Consolidation good for stockholders, bad for consumers

WASHINGTON, D.C. — Breakneck consolidation in the grocery industry has armed a handful of food retailers with the ability to change the way that food is produced, processed and consumed in the United States, according to the authors of a new report released here, Jan. 8, by the National Farmers Union (NFU).

In a news conference releasing the findings of a study entitled Consolidation in Food Retailing and Dairy: Implications for Farmers and Consumers in a Global Food System, Drs. William Heffernan and Mary Hendrickson of the University of Missouri noted that consolidation in the retail food sector raises alarming anti-competitive issues for food producers and consumers.

“Retailers now have the ability to force changes back through the food system. They are now recognizing that power,” said Heffernan. “Retailers are now in a position to dictate terms to food manufacturers, who then force changes back through the system to the farm level.” The Heffernan/Hendrickson study report shows that five food retail firms now account for 42 percent of all U.S. retail food sales. This compares with the top five food retailers having 24 percent of the market in 1997. The study estimates at 50-75 percent of the total net profit of large retailers comes from retailer fees for slotting allowances, display fees, presentations fees and other fees that retailers charge manufacturers for displaying their products on supermarket shelves.

“The trends in the food industry are robbing consumers and producers of the benefits of an open, competitive market,” said RMFU President Dave Carter, who attended the news conference in Washington, D.C. “This study documents the level of consolidation and its negative impact on both producers and consumers.”

Large food retail firms are increasingly making agreements with and acquiring companies that produce and process foods. For example, grocer Kroger has case-ready beef supply agreements with Excel, which is owned by Cargill. “As they get larger, they concentrate their supply/distribution systems, and they want to work with fewer and fewer suppliers,” said Heffernan.

Hendrickson noted that declining competition in the retail sector diminishes market opportunities for independent agricultural producers.

“Retailers are critical from the standpoint of farmers because those retailers are the final connection with the consumers,” she said. “It appears that smaller entities in the food system are being left out.” She noted that shelf space fees and volume requirements of retail food companies make it virtually impossible for smaller and upstart manufacturers or farmer-owned cooperatives to put their products before consumers in large supermarket chains.

NFU President Leland Swenson added that the retail grocery industry has consistently opposed any food labeling initiatives that will provide consumers with an opportunity to make greater choices in the marketplace.

For more information call the RMFU office at (303) 752-5800. The 22-page executive summary can be accessed on the National Farmers Union site at nfu.org.