A series of joint workshops between the USDA and Department of Justice concluded with an exploration of farming/agribusiness trends. A driving concern for the workshops was the role of farm-industry consolidation and the potential for antitrust legal action.
Along those lines, many of the speakers called for proposed changes to GIPSA (Grain Inspection, Packers and Stockyards Administration) in order to bring pricing fairness and greater transparency to markets.
During the morning session, a diverse set of panelists, representing each link of the food supply chain, told Agriculture Secretary Tom Vilsack and Attorney General Eric Holder what needs to be done to ensure a vigorous, profitable marketplace.
To set the stage, Vilsack provided sobering statistics – “warning signs” - to illustrate the need for reform and justify the Obama administration’s efforts to revitalize rural America. “In these workshops, and in my travels across the country, a number of themes have emerged: producers want to have or maintain marketing options, they want transparency, they want access to markets, they have fewer buyers with whom to do business with, they struggle with debt and face challenges accessing capital, and last, they just want to be treated fairly and be respected.
“But most importantly, they all care about the future of agriculture and want it to succeed, which is why we have seen such overwhelming response and attendance at these workshops.”
• In the past 40 years, the United States has lost 800,000 farmers and ranchers.
• Farmers are aging. From 2002 to 2007, the average age of a farmer increased from age 55 to 57. And the number of farmers aged 75 years or older increased by 20 percent over the same period. Meanwhile, the number of operators under 25 years of age decreased by 30 percent.
• In 2009, a hog producer received 24.5 percent of the retail value of a hog — and it was over double this percentage in 1980 (50 percent). In 2009, 13.6 percent went to the packer, and 61.9 percent to the retailer.
• A cattle producer gets 42.5 percent of the retail value of a steer in 2009, which compares to 62 percent in 1980. In 2009, 8.5 percent went to the packer, and 49 percent to the retailer.
• The four largest retailers accounted for 37 percent of U.S. grocery store sales in 2009, compared to 34 percent in 2004, 28 percent in 1999, and 17 percent in 1994. “And we know that concentration can be much higher in certain regions.”
Vilsack said in 1980 “there were roughly 667,000 pork producers. Today, there are 67,000. So, 90 percent of the pork producers are out of business.
“Looking at cattle producers, there were about 1.6 million in 1980. Today, there are about 975,000.
“In the dairy sector, just go back 10 years when there were 110,000. Today, there are about 65,000.
“If you look at the people who produce the bulk of our food, it’s really about 200,000 to 300,000 farmers. There are about 2.2 million farmers – less than one percent of our population. Roughly one-tenth of 1 percent of those farmers produce 85 percent of our food.”
Another disturbing fact: 1.9 million of the 2.2 million U.S. farmers “are either losing money or, in one of the best years we’ve had in a while (where farming income is up 31 percent), farmers in the middle will make an average of about $6,400. That isn’t enough to support a family.”
Meeting consumer demand
Vilsack asked panelists how consumer demand impacts decisions on food marketing. “And for those of you who work, or represent, retail, processing or distribution can you walk us through how you ensure that demand is being met appropriately.”
Ben Burkett, producer with the Mississippi Association of Cooperatives, said “consumers want to know where their food comes from. Consumers are really driving the ‘know your farmer’ effort and (they) realize that buying fresh, buying local supports the local community. So, we stay in contact with grocers and supermarkets and farmers’ market so we know we’re producing what they really want.”
From the packing industry perspective, “our customers are retailers and food service companies,” said Barry Carpenter, CEO of the National Meat Association. “Our feedback on consumer demand comes through them as they place orders and come to us to develop new products.
“The message we hear loud and clear is that some things haven’t changed: consumers still want a consistent, quality product that has value. In addition, there seems to be more and more awareness of making sure you get what you’re looking for in the products.”
That’s being largely dealt with through branded products, said Carpenter. A recent study showed “that over two-thirds of the meat packages in the meat case were branded. Those brands carry a message and are intended to develop trust with the consumer.”
