Can the Corporate Takeover of Dairy Farms be Stopped?

John Ikerd September 19, 2019

This photo shows a confined dairy cattle feeding operation in Yuma, Arizona in October 2011. The increasing corporatization of dairy production has driven many farmers out of business, reducing the number of American dairy farmers by 93% since 1970.

We are now see­ing a cor­po­rate takeover of dairy pro­duc­tion, which is the last bas­tion of full-time, inde­pen­dent fam­i­ly farms in ani­mal agriculture.

In an April 2018 blog post, Farm Aid not­ed that, since 1970, the num­ber of Amer­i­can dairy farm­ers has dropped by more than 93%, from more than 640,000 to about 40,000 today.

The post goes on: In an indus­try dom­i­nat­ed by cor­po­rate inter­ests, fam­i­ly farms are con­stant­ly at risk of going under. A con­sis­tent, severe slump in milk prices in recent years has pushed many dairy farm busi­ness­es beyond the point of sur­vival. In the last year, there’s been a 3% drop in the num­ber of dairy farms, with the future of those remain­ing increas­ing­ly uncertain.”

There has been lit­tle cause for hope over the year since this Farm Aid blog post and lit­tle hope for a sig­nif­i­cant improve­ment in prices for at least a year in the future. Con­sid­er­ing this stark sit­u­a­tion, inde­pen­dent dairy farm­ers would do well to review how the cor­po­rate takeover of oth­er sec­tors of ani­mal agri­cul­ture has come about.

Poul­try was the first to fall under cor­po­rate con­trol, fol­lowed by beef, then pork, and now dairy. The cor­po­ra­ti­za­tion of each sec­tor has been a bit dif­fer­ent, but all have fol­lowed the same basic pat­tern. We now see that pat­tern unfold­ing in dairy production.

I am more famil­iar with the cor­po­rate takeover of the pork indus­try than that of poul­try or beef. It hap­pened dur­ing the 1990s, while I was still an active fac­ul­ty mem­ber of the Uni­ver­si­ty of Mis­souri. Reluc­tant­ly, I became involved in the con­tro­ver­sy sur­round­ing cor­po­rate takeover of hog pro­duc­tion. By then, the entire poul­try indus­try was already ver­ti­cal­ly inte­grat­ed, which means a few large cor­po­ra­tions con­trolled all phas­es of pro­duc­tion from breed­ing stock to retail-ready poul­try prod­ucts. Cat­tle feed­ing had moved from small on-farm feed­lots into large cor­po­rate feed­lots hold­ing tens of thou­sands of ani­mals. The remain­ing small feed­lots where farm­ers and ranch­ers fed out their own calves were few. The longer pro­duc­tion process for beef has made it more dif­fi­cult for cor­po­ra­tions to con­trol the cow-calf and stock­er phas­es of pro­duc­tion, but they keep trying.

The pro­duc­tion process for pork was longer than for poul­try but short enough to allow cor­po­rate con­trol of the entire process — from breed­ing stock to fin­ished prod­uct. Ver­ti­cal inte­gra­tion of the pork indus­try had been lim­it­ed by per­sis­tent dis­ease prob­lems in the larg­er con­fine­ment hog feed­ing oper­a­tions. How­ev­er, when rou­tine feed­ing of antibi­otics became a com­mon prac­tice, a major obsta­cle to a cor­po­rate takeover of pork pro­duc­tion was removed. The remain­ing cor­po­rate chal­lenge was to dis­place inde­pen­dent hog farm­ers, many of whom were very effi­cient producers.

Dur­ing the 1990s, the Uni­ver­si­ty of Mis­souri oper­at­ed a mail-in records pro­gram for Mis­souri farm­ers. Pro­duc­ers would mail copies of their pur­chas­es and sales records, which the uni­ver­si­ty used to pre­pare finan­cial state­ments that includ­ed their pro­duc­tion costs and their prof­its. Each par­tic­i­pant would be pro­vid­ed with sum­maries of finan­cial results for sim­i­lar pro­duc­ers so they could com­pare their per­for­mance with oth­ers — bench­mark­ing. We had enough records for farm­ers who spe­cial­ized in hog pro­duc­tion to pro­vide farm­ers with aver­age pro­duc­tion costs for the most effi­cient and least effi­cient as well the aver­age effi­cien­cy of hog pro­duc­ers in the pro­gram. We also had accu­rate infor­ma­tion regard­ing costs of pro­duc­tion in the large cor­po­rate affil­i­at­ed feed­ing oper­a­tions that were try­ing to gain a foothold in the state at the time.

