yerex pointed out in Empire of the Dairy Farmers, p. 68: “For others it was a matter of principle not to allow outsiders to dictate terms. More and more dairy farmers were becoming aware that the retailers and agents in Britain, the shipping companies and the factory owners in New Zealand, were all making sure of their profits; the suppliers got what was left.”

72 The effect of entrepreneurship, especially mercantile and industrial entrepreneurship, on agricultural wealth has not been sufficiently explored in New Zealand business history. Steven Eldred-Grigg, for example, suggests social and political pressures as the reasons behind the fall of New Zealand's gentry, rather than the rise of an entrepreneurial class. Eldred-Grigg, Steven, “Whatever Happened to the Gentry? The Large Landowners of Ashburton County, 1890–1896,” New Zealand Journal of History 11 (Apr. 1977): 3–27.Google Scholar

73 The establishment of the Kaikoura Cooperative Dairy Company in 1894 was one such example. See Davidson, Marie, A History of The Kaikoura Co-operative Dairy Co. Ltd., 1894–1994 (Kaikoura, 1994).Google Scholar

74 For example, the Okain's Bay Co-operative Dairy Factory Company had a share capital of £1,000; the Cheltenham Co-operative Dairy Factory Company in Feilding had a share capital of £2,000; the Cheviot Co-operative Dairy Factory Company had a share capital of £4,000. The three largest establishments founded during this period were the New Zealand Dairy Farmers Co-operative Company in Dunedin in 1893, with a share capital of £100,000; the New Zealand Farmers Dairy Union of Wellington (£50,000); and the Canterbury Farmers Co-operative Association, registered in 1894, with a share capital of £50,000.

75 Like the formation of the Te-Puke Dairy Produce Company Limited. Hay, Geraldine, Bay of Plenty Co-operative Dairy Association Ltd., 80th Jubilee, 1902–1892 (Mt. Maunganui, 1982).Google Scholar

76 Among other things, the act allowed for export grading and factory inspection.

77 Gary Gereffi, “The Organization of Buyer-Driven Global Commodity Chains: How U.S. Retailers Shape Overseas Production Networks,” in Commodity Chains and Global Capitalism, 96–101.

78 See, for example, Graham, Jeanine, “Settler Society,” in The Oxford History of New Zealand, 2nd ed., ed. Rice, Geoffrey (Auckland, 1992), 112–40.Google Scholar

79 Hamer, D. A., “Towns in Nineteenth-Century New Zealand,” New Zealand Journal of History 13 (Apr. 1979): 5–24.Google Scholar

80 The historical literature on this is not well developed, and I am grateful to Rory Miller for his comments on this point. See, for example, the introduction to Business History in Latin America: The Experience of Seven Countries, eds. Dávila, Carlos and Miller, Rory (Liverpool, 1999).Google Scholar

81 Ville, Simon and Flemming, Grant, “The Nature and Structure of Trade-Financial Net-works: Evidence from the New Zealand Pastoral Sector,” Business History 42 (Jan. 2000): 48–50.CrossRefGoogle Scholar