The Enforcers [#agworkshop] [#dojusda]

Michael Sykuta —  12 March 2010

To expand on Geoff’s post about concentration in the seed industry, there has been a consistent line of discussion throughout the day raising the specter of monopoly and anti-competitive behavior, not only in seed but also in livestock.  There are continual references to adverse price effects and limitations in choice for consumers and producers alike, followed by such tagged-on qualifiers as “if there are any”. The implication is that there is good reason to believe such effects exist and simply have yet to be discovered if we look.

But that question has already been answered. The Government Accountability Office conducted a study of the agriculture sector.  In addition, they consulted the academic literature and scholars and other experts in the field. The GAO concluded there is no evidence that concentration has had any adverse price effects on commodities or consumer producers.

One would expect that someone among the panel of enforcers at the state or federal level, particularly the DOJ or USDA, would be aware of and familiar with the GAO report. I submitted a question to that effect, asking if–or how–the GAO report would inform the activities of the state and federal enforcers. That question was not selected by the moderator to be addressed.

Antitrust is an extremely blunt tool that cuts coarsely through an industry. Wielding such a tool blithely before the face of industry is likely to have chilling effects on investment and innovation. Why would (or should) businesses invest in facilities, producers, or innovations when there is such great uncertainty over how the politicization of antitrust enforcement is going to be brought down upon them?

There is some snow still on the ground here in Iowa. It will melt more slowly given the chill cast upon agriculture by the comments of the enforcers…if the comments have more behind them than just saying what a farmer-oriented audience wants to hear. Perhaps Marvel Comics had it right?

3 responses to The Enforcers [#agworkshop] [#dojusda]


    This idea that is expounded upon would be great if markets were one sided and all an economy had to worry about is the consumer welfare. Unfortunately for this line of reasoning, the producer welfare is at stake also and subject to market power.

    There are reports that Monsanto, who has huge market share in the seed business after countless mergers and cutthroat competition, (along with some really good products) is trying to keep itself from any potential threat by limiting the seed crop genes that they don’t control through patents through market power. Contracts that require farmers to not carry seed “rented” but not owned could help them keep their near monopoly by extinguishing the availability of the seed lines(not just the patented gene) on the market.

    Reports (reports are reports until it actually happens) are that they are trying to move their round up ready gene to another location on the genome and get another patent that would extend their patent protection. Clearly this is analogous to the shenanigans the drug industry has tried with respect to their patents. Patents give the inventor rights to profit from but there is a limitation to those rights when the patent runs out. Using market power ie. the availability of seed and tying contracts to buyers to destroy “rented” seed is clearly a monopolistic move. Such moves are not in the public interest even if they are in a company like Monsanto’s interests. The rents argument becomes one more of the exercise of market power than of benefit, unless of course, you plan to benefit from market power.

    I wouldn’t be so dismissive of the concerns of producers. They have seen their price for seeds increase and their incomes (not production) decrease because of a lot of market power the round up ready patent has given to Monsanto. Overproduction exacerbates the oversupply/income problem in agriculture for producers and the increases in “efficiency and “productivity” offered by Monsanto’s products is no exception to this economic truth. They exacerbate the income problems of producers despite their increasing efficiency and productivity. This is no good argument against efficiency, but one that notices its effect on market participants. The only way an individual producer can overcome his decreasing margin of profits is to increase production to make up for these reduced margins further exacerbating the problem. Of course the United States solves some of this income problem of producers is by subsidizing the products with taxpayer money both directly and for other national goals like energy independence.

    What is the difference between that and how China manipulates its currency to get its feet in the manufacturing economy of the United States? The difference is only an accounting entry.

    While China has subsidized its currency for the benefit of its manufacturing relative to the world, there is an opposing force at play that may not be beneficial to the U.S. economy. We are seeing it now. It is the ability of a country to have profitable businesses for the resources it needs and wants. Without those profitable businesses, there would be no employment, save some government sponsored legacy like academicians. Tallying only the consumer welfare, one sided definitions of “efficiency” and measuring it by the least expensive product via the consumer allows the fundamentals of a market economy to be sold to the highest bidder (or lowest). It might not be in the national interest of a country to allow this to happen. Large sectors of their economy could be sold to countries willing to subsidize these sectors with national power. Perot was right on this one and a continual trade deficit is the smoking gun of serious fundamental problems. The producer welfare was sold to communist China and it affects the number and quality of jobs in America. This is the downside of thinking a market should only be measured by the consumer welfare. We can’t all be consumers and not think some of us have to be and are producers. We will simply run out of money as we ship jobs to the largest jail in the world.

    It is unfortunate that the academicians become so focused on their theoretical world and what they assumed was a definition of maximum utility that they fail to see how the rules of the market protect the market just as a balanced trade policy would protect jobs in America. Politicians and academicians can and do get it wrong.

    Any time there are fewer choices for producers (or consumers for that matter) via market concentration, there should be concern. Concern is good. It allows one to head off potential problems and offers the potential for everyone to share in the economy instead of a few making all the rules and concentrating (financializing) the wealth of the country. The march to concentration is not necessarily a good thing as we have all learned from the too big to fail experience. It ends up costing us more in the long run even though the short term gains are noticed and lauded.

    Farmers have a simple saying for this idea:

    Don’t put your eggs in one basket. The risks are just too great.

    Market concentration puts the eggs in one basket. It usually comes more from the application of “efficiencies” that are really just aggregate market power applied to run out competitors, and take advantages from suppliers to win in the competition game.

    Read “The Robber Barons” by Matthew Josephson. You will see why market power is so potentially destructive to the capitalistic economy as a whole. It has happened before, is happening now, and it will happen again, not because we don’t know history, but because we fail to apply its lessons in our own time. We are just too smart for that, aren’t we?



    It still surprises me that people are able to copyright genes and biological entities. What happened to the good old days where Polio vaccines were free for everyone and the only intellectual property disputes were over band names:


    “Antitrust is an extremely blunt tool that cuts coarsely through an industry. Wielding such a tool blithely before the face of industry is likely to have chilling effects on investment and innovation. Why would (or should) businesses invest in facilities, producers, or innovations when there is such great uncertainty over how the politicization of antitrust enforcement is going to be brought down upon them?”

    Hear, hear! Then again, is there such a thing as non-politicized antitrust enforcement?

    (BTW I am sooooooo glad I’m not at this conference.)