The Economic Cost of Food Monopolies
The agriculture and food sector is unusually concentrated, with just a few companies dominating the market in each link of the food chain. In most sectors of the U.S. economy, the four largest firms control between 40 and 45 percent of the market, and many economists maintain that higher levels of concentration can start to erode competitiveness. Yet according to data compiled by the University of Missouri-Columbia in 2012, in the agriculture and food sector, the four largest companies controlled 82 percent of the beef packing industry, 85 percent of soybean processing, 63 percent of pork packing, and 53 percent of broiler chicken processing.
The concentration of economic power in every segment of food and agriculture can harm both farmers and consumers. Farmers can pay more for supplies when only a few firms sell seeds, fertilizer and tractors. They also sell into a highly consolidated market, and the few firms bidding for crops and livestock can drive down the prices that farmers receive. Consumers have fewer choices at the supermarket, and food processors and retailers are quick to raise prices when farm prices rise (as is anticipated as a result of the 2012 drought) but are slow to pass savings on to consumers when farm prices fall.
Rural communities often bear the brunt of agribusiness consolidation. For nearly 80 years, academic studies have documented the negative impact of agriculture’s consolidation and industrialization, which aligns farms more closely with food manufacturers than their local communities. The rising economic concentration has contributed to the decline in the number of farms and the increased size in the farms that remain. Communities with more medium- and smaller-sized farms have more shared prosperity, including higher incomes, lower unemployment and lower income inequality, than communities with larger farms tied to often-distant agribusinesses.
Agribusiness concentration works in many ways, all with same objective: to move income from farmers and rural economies to Wall Street. In this report, we examine five case studies of agribusiness concentration: Iowa’s hog industry; the milk processing and dairy farming in upstate New York; poultry production on Maryland’s Eastern Shore; organic organic soybean farming and soymilk production; and the California processed fruit and vegetable industry.
For decades, the U.S. Department of Justice and the U.S. Department of Agriculture (USDA) have taken a hands-off approach to consolidation in the food system. The economic harm caused by the concentration of the food system is real, but often neglected. Federal regulators must strengthen the oversight of this highly consolidated sector that affects every member of society every day. Fair markets will require new rules and better oversight that:
- Collects and disseminates information about concentration throughout the food chain: The federal government should determine the levels of concentration in the various sectors of the food system from farm inputs, food processing, marketing and retailing.
- Coordinates competition and antitrust policy for the entire food and farm sector: The USDA should have a special counsel’s office on agricultural consolidation in the food and farm sector to effectively coordinate between the agencies with jurisdiction over competition policy.
- Remedies and prevents distortions in the hog and cattle markets: Currently, several common practices allow meatpackers to avoid buying hogs and cattle on public markets, which reduce competition and lower the price that farmers receive. These practices, including meatpackers that buy cattle and hogs with opaque contracts that do not give farmers firm prices when the contracts are negotiated (known as captive supplies) or meatpackers that own their own livestock to avoid auction markets when prices are higher, should be prohibited.
- Prevents unfair and deceptive practices in agricultural contracting: Many farmers raise livestock or crops under contract with large agribusinesses, but because the few firms have tremendous leverage, farmers are often forced into take-it-or-leave-it contracts that can be unfair or abusive. Fair contract practices should be spelled out in regulation and law.
Listen to the Nov. 2, 2012, teleconference on the consolidation of Iowa’s hog industry below: