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Concentration eventually harms consumers too

By John Stencel

Over the last generation, “bigger is better” and “if you can’t beat ‘em, join ‘em,” seem to be the mantra of corporate America’s boards. Mergers and buy-outs among large firms that were once fierce competitors occur almost daily.

Nowhere is this trend more evident than in the food production, processing and retailing sectors.

Just 30 years ago, a farmer with a hundred head of cattle or sheep could call two or more processors, and the buyers would come to the farmer’s property to look at the livestock and offer a price. The successful buyer would then send a truck to collect the animals and haul them to the processing plant. Today, only the largest feedlots have multiple bidders. Potential buyers do not make house—or should I say coral—calls. Producers will load their animals and deliver them themselves, often not knowing the price until the sale has been transacted.

This take-it-or-leave-it attitude by buyers of agricultural commodities is possible due to the tremendous reduction over the past three decades in the number of buyers of livestock and grains. According to the University of Missouri, since 1990 the three largest beef processors have increased their overall share of the market from 72 percent to nearly 80 percent of heifer and steer slaughter. This has long been a problem for farmers and ranchers, but now consumers need to be concerned. A recent study entitled “Consolidation in Food Retailing and Dairy,” shows that today the top five supermarkets account for 42 percent of all retail food sales in the United States. This compares to only 24 percent of the market in 1997. In just five years, these five retailers have gained a whopping 18 percent of the market share in U.S. retail food sales!

In addition to the lessening competition in the processing and retailing sectors of the U.S. food system, the individual sectors are beginning to integrate vertically. Retailers are buying processors or making binding, exclusive marketing deals with them. Processors are investing in livestock operations and either buying farms or contracting with farmers in order to completely control their supply and eliminate the competition.

This dramatic change in the U.S. food system is alarming. It does not bode well for producers or for consumers.

When Chrysler nearly went out of business in the 1980s, the federal government stepped in to help, knowing that dissolution of a major player in the automobile industry would lead to higher prices and inferior service. No food companies have declared bankruptcy. Rather, they are simply being merged with or bought by what was once their competition. The impact of fewer players in an industry—whether cars or food—is equally negative. The difference is that the changes in the food industry are so subtle that most consumers are unaware of them.

Certainly diversity is one of the best defenses to the complete control of our consumer economy by a handful of multinational corporations. Start by supporting your locally-owned main street businesses and cooperatives. This includes independent agricultural producers, who are now in desperate need of federal emergency disaster assistance to help them mitigate the impact of the worst drought in Colorado’s history.

With this assistance, producers will still struggle. Without it, as many as 40 percent of producers could go out of business. We cannot afford to lose our front line defense against control of food by just a few huge companies.