Sep 30, 2024
On September 26, The Capitol Forum hosted a conference call with antitrust attorney Basel Musharbash and Farm Action Research and Policy Development Director Sarah Carden to discuss a new report that examines corporate control over farming, food production and food sales. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good morning and thanks to everyone for joining us today and welcome to our Conference Call on Market Concentration in Food and Agriculture. I’m Teddy Downey, Executive Editor here at The Capitol Forum. Today, I am very pleased to be joined by Basel Musharbash, Principal Attorney at Anti-Monopoly Council and Sarah Carden, Policy Development Director at Farm Action Research. Thank you both so much for doing this today.
BASEL MUSHARBASH: Thanks for having us.
TEDDY DOWNEY: We’re going to be talking about your new report commissioned by Farm Action titled “Kings Over the Necessaries of Life”. And you look at the history and current state of competition in American agriculture. And I would love to start off, maybe you can both talk about why you wrote this report, why you did it now. I think that can set the stage well and then we can kind of dive into some of the highlights from the report.
BASEL MUSHARBASH: Sarah, do you want to take that one?
SARAH CARDEN: Basel, as the author, why don’t you start and I can jump in.
BASEL MUSHARBASH: Sounds good. Yeah, my firm, along with Farm Action, have been working together for a couple years now. And in a lot of our prior work doing comments on the merger guidelines and on USDA regulations, we had a chance to do a lot of digging into all the various, or many of the various, sectors in the agriculture sector and found a pattern of increasing consolidation, a pattern of seemingly intentional conduct to consolidate power by dominant firms and also policy choices that enabled that.
And we wanted to put together a report that showcased that and demonstrated it across the agricultural supply chain. So that anybody who is interested in the sector, whether it’s reporters, policymakers, enforcers, members of the general public, can find it all in one place. We wanted to give folks a reference resource that they can use to understand what’s going on in terms of competition and consolidation in the agricultural supply chain.
And one other thing we wanted to do with this report is to make it practical and useful for enforcers and policymakers. So I think when we look at other things that have been written about the agricultural supply chain, oftentimes it’s not necessarily written with the lens towards enabling enforcers to take action, whether it’s starting an investigation or whether it’s bringing a case eventually, we wanted to help put in one place sort of resources that enforcers can use toward those ends.
So that’s sort of the genesis of the report. Something that came up along the way, that we didn’t sort of set out to do, was the sort of rise and fall of anti-monopoly policy part of the report. As we sort of dug into the individual industries, we found that a common thread was the shift in policy and antitrust enforcement policy that took place in the 1980s. And we also found that before the 1980s, it wasn’t just that the antitrust laws were always enforced. The antitrust laws weren’t enforced by and large for the first 40 years after their enactment. But then in the 1940s, we saw that the government took sort of concerted action against monopoly power across the economy. And within a decade, that yielded a much freer, much more open, much more dynamic economy, in the agricultural sector and outside the agricultural sector.
And that’s what we lost in the 1980s when we switched back to laissez-faire antitrust enforcement policy when we switched back to ignoring the commands of the antitrust laws that are on the books. So, we wanted to showcase that history as well because it really demonstrates that the highly consolidated monopolized agriculture and food system that we have today is not something that we have to have. It’s a result of policy choices and we can make new policy choices and we are with Chair Lena Khan and Assistant Attorney General Kanter at DOJ. So, that’s the background to the report.
TEDDY DOWNEY: Sarah, do you want to add anything just from your perspective?
SARAH CARDEN: Yeah, sure. I mean, Basel really captured the genesis of the report largely. I think the only thing really to add to it is, at Farm Action, we field a lot of questions on some of the information in this report. And one of the objectives was we noted it’s not easily available. And that’s not an accident. And as part of our work is we are trying to bring—I don’t we weren’t necessarily surprised by our findings in the report. I think we had a sense of what we would find. But I think the way they it all combines and the consistency of the findings and the depth of the findings, when you see it all together, is pretty significant and moving even if you are in this industry. And we wanted to make sure that that was available and people could see that whole picture easily and capture that.
