August 2000 Newsletter

 

Quote of the Month

            "So the question is, do corporate executives, providing they stay within the law, have respon-sibilities...other than to make as much money for their stockholders as possible?  And my answer is, no they do not." Milton Friedman, 1974.

 

OCM’s Place in the World

            The OCM Newsletter typically does not expend much ink discussing OCM itself.  This is not the typical newsletter.  Our Annual Convention in July revealed how far we have come in just over two years.  This has given rise to a moment of public self-analysis.

            OCM was created in 1998 in response to the ubiquitous and unhelpful blather emanating from those purporting to speak for farmers, ranchers and rural communities.  Dominant voices in agricultural policy ignored issues of industry structure, power and monopoly concerns.  The case for fairness and competitiveness at the farm gate, as opposed to the international sales, point in the food chain was not being properly made.

            OCM has wielded pins against the core philosophical balloons which have been floated by agri-industry and misguided farm leaders.  Consider the following fallacies: (1) allowing three or four companies to dominate a processing sector is competitive and efficient; (2) farmers will be all right if they can just get the prices low enough to have Cargill export more; and (3) captive supplies do not harm market competition.  Those who parrot these fallacies live in blissful ignorance of the fact that power is a major factor in the markets and in political discourse.  To ignore the effect of power is to live in fiction. 

            OCM is not funded by insurance companies or commodity checkoffs.  Yet our ideas resonate on their merits.  Consider that the 2000 Iowa Farm and Rural Life Poll found that 85% of those surveyed agree that it is dangerous for only a few companies to control so much of the food system. 

Due to this resonance, OCM’s third annual meeting in Kansas City, Missouri attracted participants from West Virginia to California.  It was covered not only by the press but by a documentary film producer.  The audience included representatives from state attorneys’ general offices, USDA, state legislatures, farm and community organizations, as well as farmers and ranchers.  Attendance levels hit a new high.

OCM will continue to inject reason into the marketplace of ideas with a singular view towards increasing fairness and competition in the marketplace for agricultural products.  Our success or failure will rise or fall on the accuracy and insightful nature of our ideas since we don’t have the financial ability of others to muscle through silly propositions.  Ultimately, we hope to play a part in creating a newly profitable, diverse, and decentralized food production structure for the benefit of independent farmers, ranchers and rural communities.

 

“A Food and Agriculture Policy for the 21^st Century”

            OCM has just released a major new policy work entitled “A Food and Agriculture Policy for the 21^st Century.”  The book results from the OCM Food Policy Retreat which was held in April of this year.  The Retreat was organized because the current direction of farm and food policy is built upon false assump-tions and has decimated the farm economy.  It was financially supported by the Kerr Center for Sustainable Agriculture and the Farm Foundation.

            Though OCM focuses upon competition policy in agriculture, we invited sociologists, agricultural economists, agricultural historians, antitrust lawyers and leaders who have much wider expertise. 

            The resulting book sets forth a new vision for a food system which includes the priorities of both the consumer and the producer.  It encompasses competition policy, conventional farm policy, community food systems and agricultural research policy.

      “A Food and Agriculture Policy for the 21^st Century” is a must read for those with an interest in food and agriculture.  It can be ordered for $20 either at the OCM website or by writing to P.O. Box 6468, Lincoln, NE 68506.  It is available for full, free viewing at the OCM website.

 

OCM Annual Meeting

      The OCM Annual Meeting was held in Kansas City on July 22 and 23.  As usual, it presented hard hitting panelists on cutting edge issues.  A video tape of the event can be ordered for $20 by calling OCM or sending a check to our address.

 

Panel 1: The Poultry Industry

            The first panel was on the poultry industry.  The poultry production sector has been decimated by vertical integration by a few processors.  Yet agri-industry is using poultry as a model for other commodities.  Some commodity groups think poultry is a good model as well.

            Dr. William Heffernan moderated the poultry panel.  He discussed his studies of 30 years which showed that most poultry growers have gone broke despite their adopting the contract method of marketing.  The glowing promises made 30 years ago did not come true. 

            Tom Green, a poultry contractor, discussed his experience with poultry contracts.  Mary Clouse, executive director of RAFI-USA, presented her conclusions on market fairness and power imbalances from her years of experience dealing with these issues.  Eric Tabor, Deputy Attorney General for the State of Iowa, informed the audience about model legislation which his office is drafting to curb some of the worst abuses in contracting for agricultural goods.

            Discussion was lively after the presentations.  For example, representatives from the West Virginia Attorney General’s office offered their experience in poultry processor litigation in their state. 

 

Panel 2: The Great Debate

            Since the primary debate in agriculture is whether to have a diverse, atomistic structure or a concentrated supply chain structure, OCM set up a head-to-head confrontation on the issue.  Dr. Neil Harl, ag lawyer and ag economist from Iowa State University, debated Ron Knudtson, ag economist from Texas A&M. 

