Obama and Congress Must Protect Family Farmers

Food processing markets must be made competitive so independent farmers have a chance to succeed.

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On Thanksgiving, millions of Americans will look with pride on their dinner table, grateful for the feast they have been able to provide. Hopefully they will take a few moments to thank the American family farmer whose boundless and tireless efforts provided this great sustenance. America's farmers provide not only for millions of Americans but countless citizens across the world.

The story that goes untold is how little independent farmers actually receive for producing this bounty.  For example, for the gallon of milk which costs $4.19, a farmer receives only $1.81. For a five pound bag of flour retailing for $3.09, farmers receive only $1.00. A pound of top sirloin steak, sold for $8.49, only nets a farmer about $1.95.

Although food prices have increased significantly over the past several years, the family farmer is receiving less and less of the American food dollar: The overall share farmers receive of each dollar spent has dropped considerably, from 40.9 cents in 1950 to only 15.8 cents today. Why is this the case?  [See a collection of political cartoons on the economy.]

The answer is a lack of robust competition in agricultural processing. There is no lack of competition in production—practically every agriculture market from an economic perspective is the model of a competitive market with hundreds, if not thousands, of producers (farmers) competing to provide the highest quality food at the lowest cost. But farmers are continually squeezed by the uncompetitive markets around them. While markets for many farming supplies like seeds and feed are mildly competitive at best, the real competitive bottlenecks are the food processors, the intermediaries in the production market. A recent study demonstrated that each of the food processing markets has become increasingly consolidated in recent years. The number of firms essentially controlling the market has dwindled to four in several key industries, including beef packing, where the top four companies control over 82 percent of the market, soybean processing (85 percent), pork packing (63 percent), and chicken processing (53 percent). And most local markets (a far better barometer of competition from the farmer's perspective) are far more concentrated, with less than a handful of companies doing business in a particular region. Farmers have to sell their goods to processors, and with only one or two choices of buyers, the processors have an immense amount of power over the producers, leading to a dangerously unhealthy market.

What is the result of the increasing concentration in food processing? Higher prices for consumers, lower quality products, and lower and lower returns for farmers, many of whom are forced to go into deep debt to acquire the latest equipment if they want to continue as a supplier. No wonder the state of the family farmer is so dire.

[See a collection of political cartoons on energy policy.]

Over 120 years ago, one of the primary motivations behind the enactment of the first major antitrust law was protecting the family farmer from food processing trusts. Unfortunately for family farmers, the once robust regulatory regime grew rusty from disuse over the last century, as antitrust enforcers increasingly drew faith from the concept that markets were self-correcting and that processor buying power would ultimately benefit consumers through lower prices, with little thought to the welfare of producers. Nothing could be further from the truth. And agricultural processors entered into an antitrust "safety zone" as the Department of Justice brought no antitrust enforcement actions for several years.

Encouragingly, competition cops at the Antitrust Division of the Justice Department partnered with the U.S. Department of Agriculture at the start of the Obama administration in 2009 to begin to grapple with these issues. Typically enforcers wait until problems knock on their door in Washington, but the new Obama antitrust team recognized that this approach would be wholly inadequate to deal with the worsening conditions for family farmers. Instead, the Feds went into the field, holding public hearings in Iowa, Colorado, Alabama, and Wisconsin for farmers to tell their stories and voice their concerns. Agriculture Secretary Tom Vilsack and Attorney General Eric Holder attended each hearing, and key officials at the Antitrust Division and the USDA played an integral role. Thousands of farmers attended these hearings, many spoke, and hundreds more filed comments.

At the end of the process, the results were rather incomplete, like a half-made pumpkin pie. (For a thoughtful and detailed summary, see Lina Khan's article " Obama's Game of Chicken"). From the antitrust side, the division restarted an almost nonexistent enforcement program. They brought the first challenge to a milk processing merger in almost two decades and secured significant relief. In another case, they challenged a chicken processing merger in which the merged firm would clearly dominate an important processing market. [Read the U.S. News Debate: Should Congress Pass the Farm Bill?]

Despite these encouraging enforcement actions, the Division stopped short of bringing cases against ongoing anticompetitive conduct in the markets. The final outcome of the joint field hearings was a report concluding that there were competitive problems, but many of the problems could not be attacked by the current antitrust laws. While the Antitrust Division is certainly more engaged and educated on agricultural issues than any administration in the last few decades, that heightened attention has yet to result in actions that help the farmer's pocketbook.

The Department of Agriculture has been somewhat more active, but has also faced significant obstacles from massive lobbying forces led by well-funded processors. The USDA has a special tool in the Packers and Stockyards Act, which empowers the department to prohibit various forms of unfair conduct against farmers through its enforcement agency, the Grain Inspection, Packers and Stockyards Administration. Following congressional encouragement in the 2008 Farm Bill to revise and clarify issues with the Packers and Stockyards Act, the department moved to strengthen the agency's powers and offer new protections to independent farmers. Unsurprisingly, the well-oiled lobbying machine of the agriculture monopolies sprung into action to oppose the new regulations, spreading talking points with dubious claims about potential revenue and job losses in the processing industry. Even though thousands of farmers traveled to Washington to advocate on behalf of the new regulations, the USDA began to back away from the proposals after several adversarial congressional hearings in which Republicans (and some Democrats) forcefully opposed the new rules.

[See a collection of political cartoons on Congress.]

The Republican takeover of the House of Representatives in the 2010 elections only worsened the chances of reform: In a major blow, the new House Appropriations Committee included a crucial rider in its June 2011 funding bill to strip the USDA of the funds it needed to finalize and implement even the watered down remnants of the original proposals.

Now that the election results are in, officials throughout the Obama administration are trying to determine what to do with the president's second term. For the Antitrust Division and the USDA, there's a tremendous amount of unfinished business to take care of. Food processing markets are still egregiously anticompetitive, and food prices continue to rise while independent farmers are squeezed more and more and making less and less. Over the next four years, the Obama administration and Congress should be emboldened, not intimidated, by opposition from the processing monopolies, and work to enact smart reforms and bring enforcement cases that will restore competition and make the markets work for family farmers and consumers. Let's focus all of our antitrust and regulatory tools to protect the family farmer. Then we will really have something to be thankful for.

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