The Last Farm Crisis | The Nation


The Last Farm Crisis

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The Vanishing Market

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William Greider
William Greider
William Greider, a prominent political journalist and author, has been a reporter for more than 35 years for newspapers...

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Different values might have prevailed if it had been Lehman Sisters rather than Lehman Brothers.

Forty years later, we still haven’t confronted the true lesson of Vietnam.

Let's name some names. The dominating leaders in grain trade and processing: Cargill (which swallowed Continental, the second-largest grain trader), Archer Daniels Midland (ADM), ConAgra. Beefpacking: IBP, ConAgra, Cargill (as owner of Excel). Cattle feedlots: Cargill, Cactus Feeders, ConAgra. Pork processing: Smithfield, IBP, ConAgra, Cargill. Hog growers: Smithfield (the largest pork processor has bought the largest and second-largest hog producers, Murphy Family Farms and Carroll's Foods), Cargill, Seaboard. Biotech and seeds: Monsanto, DuPont/Pioneer, Novartis, Aventis. Supermarkets: Kroger, Albertson's, Safeway, AHOLD (Giant), Winn-Dixie, Wal-Mart.

As the repeated names suggest, a few far-flung firms are positioned on many sides of the market at once and, indeed, are incestuously connected through a dizzying galaxy of "strategic alliances" and cross-ownership. Smithfield, the world's largest hog producer and pork processor, recently bought a 6.3 percent stake in its putative rival, IBP, the second-largest pork processor. ADM already owned a 12.2 percent share of IBP. This cross-ownership will continue, as IBP itself is to be acquired in a friendly takeover by the Wall Street brokerage firm Donaldson, Lufkin & Jenrette (which was recently bought by Credit Suisse First Boston). Some analysts are watching to see if Smithfield makes a rival bid for the meatpacking giant. Cargill and Monsanto have fashioned a labyrinth of joint ventures that runs from fertilizer and seeds to grain and raising cattle, hogs, turkeys and chickens, then on to the slaughterhouses.

Sector by sector, four firms control 82 percent of beefpacking, 75 percent of hogs and sheep, and half of chickens. Major supermarket chains are now concentrated regionally, though not nationally. Four firms hold 74 percent of market control in ninety-four large cities; experts anticipate a new merger wave that could swiftly increase that percentage while doubling the four firms' overall national concentration up to 60 percent. And so on. As antitrust theory would predict, this kind of market leverage ought to give companies a pricing advantage over farmers and ranchers, and it has, according to Wisconsin law professor Peter Carstensen. The spread between prices paid for livestock and the wholesale price of meat has widened in the past few years by 52 percent for pork and 24 percent for beef, he reported.

Yet these extraordinary levels of concentration unfolded without government opposition. The consolidation quickened after Ronald Reagan's antitrust division at the Justice Department swept away the old rules and thresholds for opposing mergers and takeovers. Reagan's lawyers effectively gutted the theory with a narrow laissez-faire interpretation that declared bigness no longer a problem if it could not be proven, in advance, to distort consumer prices. Cheap food was consecrated as the only issue that matters to the public. The Clinton Administration, notwithstanding its activism against Microsoft, has been generally passive on big mergers of all kinds and nearly as pliant as the Reaganites were (among leading seed companies, sixty-eight acquisitions occurred between 1995 and 1998). Consumers may judge for themselves whether they have benefited at the checkout counter.

The disadvantage for farmers was compounded greatly as the companies moved aggressively into vertical integration--acquiring top-to-bottom elements in the chain of production. Owning feedlots or signing output contracts with individual farmers for poultry, hogs, cattle and, in some instances, grain and soybeans has given the processing companies their own "captive supplies." Their privately held stores of livestock mean giants like IBP no longer have to rely on auction-price purchases in the open market for most of their supply. In fact, according to farmers, the companies regularly deploy this leverage to depress market prices for the independent producers.

Such practices are ostensibly illegal, and the Agriculture Department has belatedly promised to look into them. Mike Callicrate, a feedlot owner in St. Francis, Kansas, has filed a class-action damage suit against IBP on behalf of cattlemen, one of a number of promising legal challenges under way. "Captive supplies are just devastating to the cash market," Callicrate explained. "IBP would come to your feedyard and bid you a very low price--a bid not to buy, we call it--because they are just searching around for the weakest cattleman. Who needs to sell today? Of course, they intimidate him too, by saying, 'If you don't take this price today, we're not going to buy your cattle three weeks from now.' When he does take the low price, the word goes out instantly and everyone else gets nervous. Then IBP takes the price down further because they don't need the cattle right now; they've already got their own supply [in feedlots or under contract]. What's their motivation? They just want cattle to be available at lower prices when they do want to buy. You've got a very well organized buyer dealing with very disorganized sellers."

The final blow to small producers came in 1996, with enactment of the Freedom to Farm Act, the law intended to phase out the federal government's price-support payments and production-restraint mechanisms (better known among farmers now as the "Freedom to Fail" Act). The Clinton Administration, much as it did in welfare reform, made common cause with Republican ideologues to repeal a New Deal landmark. The premise was that market forces, once liberated from the Feds, would gradually reconcile supply and demand in farm output, mainly by persuading many marginal farmers to get out of the business, thereby insuring decent prices for those who survive. The law failed utterly to do either. As surpluses and collapsing prices engulfed farm states, politicians from both parties blinked. Instead of gradually reducing the federal support payments (supposedly to zero after seven years), the public's subsidy for farmers has doubled and tripled in size--$16 billion in 1998, $23 billion last year--as Congress repeatedly enacted "emergency" relief measures. With that great trauma, the last act for agriculture began to unfold [see Dave Hage, "Bitter Harvest," October 11, 1999].

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