Market Concentration in Processors’ Hands Hurts Producers & Consumers: OCM Rebuts GAO Concentration Report & Makes Its Case

Press Release

Organization for Competitive Markets Lincoln, NE 68506 – 6486                                                  www.competitivemarkets.com Contact:  Fred Stokes, 662 476 5568, cell 601 527 2459   tfredstokes@hughes.net Lincoln, Nebraska.                                                               October 5, 2009 An in-depth OCM Special Report entitled, The Debilitating Effects of Concentration in Markets Affecting Agriculture, proves that market concentration for major raw food products hurts both producers and consumers. The extensively researched 77-page report rebuts a June 30, 2009 U.S. General Accounting Office report. The GAO publication reached the widely questioned conclusion that concentration of buyer power in a handful of food processing firms does not adversely affect producer or consumer prices.  OCM’s Special Competition Committee debunked the GAO’s methodologies, and its findings. The OCM publication is the work of its Special Competition Committee, comprised of OCM Senior Legal Fellow &General Counsel, David A. Domina, and OCM Senior Economic Fellow, Dr. C. Robert Taylor. The OCM report authors concluded that; “The GAO Report’s Methodologies are Flawed and the GAO Report’s Conclusions are Not Correct.”  More than 20 academicians, antitrust lawyers and informed producers reviewed the report before it was released. Domina & Taylor’s report continues; “When America’s farmers and ranchers seek to buy needed inputs like seed and fertilizer, they are confronted with concentrated markets and exploitative sellers. As sellers of harvested goods or market-ready livestock, they have few, or no, choices of prospective buyers. Both ends of the processing function—raw goods procurement and final food products—are concentrated. Both are debilitating to food production feasibility and both drive up consumer prices.”

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The GAO was asked  to study and report on concentration issues and  to report on:

1.   Trends in concentration on food production and the food marketing chain.

2.   Trends in retail food expenditures and prices.

3.   Trends in prices farmers received for major agricultural commodities.

4.   Expert’s views on potential effects of concentration on agricultural commodity and food prices.

“OCM has proven the GAO failed to conduct a meaningful examination of competition issues,” said Randy Stevenson, OCM president.  He continued, “The GAO work is flawed.  It gives comfort to monopolists and market power abusers whose actions end up hurting both producers and consumers everywhere. The GAO study found that concentration in the food system increased over time, as did the retail share of the food dollar.

The GAO found that:   “Since 1982, farmers have generally received higher monthly prices for their commodities, but these prices have increased less than food prices and inflation in the broader economy.” But, the GAO concluded no harm was done.

Fred Stokes, OCM executive director remarked, “In the face of the overpowering evidence, the GAO’s failing to find that concentration was a driving cause of low farm commodity price is absurd.”  The OCM’s Report’s authors, lawyer David Domina and economist Robert Taylor, concluded that:

I[n] 2005 …President and Vice President of the Federal Reserve Bank in Minneapolis wrote a …warning directed to policy makers about the risks of public expectations for a federal bailout following large bank failures. Their book, Stern & Feldman, Too Big To Fail: The Hazards of Bank Bailouts, enjoyed a favorable forward by Paul Volcker…. But, its warning was not taken seriously enough to turn the tide against the thought that the banking system was safe because its big entrants were “too big to fail”.  A similar mistake with food could have dire consequences to health and domestic stability; history proves such consequences are predictable among populations suddenly faced with food shortages.

Immediately, abuse of market power threatens our family farms and ranches, and forces concentration of lands and ag production in fewer hands.   Major firms in each of our top food sectors are so large that a failure by any one of them would have major ripple effect across the entire sector, and all of agriculture.  These risks make agricultural market structure, in concentrated hands, a risk to everyone.

In the long run, the concentration and integration risk will continue to drive food prices up, bring an end to the nation’s affordable food policy and contribute to a rapidly deteriorating agricultural and rural economy.  GAO’s conclusion that market concentration does not adversely impact prices is unfounded.  To the contrary, market concentration in too few corporate hands poses price, biosecurity, and lack of redundancy risks to all American consumers.  Corrective action is an urgent national need.

The OCM Special Committee report, an executive summary of the OCM publication,  and the GAO report,  can be viewed on the OCM web site:  https://www.competitivemarkets.com/