From the Island Farmer
The Big Get Bigger. Again.
I’m one of these irritating people who has never gone into a Walmart. I know it’s self righteous crap, and how lucky I am to have had work that paid well enough that I could take this stand. My strong feelings about this are not because I think consumers should be deprived of good value, it’s because the business model being used finds profits by ruthlessly squeezing producers, including farmers. Walmart now earns more than half its revenue from selling food, and Canada’s big food retailers Loblaws (Superstores here) and Sobeys have little choice but to try to play the same game. Now with Amazon buying Whole Foods and getting ready to take on Walmart, Lidl, a German grocer known for low prices invading North America, Costco doing what Costco does, and so on, food retailing is starting to resemble The Game of Thrones, and I worry that farmers will be like those disposable armies that end up slaughtered on the field of battle.
When I studied economics at university back in the late 1960’s (yikes) there were strong regulations called anti-trust laws to prevent companies from controlling too much marketshare. Canada lagged well behind the United States in “trust busting”, and we allowed banks, telecommunication companies, airlines and so on to get big in order to compete with American heavyweights. The thing is someone was paying attention, and the ability to control markets through raw economic power was considered wrong, and if too extreme, illegal. The thinking was this protected consumers by fostering more competition. I would argue it did the same for producers. Farmers on PEI talk about a time when there were a dozen buyers. Now for most there’s 1 or 2.
What does this mean? Research in both Canada and the U.S. show that while food prices have gone up by about 1000% over the last 40 years, the share that goes back to the farmer has been cut in half. It’s around 10% now. Some of that is explained by value added products that make food more convenient, bags of cleaned lettuce rather than heads for example, but the trend has been constant, and the market power of shrinking numbers of processors, brokers, and wholesalers is a main reason why. They do it because they can.
I was reminded by an article in the U.K. Guardian how this trend began. It started in the late 1970’s after Robert Bork, a failed U.S. Supreme Court nominee, wrote a book called The Antitrust Paradox. He argued that legally enforcing competition allowed inefficient companies and producers to survive. He wrote that anti-trust regulations should focus solely on “the welfare of consumers.” In other words, if consumers are getting good value because a very few dominant companies exercise their economic power, that’s just as it should be. Court scholars acknowledge that ”consumer welfare” remains ambiguous as a legal term, but this thinking has dominated U.S. Supreme Court rulings for decades now, and tells us why no one is blinking an eye about the recent mergers and acquisitions in the food industry, and no one will.
And don’t look to politicians to change any of this. With farmers now just 2% of the population politicians know they’d be crazy to question a system that promises such good value.
Farming and food prices have been central to economic development since the Second World War. As Canada industrialized government policy pushed farms to become bigger and more efficient. This freed up kids growing up on farms to become factory workers, and cheaper food gave families more spending power for industrial goods. Government programs backstopped farmers' incomes, but Canadian programs are nowhere near as generous as those in the U.S. And Europe.
More recently food prices have been discussed as social policy, especially the importance of food security for low income families. I think steps to raise incomes through a higher minimum wage, or a guaranteed annual income are better approaches to solve this than using it to justify cheap food at Walmart.
Am I picking on Walmart? Yup. Here's the thing. The Walton family, the main shareholders of Walmart, has amassed a fortune of $139 Billion as of April this year not by charging consumers too much, the historical reason to worry about abusive market power, but enforcing cheaper and cheaper prices from their suppliers.
With little market clout or bargaining power, the only defense for farmers is to work together to control over production. That's what United Potato Growers of Canada for example tries to do in open markets, and supply management achieves in regulated industries.
As for me I boycott Walmart. I’m sure it’s making a big difference.