by Austin Frerick | February 27, 2019
America’s agricultural system has become extractive, and more and more of the profits are flowing to a few.
A senior official at the Iowa Farm Bureau, the nation’s largest agricultural organization, recently told me that most rural communities will soon disappear. Even though the organization’s nominal mission is to help “farm families prosper and improve their quality of life,” the official seemed accepting of this fate, even a bit happy about it. Either way, he told me that nothing could be done.
The thing is, the senior official isn’t wrong—the outlook for rural communities is grim. There are fewer jobs than there were a generation ago and the ones that remain pay lower and lower wages. America’s agricultural system is predicated on an extractive model, where more and more of the profits flow to a few. If current trends continue, rural America will soon be owned by a handful of families and corporations who will run their empires remotely with driverless tractors and poorly paid staff.
This decline occurred as a result of deliberate policy decisions made by politicians from both parties who favor multinational corporations at the expense of rural communities. But contrary to what the senior official at the Iowa Farm Bureau said, rural America can be revived. It has a future, but only if we challenge who holds power in the current system and create an agricultural system that rewards meaningful work.
Economic power is more concentrated today than at any other point in American history, and nowhere is this power more apparent than in agriculture. The American food supply chain—from the seeds we plant to the peanut butter in our neighborhood grocery stores—is concentrated in the hands of a few multinational corporations.
This concentrated power comes at the expense of farmers and workers. Because the supply, processing, distribution, and retail networks are controlled by only a handful of firms, farmers face higher costs for their inputs and lower prices for their goods. In the 1980s, 37 cents out of every dollar went back to the farmer. Today, farmers take home less than 15 cents on every dollar. This new economic reality forces farmers to survive on volume, creating a system where only the largest farms can make a living.
The nation’s meatpacking industry is now more concentrated than when Upton Sinclair wrote The Jungle more than a century ago. Four companies, two of which are foreign-owned, now slaughter 52 percent of all meat consumed in the United States, more than twice the market share that the four largest companies held in 2002.
As journalist Christopher Leonard documents in The Meat Racket: The Secret Takeover of America’s Food Business, the current system closely resembles sharecropping. Large corporations like Tyson Foods will only slaughter a farmer’s chickens if he has an exclusive contract with the company. In many rural communities, a farmer raising animals for slaughter has the “choice” of selling to only one slaughterhouse. And because Tyson is often the only buyer in town, it calls the shots, dictating everything from the facilities a farmer builds on her farm, to the feed she uses, to the price the farmer receives for full-grown chickens. The farmer has very little power in this transaction, and this asymmetry is a key factor in why 71 percent of American chicken farmers live below the poverty line.
For slaughterhouse workers, industry concentration has contributed to wage stagnation over the course of the past few decades. Workers at a Hormel slaughterhouse in Austin, Minnesota, made $10.69 per hour in 1985, equal to $25.04 in 2018 when adjusted for inflation. But 33 years later, the average slaughterhouse worker makes less than $3 more. Meanwhile, Wan Long, the chairman and CEO of WH Group—the holding company of Smithfield Foods—made $291 million in 2017, the equivalent annual wages of 10,457 slaughterhouse workers.
Because farmers and other rural workers make less money, they also spend less money within their communities, creating a ripple effect that negatively impacts other local businesses. As a result, rural communities are hollowing out. Young people are leaving in droves, and the folks left behind are struggling to make ends meet.
The recovery from the Great Recession was an urban phenomenon. If rural communities had matched urban employment growth trends, they would have added more than 850,000 new jobs. But according to the U.S. Department of Agriculture, rural areas still have not even recovered the jobs they lost in the recession—and many never will.
A handful of trends reflect this loss of opportunity and the decline in living conditions. Medicaid now pays for more than half of the births at rural hospitals. Suicide rates are higher in rural America than in urban America—and the gap is growing. The overall violent crime rate in Iowa rose by only 3 percent between 2006 and 2016, but grew by 50 percent in communities with fewer than 10,000 residents. The opioid epidemic thrives from the desperation created by these economic circumstances. Thus, it is little surprise that rural communities simmer with a resentment that contributed to the election of Donald Trump.
Growing up, I worked in my mom’s bakery in Iowa, and was paid in cookie dough. I operated the register and cleaned the store on Sundays after church. Many of my mom’s customers knew how I was doing in school and I learned about the happenings in their lives. In a sense, they became a part of our extended family. Our family bakery closed a decade ago, but my mom remains close to many of her customers. These folks could have bought coffee anywhere, but they chose my mom’s bakery because of the care and pride she took in serving them.
My dad worked as a beer salesman, and supplied most of the gas stations in our town. The job involved tailoring the promotional displays at stores according to demographics and local events in an effort to generate a surge in demand. For me, this meant I grew up with a lot of leftover beer display items to play with, from blow-up beer chairs to Red Dog stuffed animals. To this day, I still notice well-crafted merchandising because I know the time and skill that goes into it.
