Several Democratic presidential candidates courted rural voters in Iowa at last weekend’s Heartland Forum. Both Sen. Amy Klobuchar (D-MN) and Sen. Elizabeth Warren (D-MA) decried the plight of farmers, with Warren promising trust-busting policies to break up Big Ag. But Warren’s call for aggressive antitrust is more populist politics than sound economic policy.
Warren claimed that, “A generation ago, 37 cents out of every food dollar went into a farmer’s pocket. Today, it’s 15 cents. And one of the principal reasons for that has been concentration in agribusiness. You’ve got these giant corporations that are making bigger and bigger profits for themselves, for their executives and for their investors, but they’re putting the squeeze on family farms.” But there are several problems with that argument.
First, the farmer’s share of the food dollar is a pretty worthless measure of how well-off farmers are in the food economy. From an economic perspective, it is completely meaningless. In response to the perennial reactions by farmers’ lobbies to the USDA’s “Farm Dollar” report in 2018, Jayson Lusk provided a nice example of how focusing on farmers’ share of the food dollar actually can lead to very poor conclusions. Even more to the point, Gary Brester, John Marsh and Joseph Atwood demonstrate what agricultural economists have long understood:
“[S]ome have argued that decreases in FS (farmer share) statistics…are indicators of anti-competitive behavior in the food processing industry. Agricultural economists have long noted that such relationships cannot be justified on theoretical grounds. … We have empirically demonstrated that FS statistics and, by construction, farm-to-retail marketing margins, are not reliable measures of changes in producer surplus (welfare)… Consequently, these data should not be used for policy purposes.”
Brester, et al., “Evaluating the Farmer’s-Share-of-the-Retail-Dollar Statistic,” 34 Journal of Agricultural and Resource Economics 213 (2009)
Second, even if one could make any reasonable inferences from the farmers’ share numbers, they do not support the story Warren is trying to sell. While farmers’ share of the food dollar has declined over the past 24 years, the decline is not near as big as Warren suggests: from 16% to 12% of the real (2009) dollar value of domestic food sales, as shown in the nearby Table 1. But a closer look at the numbers reveals what is driving the overall decline: when people eat away from home, the share of the dollar that goes to the farmer is much smaller, because more of the dollar is going to the people that add additional value by processing and preparing the food away from home. And eating away from home has become more and more prevalent.
Truth be told, the microcosm of food eaten at home or away from home illustrates the larger issue: as consumers choose foods that have been further processed and prepared, more of the dollar goes to the people that add the additional value in the form of preparedness, packaging, convenience, etc., that consumers value. That’s why, over the last century, the farmers’ share of the food dollar has dropped from near 50% to only 12%.
But what about the big bad ag companies that Warren blames for this problem? Doesn’t the consolidation of Big Ag share some of the blame? Warren blames mergers of companies like Bayer-Monsanto on the farm inputs side or large multinationals like JBS on the farm output side for squeezing farmers’ share of the food dollar. What about them?
As it turns out, firms in the farm inputs industry (like Bayer or Corteva (the offspring of Dow-Dupont)) and firms in the food processing industry (like JBS or Tyson) also have seen their share of the food dollar decline, as shown in the nearby Table 2. For farm inputs, the share has dropped over 40%, even more than the farmers’ share; and food processing companies’ share has dropped over 20%, almost as much as farm shares. Not even the banking industry, another of Warren’s favorite regulatory targets, has seen an increase in its share of the food dollar. In fact, the only food industry segments experiencing any appreciable increase in food dollar share are retail sales and food service–again, where more of value-adding convenience and food preparation are being contributed.
Antitrust is currently seeing a lot of renewed interest in political circles because big, bad corporations make easy populist political targets. And it may be true that increased concentration in some industries could stand more antitrust scrutiny, possibly even in agriculture. But broad antitrust enforcement is a very blunt, and potentially dangerous, policy tool that shouldn’t be invoked carelessly. Nor with as little understanding of an industry as Sen. Warren appears to have of the food system.