Fewer Firms, Farms Producing Food

Food prices have gone up, but farmers are getting a smaller share of the food dollar. Is the food market getting too concentrated?

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In 1982, the four largest chains stores sold 16 percent of all groceries in the U.S. By 2005, the four largest — Wal-Mart, Kroger, Albertson’s and Safeway — controlled 36 percent of the market, more than doubling the concentration of food sales within a generation.

The same kind of concentration also took place in the dairy business. The four largest dairy companies controlled 16 percent of the milk market in 1982. Twenty years later, the four largest processors were taking 43 percent of the market. (See chart on this page.)

Everywhere in the food business — beef, pork, bakeries — companies have been getting larger, with fewer firms taking larger chunks of the market. The Government Accountability Office concluded in a recently released report that “Concentration generally has increased at all levels of the food marketing chain in all agricultural sectors since the 1980s.”

There is no indication, according to the GAO report, that this increasing market concentration has increased the cost to the consumer or hurt farm producers.

The conclusion dismayed those who have spent years watching competition within the food business.  “I just thought the whole thing was dated, naive and superficial,” said Auburn University agricultural economist C. Robert Taylor. “I hate to use words like that, but darn it, I just expected a more substantive report.”

“We have a corpse, we think he was murdered and we want to find out who done it,” said Fred Stokes after hearing the results of the GAO study. Stokes, executive director of the Organization for Competitive Markets, said the “farmer is the weakest link in the whole food chain and he is being victimized.”

Members of Congress asked the GAO to study the food industry after a rapid price increases last year rattled consumers. The agency didn’t undertake an original study. Instead, it compiled other studies of market concentration within the food and agriculture sectors. 

The GAO report found that the business was getting more concentrated at all levels, from the size of farms to the size of grocery chains stores. But the agency said that any price increases due to growing concentration had been moderated by increased efficiencies that came with operations of  larger size.

The GAO did find that farmers were receiving a progressively smaller portion of the food dollar. The report is filled with charts showing a widening gap between what farmers are paid for meat, grains and milk and what consumers pay. “Over the past 25 years, farmers have received a decreasing share of the consumer food dollar,” the GAO reported.

Auburn’s Bob Taylor said that when adjusted for inflation, in many sectors, prices paid to farmers had decreased during this time.

Moreover, Taylor said, the increasing spread between what farmers are paid and what consumers are charged for food “is very strong evidence that market power is being exerted.”

During the same period retail firms and food producers have been consolidating, there has been a rapid decrease in the number of dairy, beef, hog and grain farms. There are nearly 200,000 fewer grain farms than there were in 1987. The number of dairy farms has dropped from 163,000 in 1987 to 70,000 in 2007. Hog farms in this same period declined from 239,000 to 75,000.

GAO
Since the 1980s, the number of dairy and hog farms has steadily decreased. During the same time, large dairies and pork packers took an increasing share of the market.

Some of these farms have grown larger, so food production is also more concentrated. In 1987, 76,000 farms produced half of all farm goods. By 2007, 33,000 farms accounted for half of all sales.

The GAO report doesn’t explain why farmers have been receiving a progressively smaller portion of the food dollar. Nor does it attempt to examine why the number of farms is contracting and food production is consolidating.

Finally, the GAO report doesn’t examine the concentration of seed and farm chemical production, an area that President Obama’s Department of Justice has already said it will examine for violations of antitrust laws. Taylor said this area of the agriculture business has been consolidating most rapidly of all.

The GAO did say it expected these trends to continue. “Most experts we spoke with said that concentration is likely to increase,” the agency wrote, “leading to fewer, larger beef, pork, and dairy processors and retail outlets, although opinions were mixed on the likely impact of this potential trend.”

The GAO said the gains in efficiency experienced by large firms may begin to diminish, “while market power could continue to increase,” the agency wrote. “In the retail sector, one expert expressed concerns about the effect on food prices in the future if food retailing becomes dominated by a handful of larger chains.”

Stokes and Taylor counter that the increasing concentration in the food industry has already lowered prices paid to farmers, ranchers and dairy owners. They have asked the Department of Justice to examine this area of the economy for violations of antitrust laws, and Justice has agreed to open an inquiry.

“What do we need?” Taylor asked earlier this month at OCM’s meeting of farmers and ranchers in St. Louis. “We need a balance of power. We need referees who are impartial, who will throw a flag.”

 

 

Topics: Ag and TradeFood
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