Retailers meet demand through forecasting based on historic models,” said Erik Lieberman, Regulatory Counsel, Food Marketing Institute. “Past performance is a key indicator. Some retailers track daily demand. … Factors considered in making decisions at the retail level include the demographics of the market, seasonality/time of month – folks tend to spend more money early in the month after they get paid – and advertising. So, you look at how consumers responded to advertising in the past, maybe a feature on the front page of a flyer. Then, you forecast accordingly.”
South Dakota cattle producer Vaughn Meyer has noticed “a 20 percent increase in certified and branded programs in the last decade. We realize that’s what the consumer is looking for.
“But, overall, I’d say the producer is having trouble understanding what the consumer wants. If you look at our cattle cycles … we’ve typically been going through a cycle of 10 to 12 years. As consumer demand decreases, you have cattle numbers following.”
Such cattle cycles are no longer so predictable, said Meyer. “Since 1996, the cattle industry has been in a liquidation phase.”
The thing that’s “really changed” in the last decade in terms of marketing “is how consumers determine value,” said Dan VincentPresident and CEO of Pacific Coast Producers. “It used to be just price. Now, it’s a combination of price/quality and, recently, food safety.”
As for the effect of consolidation, Vincent said 10 years ago “our company’s top ten accounts in retail were 50 percent of our revenue. Today, the top ten accounts are 90 percent of our revenue. In food service, it’s even more concentrated – two accounts make up 90 percent of our business.”
Consumers are becoming more and more interested in where their food is coming from,” said Christopher Waldrop, director of the Food Policy Institute, Consumer Federation of America. “That’s echoed in the interest in local, sustainable and organic food. But it’s also (the fact) that consumers want more information, period, about their food.
“Where it comes from is one issue. They also want to know food is nutritious, that it’s safe. They want more information about the ingredients and what makes up the food. Consumers are looking for a lot more information about their food – certainly, not less.”
Holder wanted the panelists to predict what their industries will look like in 10 years. He also asked what is needed “to ensure a competitive, open agricultural economy in the future?”
Burkett: “I think the concentration of the marketplace is really having an impact on producers. There are only, maybe, four major chains controlling the majority of marketing of fresh produce and vegetables.
In the next 10 years, that really needs change, to open up and be more transparent. That way, small farmers or cooperatives can be major players in the market and receive a higher margin of profit.”
Producers create value in livestock by “going with the extra cost of grass-feeding,” said Carpenter. “They need to know there will be a mechanism to capture that added value as it moves through the marketing chain.”
For all parties to see success “we’ll have to see more and more communication up and down the marketing chain and more cooperation to target the needs of the consumer.”
In the retailing side, “you’ll see continued diversification of the marketplace,” said Lieberman. “We’re seeing that already.
“It’s amazing how the markets have changed. Thirty years ago, folks had to buy most groceries at a conventional supermarket. Today, it’s so much more diverse. … We’ve got the conventional supermarkets but also ‘supercenters’ and warehouse club stores and natural food stores and dollar stores. … This has resulted in very intense competition.” Competition is so cut-throat that margins can be a penny per dollar.
“So, in the future, I think we’ll see continued diversification that will mean more competition and lower costs for consumers,” continued Lieberman. “In the 1940s, an American family spent about 19 percent of their income on food eaten at home. Today, that percentage is 5.5. That has raised quality of life.”
Meyer said cattlemen “see an increase in demand for a lot of niche products. We don’t see percentages going any (particular) way – you’ll always have groups wanting this or that. (That will continue) in the next 10 years.”
Meyer also agreed that greater communication at all levels is a must. But most important: keeping cattlemen in business for the next decade. “To be there in 10 years will be a struggle for producers. It will be quite a feat. (Currently), we’re losing 1,000 producers per month. That’s alarming.
“We’re ready to work, ready to listen. But we’ve got to be there. We must have fairness in the markets.”
Meyer pointed out that in 2009 the consumer price index went up 1.4 percent on all food products. Meanwhile, “producers have a lot of fixed costs – all fuels went up 5.4 percent, gasoline went up 9.9 percent, diesel fuel went up 14 percent. That’s nine times (the percentage rise) in food.”