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Lack of competition may lead to higher food prices

(Monday, Dec. 2, 2002 -- CropChoice news) -- Richard A. Levins: For the past several decades, the United States has enjoyed relatively inexpensive food But we need look no further than prescription drugs to see danger signs ahead. Instead of addressing the fundamental problems plaguing competition in the pharmaceutical industry, we search for ways to give seniors enough money so they can afford to be gouged.

How much worse will it be when competition in our food system is similarly compromised?

Our farming system is rapidly evolving into one of enormous off-farm corporations that own and raise millions of animals in confinement facilities scattered around the country. Four so-called farms now account for 46% of the nation's hog production. More than one million breeding hogs with only four owners is something we have never seen in U.S. agriculture. The largest of these four hog production giants is also the nation's largest pork packer.

Senator Tim Johnson, Dem.-South Dakota, tried to bring the competition question into the latest farm bill debate. His amendment prohibiting corporations from both raising animals and slaughtering them for market passed the Senate by a 53-46 margin, but it disappeared in conference committee.

At a hearing in Sioux Falls, South Dakota, hundreds of farmers turned out to express their continuing support for Johnson's proposal. Understandably, independent farmers feel that with so few meatpackers, they face take-it-or-leave-it pricing when they bring their animals to market. Then, if the packers are also raising animals, the opportunity for independent farming can vanish altogether.

The poultry industry is a perfect example: Virtually all farmers who grow broilers in the United States function more as employees of corporations that own and slaughter birds than they do as independent farmers.

These are the questions facing farmers.

The rest of us need to ask: How much longer will our relatively inexpensive food costs last when increasingly large corporations assume "plow to plate" control of our food system?

Every freshman economics student learns early that the demand for food is inelastic --- that is, we will pay whatever it takes to keep from going hungry. They also learn that free-market systems rely on competition to keep prices in check. With so few corporations controlling our food system, we must be concerned that competition can no longer play its vital role.

The consolidation worrying the farmers in Sioux Falls is real. The top five corporations in beef packing, pork packing, pork production, chickens and turkeys account for at least 40% of sales.

The same can be said for many other vital links in our food system, including corn exports, soybean exports, flour milling and food retailing. These numbers are changing by the week, and always in the direction of fewer, ever larger, corporations.

Evidence is building that large food corporations and low food prices are not a good mix.

For example, a study published in the Review of Industrial Organization found that mergers and acquisitions in food processing industries were more often leading to higher prices than to higher efficiency. And Purdue University agricultural economist John Connor's title for an address last summer spoke for itself: "The Globalization of Corporate Crime: Food and Agricultural Cartels of the 1990's." (Eighty-five percent of all fines imposed on global price-fixing operations in the past several years were paid by food and agricultural cartels.)

During the Kennedy years, Secretary of Agriculture Orville Freeman warned that dwindling competition would someday lead us down the road to higher grocery bills. Our experience with prescription drugs reminds us that it is time to take his warning seriously.

We must support sensible measures, such as banning packer ownership of livestock, that will keep our food system competitive and our food prices reasonable.

Richard A. Levins is a professor and extension agricultural economist at the University of Minnesota and a senior fellow with the Institute for Agriculture and Trade Policy.