Uncle Bob, Grandad Robb and the Scourge of Economic Concentration

My Uncle Bob has a diversified cattle/grain operation on good land in Western Missouri. He was one of the first ridge-tillers in his area. My Grandad Robb was a dairy farmer, who later raised Polled Herefords in the rocky Ozarks. Grandad quit the dairy business when the milk truck quit collecting at his farm because he was considered too small an operation. Uncle Bob never did go with the genetically modified seeds; he was not concerned about the “frankenfood” aspect of GMOs, but he really did not like the corporate power dimension. He told me, “Once you sign on with Monsanto, they have you for the rest of your life.”

Economic concentration and the resulting market power are not new concerns for U.S. farmers and ranchers. The agrarian and populist movements of the late 1800s organized against the power of the railroad, meat and grain trusts. These social movements were successful at gaining some protections, such as the Packers and Stockyards Act and the Capper Volstead Act. But starting in the 1980s, concerns about corporate concentration re-emerged as the Reagan Administration weakened anti-trust legislation to allow U.S. corporations to compete in the global market place.

The resulting rash of mergers and acquisitions created an agrifood system where U.S. producers increasingly perform the function of lowest-cost input suppliers for transnational corporations, which source the globe for the most favorable factors of production. Many farmers and ranchers – like my Uncle Bob and Grandad Robb – are caught “betwixt and between” concentrated input and output markets. The Missouri School of Agrifood Studies, created by rural sociologist Bill Heffernan at the University of Missouri, has documented this trend toward oligopoly and oligopsony. Oligopoly refers to a few firms controlling the markets producers buy from (e.g., inputs); oligopsony refers to a few firms controlling the markets producers sell into (e.g., meatpacking, grain processing).

More TBR 6
1. Som Castellano’s intro to TBR 6
2. Constance on economic concentration in ag
3. Deemer on social class and animal welfare
4. Saxton on farmworker injustice and health
5. Meiretto on immigration policy and food security
6. Wuerzer, Fry & Anderson on food access in Ada County
7.  Bruce on producing food for alternative food networks
8. Som Castellano on gender inequality in the local food movement

THE AGRARIAN QUESTION

For rural sociologists, the effects of economic concentration in the agrifood system are analyzed through “the Agrarian Question.” The Agrarian Question asks, “What is the relationship between the structure of agriculture and the quality of life for producers and rural communities?” In other words, “How does capitalism take hold of agriculture?” In 1899, Karl Kautsky, the Czech-Austrian agricultural philosopher, posed this question in response to his concern about the increasing scale and corporatization of agriculture in Europe.

Historically, capitalism has avoided direct investment in agriculture due to the low turnover rate (profits are generated only once a year for crops and cattle, and a few times a year for hogs and poultry) and high fixed costs (land and machinery). Additionally, commodity cycles and unpredictable weather make agriculture a risky investment. To get around these barriers to investment, agribusiness focuses on controlling the pre- and post-production activities. In this system, the producer takes most of the production risk and acts like a shock-absorber in the commodity system. The producer creates most of the value in the commodity chain, but the value (wealth/profit) is apportioned to different actors along the chain based on the levels of economic power.

The discovered answer to the Agrarian Question reveals that the dual processes of horizontal and vertical integration associated with the industrialization of agriculture lowers the quality of life for producers and rural communities by systematically extracting wealth from rural areas and transferring it to corporations and their shareholders (see Linda Lobao and Curt Stoferahn’s work).

HORIZONTAL AND VERTICAL INTEGRATION OF THE FAMILY FARM

Horizontal integration refers to the process of market consolidation within a commodity sector. For example, mergers and acquisitions in beef slaughter have resulted in the top four beef packers controlling over 80 percent of slaughter. Vertical integration refers to the process of consolidating all aspects of the commodity chain within the company, thereby reducing transaction costs and increasing efficiency. The poultry industry is the best example of both vertical and horizontal integration. A few firms such as Tyson and Pilgrim’s Pride (now owned by JBS of Brazil) dominate the industry in a tightly integrated system.

