First in the nation

Spencer Parts

02 February 2020

First in the nation

University of Iowa football helmet (Credit: University of Iowa)

Amid steady consolidation and weak commodity prices in the agricultural industry, some Democrats are trying to bring trust-busting to centre stage. Spencer Parts zeroes in on the scene in Iowa – the first state to vote on contenders in presidential primaries. 

The University of Iowa football team’s helmets carry a decal that reads “ANF”, which stands for “America Needs Farmers”. It was added to the helmets during trying times for Iowa: the 1980s farm crisis, when thousands of families fought to keep their farms after land and commodity prices collapsed.

That collapse followed aggressive farm expansion in the 1970s. It bankrupted about 20,000 Iowa family farms – a sixth of the state’s total – according to the Iowa Farm Bureau, a trade group. The average value of US farmland dropped by about 30% in the early 1980s; local banks that lent to farmers failed at a rate that had not been seen since the Great Depression. The crisis gave a jolt to consolidation in farm production and ownership, which has increased steadily afterwards.

Now, an overvalued US dollar and competition from foreign producers – both factors in the 1980s farm crisis – have once again hurt profitability for farmers. The US trade war with China has also pushed down prices for some commodities, calling attention to the struggles of farmers.

On the other side of the equation for farmers’ ability to turn a profit, the inputs they need to buy have been subject to major consolidation recently. Huge international deals between suppliers include Bayer’s €62.5 billion takeover of Monsanto in 2018; the €128 billion merger of agrochemical companies Dow and DuPont in 2017; and the €38 billion merger of pesticide companies ChemChina and Syngenta in 2016.

Iowa has an outsized role in US politics. Its caucuses are first in the presidential nominating contest, so candidates have plenty of time to formulate an appeal to the state’s agriculture-focused economy. A win there can start a presidential candidate on track to a successful bid for the nomination. Democrats campaigning in Iowa – including all of the front-runners for the presidential nomination and a prominent congressional candidate – have advocated antitrust action against large agribusiness companies that they say are squeezing farmers.

Yet antitrust campaigning in Iowa is in its early stages. Farmers there have learned a tough lesson from the 1980s and consolidation since then: adapt to the market as it is, or you could lose everything. Changes in the food system have had differing consequences for various players. Consolidation in agriculture has local winners as well as losers. And prior talk of antitrust action from Democratic candidate and former president Barack Obama brought about no major action.

Ongoing consolidation

Iowa’s four main agricultural products – corn, soybeans, hogs and poultry – have all been subject to significant consolidation since the 1980s.

According to a 2018 report by the US Department of Agriculture (USDA), about 57% of US cropland was operated by medium-sized farms in 1987. By 2012, that share was down to 36%, while the share of cropland operated by large farms of at least 2,000 acres more than doubled to about 36%.

Consolidation in cropland was particularly pronounced in Midwestern states such as Iowa, with the typical size of farms growing field crops increasing by about 45% between 1997 and 2012.

The researchers also found that consolidation in livestock took place “episodically” across the country, with most production shifting to larger operations. In 2012, the average US farm raising hogs and pigs had about 33 times more animals than in 1987. The typical flock of egg-laying hens was about eight times larger in 2012 than in 1987.

In a separate study on hog production, the USDA found that the number of hog farms dropped by more than 70% from 1992 to 2009, while productivity increased. The overall hog inventory remained roughly constant during this time period. Inflation-adjusted retail pork prices remained roughly constant as well.

The trend of consolidation holds when looking at overall farm sales and not any single product. There has been a “substantial shift of production to larger farms”, agency economists James MacDonald and Robert Hoppe wrote in a summary of the report.

Yet family business still dominates agriculture. Family farms – defined as farms on which the day-to-day operator owns the business individually or with relatives – account for about 99% of farms and about 89% of production nationwide.

Technological developments have allowed farmers to manage more land, a likely driver of consolidation. “[L]arger, faster, and more precise tractors, planters, sprayers, and harvesting equipment” as well as pest-management improvements all played a role, the study’s authors wrote. Confinement feeding allowed livestock producers to expand rapidly.

In Iowa, about 25% of farmers account for 80% of farm sales, Iowa State University economist Dave Swenson says, and that 25% is a powerful group in state and national politics. Many of them run large farms, but are still entirely local operators. Consolidation means fewer farmers work the land than did in the past, but it does not indicate an obvious lack of power on the part of farmers generally.

“They’re just Iowa-born-and-bred farming interests that have succeeded in getting large and that’s what they are,” Swenson says. “I think farmers still have market power, still have political power.”

But corporate consolidation can cause problems for farmers, he adds. For example, DuPont and Monsanto own the underlying traits – patented genetic technology in the seeds – in nearly all the seed that farmers purchase.

“Those two firms own the traits,” Swenson says. “There is extraordinary concentration within those two firms at least with regard to corn and soybean production.”

Farmers’ spending on seeds in Iowa more than doubled between 2000 and 2010, and increased slightly between 2010 and 2018, according to USDA data.

