Farmers and Business Owners Testify to Harms of Lax Merger Policy
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Antitrust enforcers are in the process of updating their guidelines for reviewing and approving corporate takeovers and mergers. At a listening session Monday, six farmers, four farmer representatives, and four food business owners told the Department of Justice (DOJ) and Federal Trade Commission (FTC) about the decreased choice and barriers to growth they’ve experienced because of policies that waved through mega-mergers in the food and farming industry.
“The USDA, the FTC, and the DOJ have been on vacation since the 1970s, creating a no-rules environment in which the biggest cheaters win, leaving family farms like mine without a fair market,” said poultry and pork farmer Greg Gunthorp. “Functioning commodity markets require many buyers and many sellers and low barriers to entry and exit. … Today’s market is not a market. … If we are to rebuild local, regional food systems, we need antitrust enforcement.”
Antitrust laws give the FTC, DOJ, and the public authority to challenge corporate takeovers or combinations that could give too few players too much power to corner markets, shut out rivals, raise prices, or otherwise “lessen competition or tend to create a monopoly.” In 1968 the DOJ issued its first set of merger review guidelines so that business owners and lawyers could anticipate when mergers would be challenged (and avoid pursuing illegal deals to begin with). These guidelines set clear limits on firms’ market share, blocked deals with a “reasonable probability” of harming competition, and rejected theoretical efficiency arguments as a justification for otherwise illegal mergers (just as the Supreme Court has).
But starting around the 1980s, courts and antitrust enforcers adopted a more conservative approach to merger review that put more value in potential efficiencies and permitted most deals unless economists could predict that the merger would raise consumer prices. Between 2005 and 2014 alone, there were some 15,000 mergers and acquisitions in the U.S., and antitrust enforcers investigated only 3% of them. This so-called “consumer welfare” approach paved the way for a handful of powerful companies to consolidate key junctures along the food supply chain. In pork processing, beef processing, U.S. corn and soybean seed sales, and agrichemical sales, the top four firms now command two-thirds or more of the market.
Farmers at Monday’s forum said consolidation decreases competition for their goods and gives larger buyers more pricing power. For instance, hog farmer Chris Peterson said that due to “consolidation on steroids, the big packers got enough market power to run hogs down to 8 cents,” driving about 40,000 hog farmers out of business in the 1990s. In addition to more consolidated buyers, farmers face more consolidated sellers of key inputs. Farmers such as wheat and soybean farmer Todd Leake shared examples of their input costs going up and their choices decreasing as providers merged and bought up independents.
Between 1985 and 2000, the six-largest seed and agrichemical companies took over roughly 75% of all small- to medium-sized biotechnology research firms. Corporations claimed mergers would help boost costly research and development, but in practice R&D spending as a percentage of sales has declined with increased seed consolidation. “Seed sector amalgamation has resulted in fewer seed choices for farmers appropriate to the specific regional conditions or climate,” Leake said. “The mergers of so many previous regional seed companies has led to higher prices for GMO seed and stacked seeds that do not meet the needs of farmers because they contain traits that are unnecessary for a particular farmer.”
Farmers also said that they have fewer paths to market as processors combine and vertically integrate. Kevin Ellis, the CEO of a large dairy cooperative Cayuga Marketing, shared that its farmer members recently lost access to one of just three critical milk bottling plants after the largest U.S. dairy co-op, Dairy Farmers of America, acquired top milk processor Dean Foods, and canceled Cayuga’s contract with a Dean facility. DFA’s consolidation thus pushed Cayuga to vertically integrate into owning a bottling plant as well, but Ellis noted that this increases the co-op’s debt risk for members and said most smaller co-ops can’t afford to make these large capital investments. Dairy farmer Sarah Lloyd concurred that consolidation in one part of the supply chain pushes others along the chain to bulk up. “We see things like, the frozen pizza factory merges and gets bigger, and then they want the mozzarella cheese processor to get bigger to meet their needs, and then that cheese processor starts to look for bigger dairy farms,” Lloyd explained.
The loss of more midsized retailing and processing makes food systems less resilient, speakers argued. It also limits growth for smaller and regional food producers, and not for lack of demand for their products. Mike Salguero, the CEO of meat delivery company Butcher Box, said his company wants to buy American grass-fed beef, but cannot find processors outside the Big Four beef packers that are able to supply the volumes he needs. “It’s not that there aren’t enough farmers and ranchers raising grass-fed beef in America; instead the anticompetitive nature of meat processing has completely restricted our ability to grow,” he said. “The number of plants we can work with to grow a scaled domestic grass-fed beef industry can be counted on two hands.”
Even when niche markets have grown, they can be just as prone to corporate capture and consolidation. Patty Lovera, a representative for the Organic Farmers Association, noted that many small dairy firms turned to the organic industry for better prices in the face of processor consolidation. But failed merger remedies have left just three major national organic milk brands, one of whom recently canceled contracts with 89 farms in the Northeast, leaving farmers with one other potential buyer in their region.
Speakers at the listening session wanted antitrust enforcers to consider these broader harms to suppliers, resiliency, and variety when assessing mergers. “The enforcement approach [should] shift away from the narrow interpretation of prioritizing consumer welfare by chasing efficiency and low customer prices. A more holistic lens must be taken, one that considers the broader impact of mergers in an industry,” including harms to farmers, animals, consumer choice, and the environment, said Salguero.
Notably, speakers did not touch on how mergers might affect workers, though other advocates and policymakers in the food sector and beyond have argued that antitrust enforcers should also assess the potential harms to workers of any merger. One study found workers tend to receive lower wages in labor markets with fewer, more consolidated employers.
Speakers did not put forth specific proposals for new guidelines, but the Open Markets Institute has argued for reinstating bright-line limits on firms’ market share. Antitrust scholars such as John Kwoka and Steve Salop have also proposed strengthening presumptions against mergers between dominant firms or mergers that risk foreclosing rivals. Others argue that powerful corporations should be required to prove their merger is legal, rather than require the government to challenge potentially illegal mergers, a shift that Sen. Amy Klobuchar proposed in a bill last year.
What We’re Reading
The DOJ will drop price-fixing charges against five poultry executives after its case ended in a mistrial for the second time Tuesday. DOJ will pursue a third trial against the remaining five executives. (Bloomberg)
43 bipartisan members of the House urged the FTC to revive the Robinson-Patman Act, a law that prevents dominant firms from commanding lower prices or better terms simply because they have the clout to do so. (Letter)
A report by the Revolving Door Project found that for every one opportunity the Biden administration took to prosecute white collar crime or regulate corporate malpractice, it missed roughly two similar opportunities. Congress partially shares the blame, according to the report. (Revolving Door Project)