The Aggregation Problem [#agworkshop]

Cite this Article
Michael E. Sykuta, The Aggregation Problem [#agworkshop], Truth on the Market (March 12, 2010), https://truthonthemarket.com/2010/03/12/the-aggregation-problem-agworkshop/

As Geoff noted, we’re stationed at the DOJ/USDA workshop to witness the goings on and provide some comments.

US Secretary of Agriculture Tom Vilsack opened this session with a laundry list of statistics concerning rural America and the agriculture sector. The statistics focused on national concentration ratios and national averages, which are tremendously deceiving for understanding the agriculture sector.

For instance: the top four beef packing firms comprise 80% of the industry; the top four pork packers comprise 65% of that industry.  The percent of cattle and hogs sold in cash markets have dropped precipitously.  The majority (vast, in the case of hogs) are sold under some type of contractual arrangement. These are significant increases relative to 20 years ago.

However, these national statistics belie the fact that concentration at the local market level may not have changed as much as the national statistics suggest, as much of the consolidation at the national level has occurred as regional-based agribusinesses have merged or acquired businesses in other regions and lines of business.  While downstream firms would see fewer suppliers at the national scale, the number of firms buying from farmers in any given local market may not have changed so drastically.

Likewise, the statistics Secretary Vilsack offered about the portion of farm household income earned off the farm (suggesting an dependent vulnerability) is extremely misrepresentative.  As I noted in an earlier blog, the dependence of farming operations on off-farm income is tremendously skewed toward the small farms that produce a very small fraction of the value of agricultural production.

In this type of arena, it is too easy to fall into one of two traps: using national averages to describe a very heterogeneous industry, and using individual stories and anecdotes (on schedule later today) to draw broad inferences. Both fail to properly inform the issue.