TEDDY DOWNEY: And I just want to follow-up really quickly before we dive into some of the details. I think there’s often an obviousness to the problem of consolidation in these industries, but not a very good understanding always that it is the result of consolidation. Even by the farmers. Like we interview a lot of farmers when we’re doing our reports. And we’re like, oh, that sounds like it’s because of consolidation. They’re like, oh, I like my—they sort of have this weird love/hate—it’s sort of they’re not always making these connections that the way that they are kind of funneled into behaving a certain way is as a result of that.
Do you anticipate this being useful for—you mentioned that you get a lot of questions about this, but making that connection for the farmers themselves so they know that like this solution may actually result in real results for them, a change and a benefit to them directly.
SARAH CARDEN: Basel, I’m going to jump in here because I feel really strongly about this question. Because Teddy, you may not know, also, when I’m not at Farm Action, I run an organic vegetable farm. I have been for 15 years. And reading this report, and in conversations with Basel about the research—and I work in this space too -I’m still reminded of, oh, this tracks with my experiences that I haven’t connected to this. This came up in the agricultural credit section for me in the context of the fruit and vegetable sector description. I’ve also worked quite a bit in helping food hubs get started. And Basel does a great job in the report of connecting the struggles of these food hubs to really sustain and proliferate to the access barriers that they’re facing to big retail from these relationships between dominant grower, shipper, packer firms. And I work in all of these spaces and still hadn’t necessarily explicitly connected this in my head.
So, I think, from farm actions lens, that is a huge asset, that this report can do first. A lot of farmers feel a big sense of failure I think in their personal struggles, because they’re generationally—many are continuing on generational opportunity enterprises. A lot of them are closing on generational enterprises. And it’s hard not to take that as a sign of personal failure.
So, on the one hand, our hope is that this report helps hammer home to farmer readers that this is not attributable to individual actions, but much more so to these larger market trends. It’s not a result of their failures, but a result of a shift in market structure that is really way outside of their hands.
And not only as like a consolation prize, but also as like a rallying cry. That this has happened before. We actually were able to fix it. And it’s happening again. And it’s time for us to really band together and do something about it. So that’s our other hope in this report.
TEDDY DOWNEY: All right, perfect. And then the last kind of big picture thing before we get into these individual markets—because I think that’s probably just the easiest way to talk about this stuff—is when you were looking at the history, Basel, did anything jump out at you that you want to highlight here? I think maybe some of the audience isn’t familiar, but mostly familiar with the decline of antitrust enforcement. Basically, after the 70s and the Chicago School kind of coming in and saying hey everything should be about efficiency and consumer welfare and bigness is beautiful and stuff like that. And sort of the recent shift away from that and rejection of that with the Biden administration’s executive order on competition. But was there anything additional that you want to highlight when it’s sort of specific to the agriculture industry from that historical rise and fall of anti-monopoly enforcement in agriculture that you wanted to sort of highlight before we dive into these individual markets?
BASEL MUSHARBASH: Yeah, I think a policy shift that is under recognized as contributing to the elimination of competition or the lessening of competition across the economy, but particularly in agriculture, is the deregulation of railroads in the Staggers Act of 1980 and stopping the enforcement of the Robinson-Patman Act in 1978 under Carter.
These twin shifts really allowed, particularly the Staggers Act, really allowed large firms in the agriculture sector, which is a commodity sector. You’re shipping goods that have a have relatively low value, but they’re in bulk. And so, you need railroads. You need access to the rail network. And if the dominant shippers, the largest shippers, can get exclusive discounts that no one else can get, that immediately puts a handicap on competition to the dominant players in the industry and gives a definite advantage to size, that has nothing to do with efficiency by the way.
Railroads are like airlines. They lay down the tracks and then they need to recoup as much money as they can at all times. And so, they’re trying to get cashflow. So if a large company wants to ship a whole bunch of product and they have a long haul trip between collection locations for grain let’s say and processing facilities for grain, the railroad is willing to give massive discounts to that company, that large company, to just continually ship grains, regardless of the real underlying cost of that shipping.
