Consolidation in the food and agriculture system

Report to the National Farmers Union

CONSOLIDATION IN THE FOOD AND AGRICULTURE SYSTEM
Report prepared by Dr. William Heffernan Department of Rural Sociology University of Missouri Columbia, Missouri

With the assistance of Dr. Mary Hendrickson Dr. Robert Gronski University of Missouri-Columbia

February 5, 1999

© National Farmers Union. 1999. No reproduction without the permission ofthe National Farmers Union

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Introduction
The organizational structure of the national/global food system is dynamic. New firm names emerge, often the result of new joint ventures, and old names disappear. But underlying these changes is a continuing concentration of ownership and control of the food system. These structural changes are so strong that they often undermine the desired andexpected outcomes of much of the agricultural policy developed over the past couple of decades. These structural changes, often referred to as “the industrialization of agriculture,” have progressed to the point that some agricultural economists now refer to the agricultural stage of the food system as “food manufacturing.” No longer can agricultural policy be discussed apart from the food system,because major engines of change that are impacting agriculture and muting the impact of agricultural legislation come from the larger food system. As one who has been studying the changes in the structure for over three decades, I am delighted the Congress has chosen to include a dialogue on the structure of the food system as part of the agricultural policy debate. Concentration of the food systemmust be a part of that debate, if the policy is to address some of the problems faced by farmers and the relatively few remaining rural communities that still depend heavily on an agricultural base. One often hears the statement that agriculture is changing and we must adapt to the changes. Few persons who repeat the statement really understand the magnitude of the changes and the implications ofthem for agriculture and for the long-term sustainability of the food system. It is almost heresy to ask if these changes are what the people of our country really want or, if they are not what is desired, how we might redirect the change. The changes are the result of notoriously short sighted market forces and not the result of public dialogue, the foundation of a democracy. Neither are thechanges the result of some mystical figure or an “invisible hand.” For well over a decade, several of us at the University of Missouri have been reporting the concentration ratios of the largest four processors of most of the major commodities produced in the Midwest. We liken the food system to an hour glass in which farm commodities produced by thousands of farmers must pass through the narrow partof the glass that is analogous to the few firms that control the processing of the commodities before the food is distributed to millions of people in this and other countries. We focus on the largest four processing firms because the economic literature in the mid-1980's indicated there was general agreement that if four firms had 40 percent of the market, that market was no longer competitive.We realized that this selection was somewhat arbitrary, but it has provided a useful benchmark. When we began collecting the data in the mid-1980's, this

Farmers

Processors

Consumers

2 information was relatively easy to obtain in trade journals, government reports, annual reports from corporations and other secondary sources. Over time, this information has become more difficult toobtain. Trade journals have come under pressure to not publish some of this information and government agencies often say that to reveal the proportion of a market controlled by a single firm in such a concentrated market is revealing proprietary information. I once appeared on a panel to discuss the concentration of the beef sector with three others. Each of us had a different percentage of the...