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by: Heather Carroll


Marketplace > Arkansas State University > Agricultural & Resource Econ > AGEC 6013 > ADVANCED AGRICULTURAL PRICE ANALYSIS
Heather Carroll
GPA 3.58

Paul Armah

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Paul Armah
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This 4 page Class Notes was uploaded by Heather Carroll on Friday October 2, 2015. The Class Notes belongs to AGEC 6013 at Arkansas State University taught by Paul Armah in Fall. Since its upload, it has received 28 views. For similar materials see /class/217711/agec-6013-arkansas-state-university in Agricultural & Resource Econ at Arkansas State University.

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Date Created: 10/02/15
AGEC 6013 Advanced Agricultural Prices Trades and Markets Analysis Week3 Institutional Trend in Agricultural Industry Critique CONSOLIDATION IN THE FOOD AND AGRICULTURE SYSTEM amp CONCERNS Introduction The structural alignment in the agricfood industry through merging joint ventures takerovers have grown too big that they are referred to as the industrialization of agriculture or as food manufacturing The changes are the result of notoriously short sighted market forces and not the result of public dialogue the foundation of a democracy C quot J quot C quot The J J the consolidation of the agric and food system that started in the US one must understand the Us food system amp to understand the global food system one must understand the operations of the major global firms such as Cargill ADM and ConAgra Concerns The major concern about concentration in the food system focuses on the control exercised by a handful of firms over decisionmaking throughout the food system The focus of economic power is usually placed on the individual firm and its market share Changing Structure of Cluster of Firms In the past most of the global grain firms were family held operations These firms operated in one or two stages of the food system and in a very few commodities Today the system is more complex starting with involvement in biotechnology extending through production and ending with highly processed food The structure has changed through Acquisition mergers joint ventures partnerships contracts and less formalized relationships such as agreements and side agreements The concept quotcluster of firmsquot is now used represent these new economic arrangements In a food chain cluster the food product is passed along from stage to stage but ownership never changes and neither does the location of the decisionmaking The system is still evolving and it is not yet possible to determine how many clusters may evolve Even at the global level where there are no antitrust regulations oligopolies not monopolies tend to emerge The prediction is that there will be development of four or five food clusters The Food Chain Clusters 1 CargillMonsanto Monsanto is one of the leading biotechnology firms The joint venture between Monsanto and Cargill announced in 1998 is one of the clusters Cargill was one of the largest seed firms in the world with seed operations including research operations in 23 countries However Cargill did not have access to biotechnology and the new genetic products it would produce Most seed companies have either aligned themselves with or been acquired by multinational crop biotechnology firms such as Monsanto Co DuPont Co and Dow Chemical Co amp Cargill is not an exception Cargill sold its international seed operation to Monsanto and their domestic seed operation to AgrEvo Cargill then formed a joint venture with Monsanto the company that had the intellectual property rights to develop the genes and had a very comprehensive array of seed rms The CargillMonsanto cluster brings together giants in their respective stages of the food system They have recently aquired Continental Grain The Cargill acquisition of Continental would mean that Cargill quotwould control more than 40 percent of all US corn exports a third of all soybeans exports and at least 20 percent of wheat exports the largest two global grain traders 2 ConAgra Has diversi ed interests ranging from quotfarm gate to dinner platequot ConAgra is one of the three largest our millers in North America and ranks fourth in dry corn milling in the US The company produces its own livestock feed and ranks third in cattle feeding and second in cattle slaughtering It ranks third in pork processing and fth in broiler production and processing ConAgra s United Agri Products UAP business is a leading distributor of crop protection chemicals fertilizers and seeds in the US Canada Mexico Chile and UK UAP is moving into new markets around the world such as through a joint venture with Zeneca Agrochemicals now AstraZeneca in the Cape region of South Africa which will establish a base for UAP growth on the African continent In the handling and transportation of grain ConAgra owns about 100 elevators and 1000 barges and 2000 railroad cars ConAgra s grain trading company Peavey is ranked third in ownership ofUS covered barge eet ConAgra follows the processing of food farther down the food chain than Cargill and ADM ultimately selling labeled food items that most consumers would recognize such as Armour Monfort Swift Butterball Healthy Choice Peter Pan Peanut Butter Hunt s and many others It currently ranks second behind Philip Morris as the leading food processor in the US ConAgra has acquired or created joint ventures with approximately 150 companies during the past 10 yrs NovartisADMIBP Novartis is a Swiss rm formed by the merger of CIBAGeigy and Sandoz in late 1996 with agribusiness operations in 50 countries worldwide Their quotagriservicesquot are primarily in crop protection chemicals seeds and animal health Itsacquisition of Merck in 1997 7 puts Novartis in the leading position in the global agrochemical eld with sales of 4 billion in 1997 This left Monsanto Zeneca and DuPont all vying for second place in the global agrochemical eld Novartis has 15 of