Abstract
Agriculture has long been viewed by economists as the best example of an industry characterized by perfect competition. However, the history of modern agriculture is marked with differences about just how competitive the industry is and whether competition is in fact a desirable thing. Present debates about competition in agriculture rally discontent with the competitive environment around the mantra of “free and fair competition.” But this populist ideal presents problems of its own. First, what is the economic meaning of “free and fair” competition? Second, how does the argument about the need for free and fair competition meet with the facts of how the agricultural industry behaves? And finally, what are the ethical implications of arguments for government intervention in the agricultural economy?
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- 1.
Part of the difficulty is Holder’s imprecise use of the term “agriculture industry.” Much of the DOJ/USDA workshops focused on issues of concentration at the farm inputs (e.g., seed) and commodity processing (e.g., grain handlers and meat packers) levels of the industry, not the production level. However, Holder made clear the assertion that the pressures facing (some) family farms were a result of reduced competition at the non-farm levels of the industry. Consequently, I focus on the producer level to illustrate why the changes observed there refute allegations of decreased competitiveness, whether arising on- or off-farm.
- 2.
Here I use the term exploitation in its most basic economic sense of extracting value from an economic good either by transformation or trade, without specific reference to its value of marginal product.
- 3.
A search of the phrase “free and fair competition” in ECONLIT, one of the primary bibliographic databases in the profession, yielded only two publications from 1992 to present. Allowing a more flexible Boolean search of “free and fair” and “competition” yielded only seven.
- 4.
A search of the phrase in Google Scholar, which covers a much wider array of books, journals and disciplines than ECONLIT, yielded almost 1,300 results since 1993, the earliest year delimiter available.
- 5.
It is also interesting to follow how the interpretation and enforcement of these laws and the concept of unfair competition has evolved over the last century, including a liberalization around certain of these behaviors, such as predatory pricing, exclusive dealing territories, tying, and resale price maintenance. A history of US antitrust law and the economics of antitrust law is well beyond the scope of this essay.
- 6.
Sykuta (2010) addresses the use of the Packers & Stockyards Act to supplement antitrust enforcement in the livestock industry and argues that a failure to distinguish between competitive forces and anticompetitive effects makes effective enforcement of the Act difficult.
- 7.
Alesina and Angeletos (2005) study peoples’ attitudes toward fairness and redistribution and find that fairness is not necessarily based on equity, but perceptions of whether those outcomes were achieved by valid means or by luck. This sense of fairness is more consistent with an economic understanding of free and fair competition.
- 8.
Rima (1986, p. 86) notes that “Smith’s awareness of the role of competition in the pricing process becomes clear in his seventh chapter (of The Wealth of Nations). … Indeed, the only prerequisite of pure competition which he did not note is product homogeneity” (clarification added).
- 9.
Statistical methods were changed beginning with the 1997 Census of Agriculture, making direct comparisons with more recent years difficult. The 2007 Census shows a slight decrease in farms at 2,205,000 compared to 1997s adjusted number of 2,216,000, although average farm size decreased from 431 in 1997 to 418 in 2007.
- 10.
The National School Lunch Program originated informally during the depression to help dissipate the surplus of farm products and was formalized by Congress in 1946 after a review of the World War II military draft revealed a high correlation between physical deficiencies and childhood nutrition among rejected draftees (Taenzler 1970).
- 11.
Table 4.1 excludes roughly 1.4 million small family farms that rely primarily on off-farm income or are operated by retirees and roughly 50,000 non-family farms, which include cooperatives and corporations and tend to vary in size. Small family farms perform similarly to small-sales occupation farms in terms of operating margins. Non-family farms perform similarly to very large family farms. I focus on occupational family farms because they are most reliant on their agricultural production (among family farms) and concerns about the competitiveness of agriculture tend to focus on the viability of family farms.
- 12.
Neither net income nor operating profit margin account for the opportunity cost of assets in production. Given the role and importance of land, this is likely a significant omission for estimating economic profitability. However, some land is mortgaged and the cost of loan payments, which would approximate the cost of the land capital, is included in net income. Thus it is difficult to draw any strong conclusions in the aggregate.
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Sykuta, M.E. (2013). The Fallacy of “Competition” in Agriculture. In: James, Jr., H. (eds) The Ethics and Economics of Agrifood Competition. The International Library of Environmental, Agricultural and Food Ethics, vol 20. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-6274-9_4
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