Fighting Monopoly Power

Food and Farming

As food conglomerates and agribusinesses have taken over store shelves, they’ve used their growing market power to squeeze farmers and consolidate production in a handful of processing plants. This has led to vulnerability in our food supply and caused an economic crisis across much of rural America. But states and local communities have many policy tools for deconcentrating our food and farming industries and building a robust and resilient system of family farms and local food producers and retailers.


by Susan R. Holmberg and Zach Freed*

Susan R. Holmberg is Senior Editor and Researcher on the Independent Business team and a political economist by training.

Zach Freed is a researcher with ILSR who leads the Institute’s advocacy and outreach efforts.

The authors wish to thank Claire Kelloway, a reporter at the Open Markets Institute who writes the Food & Power newsletter, and Ben Lilliston, interim Co-Executive Director of the Institute for Agriculture and Trade Policy, for their policy ideas and insights. Special thanks also go to Patty Lovera for her feedback.

Americans increasingly favor foods produced by local, small-scale farms and food producers. Yet most of the items on grocery store shelves come from a handful of megacorporations that dominate the industry. Supermarket aisles may seem to offer an array of options, but it is often only a mirage. In the dairy case, for example, shoppers can choose among brands such as Garelick Farms, Lehigh Valley, and DairyPure, but they are all owned by Dean Foods. By selling their products under dozens of brand names, food corporations disguise how consolidated the nation’s food supply actually is.[1]

Learn more about our Research on FoodView Research →

As these big food conglomerates and agribusinesses have muscled aside smaller competitors and taken over store shelves, they’ve used their growing market power to squeeze farmers and consolidate production in a handful of processing plants. This has led to vulnerability in our food supply — as the shortages caused by Covid-19 outbreaks have demonstrated. And it’s caused an economic crisis across much of rural America. From 2013 to 2018, net farm income dropped 52 percent.[2] Farmers are now shouldering more than $400 billion in debt, a level not seen since the farm crisis of the 1980s.[3] These dire conditions are devastating farmers, food producers, and the rural communities they sustain.

The Market Power of Big Ag and Big Retail

Almost every part of the supply chain — from seed suppliers, to processors, to grocery stores — has become highly concentrated. These giant agribusinesses and retail chains have leveraged their power over small farms and ranches to keep more of the consumer food dollar for themselves. They have done this by squeezing farmers from two directions: charging them more for inputs, such as seeds and fertilizer, while slashing the prices they receive for what they grow.[4]

On the input side, consider the case of seeds. After recent mergers, four seed companies — Bayer, ChemChina, BASF, and Corteva (a new firm created from the Dow–DuPont merger) — now control 60 percent of seed sales.[5] These companies are offering fewer seed varieties while at the same time raising prices to farmers at a pace that far exceeds increases in yield. Between 1995 and 2011, for example, the cost of purchasing seed to plant one acre of corn rose by 259 percent, but yield per acre only increased 30 percent.[6]

At the same time, consolidation among food processing corporations has dramatically reduced the number of buyers for milk, meat, and other farm products. This has allowed a few dominant players to dictate prices and terms to farmers. In the poultry industry, for example, only three firms — Tyson’s Foods, Pilgrim’s Pride, and Sanderson Farms — account for more than half of the chicken sold at grocery stores.[7]

Walmart alone captures one-quarter of grocery spending nationally. In over 200 metropolitan and micropolitan regions, it has a market share greater than 50 percent.

Before consolidation in the food processing industry, independent farmers sold their chickens in markets comprised of many buyers, resulting in fairer prices. But as a few processors took over the industry, they gained an upper hand and used it to convert much of chicken farming to a contract system. According to New York Representative Nydia Velázquez in 2019, “Where there were once 1.6 million independent farms across the country, a rapid shift to a vertical-integration model has resulted in just 25,000 contract farms raising the vast majority of America’s poultry.”[8] These contracts are problematic agreements that include opaque pricing. They also require farmers to borrow heavily with no-long term guarantees and to bear all the risk if, for example, their livestock becomes sick and can’t be unsellable. What’s more, big retailers like Costco, Walmart, and Kroger now directly own poultry, beef, and dairy production plants, further tightening their grip over food production by vertically integrating the process themselves.

