New Paper Links Food Price Inflation to the Power of “Agro-Trader Nexus” (ie, Monsantos + Cargills)

Joseph Baines’s new article, “Food Price Inflation as Redistribution: Towards a New Analysis of Corporate Power in the World Food System” is a must read if you care to understand how major corporations exercise hidden influence on our daily lives. The paper is so chock full of information and history that a summary does not do justice to its arguments, so I hope you’ll read it in full.

Surprisingly, conventional wisdom in academia is that retailers, meaning supermarkets, are the most powerful players in the food system. Baines argues that that view is out of date. While grocers gained influence from the 1960s through 1990s, which was reflected in capturing a larger share of the total profits in the food supply chain, that changed around 2000, and their profit share has fallen since then. The turn of the millennium also marks the onset of food price inflation. Baines argues that the change in dominant players and in pricing dynamics are linked, and reflect the rise of a new constellation:

My main contention is that since the late 1990s the dominant grain traders have forged close linkages with major agribusinesses. These links have given rise to a power constellation that I call the Agro-Trader nexus. The nexus’s main impact on the world food system since the early 2000s comes in the form of its facilitation and championing of the wasteful absorption of grain and oilseeds into the heavily subsidised first- generation biofuels sector. The soaring production of biofuels has contributed to a dramatic upswing in accumulation for the firms of the Agro-Trader nexus. However, the biofuels boom has been less beneficial for other firms operating in food supply chains and it has pushed millions of people into conditions of acute undernourishment.

These are the major types of players that Baines identifies in this Alien v. Predator struggle for dominance:

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Baines contends:

Although it is true that the dollar profit levels of the dominant food manufacturers and food retailers are far greater than those of the dominant grain traders and the major firms sell- ing agricultural inputs, the growth rate of the differential profits of the Food-Core and Retail-Core since the turn of the millennium has been comparatively modest. In short, the agribusiness firms and the grain traders are in the ascendant, not the food retailers. Thus, in order to more adequately comprehend the restructuring of corporate power over the world food system since the turn of the millennium, we must focus on the pecuniary strategies of the agribusiness firms and grain traders….It will be suggested that key firms within both clusters forged important cross-linkages with one another towards the end of the 1990s. These linkages gave rise to what I term an Agro-Trader power nexus. Rather than passively cashing in on the upswing in agricultural commodity prices, the firms within this nexus have been actively working to restructure the world food system in their favour, and in ways that make violent inflationary shifts much more likely.

The grain traders have not only increased their share of trading in grains, which are both critical dietary staples for humans as well as the most important input in livestock production, but have extended their scope of activities. Baines again:

The grain merchants’ stealthy expansion of control over food supply chains had taken them very far. At the beginning of the third agricultural commodity cycle in the early 1970s, the six largest trading houses controlled between 85 per cent and 90 per cent of US grain exports (Committee on Foreign Relations 1977: 72). However, as Figure 5 shows, the grain merchants did not just consolidate their control over trading. They also extended their power over the processing of agricultural commodities. The chart, which depicts firm concentration ratios, focuses on the flour milling, soybean crushing and wet corn milling sectors because they represent the main foci points of the modern food system. Flour, as the main ingredient for bread, has become in many cul- tures synonymous with life sustenance itself, as diverse and nutritionally rich diets across the world have been homogenised along the lines of wheat-dependency. And soybeans and corn have become key commodities because they provide the raw mate- rial for many of the industrialised inputs which have become omnipresent in modern food supply chains such as high fructose corn syrup; xanthan gum; corn starch; soy lecithin; glycine; maltodextrin; citric acid; corn oil; diglycerides; dextrose and glucose, along with animal feeds such as corn meal and soybean oil cake. By replicating the natural properties of traditional ingredients, these ‘fabricated foods’ represent a source of ‘value-added’ for corporations involved in processing. They are more durable and transportable than traditional rural products and, as many of these inputs are inter- changeable, they enhance processors’ power over mono-cropping farmers.

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By contrast, the “Agro-Core” companies have had more of an uphill battle in their quest for dominance:

In principle, biotechnology held a lot of promise for corporations selling inputs to farmers: by patenting various bioengineered seeds, agribusiness could intensify the commodification of the agricultural process. Moreover, from the perspective of chemi- cal companies, biotechnology held the key to increasing farmer dependency on the ag- rochemicals they sold as most of the early genetically modified crops were designed for herbicide tolerance….

