In America size matters. And American consumers seem to agree: the bigger the better. Consider sport utility vehicles, three-car garages, big-screen televisions. The mega-malls, discount retail giants and wholesale clubs. Even "standard-sized" food servings are oversized. The mentality that bigger is better has become an accepted norm of American life.
The concept extends to the business world. Running a profitable business may depend in part on taking advantage of economies of scale. Stocking inventory at prices lowered by sheer volume helps retail giants pass savings on to consumers, as an example. Mergers and acquisitions fuel business growth. But sometimes, cut-throat competition may cross the line by virtually shutting out the competition. That’s when consumers suffer through fewer choices and higher prices due to the lack of comparison shopping.
As a senior member of the Senate Judiciary Committee, I’ve been monitoring the trends in Big Business to make certain the federal government takes its oversight responsibilities seriously when it comes to enforcing the nation’s anti-competitive laws. I’m all for free enterprise, but we need to make sure everyone plays by the rules to protect competition in the free market place. For decades, the federal government has worked aggressively to protect consumers through the Sherman and Clayton Acts.
As the only working family farmer in the U.S. Senate, I’m also leading the charge against the trend toward greater concentration in American agriculture. In my efforts to curb vertical integration in the livestock industry, I am pushing legislation that would:
• ban packers from owning livestock seven days before slaughter;
• require 25 percent of a packer’s daily kill to come as a result of purchases made on the daily, open or spot market;
• make it unlawful for any packer with an annual slaughter capacity of more than 20 million swine to slaughter more than 10 million packer-owned swine in any calendar year;
• crack down on abuses of mandatory arbitration clauses in the contracts signed between livestock and poultry companies and producers.
Just as consumers suffer due to an absence of comparison shopping, family farmers suffer when they have limited options to market their commodities. If there’s only one game in town, farmers don’t have the luxury of selling to the highest bidder. It’s either take it or leave it. That’s called a monopsony. Monopsony is to buying as monopoly is to selling.
At a congressional hearing in October, I pressed the U.S. Justice Department to give careful consideration to the harm in the farm markets caused by monopsony. I’m concerned the Department of Justice doesn’t have the agriculture specialists on board who understand the unique marketing dynamics a farmer faces with industry.
Consider the current structure of the hog markets. About 87 percent of all hogs sold in the U.S. are contract or packer-owned pigs. That means only 13 percent have the potential to be "spot market" pigs. In reality, it’s estimated that only 3-5 percent of the "open market" pigs traded daily are setting the standard price for 90 percent of the pigs packers have under marketing contracts.
This can lead to a situation that enables packers to manipulate the spot market and influence the value of their marketing contracts. That puts producers at the mercy of the buyer, not the marketplace.
Regrettably, the potential for market manipulation of the hog market grew considerably when the world’s largest vertical integrator acquired one of the nation’s largest farmer-owned cooperatives.
From the feedback I’m getting from Iowa farmers, it seems to me bigger isn’t necessarily better. Particularly when the trend distorts the markets and brings harm to the family farm. Iowans can be certain I will continue my crusade to size up the competition and work to curb concentration trends in American agriculture.