全球智库信息集成服务系统

Almost every step of America’s food supply chain has grown more concentrated in the past few decades. From manufacturers of agricultural inputs such as pesticides and equipment to commodity buyers and meat processors, growing corporate power has left relatively small farms and ranches vulnerable to exploitation at the hands of the oligopolies with which they do business. Recent mergers and acquisitions continue the relentless trend toward increasing corporate concentration across many agricultural markets. This report examines two key markets—for corn and soybean seeds and for hogs—and finds evidence that market concentration has resulted in considerable corporate market power, to the detriment of America’s farmers.

For example, the share of the corn seed market that is controlled by the four largest biotech companies has risen from 50.5 percent in 1988 to 85 percent in 2015. (see Figure 2) Meanwhile, the increase in the price of corn and soybean seeds has outpaced increases in yield. Moreover, spending on research and development (R&D) in the sector seems to be slowing, and farmers face diminished choice in seed.¹ Between 1995 and 2011, the cost of purchasing seed to plant one acre of soybeans and corn increased 325 percent and 259 percent, respectively, while yield per acre only increased 18.9 percent and 29.7 percent, respectively.²

Hog farmers face increasing processor buyer power resulting from the twin trends of increasing concentration and the prevalence of production contracts. As of 2015, 66 percent of all hogs were slaughtered by the four largest meatpackers, up from 34 percent in 1980.³ Meanwhile, 63 percent of hogs were raised under contract with processors, and only 2 percent of hogs were sold in the cash spot market.⁴ (see Figure 5) The rest were raised on packer-owned and -operated lots. With only a handful of processors with which they can do business, hog farmers have little choice but to enter into contracts that compensate them through opaque and often manipulatable pricing formulas that saddle farmers with burdensome terms and quite often large levels of debt.

The resulting impacts on farmers’ ability to share in the fruits of their labor are severe. Indeed, agricultural economists who modeled farmer and consumer welfare under various degrees of market power among buyers note that even a modest departure from a perfectly competitive market can result in a 30 percent decrease in farmer surplus.⁵ The increasing difference between the price paid to hog farmers and the wholesale price of pork is consistent with the hypothesis that processors are benefiting from market power, in part at the expense of farmers’ livelihoods. (see Figure 6)

Similar challenges exist across American agriculture and ranching. It is not surprising then that small and midsize farmers struggle to keep their operations running and make ends meet. Indeed, real net farm income for intermediate farms—defined as family farms operated by someone whose primary occupation is farming and with annual gross cash receipts of less than $350,000—has seen little improvement over the past two decades.⁶ As of 2017, more than 40 percent of midsize farms—defined as family farms with gross cash receipts between $350,000 and $1 million—had an operating profit margin of less than 10 percent, placing them at high risk of financial problems, according to the U.S. Department of Agriculture (USDA).⁷

While a wide range of economic forces—from volatile international trade relations to climate change to technological upheaval—put economic pressure on America’s farmers, the impact of monopoly power on farmers can no longer be ignored. Like millions of workers whose wages have been stagnant in recent decades, farmers are quite simply not receiving a fair share of the returns from their labor. With 1 in 5 rural counties dependent on farming, and a rural poverty rate 3.5 percent higher than in urban areas, rural America cannot afford depressed farm earnings.⁸

The analysis in this report aims to shed light on the impact that corporate concentration and the subsequent decline in competition in agricultural input and commodity markets have had on farm families and their communities. This report concludes with a set of specific recommendations that aim to increase competition; empower farmers to secure their fair share; and protect farmers from an array of unfair, deceptive, and abusive practices in these markets. These recommendations include:

