Merging of grain companies could be troubling Less competition signals lower prices to farmers

Outlook

November 22, 1998|By Ted Shelsby

CARGILL INC. has announced its intentions to acquire the grain unit of its closet rival, Continental Grain Co., in a deal that would solidify Cargill's position as the nation's biggest grain exporter.

The transaction would link the largest grain company, Cargill, with the second-largest in the industry. Cargill would get Continental businesses that store, trade and transport grain around the world.

If the merger is approved by federal regulators, how might it affect farmers and the grain industry?

Leland Swenson

President, National Farmers Union

The proposed acquisition of Continental Grain Co. by Cargill Inc. is troubling for several reasons.

The paramount concern is the impact this action will have on net farm income. Our producers are already facing serious financial hardship as a result of a sharp drop in commodity prices over the past year.

Allowing the two largest grain purchasers to merge into one giant company, controlling almost one-third of all grain exports, could prove devastating. This further reduction in competition will likely result in even lower prices to producers.

Second, the proposed merger poses a threat to the economic health of our nation's rural communities. If approved, the sale will likely result in the closing and merging of many local elevators where farmers deliver their grain.

Third, the proposed purchase may undermine trade opportunities for our nation's already struggling producers. With this merger, a single company stands to control a large portion of the country's grain exports.

This level of concentration will almost certainly put downward pressure on export prices and erode the flexibility of producers seeking to export their grain.

Kevin McNew

Agriculture economist, University of Maryland

There are two prevailing thoughts on this acquisition.

One is from the farmer's perspective. They look at this as another case of big companies getting bigger.

These mergers are potentially damaging to farmers in terms of bringing lower prices by making local markets less competitive. In many cases farmers had the option of selling in their local markets to either Cargill or Continental, and the two grain companies were competing against each other for their grain.

If this acquisition goes through, they would be one and the same. Those one-time competitors would be allies and would no longer compete against each other for the same grain. There would be less competition for the grain.

From the company standpoint, they are going to argue that a merger will be great for both farmers and consumers. They will say that it will lower their operating costs and these savings are going to be passed on to farmers in terms of higher prices for their grain and to consumers in terms of lower prices.

The jury is still out on the effect of these kinds of mergers in all of agriculture.

There has been a widening gap in what farmers get paid for their farm products and what consumers pay for food. On the one hand, you can argue that is due to higher operating costs due to packaging, processing and things like that. But at the same time, over the last 20 years we have seen fewer and fewer companies in the middle between farmers and consumers.

At this time, there is no clear answer on what is best for farmers and consumers. Is it smaller companies competing against each other or is it larger companies who potentially don't compete but have lower production costs?

Lynne Hoot

Executive Director, Maryland Grain Producers Association

Most of our grain grown in Maryland gets bought up by the poultry industry and smaller mills in the area, but the merger could still have an impact on our growers.

This is a major, major takeover. You are dealing with two major companies going together. This could reduce competition, and when it involves your product, competition is good.

The price our farmers receive for their grain is based on the Midwest price. Our price is the Midwest price plus transportation costs. So if this merger reduces the price of grain in the Midwest, it very likely will have an impact on our industry.

Timothy Dufault

President, Minnesota Association of Wheat Growers

There has been a lot of consolidation going on in all of agriculture over the last couple of years, but this is the first time we are seeing one of the five large grain companies buying another out.

Our concern is that while you already have many sellers -- the farmers -- selling to just a few buyers -- the big grain companies -- this would reduce the number of buyers by one more.

It would take another customer for our grain out of the picture.

A lot of farmers already feel that the small number of grain companies are taking advantage of them through pricing. This is going to compound that situation.

Our biggest concern is that there would be another dip in the price that farmers are paid for their grain because of reduced competition.

Pub Date: 11/22/98

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