Archives For Ankeny

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?

The morning’s panel of farmers represented a variety of perspectives, ranging from more reasoned to more reactionary.  Among the ideas suggested:

More reasoned:

  • Find a balance between food and fuel in the policy debate (though no clear directions how)
  • Increase trade in global markets (always easy to talk about forcing other countries to buy more of our stuff without addressing the domestic industry issues)
  • Invest in new research and technology (and in land-grant universities…now, how can I argue with that?)

More reactionary:

  • Take that research and technology and give it away (thereby eliminating any private incentive for investment)
  • Limit subsidies going to large farms so only small farms benefit
  • Big companies should be busted up (no matter the efficiency implications for consumers or ag producers)
  • Prohibit contracting between packers and livestock producers because it creates “captive supply” and thins out the cash market (thereby eliminating packers’ ability to provide consistent quality meat products to consumers and many producers’ abilities to access financial capital)

In short: Farmers want to make more money and want to change the rules to get more of the money in the system. Surprises, anyone?

The question of the morning (from my perspective):
How much of the consequences associated with some of these ideas are intended or simply foreseeable?

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.