Firms and Farms: The US Food System
To understand the sort of food system that is gradually being introduced into Third World rural societies, we should first see how it operates in America as a prototype. Many American readers will know most of what follows concerning the US food system: they should either skip to page 32 or bear with the repetition of what may seem obvious. This study is not, however, addressed to an exclusively American audience and the rather detailed look at the high technology model and all it implies may be of some use as a "counterexample" to those who are searching for alternatives to Western- sponsored and Western-inspired development models. The US model is, unfortunately, relevant to what is now occurring in many UDCs; I am hopeful that the following pages will make this point clear.4
We will follow the same imaginary line, starting "upstream" from the farm itself at the inputs end. American farmers now spend over $85 billion a year on manufactured inputs and they are totally dependent on industry for every item that goes into food production. In former days (this is still true in some parts of Europe) "farms" were not vast stands of a single crop—they were complex operations involving both plants and animals—often several different kinds of both. In such polycultural operations, the farmer can be at least partially self-sufficient: seeds can be reproduced from crops (and exchanged with neighbors); animals provide much necessary fertilizer, pesticides are less necessary because the variety of plant species inhibits the spread of pests and disease; energy requirements may also be supplied on the spot when traction is provided by animals "fueled" with home-grown fodder.
All this changes with one or two-crop agriculture, and the changes have been particularly striking in the US in the past 40 years. For decades, American agriculture has been characterized by plentiful land and a shortage of labor, so productivity quite logically has been measured according to how much could be produced per man, not per unit of land. Under these conditions, farm machinery assumed enormous importance early on. Until shortly after World War II (when commercial fertilizers and pesticides also began to enjoy wide use) some especially expensive machines like threshers were jointly owned, thus spreading the costs of farm production among several cooperators. But this meant that the harvest had to be brought into the barn to await the arrival of the thresher—or risk spoiling in the field if bad weather struck. The shortage of labor to perform this extra task was such that cooperative ownership broke down and farmers came to prefer individual ownership of every machine, however expensive. This has become the rule since the late 1940s.5
In order to be able to buy industrial inputs and high-cost machinery, farmers must rely on credit from private banks (as well as on government loans). In 1977, outstanding farm credit shot beyond the $100 billion mark for the first time in history; it currently stands at about $120 billion and is expected to reach $225 billion by 1985.6 Farm indebtedness has been heading skywards since 1973, a bumper year with exceptionally high farm prices. But as grain prices increased, so did the prices for inputs. Tractor costs, for example, traditionally follow grain prices up—but never down. So the massive expansion and equipment purchases undertaken on the strength of a very good year often had to be paid for subsequently out of lowered earnings. No expert denies that real farm incomes are declining and that the cost-price squeeze hits rural people especially hard. As one USDA spokesperson says, "Increases in debt have far outpaced increases in income ... in terms of real purchasing power, a decline is expected (in 1978). . . Difficulties will most often arrise with young operators who... have few financial reserves. Delinquencies among such borrowers are expected to rise."7 This is a polite way of saying that a great many farmers are going to go broke and the hardest hit will be the youngest. They have not stopped going bankrupt, for that matter, since the middle 1930s when the peak number of 6.8 million US farms was reached. In the late 1970s, about 400 farms were dropping by the wayside every week. The total decline in forty years has been about 4 million farms; fewer than 2.8 million remain and the owner-operators of the top ten percent among them often buy up or lease the farms that fail. This is one factor that allows them, as a group, to take responsibility for two-thirds of total American agricultural production. These super-farmers are also the ones that profit most from public funds and according to Business Week, "practically all are millionaires . . . They are getting priority treatment by the banks while benefiting most from expanding government farm- support programs."8 To make even greater economies of scale, to absorb all that machinery, all that new technology, the largest farmers are expanding at an unprecedented rate—at the expense of their smaller colleagues.
Large or small, they are more and more in the hands of their bankers who help them either to stay afloat or to expand. These bankers, like Continental Illinois of Chicago, one of the country's largest agricultural lenders, can be the owners of land rented or leased by farmers trying to make a start in the business or to expand their holdings. The Banks' terms for leasing land are stringent. Congressional hearings concerning a proposed mutual fund dealing in farmland disclosed that the terms of a typical lease ("developed by the University of Illinois [and] in wide use in the State of Illinois") leave the farmer scant freedom. It is the Bank, not the leasing farmer, who has the power to determine not only what crops shall be planted in what quantities,, varieties and sequence; but also what fertilizer is to be applied—the Bank can even decide to burn or to remove cornstalks and straw.9 One witness at these hearings declared that "to protect (its) investment, the bank requires the farmer to plant crops the bank considers safe. In other words, if a farmer wants to raise hogs, the bank may say, 'Not with our money. You plant beans'."10
One of the reasons the farmer is so constantly dependent on outside sources of money is the burden of veritable monopolistic overcharges placed upon him by his suppliers. In 1972, the Federal Trade Commission found a lack of competition in the animal feed industry, dominated by Ralston Purina and Cargill. Such companies, according to the FTC, treated themselves to an extra $200 million in annual monopoly overcharges at the farmers' expense. The same observations held true for the farm machinery industry, still according to the FTC, except that here the overcharge amounted annually to a quarter of a billion dollars.11 John Deere and International Harvester control 60% of the farm machinery market between them and thus can exert enormous leverage.