• Restoring competition in agricultural markets: Reviving strong antitrust enforcement across the agricultural sector is the starting point for protecting farmers and ranchers. Specific steps include a temporary moratorium on mergers in the agriculture sector, a statutory cap on concentration in various agriculture markets, and more broadly restoring the powerful tools of antitrust enforcement that have been eroded over the past four decades. Antitrust enforcers must also take affirmative steps to break up monopolies and monopsonies, while federal policy should proactively support the growth of new competitors.
• Guaranteeing a fair share for farmers: Farmers must be empowered to receive a fair share of the fruits of their labor. Policymakers must implement alternative tools such as pricing models that guarantee farmers a percentage share of the ultimate returns on their commodities, as is the case today in some agricultural markets such as that of wine grapes. Alternative bargaining models can also be deployed to help farmers and workers receive a fair return, including farmer fair share boards made up of farmers, workers, and processors to facilitate farmer and worker collective bargaining with large buyers over commodity prices.
• Codifying contract reform to protect farmer rights: The dramatic trend in many agricultural markets toward production under contract, rather than the sale of product on the spot market, means it is essential that contracts be regulated to protect farmers from unfair, abusive, and deceptive practices by large buyers. Farmers must also be empowered to better protect their interests under the law when they suffer violations of their rights.
• Creating an Independent Farmer Protection Bureau (IFPB): America’s independent farmers deserve to have a dedicated, independent champion fighting for their interests against highly concentrated agribusiness. Modeled after the Consumer Financial Protection Bureau, which was created to protect consumers from the predatory financial practices that helped cause the 2008 financial crisis, an Independent Farmer Protection Bureau should be empowered to investigate and stop abuses of market power; protect farmers’ contract rights under laws such as the Packers and Stockyards Act; combat anti-competitive practices in seed and other input markets; and more. The IFPB should have backup authority to review and block mergers in markets that affect farmers.

The agricultural sector is vitally important to America’s economy and society. Two million American families still operate farms and ranches, and farm output contributed $164.2 billion to the United States’ gross domestic product (GDP) in 2018.⁹ Nationally, food is the third-largest household expenditure, comprising nearly 13 percent of monthly household expenses, and all told, farming and agricultural processing employs 4.6 million Americans.¹⁰ Therefore, the economic health of the agricultural sector and the food system is crucial to America’s economy. Restoring agriculture as a pathway to a decent, independent living will begin the process of rebuilding rural America.

Over the past few decades, America’s agriculture sector has undergone increasing concentration at nearly every step of food production and marketing. Agricultural inputs—which include seed, crop protection chemicals, machinery, and more—processing, food manufacturing, and retail are now dominated by a handful of firms in their respective markets.¹¹ The only part of the supply chain that remains relatively decentralized is the actual production of agricultural goods. Small and midsize family farms operate nearly three-fourths of all farmland and account for about half of all production. (see Figure 1) The concentration of agricultural input suppliers and commodity buyers raises the possibility that some firms may use their size to exert power over relatively small farms.

Rising concentration in input markets

Like other small-business owners, farmers must purchase the inputs necessary for the production process. The chief operational expenses that farmers pay to run their business are for feed, labor, livestock, seed, and fertilizer.¹³ For crop farmers, net farm income is sensitive to the price of seed and fertilizer, as well as capital investments in equipment such as tractors or irrigation systems. Unfortunately, as concentration in agricultural inputs increases and the quantity of suppliers declines, farmers and ranchers may find it difficult to keep costs under control and maintain a livable income.

The consolidation of agricultural input markets is widespread. As of 2012, the four-firm concentration ratio—the percent of a market controlled by the four largest participants—in the markets for pesticide manufacture was 57 percent.¹⁴ The four largest firms in the farm machinery industry account for half of all sales.¹⁵ The four-firm concentration ratio in livestock pharmaceuticals and farm machinery has also increased significantly since the 1990s.¹⁶ The high levels of consolidation in agricultural input markets raise legitimate competition concerns.

The seed market serves as a good example of the widespread consolidation occurring throughout the agricultural supply chain. The rise of biotechnology in the seed market created a new industry that integrated traditional hybrid methods, modern genetic modification, and chemical manufacturing. A wave of mergers and acquisitions in the 1990s and 2000s gave birth to a handful of dominant biotech firms.¹⁷ Between 1985 and 2009, the vast majority of acquisitions of small and medium-sized biotech companies were acquired by the six largest companies.¹⁸ By 2013, four companies accounted for nearly 60 percent of the seed market.¹⁹ The implications of this concentration are discussed below in a case study on corn and soybean seeds.