Horizontal integration combined with vertical integration provides greater opportunities for predatory behavior and the exercise of market power. Too often, farmers and ranchers occupy precarious economic positions in these commodity systems dominated by multi-national agrifood companies. At the GIPSA (Grain Inspection Packers Stockyards Administration) hearings in 2010 many producers again lobbied the government, unsuccessfully, to protect them from this increasing market power.

U.S. producers occupy varying degrees of precariousness depending on the commodity systems in which they participate. Commodity systems analysis was developed by Bill Friedland at the University of California at Santa Cruz based on his study of the political-economic structure of the lettuce industry in California. Friedland discovered that the traditional supply chain, or commodity chain, or value chain, perspective of economics did not capture the complexity of factors that influence how commodity systems work. Other factors such as government regulations and the role of university science, as well as labor relations for agricultural workers, needed to be included in the analysis.

Some U.S. producers operate in more competitive markets, while others operate in more concentrated markets, resulting in varying levels of precariousness. For example, major grain farmers obtain their inputs, especially their seeds, from very concentrated inputs markets dominated by agribusinesses such as Monsanto and Dupont, and sell their outputs to a few major grain traders such as Cargill and ADM. Cattle and hog producers sell their feeder calves and market hogs to fewer and fewer packers, mostly Tyson/IBP, Excel, JBS and Smithfield/Shaunghui.

Contract poultry producers occupy a very precarious position as they often only have one integrator in their region to supply birds for, but have long term debt on single-use building, which places them in monopsony opportunism positions with their integrators. Agricultural economists point out that the combination of asset specificity of single-use buildings, short-term production contracts and long-term debt creates opportunities for “hold up” as integrators force growers to incur more debt to technologically-upgrade their facilities.

MODERN DAY SHARECROPPING

The production contract allows the integrator to control the production process without formal employment of the growers and without responsibility and liability for the negative externalities of the production process. This sharecropping system, developed in the U.S. South during the 1950s, is being exported around the world, and into other commodity sectors, as the preferred model of agrifood development. Tyson and Pilgrim/JBS are the second and third largest poultry companies in Mexico, and are expanding rapidly in Brazil, China and India.

The laws of economics, as well as agricultural economics, hold that market power is avoided by opportunities for choice. The choice among many output buyers downstream and many input sellers upstream allows producers to operate in competitive markets and thereby reap a fair share of the value created. But, to survive in concentrated markets, producers have to expand to obtain economies of scale, resulting in the consolidation in farmland and a small percentage of farms producing most of the agricultural commodities. A mixture of ownership and leasing is often the model for grain farmers to achieve these economies of scale.

What agricultural economist Williard Cochrane calls the “treadmill of production” forces farmers to adopt the newest technologies and expand their land base in order to survive. Grain farmers often “farm the government” via commodity subsidies and/or conservation payments to enhance their chances of survival. From an Agrarian Question perspective, it is unfortunate that the treadmill forces farmers to value their neighbors’ land more than their neighbors. The result is a systematically depopulated rural America without the human density or socio-economic structures to nurture and sustain community.

A WAY OFF THE TREADMILL

The fundamental agrarian problem is economic concentration in the agrifood system. It is a problem because it violates the laws of economics, exploits farmers and ranchers and reduces the quality of life in rural communities. It got to be a problem when increased horizontal and vertical integration led to market concentration, especially with the weakening of anti-trust regulations under the Reagan Administration. At the global level, the shift to neoliberalism governed by the World Trade Organization exacerbates and accelerates the trend. To fix the problem, producers need to delink from the precarious global agrifood system and relink to more sustainable regional agrifood systems.

The conventional agrifood system is unsustainable environmentally, economically, and socially. This growing legitimation crisis has generated a blossoming of alternative agrifood movements, including organics, Slow Food, local, Fair Trade, CSAs, GMO free, and others. La Via Campesina challenges the global agrifood system and calls for the protection of indigenous peoples’ rights and the rights to their traditional seeds. They challenge us to “repossess” and create regional fair trade agrifood systems. I think Uncle Bob and Grandad Robb would agree with them.