FARMLAND
Insights In sights
A QUARTERLY AG NEWS REPORT PRESENTED AS A SERVICE OF…
WINTER 2023-24 | Volume 6 | Issue 4
Concentration and competition in U.S. agribusiness Economic Research Service (ERS), U.S. Department of Agriculture (USDA) U.S. agriculture market concentration, and its impact on competition, has attracted growing public scrutiny. Critics argue that many industries have grown too concentrated, with fewer firms competing with one another and a consequent weakening of competition. The issues surrounding concentration extend to agribusiness, particularly to three agribusiness sectors where concentration has increased over time: seeds, meatpacking, and food retail.
Market Concentration
• Market concentration—measured by the share of industry sales held
by the largest firms—has increased sharply over the last four decades in many seed, livestock, and food retail markets. In 2018–20, two seed companies accounted for 72% of planted corn acres and 66% of planted soybean acres in the United States. In 2019, the four largest meatpackers accounted for 85% of steer and heifer slaughter and 67% of hog slaughter. In most metropolitan areas, five-to-six store chains account for most supermarket sales. • Economic theory and empirical analyses demonstrate that high concentration can facilitate the exercise of market power, with firms driving sales prices above—or livestock purchase prices below—the prices that would prevail in competitive markets. • However, the relationship between concentration and market power is not tight, and high concentration can often result from factors like innovations or the realization of scale economies that improve productivity and reduce costs and prices. • Competition often occurs in local and regional markets, especially in food retail sales and livestock procurement for meatpackers. Some local markets are highly concentrated, with just two-to-three firms competing with one another. • Increasing concentration reflected a consolidation of production into fewer but larger firms, driven by technological innovations, changes in market demand, and redesigned supply chains. Mergers among competitors played a significant role in increasing concentration in the seed sector, a contributing role in food retail, and a limited role in meatpacking. Continued on page 2
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Two companies accounted for more than half of corn, soybean, and cotton seed sales in 2018–20 Two companies—Corteva and Bayer— provided more than half of the U.S. retail seed sales of corn, soybeans, and cotton in 2018–20, the most recent period for which estimates are available, according to the Economic Research Service (ERS) of the U.S. Department of Agriculture (USDA). In recent decades, the U.S. crop seed industry has become more concentrated, with fewer and larger firms dominating seed supply. Today, four firms (Bayer, Corteva, ChemChina’s Syngenta Group, and BASF) control the majority of crop seed and agricultural chemical sales. In 2015, six firms led global markets for seeds and agricultural chemicals. The concentration can be traced to the expansion of intellectual property rights to private companies for seed improvements in the 1970s and 1980s, creating an incentive to research and develop new biotechnology seed traits and seed varieties. As biotechnology advanced, companies created genetically Continued on page 3