Despite pressing concerns about the impact of high levels of concentration, the U.S. Department of Justice (DOJ), which is responsible for antitrust enforcement in the agriculture sector, has taken a surprisingly permissive stance on agrichemical and biotech company mergers, permitting the number of dominant firms to shrink from six to four. For example, in 2018, the DOJ permitted the Bayer-Monsanto merger on the condition that merging parties divest holdings in narrowly drawn input markets in which they directly competed.²⁰ The remedies for the Bayer-Monsanto merger were complex, necessitating dramatic transfers of personnel and complementary divisions as well as extensive oversight to maintain the firewall meant to preclude collusion between the merged firm and BASF—a third biotech giant that bought the divested assets.²¹

While it is too early to observe all the ramifications of recent mergers, consolidation has had serious, observable effects on farmers.²² One recent merger retrospective, authored by two former attorneys from the DOJ’s Antitrust Division, surveyed 1,000 farmers to gauge how they were affected by the Bayer-Monsanto merger. The 2018 survey found that 80 percent of crop farmers reported that their seed prices increased over the past five years. Nearly two-thirds of those surveyed expressed feeling that they have less bargaining power when buying seed than they had previously enjoyed.²³ This means lost dollars and cents for farmers who have no choice but to source their seeds from a dwindling number of manufacturers. The case study below of corn and soybean seed markets illustrates the real-world implications of seed monopolies on farmers.

Growing buyer concentration and prevalence of contracting

Farmers also face increasingly consolidated firms when selling the commodities that they produce. Direct farmer-to-consumer sales make up a negligible portion of farmers’ sales; most farmers’ real customers are the processors, grain traders, and marketers that buy raw goods from farmers and then grade, package, process, manufacture, and distribute them as food products. In recent years, these processors have consolidated at rates comparable to those of agrichemical and biotech companies. Increased concentration among food processors presents a risk of monopsony power—the exertion of market power by a large buyer to influence the price or quality of its inputs. A series of 2010 nationwide workshops held by the DOJ revealed that monopsony power is a pressing concern of farmers.²⁴

While increasing concentration is not uniform across all agricultural commodity markets, there are some that have exhibited alarming rates of consolidation. For example, from 1986 to 2008, the four-firm share of animal slaughter nationwide increased from 55 percent to 79 percent for cattle, from 33 percent to 65 percent for hogs, and from 34 percent to 57 percent for poultry.²⁵ The concentration level of processing varies from market to market. While this report focuses on pork processing as a case study of concentration and the threat that possible monopsony power poses for hog farmers, there are other markets that are at least as concentrated as pork processing. For example, the four largest wet corn millers and soybean processors control 84 percent and 82 percent of their respective national markets.²⁶ Similarly, four grain traders control the movement and allocation of nearly 73 percent of the world’s grain.²⁷ The beef packing industry has an astounding four-firm market concentration of 82 percent.²⁸ Meanwhile, the top four specialty canners account for nearly three-fourths of the market for goods such as beans, baby food, and soups.²⁹

As concentration among processors has increased, so has the importance of sales through contracts between the processor and the grower, as opposed to on the open cash, or spot, markets. These contract agreements arrange the terms of sale for commodities before they are produced. In 2017, more than one-third of the value of agricultural commodities was produced under contract, though this varies greatly across commodities.³⁰ These contracts come in two main varieties. Marketing contracts typically specify the amount of a commodity that a processor will purchase from a farmer and determine the price that the processor will pay, often using a formula based on spot market prices. Production contracts go further by dictating the way in which livestock is raised or field crops are grown, sometimes down to the exact type and quantities of inputs or production techniques. Often, the livestock raised and inputs such as feed are themselves owned and supplied by the packer—referred to in this report as the integrator—while contracts require farmers to make capital investments to meet integrator requirements.³¹ In this report, the authors refer to meatpackers and processors that rely on contracting as “integrators” to describe how the contracts effectively vertically integrate the production process, though this term is not generally used to describe processors outside the broiler industry.

At their core, production contracts are a way for integrators to control the quantity and quality of inputs that they process while cutting costs and minimizing risk.³² While the nature of contracting varies across commodity markets, contract poultry serves as an apt illustration of how these contracts work to effectively vertically integrate agricultural production. Though farmers have limited control over the way they can raise the animals, their contracts nonetheless determine that they bear much of the liability and risk for raising the animals owned by the integrator. The typical contracting arrangement gives the integrator the power to control the type and quantity of stock raised, the pharmaceuticals used, the type of feed used, and the equipment and facilities required. The integrator owns the animals, supplies the required feed, and controls the veterinarian services that the farmers use, while farmers assume debt in order to meet capital investment requirements.³³ The typical contract explicitly assigns legal liability for regulatory compliance and animal fatalities to the farmers.³⁴