Agricultural concentration doesn’t just harm farmers. It’s also leading to lower wages for people who work in food processing, a trend that mirrors the broader problem of “monopsony” power that is negatively affecting wages across many industries.[9] An analysis by the Roosevelt Institute found that as labor markets across the economy become more concentrated, wages markedly decrease.[10]

Growing concentration in food retailing is also part of this story, causing the incomes of U.S. farmers and even producers to decline while driving up the prices paid by consumers. The top five grocery chains control roughly one-half of the online and offline grocery market. Walmart alone captures one-quarter of grocery spending nationally. In over 200 metropolitan and micropolitan regions, it has a market share greater than 50 percent. Research has found that grocery prices have risen faster in local markets that are highly consolidated. These effects have been especially pronounced in smaller cities and lower-income communities.[11]

At the same time, the power of Walmart and other chains as dominant buyers of food has harmed food producers and growers in at least two ways. First, it fuels consolidation among meatpackers and other agribusiness giants, which have merged in part to gain leverage in negotiating with big retailers. Second, there’s evidence to suggest that both farmers and the workers who process milk, pack vegetables, and slaughter beef are being paid less because of the dominant chains’ ability to pressure suppliers for lower prices. Walmart’s market power affects workers and wages all the way up the supply chain.[12]

“Get Big or Get Out” Federal Policies 

The erosion of New Deal era policies — originally designed to ensure that farmers and small-scale food producers had a fair and stable market — has driven consolidation of the food and agricultural industries. Two areas of policy change have been pivotal.

First, federal antitrust authorities allowed our farming and ranching system to be overtaken by giant conglomerates, done in the name of efficiency and the assumption that consolidated ownership would lead to lower prices for consumers. This assumption, known as the “consumer welfare standard” in antitrust,[13] is not only making it harder for farmers to sustain a livelihood, a growing body of economic evidence (including the grocery market research mentioned above) suggests that concentration does not even yield lower consumer prices.[14]

Second, New Deal era “supply management” policies, which helped stabilize farm incomes amid the Great Depression, were later replaced by our current system of government subsidies funneled to the wealthiest and largest farmers[15] and food processors.[16]

Supply management was a set of programs and policies that both managed the supply of what farmers grew and minimized the price risk that was and is unique to the farming industry.[17] Supply management programs – including storing grain for reserves, putting farmland aside in conservation programs, controlling import volumes, and setting price floors and ceilings — prevented sudden, unexpected gluts in supply that would cause the price to fall below farmers’ costs. It generally worked well through the 1950s to ensure a fair price — called “parity” — for many farmers that covered both their production and their living costs. The programs enabled farmers to continue working their land and provide for their families. They also fostered growth of the broader rural businesses directly connected to the industry.[18]

Unfortunately, with strong pressure from agribusiness, Congress gradually dismantled these programs and effectively lowered the price floor that was both sustaining farmers and protecting them from selling off their farms to bigger competitors. President Nixon’s Agriculture Secretary Earl Butz articulated the U.S. Department of Agriculture’s bias against supply management when he ordered farmers to “get big or get out.”

To support agribusiness’s goal of excessive, consolidated production and export-driven growth, federal farm policies ultimately shifted away from any attempts to manage supply and toward our current system of subsidies, especially for the largest and wealthiest producers.[19] Between 1995 through 2014, almost 90 percent of agricultural subsidies went to the largest 20 percent of farms.[20]

Subsidies don’t just inflate consolidated power. Together they drive a mentality of industrial agriculture and overproduction. Farmers of commodity crops corn, soybeans, and wheat — the basis of the processed foods made by big food corporations — receive the most subsidy dollars.[21] This drives overproduction, which leads to gluts that cause prices to fall sharply below the cost of producing crops.[22]

While industrial farming has helped lower the price of food for consumers, this decrease in cost has advantaged large producers and come with unaccounted for problems, including antibiotic resistance in animals, water pollution, and obesity.[23] In other words, public money is propping up the biggest, wealthiest farmers at the expense of the farms growing real food for local markets.

The Broader Impacts

Rural communities have borne the brunt of concentrated power in the food industry. As small and mid-sized farms, local dairies, and other local food processing businesses disappear, these communities are losing their economic foundation. Industrialized farms tend to buy farm inputs and supplies from outside the local economy.[24] In addition, as farmers and farm workers face declines in income and wages, they struggle to support their families and have less money to spend in their communities.