So, what ended up happening is you saw just a massive tidal wave of exits from the grain merchandising sectors from all of these sectors that involve a lot of shipping during the 1980s and 1990s because of that deregulation and it’s just not recognized. So, I would say that’s something for folks to keep in mind beyond the usual antitrust enforcement stuff that we talk about.
TEDDY DOWNEY: Yeah, I find myself—I’m interested in seeing how the FTC brings back Robinson-Patman. But again, it’s just one tool in the toolbox for finding a solution here. It’s interesting to point that out. You’ve got the deregulation of railroads. But you also have this massive consolidation, exclusionary conduct, to sort of address and undo. Even with Robinson-Patman, it seems like they might always be able to find another way to come up with a kickback or what have you. But that’s like a defining moment, absolutely.
So, let’s just go market-by-market here just because there’s a lot to cover. We’re not going to get to everything. So, let’s look at what I got the most questions about before the call. I’m pretty sure it was seeds. I got two on seeds. So, let’s start with seeds because we got a lot of interest in seeds somehow. Walk us through where we are now from a competitive standpoint with seeds. If you have questions, I know someone has questions out there because I got a lot on my inbox already. So, if you have any additional follow-up questions, please put them in the question pane in the app. Basel, tell us about seeds, where we are with competition now. And then maybe we can talk about possible solutions.
BASEL MUSHARBASH: Sure. Sarah, if you want to jump in here, feel free. So, seeds, we have four big companies: Bayer, Corteva, Syngenta, which is now part of ChemChina, and BASF are the dominant seed and pesticide companies at this point. Their dominance is particularly pronounced in corn, soybean and cotton seeds. There’s also problems in other seed varieties for other crops, in vegetable seeds and other grains and oil seeds. But we sort of focus on those three because that seems to be where the problem has been most highlighted and most acute.
The basic issue there is that these four companies, and their predecessors—Bayer is a combination of Bayer and Monsanto which happened in the late 2010s. Corteva is a combination of Dow and Dupont. They merged and then spun off their seed and pesticide components into Corteva. Syngenta, as I mentioned, is combined with ChemChina. And BASF became dominant as a result of divestments from I believe the Dow/Dupont and Bayer/Monsanto mergers.
So, these companies, what they control, they have a bit of a stranglehold on the IP related to the development of transgenic seeds. To genetically modify seeds and develop new ones that have enhanced characteristics, whether it’s in terms of resistance to weeds or resistance to insects, you need certain technologies to actually modify the genes. You need germ plasm to work with and introgress the new genetics into so that you can have a seed. And then you try it out, develop it, keep reiterating until you get the product that you want.
And they dominate that development process and that intellectual property and technology related to it. This makes it really difficult for upstart companies to participate in this space and creates a lot of room for lawsuits by the dominant players against any small upstart that tries to challenge their dominance in GMO seed development. I think actually someone at The Capitol Forum is looking into this. And they were looking into a lawsuit that was brought by, I believe, Bayer, if I remember correctly, based on exactly what I just what I just described, this IP thicket that allows them to hog development of GMO seeds.
Now, that it gets even more problematic though. Because what these companies have done is, in order to acquire this dominance over the IP, they had to do just hundreds, if not thousands, of acquisitions. And this happened particularly in the 90s and the 2000s. You used to have thousands of seed development firms. They used to be mostly small, mostly family-owned, lots of seed distribution firms. In the 60s and well into the 70s, you had well over a hundred pesticide firms. And these were totally different sectors. And they were very dynamic. You used to have—there was a study done in the 70s that showed how new pesticide products would be developed by upstart companies and those companies would just immediately capture large market shares, only to like two or three years later another company to develop an even better product and capture large market share from the former upstart.
