ROLE OF COROPORATIONS IN MODERN AGRICULTURE

Effects of Corporations The family farm has had to adopt the structure of a corporate business, which also has changed the character of rural life. Many farms now are partners with corporations. They get their seed from corporations and sell their crops (animals) to corporations. For example, the chicken industry is done almost entirely in partnership with corporations. Only a few large corporations now dominate all the agribusiness in the world and shape the markets.

The following slides are from Professor Taylor of Auburn University.

The Changing Structure of Global Agriculture

The New Cowboy Economy “… The world is going to have a global economy without a global government. this means a global economy with no enforceable, agreed-upon set of rules and regulations, no sheriff to enforce codes of acceptable behavior, and no Judges and Juries to appeal to if one feels that justice is not being done.” Lester Thurow

Economics of Wealth Creation in the Global Economy Businesses bring Labor and Capital together to create “wealth” or profit How is wealth distributed in the global economy? The “investor class” increasingly capture wealth that is created … With less and less going to the “working class” Profits increasingly flow to financial centers, and not to rural areas

The Deadly Combination  Horizontal concentration  Vertical integration  Interlocking spider web of directorates, subsidiaries, joint ventures, strategic alliances, and partial ownership of other agribusiness firms  No real structure to the global economy  Only “Imposing facades” Thurow  No global antitrust laws or police  Dated domestic antitrust laws  Increasingly narrow interpretation of domestic antitrust laws  External (community) costs

Early Antitrust Interpretation “[I]t is not for the real prosperity of any country that such changes should occur which result in transferring an independent business man... into a mere servant or agent of a corporation... having no voice in shaping the business policy... and bound to obey orders issued by others.” Justice Peckham one of the first substantive decisions interpreting the Sherman Antitrust Act (from Carstensen)

Independent Businessmen? Many of us admire the fierce independence of farmers and farm families Are farmers really independent any more? No!No! They are increasingly puppets of the corporate world Their independence has hindered actions for them to band together to “countervail” corporate power

Free Markets? Not one! “There isn’t one grain of anything in the world that is sold in a free market. Not one! The only place you see a free market is in the speeches of politicians.” Dwayne Andreas, CEO of ADM

Is the Global Food System Out of Control?  Our present economic system has emerged without any apparent forethought about what kind of economic/social system citizens want  Change has been driven by corporate interests  Fathers of a competitive market economy recognized that there is an inherent instability in the system:  A competitive market economy may evolve, through natural growth, acquisitions or mergers, to monopoly  Unless the market is regulated  Antitrust laws were intended to prevent this outcome  Contract production is part of the corporate mindset

Giant Corporate System Big business is not necessarily bad, but isAn imbalance of market power or economic power often leads to abuse, which is bad Concentration was initially driven by economies of size, which do not include costs imposed on the environment and on rural communities Concentration is now driven more by attempts to gain raw economic power than by economies of size Corporations are more concerned about immediate profit, rather than long-term conservation and stewardship Increasing control of food production technology

Lost in the Fifties Small and mid-sized producers of “commodities” selling on the cash market Returns will likely be dismally low, at best Some markets are disappearing with vertical integration Many markets thinning due to contracting –Less accurate and more easily manipulated –Partial vertical integration transfers risk to what remains of the market Markets are increasingly manipulated by giant transnational corporations

Traditional Family Farms Growing size Attempt to compete within the industrialized system Some may produce bulk commodities, while others will produce identity preserved products Even with large size, they cannot countervail the market power of buyers of their products, or the market power of input sellers Thin profit margins

Giant Corporate System Participation in commercial production agriculture is increasingly “by invitation only” –Who will be invited? Independent, outspoken, astute businessman and entrepreneurs? Or Servile, submissive, not particularly astute businessmen? The free market allows for cultural diversity in the production system; the evolving global food system may not Are a few CEO’s through their economic and political power becoming the “social planners” for the world?

Degree of Corporate Concentration The following data is from Professor William Heffernan of the University of Missouri Economists worry when the top four firms control more than 40% of the industry. The following industries were under such control: Beef packers Flour Milling Cattle Feedlots Dry Corn Milling Pork packers Wet Corn Milling Turkeys Soybean Crushing Animal Feed Plants Ethanol Production Multiple Elevator Companies

World’s Largest Agribusiness Firms The following data is also from Prof. Heffernan The world’s largest agribusiness firms are: Phillip Morris Novartis Nestle Continental ConAgra Archer Daniels Midlands (ADM) Cargill Dow Chemical Monsanto