With the number of packers dwindling, most farms have little bargaining power with which to negotiate the terms of these contracts, resulting in extractive terms. Farmers must accept the terms of the contract as written by the integrator or find another integrator. The integrator sets the terms of compensation, usually as a per-unit rate based on a pricing formula with some bonuses or penalties associated with yield, efficiency, or quality. Farmers who attempt to organize or negotiate better terms risk intimidation and retaliation, for example, through the threat of termination of the contract or the supply of substandard livestock or feed. Poultry integrators and, to a lesser extent, pork integrators, use a so-called tournament system in which farmers are ranked by efficiency and paid according to their ranking. Farmers often call this system the “lottery” because after their capital investments are made, the performance of a farm is heavily dependent on the quality of inputs that the integrator allocates to it.³⁵

These provisions had come under heightened scrutiny thanks to a mandate in the 2008 Farm Bill that was inserted by then-Chairman of the Senate Agriculture Committee Tom Harkin (D-IA) that required the Grain Inspection, Packers and Stockyards Administration (GIPSA) to formulate rules clarifying unfair and deceptive contracting practices, which were ultimately implemented by the Obama administration in 2016.³⁶ Notably, one of the first acts of President Trump’s USDA was to withdraw those rules.³⁷ Though weakened after years of fierce lobbying by one of the most powerful interests in Washington—the meat lobby—the Farmer Fair Practices Rules still would have locked in significant reforms that would have begun to fix a deeply flawed system rigged against America’s farmers. These rules included commonsense provisions that banned price discrimination between similar growers and retaliation against farmers who organize for better contract terms.³⁸ The rules also promised to protect farmers from the bad faith negotiation and fraud that had become pervasive in industries such as hog and broiler (chicken) production.³⁹ President Trump’s USDA further ordered that GIPSA be shuttered.⁴⁰

The twin trends of horizontal consolidation and vertical integration in food processing have serious implication for farmers. The resulting thinning cash markets and increasingly powerful buyers make prices vulnerable to manipulation. While much of the discussion here focuses on livestock markets, production contracts also exist in some produce markets, demanding further study. This report continues the discussion of consolidation and integration in agriculture with a case study that examines the dynamics of the hog market.

Relatively decentralized production

In contrast to the large firms that dominate the other stages of the supply chain, the production of agricultural commodities happens on relatively decentralized farms and ranches. Nearly half of all agricultural production occurs on small and midsize family farms. (see Figure 1) Eighty-seven percent of farms are primarily worked by the owner and operator’s family. These true family farms account for 57 percent of the country’s agricultural production.⁴¹ Although the number of American farms is slowly dwindling and their average size is increasing, farms are still relatively decentralized compared with biotech companies and processors.⁴²

In the 1950s and 1960s, industrial agricultural techniques spurred the acceleration of a trend that began during the Dust Bowl era of the Great Depression, in which millions of families moved from farms to find work in factories in major cities. Since the 1970s, a range of factors—including mechanization, automation, and concentration trends—have continued to drive farm consolidation and growth. However, the trend of farm consolidation in recent years has been less dramatic than the consolidation of inputs and processors, resulting in a food system in which small family farms must grapple with large input suppliers and large buyers.

The following case studies reveal evidence of the monopoly and monopsony power that is associated with high concentration in specific markets. Markets for specific inputs and commodities have unique characteristics that make it difficult to generalize about the effects of concentration in the agriculture sector writ large. However, many other markets have levels of concentration comparable to those of the markets studied here and therefore deserve closer scrutiny by academics, experts, antitrust enforcers, and state and federal policymakers, including Congress, the USDA, the DOJ, the FTC, and state attorneys general.

Case study: Corn and soy seed

Each year, about 180 million acres of soybeans and corn are planted in the United States, primarily in the Midwest.⁴³ Corn and soybeans—the most and second-most planted field crops, respectively—are closely related economically, with almost no distinction between a corn and soybean farm, given that the two crops thrive in similar climates and are commonly rotated year after year to promote soil health.⁴⁴ Many farmers explicitly substitute soy and corn when planning their planting, balancing the expected returns of one commodity against the other to determine the amount that they will plant of each.⁴⁵ Furthermore, the corn and soybean seed markets are shaped by the same dominant firms.⁴⁶ Therefore, this report will address the markets for corn and soybean seeds together.

Nearly all the corn and soybeans grown in the United States are genetically modified (GM) for