Transcript Slide 1

Consolidation in the Food
System: Consequences for
Agricultural Sustainability
Ecological Agriculture Program
November 4, 2003
Chad Kruger
Consolidation: Definitions
• CR4 – concentration ratio of top 4 firms in a
specific industry
• Food systems clusters – describes the
structural nature of consolidated firms
• Seed to shelf – “life cycle” integration concept
• Vertical integration – consolidation “up the food
chain”
• Horizontal integration – consolidation across
food industries
• Globalization – international consolidation
Consolidation in the Food System
Source for the following tables:
CONCENTRATION OF AGRICULTURAL MARKETS
February, 2002
Mary Hendrickson and William Heffernan
Department of Rural Sociology -- University of Missouri
Columbia, MO 65211 (573)882-4563
e-mail: [email protected]
email: [email protected]
Consolidation: So what does this mean?
• General comments:
– Problems with the data???
– This may be the most critical issue facing our food
and agricultural system – because this issue is what
is dictating most of the other changes we see in
agriculture.
– I urge caution in “passing judgment” against these
companies . . . these firms are concerned with their
own survival – and are not necessarily consolidating
with malicious intent.
Consolidation: So what does this mean?
•
Lost competition
–
–
If the CR4 controls at least 40% of the market in a
specific industry, than they effectively control the
market without insider collaboration. They are able
to watch each other’s movement and adapt as
needed.
We’ve already had several examples of failed
consolidated agriculture and food systems in the
Soviet and Chinese collectives – the type of
command and control system that looks very similar
to current consolidation trends in the US.
Consolidation: So what does this mean?
•
Changes in Farm Structure:
–
–
–
What will the farm unit look like that can
service the high-volume, low-price,
contracts required by a consolidated food
system?
What about changes in the “family” structure
of agriculture -- and the consequences of
that for our rural communities (consider the
nature of broiler production)
Do we even need farmers in the US?
Agriculture of the Middle
So now that we have looked at some of the
data related to integration in the food
system, and considered some of the
consequences consolidation might have
on farm structure – let’s look at some of
the data on farm structure.
Agriculture of the Middle
Source for the following tables:
Why Worry About the Agriculture of the Middle?
A White Paper for the Agriculture of the Middle Project
This white paper is a work in progress. It was begun largely by Fred
Kirschenmann, Steve Stevenson, Fred Buttel, Tom Lyson and Mike Duffy.
But what they produced here is only a starting point and we
invite everyone involved in this process to offer additional information, propose
deletions or alternatives, or suggest rewrites.
Please send your suggestions to Steve Stevenson at
<[email protected]> or Fred Kirschenmann at
<[email protected]>.
www.agofthemiddle.org
Ag of the Middle: Why Care?
• “If two or three farmers can produce all of
the food and fiber we need, who cares? In
fact, if robots can do it who cares?” – Official in
the Office of Management and Budget
• We expect more from our farmers than the
production of food and fiber – the multiple
benefits of agriculture (soil and water
protection, biodiversity, community
stability, the landed democracy, etc.)
Ag of the Middle: Why Care?
“The central question still facing us is
whether we can reasonably expect
farmers to provide these public services
within the framework of the current
[consolidated] structure of the food and
agriculture system we have developed.”
Kirschenmann, et.al.
Ag of the Middle: Key issues
• Scale–related market structure
phenomenon – Mostly “mid-scale” farms
that fall between the small, direct-market
farms and the consolidated, contract farms.
• Over 80% of farmland is still managed by
“mid-scale” family farms – whom generally
consider more than profit margin in farm
decision making.
Ag of the Middle: Key issues
• Loss of independent decision making.
Family-unit farms tend to make decisions
based at least in part on impact to
neighbors, rural communities, and their
children (the future farmers on the given
land).
• Loss of potential diversity and risk protection of many individual farms.
Ag of the Middle: What to do?
• The “story of food” (Cluetrain). Market analysis
has shown that many (25%) consumers are willing
to pay a premium to purchase food in a
“relationship” with the producer.
• We need to develop the supply chains that will
make this “relationship-based” food system work.
•We need to support public research / education
in production systems, market structures, and
policies that support this new food system.
Ag of the Middle: Why Care?
“We have now reached a critical juncture. This is
not just about farm numbers or ‘saving the family
farm’. The decline in farm populations. . .will
dramatically change the very landscape of rural
America, jeopardize the future productive
capacity of the land, and by extension, threaten
our food security and the health of urban
communities.” Kirschenmann, et.al.
Globalization: Why Trade?
We’ve had a variety of issues presented in
class in the last couple of weeks that beg the
question of what the purpose of trade is in
agriculture, (WTO presentation, Whidbey field
trip, Kemmis book).
Since trade is so closely related to
consolidation and globalization, this is a good
opportunity to look at some of the basic
definitions and arguments related to trade.
Globalization: Why Trade?
• World Context:
– Balance of payments (related to debt) -- a summary
statement of a nation’s financial transactions with the
outside world. Surpluses and deficits.
– Elasticities of Demand -Manufactured goods vs.
commodities
– Macro-economic instability – inflation, etc. devalues
currency – makes it worth less relative to other
currencies.
– Foreign exchange - debt has to be serviced with
foreign exchange that is more stable – US dollars,
Euros
Globalization: Why Trade?
Comparative Advantage:
–
A country has a comparative advantage over
another if in producing a commodity it can do
so at a relatively lower opportunity cost in
terms of the forgone alternative commodities
that could be produced.
Globalization: Why Trade?
Export promotion (trade agreements):
•
Efficiency of production (based upon comparative advantage)
provides goods for consumption at a lower relative cost than
internal production.
•
Trade agreements are designed to reduce barriers (usually tariffs
and quotas) that enable goods produced with comparative
advantage to be exchanged over a geo-political border.
•
Why does the “South” tend to be an unequal partner in trade
agreements? Manufactured goods vs. commodities – inelastic
demand for commodities and synthetic substitutes (fiber optics
[glass] for copper, etc.)
Globalization: Why Trade?
Import substitution:
•
Substitution of an imported good for one produced internally –
frequently protected by tariffs, quotas, etc. place on imports.
•
Why is import substitution not a panacea for community
development? Government intervention (in the form of
protectionist strategies) tends to promote inefficient production,
lack of capital for investing in infrastructure, many import
substitution industries do not have comparative advantage – and
require the continued [costly] protectionist investment of
government or the industry is not able to compete with external
goods.
Study Questions:
– On Friday, John Perkins presented the “Technology Treadmill” – and
came to the conclusion that farmers who do not adopt tend to get
squeezed out. Apparently, this is related to the historical trend that
has led to the current consolidation trend and “disappearing middle”
of farms. Are we kidding ourselves in attempting to recreate a midscale food system? Or, could this mid-scale food system philosophy
be a successful way to organize a market-based agricultural
system?
– Should all food production be local? Is there some justification for
consolidation? What about local ecology as a justification for
comparative advantage theory?
– Corn model if time permits