            Harl presented his concern about the “deadly combination of horizontal concentration and vertical integration.”  He analyzed the structure of the plant biotechnology industry in particular in illustrating the dire consequences for family-style agricultural production.

            Knudtson countered by saying that bigger is more efficient and that this is the primary driver of consolidation.  He dismissed the claim that smaller farms were better for the environment and communities.  However, he did express reservations about allowing companies to patent life forms.

            The debate was informative and entertaining.  Harl and Knudtson were not afraid to take each other on in public, albeit in a professional manner.  Harl presented solutions which could produce better consequences for the food system.  Knudtson said that there is nothing that can be done because this is the way it is.  While OCM members overwhelmingly agreed with Harl’s viewpoints, Knudtson’s participation before an audience with a differing perspective was very much appreciated.

 

Panel 3: Corporatization of Land Grant Universities

            The final panel of the day examined the tremendous effect that research in land grant universities have on the long term structure, viability and productivity of the food system.  Jim Horne, executive director of the Kerr Center in Oklahoma, moderated the panel.  Mr. Horne co-authored the portion of “A Food and Agriculture Policy for the 21^st Century” dealing with agricultural research policy.  Further, the Kerr Center supports research into sustainable agriculture methods of production, marketing and consumption.

            Michael Stumo of OCM placed the issue of corporatization of land grant universities into sharp focus in analyzing two relationships:  Novartis with the University of California at Berkeley and Monsanto with the University of Missouri.  Both relationships involved a large influx of corporate dollars into the university in exchange for collaborative research and governance changes.

            Steve Holland, chair of the Mississippi legislature’s house ag committee, presented his experience in doling out funds to the agriculture colleges in his state.  He expressed concerns about some agribusinesses which appeared to be offering funds to the universities in return for some level of control of internal governance.  Holland also entertained the audience with his Southern style of humor.

            Kim Leval of the Center for Rural Affairs presented on how her organization was trying to influence land grant universities to return to serving the broader public interest rather that narrow private, commercial interests.  As head of the Center’s Research and Technology Project, Leval works to strengthen the role of land grant institutions in being relevant and supportive to a more diverse system of agriculture.

 

Competitive Markets Litigation Clearinghouse

      OCM has established the Competitive Markets Litigation Clearinghouse (CMLC) headed by Doug O’Brien.  O’Brien came to OCM from the Grain Inspection, Packers & Stockyards Administration of USDA.  He investigated meatpackers.

      The CMLC exists primarily to assist producers in protecting their rights through private enforcement of the laws.  Thus, it accumulates information and develops relationships with attorneys who are willing to help farmers in this way.

      Most recently, the CMLC has sought to unseal the trial transcript in a federal case brought against Seaboard Corporation in Omaha.  Seaboard has vigorously resisted but OCM feels confident it will prevail on this issue.

      Any farmers and ranchers who feel that they have been harmed by processors through potentially illegal activity should contact O’Brien at 860.379.6199.  Any attorneys who wish to learn more about what is happening in this field of litigation should do the same.

 

Biotech Update

-                     Iowa State University entomologists found again that Bt corn pollen kills monarch butterflies.

-                     The City of Boulder, Colorado has banned the growing of GM plants on city land rented to farmers.

-                     Novartis, the big biotechnology conglomerate, recently confirmed that it had eliminated all GM ingredients from its food products.

-                     The Greek government will destroy up to 9,000 acres of cotton with GM "contaminants."

-                     The French government has decided to destroy 115 acres of soybeans containing GM seeds.

 

Smithfield buys IBP Stock

            Smithfield has posted record earnings for the first quarter of fiscal year 2001 at $44.6 million.  This is a more than six-fold increase over last year.  Smithfield is the world’s largest processor and producer of pork.  It also is a large shareholder in IBP, the nation’s second largest hog processor.

            According to a form filed with the Securities and Exchange Commission in August, Smithfield has amassed a 6.3% stake in IBP, its supposed rival.  Its Hog Production Group recorded a strong performance due to recent hog price increases.  This more than offset a modest loss in the Meat Processing Group.  ADM holds a 12.2% stake in IBP and Brandes Investment Partners of San Diego own 7.5%.

            For antitrust purposes, owning shares in your competitor raises concerns of information sharing, overlapping directors, and reduced vigor in competition between the two companies.  Further, Smithfield could theoretically leverage preferential arrangements when selling its hogs to IBP.  This horizontal cross-ownership situation justifies closer scrutiny.

 

Retail Food

            A recent USDA Economic Research Service report, contained in Agricultural Outlook/August 2000, on the retail food industry has been released.  Entitled “Consolidation in Food Retailing”, it includes a helpful overview of the industry structure and trends.  The overarching observation is, of course, that the retail food industry is and has been rapidly consolidating.  While national level concentration has doubled, as evidenced by the four firm ratio, in the last five years, local concentration can easily be 100% for one firm.