This dynamism went away by the 2000s because these large ag biotech firms acquired all of the IP for the development of transgenic seeds. They were already big chemical companies. And so, in order to sort of shore both their seed and their pesticide businesses, they tied the two together. So, farmers end up having, if you buy transgenic seeds, they work really well with a particular pesticide product. The pesticide product if it goes onto a different set of seeds or plants from a different set of seeds, they’ll hurt those seeds. If you use a different type of pesticide with the transgenic seed that’s developed, the plant can be damaged as well. Or the pesticide just doesn’t work as well. So, they’re effectively tying pesticides and seeds together. And if someone can’t develop transgenic seeds to go with their own set of pesticides, then they can’t compete nearly as well with these cropping systems that the dominant players have developed.
Now, you might say, well, are they at least developing good cropping systems that are continuously improved and that are actually better than anything that anyone else could develop? And the answer is probably no. And the indication of that is that yields from these cropping systems, these pairs of seeds and pesticides, have been, if not declining, they haven’t been increasing at the same rate as prices have been increasing.
The prices for seeds, particularly for seeds, I believe, have been the fastest increasing cost for farmers since 2000, increasing by a significant percentage. But the yields that are derived from those seed and pesticide packages have not been increasing at the same rate. So, we have a problem with this dominance over IP that the dominant ag biotech firms have that needs to be addressed.
TEDDY DOWNEY: Can we talk quickly about the harm to farmers and then solutions? I mean, it seems obvious you’re only buying seeds from three or four companies or even one, depending on what you’re buying, you’re going to get gouged. Is that overly simplistic? Or what’s the harm to farmers here? And then let’s get into solutions after that.
SARAH CARDEN: Well, just to jump into – Basel, you talked about how this is limited. We sort of focus this analysis on corn and soybeans and cotton and that’s correct. But I also want to flag that that’s probably the beginning. We’re seeing transgenic seeds move into vegetable crops and be approved. We’re seeing them in other crops. And so, first, I just want to flag that this I fully expect without some sort of significant action that we will see these same trends move into across the full seed industry.
But not only is it price gouging for farmers, it’s also causing issues for farmers and their resiliency. We’re planting a very small genetic pool at this point. So, this is an issue for farmers and for our whole food security is we’re a lot more vulnerable when we have a much less diverse crop load planted across the country to all sorts of issues. So, I think that—Basel feel free to jump in—but there’s huge—we talk about resiliency and coordination with consolidation issues constantly. But when it comes to genetic diversity, it’s up there in level of degrees of significance.
BASEL MUSHARBASH: Right. And to add to that, there’s also the problem of the quality and selection of seeds and pesticides that are available. So, I mentioned how yields are not increasing, but there’s a couple other problems here.
The first is related to how sort of consolidation of control over GMO genetic modification of seeds really – so when you consolidate control over the development of GMO seed products in the hands of these four companies or their licensees, it makes it so that they get to control the lines of development for our agriculture system. Part of the reason that farmers increasingly plant, grain farmers, plant grain corn and soybeans is that that’s those are the two seeds that where there’s work being done on improving them. And if we had a more competitive, more open, seed development sector, we might see more advancements for different crops instead of the current sort of very narrow development lines that we see in the industry.
There’s also another problem is that there are lots of complaints about how the cropping systems that have been developed, they rely on very specific modes of action in the pesticides, very specific sort of traits or lines of trait development to combat weeds and insects and other pests that affect plants. And the more we use those modes of action, the more we use those traits, the more insects and weeds develop resistance to them. But we haven’t seen the dominant companies venture out and develop new modes of action so that we cannot have resistance growing in the various pests. And I think a big part of the reason for that probably is that they don’t need to. Why develop a better product when you can sell the existing product and sell more of it because it’s not as effective?
Now, that requires some more investigation to demonstrate that is exactly what is happening. But farmers have been complaining about that and it’s a problem that likely results from the lack of competition in seed development and pesticide development.
TEDDY DOWNEY: And let’s switch to solutions here. So, if the issue is tying and IP our solutions, antitrust enforcement around the tying, or what can be done about these IP taxes? Is it kind of like pharma where they’re abusing or they’re taking advantage of the U.S. PTO and getting these patent thickets when they really shouldn’t? Or is their product hopping? All that type of stuff. What’s going on here? And what can we—if you’re Jonathan Kanter, Lena Khan looking at this what’s the quickest way that they can break open this market?
