Concentration and Power in the Food System (part 3)

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This post will discuss the chapters of Philip Howard’s book dealing with commodity processing, farming, and agricultural inputs.

Commodity processing

For many food commodities, a small number of firms have increased their control of markets, giving them more power to hold down the prices they pay farmers while charging high prices to consumers. In soybeans, for example, the “ABCD” companies (ADM, Bunge, Cargill and Louis Dreyfus) have a combined market share of 85%. How such concentration reduces competition is suggested by a saying of ADM executives, “The competitor is our friend and the customer is our enemy.” Taking that to its logical conclusion, ADM was found in the 1990s to be engaged in illegal price fixing. The soybean industry has also become more vertically integrated through contracts between commodity processors and growers:

This strategy results in bypassing spot markets, for example, and reduces opportunities for price discovery (Murphy, Burch, and Clapp 2012). Where previously there were numerous buyers and sellers and frequent reporting of prices at numerous stages of the food system, now there are networks of firms that control the majority of these transactions via direct ownership, alliances or contracts.

The major food processors enhance their power by influencing federal legislation and international trade agreements, through both lobbying efforts and direct participation of executives in writing the rules.  Federal law requires food aid to poor countries to be channeled through American companies. As a result, about two-thirds of the aid money goes to the three largest firms for “purchasing, processing, and shipping these products, frequently at higher than market prices.” A former vice president of Cargill helped write the World Trade Organization agreement that allowed industrial countries to keep subsidizing their commodity farmers.

The story for pork production and processing is similar. There the top four firms (Smithfield-Shuangui, Tyson, JBS Swift and Cargill) have a combined 63% share of slaughtering capacity. Vertical integration has also increased. By raising more hogs themselves and making contracts with other producers, the big processors have been able to move the industry away from public auctions with more transparent and competitive pricing.

Recent efforts to invoke the antitrust laws, particularly the Packers and Stockyards Act of 1921, have generally been unsuccessful. In 1998, cattle ranchers brought a class action lawsuit against a meat processor for price manipulation, and were awarded $1.28 billion in damages by the jury. However, “the judge, who was a Reagan appointee, set aside the verdict.”  The 2008 farm bill called for the USDA to develop new regulations to protect competition in the meat industry, but industry lobbyists have so far been able to keep them from being implemented.

Concentrations of power in the hands of processors have not only hurt farmers and ranchers. In processing plants, wages have fallen and work injuries have risen.

Farming and farm subsidies

Farming itself is the stage of production with the least concentration of corporate power. There are still two million farms in the United States, although the largest 100,000 account for about two-thirds of the agricultural sales. The number of farms has been falling, by about 65% for dairy farms from 1987 to 2007 and 70% for hog farms from 1992 to 2009.

Howard describes mid-size farms as being on a “treadmill,” trying to produce as much as they can just to stay where they are financially. The underlying problem is the “inelasticity” of food demand; people do not necessarily eat more just because farmers can produce more. Ample supply may just lower prices, but farmers may then try to produce more in order to compensate for low prices, putting them in a vicious circle.  Farmers are dependent on larger firms that are “(1) located upstream and sell products to farmers, (2) located downstream and buy farm commodities, or (3) have vertically integrated into numerous stages of the food system, including production.”

Although the mystique of the “family farm” may be invoked to justify farm subsidies, most of the subsidies go to the larger operations. And when subsidies boost productivity through such means as research and development, extension services, or money for fertilizer, the lower prices that result benefit the large buyers of farm commodities more than the small producers. More grain production lowers the cost of grain for the grain processors and the big meat producers that feed grain to their animals.  Meanwhile, prices for end consumers can remain high, as long as the dominant firms have the power to keep any cost savings for themselves. It’s a double win for them, since the farmers’ share of the dollars consumers spend on food has been declining.

The trend toward fewer but larger farms is associated with many environmental problems. States have sometimes welcomed Confined Animal Feeding Operations (commonly referred to as “factory farms”) as a source of jobs and revenue, only to encounter the unexpected costs of air, water and land pollution. Large companies such as Smithfield, the biggest pork producer, play a prominent role in the political conflicts that ensue. For example, “political candidates in North Carolina received more than $1 million from Smithfield’s political action committee, which was followed by granting CAFO’s exemption from zoning laws and most liabilities from pollution.”

Agricultural inputs

Farmers have long relied on inputs purchased from off the farm; farm machinery is an obvious example. Today, dependency on outside inputs is being extended to biological inputs such as plant seeds and animal semen. “Seeds and animal breeds have been an open access, common resource for millennia, developed and improved through the efforts of countless generations of people. Increasingly, however, dominant firms are appropriating these resources.” Companies are developing oligopolies here too, and they are aided by government in two ways: enforcing intellectual property rights and subsidizing biotech innovation.

What Howard calls a “seed-chemical complex” has developed, as chemical companies expand into seed production after achieving an oligopoly in pesticide production. Farmers used to rely on the natural process by which seeds reproduced themselves from year to year. But then came the development of hybrid seeds, which offered new opportunities for profit. Hybrid varieties might offer a high yield in the first year, but they didn’t do as well when harvested and replanted, so that farmers needed to buy the seeds every year. They could also be patented, once the Supreme Court extended patent protection to genetically modified organisms in 1980. Courts upheld contracts that prohibited farmers from saving seeds from one year to the next, and patent holders defended those contracts by sending around spies to identify violators and then suing them.

The four largest firms in the seed business (Monsanto, DuPont Pioneer, Syngenta and Wilmorin/Groupe Limagrain) have a combined market share of 58%. As farmers have turned to buying seeds every year, seed prices have risen faster than other inputs. “Research and development has shifted to focus on varieties with the potential for blockbuster profits, to the exclusion of those with wider benefits, such as those better adapted to low chemical inputs or specific regions.” Scientists have complained that contract restrictions are hampering independent research and scientific innovation.

Corporations are working toward similar control over animal genetics. Where they have succeeded, farmers now rely on artificial insemination to reproduce a few genetic varieties of animals. Two firms, Erich Wesjohann Group and Hendrix Genetics, control almost all sales of genetic material for turkeys, laying hens and broilers. “For turkeys, there is only one breed, the Broad Breasted White, that makes up nearly 100 percent of the global supply, and acquisitions in this sector have reduced this breed to just a small number of strains….The birds cannot reproduce without artificial insemination and have difficulty walking due to the disproportionate weight of the breast.” Genetic homogeneity has proceeded to the point where most US chicken broilers are Cornish Rock crosses, and most of our eggs come from White Leghorns. Most of our milking cows are Holsteins from Netherlands, and most of our swine are hybrids of just three breeds.

As a result, the decline in economic competition has its parallel in a decline of biodiversity. This entails some risk:

Large commercial breeders often ignore susceptibility to disease to focus on traits that increase profits and instead rely on antibiotics to control illness. This practice contributes to antibiotic resistant microbes and threatens human health. It also increases the risk that an epidemic disease will have a dramatic impact on the food supply.

Before reading this book, I had not thought about food as information, or about how the concentration of power in food production depends on the control of information. The battle that is shaping up over intellectual property obviously includes genetic information, as resistance grows to allowing life forms to be patented. The Supreme Court has rejected patents on human genes, but not genes of other organisms. Howard discusses this issue under the heading of “Reclaiming the commons.” That reminded me of Jeremy Rifkin’s discussion of the “collaborative commons” in The Zero Marginal Cost Society. The future distribution of wealth and power may depend on the degree to which information can be decentralized, diversified and shared.

 

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