the global agrochemical market amp has the largest R amp D budget in the life sciences industry The NovartisADM connection is established through Novartis joint venture with Land O Lakes to develop specialty corn hybrids for the food and feed markets Novartis purchased a 50 interest in Wilson Seeds Inc a subsidiary of Land O Lakes The insigni cance of NovartisADM connection in the food chain cluster are as folows a First ADM with its vast network of processing facilities lacked access to farmers a problem the rm remedied through a longstanding joint venture with Growmark and the more recent ones with Countrymark Riceland and United Grain Growers These joint ventures give ADM access to 50 of the corn and soybean market region and 75 of Canada s corn and soybean market region b Secondly the NovartisADM connection is also important because Novartis 7 a global and powerful company with substantial sales in chemical seed animal health and human nutrition products 7 lacked access to further processing in either grain commodities or food products Novartis will need ADM s grain handling and processing web to be able to guarantee producers using their seed stock a downstream market ADM on the other hand lacked access to biotech and needs Novartis genetics seed stocks and chemicals ADM s venture into production and processing of livestock has been undertaken through their joint venture with AGP Consolidated Nutrition which has sow production on line as well as ADM s steady increase of its stake in IBP the largest US beef packer and second largest US pork packer Moving Beyond the Data There are a host of major players in the food system which are not included in our three food chain clusters Some have already begun to form alliances and others are still acting in a rather individualistic manner These consolidation indicate three points 1 The rst is that a very small number of dominant food chain clusters appear to be emerging Some are organized around one or two dominant players as exempli ed in the cases of CargillMonsanto ConAgra amp NorvartisADMIBP 2 The second point is that the food system is becoming very complicated and dif cult to describe amp without competition 3 The third point is that as the food chain clusters form with major management decisions made by a small core of rm executives there is little room left in the global food system for independent farmers The experts even the leaders of cooperatives are telling farmers they must give up their independence and join an alliance This is another way of saying quot give up your decisionmaking prerogatives to the food chain cluster if you want to maintain an economically viable farming operationquot Concerns about the Food System Consequences for rural communities a Devpt Today agriculture is not a major contributor to rural development The major reason is because of the emerging structure of the food system In a family business such as family farm a family grain elevator or a family grocery store family spends much of the quotpro tquot in the local community with multiplier effects of three or four amp thus enhancing the economic viability of the community Large nonlocal corporations hiring labor as wage earners see labor as an input cost to be purchased as cheaply as possible The quotpro tsquot then are allocated to return on management and capital and are usually taken from the rural community They go to the company s headquarters and are then sent to all corners of the globe to be reinvested in the food system b Decision Making and Pro t Maximization The major decisions in the food system are being made by few rms involved in the food system clusters They are primarily concerned with maximizing their pro ts But these rms are in position to decide which people in the world will eat what Their decisions are based on whether one has the money to buy food c Imports On a dollar basis the exports and imports have been growing at about the same level for the past two decades This means that on a percentage basis imports have been increasing more rapidly because imports started at a lower dollar value e g about 33 of the vegetables consumed in US are imported The United States is also a net importer of beef d Food Quality Issues of food quality and safety are also receiving increased attention Perhaps the bigger issue is whether the global food system is sustainable The production processing and distribution stages have all been built on cheap chemical or petroleumWhat will happen if the world s petroleum resources will be depleted e Depression Given the nancial problems faced by some nations is What would happen if US were to experience a depression like that ofthe 192039s and 1930 s A depression is a major disorganization of the economic system Will food products get to the stores on a regular schedule Will my neighbor be able to get a replacement engine from England for his new New Holland combine if it breaks down during harvest Will the seed chemicals and fertilizer coming from all parts of the world get to the farmer in time f Diseases The control of the animal genetics pool is also concentrating and the genetic base for domestic animals is narrowing 7 eg over 90 of all commercially produced turkeys in the world come from three breeding ocks The system is ripe for a new strain of avian u to evolve for which these birds have no resistance Similar concerns exist in hog chicken and dairy cattle genetics g Job Loss Ifthe number offarms is reduced to about 25000 in the next decade there will be many farm families who will be involuntarily removed from their land The centralized food system that continues to emerge was never voted on by the people of this country or for that matter the people of the world It is the product of deliberate decisions made by a very few powerful human actors This is not the only system that could emerge Is it not time to ask some critical questions about our food system and about what is in the best interest of this and future generations


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