Big Agriculture Is Not What's Ailing Farmers Today
June 27, 2000
by Dennis T. Avery
BRIDGE NEWS June 23, 2000
CHURCHVILLE, Va.--Kathleen Kelly, a ranch wife from Colorado, launched an eloquent attack against agribusiness monopolies at a recent U.S. conference on farm market structure held in Kansas City, Mo. Kelly was supposed to talk for 10 minutes. Instead she held the audience spellbound for an hour and got a standing ovation.
There's only one problem: The companies she says are getting monopoly profits are rated by Wall Street as slow-growth, low-margin businesses. Nor have the farm cooperatives that make up about one-third of the industry been earning "monopoly profits" for their farmer-shareholders.
Another eloquent speaker at the competition conference was Peter Carstensen, an antitrust lawyer who teaches at the University of Wisconsin. He declared any merger was illegal if it substantially reduced competition. He denounced the 68 recent mergers in the seed industry and warned that some farmers in Iowa are down from six to eight livestock buyers to one.
All of these anti-competitive businesses should be sued under antitrust, he declared. There is no danger to farmers in such lawsuits, he said, since agribusinesses must have commodities and will pay whatever it takes to get the commodities delivered.
Unfortunately, Carstensen seems to have forgotten 40 percent of U.S. farm output goes overseas. If the processors and handlers are discouraged by the high legal costs of constant antitrust suits in the United States, they can originate their commodities from Argentina, France or Thailand.
Would the farm coops put up the billions of dollars to buy up their former processing plants and elevators? Would anyone else brave the hostile antitrust climate? Would U.S. farm sales and competition be enhanced or suppressed?
Luther Tweeten of Ohio State University made the most powerful presentation at the conference. Tweeten says we can't judge monopoly by the number of firms. "Do Coke and Pepsi compete?" he asks, "Of course." They're selling soft drinks for 1.5 cents an ounce, compared with 7 cents an ounce for some brands of bottled water.
U.S. farm households in 1999 had all-time record incomes, 37 times as high as farm incomes in 1933 (adjusted for inflation) and 15 percent above the U.S. household average.
He says investments on America's commercial farms have recently earned as much as they would have in other occupations, though not every year. Farming is infamous for that kind of weather-and-pest-driven variability.
William Heffernan of the University of Missouri told the competition conference that America might be reduced to only 25,000 farm in the next decade.
But Tweeten pointed out the United States has 1.9 million farms now, and the 1997 agricultural census indicates we are losing them at the rate of 0.14 percent annually. At that rate, it would take more than 3,000 years to reduce America to 25,000 farms!
The 1997 Census of Agriculture found corporate farms make up 0.4 percent of all farms, had 1.3 percent of the land and generated 9 percent of sales. Many of them are in high-value fruits and vegetables.
The number of farms is declining for the same reason that the number of supermarkets and automakers is declining, Tweeten says. They need big, expensive investments to compete.
Food retailers need big, air-conditioned buildings on costly urban real estate. A farmer needs enough land to fully use a big combine, or have enough hogs to fill a high-tech hog hotel. Death losses, feed costs and labor requirements are too high with outdoor hogs.
Tweeten suggests the expansion of contract farming, especially in hogs, has emerged not because of market monopoly but to get consistent high quality (such as low-fat hogs) and higher productivity (more piglets per sow) through high-value hog breeding lines.
It's the same thing that happened in poultry 25 years ago. Tweeten says recent studies of the livestock and poultry industries show marketing margins being reduced, not expanded, as agribusiness firms get bigger.
The bad news for farmers is the big companies are gaining market share by cutting consumer costs rather than paying farmers more. Companies pay only what it takes to get the volume of product they want; they have little control over farmers' response to price.
A University of Wisconsin study estimated slaughter cattle prices would have been 24-27 cents higher per 100 pounds in four U.S. regions with more intense competition.
However, this is dwarfed by U.S. cattle price swings of up to $ 30 per hundredweight. Other researchers criticized the Wisconsin study, saying that whether a region was surplus or deficit in beef made more difference than the number of bidders.
Tweeten and I agree the century of chronic world farm surpluses is over. On average, commercial farmers are already getting returns as good as off-farm occupations would offer. We also agree that the returns would be still better if free trade doubled the world's farm exports.
Farmers all over the world would get higher sales, higher prices and lower costs through comparative advantage. "American agribusiness is the envy of the world," says Tweeten. "Before Federal antitrust agencies tamper exuberantly with such a system, it is important to remember the Hippocratic oath doctors take: "Do nothing to make the patient worse."
Dennis T. Avery is based in Churchville, VA, and is director of the Hudson Institute's Center for Global Food Issues.