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Food Biz Concentration Center of Debate
By Todd Neeley
Wednesday, January 19, 2022 3:46PM CST

LINCOLN, Neb. (DTN) -- Mississippi poultry farmer Trina McClendon was on the road to financial recovery in 2020 following the 2017 death of her husband, Rusty, when Sanderson Farms announced a 9% pay cut for contract chicken farmers in the state in August 2021.

The devastating news came to light just days after a joint venture between Cargill Inc. and the investment firm Continental Grain Co. announced plans to buy Sanderson at a price tag of about $4.5 billion.

Though the purchase remains on hold by the Department of Justice, the companies announced the transaction could be finalized in the first half of 2022.

McClendon told the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law on Wednesday, that the sale should be stopped.

The hearing focused on the effects of economic concentration on the food supply. The Biden administration and Democrats in Congress are pushing for more federal oversight of competition in general to combat inflation and higher food prices.

"I'm asking you to stop this buyout and send a clear and concise message to Sanderson Farms, Cargill and Continental Grain that the consolidation of our fabulous industry is detrimental to continue the practice of a free and fair market economy," McClendon said.

"Second, I'm asking that you simply enforce the rules that were written to protect our country's food supply and that you place a temporary moratorium on all large food and agribusiness mergers. And, lastly, I urge you to protect all Americans across this country. And you can do this by protecting our most important asset -- our food and the farmers who grow it. We love our jobs, and we love growing food for this country."

In recent months, the Biden administration has sought to address consolidation in the food industry, pointing to it as a reason for higher food prices and in particular meat prices.

According to USDA's Economic Research Service, from 2020 to 2021, food-at-home prices increased 3.1% and food-away-from-home prices increased 4.2%. The beef and veal category, in particular, has seen the largest relative price increase of 8.7%.

McClendon told the committee that farmers want to have an even chance to compete. As a contract grower with Sanderson, she said she has little control as to the future of her farm.

In 2003, McClendon and her husband signed a 15-year contract with the Laurel, Mississippi-based Sanderson, under the impression the contract would pave the way for a profitable future.

"We soon realized that while we felt we were in a partnership with Sanderson, the truth is that our contract was very one-sided," she said.

"We had no say over quality of chicks, quality of feed, and many other issues relating to growing a good bird. The fact that five farm deficiencies could bankrupt us, causing us to lose the family farm and our home, created untold stress."

As a contract poultry grower, McClendon said she's responsible for the cost of building chicken houses, all the maintenance utilities, all equipment costs and all costs to maintain and run the houses, along with a $1.4 million debt burden.

"Growers just never seem to get ahead because we are kept in debt for many years," she said. "It is a known statistic that over 71% of all poultry growers who solely rely on poultry for their income are below the poverty level."

McClendon and other poultry growers in Mississippi fought Sanderson on the pay cut, and the company dropped the plan for now.

GROCERY BUSINESS CONSOLIDATION

Michael Needler, CEO of independent grocer Fresh Encounter Inc., an Ohio-based company that operates about 100 grocery stores in Ohio, Indiana, Kentucky and Florida, said during the hearing that concentration in the retail grocery industry has led to supply shortages and perhaps has contributed to higher food prices.

About 12 years ago, he said, his company decided to expand operations to overcome tight margins and shrinking sales. Needler said his company was able to acquire "struggling companies" and expand into a larger operation.

"Our view is America's future food supply chain problems are a result of the increase in concentration and unchecked firepower by a few dominant retail firms," he said.

"Consumers have a narrowing range of choices to shop for the goods and services. Many entrepreneurs and independent businesses struggle to start up and sustain businesses, and producers such as farmers and ranchers are forced to accept unfavorable economic terms and conditions and prices imposed by the largest members of a consolidated supply chain."

ROBINSON PATMAN ACT

Needler asked the committee to enforce the 1936 Robinson Patman Act, which prohibits anti-competitive economic discrimination against independent businesses. The Federal Trade Commission and the DOJ have not brought for prosecution a Robinson Patman case in more than 20 years.

"It's time to dust off the tools and go to work to protect the free and fair market to preserve the food supply chain and American consumers," he said.

Though smaller grocery chains and many farmers point to increased concentration in big agriculture businesses as one cause for higher food prices, groups like the North American Meat Institute don't quite see it that way.

In written testimony to the subcommittee, NAMI said consumers saw higher meat prices in 2021 because of labor shortages, greater consumer demand, supply chain problems and other factors experienced by most sectors of the economy.

"Inflation is hurting consumers by erasing the wage gains workers received due to the tight labor market and the pandemic," said Julie Anna Potts, president and CEO of NAMI.

"It is no wonder the Biden administration and some members of Congress would rather hold press conferences and hearings instead of addressing the labor shortage and supply chain bottlenecks."

CONCENTRATION NOT TO BLAME

Geoffrey A. Manne, founder and president of the International Center for Law and Economics, told the committee food industry concentration was not to blame for higher food prices.

"There is a wide range of possible explanations for the rise in consumer food prices over the past year," he said.

"Increased demand driven by fiscal stimulus, disruptions arising from an unprecedented set of simultaneous supply and demand shocks, the incentive effects of government responses to the COVID-19 pandemic, and an increase in the money supply, among others. Each of these factors is interrelated, and each has surely contributed in varying degrees to current headline inflation woes.

"What is not a plausible explanation is increased concentration and the exercise of market power in the food supply chain."

Peter St. Onge, research fellow at the Heritage Foundation, said the data doesn't support the idea that concentration in the food industry is the problem.

"There are several key data points that argue strongly against the claim that rising prices of meat and other agricultural problems are due to monopoly," he told the committee.

"Taking the meatpacking industry, today's level of concentration was reached almost 30 years ago. According to the USDA, four-firm concentration in the meatpacking industry -- a standard concentration measure -- is 84% today, and in 1994, it was 82%."

St. Onge said food processing also is concentrated in the U.S., partly because farming and ranching is concentrated.

He said 70% of fed cattle, for example, are raised in just seven states, while 55% of feedlot corn is produced in just four states.

"Beyond these geographic reasons, two reasons why concentration is increasing in food processing are economies of scale and increasing regulation," St. Onge said.

"Economies of scale, where you can produce cheaper when you're producing bigger batches, are key to keeping prices low in most industries, including food. Because consumers want low prices, it's consumers that drive such industry concentration, meaning that oversight interfering with that process could actually raise prices to consumers."

Despite about 30 years of high concentration, American food prices have remained exceptionally low, St. Onge said.

Joe Maxwell, president and founder of Farm Action, disagreed with Manne's and St. Onge's assessments, telling the committee he believes concentration in the food industry is at the root problem.

Maxwell, the former vice president of outreach and engagement for the Humane Society of the United States, told the committee food industry concentration "drives farmers from the land" and hurts the rural economy.

"It's unreasonable profits from supply chain disruptions that leave shelves bare at the grocery store, prices higher for consumers, and steals farmers' profits, increasing the burden of taxpayer-funded subsidies and safety nets that prop up farmers and provide for food-insecure households," Maxwell said.

"It is a self-perpetuating cycle of destruction that is tearing through rural America."

Read more on DTN:

"Joint Venture Buying Sanderson Farms," https://www.dtnpf.com/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @DTNeeley


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