A comprehensive report by the Economic Research Service (ERS), a primary source of economic research and analysis from the U.S. Department of Agriculture, has detailed significant consolidation trends in the agribusiness sectors, including seeds, meat packing, and food retail. The study focused on the implications of market concentration on competition and examined the effectiveness of public policies geared toward encouraging competition.
The research revealed a marked increase in market concentration across many sectors of U.S. agribusiness over the past four decades. For instance, between 2018 and 2020, just two seed companies accounted for 72% of planted corn and 66% of planted soybean. Similarly, in 2019, the four largest meatpackers accounted for 85% of steer and heifer slaughter and 67% of hog slaughter. In most metropolitan areas, five to six-store chains dominated supermarket sales.
Economic theory and empirical analyses indicate that high market concentration can often facilitate the exercise of market power, which may result in firms driving sales prices above or livestock purchase prices below those prevailing in competitive markets. However, the USDA ERS report notes that the correlation between concentration and market power is not strict and that high concentration can often stem from technological innovations or economies of scale that boost productivity and lower costs and prices.
The study discovered that the increase in concentration primarily resulted from the consolidation of production into fewer but more prominent firms. Technological innovations, changes in market demand, and redesigned supply chains primarily drove this. Mergers played a considerable role in escalating concentration in the seed sector, a contributing role in food retail, and a limited role in meatpacking.
The USDA ERS research noted a significant increase in seed prices between 1990 and 2020, with farmers’ costs for crop seeds rising by an average of 270%, while prices for genetically modified (GM) crops increased by 463%. This surge largely reflects the improved productivity of new crop varieties and compensates for seed companies’ investments in research and development (R&D).
The meatpacking industry transformation involved shifts to larger plants to realize economies of scale and tighter vertical coordination through contract arrangements replacing cash markets. The food retail sector also saw significant reorganization, with traditional supermarkets facing entry from new store formats and increasing store sizes.
The report concludes that U.S. antitrust laws, which prohibit mergers that reduce competition, have played significant roles in agrifood industry restructuring. To maintain market competition and incentives to innovate, antitrust reviews led to the divestiture of some company assets in mergers. Despite this, the report underscores that mergers were not the primary source of consolidation in the meatpacking industry.
The report’s findings were based on extensive prior research, much of which was done at the USDA’s Economic Research Service. Additional data from other U.S. government and private sources were also utilized to describe recent market trends.