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Through an analysis of two agricultural markets, this report illuminates the concerning trend of corporate consolidation in agriculture—and the damaging impact this trend has on independent family farms. From manufacturers of agricultural inputs such as pesticides and equipment to commodity buyers and meat processors, growing corporate power has left relatively small farms and ranches vulnerable to exploitation at the hands of the oligopolies with which they do business.
Recent mergers and acquisitions continue the relentless trend toward increasing corporate concentration across many agricultural markets. For example, the share of the corn seed market that is controlled by the four largest biotech companies has risen from Hog farmers face increasing processor buyer power resulting from the twin trends of increasing concentration and the prevalence of production contracts.
As of , 66 percent of all hogs were slaughtered by the four largest meatpackers, up from 34 percent in With only a handful of processors with which they can do business, hog farmers have little choice but to enter into contracts that compensate them through opaque and often manipulatable pricing formulas that saddle farmers with burdensome terms and quite often large levels of debt.
Indeed, agricultural economists who modeled farmer and consumer welfare under various degrees of market power among buyers note that even a modest departure from a perfectly competitive market can result in a 30 percent decrease in farmer surplus. Similar challenges exist across American agriculture and ranching.
It is not surprising then that small and midsize farmers struggle to keep their operations running and make ends meet. Like millions of workers whose wages have been stagnant in recent decades, farmers are quite simply not receiving a fair share of the returns from their labor. With 1 in 5 rural counties dependent on farming, and a rural poverty rate 3. The analysis in this report aims to shed light on the impact that corporate concentration and the subsequent decline in competition in agricultural input and commodity markets have had on farm families and their communities.
This report concludes with a set of specific recommendations that aim to increase competition; empower farmers to secure their fair share; and protect farmers from an array of unfair, deceptive, and abusive practices in these markets. These recommendations include:. Restoring agriculture as a pathway to a decent, independent living will begin the process of rebuilding rural America. Agricultural inputs—which include seed, crop protection chemicals, machinery, and more—processing, food manufacturing, and retail are now dominated by a handful of firms in their respective markets.
Small and midsize family farms operate nearly three-fourths of all farmland and account for about half of all production. Concentration and relative size do not necessarily equate to market power, though they do contribute to it. Monopoly power is difficult to directly measure, so government agencies and economists use concentration measures, such as the four-firm concentration ratio and the Herfindahl-Hirschman Index HHI —which captures the relative size of dominant firms in relation to each other—as useful heuristics to estimate it.
Herfindahl-Hirschman Index : The squared sum of the market shares—expressed as a percentage—of all participants in a market. Like other small-business owners, farmers must purchase the inputs necessary for the production process. The chief operational expenses that farmers pay to run their business are for feed, labor, livestock, seed, and fertilizer. Unfortunately, as concentration in agricultural inputs increases and the quantity of suppliers declines, farmers and ranchers may find it difficult to keep costs under control and maintain a livable income.
The consolidation of agricultural input markets is widespread. As of , the four-firm concentration ratio—the percent of a market controlled by the four largest participants—in the markets for pesticide manufacture was 57 percent. The seed market serves as a good example of the widespread consolidation occurring throughout the agricultural supply chain. The rise of biotechnology in the seed market created a new industry that integrated traditional hybrid methods, modern genetic modification, and chemical manufacturing.
A wave of mergers and acquisitions in the s and s gave birth to a handful of dominant biotech firms. Despite pressing concerns about the impact of high levels of concentration, the U. Department of Justice DOJ , which is responsible for antitrust enforcement in the agriculture sector, has taken a surprisingly permissive stance on agrichemical and biotech company mergers, permitting the number of dominant firms to shrink from six to four.
For example, in , the DOJ permitted the Bayer-Monsanto merger on the condition that merging parties divest holdings in narrowly drawn input markets in which they directly competed. While it is too early to observe all the ramifications of recent mergers, consolidation has had serious, observable effects on farmers. The survey found that 80 percent of crop farmers reported that their seed prices increased over the past five years. Nearly two-thirds of those surveyed expressed feeling that they have less bargaining power when buying seed than they had previously enjoyed.
The case study below of corn and soybean seed markets illustrates the real-world implications of seed monopolies on farmers. Farmers also face increasingly consolidated firms when selling the commodities that they produce.
In recent years, these processors have consolidated at rates comparable to those of agrichemical and biotech companies. Increased concentration among food processors presents a risk of monopsony power—the exertion of market power by a large buyer to influence the price or quality of its inputs. A series of nationwide workshops held by the DOJ revealed that monopsony power is a pressing concern of farmers. While increasing concentration is not uniform across all agricultural commodity markets, there are some that have exhibited alarming rates of consolidation.
For example, from to , the four-firm share of animal slaughter nationwide increased from 55 percent to 79 percent for cattle, from 33 percent to 65 percent for hogs, and from 34 percent to 57 percent for poultry. While this report focuses on pork processing as a case study of concentration and the threat that possible monopsony power poses for hog farmers, there are other markets that are at least as concentrated as pork processing.