Swenson says the concentration facing farmers growing corn and soybeans on the other side of the supply chain – that is, monopsony – is less apparent. The state has a well-distributed system of grain buyers as well as refineries throughout the state that turn corn into ethanol fuel. The development of those refineries gave farmers more options for selling corn, Swenson says. A large percentage of Iowa corn is used for ethanol fuel. The USDA estimated in September 2019 that about a third of corn this year, 5.45 billion bushels, will go to ethanol.

Commodity prices have, however, been stubbornly low for the past five years, Swenson says. They rose between 2008 and 2012, peaking at slightly over $8 per bushel of corn, but fell to about half of that in 2018. Soybeans followed a similar trend, with prices dropping from a 2012 high. In the soybean market, Swenson says consolidation among buyers has been accumulating but is a problem secondary “by a long shot” to fluctuations in export sales.

While farmers faced exceptionally bad weather in 2019, demand for US crops has also been weak, Iowa State economist Chad Hart said in an October report. That limits potential price increases farmers might see this year.

Consolidation is especially dramatic in food processing, and particularly in pork, Swenson adds. Increasingly, farmers produce under contract: they agree to sell animals to a processor at a certain time and for a certain price, instead of selling those animals on the open market. They also often receive key supplies such as feed from the processors. As a result, they are more and more dependent on meat processors.

“Farmers need antitrust”

Democratic congressional candidate JD Scholten sees farmers struggling in Iowa. He says antitrust is a “pocketbook issue” that can help him break through in his campaign to unseat Republican Steve King in Iowa’s conservative Fourth District.

He wears a shirt to campaign events that puts his own spin on the Farm Bureau’s 1980s slogan. “America Needs Farmers,” Scholten’s shirt reads, and beneath that in smaller letters: “And Farmers Need Antitrust.”

Scholten says farmers receive an ever-smaller share of the consumer dollars spent on food. Antitrust enforcement could help bring more consumer food dollars to Iowa farmers – and he says that message resonates in the Fourth District. In the USDA’s most recent study of the food supply chain, it found that the share of the consumer food dollar going to farmers dropped to 14.6 cents in 2017, the lowest figure since the USDA started keeping the statistics in 1993. The agency found the share of consumer spending going to food service has increased in recent years, jumping from 29 cents in 2008 to 36.7 cents in 2017.

“It’s one of those things where, the people it affects, they know,” Scholten says of consolidation in agribusiness. People understand that large meatpackers and agribusiness companies are profiting while farmers struggle; that they are “being bullied and they don’t have a seat at the table,” he says.

High levels of corporate concentration and influence run counter to American values of self-government, Scholten says, quoting Abraham Lincoln: “It goes against a ‘government of the people, by the people, for the people’.”

Antitrust enforcement is not a partisan issue, Scholten adds. For example, Senator Charles Grassley of Iowa, a Republican, has repeatedly proposed legislation that would protect from reprisal employees who serve as whistleblowers in antitrust cases. He also co-sponsored a bill with Democratic senator Amy Klobuchar – who is contending for her party’s presidential nomination – that would provide more resources to antitrust enforcers.

Scholten, however, is including antitrust in a broader populist economic message. He says such a message needs to be part of Democrats’ platforms for them to turn their fortunes around in districts such as his.

“Most people in the Fourth District understand that this economy isn’t working for them,” Scholten says. The food system is functioning well in Iowa for neither farmers nor consumers, he says, with high-quality local produce as hard to find for families struggling economically in this agricultural part of the country as it is anywhere else.

According to the Iowa Farm Bureau, fewer than 5% of people in the state make a living through farming. Yet the farm economy influences the well-being of the rest of the state, Scholten says.

He judges the strength of the farm economy by the number of new Ford trucks sold. In a strong farm economy, farmers buy new trucks – and invest locally in other businesses. But when the farm economy is weak, economic opportunity dries up and young people move away, Scholten says.

His electoral opponent, the incumbent congressman Steve King, did not respond to a request for comment.

Scholten says that when he meets with the Democratic presidential candidates campaigning in Iowa, he pushes them to make antitrust in agriculture part of their platforms too.

All the top candidates for the Democratic presidential nomination have done that. Nine candidates for the nomination – including two candidates leading polls in Iowa, former vice-president Joe Biden and Senator Elizabeth Warren – have included calls for more antitrust enforcement in agriculture in their platforms. Warren and Klobuchar both spoke on the issue early in the campaign season, at a discussion in Storm Lake, Iowa, that focused on agriculture consolidation. It was sponsored by The Huffington Post and antitrust enforcement advocacy group Open Markets.

Warren has said in a policy plan that she would appoint antitrust enforcers that would stop or reverse anticompetitive mergers, including by breaking up agribusinesses that are vertically integrated. National policy has “consistently favoured the interests of multinational corporations and big business lobbyists over the interests of family farmers,” she wrote, adding that consolidation in other sectors such as banking and transportation has added to farmers’ struggles.

In a Facebook post in February 2019, Warren criticised the US Department of Justice for “rubber-stamping” Bayer’s acquisition of Monsanto and “handing control over one-quarter of the world’s seeds and pesticides market to one ginormous agribusiness”.

