In a report to the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, the Government Accounting Office (GAO) acknowledges that over the last 25 years farmers have received a decreasing share of the consumer food dollar, as retail food prices grew faster than prices farmers receive for agricultural commodities.

Some analysts and farm interest groups, the report notes, blame increasing concentration in agriculture, believing that firms in highly concentrated markets exert market power by raising retail food prices while also depressing prices farmers receive for agricultural commodities.

Others have argued that concentration has facilitated changes, such as technological innovations, that have improved productivity and served to lower food prices while increasing some farm incomes.

With these questions in mind, the Senate subcommittee asked the GAO to provide information on the following.

  1. Trends in concentration for various levels of the food marketing chain in major agricultural sectors.
  2. Trends in retail food expenditures and prices.
  3. Trends in prices farmers received for major agricultural commodities.
  4. Views of experts on the potential effects of concentration on agricultural commodity and food prices.

To review trends in concentration, expenditures, and commodity and food prices, GAO researchers analyzed data for agriculture overall and five major agricultural sectors – beef, pork, poultry, dairy, and grains. These sectors, the report says, accounted for 86 percent of the market value of food-related agricultural products sold by U.S. farms in 2007. The GAO conducted their analysis from November 2008 to June 2009. They recently reported the following conclusions.

  • Concentration generally has increased at all levels of the food marketing chain in all agricultural sectors since the 1980s. At the farm level, less than 2 percent of farms accounted for 50 percent of total sales in 2007. At the food processors’ level, in general, a small number of companies accounted for a large and growing portion of sales in each of the five major agricultural sectors. For example, in the pork sector, the market share of the largest four hog slaughtering firms increased from 36 percent in 1982 to 63 percent in 2006. In addition, at the retail level, the share of grocery store sales held by the largest four firms more than doubled, from 16 percent in 1982 to 36percent in 2005.
  • While real annual per capita food expenditures have increased since 1982, households now spend a smaller share of disposable income on food. Total annual per capita food expenditures rose from $3,358 in 1982 to $3,888 in 2007, in constant 2008 dollars. Meanwhile, household spending on food decreased from 13 percent of disposable incomes in 1982 to 10 percent in 2007. Since 1982, overall food prices and food prices in each of the five major agricultural sectors have increased about as much as prices for consumer goods and services overall. However, from July 2008 through December2008, food prices increased faster than the prices of other goods and services. Since then, food prices generally have not changed significantly.
  • Since 1982, farmers have generally received higher monthly prices for their commodities, but these prices have increased less than food prices and inflation inthe broader economy. Specifically, prices farmers received, including for beef, pork, dairy, and grains, increased by 34 percent from January 1982 to April 2009. For the same period, food prices rose by 128 percent, and prices in the general economy rose102 percent. Commodity prices increased significantly in 2008, reaching a high of 68 percent above their 1982 levels in July 2008, but have declined since then.
  • The empirical economic literature has not established that concentration in the processing segment of the beef, pork, or dairy sectors or the retail sector overall has adversely affected commodity or food prices. Most of the studies that we reviewed either found no evidence of market power or found efficiency effects that were larger than the market power effects of concentration. While a few studies found some evidence of market power, it is unclear whether this market power was caused by concentration or some other factor. All of the experts we spoke with said that concentration probably did not cause the 2008 increase in commodity and food prices, which were more likely due to factors such as higher energy costs and growing global demand for grains. Experts generally said that concentration is likely to increase in the future. Some said further increases in concentration may raise greater concerns in the future about the potential for market power and the manipulation of commodity or food prices. One expert said further increases in concentration would continue to generate efficiency gains and be beneficial.

The full report is available from the GAO.

Source: Drovers.com