Forms of governance , learning mechanisms and upgrading strategies in the Tobacco cluster in Rio

The increasing globalization of commodity markets, especially during the 1990s, has posed new challenges for developing countries. In many cases, the need to compete with a growing range of producers in foreign markets has forced local producers in developing countries to integrate into global commodity chains (Dolan, Humphrey and Harris -Pascal, 1999; Gereffi, 1999; Kaplinsky, 1999; Schmitz and Knorringa, 1999;). This paper is concerned with the tobacco cluster of the Rio Pardo Valley in the South of Brazil and its position in the global tobacco chain. This study examines how the global governance of this chain has affected the competitive and innovative performance of local producers in the cluster. The tobacco cluster in Rio Pardo Valley consists of a set of actors that operate in the production, processing and trade of tobacco and cigarettes. Although the cluster has a long tradition in tobacco production and has given rise to a number of collective institutions, it is mainly governed by subsidiaries of the lead MNCs running the global tobacco commodity chain. The material on which this paper is based was collected between October 1997 and July 1998, using a number of sources of information and methods: a survey including producers in the tobacco cluster; indepth interviews with selected manufacturing firms, suppliers, business associations and research institutions and the use of secondary sources (e.g. newspapers, sectoral directories, etc). The growing of tobacco, carried out by 70,000 small producers, was based mainly on secondary sources. The primary investigation focussed on the processing of tobacco. The agro-industrial cluster in Rio Pardo Valley comprises around 16 firms involved in industrial processing and sales of tobacco products both domestically and abroad. The empirical study covered a sample of 10 firms segmented according to size and ownership. Six of the firms in the sample are large subsidiaries of MNEs and accounted for approximately 90% of total production in the national market. The remaining four firms are locally owned SMEs that operate mainly as suppliers of tobacco leaf to the largest tobacco processing companies in the region. 1 I am grateful to Hubert Schmitz for his helpful comments on the earlier drafts of this paper. The usual disclaimer applies. 2 The empirical study derive from an ongoing research project on Local Systems of Innovation in Mercosur countries undertaken by a network of research institutions in Brazil, Argentina and Uruguai. This research project is co-ordinated by Prof. José Eduardo Cassiolato and Helena Lastres of the Innovation Economics Group at Federal University of Rio de Janeiro. For further information and copies of papers already produced see http: www.race.nuca.ie.ufrj.br/gei/gil.shtml.