Consolidation in the Food System: Consequences for Agricultural Sustainability

1
Consolidation in the Food System Consequences
for Agricultural Sustainability

• Ecological Agriculture Program
• November 4, 2003
• Chad Kruger

2
Consolidation Definitions

• CR4 concentration ratio of top 4 firms in a
  specific industry
• Food systems clusters describes the structural
  nature of consolidated firms
• Seed to shelf life cycle integration concept
• Vertical integration consolidation up the food
  chain
• Horizontal integration consolidation across
  food industries
• Globalization international consolidation

3
Consolidation in the Food System

• Source for the following tables
• CONCENTRATION OF AGRICULTURAL MARKETS
• February, 2002
• Mary Hendrickson and William Heffernan
• Department of Rural Sociology -- University of
  Missouri
• Columbia, MO 65211 [phone]
• e-mail HendricksonM_at_missouri.edu
• email HeffernanW_at_missouri.edu

4
(No Transcript)
5
(No Transcript)
6
(No Transcript)
7
(No Transcript)
8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
Consolidation So what does this mean?

• General comments
• Problems with the data???
• This may be the most critical issue facing our
  food and agricultural system because this issue
  is what is dictating most of the other changes we
  see in agriculture.
• I urge caution in passing judgment against
  these companies . . . these firms are concerned
  with their own survival and are not necessarily
  consolidating with malicious intent.

20
Consolidation So what does this mean?

• Lost competition
• If the CR4 controls at least 40 of the market in
  a specific industry, than they effectively
  control the market without insider collaboration.
  They are able to watch each others movement and
  adapt as needed.
• Weve already had several examples of failed
  consolidated agriculture and food systems in the
  Soviet and Chinese collectives the type of
  command and control system that looks very
  similar to current consolidation trends in the US.

21
Consolidation So what does this mean?

• Changes in Farm Structure
• What will the farm unit look like that can
  service the high-volume, low-price, contracts
  required by a consolidated food system?
• What about changes in the family structure of
  agriculture -- and the consequences of that for
  our rural communities (consider the nature of
  broiler production)
• Do we even need farmers in the US?

22
Agriculture of the Middle

• So now that we have looked at some of the data
  related to integration in the food system, and
  considered some of the consequences consolidation
  might have on farm structure lets look at some
  of the data on farm structure.

23
Agriculture of the Middle

• Source for the following tables
• Why Worry About the Agriculture of the Middle?
• A White Paper for the Agriculture of the Middle
  Project
• This white paper is a work in progress. It was
  begun largely by Fred Kirschenmann, Steve
  Stevenson, Fred Buttel, Tom Lyson and Mike Duffy.
  But what they produced here is only a starting
  point and we
• invite everyone involved in this process to offer
  additional information, propose deletions or
  alternatives, or suggest rewrites.
• Please send your suggestions to Steve Stevenson
  at
• ltgstevenson_at_mhub.facstaff.wisc.edugt or Fred
  Kirschenmann at ltleopold1_at_iastate.edugt.
• www.agofthemiddle.org

24
(No Transcript)
25
(No Transcript)
26
(No Transcript)
27
(No Transcript)
28
(No Transcript)
29
(No Transcript)
30
(No Transcript)
31
(No Transcript)
32
(No Transcript)
33
Ag of the Middle Why Care?

• If two or three farmers can produce all of the
  food and fiber we need, who cares? In fact, if
  robots can do it who cares? Official in the
  Office of Management and Budget
• We expect more from our farmers than the
  production of food and fiber the multiple
  benefits of agriculture (soil and water
  protection, biodiversity, community stability,
  the landed democracy, etc.)

34
Ag of the Middle Why Care?

• The central question still facing us is whether
  we can reasonably expect farmers to provide these
  public services within the framework of the
  current consolidated structure of the food and
  agriculture system we have developed.
  Kirschenmann, et.al.