The mail-in records indi­cat­ed that the large cor­po­rate feed­ing oper­a­tions would like­ly be more effi­cient than the least effi­cient one-third to one-half of exist­ing Mis­souri hog pro­duc­ers. How­ev­er, the cor­po­rate oper­a­tions were like­ly to be less effi­cient than the most effi­cient one-third to one-half of exist­ing hog pro­duc­ers. In oth­er words, any pro­duc­tion-cost advan­tage enjoyed by the large cor­po­rate oper­a­tions would be small com­pared to the pro­duc­tion costs of the aver­age Mis­souri hog pro­duc­er. How­ev­er, by being ver­ti­cal­ly inte­grat­ed in pork pro­cess­ing and dis­tri­b­u­tion as well as hog pro­duc­tion, the large cor­po­rate oper­a­tions were ulti­mate­ly able to dri­ve even the most effi­cient inde­pen­dent hog pro­duc­ers out of business.

Under polit­i­cal pres­sure from the pork indus­try, Missouri’s anti-cor­po­rate farm­ing law was changed to allow a large cor­po­rate pork oper­a­tion to locate in north Mis­souri. Dur­ing the mid-1990s, Pre­mi­um Stan­dard Farms built a large slaugh­ter plant and feed mill and quick­ly acquired 80,000 sows expect­ing to pro­duce more than 1.5 mil­lion slaugh­ter hogs a year. Sim­i­lar large cor­po­rate oper­a­tions had begun ear­li­er in North Car­oli­na and were expand­ing rapid­ly dur­ing times of prof­itable hog prices. Most of the cor­po­rate hogs in North Car­oli­na were pro­duced under com­pre­hen­sive con­tracts that gave the cor­po­ra­tion vir­tu­al­ly com­plete con­trol over pro­duc­tion. It was obvi­ous this rapid expan­sion in hog num­bers even­tu­al­ly would depress hog prices to unprof­itable lev­els for most exist­ing producers.

The key to the cor­po­rate takeover was that they could eas­i­ly out­last the least effi­cient one-third of inde­pen­dent pro­duc­ers dur­ing the inevitable depres­sion in hog prices result­ing from their expan­sion in pro­duc­tion. But the cor­po­rate oper­a­tions didn’t even need to be more effi­cient than the aver­age inde­pen­dent pro­duc­er. The cor­po­ra­tions were involved in pork pro­cess­ing and slaugh­ter as well as pro­duc­tion. The pack­ers low­ered whole­sale pork prices enough to allow the pork from hogs under their con­trol to clear the mar­ket, but only enough to leave prices seri­ous­ly depressed in mar­kets where inde­pen­dent pro­duc­ers were forced to sell. Any cor­po­rate loss­es on their owned or con­tract hogs were large­ly off­set by wider mar­gins of prof­it for hogs pur­chased from inde­pen­dent pro­duc­ers. Inde­pen­dent pro­duc­ers were not only forced to sell at large loss­es, some couldn’t find mar­kets at any price. Dur­ing the late 1990s, mar­ket prices for hogs dropped to a low of $8 per hun­dred pounds, while aver­age costs of pro­duc­tion were more than $40 per hun­dred pounds.

Enough inde­pen­dent pro­duc­ers were even­tu­al­ly forced out of busi­ness to allow hog prices to return to more rea­son­able lev­els. How­ev­er, as the less effi­cient pro­duc­ers were forced out of busi­ness, or became cor­po­rate con­tract pro­duc­ers to sur­vive, an increas­ing share of total hog pro­duc­tion came under cor­po­rate con­trol. Even­tu­al­ly, even the most effi­cient inde­pen­dent pro­duc­ers couldn’t sur­vive these mar­ket con­di­tions. Even the ver­ti­cal­ly inte­grat­ed cor­po­ra­tions lost mon­ey at times dur­ing the takeover, and some were forced out of busi­ness as they com­pet­ed for mar­ket share and con­trol. The sur­viv­ing cor­po­ra­tions suc­ceed­ed in tak­ing over vir­tu­al­ly com­plete con­trol of the hog indus­try — from hog genet­ics to fin­ished pork products.

