The Guardian May 23, 2001

The forced corporatisation of US agriculture

by Jayati Ghosh*

It is no secret that the United States, like most other developed 
economies, provides large subsidies to its farming sector. It is also no 
secret that these subsidies were not really reduced after the WTO was 
formed, and that despite the GATT Agreement on Agriculture, farm subsidies 
in most of the OECD countries are now back to pre-GATT levels.

What has been a relatively well-kept secret, however, is that these 
subsidies have not really benefited farmers so much as they have 
contributed to greater profits of the giant corporations that now control 
the distribution and marketing of food products.

This is marked in the US, which is particularly striking because the US 
economy is widely cited as one with relatively low marketing margins among 
developed countries.

At first glance, this appears hard to accept. After all, expenditure on 
food in the US has been rising at a significant rate over the past decade. 
And this has been combined with subsidies of various types which have 
circumvented the GATT restrictions by using "Green Box", restructuring and 
other provisions to provide subsidies which are now as high a proportion of 
the final value of output as they were in the late 1980s.

The paradox can be explained in terms of the widening margins going to 
marketing and distribution. The share of this in total value added in the 
total food expenditure in the US has gone up dramatically since 1980.

In constant price terms (that, calculated at 1982-1984 real US dollars) 
between 1970 and 1999, consumer food spending increased by 30 percent, the 
marketing bill rose by 54 percent, and farm value "actually declined by 21 
percent. Much of this process was due to specific trends of the 1990s. US 
consumers spent US$618.4 billion on food in 1999 (excluding imports and 
seafood), up 37 percent from the amount spent in 1990.

Between 1990 and 1999, marketing costs rose 45 percent and accounted for 
most of the 37-percent rise in domestic consumer food spending. In 
comparison, the farm value of food purchases climbed only 13 percent 
between 1990 and 1999. The higher marketing costs not only raised consumer 
food expenditures, but also increased the share of expenditures 
attributable to marketing.

In 1999, marketing costs accounted for 80 percent of total consumer food 
spending, with farm value accounting for the remaining 20 percent. In 
comparison, the marketing bill accounted for 76 percent of 1990 consumer 
expenditures and farm value 24 percent.

Major subsectors

A look at the more disaggregated data shows that this broad tendency of 
divergence between farm values and retail prices is evident in all the 
major food subsectors.

Consider the case of meat products. Until the mid-1980s, not only did the 
two indices move together, but farm value changes tended to be more than 
retail prices. From 1986 onwards, that pattern has been reversed. And from 
1990, farm values have been declining quite sharply even as retail prices 
have continued to rise. By the late 1990s, the gap between the two was 

Very similar trends are evident in poultry and for dairy products, the only 
difference being that in the 1990s in these two subsectors farm values do 
not decline as in meat products, but remain broadly stagnant. Similarly, 
for fresh fruits and fresh vegetables.

Consumers bought a larger volume of food, value-added processing and 
packaging of at-home foods increased, spending at restaurants and fast food 
outlets grew, and prices for marketing inputs rose.

A changing workforce  comprising more working women and more two-income 
households  meant that busy consumers of the 1990s demanded quick, easy-
to-prepare convenience foods. The strong economy of the late 1990s raised 
incomes and allowed more consumers to pay for highly processed convenience 

It is typically suggested that all of these factors were the dominant 
contributors to the jump in food spending during the 1990s. Certainly, they 
played a role, but there were other important changes in production 
organisation which were probably even more significant.

In fact, this is not something that can be explained only or even 
dominantly by changes in levels of processing, changed consumer tastes and 
preferences, etc. Clearly, something else has been going on. And that other 
process, which has operated to increase the share of value accruing to the 
distribution, is the increasing corporatisation of food production and 
concentration of agro-industries, especially in the US but also in the rest 
of the world.

Monopoly stranglehold

The process of concentration of industry is one that has affected virtually 
all productive sectors in the world economy. It is just as evident in the 
food processing and marketing sector, which was already a more concentrated 
sector at the beginning of the 1990s.

As a consequence, a handful of large companies now handle, control or are 
involved in some way in almost all aspects of production and distribution 
of food. In the US, the process of corporatisation of agriculture is not 
only well advanced but has accelerated over the 1990s.

Consider the companies that now control certain important food sectors in 
the US economy:

* in grain trade and processing  Cargill (which swallowed Continental, 
the second-largest grain trader), Archer Daniels Midland (ADM), ConAgra.

* in beef packing and distribution  IBP, ConAgra, Cargill (as owner of 

* in cattle feed  Cargill, Cactus Feeders, ConAgra.

* in pork processing  Smithfield (the largest pork processor has bought 
the largest and second-largest hog producers, Murphy Family Farms and 
Carroll's Foods), Cargill, Seaboard.

* in biotech and seeds  Monsanto, Cargill, DuPont/Pioneer, Novartis, 

* in supermarkets  Kroger, Albertson's, Safeway, AHOLD (Giant), Winn-
Dixie, Wal-Mart.

