Frederickson, David J.

English

Research Papers in Economics

Agricultural Outlook Forum 2003 Presented:     Thursday, February 20, 2003 
 
FARM ORGANIZATION ROUNDTABLE: 
“COMPETING IN THE 21
ST CENTURY” 
 
David J. Frederickson 
President 
National Farmers Union 
 
Good afternoon, ladies and gentlemen. As the president of the National Farmers Union, it 
is my pleasure to be with you this afternoon and have the opportunity to participate in this 
year’s USDA Agricultural Outlook Forum. 
 
Introduction 
The topic for this roundtable discussion is “Competing in the 21
st Century”.  The fact that 
this issue is part of the forum rightly suggests a level of concern about the terms of 
competition in agriculture and the competitiveness of U.S. agriculture in the domestic and 
global marketplaces as we know them today or in considering how they may evolve over 
time.   
 
The U.S. has been blessed with a significant area suitable for the production of a diverse 
range of crops and livestock.  Over the last century we have also made substantial outlays 
for infrastructure and other agricultural support systems to maintain and expand our 
production, merchandising and distribution capacity.  To a great extent, these investments 
were initiated through public policies such as the Homestead Act, Capper-Volstead Act, 
support of a national transportation system; and creation of the publicly financed 
agricultural research and extension structure.  
 
In addition, because of limited market power and few alternative uses for the available 
agricultural resource base, individual producers exercise the rational economic behavior 
of seeking to maximize their production within the constraints imposed by the 
environment.  Although rarely mentioned during policy discussions, this fact has 
certainly not been lost on the agriculture service sector  consisting of input suppliers, 
processors, merchandisers and retailers, or those who make public policy.  
 
As a result of public investment and programs, adoption of technology by U.S. producers, 
and their natural desire to maximize production, Americans have received great benefits 
over the last century.  The U.S. agricultural system has reduced the share of personal 
income expended on food and fiber products, enhanced product quality and safety and 
increased consumer choice and convenience.  
 
For much of the 20
th century, the United States could legitimately assert that U.S. 
agriculture was the most efficient, productive and competitive system the world had ever 
known.  However, U.S. producers are now witnessing a loss of our competitive position 
both internationally and domestically.  Not only is our comparative production advantage over other producers waning in many commodity sectors, but we are also losing the battle 
in maintaining a competitive advantage.   
 
The Issues 
One definition of “competitive” is provided in Webster’s Dictionary as, “produced by, 
based on, resulting from or capable of existing in rivalry of economic endeavor and 
without the presence of monopoly or collusion.”
1   
 
In order to define what may be necessary for U.S. agriculture to compete in the 21
st 
century, I believe that, among the many issues that could be discussed, two questions 
must be examined.  These are: 1) what is the effect of concentration within various parts 
of the food chain on competitiveness; and 2) How does globalization impact agriculture 
as manifested through domestic objectives and the outcome of trade negotiations?  In the 
end, the answers to these questions will, in large part, determine our ability to compete in 
the 21
st century and at what costs and benefits in terms of consumer interests, producer 
returns and the future structure of production agriculture and our rural communities. 
 
Concentration 
In order to discuss U.S. agriculture’s ability to compete in the 21
st century, we must 
recognize that substantial differences exist in the capacity to compete among the different 
participants in our agricultural system. While competitive distinctions should be 
established by the characteristics prevailing in different commodity sectors and segments 
of the food chain, at a minimum the agricultural service industries should be 
differentiated from that portion of the production sector composed of independent 
farmers and ranchers.  
 
The National Farmers Union has been concerned about the effect of increased vertical 
and horizontal integration within agriculture for a long time.  The dramatic increase in 
mergers, acquisitions, consolidations and strategic alliances has a substantial impact on 
market competition for both producers and consumers. Equally disconcerting has been 
the general reduction in the regulatory capacity to analyze and ensure consolidations do 
not conflict with public interests, including those of farmers whose livelihoods are largely 
dependent upon their access to open, transparent and competitive markets and 
information.   
 