Indeed, research shows that communities with larger, industrialized farms tend to have lower average incomes, higher poverty rates, and greater inequality. They have become a major source of air and water pollution, including from manure spills at operations that confine thousands of animals in one facility. Finally, research also connects industrial agriculture to higher rates of crime and the declining social cohesion of rural communities.[25]

Taking Back State and Local Power

States and local communities have many policy tools for deconcentrating our food and farming industries, while building a robust and resilient system of family farms and local food producers and retailers. State and local policymakers can use these levers to strengthen their in-state productive capacities, advocate for farmers, and return rural America to an era of prosperity.

Limit State and Local Subsidies for Big Agribusiness

Our current system of agricultural subsidies benefits the biggest businesses to the detriment of smaller processors and farms. Advocacy and research organization Good Jobs First reports that, since 2009, Archer Daniels Midland, Deere, and Cargill have been the top three recipients of federal and state subsidies.[26] In state and local subsidies alone, those three companies have received $49 million.[27] These subsidies include tax incentives, loans, and other types of giveaways. States can limit the amount of subsidy dollars they grant to the largest agribusinesses, while ensuring that small farms and local businesses can benefit as well.

Block or Overturn “Ag Gag” and “Right to Farm” Laws

In several states,[28] agribusiness lobbyists have successfully pushed for expansive “right-to-farm” laws that shield mega-farms from any consequences for the pollution they create. These laws bar people living near these operations from filing nuisance and malpractice lawsuits against them. Additionally, agribusinesses have won passage of laws in some states, including Iowa and Montana, that ban whistleblower and undercover investigations of slaughterhouses and other types of animal farms. State lawmakers can insist on a fair playing field by opposing these laws, which run counter to freedom of speech, stifle whistleblowers, and put consumers and communities at risk.

Bring Back Supply Management: Interstate Compacts

The Constitution (Article I, Section 10) allows states to form interstate compacts, if they are approved in identical form by each state involved and then by Congress. In 1996, Congress authorized the six states of New England to create the now expired Northeast Dairy Compact.[29] The aim of the Compact was to save the region’s disappearing dairy farms by setting a minimum price that farmers receive for milk sold within New England. By establishing a price floor and reducing price volatility, the Northeast Dairy Compact slowed the decline of New England’s dairy farms. States can adopt similar policies to bring back, at least in part, our old supply management system.

Ban Foreign Speculators from Buying Up Farmland

Foreign speculators have been buying and driving up prices of U.S. farmland. Over the last 20 years, overseas control of U.S. farmland has almost doubled from 2004 to 2014. This impedes farmers, especially new farmers looking to break into the market, at a time when their average age is over 59 years old. According to Joe Maxwell, head of the farmer advocacy group Organization for Competitive Markets (OCM), “We see more and more money being dumped into this sector, and it puts farmers and ranchers at an unfair competitive disadvantage. It locks out farmers, and it locks out rural communities.” Several states, including California, Iowa, and Minnesota, have placed limits or bans on entities held overseas from purchasing U.S. agricultural land.[30]

Enact a Right-to-Repair Law

John Deere and other big agricultural equipment manufacturers often prohibit farmers from repairing their own equipment and require them to use company-certified technicians instead. By constraining the ability of farmers to repair their own tractors and harvesters, these corporations are profiting unfairly by pushing up the cost of maintaining equipment for farmers.[31] State “Right-to-Repair” laws make it easier for people to repair their own equipment. They require manufacturers to publish repair information and sell spare parts to owners and independent repair shops. The Minnesota state house considered such a bill in 2019.[32]

Ban or Restrict Concentrated Animal Feeding Operations

States, counties, and municipalities can use moratorium laws to ban or restrict the size of concentrated animal feeding operations (CAFOs). The CDC defines a CAFO as a “specific type of large-scale industrial agricultural facility that raises animals, usually at high-density, for the consumption of meat, eggs, or milk.” CAFOs are notorious for their negative impact on public health, worker safety, and the environment. Several states have banned animal confinement practices associated with CAFOs. In 2007, North Carolina passed a permanent moratorium on certain types of new hog CAFOs. Ten states, including California, Colorado, Maine, and Florida have banned the use of “gestation crates,” confined metal enclosures for pregnant sows. Other states are considering similar legislation. In Iowa, legislators have introduced a CAFO ban bill for several years, though it has not yet passed. In Oregon, lawmakers have proposed a bill banning mega-dairies.[33]