“That’s bad for farmers, bad for our food supply, and bad for consumers everywhere,” Warren wrote.

PolitiFact evaluated the claim as “half-true”, based on the DOJ’s Antitrust Division having engaged in a “more deliberate” process than the term “rubber-stamping” implies, as the agency required substantial divestitures from Bayer/Monsanto after a lengthy merger review.

Another of the most popular presidential candidates has also called for the break-up of large agricultural companies while campaigning in Iowa. At a campaign event in May and again in his antitrust platform released in October, Senator Bernie Sanders said he would put a moratorium on agribusiness mergers. “Our attorney general will aggressively address the growing monopolisation of the American economy in general, and specifically break up large agribusiness corporations,” Sanders said of his planned presidential administration.

Both Warren and Sanders also have said they would challenge foreign ownership in American agriculture, citing Chinese ownership of pork production as a concern.

Klobuchar, the highest-ranking Democrat on the Senate’s antitrust subcommittee, favours more incremental changes to enforcement. She has proposed legislation to change what the agencies must prove to block a merger, including by requiring certain companies to prove that their merger is not anticompetitive. She also has sought to empower competition authorities to seek financial penalties for monopolisation.

While Democrats are focused on their internal race for the presidential nomination now, they also are thinking ahead to a potential general election. Iowa voted for Democrat Barack Obama in 2008 and 2012. But it went for Republican Donald Trump in 2016.

Here we go again?

Like JD Scholten, Democrat Austin Frerick tried to win an Iowa congressional seat in 2018, styling himself as a 21st-century trust-busting candidate. Frerick dropped out of the race when he determined that he lacked enough money to continue the campaign. He is now the deputy director of the Thurman Arnold Project at Yale University, an antitrust initiative led by former Antitrust Division chief economist Fiona Scott Morton.

Despite not winning the election, Frerick still argues that antitrust is the right response to the hollowing out of Iowa’s towns. People get angry at the condition of their communities, and rightfully so, he says. In addition to agricultural monopolies, Frerick points to some Iowa towns that have been harmed by manufacturing consolidation. For example, when washing machine maker Whirlpool bought rival Maytag and shut down Maytag’s factory in Newton, that was “a big shock” for the town, he says. “Every little town in Iowa has an example of a company that left, consolidated or something.”

Candidates focused on antitrust in Iowa should not talk about it in academic ways, Frerick advises, but instead focus on specific economic pressures people face. “You have to humanise this language,” he says. “You validate the anger but you’re redirecting it” towards business consolidation. That means talking about the impact antitrust enforcement could have on material issues such as the price of corn seed for farmers, instead of talking in unfamiliar terms about the structure of the economy.

But Frerick warns that the underwhelming results of President Obama’s antitrust advocacy – including a joint Department of Justice and Department of Agriculture investigation of consolidation in the sector – is the “elephant in the room” for Democrats calling for more action.

“People risked a lot” when they criticised large meatpackers and other companies in public hearings, Frerick says. Yet the farmers did not see government action that improved their situation.

Sharis Pozen, acting assistant attorney general for antitrust during the Obama administration, called those hearings an “eye-opener” when she spoke at GCR Live Women in Antitrust in October 2018. But despite the Antitrust Division’s investment of time and energy into agriculture competition enforcement, it was not able to “move the needle”, Pozen acknowledged. For example, the agency “never could really find an antitrust theory” under which it could challenge practices in the poultry industry that disadvantage farmers, she said.

Outside the Antitrust Division, the USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) in 2010 proposed new rules for enforcement of the Packers and Stockyards Act, an agriculture-specific antitrust law. But Congress blocked the use of funds to implement those rules. The USDA ultimately finalised the rules in December 2016 – the last full month of the Obama administration – but the Trump administration withdrew them in October 2017.

The USDA has since eliminated GIPSA as a stand-alone agency, instead making it a division of the department’s Agriculture Marketing Service. Last spring, the USDA invited public comment on a new rulemaking regarding enforcement of the Packers and Stockyards Act. The agency has said the rulemaking will specify conduct by meat packers and purchasers that “constitutes an undue or unreasonable preference or advantage” in violation of the Act.

Woven into the supply chain

It’s an uphill climb to convince people that the agriculture supply chain could look much different than it does now, says Tom Cullen. He is a reporter at the family-owned newspaper Storm Lake Times, which serves a town of 10,000 people in northwest Iowa.

Farmers do not often view the trends in the industry as susceptible to alteration, and are instead concerned with adapting to change to stay afloat, Cullen explains. They are “woven into the ag[riculture] supply chain.”

They could be receptive to competition advocacy if it is tailored to them, he suggests. “It has to be focused, it has to be tailored to the way they speak, and it has to harken back to a time that they do remember” – such as the farm crisis of the 1980s, which was a recognisable turning point in Iowa agriculture.

But as of now, most farmers do not think of antitrust as something that will improve their prospects, he says.

“A lot of people haven’t really heard about it,” Cullen says. “Well, they haven’t heard at least how it’s going to help them.”