There has been somewhat of a resurgence in the creation of new processing enterprises 
that attempt to provide alternatives to traditional markets or seek to produce new food, 
industrial and energy products from agricultural commodities.  However, it must be 
recognized that many of these new firms, while important locally to their investors and 
customers, continue to have little impact in the totality of our domestic market and even 
less weight internationally.   
 
                                                 
1 Webster’s Third New International Dictionary, unabridged (Philippines:Merrian-Webster Inc.), p. 464. 
 Increasingly, the issue of concentration must be viewed in a global context since, for the 
most part, the firms that are gaining market share and market power through integration 
and consolidation are multinational in nature.  
 
Beginning in 1999 the National Farmers Union contracted with Drs. William Heffernan 
and Mary Hendrickson at the University of Missouri, Columbia to analyze the levels of 
concentration within major agricultural sectors.  Recent updates of their work have 
clearly demonstrated that the levels of concentration within livestock and grain sectors 
have continued to increase since 1990.   
 
Their analyses may understate the effective market power of these firms because of the 
impact of what Heffernan and Hendrickson characterize as “food chain clusters.”
2  
Clusters involve joint ventures or other relationships between companies that extend the 
level of integration into additional sectors or products.  With little fanfare, a handful of 
private companies have established substantial control over the food chain from input 
supply and transportation to processing.  The concentration ratio of the top four firms in 
many U.S. sectors now exceeds 60 percent and in the beef packing, soybean crushing and 
corn exporting sectors the top four firms control more than 80 percent.  These same firms 
have established similar levels of control in foreign countries as well. Even more 
troubling is the fact that a few companies have a dominant position in several sectors. 
Hendrickson has suggested that five or six food chain clusters may soon control the 
world’s food supply from genetic development to the grocery store shelf.  
 
In the retail sector, the level of consolidation is no less alarming where five companies, 
also multi-nationals, increased their control from 24 percent in 1997 to 42 percent in 
2000. 
 
The argument generally accepted by the Justice Department, and others involved in the 
review of mergers in recent years has been that allowing mergers will enhance the 
efficiency of the consolidated company.  
 
Dr. Robert Taylor, an economist at the Auburn University College of Agriculture, has 
published a paper on the monopoly and monopsony power in the beef processing 
industry.  His analysis suggests that consolidation in that the sector transferred some of 
the so-called efficiency gains to other food chain participants consisting of  producers, 
retailers and consumers in the short term.  However, in the longer term  his analysis of 
inflation adjusted price spread data clearly suggests that price competition in this sector is 
being reduced as a result of consolidation and the cost of concentration is increasingly 
borne by producers and consumers.
3 
 
I believe it is likely that similar effects of concentration are occurring in other agricultural 
sectors.  This raises the most basic question that was the foundation for our anti-trust and 
                                                 
2 Dr. Mary Hendrickson and Dr. William Heffernan, “Concentration in Agriculture Markets,” University of 
Missouri, February 2002. 
3 C. Robert Taylor, “Where’s the Beef?  Monopoly and Monopsony Power in the Beef Industry,” 
Agriculture and Resource Policy Forum, Auburn University College of Agriculture, March 2002. competition laws.  Why does a company seek monopoly or monopsony power if it does 
not intend to the use that power in its own self-interest? 
 
Because these issues directly affect the level of competition for farmers’ products in the 
U.S. and abroad I believe we must address this issue both domestically and 
internationally if U.S. producers are to compete in the 21
st century.   
 
 
Globalization  
Over the course of several decades, many economists, policy makers and multi-national 
agri-business companies have argued that trade is the route to prosperity for U.S. 
agricultural producers.  As efforts are undertaken to modify our domestic agriculture 
policies or engage in negotiations to establish trade agreements, these proponents of “free 
trade” provide a plethora of documentation to justify, at least on a theoretical basis, their 
case.   
 
