Sometimes the most intriguing parts of an issue are the things not discussed. So it is that the discussion of agribusiness concentration surrounding farmers today regularly fails to look at the past, or beyond U.S. borders, or even to other U.S. industries.
Implied is the idea that industrialization, consolidation and concentration is both new and unique to American agriculture—when, in fact, it is neither. Setting aside the debate over whether these trends are good or bad—and for whom—they are nonetheless being experienced around the world.
U.S. agriculture itself has been traveling this road for many decades. Farm advocates today are quick to point out that four firms control 70 percent of cattle slaughter. But as early as 1919, five packers (Armour, Wilson, Swift, Cudahy and Morris) controlled 60 percent of that market—ultimately leading to the Packers and Stockyard Act of 1921, which created fair trade practices.
There have always been concentrations in grain trading as well, and agribusiness becomes an easy target when the farm economy dips, according to Brian Buhr, a professor of applied economics at the University of Minnesota.
"What you will find hasn't changed since Will Cargill first got off the train in Cresco, Iowa," Buhr said. "When prices are low 'big agribusiness' is to blame. So, the intensity of the discussion is somewhat related to the general farm economy."
Not a farm island
Other countries are also seeing consolidation in food processing. Bill Wilson, professor of applied economics at North Dakota State University, has studied agricultural systems in 17 countries, including many in Central and South America. In a contest of who's more concentrated, "The other countries would be more concentrated than exists in our country," Wilson said.
Industrialization has put a premium on economies of scale, Wilson pointed out. The size and spending power of the U.S. market makes it possible for there to be many big companies. In other countries with smaller domestic markets, a smaller number of large companies are likely to have higher market share. In Mexico, for example, baking giant Grupo Industrial Bimbo holds 90 percent of the bread market, Wilson said.
Similar trends are evident in Canada, where farmers in Manitoba, Saskatchewan and Alberta there face a virtual oligopsony in grain handling, with the largest four firms holding 90 percent of that market, according to research by the Organization for Western Economic Cooperation in Canada. The country has also seen the number of flour milling plants—and the firms that controlled them—fall by 30 percent from 1974 to 1990.
Canada raises about the same number of cattle as the states of Minnesota and South Dakota combined. Since just 1992, the number of beef packing plants has dropped by 30 percent (61 to 43 plants), according to Canadian government statistics. Not surprisingly, market concentration has followed, with the top four companies capturing 75 percent of the market in 1998, up from 53 percent just six years earlier.
At the regional level, the province of Alberta produces about 70 percent of all cattle in Canada, according to Anne Dunford, senior analyst with CanFax, a division of the Canadian Cattlemen's Association that provides market information to cattlemen. Alberta has undergone a "huge consolidation," and now has just three packing plants (two of which are American owned), compared with 13 plants in the 1980s, she said.
The Canadian pork industry has seen less consolidation this decade, but is similar to its U.S. counterpart. Market share for the top four Canadian companies has remained steady at about 55 percent of the slaughter market, with the top eight firms grabbing about a 75 percent market share.
Similar concentration in pork processing occurs in Europe as well, according to University of Missouri researcher Maury Bredahl, who spent the past year in England.
Bredahl found that pig slaughter by the top two and top five firms was higher in the United States compared with France, Canada and the Netherlands, but each had a top-five firm concentration of 50 percent or more, with France reaching 61 percent compared to 68 percent in the United States. Compare that to Denmark, a major pork exporter, where the top two firms capture 70 percent of the national market, and the top five firms capture 95 percent.
The biggest difference is the scale of U.S. production, Bredahl said, where annual production by pork giant Smithfield alone equals the entire national pork production of other countries.
Bredahl also pointed out that pork prices have been poor overseas as well, and actually declined more in England last year than they did in the United States. Like in the United States, there was a public outcry over low pork prices. But in England it focused on concentration at the retail level—supermarkets—rather than at the packing level.
In the global discussion over low pork prices, "You picked out wherever [the food chain] was concentrated and said, 'These are the bad guys,'" Bredahl said, "when in reality you have too many pigs."
Consolidation is rolling through meatpacking industries in much of the United Kingdom and the European Union, and larger companies are becoming bigger through both acquisition and expansion, according Chris Harris, editor of Meat Processing International and Procesamiento de Carne. Part of this push stems from excess capacity and tougher hygiene regulations from the European Commission. "The U.K., for example, is suffering from almost 45 percent overcapacity, and consolidation of the industry is the only way forward," Harris said.
There is similar overcapacity in continental Europe, Harris said, "and large and medium-sized slaughterers and processors are joining forces" to become more efficient.
With more multinational firms present in the European market, there has also been "a marked change in retailing practices from small, localized butchers' shops to large supermarket chains," which tend to enter into contracts with only large slaughtering businesses, she said.
The same, but different
Despite the increased concentration, Canadian farmers don't appear to be blaming corporations for their woes, or pushing to stop further consolidation.
Errol Anderson helps Canadian farmers manage risk as president of ProMarket Communication in Calgary. When asked if farmers there complained of high concentration of grain handlers and millers, Anderson said there is not a lot of scapegoating of corporations in Canada.
"I don't hear that here at all. They [food processors] have to compete in a world market," Anderson said. "The Canadian farmer looks at [low prices] as a world glut."
Similarly, ranchers have not fixated on the low number of provincial packers, according to Dunford. With a free-trade border, ranchers have access to three or four additional packers in Washington and Colorado.
"Producers here understand the need for open markets. You could almost erase that line (48th parallel)," Dunford said, but admitted that "a further loss (of packers) would put us in a pickle."
Martin Rice, president of the Canadian Pork Council, said a lot of Canadian pig farmers have "grudgingly accepted" the concentration of buyers. "Packers are competing in a world marketplace," and farmers understand that, Rice said. Producers have also been known to "to travel a long way to show packers they are willing to look for a (good) market," Rice said.
It wasn't long ago, Rice said, that one out of five pigs was being shipped to the United States because prices were low at inefficient Canadian packing plants. Consolidation, and the productivity improvements in scale and efficiency that come with it, has allowed remaining plants to pay more competitive prices. As a result, Canadian farmers are now processing almost all hogs in their home country, Rice said.
"There has been an upside to (concentration)," Rice said. "Many here in Canada view it as more desirable to have a few internationally competitive processors rather than many smaller, but non-competitive firms bidding for hogs."
