Today, the U.S. Departments of Justice and Agriculture convene their fourth public hearing on corporate concentration in U.S. agricultural markets, a process I described previously on this blog. Farmers and ranchers are expected to crowd Fort Collins, Colorado to air their long-standing grievances about the disproportionate power of multinational meat packers. To contribute to this unprecedented public policy process, research assistant Sarah E. Trist and I surveyed the evidence of buyer power in U.S. hog markets, which have undergone rapid structural transformation in the last 25 years.
We found that among the limited studies of the issue, several that had been widely interpreted to suggest that buyer power was not a problem in fact presented evidence of just the opposite. Two related points were particularly striking. First is the pattern of approving mergers on the basis of “efficiency gains” that offset market power losses to consumers, when some of those apparent gains can actually come from packers using their buyer power to force down producer prices. The second is the way that buyer power in food retail can intensify the exercise of buyer power by packers, with farmers at the bottom of the food chain losing out from this “compounded” market power.
The wheat price crisis has led the press and even policymakers to focus almost exclusively on the traditional supply-demand fundamentals that ostensibly set prices. It’s as if the press were relieved to point to that old standby, weather, as the culprit for a 50 percent increase in wheat futures prices in a few weeks. For a change from the last three years, excessive speculation in commodities by financial institutions would not be accused of driving price volatility. Furthermore, according to the U.S. Department of Agriculture, unlike 2007-2008, global grain stocks were high enough to supply countries that could afford them. Maybe the specter of speculators increasing hunger might be eluded.
Brazil and the United States may have settled, for now, their long-running WTO dispute over U.S. cotton subsidies, but the issues it raised remain. After all, Brazilian producers were not the only ones hurt by U.S. dumping of its highly subsidized cotton on world markets, which not only took market share from competing producers, it depressed the international price for all producers.
How much does agricultural dumping cost farmers in developing countries? I recently completed a study for a Woodrow Wilson Center project that highlights just how high the cost of dumping can be. I benefited from the somewhat controlled experiment represented by U.S.-Mexico agricultural trade under the North American Free Trade Agreement (NAFTA). I call it a controlled experiment because NAFTA liberalized agricultural trade dramatically over a short period of time, Mexico imports most basic grains and meats almost exclusively from the United States, and Mexican farmers grow many of the crops that compete with the imports. In such a case, one can easily see the increase in U.S. exports, the drop in Mexican producer prices, and it is reasonable to assume that the U.S. export price is the reference price for these products in Mexico.
Arizona’s draconian anti-immigration law has galvanized popular protest and reignited demands in many quarters for an overhaul of US immigration policy. For those hoping that Obama’s next big legislative battle would be over climate change, however, the immigration firestorm could not have come at a worse time. Besides eclipsing climate change in public debate, the shadow of Congressional action on immigration scuttled the support of a key Republican, Senator Lindsey Graham of South Carolina, for a Senate climate bill. Without Lindsey, the climate bill doesn’t have a prayer.
But apart from political minefields, are immigration and climate change such separate policy issues? Not if climate change is understood, as it should be, as a problem requiring urgent action both not only to reduce carbon and other greenhouse gas emissions but also to adapt to much more volatile local and regional climatic conditions driven by global warming.
Kevin Gallagher and Timothy A. Wise were interviewed in March 2010 about two recent reports they helped co-author on the impacts of the North American Free Trade Agreement (NAFTA) on Mexico and the reforms needed to ensure that U.S. trade agreements have a positive impact on its developing country trading partners. In a Policy Outlook paper with the Carnegie Endowment’s Eduardo Zepeda, they offer a detailed look at Mexico’s poor economic performance under the “NAFTA model.” In a Task Force Report with other NAFTA experts assembled by Boston University’s Pardee Center, they detail the needed reforms to current and future trade agreements in the areas of manufacturing, agriculture, services, intellectual property, investment, labor, environment, and migration. In this interview at the Pardee Center, they outline the main findings of the reports, with a particular emphasis on NAFTA’s controversial investment chapter (one of Gallagher’s ongoing research areas) and the impacts on agriculture (Wise’s specialty). The work is based on ten years of research by the Global Development and Environment Institute on the Lessons from NAFTA.
Democratic Party leaders recently introduced their latest proposal to reform U.S. immigration policy. The proposal, which is given little chance of passage in a polarized election year, offers carrots and sticks in an attempt to bring some semblance of order to a broken and outdated policy that has left nearly 12 million people in the United States without legal documents.
The carrots are few and shriveled: an arduous path to U.S. citizenship for those already in the country. The sticks are large: a further crackdown on border enforcement and increased policing to catch and punish those without papers. No combination of carrots and sticks will address the immigration issue unless reform efforts also take up the agricultural, trade, and labor policies that feed migration.
Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. A reader offered a detailed comment, partly in response to my post, “Agribusiness and the food crisis: a new thrust at antitrust.” Following is the reader’s comment (slightly edited for length) followed by a few responses to some of the important questions he raises, in particular about the limited regulation of uncompetitive practices across borders.
Q: “[There is a need for] further research on the abuse of monopoly and monopsony power of agro conglomerates…. The dismantling of commodity boards in developing countries in the 1980s in the context of structural adjustment programmes put the nail in the coffin of any attempt at regulating the commodity markets and ensuring equitable prices for producers…. The problem is that there is no universal anti trust law which can deal with the anti- competitive behaviour of TNCs and the international community has fallen … shy of adopting such legislation. Moreover, attempts at stabilizing commodity prices through negotiations between consuming and producing countries, which had begun in the 1970s in the context of the UN and UNCTAD, were subsequently shelved with the onset of the recession in the early 1980s and the emergence of market fundamentalism. Perhaps these issues would need to be revisited.”
Ask a TripleCrisis Economist: Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. post your questions at Ask a TripleCrisis Economist. Here are two responses to an earlier posted question:
Q: Will Brazil’s recent threats of retaliatory protectionist measures motivate the US to institute more conciliatory agricultural policies and trade practices? And is there any hope that those sanctions or a US response might spur some talk of energizing the Doha talks?
VERNENGO: As it turns out, Brazil agreed to temporarily suspend the imposition of sanctions allowed by the World Trade Organization (WTO). It is important to note, however, that the Brazilian measures should not be represented as protectionist. One must remember that they are a retaliation authorized by the WTO, resulting from the American cotton subsidies. In other words, the protectionist policies are the original subsidies provided by the US government. Peripheral countries are often referred to as protectionist, but more often then not they pursue more open policies than their more developed trading partners.
The food crisis has a new villain: agribusiness. A recent report by Olivier De Schutter, the UN Special Rapporteur on the Right to Food, on “Agribusiness and the Right to Food” takes a close look at the contribution of commodity buyers, food processors, and retailers to the food insecurity now plaguing over one billion people in the world.
Why agribusiness? Aren’t they driving prices down? Well, yes and no, and both are a problem. If they are so big they can exert monopoly control over key markets, they can raise prices for lack of competition, hurting all food consumers. And if they have excessive market power over suppliers – particularly farmers – they can exert monopsony control and force down crop prices. That can benefit food consumers if low prices are passed through to consumers, but monopoly can rear its head again there. In any case, the price squeeze puts smallholder farmers in a precarious position. That contributes to the global food crisis because the majority of the world’s hungry are small-scale farmers.