This Grocery Merger Would Be Bad News For Food Prices and Families

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Food System

by Mia DiFelice
Editor’s Note: A version of this article originally appeared on Food & Water Action’s website (our affiliated organization).

We have enough to worry about these days, from conflict abroad and at home, to climate-fueled natural disasters. Going to the grocery store has become yet another daily anxiety for more of us than ever, as prices rise higher and higher

But if a proposed merger between two grocery giants goes through, prices will rise even more. 

In October, media outlets began reporting merger negotiations between Kroger and Albertsons, two of our country’s largest grocery store chains. The deal would net Kroger a cool $24.6 billion, with big payouts to the Albertsons CEO and its private equity owner. Meanwhile, the resulting Kroger behemoth could wield its new power to squeeze working families and entire communities.

Grocery Stores Gobble The Market Through Mergers

Already, a handful of corporations dominate the grocery sector. Currently, over two-thirds of grocery sales in the U.S. go to five corporations, and a Kroger-Albertsons merger would make that four.

These corporations hide their outsized power in the market from consumers by buying up subsidiaries with different names. While you can shop at a Ralph’s, a Food 4 Less, or a Smith’s Food and Drug, the profits funnel into the same company—Kroger.

In recent years, mergers and acquisitions have become more outrageous. But judges and the federal agencies charged with protecting consumers seem not to care. In the past decade, they gave a pass to some of the largest mergers in history. Now, food giants tower over those of the trust-busting era that gave rise to our consumer protection agencies in the first place. 

Grocery Monopolies Choose Profit Over People

The U.S. first began busting trusts, or monopolies, back in the early 1900s because it recognized how they harm the economy. Market power allows corporations to profit at the expense of smaller companies, consumers, and regional economies. 

For instance, when grocery corporations grow, they often become the biggest or only buyer in a region. Grocery giants can name the price they pay for goods, ripping off farmers and manufacturers, who must accept whatever they can get to stay afloat.

On the other side of the grocery aisle, these giants can raise prices for shoppers with impunity. Last summer, Kroger’s CEO Rodney McMullen even bragged about hiding behind inflation to raise food prices and boost profits.

At the same time, superstores like Kroger and Walmart beat out smaller, local businesses by lowering prices on key items. These small stores, unable to compete, are forced to shutter.

However, the low prices don’t stick around. In fact, the Federal Trade Commission found that growing market concentration actually leads to higher prices. But by then, consumers have no other choice but to shop at the superstores.

The arrival of such a superstore can have other ripple effects throughout a region. It can lower wages by introducing its own rock-bottom pay schedules to the local labor market. And by shuttering competitors, it can reduce food access to just a single superstore. This especially impacts access for low-income city residents, who are less likely to own cars, as well as far-flung rural communities. 

Not Just Groceries — Monopolies Threaten Our Entire Food System

The Kroger-Albertsons merger is only the latest in a long string of threats to consumers throughout our food system. For instance, during the pandemic, meat corporations boosted retail prices while paying farmers less. One meat corporation even lied to the public about meat supplies to keep workers in plants — and money coming in — during the worst of the pandemic. 

While clerks and meatpackers risked death by COVID in their workplaces, many corporations limited hazard pay. Instead of keeping workers safe or compensating them fairly, they invested in stock buybacks to generate more cash for shareholders.

Meanwhile, food manufacturers have also consolidated. When it comes to the products we buy at the store, companies like Kraft-Heinz (the two merged in 2015), General Mills, and Campbell Soup dominate multiple food categories like soft drinks, yogurt, and baby food.

And market power goes all the way to farm. A handful of corporations have taken over seeds, fertilizers, tractors, and more. At every step in our food system, from factory farm, to factory floor, to our kitchen tables, a handful of companies make the rules. 

This not only affects the prices at the grocery store, but conditions for workers, the quality of our food, and the sustainability of our climate.

We Can Stop the Advance of Prices and Market Power 

Even though the grocery giants say that the merger will help them lower prices for consumers, we know that this merger will only hurt consumers and their communities. 

Not only must the Federal Trade Commission throw out the Kroger-Albertson merger — we need to stop corporate greed and consolidation throughout the food system. We need agencies that properly enforce our antitrust laws. We need greater laws that reform our antitrust framework and work to re-envision our food system, like the Food and Agribusiness Merger Moratorium Act and Farm Systems Reform Act.

These are the first steps to achieving a food system that works for everyone, not just corporate giants.

Everyone needs to know: we can tackle rising grocery prices by taking on corporate consolidation.

The Poultry Giants Are Abusing Growers. USDA Can Stop Them.

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Food System

by Mia DiFelice

In July 2022, the Department of Justice filed a lawsuit and proposed consent decree against three poultry processors for alleged antitrust violations and unlawful labor practices.

Once the federal court signs off, the $84.4 million settlement would end a long-running conspiracy between Sanderson Farms, Wayne Farms and Cargill Inc. The three allegedly worked together to suppress worker pay at poultry processing plants.

The settlement would also address the companies’ abuses against contract poultry growers. These contract growers raise and care for the companies’ chickens before slaughter. 

As part of the settlement deal, Sanderson and Wayne agreed on a guaranteed base payment to their growers. The deal also requires them to give growers more information about the risks involved in contracting with these mega-corporations.

These disclosure requirements mirror a new rule USDA proposed in June. The rule would aim to increase transparency in the notoriously unfair “tournament” payment system widely used throughout the poultry industry.

