Last month, Farm Action released a report titled – Kings Over the Necessaries of Life: Monopolization and the Elimination of Competition in America’s Agriculture System.
The report, written by antitrust attorney Basel Musharbash, finds that around three dozen corporations now dictate the lines of development and terms of trade for almost every industry involved in the growing, processing, and distribution of food in America.
The report finds that decades of lax antitrust enforcement have culminated in these unprecedented levels of concentration.
Meanwhile, corporations rake in record profits, farmers and workers get squeezed, and consumers pay the price at the grocery store.
The report shows that America has been here before, and it was government regulation of monopolies that freed farmers, workers, and consumers from corporate control.
“This report makes it crystal clear that we face a time for choosing,” Musharbash said. “The bad news in this report is that a handful of corporate executives have managed to monopolize power over our food and our agriculture. The good news is that the American people have fought against would-be corporate masters before – and won. The choice before us today is whether we will accept central planning by this self-appointed oligarchy, or stand and fight for freedom like Americans have done before.”
“The response of the government to consolidation over the last thirty years has been non-existent,” Musharbash told Corporate Crime Reporter in an interview last month. “We have turned a blind eye to the abuses of power that have taken place. We saw massive price increases in the last couple of years that have caught everyone’s eye. But milk prices have gone up significantly since the 1990s in two big jumps that coincided with important jumps in consolidation in the industry.”
“Egg prices jumped in the mid 2000s just after the first round happened in the egg industry, where they were able to create an infrastructure for collusion.”
“We’ve been seeing an increase in prices and abuses of power for a long time with no response from the government and not even an interest in responding. When was the last time the FTC investigated food prices? Until Lina Khan’s tenure, it’s been decades.”
“The response we are seeing now from the FTC and the Department of Justice to the current bout of inflation is welcome, if overdue. There needs to be more aggressive action. And that’s why we put together this report – to show that the consolidation we see that has allowed these kinds of massive price increases didn’t come out of nowhere. They came out of practices that may have well violated the antitrust laws and that merit extensive and intensive investigation by federal and state antitrust enforcers.”
What is the government currently doing? And what would you like them to do?
“They are doing a great job of blocking further consolidation. They challenged the Kroger Albertsons merger. That’s one good example.”
“We have also seen enforcement from the Department of Justice under the Packers and Stockyards Act, particularly in the poultry sector, where they have fought to eliminate unfair trade practices, like the tournament system. These are great and important steps.”
“But what we show in this report, there are companies with monopoly power in the agricultural sector – the power to control prices and exclude competition. And that power was secured and maintained through unfair methods of competition that violate the antitrust laws – mergers that lessen competition, exclusive dealing arrangements that lessen competition, and discriminatory pricing arrangements that harm the competitive opportunities of rivals.”
“This suggests that there is definitely an opportunity for the agencies to aggressively investigate monopolization and restraints of trade in the industry and go after not just discrete unfair trade practices but go after break ups and more expansive remedies than they have so far.”
“There is also a role for Congress, not just the agencies. The agencies are going up against the richest corporations in the world – Amazon, Facebook and Google. Their budgets can only go so far. The budgets of the Antitrust Division and the FTC are shadows of their former selves in real dollars, going back to the 1960s and 1970s. Congress needs to appropriate the money so that the agencies can do their jobs. We have folks in there right now who want to do their jobs, we just need to give them the resources to do it right.”
Much of your report is a deep history into the making of consolidation and the response of the government. You point out for example that Robert Jackson converted FDR to the anti-monopoly cause. It’s worth reading just for the history.
But if you were head of the FTC and had the staff you needed, what would you do to bust up the monopolies?
“First of all, I have no inside information about what’s going on at the agencies. They may be investigating monopolization and I wouldn’t know anything about it. But in the report, we provide extensive evidence of monopolization in major segments of the fertilizer sector. There are three segments – the nitrogen segment, the potassium segment and the phosphate fertilizer segment.”
“In each of those segments, one company controls such a large proportion of the proactive capacity and also control of strategic locations, that they are able to divert supply into the export market or into the domestic market in such a way that they can shift prices and control prices at will.”
“They also have substantial influence or control over substantial shares of the input sectors. To produce phosphate or potassium fertilizer, you need raw potash from mines. You need phosphate rock. And the dominant fertilizer companies have control over that. So it’s very difficult for an upstart fertilizer company to get inputs for their process. The dominant companies also have control over distribution channels and logistics channels.”