However, the chemical companies perhaps underestimated the degree to which they needed to convince people beyond the halls of the US government about GM plants. Some agronomists found that the yields of transgenic crops were below that of non-engineered varieties. Such findings undermined the credibility of those agribusi- nesses that boldly proclaimed that genetic modification would increase agricultural productivity. The controversy of GM food was cast into sharper relief after Monsanto first touted its planned use of ‘terminator technology’ – a modification that was to take away plants’ germinative capacity and thus guarantee the company’s proprietary rights over living organisms. NGOs such as Greenpeace and farmers’ organisations such as the one-and-a-half-million-strong Brazilian Landless Workers’ Movement protested vociferously against genetic modification in the wake of such revelations. The terminator episode was a public relations disaster for Monsanto…

As a result of these counter-currents, biotech and chemical firms had difficulty en- couraging the spread of transgenic crop production beyond the United States and a small number of other countries such as Argentina and Canada. Moreover, many gov- erning authorities within key import markets, such as the EU, Japan and Korea, fol- lowed the major food conglomerates and retailers in establishing strict import and labelling regulations…Hence, even in the heartland of agrobiotechnology, there seemed to be severe limits placed on the Agro-Core firms’ capacity to use the biotech industry for their own pecuniary ends.

The paper describes how these two sectors have combined forces through joint ventures and more important, for working together to create what Veblen called “institutional wastage,” or scarcity in the midst of potential abundance. One way has been to encourage greater production of meat, since eating higher up the food chain requires more grain. But the biggest culprit is biofuels:

It was primarily the rapid development of the first-generation biofuels sector in the 2000s that cata- lysed the inflationary shifts that have recently reverberated throughout the world food system. The Agro-Trader nexus was at the forefront of this biofuels boom. Indeed, the Renessen venture between Cargill and Monsanto sought to engineer and patent varieties of corn with high levels of starch, so that the crop can be more easily processed into ethanol (GRAIN 2007: 19) and Bunge’s and DuPont’s Solae venture has also come up with inbred and bioengineered varieties of corn and soybeans specially de- signed for the combustion engine rather than the human stomach (Milling & Baking News 2006: 20). Although ADM has not been involved in any comparable ventures with the agro-biotech giants, it has worked unremittingly to create a policy environment within which the wasteful absorption of grain in the biofuels sector can be achieved. As one Washington analyst put it:

Perhaps no commodity in American history has depended more on government support for its viability than ethanol. And perhaps no other company has done as much to orchestrate Washington’s cur- rent support for the fuel than ADM.

There’s not just a lot of solid analysis in this paper that I’ve skipped over, but also a lot of history. Again, I urge you to read this important piece in full.

Food Price Inflation and Redistribution: Toward a New Analysis of Corporate Power in the World Food System

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  1. nonclassical

    “Thus, in order to more adequately comprehend the restructuring of corporate power over the world food system since the turn of the millennium, we must focus on the pecuniary strategies of the agribusiness firms and grain traders”..

    …corporate monopoly at its finest…worse, entirely other “level”=financial sector
    $peculation=financialization of food commodities…also=starvation, for poor…

    1. scott

      Plenty of rain in corn country, but plenty of May snow also. Planting is going to be late, so that record corn crop the USDA bragged about is history. I would assume the big players half already locked in their contracts for corn, leaving the small pig and chicken ranchers to pay top dollar for feed.

  2. gerold k.b. weber

    Thank you for pointing us to an important paper which articulates what I felt for some time.

    Food and other commondities have pretty inelastic demand. It pays off to create oligopolistic or monopolistic market power. All studies which shed light on market structure and mechanisms of such profiteering should be acclaimed, recommended and discussed.

    Moreover, we probably don’t understand the role of information technological change as a key enabler of oligopolies. How could it happen that prices in highly leveraged and relatively low-volume derivatives markets became so important for retail, wholesale and spot markets? Is this a new trend and if yes, what are the drivers? Should we start to speak of ‘functional oligopolies’?

  3. GSO

    In the first link to the paper at the beginning of the article, there is a typo causing you not to find the paper. The typo is _foord_ instead of _food_.

  4. Skeptic

    I can’t build my own computer.
    I can’t make my own gasoline.
    BUT I can grow some of my own food.
    If you can’ t do that then one can choose not to buy AGRIBIZ products. Seek out a food cooperative or Community Supported Agriculture or Farmers’ Market.

    Be aware of corporations Greenwashing Industrial Matter as Food.

    Take the $$$ from the 1%; stop feeding them.

    1. lakewoebegoner

      at the very least, people should try growing your own tomatoes in a container.

      very easy even if you live in an apartment, very cheap.

      taste better than transcontinentally/internationally-shipped tomatoes from your local megamart.

