Over the past few decades, massive concentration has occurred in the food sector. In both the meat packing industry, which handles the slaughter, processing, packaging, and distribution of livestock, and the retail industry, which sells that meat to consumers, the combined market share of the top four companies has reached historic levels.
How Market Concentration is Monitored
Economists monitor the level of concentration in order to predict how well the marketplace is working. Market concentration is often monitored by looking at the market share of the top four companies in a particular market. The combined market share generally belonging to the top four is described as a ratio or percentage – CR4 (concentration ratio) – which is calculated by adding up the market share percentages of the top four companies. As an example, if the top four companies’ combined market share equals 50%, then the CR4=50%. Economists agree that a CR4 higher than 80% indicates a non-competitive marketplace.
When there is heavy concentration in a market, the basic fundamentals of the marketplace are denied the opportunity to work. Heavy concentration leads to collusion or illegal cooperation among companies who control an excessive share of the market. The result is consumers have fewer choices and higher prices, while family farmers are denied open markets that provide fair pricing for their goods.
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 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 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 anti-trust and anti-competition laws are enforced and have the teeth necessary to provide the marketplace with protections 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 anti-trust 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.