A Treat to Agriculture
by Dennis Sun
A recent report from the U.S. Department of Agriculture’s (USDA) Economic Research Service titled, “Concentration and Competition in U.S. Agribusiness,” has brought to light how market concentration has hurt agriculture and consumers in past years.
This concentration on a national level has hurt ranchers and farmers and the prices they receive for products.
The summary of the report notes the issue of market concentration and its impact on competition has attracted growing public scrutiny.
A prime example of concentration is the potential merger of Kroger and Albertsons grocery stores and how it may raise the cost of groceries for consumers. I realize the concentration of companies has the potential to hurt both ends of the food chain.
The study states, “Critics argue many industries have grown too concentrated, with fewer firms competing with one another and a consequent weakening of competition. The issues surrounding concentration extend to agribusiness, particularly to three agribusiness sectors where concentration has increased over time – crop seeds, meatpacking and food retail. The report details consolidation in each of these industries, explains the driving force behind increased concentration and examines public policies aimed at encouraging competition, with a focus on the implementation of merger policy.”
It continues, “The study did find market concentration, measured by the share of industry sales held by the largest firms, has increased sharply over the last four decades in many seed, livestock and food retail markets. Between 2018-20, two seed companies accounted for 72 percent of planted corn acres and 66 percent of planted soybean acres in the U.S. In 2019, the four largest meatpackers accounted for 85 percent of steer and heifer slaughter and 67 percent of hog slaughter. In most metropolitan areas, five to six store chains account for most supermarket sales.”
“Economic theory and empirical analysis demonstrate high concentration can facilitate the exercise of market power, with firms driving sale prices above or livestock purchase prices below the prices that would prevail in competitive markets,” it says.
The study further notes, “However, the relationship between concentration and market power is not tight, and high concentration can often result from factors like innovation or the realization of scale economies which improves productivity and reduces costs and prices.”
“Competition often occurs in local and regional markets, especially in food retail sales and live procurement for meatpackers,” it continues. “Some local markets are highly concentrated, with just two to three firms competing with one another.”
“Between 1990 and 2020, prices paid by farmers for crop seed increased by an average of 270 percent, while seed prices for crops grown predominantly with genetically modified traits rose by 463 percent, substantially more than commodity output prices,” says the study. “The increase in seed prices reflected to a large degree the higher productivity of improved crop varieties and provided a return on investments in research and development by seed companies.”
It concludes, “The transformation of meatpacking industries featured shifts of production to larger plants to realize economies of scale, as well as tighter vertical coordination among production and processing stages through reliance on contract arrangements in place of cash markets.”
This report validates what farmers and ranchers have been saying among one another, testifying before Congress and visiting with USDA about for years.
While I don’t think USDA can fix all past actions of concentration, laws are already in place to regulate it, but nothing has happened. USDA needs to step in and stop more market concentration.
