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The pig in the python

Farmers believe they are getting squeezed by consolidation and concentration on the front and back ends

January 1, 2000


Ron Wirtz Editor, fedgazette
The pig in the python
fedgazette cover image

Improve efficiency. Increase production. Add global competition. Stir vigorously until prices drop. Repeat. Serves increasing number of people, and requires fewer cooks over time.

Farmers in the United States have been eating that recipe for decades. It has meant that as farm productivity has increased—not only in the United States, but worldwide—fewer farmers have produced a growing pot of food for the world.

As their numbers steadily decline, and prices continue at low ebb, numerous farming trends and policies have come under intense scrutiny and criticism. Some of the strongest rhetoric today is focused on agribusiness concentration on both sides of the farmer. In a recent poll of 680 North Dakota farmers, 70 percent said agribusiness concentration was a major cause of the current farm recession, and 20 percent said it was a minor cause.

Consolidation and concentration in agribusiness has molded an inverse hourglass structure where farmers have fewer places to buy inputs—seed, fertilizer, livestock feed—and fewer outlets to sell their grain, cattle and hogs.

"Commodities have been squeezed everywhere," according to Paul Strandberg, program director for the Minnesota Department of Agriculture. Concentration, he said, has "given upper levels (in the food chain) some degree of control of profit margins that lower levels don't have."

"Farmers are the shock absorbers for the whole system," Strandberg said.

Because low farm income is really the root issue—rather than high farm costs—most of the attention and criticism has been directed at first-level food processors-meatpackers and flour millers, for example-rather than input suppliers.

The coincidence of greater concentration and low prices for grain and livestock has nurtured a festering suspicion that the two must be connected, and made poster children for corporate greed out of meatpacker IBP, grain giant Cargill and other multinational food companies assumed to be killing an American tradition.

Minnesota Sen. Paul Wellstone drew nationwide attention—and applause from farm advocates—for his proposal to place a moratorium on agribusiness mergers and acquisitions. Similarly, farmers and lawmakers from agricultural states are looking for the Justice Department to "do a Microsoft" on agribusinesses to keep these companies from supposedly low-balling farmers on commodity prices.

The statistics are enough to raise some eyebrows: Concentration at the processor level exists in virtually all major crop and livestock commodities. In beef packing, four companies control about 70 percent of the U.S. market.

"There are real good reasons to look at this," said James MacDonald, an expert on concentration with the U.S. Department of Agriculture. "I'd be concerned if I were a farmer."

But what, exactly, is the connection between processor concentration and commodity prices? Does high market share by a handful of processors automatically mean they can—and do—take advantage of that position, making for a less competitive market and putting a choke hold on local farmers? Is consolidation and concentration in commodity food processing a uniquely U.S. phenomenon?

As the stories in this issue show, some view ag concentration as a problem, while others see it as the only means of survival for many in the industry. Also, this question is not limited to the U.S. economy—Canada and Europe have experienced a similar move to agribusiness concentration in recent years.

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.