The takeover process for pork was sim­i­lar in many respects to ear­li­er expe­ri­ences with poul­try and beef. The least effi­cient inde­pen­dent pro­duc­ers are the first to be forced out of busi­ness by more effi­cient cor­po­rate pro­duc­ers. Once the cor­po­ra­tions gain con­trol of a sig­nif­i­cant share of the total mar­ket, they can begin to manip­u­late mar­ket prices avail­able to remain­ing inde­pen­dent pro­duc­ers. Dur­ing times of sur­plus, the cor­po­ra­tions lim­it reduc­tions in whole­sale prices in order to depress and hold mar­ket prices for inde­pen­dent pro­duc­ers to unprof­itable lev­els long enough to force the sur­vivors out of busi­ness. Obvi­ous­ly, agri-food cor­po­ra­tions would not be able to manip­u­late prices or mar­ket­ing mar­gins in this way if mar­kets were actu­al­ly com­pet­i­tive. How­ev­er, cor­po­rate antitrust laws have not been seri­ous­ly enforced in the U.S. since the ear­ly 1900s.

Unfor­tu­nate­ly, this is the harsh real­i­ty now con­fronting small­er inde­pen­dent dairy pro­duc­ers. The unbri­dled expan­sion of large con­fine­ment dairy oper­a­tions has increased total pro­duc­tion and depressed milk prices to unprof­itable lev­els for most inde­pen­dent pro­duc­ers. Weak­er con­sumer demand for dairy prod­ucts has mag­ni­fied the depres­sion. The least effi­cient inde­pen­dent pro­duc­ers have already been forced out of busi­ness by pre­vi­ous expan­sion in pro­duc­tion and the large cor­po­rate dairy oper­a­tions are con­tin­u­ing to expand. The remain­ing inde­pen­dent dairy farm­ers are now at risk.

The gov­ern­ment has long been involved in pric­ing of milk, which makes the milk mar­ket some­what dif­fer­ent than that for oth­er ani­mal prod­ucts. In addi­tion, coop­er­a­tives are among the largest cor­po­rate proces­sors of milk but are act­ing more like cor­po­ra­tions than coop­er­a­tives. It remains to be seen whether the large cor­po­rate dairy oper­a­tions have gained suf­fi­cient mar­ket pow­er to dri­ve out the most effi­cient inde­pen­dent dairy pro­duc­ers. Regard­less, the remain­ing inde­pen­dent dairy farm­ers can’t afford to ignore the lessons learned from the cor­po­ra­ti­za­tion of poul­try, beef, and pork.

John Ikerd was raised on a small dairy farm in south­west Mis­souri. He received his BS, MS, and Ph.D. degrees in agri­cul­tur­al eco­nom­ics from the Uni­ver­si­ty of Mis­souri. After work­ing in pri­vate indus­try, he spent 30 years in var­i­ous pro­fes­so­r­i­al posi­tions at North Car­oli­na State Uni­ver­si­ty, Okla­homa State Uni­ver­si­ty, Uni­ver­si­ty of Geor­gia and the Uni­ver­si­ty of Mis­souri before retir­ing in ear­ly 2000. He now spends most of his time writ­ing and speak­ing on issues relat­ed to sus­tain­abil­i­ty with an empha­sis on eco­nom­ics and agri­cul­ture. He cur­rent­ly resides in Fair­field, Iowa and is the author of sev­er­al books includ­ing Essen­tials of Eco­nom­ic Sus­tain­abil­i­ty, Sus­tain­able Cap­i­tal­ism, A Return to Com­mon Sense and Cri­sis and Oppor­tu­ni­ty: Sus­tain­abil­i­ty in Amer­i­can Agri­cul­ture and A Rev­o­lu­tion of the Mid­dle.
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