Technical Reviews

Consolidation in the Food and Agriculture System
William Heffernan, Mary Hendrickson and Robert Gronski.

National Farmers Union, Denver, Colorado. 1999

This report outlines the emerging organizational structure of the national and global food system which, according to the authors, is powerful enough to undermine the intent of national agricultural policy developed over the past few decades. Although often referred to as “the industrialization of agriculture,” these changes go far beyond production agriculture to include the entire food system. This report is an attempt to elucidate the magnitude of these changes in the food system and to articulate some of the implications for agriculture and for its long-term sustainability. Although this report drew upon data about major commodity systems in the Midwest, California farmers are not immune from the impacts of concentration in the food system. The fact that a major farmers’ organization requested that the University of Missouri provide data and analysis of this issue is significant. Farmers nationwide want to know how their businesses are impacted by these trends.

The report describes research conducted by the author for more than a decade (1986-1999) on the concentration in the food system, particularly “concentration ratios” (CR 4s) for most of the major commodities (wheat, corn, soybeans, beef, pork, turkeys) produced in the Midwest. The economic literature suggests that if four firms had 40 percent of the market for a particular commodity, that market was no longer competitive. The data have become increasingly difficult to obtain over time due to industry confidentiality. However, concentration ratio data show that four firms (out of hundreds of processors) easily control over 40 percent of the processing of the major commodities produced in the Midwest and that a few firms appear in the list of top four processing firms for several commodities. The data also indicate there is significant vertical integration of these commodities, i.e., one firm may rank in the top four for producing the feed, feeding the animals and processing the animals. The authors note that the relationships in the food system have become extremely complex. Firms are constantly merging, forming joint ventures, partnerships, and contracts, not to mention a variety of less formal side agreements and alliances with different players. To show the kind of information needed to understand the complex relationships and concentration in the global food system, the report diagrams some of the working relationships among dominant firms. The concept of a “cluster of firms” is used to represent the new economic arrangements often seen.

The information in this report is organized around three major emerging clusters of firms that control the food system from genetic resources to the supermarket shelf: Cargill/Monsanto, ConAgra, and Novartis/ADM. In such clusters, the food product is passed along from stage to stage, but ownership and the location of the decision-making never changes. Farmers in these systems may play a role in growing the product by providing the labor and often some capital investment, but they do not own the product, nor do they make major management decisions about it.

The authors predict that eventually there will be four or five major food clusters which will exercise control over decisions throughout the food system. This prediction is based on an assumption that biotechnology will be accepted by most of the world’s nations. This may then accelerate concentration in the food system through the control these clusters will have on intellectual property rights (agreements for the patented genetic resources).

From their analysis of food chain clusters, the authors suggest that the issue is not who can produce the food/fiber product the most efficiently, but who is large enough to control the market share. The more “integrated” the commodity system, the less access to a market the independent producer will have. This has been especially true in livestock systems. The authors point out that two recent technologies will hasten the process of vertical integration and reduced market access for individual farmers in the crop sector: biotechnology and the use of precision farming techniques like global positioning systems (GPS). The question the authors ask is, if the integrated firm becomes the management unit or “farm,” how many farms will there be in the United States in the future?

Concerns about food system sustainability

As a rural sociologist, Heffernan raises the concern about the consequences of this restructuring for rural communities. Rural communities are contributing less and less economically to their communities, primarily because of this emerging food system structure. In the past, the predominant system of family businesses would generate “multiplier effects” of three or four, meaning for example, that farm sales of $100 would lead to additional purchases from various local businesses of another $300, thus greatly enhancing economic activity in the community. Now, large, non-local corporations employ community members as wage earners, piece rate workers or contract farmers as cheaply as possible and allocate the “profits” to a return on management and capital, usually taking them from the community to be reinvested in the global food system. Increasingly, according to the authors, our agricultural communities are looking like mining communities. The major decisions are being made, not by the residents of communities but by an ever-declining number of firms, many of which are involved in a few food system clusters.

Another concern raised is the apparent contradiction between the market opportunity that the growing world population will provide for farmers in the United States and the fact that most of this growing population cannot afford to purchase food imports. In fact, global firms “source” their products from countries that produce them the cheapest and sell them to countries that will pay the most. Will countries with rapidly growing populations be our farmers’ customers or their competitors? It is interesting to note that on a dollar basis, food exports and imports to the U.S. have been growing at the same level for the past two decades. For example, about one-third of vegetables consumed in the U.S. are imported, and the U.S. is a net importer of beef.

The long-term sustainability of a food system dependent on cheap petroleum for its production, processing and distribution is another concern. Will a price increase cause the whole food system to restructure again? The authors point out that the food system is becoming more like other economic sectors, yet, it is fundamentally different from many of them because food is a human necessity needed on a regular basis. So, according to the authors, “those who control the global food system have the ultimate in economic power.”

The authors conclude that the evolving food system is vulnerable on many levels. It will probably be restructured again in the future. The question is, they ask, at what social and economic cost and to whom? The report strongly recommends the need for a public debate to ask critical questions about the emerging structure of the food system, about alternative structures, and about what is in the best interest of this and future generations.

This reviewer [Gail Feenstra] suggests that more research, analysis and discussion involving the farming community and the larger public in California is needed so that society can understand the larger dynamics of the food system and make more informed decisions about what we want our roles to be.

For more information: William Heffernan, Department of Rural Sociology, University of Missouri, Columbia, Missouri. National Farmers Union, 11900 East Cornell Ave., Denver, CO 80014. Web site: www.nfu.org

DEC. 600
Contributed by Gail Feenstra