“Altogether, it’s very difficult for any new company to enter and it would be relatively easy for the dominant companies to exclude them if they tried.”
“If I were at the Department of Justice’s Antitrust Division, I’d open an investigation to see what this country lawyer in Paris, Texas came up with and whether it makes sense. And you can go down the line.”
“You would do that for fertilizers. And then you would do it for the tractor sector. John Deere has over 60 percent of the market for combines and tractors. Because of the way it designs its tractors, it has been able to create multi-stage entry barriers. It designs its tractors in such a way that an independent repair shop can’t repair its tractors. And since it has such a large market share, that has meant that there is a dwindling number of tractors for independent repair shops to work on. As a result, independent repair shops have been closing.”
“That means that if a manufacturer wanted to enter into tractor manufacturing, they would have to not only roll out a great tractor, they would then have to roll out a great repair network. On top of that, John Deere has been requiring dealers to sign exclusive contracts with them. That was not the case until the 1980s. Then John Deere began requiring dealers to sign exclusive contracts to distribute only John Deere equipment.”
“That means that now, someone who wants to enter into tractor manufacturing has to roll out a tractor, a dealer network and a repair network. That is what helps John Deere maintain its monopoly.”
“We’ve seen on top of that that the two other major players in the tractor and combine sector – CNH and Agco – although they are much smaller – Agco at 7 percent, CNH at something like 30 percent – they have followed John Deere’s lead and implemented the same distribution and repair restraints that Deere has. This kind of parallel exclusionary conduct should be something the agencies look at and see whether it violates antitrust laws. Tim Wu has written a great article about this.”
“Those are two sectors, fertilizers and tractors.”
Let’s touch on one more – livestock.
“Let’s look at the beef market. Beef is highly concentrated at the national level. Four companies control anywhere from 75 percent to 85 percent of sales and cattle procurement. But of course, these markets aren’t necessarily national – particularly cattle procurement.”
“In those local and regional markets, concentration is often much higher. Oftentimes farmers have just one or two packers to ship fed cattle to. And usually, the major fed cattle operations have marketing contracts or production contracts with the packers. Those production contracts don’t always extend to multiple years. Nonetheless, they could have a restrictive effect on a new market entrant. It may make it difficult for them to find cattle to run their plants efficiently.”
You point out in your report that the market is controlled by four big producers – JBS, Tyson, Cargill and National Beef.
“Right, so say, for example, JBS and Tyson have tied up in a local market say 80 percent to 90 percent of the fed cattle though forward marketing arrangements, which usually run out over a year or more. That means that there is very little cattle left on the cash market to be bought and sold. If a new market entrant comes in, they can’t just buy that cattle on the open market. They can’t get cattle immediately. They have to wait a year to convince folks to switch over to them in their contract. It creates an entry barrier. It also makes it so that these companies can manipulate prices in the marketing arrangements because the marketing arrangements peg the prices that are paid to the prices being received in the cash market.”
“That leads to the ability of the companies that are dominant to manipulate the prices that are paid to fed cattle producers.”
“When you look at JBS’s global capacity, it slaughters the equivalent of roughly 66 percent of all the cattle slaughtered in the United States each year. And they have a sophisticated logistics network. So they can move cattle in and out of the United States to shape the supply demand situation in ways that suit their interests. Whether they exercise that power or not, from a legal standpoint, that’s besides the point. The question is – do they have the power? Based on everything we have found, they definitely do have the power. It should warrant a federal investigation.”
Is controlling that much of the market per se illegal?
“No. We can go back and forth on how the Sherman Act should be interpreted, but the Court has basically said that monopoly is illegal where it is acquired or maintained through illegal mergers, exclusive deals, discriminatory pricing arrangements or other unfair methods of competition. And what we show in the report is that whatever power they do have, it was not acquired just by producing a better product, it was not acquired by accident. It was acquired specifically through mergers, exclusive deals and discriminatory pricing arrangements.”
“And if they do have monopoly power, it’s important to note that the Clayton Act makes these three methods illegal. If they have used these methods and these methods have been substantial or important steps in the creation of their monopoly, then that monopoly is illegal.”
“The agencies can pursue these questions much more effectively than Farm Action because the agencies have subpoena power. They can dig deep and determine for certain whether they have monopoly power and how exactly did they acquire it and maintain it.”
[For the complete q/a format Interview with Basel Musharbash, see 38 Corporate Crime Reporter 39(11), October 7, 2024, print edition only.]