Testimony of
Leland Swenson
President
National Farmers union
regarding
agricultural concentration
presented to the
Senate Agriculture Committee
January 26, 1999
Testimony of Leland Swenson, President of the National Farmers Union, presented to the Senate Agriculture Committee on January 26, 1999
Thank you, Chairman Lugar, for calling today's hearing to examine the impacts of agricultural concentration. It is critical that Congress collects the best available information on a subject that will be the controlling force in the future structure and direction of U.S. agriculture, as well as the global food and fiber supply. I serve as president of the National Farmers Union and I appear before you on behalf of the nearly 300,000 farm families who comprise our membership.
It the behest of National Farmers Union, Dr. William Heffernan of the University of Missouri, together with his associates Robert Gronski and Mary Hendrickson, are preparing a study to show how corporate acquisitions and alliances have developed a system of corporations which are linked in many ways to control our food and fiber system. While these connections have profited corporate shareholders, they have severely reduced market competition, to the detriment of our nation's producers, and ultimately to the detriment of consumers.
Today I would like to bring three items to the committee's attention:
1. Merger mania is occurring at an alarming rate, resulting in corporations creating their own "world wide web". This web impacts production inputs, local commodity market opportunities, processing, retailing and the global trading structure and opportunities. The web decreases the ability of producers to receive a fair return, and reduces the opportunity for communities to benefit from the goods they produce.
2. The pending acquisition of Continental's grain division by Cargill will further concentration both within the United States and on the global market. There is evidence that indicates concentration at the global level even exceeds concentration within the United States.
3. Without action by Congress and the administration to help halt and reverse market concentration, levels of concentration will continue to grow.
Merger Mania
An examination of who controls the meat and grain industry will show that concentration levels within each commodity are high, and that many of the same corporations control several different commodities.
Figures for meat processing reveal a stark picture for competition:
§ Four of every five beef cattle are slaughtered by the four largest firms; the firms include IBP, Inc; ConAgra Beef; Excel (owned by Cargill); and Farmland National Beef. (See Chart I.)
§ Three of every four sheep are processed by the four largest firms; the top four include ConAgra; Superior Packing; High Country; and Denver Lamb;
§ Three of every five hogs are slaughtered by the four largest firms; the top four include Murphy Family Farms; Carroll's Foods; Continental Grain; and Smithfield Foods. (See Chart II.)
§ Half of all broilers (chickens produced for meat) are slaughtered by the largest four firms; the six largest firms include Tyson Foods; Gold Kist; Perdue Farms; Pilgrim's Pride; ConAgra Poultry; and Wayne (owned by Continental Grain).
A review of the top cattle feedlots shows further overlap: Continental Grain Cattle Feeding has the largest capacity, followed by Cactus Feeders Inc., ConAgra Cattle Feeding; National Farms Inc.; and Caprock Industries (owned by Cargill).
In the grain sector, 57-76 percent of the corn, wheat, and soybeans is processed by the four largest firms. (See Table I.) In the United States, the four largest firms (Cargill, ADM, Continental Grain, and Bunge) have 24 percent of the elevator capacity and 39 percent of the facilities. Furthermore, data suggest that those four firms control almost 60 percent of the port facilities.
Impacts of Concentration
1. Producers lose the ability to earn a reasonable return on their investment when market competition disappears. Consequently, the producers' share of the retail dollar has gotten smaller and smaller. No where has this been better illustrated than in the pork industry. This winter, as pork prices continued to drop, there was a very small decline at the retail level, and while producer prices fell below $10.00 per cwt., IBP posted 4th quarter earnings that were quadruple their last year's level. We believe lack of competition has been a key factor in widening the gap in the producer - retail price spread, resulting in an ever smaller share of the consumer dollar going back to the actual producer.
2. Remaining companies increase market share and political power to the point of controlling the governments that once regulated the companies. The companies have benefited in many ways. Some of the largest corporations have gotten tax breaks or other government-incentives (unavailable to the average business person) in order to build and operate plants within a community. Yet, once the tax benefit is gone, the company has relocated the plant to another area of the country. Corporate interests have also called on the government to weaken environmental standards and immigrant labor protections in order to allow them to reduce production costs. It is time to look at who benefits and who loses. In too many instances, the residents of the communities that have compromised their standards pay a high price in loss of quality of life.
3. Companies that dominant several different industries can afford to operate at a loss in one area in order to eliminate the competition. Once the competition is gone, the company is able to earn higher returns and then subsidize another operation to repeat the process in another industry.
4. Multinational corporations take their profits out of the communities in which they were earned, unlike locally owned farms and businesses.