BASEL MUSHARBASH: Sarah, do you want to take a whack at that? I’ll be honest with you. The solution aspect is harder, for me anyway. Because I don’t have as much information as Jonathan Kanter or Chair Lena Khan could have after they conduct a full investigation.
And in some ways, we may need to require these companies to license their IP on fair and reasonable terms to all comers, like we used to do back in the day. We need to look into just how much, you know, it’s hard for us, as private actors with limited resources, to really figure out exactly how these companies – exactly what control they have over IP and what are all the significant ways they could use it. We know that they have significant power. We know that they’re using it in ways that exclude competition. But the exact outlines of that control are difficult for us to map out.
TEDDY DOWNEY: Well, let’s just be really creative for one second. I’m going to ask you a couple of questions to see if we can kind of like maybe go in a couple of different directions. First, these markets, are they consolidated enough for a case that’s easy? Or is it hard? Because you’ve got the 50 percent threshold. Can you think of this through monopolization lines easily? Or how do the market shares shake out from like doing a monopolization investigation?
BASEL MUSHARBASH: So, there could be a monopolization case with respect to genetic traits and genetic development technologies. I don’t have the statistics right in front of me, but something along the lines of – is it Bathos and Bayer, Sarah, that have between 80 and 90 percent of trade acres for corn and soybeans?
SARAH CARDEN: I think it’s Corteva and Bayer.
BASEL MUSHARBASH: So, you could think of a monopolization case along that front. And that may facilitate – what’s the word? – loosening their control over the IP and technology involved in seed development. I do also think though that, you know, you could think about it as an attempted monopolization instead of a completed monopolization. Because what we noticed in reading about the sector’s history since the 1990s is that not only were there lots of acquisitions, the companies paid substantial premiums for the companies that they acquired. And people at the time commented that it seemed like they were just believing that if they rolled up this industry they could recoup the extra premiums that they were paying. And the scale of the serial acquisitions certainly lends itself to a company that is making acquisitions for control, not as an incremental development strategy. So, I don’t know that we have enough immediately to say, yeah, go shoot them for monopolization. But certainly, there’s enough there for monopolization or attempted monopolization of the technologies related to developing genetic seeds and also some of those highly concentrated seed markets that I mentioned—cotton, corn and soybean.
TEDDY DOWNEY: I’ll ask one last quick question on this. We just saw a big case against the PBMs where they used unfair methods of competition authority to sort of group the three together and sue them as collectively monopolizing, collectively engaging in unfair methods of competition with their rebate strategies.
Another thing I’ve spoken with Chair Khan about on our podcast in the past is that sometimes when you are manipulating regulations to your advantage or otherwise doing something of that nature, that can be kind of an unfair method of competition. Can you see something like that along those lines here with the IP and how they tie things together? And it’s not like the easiest, you know, it certainly seems unfair. They’re doing these sort of gratuitous lawsuits. I don’t want to call them necessarily gratuitous, but like they weaponize litigation around that IP. So, their like legal strategy to exclude as well. Could that be kind of an interesting thing, unfair methods of competition? I’ve always kind of had that in the back of my mind, sort of weaponizing IP that way. But maybe that’s too way out there. But I wanted to get your reaction to something like that.
BASEL MUSHARBASH: I think it certainly should be explored. I think that lawsuit is very interesting. I haven’t had a chance to read that whole complaint yet. But the idea of suing Dalia, three dominant firms for engaging in parallel exclusionary conduct and pooling their market power based on that parallelism, I think that can apply to lots of different industries across the agricultural supply chain where we see companies developing parallel exclusionary strategies and implementing them together. Which seems counter to their self-interest. There’s no reason that each of the dominant players in the seed sector, for example, should be carrying seeds and pesticides. Some of them could find that official as a marketing tool to develop separate products, but they increasingly don’t. They converge on this particular marketing arrangement.
