Concentration in the food industry has reached a point where the top four firms in almost every sector have acquired abusive levels of power. This corporate control has allowed the top firms to reap record profits, paying lower prices to the farmers who produce our food and charging higher prices to consumers on the retail side. The U.S. is losing farmers at an alarming rate, agricultural jobs and wages are drying up, and rural communities are disappearing. These problems can be mitigated by reining in corporations and their economic power, allowing an opportunity for U.S. farmers and ranchers to compete in fair and open markets.
How Market Concentration is Monitored
The current crisis of the American family farm is the direct result of mergers, integration, and globalization in the food industry. Using CR4 ratios, an economic measurement of concentration that calculates the total percentage of a market controlled by the industry’s largest four firms, Mary Hendrickson at the University of Missouri calculated the extent of concentration in the food industry between 1990 and 2011. In all sectors except flour milling, concentration increased dramatically during that time. In pork production, control by the largest four firms nearly doubled over just ten years.
A CR4 ratio over 45% indicates a highly concentrated market where abuses are likely. As of 2011, CR4 ratios were above 50% in pork, broiler and turkey slaughter, and ratios were above 80% in beef slaughter, wet corn milling, and soybean processing.
Concentration in Packer-Processing and Retail Sectors
One of the most heavily concentrated markets is within the packer and processing area. In 2011, the top four meat packers controlled as much as 82% of the market for certain meat products in the U.S. (CR4=82%). With this high of a level of CR4, there is an almost complete lock on the marketplace, with farmers being almost completely squeezed out of business. Since the early 1980s, nearly 41% of the cattle producers and over 90% of the hog producers have been driven out of business.
Likewise, the retail grocery sector has become ever more concentrated, leading some researchers to declare collusion or illegal cooperation among the retailers, causing negative results to both the farmer and the consumer. Research demonstrates that when there are so few companies controlling a large segment of the market, they have the ability to price-fix, even if they do not have direct communications to do so. Further, heavy concentration causes the controlling companies to want to get along and not compete with each other. As a result, independent farmers are not paid a fair price and consumers lose choices in the marketplace and pay higher prices.
Retailers contend they must increase their lock on the market to counter the lock the giant multi-national packer-processors have on the marketplace. At the same time, the giant multi-national packer-processors are claiming they must concentrate to stem the market power the retailer is gaining over them. So, as the largest food corporations in the world duke it out, consumers are denied choices and fair prices, and farmers are perishing at an alarming number.
The foundation of the Organization for Competitive Markets is to reclaim competitive markets in agriculture for farmers, ranchers and rural communities. True competition reduces the need for economic regulation. Our mission, and our duty, is to define and advocate the proper role of government in the agricultural economy as a regulator and enforcer of rules necessary for markets that are fair, honest, accessible and competitive for all citizens.
Our primary objective in this work is to ensure antitrust and anti-competition laws are enforced and have the teeth necessary to provide the marketplace with safeguards so it can do its job for all of us. Over this past year the Congress has held two hearings on the topic of our failed antitrust laws. OCM is committed to raising awareness of the harm caused to the farmer, the consumer and our U.S. economy as a whole in an effort to bring about judicial and congressional reforms.