5. Multinational corporations can use their ability to control supplies in more than one country as an opportunity to drive down price, to the detriment of the producers in both countries. An example of this occurred 18 months ago when Cargill announced its intention to purchase soybeans from Brazil for processing in the United States. The price to American producers immediately dropped, before any actual purchases occurred.
6. Producers are particularly vulnerable to currency fluctuations. When Brazil floated the real last week, U.S. producers immediately saw lower soybean prices. Multinational corporations, such as Bunge, which operates both in the United States and Brazil are able to take advantage of these occurrences, with no protection for producers.
7. As corporations increasingly control the market, they dictate the conditions their suppliers must meet without having to guarantee service as to their own actions. Concentration within the transportation and grain sectors has resulted in strict requirements being placed on local delivery points for grain. The elevators that used producer money to build facilities for 50 unit trains, are now being required to build facilities for 100 unit trains. They are also being required to bid for cars, take them whenever they arrive, and have them ready for pick up or face fines for not being ready. However, the rail companies give no guarantee that the cars will be delivered or picked up on time.
Merger mania is rampant, and yet, often difficult to see. The food industry provides an excellent example. When the average consumer goes into a grocery store, it appears there are many brands from which to choose. Yet, once one is able to connect the corporate dots, it is apparent that many of the choices are owned by Philip Morris, ConAgra, or Cargill. The same type of concentration is true at the processing level. Many predict that we will soon have a system where three or four companies control the food and fiber system at every level, from the seed supply until the time it reaches the consumer.
Cargill / Continental Grain Merger Concerns
In November of 1998, Cargill announced its intention to purchase Continental Grains. National Farmers Union and several key members of Congress sounded a warning and called on the government to examine the impacts of the merger before allowing the merger to move forward. Agriculture Secretary Glickman also called for careful scrutiny of the merger and the Justice Department is currently in the process of investigating the merger.
In letters to President Clinton, the Department of Justice and members of Congress, National Farmers Union enumerated several concerns, regarding the erosion of competition caused by the merger, at the local elevator level, the regional terminal level, and the exporting level.
Grainnet reports that the Cargill acquisition of Continental Grain would mean that Cargill would control more than 40 percent of all U.S. corn exports, a third of all soybean exports, and at least 20 percent of wheat exports (Grainnet, 12/1998). It is critical to make an assessment of the export concentration impact on price.
In addition to the analysis of the merger's impact on price, we believe there should be a moratorium on all agricultural mergers until there is a comprehensive study on the economic impact of mergers on farm income. Further, each merger proposal should contain an economic impact statement that shows projected impact on net farm income.
A study team consisting of members from Iowa State University, Oklahoma State University, and North Dakota State University, gathered information from Cargill, as well of the Chicago Board of Trade, regarding the merger's likely impact. Their preliminary findings cite some areas of concern:
1. The merger will significantly add to the level of concentration in the upper Illinois River area, which are the key delivery points for Chicago Board of Trade contracts.
2. The merger will significantly increase Cargill's share of the grain export market.
3. While the merger may have a small impact on overall U.S. storage, it could have a big impact at specific terminals, including those in the Louisiana and Texas Gulf port areas.
We believe there are additional concerns, including the impact on the global market. Dr. Heffernan points out that we should be very concerned about the merger's impact on global concentration, which may even exceed U.S. concentration levels.
The New York Times has reported that Cargill controls 25 percent of grain exports, while Continental controls 20 percent. The merger would give Cargill 45 percent of the global grain trade. With ADM controlling about 30 percent of the global grain trade, the merger would result in two firms handling three-fourths of the grain that moves in the international arena. And, whether one argues that the United States is a price-setter, such as for corn, or a price-taker, such as for wheat, prices in 1998 prove that a depressed world price has severe negative consequences for U.S. producers.
Admittedly, it is very difficult if not impossible to make an accurate assessment of all the players at the international level. The task becomes even more complicated as one starts to examine all the alliances between corporate entities. This is the very reason Congress should act to collect the information necessary to get an accurate picture.
Congressional Action
There are many things Congress can do. As a country, we need accurate information, as well as laws that increase the fairness of our markets and prohibit anti-competitive behavior. We believe the following actions provide a good place to start:
1. Moratorium - There should be a moratorium on any further mergers until there is an impact study on farm income.
2. Alliances and Marketing Agreements - Examine the relationships between corporations, corporations and cooperatives, and cooperatives with other cooperatives. Are the entities linked by an alliance or marketing agreement that works to eliminate or reduce competition? The formation of such alliances and agreements should be subject to anti-trust action and considered during anti-trust investigations. In the case of the Cargill acquisition of Continental Grains, members of Congress should encourage the Justice Department to examine whether Cargill has an alliance with any of the companies which are being considered as competitors in the grain market.
