Globalization’s Impact on European Agriculture and Trade (1870s)
The Dawn of Globalization
The key to globalization lies in the modernization of transport, which revolutionized the market with three major advantages:
- Reduced transport costs
- Increased transport capacity
- Faster transport
This modernization had two main elements:
- The replacement of sail with steam power and the introduction of refrigerated ships
- The expansion of railways beyond Europe
Around 1870, these innovations converged in temperate climate countries, connecting inland rail networks to ports with improved shipping capabilities. While wet-climate Europe had developed a cereal-based agriculture with sufficient productivity to feed its population, southern Europe’s agriculture was more linked to external markets, particularly for wine and olive oil.
The Influx of Cereals and its Consequences
In the early 1870s, vast quantities of wheat, barley, and rye began arriving in Europe from diverse regions like Argentina, Canada, and Australia. The primary reason for this influx was the lower price of these cereals, even with transportation costs, compared to European prices. This resulted in an unprecedented drop in European wheat prices, impacting land rents and agricultural wages. Initially affecting grains, this price drop gradually extended to other agricultural products and livestock. Farmers and ranchers across Europe had to adapt to this new reality.
Responses to the Crisis
Farmers responded in various ways, although no single approach was adopted in its pure form. Some farmers sought state protection through increased tariffs. Others focused on improving efficiency and reducing production costs by:
- Substituting capital for labor
- Intensifying cultivation practices
The passive option of increasing tariffs was quick and easy to implement but had drawbacks:
- Price reductions outpaced tariff increases.
- Tariff increases benefited farmers but harmed consumers and businesses.
- It delayed agricultural modernization.
The active response faced environmental constraints, and capital-labor substitution required significant investment with uncertain outcomes.
No European country adopted a single approach exclusively. Northern European countries leaned towards modernization, while southern European countries favored protectionism.
Major Consequences of the New Situation
This new situation in Europe led to three major phenomena:
- Rural-to-urban migration, both within Europe and to countries outside of Europe.
- Increased foreign trade and investment.
- Modernization of European agriculture.
Advantages and Disadvantages for Recipient and Expelling Countries
Recipient Countries:
- Advantages: Filled labor gaps, increased labor participation, and stimulated consumption due to higher wages.
- Disadvantages: The benefits were less pronounced and took longer to materialize. Population pressure eventually impacted real wages.
Expelling Countries:
- Advantages: Remittances from emigrants, reduced social tensions, increased real wages, and a high percentage of return migration (40%).
- Disadvantages: Demographic drain and continued rural-to-urban migration.
Increased Foreign Trade and Investment
Two seemingly contradictory phenomena occurred during this period:
- Tariff protection increased in most countries, potentially hindering foreign trade.
- Globalization integrated more countries into the global economy.
The second factor outweighed the first, resulting in continued growth in foreign trade, albeit at a slower pace than the previous period. This trade became more specialized and globalized, with three main groups of countries:
- Industrialized European countries: Specialized in exporting manufactured consumer goods and increasingly intermediate goods.
- Temperate climate countries: Primarily exported cereals and meat.
- Tropical climate countries: Specialized in products like coffee, tobacco, cotton, and tea.
This situation coincided with a relatively new phenomenon: industrialized European countries sought political control over resource-rich areas to secure raw materials and agricultural products. Alongside increased trade, foreign investment surged, led by Great Britain, until World War I.