Increase Capital for Farmers and Food Businesses

Big banks have been pulling back from farm loans in recent years due to the financial downturn facing farmers. Small and medium banks have stepped in to fill the gap, supplying 81 percent of all farm loans in 2018. But these smaller institutions, while essential, are not keeping destitute farmers from turning to dangerous, high-interest loans to finance their operations. States can help solve this problem by establishing sources of public financing, including through public banks, that can fill the gaps (see the Banking section of this guide for more details). The state-owned Bank of North Dakota, for example, does much to help farmers and provides a model for agricultural states to improve access to capital. We find another example in Maine, where state regulators recently approved a new credit union, Maine Harvest, that will make loans to farmers and food processors. The latter are important because small-scale slaughterhouses, produce distributors, grain mills, and other local processing facilities no longer exist in many regions, partly because it’s hard to raise the necessary capital for these operations. Their absence impedes the development of local food supply chains that would connect local farmers with local eaters and instead leaves farmers dependent on big national processors and distributors.[34]

Foster the Expansion of Local Grocery Stores

Independent grocers create opportunities for local farms and small food businesses to find shelf space for their products. Big chains like Walmart and Publix buy in bulk and deal with big companies who can pay “slotting fees” to have their products displayed more prominently. But independent grocers and small neighborhood markets can and do carry more local food, opening up more channels both for farmers and startups that are making food products. Local governments can encourage local grocers to set up shop through policies like property tax abatements and rent reductions. State and local governments can also institute zoning ordinances to encourage the proliferation of locally owned grocers. (See the Small Business section for more.) In addition, local governments can, themselves, own and operate grocery stores that feed their citizens. In 2019, the town of Baldwin, Florida, which previously suffered from lack of access to a full grocery store, opened its own municipally owned grocer.[35]

Implement a Strategic Plan to Develop Local Food Businesses

In 2009, Vermont passed legislation to create and implement a strategic plan to increase how much of its food is supplied in-state. Among other steps, the plan called for creating more in-state processing and distribution operations, such as local slaughterhouses, grain millers, and produce distributors, and expanding retail outlets for local food. The plan is working: between 2010 and 2017, the share of Vermont’s food produced in-state rose from 5 percent to 14 percent. A new strategic plan, in the works now, aims to increase that share even further.[36]

Direct Public Institutions to Buy Local Food

States and cities can require that public agencies and institutions, such as schools and universities, purchase more of their food from in-state producers and limit their reliance on big national suppliers like Sysco. The Good Food Purchasing Program provides a useful model for public food purchasing at the local level, which includes labor protections. Several cities and school districts across the country have adopted the Good Food Purchasing Program, including D.C., Cincinnati, Boston, and Austin.

Ensure Craft Brewers and Distillers Have Market Access

Policies governing alcohol retail and distribution are mostly at the state level, giving state lawmakers power to shore up small businesses and promote competition in the liquor sector. Some states limit the number of liquor licenses a single retailer can hold in a state. Other states have residency requirements, which keep multi-state retailers from flooding a particular state’s market. Finally, a “three-tier” system of alcohol distribution is a solution with which the producer (i.e., the manufacturer or supplier) sells their product to distributors who then sell to retailers. States that keep the three-tier system make warehousing and transportation more cost-effective for small producers like craft brewers, by requiring a third party to handle distribution. By strictly policing the separation of distribution from beer production, states can also prevent Anheuser-Busch and MillerCoors from using their influence over to distribution to muscle aside independent brewers.[37]

~

Notes

[1] “Most Americans Try to Eat Locally Grown Foods,” Megan Brennan, Gallup News, August 2018; “Concentration and Power in the Food System,” Phillip H. Howard, Bloomsbury Academic, February 2016; “Brands,” Dean Foods Website, Accessed February 7, 2020.

[2] “USDA ERS Projects Net Farm Income Decrease in 2018,” Andrew Jerome, National Farmers Union, February 2018.

