December 13, 2010
Last Wednesday, the United States Department of Agriculture (USDA) and the Department of Justice (DOJ) held the last of a series of joint workshops on “Agriculture and Antitrust Enforcement Issues in Our 21st Century Economy.” This particular workshop was held at the USDA in Washington D.C. and focused on the issue of price margins - the discrepancies between prices received by farmers and ranchers for the food they produce and the prices paid by consumers for that food. Panelists and public commentary explored potentially anticompetitive conduct in the agriculture sector and discussed the possible need for the application of antitrust laws to address this conduct.
This workshop series was the first ever to bring the DOJ and USDA together around competition and regulatory issues in agriculture industries. The attention being given to this subject was reflected in the participation of senior staff at the USDA and DOJ, including Tom Vilsack (Secretary of Agriculture, USDA) and Eric Holder (US Attorney General). In addition to senior-level representation, the panels were well balanced to reflect the viewpoints of producers, processors, retailers and consumers.
Although there was a general agreement that the gap between what food producers are paid and what consumers are charged has grown, there was disagreement as to who was benefitting from that discrepancy. The consensus among many producers at the workshop was that market power is at play, in the form of monopsony (when large buyers control so much of the market that they control price). Those taking this position often expressed that there is an illusion of choice present in the American food system – while Americans may feel they have endless options when they head to the supermarket, in fact they are faced with products made by a handful of huge companies that essentially repackage the same goods differently. Those few companies are suspected by some of controlling price margins and reaping the benefits of that control.
This view was countered, however, by some workshop participants, such as Bob Young (Chief Economist, American Farm Bureau Federation) and Chuck Nicholson (Professor of Agribusiness, California Polytechnic State University). Young, Nicholson and others maintained that price margins do not necessarily equate to increased profits for processors or retailers, because each element of the supply chain – such as processing, transportation and marketing – contributes to the final price a consumer pays. John Crespi (Professor of Economics, North Carolina State University) addressed this debate by remarking that it is almost impossible to tell whether price spreads are the result of normal actions in the retail market or if they are due to market power. This speaks to the lack of transparency in our food supply chain that producers, academics and government entities are grappling with in their search for answers.
Whatever the reason for price margins, one thing was abundantly clear – every player in the food supply chain has the ability to adjust price if their expenses fluctuate except the producer. Packers, processors and retailers can deal with rising costs of inputs, such as fuel for transportation, by passing those costs either onto the consumer in the form of increased prices or to the producers in the form of decreased wages. To stay competitive in the food market, passing the costs to consumers is not preferred. Producers, at the end of the line, often have no ability to charge higher prices for their goods and labor to deal with increasing input costs. Indeed, they can be paid less to compensate for the input costs to others. This is especially true of poultry growers, whose wages are determined by a system that growers have no access to and which, until recently, could be terminated without warning at any time. While price margins increase, producers’ profits decrease.
In his opening statement, Secretary Vilsack remarked that it is growing more difficult to support oneself, let alone a family, on profits produced by a mid-sized farm. Many pointed out the alarming loss of producers in the United States – there have been 800,000 farmers and ranchers lost over 40 years, according to Vilsack. Panelist Allen Lund, a cattle producer from North Dakota, examined his finances for recent years and found he was making an average salary of approximately $11,000 per year. Considering the commitment of hours he makes to his livelihood, these conditions are unlivable, not to mention unsustainable. And it was clear in listening to other producer panelists and the public commentary that he is not alone in these working conditions. It is no wonder our population of farmers and ranchers is on a sharp decline.
During opening remarks and in the panel on issues in food retailing, Erik Lieberman (Regulatory Counsel, Food Marketing Institute) repeated lines glorifying the US food system as the safest and best in the world. He lauded how little of their incomes Americans spent on food and attributed this to healthy competition in the agriculture sector. He claimed that the US food pricing structure is entirely transparent and that you can even download an iPhone application to compare prices for goods in different retail outlets. Lieberman’s views were countered strongly by Wenonah Hauter (Executive Director, Food and Water Watch), who remarked that Lieberman’s numbers on percentage of income spent on food were misleading, that Americans pay less of their income on food because they are faced with other rising costs of living, that food access is a real issue in American low-income communities, that the consolidated nature of American agriculture is anything but safe, and that an iPhone application that most Americans cannot afford is hardly telling of market transparency. By the end of their shared panel, Lieberman’s lines produced laughter in the audience due to their discordance with the facts and stories heard from other panelists and the public.
So what’s next? The DOJ is working with the USDA in deciding how to address the workshops and public comments. Thus far, the two agencies have set up the Agriculture Competition Joint Task Force to continue working on the issues addressed in the workshop series and to better enforce laws to protect producers. The agencies have also set up a new process to gather and respond to complaints about unfair or deceptive practices in the poultry industry. USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) published a proposed rule last summer to increase fairness in the livestock and poultry industries. The GIPSA rule attracted thousands of comments from the public, including one submitted by CLF in November (CLF’s comment). The USDA has increased the GIPSA’s budget for enforcement over unfair market practices and is now working to incorporate the public comments in drafting an improved rule.
Beyond these actions, it is still unclear as to how competition issues in agriculture will be dealt with at the federal level. Howard Shelanski (Deputy Director for Antitrust, Bureau of Economics, Federal Trade Commission) conceded that there is increasing grocery consolidation attributable to stores like Walmart, which was a clear target for many panelists opposed to the corporation’s unwieldy dominance over the market. However, Shelanski also pointed out that the Federal Trade Commission (FTC) normally deals with issues of monopoly (one seller vs. many buyers), not monopsony (one buyer vs. many sellers). The concern of the FTC has historically been consumer “welfare,” which is defined by prices paid by consumers. Unlike monopolies, buyer power does not always translate to increased costs (decreased welfare) to consumers.
Thus, as Mary Hendrickson (Extension Associate Professor of Rural Sociology, University of Missouri) pointed out, the DOJ and FTC must broaden their definitions of power and consumer welfare to factors beyond price. They must consider the fact that farmers and farm workers have less control over their life choices than others, that some communities have less access to capital than others, and that the business models of those with consolidated power are imposed on others that are too small to maintain their own.
Workshop participants called for increased transparency, federal-level investigations of large corporations, reviews of past mergers, a legal policy framework that focuses on citizen welfare, and the FTC’s involvement in any relevant task forces. If the FTC is truly set up to deal with “unfair methods of competition in commerce,” they must adapt to 21st century market problems and find a way, in partnership with the USDA and the DOJ, to deal with buyer power and unfair practices in the agriculture industry.