Sunday, March 31, 2019

A country of monopolies - Axios

CLEAR LAKE, Iowa — Chris Petersen, a third-generation hog farmer who says "I bleed rural" and tears up at the fate of family and friends, has found a way to keep his small holding going, and avoid the exodus that so many are making. His grown son and daughter have, too.
But meanwhile, Petersen is at war with the big companies that he says are destroying the culture of smaller places like Clear Lake.
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  • "We are going down the same road as the Russians with the collective farm system," he told me yesterday. "There, the government controlled it. Here, it's the corporations."
The big picture: While his is a dramatic rendering of the state of American agriculture, Petersen has a point: across industries, the U.S. has become a country of monopolies.
  • Three companies control about 80% of mobile telecoms. Three have 95% of credit cards. Four have 70% of airline flights within the U.S. Google handles 60% of search. The list goes on. (h/t The Economist)
  • In agriculture, four companies control 66% of U.S. hogs slaughtered in 2015, 85% of the steer, and half the chickens, according to the Department of Agriculture. (h/t Open Markets Institute)
  • Simlarly, just four companies control 85% of U.S. corn seed sales, up from 60% in 2000, and 75% of soy bean seed, a jump from about half, the Agriculture Department says. Far larger than anyone — the American companies DowDuPont and Monsanto.
As we have reported, some economists say this concentration of market power is gumming up the economy, and is largely to blame for decades of flat wages and weak productivity growth.
  • The issue has become a higher-profile plank of both political parties — and could move to the center of the 2020 debate.
Farmers like Petersen are on the receiving end of all this concentration. Just in the five years from 2007 to 2012, the number of U.S. hog farms declined by 25%, the Agriculture Department says.
Joe Peiffer, a bankruptcy lawyer in the Iowa city of Hiawatha, told me that the current wave of consolidation shows no sign of reversing.
  • The culprit he sees is cheap food: In 1960, Americans spent 17% of their disposable income on food; the figure now is just 6.4%, according to U.S. government figures. The tight margins ran out everyone but the big dogs.
  • Whatever the reason, you can see the outcome outside of Des Moines. "A lot of towns are ghost towns because the farmers are gone. Schools are consolidating. My high school graduated 86 kids in 1974. It was 50 last year."
The heyday, in Petersen's memory, was the 1970s, when "rural America was ungodly vibrant." Sixty cents per pound of hog gave farmers a healthy profit, he said.
  • The nearby city of Swaledale had just 220 people, yet when you added in everyone in the surrounding, smaller towns, there was sufficient business for a bank, grocery and hardware stores, a gas station, and two bars with restaurants.
  • Now, Swaledale is about 150, and the businesses have shuttered: "It's all gone. That's what they've done to rural America."
When Petersen says "they," he means Big Ag, which in his view is plain greedy. It is trying "to run us out," he says, banging the table with his fist.
  • In a statement, Bayer, which owns Monsanto, said“Agriculture is a complex and highly competitive industry, and there are hundreds of companies driving innovation and competing for farmers’ business. After a robust global regulatory review process, we brought together two talented teams and a robust portfolio to offer more choices for farmers. Working with our customers and partners around the world, we are focused on developing smarter ways to grow healthy crops that are more environmentally and economically sustainable.”
  • DowDuPont did not respond to an email.
In 2001, Petersen went bankrupt. After that, he changed his business model and began to raise a premium hog known as a Berkshire, a breed whose meat he compares with Kobe beef. They fetch twice the price of the standard hog.
  • The whole sequence is outside the packers system. He said he earns more from the 500 Berkshires he raises every year than from the 2,500 ordinary hogs he used to produce.
  • "It's capitalism at its best. You get a price, not a fee," Petersen said.
Petersen's daughter Becky and son Matt live nearby. How have they managed to stay? Becky's husband Curtis and Matt both work as conductors for Union Pacific Railroad, he says.
  • Petersen doesn't want to say what they earn but says it's "ungodly wages." Both have acreage and raise cattle and chickens.
"In this wicked world," he says, "they're adjusted and are doing well."