[3] “Wall Street banks bailing on troubled U.S. Farmers,” P.J. Huffstutter, Jason Lange, Reuters, July 2019.

[4] “Food Dollar Series,” United States Department of Agriculture Economic Research Service, Accessed February 2020.

[5] “Global Seed Industry Changes Since 2013,” Philip H. Howard, Philhoward.net, December 2018.

[6] “A Fair Deal for Farmers: Raising Earnings and Rebalancing Power in Rural America,” Zoe Willingham and Andy Green, Center for American Progress, May 2019.

[7] “Top 5 broiler producers dominate US production,” Austin Alonzo, WattAgNet, June 2016.

[8] “Hearing entitled An Examination of the Small Business Administration’s 7(a) Loans to Poultry Farmers,” House Small Business Committee – Republicans, April 2018.

[9] “Concentration in US Labor Markets: Evidence From Online Vacancy Data,” Jose Azar, Ioana Marinescu, Marshall Steinbaum, and Bledi Taska, the National Bureau of Economic Research, March 2018.

[10] “How Widespread Is Labor Monopsony? Some New Results Suggest It’s Pervasive, Marshall Steinbaum, Roosevelt Institute, December 2017.

[11] Online and offline grocery market share of leading food retailers in the United States in 2017, Jan Conway, Statista, August 2019; Online and offline grocery market share of leading food retailers in the United States in 2017, Jan Conway, Statista, August 2019; “New Report: Walmart’s Monopolization of Local Grocery Markets,” Stacy Mitchell, Institute for Local Self-Reliance, June 2019; “Comment letter to Director of Federal Trade Commission Bureau of Competition Deborah Feinstein from Food and Water Watch, In re: Proposed Albertsons-Safeway Supermarket Merger,” Food and Water Watch, April 2014.

[12] “Consolidation in food retailing and dairy,” Mary Hendrickson, William Heffernan, Philip Howard, Judith Heffernan, British Food Journal, November 2001; “Buyer Power and Merger Analysis: The Need for Different Metrics,” Peter C. Carstensen, United States Department of Justice, February 2004. and “Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Workers’ Wages, 1978 to 2014,” Nathan Wilmers, American Sociological Review, March 2018; See also: “In Nebraska, fight over Costco chicken farm escalates,” Leah Douglas, FERN, September 2019. and “Does America Want Walmart Milking Its Cows?,” Arthur Delaney, Huffington Post, March 2019.

[13] “ILSR Submits Comments as Federal Trade Commission Embarks on a Rare Review of Its Antitrust Policy,” Zach Freed and Stacy Mitchell, Institute for Local Self-Reliance, August 2018.

[14] “Does Merger Control Work? A Retrospective on U.S. Enforcement Actions and Merger Outcomes,” John Kwoka, Antitrust Law Journal, November 2011. and “The Rise of Market Power and the Macroeconomic Implications,” Jan De Loecker, Jan Eeckhout, Gabriel Unger, National Bureau of Economic Research, August 2017.

[15] “Trump’s $16 billion farm bailout will make rich farmers richer, report says,” Laura Reiley, Washington Post, July 2019.; and “EWG Farm Subsidy Database,” Environmental Working Group, Accessed February 2020.

[16] “Subsidy Tracker: Industry Summary Page; Food Products,” Good Jobs First, Accessed February 2020.

[17] Unlike other types of goods, farmers are growing a product that perishes over time, making long-term storage impossible, thus exposing farmers to high levels of risk from overproduction.

[18] “Digging into the Farm Debate: Reviving New Deal Supply Management for the 21st Century,” Susan Holmberg, Roosevelt Institute, October 2019.

[19] “Subsidy Tracker: Industry Summary Page; Food Products,” Good Jobs First, Accessed February 2020.

[20] “Mercatus on Policy: Government Failure in the Farm Bill,” Michael D. Farren and Gregory J. Fitton, Mercatus Center, February 2018.

[21] “Total Direct Payments in the United States totaled $53 billion from 1995-2019,” Environmental Working Group, Accessed February 2020.

[22] “Warren and Sanders Think This Farm Policy Will Help Rural America Rebound. Does it Stand A Chance?,” Siena Chrisman, Civil Eats, August 2019.

[23] “Food has gotten cheaper — but at what cost?,” Tom Laskawy, Grist, June 2012.

