Market concentration — and its impact on pricing and competition — have increased in recent years, according to a new report from the United States Department of Agriculture's Economic Research Service.
The Canadian House of Commons committee on agriculture’s recent report on food prices and competition recommends that Canada set up something similar to this U.S. reporting body.
The report said the share of meatpacking sales held by the largest firms has increased sharply over the last four decades. In 2019, for example, the four largest meatpackers accounted for 85 per cent of steer and heifer slaughter and 67 per cent of hog slaughter.
The report attributes this consolidation to shifts of production to larger plants as well as improved technology, which helped companies realize economies of scale.
As packers built bigger plants, they also developed relationships with livestock producers, either through direct ownership or contracts. These changes pushed many smaller plants and farmers further from packing plants out of business.
While there have been many mergers in meat and poultry processing, the report notes that few of these mergers involved rival packers. As a result, these mergers had only a modest direct effect on concentration.
Instead, much of concentration from the construction of new — or the expansion of existing — plants by the large processors, rather than from mergers among rivals.
Though it’s widely believed that market concentration decreases competition and drives up prices, according to the report, market consolidation can facilitate innovation and economies of scale that can lower market prices.
While this had been the case prior to 2010, the report points to rising spreads between processor prices paid for livestock and received for meat, suggesting that meatpackers have been able to exercise greater market power over livestock prices over the last decade than in the past.
New entry and plant expansion among incumbent producers will determine whether such market power can be maintained, the report concludes.
The report also found that in 2018–20, two seed companies accounted for 72 percent of planted corn acres and 66 percent of planted soybean acres in the United States.
Between 1990 and 2020, prices paid by farmers for crop seed increased by an average of 270 percent, while seed prices for crops grown predominantly with genetically modified (GM) traits rose by 463 percent, substantially more than commodity output prices.
The increases in seed prices reflected to a large degree the higher productivity of improved crop varieties and provided a return on investments in R&D by seed companies.
It said supermarkets are buying rivals to develop national distribution networks, but so far none of the traditional ones have matched what Canada’s Loblaws, Sobeys and Metro have achieved.
Walmart and Costco are entrants and they are operating nation-wide in both the United States and Canada.
The report said anti-trust regulators are keeping a rein on concentration, particularly in the seeds industry.
