Thicke warns of excessive concentration in agriculture

The Justice Department and U.S. Department of Agriculture have been accepting public comments in advance of a series of workshops on “competition and regulatory issues in the agriculture industry.” The first workshop is scheduled for March 12 in Ankeny.

Francis Thicke, a dairy farmer and Democratic candidate for Iowa secretary of agriculture, submitted this comment to the DOJ’s Antitrust Division. Excerpt:

Economists tell us that when four firms control 40% or more of a market, that market loses its competitive nature. Currently, four firms control 83.5% of the beef packer market; four firms control 66% of the pork packer market; four firms control 58.5% of the broiler market. The turkey, flour milling, seed, and other agricultural markets are similarly concentrated.

The anticompetitive effects of market concentration is further compounded by the fact that some of the top four firms in each market category are also among the top four in other markets. For example, Tyson is number one in beef packing, number two in pork packing, and number two in broilers. This kind of horizontal integration encourages firms that dominate in several markets to manipulate prices in order to increase their market share. For example, when beef and broiler prices are profitable, a firm with dominant market share in beef, broilers, and pork can take measures to prolong the unprofitability of the pork market in order to force out firms that deal only in pork-while maintaining its own firm’s overall profitability through the beef and broiler market sectors.

A good current example of the farm-level effects of market concentration is the milk market. Recently, dairy farmers have been experiencing record losses due to low farm-gate milk prices. At the same time, the largest dairy processor, Dean Foods-that is purported to control 40% of U.S. dairy processing-has posted record profits over the past two quarters. Clearly, Dean Foods has found a modus operandi that enables it to isolate itself from the market forces bearing on dairy farmers.

I am glad to see Thicke raise this issue, which affects the well-being of so many family farmers. I do not recall Iowa’s current Secretary of Agriculture Bill Northey or his predecessor Patty Judge sounding the alarm about excessive concentration in the agriculture industry. Someone please correct me if I am wrong.

Last month the Farmer to Farmer Campaign on Genetic Engineering released a report on consolidation in the seed industry, which has left farmers with “fewer choices and significantly higher prices in seed.” You can read more about that report at La Vida Locavore and Iowa Independent.

Blog for Iowa recently published a lengthy interview with Thicke that is worth reading. Here are the links to part 1, part 2, part 3 and part 4.

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Did wholesalers' conspiracy keep food prices artificially high?

The Des Moines Register published a fascinating story on Saturday about a Mount Vernon grocer’s lawsuit against the industry’s top two wholesalers, SuperValu Inc. and C&S Wholesale Grocers. Gary’s Foods filed suit eight months ago and was joined by a Maine grocer in January. What’s at issue:

The class-action lawsuit seeks monetary damages equal to triple what grocers in the Midwest and New England allegedly have overpaid for food due to the lack of competition since September 2003. […]

Court papers describe C&S and SuperValu as the nation’s top two grocery wholesalers by dollar volume, with combined 2008 revenues in excess of $28 billion. Documents say the companies strongly competed against each other in New England for much of the late 1990s, but things changed dramatically after C&S purchased the assets of a bankrupt Midwestern wholesaler in 2003.

“Faced with the prospect of competing against C&S in the Midwest, SuperValu had one of two options: Either vigorously compete, which would have substantially reduced prices to retailers, or conspire with C&S to eliminate competition between the wholesalers,” court papers say.

C&S ultimately sold its new Midwestern assets to SuperValu in September 2003 as part of a deal that also had C&S purchase all of SuperValu’s distribution facilities in New England. But court papers allege that there was a separate, “secret noncompete agreement” signed at the same time – a deal that was not publicly disclosed and unknown to the plaintiffs until “a former SuperValu executive” disclosed its existence to them in late 2008.

The wholesalers are trying to have the lawsuit dismissed on procedural grounds. According to the Des Moines Register, a hearing is expected next month in a Minnesota court.

If these allegations are true, millions of consumers probably have been paying too much for food for nearly six years.

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