The Economist / March 25, 2000
MONOCULTURES are much criticised by environmentalists for driving out
biodiversity, replacing a rich mix of species with a single crop.
Economists, and farmers, fear much the same is happening in American
agribusiness, as consolidation and vertical integration sweep the industry.
But they have little confidence in the ability of existing regulatory
bodies, such as the Department of Justice or the Federal Trade Commission
(FTC), to prevent corporate mergers that put farmers and ranchers at a
disadvantage.
This is a strange turn of events, says Jon Lauck, an antitrust expert at
the University of Minnesota law school, because American antitrust law has
its roots in 19th-century farmers' fears that a few big firms would
dominate such activities as meat packing and sugar refining. Those fears
led to ground-breaking legislation such as the 1914 statute to set up the
FTC. These instruments are widely used to break up monopolies in other
industries, but many farmers reckon that today's trustbusters have little
interest in agriculture.
If only, say companies such as Monsanto, whose four-year spending spree on
seed companies has kept it firmly in the justice department's sights. This
has not only cost the company its latest acquisition, Delta & Pine Land,
but also saddled it with a $1 billion lawsuit in damages from the jilted
firm. And the antitrust wagon rolls on. Late last year farmers and
environmental activists filed a lawsuit charging Monsanto and nine other
companies with abuse of licensing agreements and intellectual-property
rights in foisting expensive genetically engineered soyabeans and corn seed
on farmers. Few believe the suit will succeed, because Monsanto's alleged
monopoly arises from a perfectly legal instrument, a patent. But it will
prove an irritation to the firm for years to come.
You're on your own
Antitrust regulators are diligent enough in scrutinising deals that may
threaten consumers, but they pay little attention to the effects on those
who sell to the new giants, says Neil Harl, an economist at Iowa State
University. He points to the acquisition of the grain-trading business of
America's Continental by its rival, Cargill, in 1999, giving the resulting
giant control of 42% of America's corn exports and a third of its soyabean
shipments. Cargill argues that the deal is good for farmers, offering more
of them better market access. The putative beneficiaries are inclined to
disagree.
Some states have passed legislation to regulate corporate farming. One
example is South Dakota, where a referendum in 1998 endorsed a law
preventing corporate agribusiness from owning land or livestock in the
state. That statute is now being challenged by the packers' trade body, the
American Meat Institute. The institute is also fighting a law passed in
Missouri last year that prohibits "discriminatory" pricing, preventing meat
packers from giving preferential contracts to large producers over small
ones.
Several senators have tried to introduce federal legislation to control
agribusiness. Last year they managed to pass a law requiring "price
disclosure", forcing integrated agribusinesses to reveal the cost of their
supplies. A bill to force an 18-month moratorium on all mergers,
acquisitions and marketing agreements was rejected by the Senate. But the
Farmers and Ranchers Fair Competition Act of 2000, now wending its way
through Congress, may have a better chance of survival. It too demands
greater scrutiny of mergers and their effect on small independent
producers, imposing stiff fines for a variety of "anti-competitive"
practices. Industry sees this as more featherbedding for farmers; the
farmers reckon it's only fair.
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