35
Ag of the Middle Key issues

• Scalerelated market structure phenomenon
  Mostly mid-scale farms that fall between the
  small, direct-market farms and the consolidated,
  contract farms.
• Over 80 of farmland is still managed by
  mid-scale family farms whom generally
  consider more than profit margin in farm decision
  making.

36
Ag of the Middle Key issues

• Loss of independent decision making. Family-unit
  farms tend to make decisions based at least in
  part on impact to neighbors, rural communities,
  and their children (the future farmers on the
  given land).
• Loss of potential diversity and risk -
  protection of many individual farms.

37
Ag of the Middle What to do?

• The story of food (Cluetrain). Market analysis
  has shown that many (25) consumers are willing
  to pay a premium to purchase food in a
  relationship with the producer.
• We need to develop the supply chains that will
  make this relationship-based food system work.
• We need to support public research / education in
  production systems, market structures, and
  policies that support this new food system.

38
Ag of the Middle Why Care?

• We have now reached a critical juncture. This is
  not just about farm numbers or saving the family
  farm. The decline in farm populations. . .will
  dramatically change the very landscape of rural
  America, jeopardize the future productive
  capacity of the land, and by extension, threaten
  our food security and the health of urban
  communities. Kirschenmann, et.al.

39
Globalization Why Trade?

• Weve had a variety of issues presented in class
  in the last couple of weeks that beg the question
  of what the purpose of trade is in agriculture,
  (WTO presentation, Whidbey field trip, Kemmis
  book).
• Since trade is so closely related to
  consolidation and globalization, this is a good
  opportunity to look at some of the basic
  definitions and arguments related to trade.

40
Globalization Why Trade?

• World Context
• Balance of payments (related to debt) -- a
  summary statement of a nations financial
  transactions with the outside world. Surpluses
  and deficits.
• Elasticities of Demand -Manufactured goods vs.
  commodities
• Macro-economic instability inflation, etc.
  devalues currency makes it worth less relative
  to other currencies.
• Foreign exchange - debt has to be serviced with
  foreign exchange that is more stable US
  dollars, Euros

41
Globalization Why Trade?

• Comparative Advantage
• A country has a comparative advantage over
  another if in producing a commodity it can do so
  at a relatively lower opportunity cost in terms
  of the forgone alternative commodities that could
  be produced.

42
Globalization Why Trade?

• Export promotion (trade agreements)
• Efficiency of production (based upon comparative
  advantage) provides goods for consumption at a
  lower relative cost than internal production.
• Trade agreements are designed to reduce barriers
  (usually tariffs and quotas) that enable goods
  produced with comparative advantage to be
  exchanged over a geo-political border.
• Why does the South tend to be an unequal
  partner in trade agreements? Manufactured goods
  vs. commodities inelastic demand for
  commodities and synthetic substitutes (fiber
  optics glass for copper, etc.)

43
Globalization Why Trade?

• Import substitution
• Substitution of an imported good for one produced
  internally frequently protected by tariffs,
  quotas, etc. place on imports.
• Why is import substitution not a panacea for
  community development? Government intervention
  (in the form of protectionist strategies) tends
  to promote inefficient production, lack of
  capital for investing in infrastructure, many
  import substitution industries do not have
  comparative advantage and require the continued
  costly protectionist investment of government
  or the industry is not able to compete with
  external goods.

44
Study Questions

• On Friday, John Perkins presented the Technology
  Treadmill and came to the conclusion that
  farmers who do not adopt tend to get squeezed
  out. Apparently, this is related to the
  historical trend that has led to the current
  consolidation trend and disappearing middle of
  farms. Are we kidding ourselves in attempting to
  recreate a mid-scale food system? Or, could this
  mid-scale food system philosophy be a successful
  way to organize a market-based agricultural
  system?
• Should all food production be local? Is there
  some justification for consolidation? What about
  local ecology as a justification for comparative
  advantage theory?
• Corn model if time permits