I mention these experiences because they shape how I view the role of power between food industry workers and businesses. In both of their professions, my parents had freedom and autonomy. Most workers today, however, do not enjoy this same freedom. Decisions are made by 20-something consultants in distant cities who have never worked the front lines and cannot possibly understand the day-to-day realities of their businesses. Starbucks, for example, dictates exactly where each branch manager must place each item on their shelves. Chain gas stations and big box stores do the exact same with beer.
These faceless multinational corporations strip workers of their dignity and respect, a fact that is often lost in recent discussions about economic consolidation. This dynamic is not easily quantifiable, but it’s easy to recognize when you ask workers what they think of their employers. Look no further than a candy company in Creston, Iowa, that fired more than 250 workers days before Christmas last year after being bought out. To the company, these workers were merely seen as a number on some faraway excel spreadsheet—not as parents who had to go home on Christmas without jobs.
Every year brings a new bestselling book that documents how broken the American food system is. The current Democratic Party platform mentions “agriculture” and “food” six times each; the Republican Party mentions them only a few times more. But neither party recommends substantive changes to the current system. The recently passed Farm Bill, which received significant support from both parties in December, largely maintains the status quo. The crop subsidy program, for example, will continue to give 80 percent of all farm subsidies to the top 20 percent of American farmers. It is little wonder that monopolies and corporate farms have grown more powerful at the expense of workers and family farmers.
Beyond the Farm Bill, the inability of either party to challenge concentrated power in the American food system is best illustrated with the meat monopolies. The Obama administration tried to stand up to chicken monopolies by proposing new regulations to prevent abusive behavior but cowered when the industry pushed back. And if the Democratic Party ignored the concentration of power of the meat monopolies, the Republican Party, particularly under Trump, has exploited and entrenched it.
The Trump administration recently increased the speed caps for killing lines in slaughterhouses and is considering removing them for hogs, making dangerous work even more dangerous. In November, the administration eliminated the Grain Inspection, Packers, and Stockyards Administration, an agency under the United States Department of Agriculture that oversaw enforcement of antitrust law in the meatpacking business. In doing so, it removed one of the few safeguards for workers and small businesses in an already unbalanced marketplace.
America’s agricultural system should allow regular folks to make a decent living producing food. Deliberate policy decisions caused the decline in farmers’ share of the food dollar, and many of the same policy decisions explain why wages for slaughterhouse workers have stagnated during the past three decades. Reversing these decisions can help farmers, slaughterhouse workers, and families within the food industry, and would help revive rural communities.
There are a number of simple actions that can help reverse the downward trajectory. For example, a ban on contract farming and tournament-style pricing would help realign the power dynamics between chicken farmers and the large corporations that exploit them. For workers, capping the killing line speeds at slaughterhouses and requiring meat inspectors to be public employees would similarly realign these dynamics. These actions would level the playing field for farmers, workers, and small businesses, and restore dignity and respect to workers at all levels of the American food system.
But the best way to reshape America’s food system to benefit rural communities is to restore competition by replacing the current pro-monopoly antitrust regime. In The Curse of Bigness: Antitrust in the New Gilded Age, Columbia Law School professor Tim Wu records the enforcement history of anti-monopoly laws in the United States. For much of the 20th century, the federal government administered an antitrust framework that sought to avoid concentrated economic power. This framework helped ensure competitive balance, and sparked broad economic growth that benefited workers across the economic spectrum.
But in the early 1980s, the Federal Trade Commission and the Department of Justice—influenced by the work of Robert Bork—pared back antitrust enforcement. Bork argued that the government must only focus on the impact of consumer prices when assessing anti-competitive harm. This approach, known as the “consumer welfare standard,” has resulted in less antitrust enforcement. And with the assumption that larger firms can create efficiencies that lead to lower prices for consumers, firms have gotten bigger and industries have become more consolidated.
The problem with the consumer welfare standard is that its basic premise has been disproven. In Mergers, Merger Control, and Remedies: A Retrospective Analysis of U.S. Policy, economist John Kwoka analyzed the effects to prices after mergers. After reviewing almost 200 recent mergers, he found that post-merger prices increased by an average of 4.3 percent. Thus, the consumer welfare standard fails to meet its own modest goal of reducing consumer prices. Yet despite this evidence, this broken enforcement strategy continues to be supported by both major political parties.
Perhaps most importantly, the consumer welfare standard is a misguided enforcement strategy because it does not account for the chicken farmers who are squeezed by Tyson, or the slaughterhouse workers whose wages have stagnated even as profits within their industry have soared. It does not account for the ripple effects that harm small businesses or the communities that have been hollowed out as the industries that support them wither away. And it doesn’t offer relief to people like my parents, who took pride in their work and were trusted by the communities that they served.
It is time to turn the page on this failed theory and put the “anti” back into antitrust.
The decline of rural communities and the consolidation of the American food system was the result of deliberate policy choices. If we acknowledge the consequences of these choices, we can understand why the grim future projected by the official at the Iowa Farm Bureau is possible—but that our fate is not yet sealed. Rural America can thrive once again, but only if we’re willing to challenge who holds power in the current system.
Austin Frerick is director of special projects at the Open Markets Institute. He has published research in the National Tax Journal, Tax Notes, and at the U.S. Department of Treasury, and his research has been cited in The Washington Post and The New York Times. This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.