Have you ever played Monopoly? You know how it goes. It’s pretty fun for a while, until one player puts hotels and Boardwalk and Park Place and then amasses crazy amounts of money while the other play goes broke. Often in our house this would end with one player walking away from the game (or worse, turning the game board upside down in anger). This is no coincidence.
When a market is competitive, everyone wins. Businesses that can innovate or grow more efficient rise to the top while consumers get the best products for the best price. However, when one (or a few) corporations gain too much power over the market, those benefits go away. Think about it – if there was only one company out there selling something essential for life (for example, seeds for all of our major food crops) – they could charge whatever they wanted and we’d have to pay it. Especially if they figured out a clever way to keep new companies from emerging and gaining any share of the market.
This post is first about that exact example and the company, Monsanto, who is under investigation by the Obama DOJ (Dept of Justice) for anticompetitive behavior. But this post is even more about the larger picture – how corporate consolidation affects MANY areas of our food supply, what that means for us, and how you can send in your comments to the Obama administration in the next few days (they are due by December 31).
I’d like to make clear first that Monsanto is NOT a bogeyman responsible for all evils in our food supply. They are responsible for an awful lot, it’s true, but often I hear people cursing Monsanto over problems that should be blamed on other companies. For example, if you hate all of the high fructose corn syrup in our food, then you should be mad at Archer Daniels Midland, not Monsanto. That said, Monsanto’s been highly effective at exploiting just about every possible legal method of growing their company’s influence, expanding their market share, and making money. For example, they spend big bucks on lobbying and they get their people into top jobs in the government. But perhaps they’ve engaged in some illegal ways of doing this too – that remains to be seen.
With the seed industry, it isn’t just about what size market share you have (even though Monsanto IS the Coca-Cola of the seed industry). Even more important are what traits you control. If another company wants to engineer Roundup Readiness (a trait controlled by Monsanto) into their seeds, they need to come to Monsanto begging in order to do so. As Monsanto’s spent the past decade or so gobbling up smaller seed companies (see a diagram of it here) – and the traits they own – Monsanto controls an awful lot of traits, and thus an awful lot of the seed industry.
A recent AP article explains their control over the seed industry, saying:
With Monsanto’s patented genes being inserted into roughly 95 percent of all soybeans and 80 percent of all corn grown in the U.S., the company also is using its wide reach to control the ability of new biotech firms to get wide distribution for their products, according to a review of several Monsanto licensing agreements and dozens of interviews with seed industry participants, agriculture and legal experts.
Declining competition in the seed business could lead to price hikes that ripple out to every family’s dinner table. That’s because the corn flakes you had for breakfast, soda you drank at lunch and beef stew you ate for dinner likely were produced from crops grown with Monsanto’s patented genes.
Note that they say that Monsanto’s traits are in 80 percent of corn. Monsanto doesn’t actually sell all of that corn. I would assume that much of it is Pioneer corn (owned by DuPont), with Monsanto’s traits engineered into it. The AP explains how that works:
Monsanto’s methods are spelled out in a series of confidential commercial licensing agreements obtained by the AP…
The company has used the agreements to spread its technology – giving some 200 smaller companies the right to insert Monsanto’s genes in their separate strains of corn and soybean plants. But, the AP found, access to Monsanto’s genes comes at a cost, and with plenty of strings attached.
While Monsanto does not sell 90% of all seeds, the article quotes an agricultural economist who believes Monsanto has control over as much as 90 percent of all seed genetics. He continues, saying that with so much control Monsanto can increase their prices in the long term because they have no competition. Then the AP reports on seed price increases over the past few years:
The price of seeds is already rising. Monsanto increased some corn seed prices last year by 25 percent, with an additional 7 percent hike planned for corn seeds in 2010. Monsanto brand soybean seeds climbed 28 percent last year and will be flat or up 6 percent in 2010, said company spokeswoman Kelli Powers.
They go on to explain the specific methods Monsanto used and uses to get control of the market. For example:
One contract gave an independent seed company deep discounts if the company ensured that Monsanto’s products would make up 70 percent of its total corn seed inventory…
Quarles said the discounts were used to entice seed companies to carry Monsanto products when the technology was new and farmers hadn’t yet used it. Now that the products are widespread, Monsanto has discontinued the discounts, he said.
And how about this?
The Monsanto contracts reviewed by the AP prohibit seed companies from discussing terms, and Monsanto has the right to cancel deals and wipe out the inventory of a business if the confidentiality clauses are violated.
