t’s the big tech companies Google, Facebook, Amazon and so on that are making headlines right now. Government regulators and politicians are beginning to ask tougher questions, but are they right ones? And will they bring the same concern to the farm/food industry?
Anti-trust laws go back to the 1950’s and were designed then to block “any merger whose effect may be substantially to lessen competition, or to tend to create a monopoly.” This started to change in the U.S. in the 1970’s when Appeals Court Judge Robert Bork introduced the idea that as long as size and market power delivered good value to consumers, then mergers should be allowed.
The size and market dominance of Google and the gang have regulators alarmed, but it was really privacy violations that started the recent investigations. Social media users discovered Facebook wasn’t actually free, that a lot of personal information was going to advertisers and even political parties to allow both to better target their messages. That’s why Facebook and the others were making billions in profit.
Meanwhile in Europe, France has brought a new weapon to the game, introducing a 3% tax on about 30 international tech companies, mostly American. Britain says it will follow suit. President “Trade Wars are Easy” says the U.S. will retaliate with duties on French wine.
And of course here in Canada there have been calls to tax Netflix to at least support Canadian culture the way other big media companies are forced to do. Netflix has resisted.
Collecting taxes from wealthy corporations is one thing, but I still think regulators have to move beyond the Bork rule (do consumers benefit?) and consider what impact size and market dominance has on producers. Nowhere is this more evident than in the farm/food sector. The input side of farming, and food processing and retailing have gone through extraordinary consolidation, and farmers are caught in the middle.
Just 20 years ago there were roughly 600 companies producing seeds, pesticides, and fertilizer. Through acquisitions and mergers that’s been whittled down to just a handful: Bayer-Monsanto, Dow Chemical-Dupont, ChemChina-Syngenta, BASF, and Nutrien, the result of the merger of fertilizer giants Agrium and the Potash Corporation of Saskatchewan.
These companies have complete dominance in important commodities like corn and soybean. The fact that GMO seeds can’t be saved but must be purchased each spring just adds to the straightjacket farmers are in. This is the kind of market power anti-trust regulators would have been leery of decades ago. Now it’s celebrated in the business press.
Food processing is controlled by very few as well. Ten companies control the vast majority of food and beverage brands that we see on store shelves.
Then there’s the food wholesale and retail businesses. Again two decades ago there were dozens of local and regional operations. Now Loblaws (Atlantic Superstores), Sobeys, and Metro in Quebec dominate the sector. They certainly meet the Bork standard. It may not feel like it at the cash register, but Canadians, relative to income, pay less for food than anyone other than Americans. As I’ve written before, profits are found by using their size and market power to squeeze suppliers, obviously including farmers.
And what’s it like at the profitable end of the food chain? Loblaws issued quarterly earnings late last month. Disappointing according to the financial press. Profits were only $286 million, with same store sales only going up by .6%. The problem, according to president Sarah Davis? The company was too focused on margins (profit) rather than “tonnage.” This is a problem many farmers wish they had.
It’s easy to say big corporations are bad, but this has real consequences. Listen to what a couple of economists say about the dangers of “big”. This from Nat Berman: “When you boil it down to barest essentials, corporations are cost-externalizing machines. They tend to privatize profits and socialize costs as much as possible. When they grow large enough, the temptation is all but overwhelming that they will attempt to alter the competitive landscape to make it impossible for start-ups to engage them in fair, head to head competition.” And from Tim Wu: “Giving freer rein to private economic power has already yielded extreme levels of economic inequality, stoking the fires of social and political dissatisfaction.”
It takes political guts to question the size of big companies who make so much effort to convince consumers they’re on their side, but inequality is a real driver of the “populism” that’s roiling politics right now. Anti-trust laws may seem old fashioned, but they’re badly needed right now.