For example, the four largest wet corn millers and soybean processors control 84 percent and 82 percent of their respective national markets. As concentration among processors has increased, so has the importance of sales through contracts between the processor and the grower, as opposed to on the open cash, or spot, markets. These contract agreements arrange the terms of sale for commodities before they are produced.
In , more than one-third of the value of agricultural commodities was produced under contract, though this varies greatly across commodities. Marketing contracts typically specify the amount of a commodity that a processor will purchase from a farmer and determine the price that the processor will pay, often using a formula based on spot market prices.
Production contracts go further by dictating the way in which livestock is raised or field crops are grown, sometimes down to the exact type and quantities of inputs or production techniques. Often, the livestock raised and inputs such as feed are themselves owned and supplied by the packer—referred to in this report as the integrator—while contracts require farmers to make capital investments to meet integrator requirements.
At their core, production contracts are a way for integrators to control the quantity and quality of inputs that they process while cutting costs and minimizing risk. Though farmers have limited control over the way they can raise the animals, their contracts nonetheless determine that they bear much of the liability and risk for raising the animals owned by the integrator.
The typical contracting arrangement gives the integrator the power to control the type and quantity of stock raised, the pharmaceuticals used, the type of feed used, and the equipment and facilities required. The integrator owns the animals, supplies the required feed, and controls the veterinarian services that the farmers use, while farmers assume debt in order to meet capital investment requirements.
With the number of packers dwindling, most farms have little bargaining power with which to negotiate the terms of these contracts, resulting in extractive terms. Farmers must accept the terms of the contract as written by the integrator or find another integrator. The integrator sets the terms of compensation, usually as a per-unit rate based on a pricing formula with some bonuses or penalties associated with yield, efficiency, or quality.
Farmers who attempt to organize or negotiate better terms risk intimidation and retaliation, for example, through the threat of termination of the contract or the supply of substandard livestock or feed. Poultry integrators and, to a lesser extent, pork integrators, use a so-called tournament system in which farmers are ranked by efficiency and paid according to their ranking.
These provisions had come under heightened scrutiny thanks to a mandate in the Farm Bill that was inserted by then-Chairman of the Senate Agriculture Committee Tom Harkin D-IA that required the Grain Inspection, Packers and Stockyards Administration GIPSA to formulate rules clarifying unfair and deceptive contracting practices, which were ultimately implemented by the Obama administration in These rules included commonsense provisions that banned price discrimination between similar growers and retaliation against farmers who organize for better contract terms.
The twin trends of horizontal consolidation and vertical integration in food processing have serious implication for farmers. The resulting thinning cash markets and increasingly powerful buyers make prices vulnerable to manipulation. While much of the discussion here focuses on livestock markets, production contracts also exist in some produce markets, demanding further study.
This report continues the discussion of consolidation and integration in agriculture with a case study that examines the dynamics of the hog market. In contrast to the large firms that dominate the other stages of the supply chain, the production of agricultural commodities happens on relatively decentralized farms and ranches. Nearly half of all agricultural production occurs on small and midsize family farms. In the s and s, industrial agricultural techniques spurred the acceleration of a trend that began during the Dust Bowl era of the Great Depression, in which millions of families moved from farms to find work in factories in major cities.
Since the s, a range of factors—including mechanization, automation, and concentration trends—have continued to drive farm consolidation and growth. However, the trend of farm consolidation in recent years has been less dramatic than the consolidation of inputs and processors, resulting in a food system in which small family farms must grapple with large input suppliers and large buyers. The following case studies reveal evidence of the monopoly and monopsony power that is associated with high concentration in specific markets.
Markets for specific inputs and commodities have unique characteristics that make it difficult to generalize about the effects of concentration in the agriculture sector writ large. However, many other markets have levels of concentration comparable to those of the markets studied here and therefore deserve closer scrutiny by academics, experts, antitrust enforcers, and state and federal policymakers, including Congress, the USDA, the DOJ, the FTC, and state attorneys general.
Each year, about million acres of soybeans and corn are planted in the United States, primarily in the Midwest. Nearly all the corn and soybeans grown in the United States are genetically modified GM for resistance to herbicides, pests, or both. While some farmers may not consider non-GM seeds substitutes for their GM counterparts, available analysis does not distinguish between them, likely providing an overly broad definition of the corn and soybean markets and an underestimate of market concentration.
Biotechnology companies require three main components to manufacture transgenic seeds: genetic traits, the technology necessary to transmit them, and the germplasm that carries these traits. Through research and development, acquisitions, patents, and licensing agreements, biotechnology companies strategically expand their portfolio of technology, traits, and germplasms to create marketable transgenic seeds. By acquiring independent seed companies and the technology startups that pioneered new methods of genetic modification, a handful of dominant firms won control of the bulk of biotechnological intellectual property, and, consequently, the GM seed market.
Since the mainstream success of GM seeds, four biotechnology firms—Monsanto, DuPont, Dow, and Syngenta—have emerged as dominant players in the corn and soybean seed markets. DuPont controlled 33 percent of the soybean seed market while Monsanto closely followed with a market share of 28 percent.
