991132 Congress Asked to Stop Farm MergersNovember 9, 1999Washington - When the price of hogs plummeted a year ago, many farmers blamed the shrinking number of companies that buy and process their animals. “The markets are drying up,” said Kent Frerichs, who raises hogs near Wilmot, SD. Economists say farmers themselves are at fault for the sudden drop -- prices fell to 8 cents a pound, well below the cost of production -- because producers raised more hogs than the market could bear. Still, a recent wave of mergers and acquisitions in the agriculture and food industries is raising increasing concerns in Congress. The Senate is to vote this week on a proposed 18-month moratorium on agribusiness mergers. With the Clinton administration's blessing, giant grain trader Cargill recently acquired the grain operations of one of its major competitors, and two major manufacturers of farm tractors got approval last week to merge. Now the Justice Department is being asked to approve a deal in which the largest pork processor would take over its nearest competitor. The Monsanto Co.'s (NYSE:MTC - news) proposed acquisition of the world's biggest cotton seed supplier also is under review. “These conglomerates have muscled their way to the dinner table. There's a direct relationship between this concentration of market power and low prices,” said Minnesota Sen. Paul Wellstone, one of several Democrats who are pressing the administration for tougher antitrust enforcement. Telecommunications, banking and other industries are going through similar consolidation, but critics say farmers are especially vulnerable and the concentration of market power threatens their traditional independence, if not their livelihoods. The farm economy is stuck in its worst downturn since the mid-1980s, and while economists say the problem stems from worldwide overproduction, many farm- state lawmakers have been pointing to agribusiness mergers as a culprit. A handful of companies, including Cargill, IBP Inc. (NYSE:IBP - news), Smithfield Foods Inc. [NYSE:SFD - news], and ConAgra Inc., control much of the beef and pork that's processed in the country. More than 60% of the flour milling and 80% of the soybean crushing also is controlled by four firms. Farmers are divided over the issue. Many producers, such as poultry producers and farmers who grow vegetables for food manufacturers, find they can manage their financial risks more easily by having contracts with processors. Such contracting, in turn, lets processors control the quality of the commodities they buy and trace food safety problems more easily. “I don't believe that stopping these changes in their tracks is necessarily the right option. Nor is averting one's eyes from these changes. They are sea changes in the way the industry does business,” said Alan Barkema, an economist with the Center for the Study of Rural America at the Federal Reserve Bank of Kansas City. The American Farm Bureau Federation, the nation's largest farm organization, opposes the moratorium, while the smaller National Farmers Union and some other groups support it. Food processors, from the American Bakers Association to the American Meat Institute, also are fighting the moratorium, telling senators in a recent letter that it would force faltering businesses to shut down and put employees out of work. The Clinton administration has not taken a position. Justice Department officials have told Congress that existing antitrust laws are adequate to protect the interests of farmers and consumers. Cargill, North America's second-largest grain trader, was allowed to acquire the grain operations of No. 5 Continental Grain, provided the companies sold some of their facilities. Last week, farm machinery makers Case Corp. [NYSE:CSE - news] and New Holland NV were told to sell some of their lines before merging. Smithfield, the nation's biggest pork processor as well as the largest hog producer, is seeking the department's approval to acquire No. 2 producer Murphy Family Farms of Rose Hill, N.C. Smithfield is one of four companies that control 57% of pork processing, up from 34% a decade ago.
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