3. Law and Funding - Congress should consider whether existing law, as well as the level of appropriations, give the Justice Department and the Federal Trade Commission adequate authority and financial resources to halt mergers which diminish market competition. If the law is inadequate to address concentration, Congress should establish a percentage of concentration that automatically triggers anti-trust action.
4. Repeal Study/Investigation - Repeal the 18-month study/investigation of price reporting, which actually immediate implementation of price reporting.
5. Price Reporting - Congress should adopt mandatory price reporting, which improves the producers ability to earn a fair return on their commodities through timely and accurate market information.
6. Labeling - Congress should adopt country of origin labeling laws, which increase consumers' ability to voice their preferences in the market place.
Mr. Chairman, no one has been a stronger advocate of expanding our markets than you have. Yet, the current level of merger mania is the biggest deterrent to the producers' ability to earn a profit in those markets. Without action on concentration and an adequate safety net, producers will suffer. We are very appreciative of your call for this hearing. We look forward to working with you and the other members of the committee to develop action to allow producers and consumers to regain their access to fair competitive markets.
CONCENTRATION OF AGRICULTURAL MARKETS
January 1999
William Heffernan, Robert Gronski, Mary Hendrickson
Department of Rural Sociology -- University of Missouri
Columbia, MO 65211 (573)882-4563
e-mail: HeffernanW@missouri.edu
"CR4" is the concentration ratio (relative to 100%) of the top four firms in a specific food industry. Fifth and sixth top companies are occasionally shown as supplemental information.
BEEF PACKERS [CR4 = 79%]* Capacity/Day* | Plants* 1990 1995 1998
1. I B P Inc. 38,800 13 72% 76% 79%
2. ConAgra Beef Companies 23,600 8
3. Excel Corporation (Cargill) 21,800 5
4. Farmland National Beef Pkg. Co. 8,700 2
5. Packerland Packing Co. 4,750 3 CR5 = 83%
Source: *Beef Today (Nov-Dec 1998)
CATTLE FEEDLOTS* Head Office Capacity / Feedlots
1. Continental Grain Cattle Feeding Boulder, CO 405,000 / 6 lots
2. Cactus Feeders Inc. Amarillo, TX 350,000 / 6 lots
3. ConAgra Cattle Feeding Greeley, CO 320,000 / 4 lots
4. National Farms Inc. Kansas City, MO 274,000 / 7 lots
5. Caprock Industries (Cargill) Amarillo, TX 263,000 / 4 lots
Source: *Beef Today (Nov-Dec 1998)
NOTE: At end of 1998, the top 30 operations had pen space to feed 4.89 million head of cattle.
PORK PACKERS [CR4 = 57%]* 1987 1989 1990 1992**
1. Smithfield (Gwaltney, Cudahy, Morrell, Lykes) 37% 34% 40% 44%
2. IBP Inc.
3. ConAgra (Swift) **Packers & Stockyards Programs
4. Cargill (Excel) GIPSA, USDA; February, 1996
5. Farmland Industries
6. Hormel Foods CR6 = 75% (NYTimes, 1/7/99)
Source: *National Hog Farmer (March 1998)
# of Sows
PORK PRODUCTION In 1998* Production Base
1. Murphy Family Farms 337,000 NC, MO, OK, IL
2. Carroll's Foods 183,600 NC, VA, IA, UT
3. Continental Grain (inc. PSF) 162,000 MO, NC, TX
4. Smithfield Foods 152,000 NC, VA, UT
5. Seaboard Corporation 125,500 KS, CO, OK
NOTE: The 50 largest producers (assuming their sows each produce 20 pigs a year)
market half of the pigs in the U.S.
