A concentration of ownership and power has been developing in major industries throughout the U.S. This is particularly evident in the agri-food system, where a few companies at the top control critical aspects of our food production. As a result of this top-heavy structure, the needs of independent farmers—as well as the proper care of animals and agricultural land— have taken a sideline to profit-driven practices that benefit only the top few firms in the sector1.
A recent report published by the Family Farm Action Alliance, “The Food System: Concentration and Its Impacts”2, explains how these symptoms inevitably arise when ag market concentrations increase and the biggest companies become too powerful. To prevent market concentration the FFAA recommends setting a concentration ceiling to prevent companies from amassing too much power that can lead to monopolistic control of a market.
This metric is discussed in FFAA’s policy recommendations to the 117th Congress. The proposed policy would bar companies from purchasing or merging with another in the case that the resulting top four entities would have a CR4, or Concentration Ratio, of 40% or higher3.
Ag Market Concentration Tipping Point is 40%
The CR4 percentage accounts for the concentration of power held by the top four firms in a sector. According to the FFAA, the CR4 is a determining factor in an entity’s ability to monopolize a market4. Once the concentration ratio reaches 40% the top four have a large enough share of the market to control it completely, allowing exploitative practices that benefit only the companies themselves.
What happens when a company surpasses this 40% CR4?
Companies allowed to monopolize a market become very powerful. With great power comes great responsibility, but do monopolistic corporate leaders always exercise restraint? The case of the Broiler Chicken Antitrust Litigation in 20185, suggests the answer is ‘no’. This case illustrates just one example of firms lacking the ability to exercise proper restraint when they have this power.
The lawsuit involved top broiler chicken producers including Tyson Foods. Inc., and Sanderson Farms, who were found to have intentionally inflated broiler chicken prices from 2008-2016. They worked in concert to reduce supply by decreasing the size of their breeding flocks. Furthermore, they conspired to manipulate the Georgia Dock Broiler Price Index, among other collusions.
These companies, through monopoly power, were able to inflate market prices across the United States. The defendants owned around 90% of the broiler chicken market, which allowed them to play by their own rules. Despite their clear involvement, in the class-action antitrust litigation of 2018, Tyson Foods avoided repercussions by complying with the U.S. Department of Justice, self-reporting about their role in the collusion and settling the lawsuit for $221.5 million6. This settlement amounted to 0.5% of the $40 billion in revenue they had made that year.
This case illustrates why the CR4 measure is so important. If anti-trust regulations set a ceiling for allowable market concentrations under 40%, these firms would be unable to amass the kind of power that allows them to take advantage of consumers. While these companies have a large influence in the market, their operations rely on CAFOs which pollute waterways and drive climate change. Knowing the negative impacts they impose on the environment, relying on their sense of restraint when monopoly power would be careless and naive. Setting strict concentration limits, on the other hand, would prevent large firms from garnering this power, protecting consumers and the environment in the process.
Concentration Limits For a Better Future
A robust CR4 limit would bring about a more equitable distribution of power that is in line with American free-market ideals. Agriculture Fairness Alliance agrees with calls to establish clear CR4 ceilings. After all, monopolization isn’t fair, and fairness is AFA’s middle name. Such policy would benefit all groups producing our nation’s food such as family farmers, vendors, and restaurateurs. A CR4 ceiling would protect consumers from being hurt by monopoly-driven prices.