The repetition of a few names confirms the point that, as in some other 
interconnected industries, a few diversified firms are positioned on many 
sides of the market at once.

Increasingly, the processes of mergers and acquisitions are connected 
through a complicated system of "strategic alliances" and cross-ownership.

Thus, Smithfield, the world's largest hog producer and pork processor, 
recently bought a 6.3 percent stake in its rival company IBP, the second-
largest pork processor. ADM already owned a 12.2 percent share of IBP. This 
kind of cross-ownership is likely to continue, as IBP itself is now to be 
acquired in a friendly takeover by the Wall Street brokerage firm 
Donaldson, Lufkin " Jenrette (which was recently bought by Credit Suisse 
First Boston).

Cargill and Monsanto have a complex and elaborate web of joint ventures 
that runs from fertiliser and seeds to grain and raising cattle, hogs, 
turkeys and chickens, then on to the butcheries and packing plants.

Four firms control 82 percent of the beef packing industry, 75 percent of 
delivery of hogs and sheep, and half the chickens.

Major supermarket chains are now concentrated regionally within the US, 
though not nationally. Four firms hold 74 percent of market control in 94 
large cities; experts anticipate a new major wave that could swiftly 
increase that percentage while doubling the four firms' overall national 
concentration up to 60 percent.

It is not just that the "consumers" so beloved of mainstream economic 
theory are adversely affected by these levels of concentration and 
effective monopoly. It is also precisely this kind of market leverage that 
has given the large companies a pricing advantage over farmers and 

And it is this which explains the rising spread between the prices received 
by farmers and livestock breeders, and the retail prices, that is so 
evident from the charts.

Marginalising small farmers

Thus, companies regularly exploit this market leverage, and the degree of 
control created by vertical integration of breathtaking dimensions, to 
depress market prices for independent, relatively small producers.

In some cases the control is direct. Thus, owning feedlots, or (an 
increasingly common practice) signing output contracts with individual 
farmers for poultry, hogs, cattle and even grain and soybean, gives the 
processing companies access to their own captive supplies.

Even when there is no such overt control, the ability of marketing giants 
to hold their own private stores of livestock or grain or oilseeds means 
that they no longer have to rely on the traditional auction-based purchases 
in the open market to provide most of their supply.

This has affected the auction markets as well, rendering the prices for 
farmers lower and more volatile.

The recent crashes in world trading prices have speeded up these processes. 
Two consequences of this are now clear. One, is that it drove many American 
farmers into rushing to accept whatever new technology offered cost-cutting 
or output increasing effects.

Thus, farmers sought more capital-intensive cultivation, and Monsanto and 
other companies were also easily able to persuade farmers to adopt their 
genetically modified seeds for corn and soybean in particular.

The other impact of the price collapse is that it has driven many more 
farmers into accepting the status of contract producer, growing crops or 
live-stock under fixed-price contracts with the corporations.

This model is eerily reminiscent of the process of forced commercialisation 
in Indian agriculture over the 19th century, when small farmers were 
incorporated into a global economy through a process of debt engagement or 
through contracts of purchase where the ultimate buyer (say, for example, 
the opium or indigo planter) also offered inputs such as seeds and other 
working capital and bound the formerly independent producer into a 
subservient relationship.

Of course, in the US this process is occurring in an already capitalist 
agriculture which is highly sophisticated in terms of techniques and 
production organisation. For that reason, it also bears similarity with the 
pattern of organisation in contemporary major industrial sectors in 
developed countries.

Here a large corporation  say Nike or Benetton  organises a complex but 
disparate and shifting network of affiliated producers, subcontractors and 
distributors, who all adhere to its brand standards.

This entire process has been dramatically described as follows: "Farmers 
can see themselves being reduced from their mythological status as 
independent producers to a subservient and vulnerable role as sharecroppers 
or franchisees. The control of food production, both livestock and crops, 
is being consolidated not by the government but by a handful of giant 

"While farmers and ranchers suffered three years of severely depressed 
prices at the close of the 1990s, the corporations enjoyed soaring profits 
from the same line of goods.

"Growers are surrounded now on both sides  facing concentrated market 
power not only from the companies that buy their crops and animals, but 
also from the firms that sell them essential inputs like seeds and 
fertiliser. In the final act of unfettered capitalism, the free market 
itself is destroyed." (William Grieder, "The last farm crisis", "The 
Nation", November 20, 2000)

American farmers are effectively being incorporated into a peculiar 
collectivisation of agriculture, where those in control are large 
multinational companies operating all the way along the value chain.

And it is this model of growing corporatisation of agricultural and agro-
processed commodity production which is being upheld as an example for 
other countries, and which is effectively being pushed onto a whole range 
of developing countries such as India.

The effects of such a policy on American farmers, who are already quite 
well off, and financially and politically strong, are now apparent. But 
this process is likely to be much more devastating in terms of its impact 
on Indian cultivators, a majority of whom are already operating at the 
margin of subsistence.

* * *
Abridged from People's Democracy, paper of Communist Party of India (Marxist)

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