There is another aspect of the input end of the food system line which is not a tangible one but which still decisively orients American agriculture: research. Most of the research now carried out in this field in the US is done either directly by agribusiness companies or by universities working for them or for the USDA under contract. It is therefore not surprising that all their efforts are directed towards encouraging the kind of farming that will use optimum quantities of inputs; which will encourage higher and higher levels of technology (and, consequently, greater subservience to banks). The government also cooperates in reinforcing corporate control over agriculture through research: for example, when chicken processing workers claimed higher wages, the Agricultural Research Service of USDA helped out the processing firms by developing an efficient chicken cutting machine.12 Pitifully little research is done on biological methods of crop protection or fertilizing; while a great deal is directed at greater use of chemicals. One example is the work on hybrid wheats which should drastically increase fertilizer use, or so this industry hopes.13
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"Food processing and distribution are, for the most part, in the hands of oligopolies—a fact which few consumers understand because of the enormous, and purely illusory, diversity of labels gracing supermarket shelves."
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What about those who occupy the middle segment of the line, the farmers themselves? Some of them are indeed millionaires (less than 300,000) in terms of land and equipment owned—but the vast majority makes less than $40,000 a year in gross sales. They also keep fewer and fewer of these dollars. Their problem is that their incomes are declining not only because of
lower grain prices but also because costs steadily eat up higher percentages of their incomes. Before World War I, production expenses amounted to just half of gross farm income; in 1945 the farmer was still keeping about half of what he took in. Then began the rapid increase in costs — from $13 billion spent in 1945 by over 5,800,000 farmers to $85 billion spent in 1977 by fewer than 2,800,000. Inflation? Partly—but the proportion of costs in relation to income has increased during the same period from 50% to 80%.14 Hung with mortgages and the need to buy ever-more sophisticated equipment to remain competitive, dogged by uncertain prices; it is no wonder that so few young people can make a go of it in farming. The average investment per worker (including the owner- operator) in agriculture is now more than $400,000, or approximately ten times the amount it takes to create a job in industry. The average age of the US farmer is 50.15 A small farmer who started out in the late 1940s and who had his mortgage all paid by 1960 may have survived to the present day—but those who entered farming later are today often in difficulty. For those who are determined to remain on the land, the only way to fight declining family incomes is to expand the land base.16 Three articles of the iron law are more land, more machinery and minimum paid labor—preferably just family workforce. It is this system that turns the farmer into a homo lupus homini, but not all can survive the competition. As a member of the Canadian National Farmer's Union put it to me, "The pursuit of self- interest eventually becomes the pursuit of self-destruction." The farmers' segment of our line is shortest of all and represents less than 4% of the total US population.
What of the segment "downstream" from the farm—that is everything that happens to food between the farmer and us, the consumers? This is the longest portion of the line, the one that represents the most added value (i.e. cost); it is also the one that agribusiness is attempting every day to make even longer! Food processing and distribution are, for the most part, in the hands of oligopolies—a fact which few consumers understand because of the enormous, and purely illusory, diversity of labels gracing supermarket shelves. A company like Beatrice Foods (number 36 on Fortune's latest "500" list) with annual sales of over $5 billion, markets 8,000 different products and has bought up over 400 companies in the past twenty-five years.17 The top fifty food processing companies make about three quarters of all the profits in the industry. Figures for 38 leading companies show profits an average of 10% higher in 1977 than in 1976, with many well-known companies (Hershey, Hormel, Nabisco, Pillsbury, etc.) chalking up profits jumps of 20% or more.18
Agribusiness spends less on research and development than virtually any other industry in the US, and what they do spend is geared to reducing their costs and to increasing their share of consumer purchases—not to better food and nutritional value. Nutritionists have every reason to be alarmed about the amount of ersatz put in our food, but they do not, perhaps understandably, examine this question from the company's point of view. The company knows very well that ersatz is economically indispensable if one wants to operate nation-wide. Additives can insure long shelf life and apparent freshness; chemicals do not fluctuate in price like honest-to- goodness food and can thus be subjected to accurate cost- accounting; ersatz is flexible in the lab and lends itself equally to soups or sauces, puddings or pies.19 The food business is one where costs are relatively low, technology relatively uncomplicated and rewards unusually high for the services (?) rendered to the consumer.
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"Agribusiness spends less on research and development than virtually any other industry in the US, and what they do spend is geared to reducing their costs and to increasing their share of consumer purchases—not to better food and nutritional value."
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Economists generally agree that if 55% or more of a given market is controlled by four or fewer companies, then an oligopoly exists. This is the case for every major food category in the United States. In milling, the top four firms hold 75% of the market; for bakery products the figure is 65%; fluid milk 60% and milk products 70%; processed meat 56%, bananas 85% and all canned goods 80%. For canned soups, Campbell's alone controls about 90% of the market.20 The breakfast food industry also wins a ribbon for concentration, with four companies holding over 90% of the market. Describing current Federal Trade Commission litigation against these companies, in an article unreservedly favorable to the latter, Fortune explains that:
The evidence ... shows an industry that is bitterly competitive in every respect but price. Hundreds of thousands of dollars are invested to develop a product that will have unique 'mouth feel'... When we're beating each other's brains out every other way, the cereal companies have said in effect, why compete on price, which consumers say isn't that important?21
Which consumers say price isn't that important? Is this what "consumers would say" if they understood how much they are being bilked by the food industry, not just for breakfast foods but for virtually everything else they eat? Americans are now spending over $150 billion annually on retail food purchases. No one knows how much of this outlay is unnecessary and due solely to oligopolistic pricing practices.