We see this also across the meat sector. You have in beef, chicken and hogs, the dominant players all implement basically the same sourcing strategies for cattle. There’s no reason for them to do it, but they do it. And so, you can see lots of application for this theory and I think it should be developed further and it certainly could be useful in the context of seeds and pesticides.
TEDDY DOWNEY: We’ve got a question here. We’re going to spend almost all our time on seeds. We’re going to have to get to the others. But this is an interesting question because it gets to whether or not there’s a functioning generic market. If the yields of the seeds haven’t improved, but the costs are increasing, why can’t farmers use older seeds that are no longer under patents. It sounds like the older seeds would be just as good. Why haven’t the patents expired? Another issue that kind of makes it parallel to pharma and biotech is why can’t they just get cheap generic seeds and buy those? What do the dominant firms do to discourage that or prohibit that?
SARAH CARDEN: Well, there’s quite a few tactics and barriers to using old seeds. One is that you can’t access it easily. They pretty much – and Basel jump in because you know the statistics better. They own most of the genetics that are out there at this point for some of these like previous generations of seeds.
A lot of the previous – they’ve been stacking these, you know, Basel mentioned some of the pest and disease resistance build-up that we’re seeing from these traits, these older generations. This isn’t a new issue. They’ve been stacking to address some of these previous emerging deficiencies. As far as older transgenic seeds, my understanding is they’re not available. They’re not going to be as effective.
When you talk about moving back to non-GMO seed options, again, you have a serious lack of supply. I mean, they are available, but it’s a hard supply, and there’s a lot of defensive planting issues as well. If you’re the only farmer in your county or in your area planting a seed that doesn’t have a resistance to various chemicals that are being sprayed around there, then you’re at risk to drift and other factors that are going to kill your crops from the neighbor’s field when they come and spray.
So, there’s those issues as well. When you talk about non-GMO production in general, there are markets for these, and this is something Farm Action has worked on. Somewhat related is this trade debate with Mexico, who is trying to phase out some of the corn produced from transgenic seeds in their supply.
When you sell into those markets, you need the various infrastructure to support that as well, because it all has to be segregated. So, there’s a lot of complications there. It’s not as simple.
And finally, cropping systems and your equipment that is connected to the various cropping systems you’re using. It’s not just a subbing one seed for another in that scenario.
TEDDY DOWNEY: So, it sounds like some of the time it’s not practical to go with the generic, because you need to get the next iteration. But otherwise, you can’t buy it even if you wanted to, even if it was cheaper and just as good, because you can’t access it.
BASEL MUSHARBASH: Right. There are problems with distribution as well. It’s accessible at some scales. But especially for larger scale farms, it can be difficult to access generic seeds.
TEDDY DOWNEY: And no one’s coming in. If it’s a Corteva seed, no one’s coming in and taking the seed and looking at it and making it themselves, like a generic drug manufacturer. No one’s doing that. You’d have to beg Corteva for some of the old seed, which they’re probably not going to do.
BASEL MUSHARBASH: Yeah, I mean, it seems like it, yeah. So, a lot of the hybrid seed manufacturers that have been, well, the vast majority of them actually have been swallowed up by the largest players. And even when we’re not talking about GMO seeds, we’re talking about the hybrid seed varieties, those also get patent protection or something similar to patent protection, at least since the 1980s. And so, by buying their manufacturers, the big four consolidated control over those as well. I can’t say that I have an encyclopedic knowledge of every seed variety there is and how available it is.
But we do know that there is restricted access. We do also know that the big four have some control over seed distribution channels. And according to an FTC lawsuit, a recent one, we also know that they had exclusive arrangements with pesticide distribution channels.
So, the ability to get seeds, generics or non-GMO seeds, and have them work for you in an adequate way can be difficult for farmers today.
TEDDY DOWNEY: Let’s switch to, I mean, we’re not going to be able to get to everything. So, let’s just switch to another interesting one that I think is kind of like under covered and related. Let’s do grain and oilseed processing. And then I don’t know how much time we’ll have after that. But walk us through the problems there and what farmers are dealing with. And then again, we’d love to talk solutions after that.