Source: *Successful Farming (October 1998)
BROILERS [CR4 = 49%]* *Weekly Production (mil.lb) CR4
1990 1995 1998 *1986 1990 1994 1998
1. Tyson Foods 74 90 155 35% 44% 46% 49%
2. Gold Kist 24 45 55
3. Perdue Farms 24 42 47
4. Pilgrim's Pride 16 25 35
5. ConAgra Poultry 32 35 30
6. Wayne (Continental Grain) 11 20 25 CR6 = 58%
Sources: *Feedstuffs (Annual Reference Issues)
TURKEYS [CR4 = 42%]* Million lbs live *1988 1990 1992 1994 1996
1. Jennie-O Turkeys 891 31% 33% 35% 38% 40%
2. Butterball (ConAgra) 846
3. Wampler Turkeys 650
4. Cargill Turkeys 514
5. Shady Brook (Rocco) 489 Sources: *Turkey World (Jan-Feb issues)
ANIMAL FEED PLANTS
1. Cargill (Nutrena)
2. Purina Mills (Koch Industries)
3. Central Soya
4. Consolidated Nutrition (ADM + AGP) Sources: Feedstuffs, 10/28/91 and 2/21/94
MULTIPLE ELEVATOR COMPANIES [CR4 = 24%]* Control by Top Four:
1. Cargill Capacity in Bushels = 24%
2. ADM (ADM Milling Co.) Number of Facilities = 39%
3. Continental Grain Port Facilities = 59%
4. Bunge
Source: *1997 Grain & Milling Annual (Milling & Baking News)
FLOUR MILLING [CR4 = 62%]* Mills | Daily Capacity
1. ADM Milling Co 30 311,300 cwts **1982 1987 1990
2. ConAgra, Inc. 29 264,900 cwts 40% 44% 61%
3. Cargill Food Flour Milling 18 223,000 cwts
4. Cereal Food Processors, Inc. 9 82,900 cwts
Sources: *1997 Grain & Milling Annual; **Milling & Baking News, 12/1/92
DRY CORN MILLING [CR4 = 57%] Plants | 24hr. Grind
1. Bunge (Lauhoff Grain) 2 120,000
2. Cargill (Illinois Cereal Mills) 2 95,000
3. ADM (Krause Milling) 2 70,000
4. ConAgra (Lincoln Grain) 3 52,000
5. Quaker Oats 3 45,000
Sources: Corn: Chemistry & Technology (1989)
WET CORN MILLING [CR4 = 74%]* Plants
1. ADM 4 1977 1982 1987
2. Cargill 4 63% 74% 74%
3. A.E. Staley (Tate and Lyle) 4 (Census of Manufacturing)
4. CPC 3
Source: *Milling & Baking News, 1990 Milling Directory
SOYBEAN CRUSHING [CR4 = 80%]*
Plants/States
1. ADM 19 12 1977 1982 1987
2. Cargill 16 12 54% 61% 71%
3. Bunge 8 5 (Census of Manufacturing)
4. AGP 6 3
Source: *Feedstuffs (9/22/97)
ETHANOL PRODUCTION [CR4 = 67%]*
*mil.gal/year locations
1. ADM 750 IA, IL, ND
2. Williams Energy Services 130 IL, NE
3. Minnesota Corn Processors 110 MN, NE
4. Midwest Grain Products 108 IL, KS
5. Cargill 100 IA, NE
Source: *www.ethanolrfa.org/prodcap.html
Diversification by Top Agriculture/Food Firms
· ADM: Among top four in flour milling, dry corn milling, wet corn milling,
soybean crushing, ethanol production, animal
feed plants and multiple grain elevators
· Cargill: Among top four in cattle feeding, beef packing, pork packing, animal feed
plants, multiple grain elevators, grain exports, flour
milling, dry corn milling, wet corn milling and soybean
crushing. Currently number five in pork production,
turkey processing and ethanol production.
· ConAgra: Among top four in cattle feeding, beef packing, pork packing, turkeys,
sheep slaughter, flour milling and dry corn milling.
Currently number five in broilers.
· Continental Grain: Among top four in cattle feeding, pork production, multiple grain
elevators and grain exports.
Corporate Statements to Meeting Needs of Producers and Consumers
Archer Daniels Midland: ADM refers to itself as the preeminent grain export merchant with the capacity of one billion bushels for export. As stated in one of their promotional booklets, "ADM complements its own resources with a worldwide network of affiliates engaged in processing, transportation, storage and sales. This network enables us to effectively link farmers and food manufacturers throughout the world."
Cargill: One of the basic beliefs of this company is: "Seeking to win in an open, level playing field" (www.cargill.com). This largest of all U.S. private companies states their corporate vision as: "To raise living standards around the world by delivering increased value to producers and consumers."
ConAgra: "Our mission is to increase stockholders' wealth. Our job is to help feed people better." ConAgra follows a 20-14 formula in their corporate financial goals: 20% after-tax return on cash available and 14% annual growth in earnings per share.
Continental Grain: Following its name change to ContiGroup, this company "will continue to integrated further up the food chain to obtain a greater share of the added-value portion of the business. Our acquisitions of Premium Standard Farms, the Campbell's Soup poultry operation, and Ducktrap River Farms demonstrate the direction we're taking and will continue through acquisitions, investments and strategic partnerships." (CEO Paul Fribourg's letter to employees)