New study shows alarming increase in retail consolication over last three years
By Marilyn Bay Wentz
A major transformation is taking place in the U.S. food supply, one that bodes well neither for consumers nor for agricultural producers. Stockholders of major multi-national food conglomerates, however, are positioned to continue to see high returns on their investments.
Retail food prices rose 7.5 percent between 1997 and mid 2000. During this same time, farm prices fell 8.5 percent. Translation: food prices actually inflated by 16 percent in just over three years, despite very little inflation in other sectors of the U.S. economy.
This is not a new trend.
The farmer’s share of the consumer food dollar has fallen steadily for several decades. U.S. Department of Agriculture (USDA) data show that in 2000, the farmer’s share of the retail food dollar has fallen below 20 percent.
Food companies, whether manufacturers or retailers, already are among the most profitable investments available. CEOs have been quoted as saying they aim to return 20 percent per year to their stockholders.ConAgra’s meat division recently had a “bad” year, with profits only in the low teens, resulting in firings throughout the management ranks. By contrast, agricultural producers have traditionally returned only 1-2 percent annually on their investments. According to the 2000 U.S. Department of Agriculture Ag Outlook, farmers are now selling their commodities for about 83 percent of what it costs to produce them.
Unfortunately, without a major transformation in the structure of the U.S. food supply system, these trends will likely continue.
Consolidation of the food industry and a lack of competition in agricultural markets has, as Farmers Union has warned it would, reached a point where just a few multi-national retail conglomerates control the food supply in this country and in many foreign countries as well. A report by University of Missouri researchers released earlier this year shows that today five food retail chains account for 42 percent of all retail food sales. Just three years ago, these five accounted for only 24 percent.
From a producer point-of-view, this consolidation further shuts out small food processors and farmer-owned cooperatives which are less able to pay slotting allowances, display fees, presentation fees and other payments charged by retailers to display products. According to the report, these fees make up more than half of the total net profit of large food retailers.
Exclusive agreements between food processors, such as Cargill that supplies beef to Kroger, are expected to increase.
In the early 1980’s, eastern Colorado farmer Elwin Poe, who now serves on the RMFU board of directors, was selling 80,000 to 100,000 pounds of his own popcorn to small stores and individuals in the Denver market. A King Soopers employee encouraged him to market to the larger chain of outlets.
“I had a good clientele but wanted a more efficient delivery channel, so I contacted King Soopers,” Poe said.
What ensued was a long period of waiting just to schedule a meeting with buyers, insistence that Poe have a broker, and unreasonable financial expectations.
“They told me I would have to take out a half page ad in one of the Denver daily newspapers which included a half-price coupon, all at my expense,” Poe said. “To top it all off, they told me that if my product didn’t move fast enough to suit them, they would ship it back to me and I would have to pay them the full retail price of the popcorn.”
Consumers also suffer, as they are less likely to have a choice in retailers. Over the past several decades, consumer prices have risen steadily, producer prices haven fallen, and processors and retailers have enjoyed the increasing price spread. This trend will continue as long as there is such a high degree of consolidation in the manufacturing and retail sectors. In addition, since many retail outlets are now owned by national or international conglomerates, these outlets have no commitment to the local communities in which they operate.
“Rocky Mountain Farmers Union believes that public policy needs to help shape the type of agricultural and food system that exists in the United States,” said RMFU President Dave Carter.
Otherwise, the United States might just become, as some economists have suggested, food importers rather than food producers. These same economists assert it might be more “efficient” for the United States to import its food than to grow it.
“The silver lining in this otherwise very gray cloud is that a majority of consumers are becoming increasingly aware and concerned about the quality of their food, how it is produced and the future of rural America,” Carter said. “Now, more than ever before, it is important that we communicate directly with consumers about the state of the U.S. food supply and the options available through support of a robust farm economy.”