In addition to consolidation, biotech companies amass market power through exclusionary practices and protective patenting. The remaining so-called independent seed companies that the four largest firms have not acquired directly are often bound by exclusive dealing agreements with biotech giants that penalize them for licensing traits from any other companies.
Alternatively, bundling agreements may incentivize seed companies to ensure that a certain proportion of their seed offerings contain Monsanto traits.
These practices erect anti-competitive barriers to entry for new biotech firms that attempt to market alternative traits to seed companies. Meanwhile, dominant biotechnology firms directly head off competition from other biotechnology companies through strategic licensing and protective patents. When licensing a trait to another firm, the licensing agreement may prohibit the firm from stacking traits with those of other companies.
Moreover, much like the pharmaceutical industry, transgenic seed companies employ strategic patenting to delay or block generic alternatives from entering the market. Despite extremely high concentration and significant barriers to entry in the corn and soybean seed markets, the DOJ failed to address the potential anti-competitive effects of the Dow-DuPont merger. At the time of the proposed merger, Dow was the third-largest firm in the corn seed market and the fourth-largest in the soybean seed market.
Increases in corn and soybean seed prices suggest that dominant firms may be extracting supracompetitive prices from farmers. In , a DOJ listening tour found widespread concern among farmers about the rising cost of seed as a result of the rise of GM technology and the powerful firms that control it. Meanwhile, yield only increased The continued consolidation of the seed industry will likely exacerbate this trend.
Rising concentration in seed markets will likely result in decreased research and development, innovation, and seed choice. The Bayer-Monsanto merger, for example, appears unlikely to bring about increased innovation.
As discussed earlier in this report, corn and soybean farmers also face increased market concentration in their other inputs, including tractors and agricultural chemicals. Although American farmers work harder than ever, they are increasingly exploited by powerful corporate forces. Pork production is centered in the Midwest, which accounts for about two-thirds of all hog sales in the United States.
You can make a difference by sharing your knowledge and skills with farmers, cooperatives, agribusinesses, and other agriculture sector institutions in developing. Each booklet focuses on a farm or non-farm enterprise that can be integrated into small farms to increase incomes and enhance livelihoods. The enterprises.
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Because the latest figures from the Directorate-General of Budget, Accounting and Statistics DGBAS show farmers are making little money, while the farming population is ageing, academics say that agriculture can become sustainable only when farmers could earn a reasonable income. DGBAS figures from — the statistics for last year are not ready yet — show the average annual income for a farming household dropped to the second-lowest level in 14 years and was only a little higher than in , when Taiwan entered the WTO.
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Taiwan’s ageing farmers struggle to earn a living
If farms are to continue growing food, they must be kept affordable for farmers. In many real estate markets today, farms are being sold to non-farmers for prices that are out of the reach of farmers. This is a problem not only for current and aspiring farmers who are unable to purchase farms, but for local communities that have an interest in preserving access to locally produced food. Technical Assistance. Equity Trust eq' ui ty: 1.
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Share your knowledge and skills with farmers throughout the world. We support farmers and agribusiness professionals in developing countries to improve their livelihoods and food security. Farmer-to-Farmer sends U. Too often, farmers in the developing world are cut off from technologies and innovations that can improve their productivity and competitiveness. Farmers have the proven strength and resilience to lift their families and communities out of poverty, but they need access to the best practices available. Farmer-to-Farmer is designed to help bridge this gap - we send highly-skilled volunteers to help people access the tools and information they need to thrive. You can make a difference by sharing your knowledge and skills with farmers, cooperatives, agribusinesses, and other agriculture sector institutions in developing countries. Recruited from all 50 states and the District of Columbia, Farmer-to-Farmer volunteers come from diverse backgrounds in the public and private sectors. Volunteers use their skills and expertise to help communities increase their agricultural productivity and competitiveness in emerging markets. The U.
Through an analysis of two agricultural markets, this report illuminates the concerning trend of corporate consolidation in agriculture—and the damaging impact this trend has on independent family farms. From manufacturers of agricultural inputs such as pesticides and equipment to commodity buyers and meat processors, growing corporate power has left relatively small farms and ranches vulnerable to exploitation at the hands of the oligopolies with which they do business.
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Executive summary available here in EN and FR. While the markets for agricultural commodities have an inherent tendency to be rather volatile, the price volatility of these products has been particularly high in the last decade. More specifically, sharp increases in global food prices in and were followed by recurring periods of often severe price depression. As these changes in prices were unpredictable, price volatility had a number of negative consequences in all parts of the world. The reason for this is that large variations in prices create a high level of uncertainty among producers and consumers. Producers are more concerned about the prospect of low prices, since a lower income may threaten their viability in the long term. Meanwhile, the ability of poor households to ensure their nutrition and other basic needs such as education and health care can be compromised when food prices are high. As a result, the recent price fluctuations and their detrimental impact on the agricultural sector have stimulated a renewed debate on the issue of volatility and the possibilities of stabilising the agricultural markets. Against this background, this report focuses on the agricultural policies and instruments that can support farmers in the management of these types of volatility.
