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Competitive Edge: Big Ag’s Monopsony Problem: How Market Dominance Harms U.S. Workers and Consumers

 |  February 26, 2021

By: Hiba Hafiz & Nathan Miller (Washington Center for Equitable Growth)

Agricultural markets are among the most highly concentrated in the United States. The markets for beef, pork, and poultry, grain, seeds, and pesticides are dominated by four firms. Three firms dominate the biotechnology industry. One or at best two firms control large farm equipment manufacturing. And a small number of firms are increasingly dominating agricultural data and information markets.

Yet former Iowa Gov. Tom Vilsack (D)—President Joe Biden’s nominee for secretary of the U.S. Department of Agriculture, the same position Gov. Vilsack held during the Obama administration—has come out against breaking up Big Ag firms. “There are a substantial number of people hired and employed by those businesses,” he said last year. “You’re essentially saying to those folks, ‘You might be out of a job.’ That to me is not a winning message.”

Gov. Vilsack couldn’t be more wrong on the economics. It is precisely Big Ag’s buyer power in agricultural markets—these firms’ “monopsony” power—that destroys jobs and suppresses small farmer and worker pay.

Economic theory describes monopsony power as market power on the buy side of the market—it’s the analogue of monopoly power on the sell side of the market. Artificially acquiring or maintaining market power is unlawful under the U.S. antitrust laws, regardless of whether it derives from the buy or sell side. And that’s because buy-side power can be just as socially harmful as sell-side power.

Firms insulated from competition in input markets can profitably suppress the pay to suppliers of goods, services, and labor below the value that those suppliers provide. And lower pay has broader economic outcomes. It means suppliers have weaker incentives to provide the same quantity of inputs or invest in capacity, innovation, and quality. So, monopsony power can decrease input suppliers’ pay and the quantity of inputs buyers purchase….