Thomas Terral, chief executive officer of Terral Seed in Louisiana, said he recently rejected a Monsanto contract because it put too many restrictions on his business. But Terral refused to provide the unsigned contract to AP or even discuss its contents because he was afraid Monsanto would retaliate and cancel the rest of his agreements.
And then there’s the deal they make with smaller seed companies: You can use our traits but if you are bought by another seed company, you must destroy all of the seeds you have with our traits in them. As a result, Monsanto’s had a cheap and easy time buying up smaller seed companies:
Monsanto’s provision requiring companies to destroy seeds containing Monsanto’s traits if a competitor buys them prohibited DuPont or other big firms from bidding against Monsanto when it snapped up two dozen smaller seed companies over the last five years, said David Boies, a lawyer representing DuPont who previously was a prosecutor on the federal antitrust case against Microsoft Corp.
Competitive bids from companies like DuPont could have made it far more expensive for Monsanto to bring the smaller companies into its fold. But that contract provision prevented bidding wars, according to DuPont.
So when people talk about “anticompetitive” behavior, now you have a taste of what they mean. It’s not just that a company is really big and successful. It’s that their practices make it impossible for other companies to compete fairly.
Food and Ag Corporate Consolidation in General
An awful lot of problems are traceable to consolidation in agriculture/food. High prices, lack of availability of local food (particularly meat), and food safety problems are just three of them. Fortunately, the U.S. government is actually DOING SOMETHING about this. They will first take public comments on the subject, and then hold a number of workshops around the country.
In addition to the Monsanto investigation, the DOJ is also doing a number of workshops (“to explore competition issues affecting the agricultural sector in the 21st century and the appropriate role for antitrust and regulatory enforcement in that industry”) and taking public comments on the subject. (Email your comments to email@example.com BY DECEMBER 31. Details on this are below.)
From a sustainable food & food justice perspective, the problems in our food system are a bit like a chicken and egg dilemma. Huge, powerful corporations are producing unhealthy, unsustainable food (which is distributed in an unjust way) – often treating the workers who make the food very unfairly as well – and yet it’s all legal. Or their practices are illegal but the law is not adequately enforced. So the solution is to change the laws or have the laws enforced – except the same powerful interests control quite a bit of government via lobbying and campaign donations, etc. So where do you start?
Well, one answer is to reduce the power of these corporations. And fortunately, we DO have laws on the books saying that companies cannot engage in anti-competitive practices. And we have an Obama DOJ that is interested in looking into this. Better yet, Congress need not be involved.
There are two types of consolidation – horizontal and vertical. Horizontal consolidation means you have tons and tons of market share selling the same product. For example, Monsanto buys up many smaller seed companies to expand horizontally. Vertical consolidation means you expand into different stages of a product’s development. For example, Tyson breeds baby chicks and owns them all the way until they go to the grocery store. From the breeder, the chicks go to farmers who have contracts with Tyson (the farmers never officially own the chicks, even while raising them). Tyson picks up the chickens from farmers when they are full grown, slaughters them, and sells them. I believe they also provide the farmers with the feed and medications for the chickens.
Each type of consolidation – horizontal and vertical – reduces the amount of competition in an industry. While it is a GOOD thing for innovative companies to prosper, once a company because so powerful, it no longer needs to innovate to stay in charge. Furthermore, without much competition (or even the possibility of future competition), the corporation can jack up the prices.
Sometimes large, powerful corporations use their size to unfairly oust competition from smaller companies. A great example is when Wal-Mart comes into a town and builds three SuperCenters even though the town really only can support two. Then, after all of the Mom n Pop businesses close because they can’t compete with Wal-Mart, Wal-Mart shuts down one of the SuperCenters. Another example (and this IS illegal) is when a company sells their products below the cost of production. A large company may have deep pockets and the ability to do this long enough to put their smaller competition out of business.
Obviously, a monopoly has the ability to jack up prices because there are no other companies around to compete with lower prices. However, when a market is consolidated (the largest 4 companies control over 40% of the market), they can raise prices without officially colluding. You can find out how consolidated various U.S. agricultural industries are from the Heffernan report. Note that the most recent report is quite out of date because we’ve had some very significant mergers in the past 2 years (JBS Swift merged with Smithfield, and then went after Pilgrim’s Pride).
Here are some ways that you might be noticing the effects of consolidation in your life:
• It’s harder and harder to find healthy, locally produced foods in your community — especially if you live in a low-income area, there might not be a supermarket for miles.
• Prices are rising at the supermarket, but you’ve heard that farmers are struggling — and big food companies have made record profits this year.
