Competition in Agriculture (cross-posted)

Michael Sykuta —  10 February 2010

Antitrust & Competition Policy Blog is hosting a symposium on Competition in Agriculture. So far today, there are posts by Ron Cass (BU Law), Jeff Harrison (U of Florida Law), and me.  Additional posts should be forthcoming from Christina Bohannan (U. Iowa Law), Scott Kieff (GW Law), Andrew Novakovic (Cornell Applied Economics), George Priest (Yale Law), Kyle Stiegert (U. Wisconsin Agricultural and Applied Economics), and Josh Wright (George Mason Law). My contribution is reproduced below.  Please leave comments over at the A&CP Blog.

Learn from history, don’t repeat it.

Antitrust laws originated in Midwest states like Missouri in the late 1880s when small farmers banded together in the face of falling agricultural commodity prices to stand against the competitive pressures of larger, more efficient farming operations. Over a century later, it is, as Yogi Berra said, “déjà vu all over again.”

Of the almost 2.2 million farms in the USDA’s 2008 Agricultural Resource Management Survey, the 1.8 million smallest farms lost money on their farming operations (on average) even after accounting for government program payments. These farms represent only 10% of the value of agricultural production in the US, yet received roughly 28% of government payments.

In addition, these small-scale farmers are less likely than their larger competitors to shop beyond the nearest town for key inputs, to shop for the best price from suppliers, to negotiate price discounts, or to lock in prices for inputs. Small-scale farmers are also much less likely to market their products using contracts or to use market-based risk management tools. In short, small-scale farmers fail to (or are simply unable to) take advantage of market opportunities that larger, more efficient farms do. That large farms do engage in these activities suggest a very competitive agricultural economy.

Although antitrust has long been used as an anticompetitive club by economically inefficient competitors, such applications do more harm than good. The agriculture sector would be better served by eliminating the subsidies that sustain marginal producers than by using antitrust to penalize more efficient, better managed farming operations and other firms along the rest of the food value chain. DOJ’s antitrust inquiry will, at best, simply perpetuate the inefficient industry fringe or, more likely, inhibit the kinds of technological and market innovations that have provided US consumers and the world with a safe, reliable food supply.

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  3. Linkblog » TRUTH ON THE MARKET - February 11, 2010

    […] “Antitrust laws originated in Midwest states like Missouri in the late 1880s” when smaller farms banded together to hold their grounds against larger farming operations. Today the situation is about the same. There are about 1.8 million farms which are likely to be inefficient compared to large agriculture companies. Even though they get large payments by government programs. The market does not like that. If those small farms prove to be too inefficient to survive they should not be rescued and instead the large players should in future produce the food and other agricultural products in a good and efficient way. […]