[24] “The Economic Cost of Food Monopolies,” Food & Water Watch, November 2012.

[25] “The community effects of industrialized farming: Social science research and challenges to incorporate farming laws,” Linda Lobao and Curtis Stofferahn, Agriculture and Human Values, December 2007.

[26] “Subsidy Tracker: Industry Summary Page; Agribusiness,” Good Jobs First, Accessed February 2020.

[27] Ibid.

[28] “The farm industry is pushing for tighter right-to-farm laws across the country,” Leah Douglas, The Counter, April 2019.

[29] “Northeast Dairy Compact,” Institute for Local Self-Reliance, November 2008.

[30] “Foreign Control of U.S. Farmland has Recently Doubled, And the USDA Doesn’t Know Who Owns What,” Jonathan Hettinger, In These Times, September 2017; “Who really owns American farmland?,” Katy Keiffer, The Counter, July 2017; “Release: New Census Reveals Threat To The Future of Ag As Average Age of Farmers Continues to Rise,” Jessica Manly, National Young Farmers Coalition, April 2019; “Foreign Control of U.S. Farmland has Recently Doubled, And the USDA Doesn’t Know Who Owns What,” Jonathan Hettinger, In These Times, September 2017; “Regulation on foreign ownership of agricultural land: A state-by-state breakdown,” Erin McKinstry, the Midwest Center for Investigative Reporting, June 2017; “Regulation on foreign ownership of agricultural land: A state-by-state breakdown,” Erin McKinstry, the Midwest Center for Investigative Reporting, June 2017.

[31] “As farmers fight for the right to repair their tractors, an antitrust movement gains steam,” Jesse Hirsch, The Counter, April 2019. “Why Deere and Cat don’t want customers to do it themselves,” Claire Bushey, Crain’s Chicago Business, May 2019.

[32] “Right-to-repair bill appears headed for first time to floor of Minnesota House,” Neal St. Anthony, Star Tribune, March 2019.

[33] “Why are CAFOs bad?,” Sierra Club – Michigan Chapter, Accessed February 2020; “Farm Animal Confinement Bans by State,” ASPCA, Accessed February 2020; “Facts about North Carolina’s Animal Feeding Operations Program,” North Carolina Department of Environmental Quality, Accessed February 2020; “Farm Animal Confinement Bans by State,” ASPCA, Accessed February 2020; “Battle over animal confinements moves to Capitol,” Donnelle Eller, Des Moines Register, January 2018; “Oregon bills seek nation’s toughest dairy regulations,” Tracy Loew, Statesman Journal, December 2018.

[34] Federal Deposit Insurance Corporation Data on Bank and Credit Union Agricultural Loans, 1995-2018; “Farmers in Crisis Turn to High-Interest Loans as Banks Pull Back,” Jacob Bunge and Kirk Maltais, Wall Street Journal, November 2019; “Ag Loans,” Bank of North Dakota website, Accessed February 2020; “Maine Harvest website,” Maine Harvest Federal Credit Union, Accessed February 2020; “Distributors Slow To Embrace Local Food Movement,” Jay Field, National Public Radio, May 2010. “Small producers in state: Too few slaughterhouses,” Claire Williams, Arkansas Democrat Gazette, February 2016.

[35] “The Hidden War Over Grocery Shelf Space,” Phil Edwards, Vox, November 2017; “The Freshest Ideas Are in Small Grocery Stores,” Kim Severson, New York Times, July 2018; Affordable Space: How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It. Olivia LaVecchia and Stacy Mitchell, Institute for Local Self-Reliance, April 2016; When a deep red town’s only grocery closed, city hall opened its own store. Just don’t call it ‘socialism.’

[36] “Vermont Farm to Plate Website,” Vermont Farm to Plate, Accessed February 2020.

[37] “Open Markets Files Amicus Brief to US Supreme Court in Support of Petitioner in Tennessee Wine and Spirits Retailer Association v. Byrd,” Open Markets Institute, November 2018; “Craft Brewers Take Issue With AB InBev Distribution Plan,” Tripp Mickle, Wall Street Journal, December 2015; “Understanding the Three-Tier System: Its Impacts on U.S. Craft Beer and You,” Marc Sorini, CraftBeer.com, March 2017.