Food industry investigation unwarranted

By Michael Sykuta

Why is the U.S. Department of Justice launching an antitrust investigation against some of the U.S. food system's major players at a time when Americans are enjoying a widening array of food choices and spending less and less of their disposable income to do so?

In November, lawyers in the department's Antitrust Division began preparing an “unprecedented” series of workshops to explore whether federal legal action is needed to offset ongoing consolidation in such major agriculture sectors as dairy, meatpacking, poultry and seed. The workshops - jointly sponsored by Justice and the Department of Agriculture - will be held between March and December at various locations around the country.

Likely targets include such familiar names as Dean Foods, Kraft and Land O'Lakes in the dairy sector; ADM and Cargill in grains; Tyson's and Pilgrim's Pride in poultry and meatpacking; and Monsanto and Syngenta in seed.

The ostensible motivation for a new probe lies in the undeniable fact that every stage of the U.S. agricultural sector has witnessed increased concentration over the past two decades - largely because of mergers and acquisitions.

From the production of seeds to farming to meat processing to supermarkets, fewer businesses are responsible for producing an increasing share of the total value of the food on American tables.

Although the agriculture sector has become more consolidated, the resulting increased efficiencies of the food chain actually have lowered prices for consumers. According to the USDA's reports, the share of disposable income that families and individuals spend on food has been falling - not rising - over the two decades that the ag sector has been consolidating.

Consider: In 1988, consumers spent 12.5 percent of their disposable income on food. By 2008, that figure had dropped to roughly 11.6 percent, despite the fact that 2008 witnessed the largest increase in food prices - roughly 5.5 percent-since 1990, a jump driven primarily by increases in fuel and agricultural commodity prices.

Meanwhile, the issues the Justice Department and USDA plan to take up in their workshops already have been addressed by the independent Government Accountability Office.

The GAO's June 2008 report took a thorough look at trends in concentration for various levels of the food marketing chain in major agricultural sectors, retail food expenditures and prices, and the prices farmers received for major agricultural commodities. The GAO's finding: There is no evidence that increased concentration has led to any “adverse affects on commodity or food prices.”

Given the GAO research, one has to wonder why the Obama administration is embarking on a costly town hall-style antitrust investigation and whether any meaningful understanding of the industry will result from such populist forums. It seems likely that political pressures have more to do with Washington's interest in ideologically based economics than concern for consumers or business competition.

Supplanting sound economic and regulatory decisions with political grandstanding could have far-reaching consequences not only for U.S. agribusinesses but also for consumers and farmers.

Unjustifiable efforts to use the blunt regulatory apparatus of antitrust laws to second-guess successful firms' business decisions - especially when instigated by competitors - always have been suspect and detrimental to economic and technological progress.

And in this essential sector of the economy in particular, unwarranted investigation and fear of enforcement could slow future investment in agricultural research and in the spread of agricultural technologies that can improve global health and well-being through increased productivity and reduced environmental impact.

At a time when the government is desperately seeking to stimulate our weakened economy, one must wonder why the administration is launching a costly, discouraging and ill-conceived investigation into one of the economy's most successful sectors.

Michael Sykuta is an associate professor in the College of Agriculture, Food and Natural Resources at the University of Missouri at Columbia and Director of the Contracting and Organizations Research Institute. Contact him at sykutam@missouri.edu