BASEL MUSHARBASH: So, I’m not going to talk through all of the problems.
TEDDY DOWNEY: Highlight some of the worst, biggest problems.
BASEL MUSHARBASH: There’s several different industries involved. But I think the main issue is that basically ADM, Cargill and Bungie are dominant across all of the domestic industries that process corn, soybean and wheat, with somewhat of an exception for ethanol.
And they’re also dominant in control over the channels for merchandising grain. So not all grain is immediately sold to a processor. A lot of it is sold to merchandisers who are then supposed to act as intermediaries and sell the corn or soybean or wheat to processors.
But the problem is that in a lot of cases, the merchandiser is the processor. In particular, we found that ADM, Cargill, Bungie and Louis-Dreyfus, which is another major grain trader globally, they dominate the major export markets in the United States.
So, the way grain is sold for export, there are essentially two major regions. You either export from the Pacific Northwest or you export from the Louisiana Gulf, the Mississippi River. Or you can export to some extent from the Texas Gulf. In each of those regions, either ADM or Cargill controls over 30 or 35 percent of the grain elevator capacity. And that translates into market power. It translates into the volume of grain that they handle in exports from those regions.
So, with that being said, what you end up having is that these three or four companies, with ADM and Cargill in particular being dominant, control exports. And that controls the export price. They control the domestic processing industries. And that controls the price of corn, soybean and wheat domestically to a large extent.
And it undermines competition for corn, soybeans and wheat. I think one interesting point here, if we want to dig deeper, is with respect to ADM and how it’s approached its strategy to dominate these industries and what that tells us about monopolization in those industries.
ADM has been a monopolist since its inception. ADM started out as multiple companies. And it started out in flax seed oil, which is sort of like the predecessor to what we use soybean and other oil seeds for today. And it had a strategy. Its strategy was it built one new plant and then it started buying other plants until it had enough capacity to sort of challenge the other big players. And then it was like, instead of challenging each other, why don’t we join in a trust? And it formed a trust. That was attacked in the 1910s.
And then they were like, well, why don’t we just all merge with each other instead of doing this whole trust arrangement? And they did. And the merger resulted in one firm controlling something like 30 to 35 percent of the flax seed oil supply or capacity nationally. And they realized that was enough to give them control over price. It was enough to enable them to intimidate the other players in the industry into cooperating on price and not competing.
And it’s followed that in many different industries down the line. We don’t have to go through all of them. And it did that most recently in wet corn milling in the 1970s, in the early 1970s, late 1960s. It couldn’t just acquire competitors at that time because we had strong merger enforcement. So, it just built the capacity. It built enough capacity to gain something like 30 percent of the industry’s corn milling capacity. And then they were able to arrive at a gentleman’s agreement with everybody else, allocating sales and cooperating on price.
So, what that suggests to me is that enforcers, policymakers need to stop thinking that the only way a company can get monopoly power in these commodity sectors in particular is that they need to have 60, 70, 80 percent market share. You can get substantial control over prices and a substantial ability to exclude competitors at 30 to 40 percent market share. And once you have that, it becomes much easier for your rivals to just follow your lead instead of competing.
So that, I think, is the most interesting aspect of what we found in the grains and oil seed sector, yeah.
TEDDY DOWNEY: Sarah, any other thoughts to add on the grain and oil seed?
SARAH CARDEN: No, I think that, as Basel sort of alluded to, that these sort of tactics just are – you know, ADM isn’t the only dominant firm out there using this playbook. And if you read the report, Basel does a great job of outlining similar approaches across the sectors. And the ability of these firms to do this is where we see these trends and where we see a real need to address this capacity in a significant way to confront it.
BASEL MUSHARBASH: I’ll add to that. Just another good example is like another company doing something similar. Cargill ConAgra and CHS were relatively large flour millers until the late 2010s, when they decided to merge all of their flour milling operations into one joint venture called Arden Mills.
And it has something like 36 percent market share. And at the time this happened, I think a governor of a state where the headquarters was going to be located was like, oh, well, it’s only 36 percent market share. Like that’s not a monopoly. Who cares? Just let them do what they want.