The new rule is the first in a series of anticipated USDA actions meant to strengthen protections for farmers and growers. These actions are sorely needed. But alone, this transparency rule won’t come close to fixing our broken system.

How The Poultry Giants Dump Costs On Their Contractors

From feed to egg to chicken, to the packages we see at the supermarket, just a few players call the shots. Those players are the processor giants like Sanderson and Cargill. They’re also called integrators because they bring nearly every link in the supply chain under their control. 

Rather than raise chickens and market to consumers, integrators found it’s much cheaper to have others do it for them. Even better — they can force growers to take on huge debt to build out single-purpose chicken houses designed to the integrators’ exact specifications. A typical operation with four chicken houses can cost $1 million to build. That doesn’t include costly upgrades that integrators frequently demand growers make to keep their contracts. 

And even better for integrators, they place all risk of environmental and public health impacts on growers. They shield themselves from the pervasive harm caused by the practices they force growers to adopt. 

Though they avoid the biggest costs, the processor giants maintain tight control over how chickens are grown. Through contracts, processors provide — and control — the chicks, the feed and the veterinary care. 

This system has hurt poultry growers for decades. Within it, integrators reap all the rewards without bearing the risks or costs. They force the public to cope with the industry’s polluted air and water. Meanwhile, growers’ livelihoods depend on an unpredictable, unfair and abusive payout system.

Enter, tournaments. 

In Poultry Tournaments, Processors Don’t Play Fair

Once the flocks are ready for slaughter, the integrators survey the weights of all the birds for every grower in a tournament group. (The integrator decides who is in which group.) They take the average, and then dock pay of growers below the average. What they dock, they add to the payouts for above-average growers. 

The actual quality of a grower’s work is not what determines their pay. Rather, their pay is strictly a matter of where a grower falls compared to the other tournament group members. 

Because of this, a grower can almost never estimate their payout at the end of each flock. This is especially true because the integrator-controlled inputs can vary in quality, with big impacts on flock performance. In other words, integrators shift all the risk of substandard inputs onto growers. The growers then suffer in the tournament due to variables they have zero control over. 

Moreover, integrators keep growers in the dark about input variability. This allows integrators to retaliate against growers who speak out against the integrator. Growers who do so have been known to receive low quality inputs, ensuring they do poorly in the next tournament.

Together, these practices lead to wildly volatile incomes for growers. In fact, the range of incomes across U.S. poultry growers is wider than that among all other agricultural sectors and among U.S households. 

Poultry tournaments are a zero-sum game for growers, where there are always winners and losers. But like a rigged casino, the integrators always win. Because integrators transfer pay from below-average to above-average growers, they’re only ever paying for the average rate per flock. Integrators have profited handsomely from their growers’ precarity.

USDA’s Proposed Changes Fall Short Of Needed Systems Change

This year, USDA aims to tackle tournaments by strengthening its rules under the Packers and Stockyards Act (PSA). Congress passed this century-old legislation to protect farmers and prevent abusive and monopolistic practices by meat processors. 

However, outdated regulations, incorrect interpretations in court and lax enforcement have weakened the PSA. As a result, exploitative practices have persisted throughout the industry, especially in the poultry sector.  

As part of these improvements, USDA has proposed a new rule meant to foster greater transparency in poultry contracts and tournaments. If issued, the rule would require integrators to disclose more information at the time of contracting. 

This essential information would include realistic ranges of expected earnings and minimum flock placements. Knowing these factors would help growers better understand what they’re signing up for. They could better decide whether to enter or remain in this risky and often abusive system. 

The rule would also require integrators to provide information about the variability and quality of inputs. That could help growers identify when inputs are being distributed in unfair, unjustly discriminatory or unduly preferential ways. 

But the proposed rule is not enough. Simply requiring integrators to disclose their control over a grower’s success will not stop their patently abusive contracting practices. USDA must also follow through on its commitment to prohibit the harmful practices themselves, as the PSA empowers them to do.

Moreover, processors have been able to abuse growers for so long in large part due to their extreme power over local and regional markets. Until recently, the four biggest poultry giants held 50% of the national market.

In response, the USDA has proposed a $200 million lending program to support small processors and increase competition. But $200 million will not make a dent in the market power held by the country’s poultry giants. This July, Cargill and Continental Grain (which owns Wayne Farms) announced they acquired Sanderson for $4.5 billion. Now, we can expect the Big Four’s market share to increase to 60%, tightening their grip on growers.

Food & Water Watch Is Fighting Big Poultry

Hyper-concentrated markets, like we have in factory farming, hurt farmers and families. Across the meat industry, growers’ share of profits have fallen while meat and poultry have become the largest contributor to our rising grocery bills. Giants like Cargill and Continental Grain rack up more cash while squeezing every penny from small growers and families. 

While greater transparency in the poultry industry is a welcome first step toward addressing these problems, USDA can and must do more. 

The Department has signaled its intent to issue future rules on the tournament system and on specific practices that violate the PSA. In the months to come, our lawyers will be working to ensure that USDA issues strong rules that actually protect growers. We submitted our comments on the proposed transparency rule in August, and will continue engaging in the public process on other PSA updates throughout the fall.  

Everyone needs to know: Poultry giant shouldn’t get away with abuse.

1.A SAFE, SUSTAINABLE FOOD SYSTEM

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Food System

A safe, sustainable food system

It’s time to stop the monopolies that are endangering our food supply and ecosystem.

Monopolies profit at the expense of farmers, consumers and our environment.