• You feel like you don’t have much choice about the food you eat — maybe the produce selection is bad, or you don’t like that everything seems to be made with corn products.
• It’s hard for small food producers and processors to find markets for their products — and it’s hard for consumers to find products made by small producers.
• Food seems less safe. You’ve read that the outbreak and spread of bacteria like E. coli happens much faster when meat and vegetables are processed in big centralized locations.
• Local farms are going out of business, because small farmers can’t compete with prices set by industrial farms and consolidated buyers.
• There aren’t many decent jobs in food and farming anymore — there’s a real lack of opportunities for both urban and rural youth who are interested in growing and preparing food.
• What’s in your food, anyway? And why aren’t there decent labels telling you where it grew, what chemicals are on it, and if it’s genetically modified?
• There is a “revolving door” of personnel between corporate lobbyists and government regulators. No wonder corporations aren’t held to strict standards.
• Many rural communities have become ghost towns. The farmers that have survived often find themselves entirely at the mercy of corporations who own all parts of the supply chain (called “vertical integration”) and can set prices in such a way to drive competitors out of business.
• Just one company controls the majority of seeds in the US, and regularly threatens farmers who don’t buy its seeds.
• Cows, chickens, and pigs are being raised in squalid conditions on huge industrial feedlots and pumped full of unnecessary antibiotics, which is unhealthy for them and potentially unsafe for the people eating them.
• The food you can afford is bad for you; healthy food is expensive.
• Food is grown and raised in ways that are terrible for the environment, with methods that pollute the water, poison the soil, and threaten our long-term food security.
• A lot of food from the store just doesn’t taste very good, which raises questions about where it’s come from and how it’s been treated.
Slow Food USA just put up an action alert that says:
Maybe you’ve noticed prices rising at the supermarket even while most big food companies made record profits this year;
Maybe you are a farmer who has trouble getting your meat to market because there are no small-scale processing facilities in your region;
Maybe you’re concerned about food safety and the spread of bacteria like E. coli—which happens much faster when meat and vegetables are processed in big centralized locations;
Maybe your local farm has gone out of business because it couldn’t compete with the prices set by industrial farms and consolidated buyers.
And you probably know consumers having trouble finding good food at affordable prices, as well as farmers having trouble getting good food into mainstream markets. Please reach out to them today: the Department of Justice needs to hear their stories.
Email your comments to firstname.lastname@example.org BY DECEMBER 31.
So, what do you say in your comments to the DOJ? You can see sample letters if you’d like, or you can use this template:
State who you are — parent, teacher, farmer, cook, gardener, community leader, eater… whatever feels relevant.
State that you are concerned about the consolidation of corporate power in the food and agriculture sector.
State your primary reasons why. Some examples to get you started (you can find more food for thought at www.usfoodcrisisgroup.org):
* you’ve noticed prices rising at the supermarket and don’t feel like you can do anything about it (a lot of big food companies have made record profits this year — even as consumers are paying more for food.);
* you’re concerned about your family’s safety (outbreak and spread of bacteria like E. coli happens much faster when meat and vegetables are processed in big centralized locations.);
* local farms are going out of business (many small farmers can’t compete with prices set by industrial farms and consolidated buyers.).
This section can be short and informal; don’t worry about spelling out the connections too precisely. The important thing is to express from your own experience what most concerns you or how you’ve been affected by the effects of corporate consolidation in the food industry. Be honest and speak from your heart.
Thank them for the opportunity to submit comments.
Sign your name and address
For an absolute plethora of information on the subject of antitrust work and market consolidation, check out the U.S. Food Crisis Working Group’s antitrust documents.
Here’s a list of the Dept of Justice’s workshops:
Dates, Locations, and Topics
March 12, 2010 – Ankeny, Iowa
Issues of Concern to Farmers
Introduction to the workshops series with a focus on the issues facing crop farmers. Discussion topics may include seed technology, vertical integration, market transparency and buyer power.
May 21, 2010 – Normal, Alabama
Discussion topics may include production contracts in the poultry industry, concentration and buyer power.
June 7, 2010 – Madison, Wisconsin
Discussion topics may include concentration, marketplace transparency and vertical integration in the dairy industry.
August 26, 2010 – Fort Collins, Colorado
This workshop will focus on beef, hog and other animal sectors. Topics may include enforcement of the Packers and Stockyards Act and concentration.
December 8, 2010 – Washington, D.C.
This workshop will look at the discrepancies between the prices received by farmers and the prices paid by consumers. As a concluding event, discussions from previous workshops will be incorporated into the analysis of agriculture markets nationally.
For full details on the workshops, see the DOJ’s website.