            The report also notes that large retailers tend to cause suppliers to be larger.  This is one part of the “concentration begets concentration” effect which has multiple feedback loops through the different levels of the food chain.  Lastly, the ERS publication includes a snapshot of the non-supermarket alternatives for consumers and for suppliers who are not gargantuan.

            Those interested in retail food marketing should visit the website of the Food Marketing Policy Center at the University of Connecticut (www.are.uconn.edu/FMktC.html).  Directed by Dr. Ron Cotteril, the Center has the most information from an industry organization perspective on the mainstream retail food industry.

 

Direct Marketing

            There is an increasing trend for smaller farmers to market produce directly to urban customers.  Some shift a portion of their commodity production acres to this purpose.  They achieve retail prices for their product through farmers markets, small cooperatives, and other creative means.

            For example, small farmers near Milwaukee, Wisconsin have been raising produce and selling direct to city residents in a program called Market Basket.  The Wisconsin Department of Agriculture, Trade and Consumer Protection has given the private group a $34,000 grant.  Milwaukee residents, senior citizen centers and day care centers make up this market.

            Larger scale efforts are being fostered in many states through farmer-owned initiatives.  Niche markets can either grow into the mainstream, stay the same or fail.  Meanwhile, new niche markets are being created.  Some say that the generic commodity system is destined for the dustbin.

It is increasingly evident that the demand for non-commodity food remains far from being satisfied.  As success stories become more common, and as state and federal resources focus more on such initiatives, the food giants will feel greater heat in the marketplace.

 

Farms and Communities

            Most credible studies have shown that a diverse farm sector surrounding rural communities makes the local economy strong.  These studies also show that when this diversity disintegrates in favor of a very few industrial operations, the result is a poorer community, a more transient population, and weakened civic institutions.

            A new survey of farm operators backs up this conclusion.  Eighty nine percent of the respondents to the 2000 Iowa Farm and Rural Life Poll said that they market their grain through the closest grain elevator.  Eighty five percent said they do business with the closest machinery dealer.  And seventy seven percent reported they use the closest grocery store and bank.  Results for other local businesses were similar.

            More directly related to OCM's concerns, eighty five percent felt that the concentration of the food industry in the hands of a few firms is worrisome.  Those who believe that agricultural consolidation is only the concern of a vocal minority need to rethink their view.

 

Glickman's New Proposals

            On July 28, Ag Secretary Dan Glickman announced that USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) will issue new rules to help "ensure fair competition in the livestock, poultry and meat packing industries."  It was a partial response to a proposed rule by the Western Organization of Resource Councils which would, if adopted, subject all captive supplies of cattle to transparent, open market bidding.

            Glickman's rules are intended to: (1) mandate disclosure of basic contract terms, (2) prohibit some forms of secrecy in contract terms, (3) clarify record keeping requirements for packers, (4) prohibit the tying of purchases of animals by one seller to purchases of animals from another seller, and (5) require that packers specify the basis on which they pay different prices for like quality cattle.  OCM has been invited to testify at USDA hearings about these proposals.

            While action has been long awaited, this announcement was met with a large, collective groan.  The two top concerns of independent producers are price discrimination and vertical integration.  Glickman does not have the leadership qualities to address this, even as a lame duck.  His legacy will be to have presided over the steepest decline in family farms in history.

 

Open Source Code

            Before 1980, it was widely believed that no form of life could be patented.  Since that time, patents over cell lines, genetic structure, and genetic modification methods have become very common.  Many believe that companies or individuals should not be able to own a part of nature because it belongs to all of us.  Others say that innovation in plant biotechnology depends heavily on the patent system.

            In computer technology, software is protected through copyrights, a different form of intellectual property.  But the President’s Information Technology Advisory Commission has recommended that the government back “open source software as an alternative path for software development.”  The panel of university researchers and corporate executives made the determination because there are not enough programmers to fill the demand for high quality software.  “Open source” is non-proprietary software that anyone can use and improve.

            Before life forms were patentable, they were effectively “open source” as well.  Anyone could use the plant gene pool for breeding, growing or for medical purposes.  Patents restrict innovation exclusively within the scope of a patent holder and its licensees.  The case for open source on life is at least as strong as in software. 

 

Suggested Reading

-                     Eichenwald, Kurt, “The Informant: A True Story,” Doubleday/Broadway (about the ADM conspiracy).

-                     Hamilton, Neil D., “The Legal Guide for Direct Farm Marketing,” (Drake Univ. Ag Law Center).

-                     Helmuth, John, “Voices Rise from the Land,” Callimuth Press (order from OCM website).

-                     Lauck, Jon, “American Agriculture and the Problem of Monopoly,” Univ. of Nebraska Press.

-                     Levins, Richard A., “Willard Cochrane and the American Family Farm,” University of Nebraska Press.

-                     Peritz, Rudy, “Competition Policy in America, 1888-1992,” Oxford Univ. Press.

 

 

[Edited by Michael C. Stumo]