And it’s important when we look at what this capacity enabled these firms to do, it should trigger some alarm bells for enforcers and policymakers that this needs to be addressed.
TEDDY DOWNEY: I’ve got a bunch of other questions myself, but since we’re running out of time, I’m going to go to the last two listener questions. One, I mean, they’re not really questions. They’re just like sort of statements.
One is just the Capper-Volstead Act, I assume they’re talking about that as a solution, but any thoughts? That’s not really a question, but any thoughts in Capper-Volstead Act, what you’d like to see there? I don’t know. Reaction to someone saying that.
BASEL MUSHARBASH: Sure. Well, I think I like to say that, well, two things. One, cooperative selling can be good for farmers when they’re selling into relatively competitive markets. If they’re not selling into competitive markets, if there aren’t a whole bunch of buyers, then the price will become depressed as a matter of course. The marketing cooperative, if they consolidate in order to gain similar size to the folks that they’re selling to, then sure, they’ll end up having financial power to sort of hold onto inventories and not sell quickly and all of that.
But now they’re large corporate entities that are buying from farmers and selling to, say, processors. They just became a giant middleman. And no matter how good they are or how honest they are or how committed they are to the mission of serving farmers, ultimately, they will end up having economic incentives to not pay top dollar for whatever crop they’re marketing. Or they’re going to have limited options to pay higher prices to farmers.
You know, we see that, for example, in milk processing. We see that in—CHS is a big grain and oil seed marketing cooperative. At the end of the day, a marketing cooperative is just another distribution channel for farmers. And if you go down from 10 different distribution channels or outlets to three and one of them is a marketing cooperative, the farmer is still going to be in trouble.
So short answer, Capper-Volstead, great, marketing cooperatives are good. We want to be careful about how much they consolidate. And it’s still not an alternative to making sure that the ultimate markets are competitive for farmers’ crops.
TEDDY DOWNEY: Sarah, thoughts, anything? That was pretty good, Basel, thank you.
SARAH CARDEN: Yeah, with one minute, I would just encourage your listener, Basel lays this out really clearly in the grower, packer, shipper section in the fruit and vegetable sector of how that cooperative model can transition to something that isn’t in the farmer’s interest.
TEDDY DOWNEY: I’m going to ask one last question, because I think it’s a good way to end on a price discrimination question. So, we’ve got another kind of weird statement that just says price discrimination by wholesalers of agriculture markets. Basel, negative 10 seconds, go.
BASEL MUSHARBASH: That’s a big deal. Because in the 1960s, 1950s, small farmers could get a similar deal to large farmers from agricultural input manufacturers. Or at least they could get the marketing cooperative and buy in large quantities and get discounts based on efficiency of production.
That’s no longer the case. You don’t know what discounts the large farmer is getting and you don’t know what they’re based on. And so, it entrenches large farmers, large agribusinesses. It makes it harder for small farmers to succeed today. We need to bring back enforcement against price discrimination across the agriculture sector. But it’s particularly important for restoring the vitality of small and midsize farms.
TEDDY DOWNEY: Sarah, anything to close us out here on price discrimination?
SARAH CARDEN: Oh, I don’t know. I think in 10 seconds, Basel got it there. I don’t want to drag on. But yeah, I concur with everything he just said right there.
TEDDY DOWNEY: All right. Well, I’m going to invite you back. I would love to have you keep going through the report. We obviously only got through a very small slice of it. Please check it out if you haven’t already. It’s really well done. And obviously, it’s got the attention of DOJ, head of antitrust, Jonathan Kanter, who is talking with you in an hour on a webinar, which I will also be on as a listener this time.
Basel, Sarah, thank you so much for doing this. Real, real treat to dig into these issues with you.
BASEL MUSHARBASH: Really glad to be here, Teddy. Thanks for having us.
SARAH CARDEN: Yeah, thanks so much.
TEDDY DOWNEY: All right. And thanks to everyone for joining the call today. This concludes the call.
Bye-bye.