Generally they claim that: 1) the United States is the most efficient, dependable and 
lowest-cost producer of a wide range of agricultural products; 2) demand is driven by 
population and income growth, which is stagnant in the United States but a given in 
developing countries;  3) it is only the unfair trade practices of others that inhibit our 
ability to export greater quantities and generate higher producer returns; and  4) in the 
absence of government intervention the global marketplace will achieve supply and 
demand equilibrium that will provide adequate returns to U.S. producers. 
 
I fully appreciate the importance of international trade to U.S. farmers and ranchers.  Our 
capacity to produce food and fiber products in excess of our ability to consume these 
products domestically is well understood, as is the fact that much of world also is 
dependant upon trade to satisfy at least a portion of their own demand for agricultural 
products.  However, the claims of free trade proponents in supporting our trade agenda 
not only are wrong, but the excessive claims about the benefits of trade lead to a level of 
expectation that is unlikely to ever be fulfilled. 
 
If the United States was once the most efficient, lowest cost producer of agricultural 
commodities; it can no longer make that claim in a number of production sectors.  To a 
great extent this is due to the acceleration of technology transfer globally and a wide 
range of strongly supported U.S. public policies concerning labor and environment.  In 
addition, macroeconomic and monetary policy considerations continue to severely 
hamper U.S. agricultural exports and encourage imports due to exchange rate 
differentials. 
 
Over the last three decades the aggregate farm gate export value for U.S. agricultural 
products has basically been flat, while domestic demand has continued to rise.  Our actual 
experience directly contradicts trade advocate claims.  Also, the individual overseas 
markets that were expected to provide the greatest stimulation to our exports, such as the 
Former Soviet Republics, China, Latin America and Southeast Asia, have failed to 
materialize.    
The Uruguay Round disciplines on agricultural trade practices and other free trade 
agreements have not resulted in improved U.S. agricultural export performance.  In fact, 
as a result of numerous trade agreements, the U.S. has greatly increased its imports of 
competing agricultural goods. 
 
It is unrealistic to expect governments -- ours and particularly those of food deficit 
nations -- to curtail intervention in agricultural markets or in areas that directly impact 
production and distribution.  Food safety and security, along with the importance of 
agriculture to national economies and social structures, ensure that some form of 
intervention or market management will remain. 
 
If U.S. producers are to be competitive in the 21
st century, trade negotiations and 
agreements must first be viewed as a “means” and not the “end” as many seem to 
currently believe.  It is after this that we may then be able to create an agricultural trade 
environment and spirit of cooperation that can identify and address the legitimate 
concerns of consumers for an adequate, affordable and safe food supply and provide a 
more stable and acceptable economic environment for producers.  Attention must be 
given to not only the traditional trade issues of market access, export subsidies, domestic 
policy and special and differential treatment but also to issues such as labor and 
environmental standards and exchange rate fluctuations.   
 
We believe the primary goal of trade negotiations should be to enhance the 
harmonization of national policies and priorities while fostering greater cooperation in 
addressing the real problems that concern producers and consumers. 
 
Conclusion 
The United States and our trading partners have failed to harmonize, enforce or dismantle 
much regulatory authority over sectors critical to maintaining competitiveness in 
agriculture.  At the same time, as the agriculture service sector has become more 
globalized it has also consolidated, concentrating its global influence and control over 
multilateral negotiations and markets.   
 
In addition, for a variety of reasons, the U.S. has unilaterally disarmed itself in the 
traditional agricultural trade areas of market access, domestic policies and export 
subsidies while ignoring the basic issues that affect our future competitiveness.  
 
Unless we find new ways to address these issues, U.S. production agriculture’s ability to 
engage in economic rivalry without the presence of monopoly or collusion will be 
relegated to the same mythical status as free trade. 

FARM ORGANIZATION ROUNDTABLE: "COMPETING IN THE 21ST CENTURY"

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