      1. traveler

        There are also bush varieties of other edible plants which can be grown in containers – cantaloupes, small watermelons, peas and beans, etc. which we hope to try this year. It’s fun and oddly soothing. Seems to fill a need which goes beyond one’s stomach.

  5. TomDor

    I only hope that more research is done on these GM plants – not enough has been said about the damage these crops do to the environment and to human health.
    It is developing science (still behind the curve) that altering genetics in plants has a telescoping effect and cause/effect relationship to changes in the genetic make-up of all animals and plants in contact with the GM plant.
    Consider a corn crop that has a GM (man made development)in place….bacterium,insects, plants, animals, prions – IE: from the smallest to the largest living things – a genetic adaptation or trigger will occur – the faster the reproductive cycle (virus, bacterium) the more rapid the adaptation to the environment (MRSA for example) – these changes telescope to slower reproductive cycle living things and, due to the slower adaptative state… may result in increases of disease -, cancer etc.
    The further behind, lets say man, falls behind the signal RNA/DNA adaptation curve – the higher the potential for disaster becomes. As biodiversity continues to decline…the potential for short circuits and transmission mechanism failure increase – this also increases bio-risk in the slower adaptive/more complex life forms.

    The true extent of GM food has not been studied in large part because the monopolists in this arena do not wish to have studies risk their monopolistic market position.

    1. sharonsj

      I read that Europe has done quite a lot of scientific testing of GMOs and found they adversely affect the liver and kidneys. Of course none of this ever makes the mainstream press.

  6. diptherio

    Now wait one gosh-dern minute! I was specifically assured in my Intro to Microeconomics course that firms couldn’t collude with each other to keep the price of a commodity up, because some other firm would just come in an under-sell them. Obviously, this dude doesn’t know any economics, or maybe his math is wrong or something, because multiple economists have told me that this sort of thing simply cannot happen.

    1. TomDor

      I am shocked…simply shocked that a global financial crisis could have happened because of corruption and fraud, collusion in market forces. I am so shocked that I am in disbelief that it is being talked about as if it actually happened.
      How could control fraud and manipulation occur when Economists have repeatedly told me that this type of activity could not occur in a free market.
      Shocked I tell ya, shocked that we talk as if it actually happened… I am just going to hold my breath until someone fesses up to the truth… it has all got to be some trick…some conspiracy.

      1. Massinissa

        Oh bullcrap. Monopolies even happen in cases of minimal government interference.

        Monopolies can be propped up by governments, and governments can help monopolies, but governments are not entirely responsible for the creation of monopolies.

  7. AbyNormal

    Thanks Yves…Look forward to wading thru and updating myself with the technical parts.

    Last Fall i dipped into this area with a 6 part Hunger piece, a few things stand out:
    Nestle CEO Peter Brabeck-Letmathe in an October 2010 statement to shareholders explained that high food prices increase the pressure to improve efficiency, ***”But when you start only after prices have gone up, you are too late”.*** In general, as the food chain extends over distances able to span the globe, waste tends to rise. Local food production for local consumption is the solution but existing commercial practices, consumer habits and expectations are major obstacles to change in the absence of government intervention and legislation, which itself is only likely under crisis conditions.

    Households with least access to market-sourced food are precisely those that must rely on markets to fill their basic food needs. Food markets tend to fail most often and most severely for those who need them the most – the hungry poor.
    There is considerable evidence that because poor households spend large shares of their incomes on food and because staples loom large in their food expenditures, lower prices of staple foods significantly increase purchasing power and real incomes. Higher real incomes allow greater purchases of non-staples, leading to substantial short- and long-term nutritional benefits. Conversely, high prices for staple foods lead to reduced consumption of nutritious foods, with long-term negative effects on health, education and productivity.

    1. banger

      Yes, indeed. We ought to move away from the two main harmful grains: wheat and corn. Many people are beginning to do that for health reasons and rightly so. I’m not there yet but I’m dropping my consumption of wheat–my wife eats almost no wheat if she can help it. We need to encourage restaurants and food stores to provide us with locally grown food and look into alternative food technologies like vertical farming and so on. The mainstream media will not ever report on these thing because it, as an institution, is firmly opposed to any change or reform of the current system but many alternative farming ideas are out there and we are positioned through the exponential growth of technology to implement these systems now to provide plentiful and healthful food to everyone.

      Sadly people just don’t know what is possible if we only cooperated and broke the stranglehold the oligarchs have on our imaginations.

    2. bluntobj

      How are you defining staples?

      Also, where do the metaphysical aspects such as time for cooking, or the ability / willingness to cook, factor in?

      Further, if you are talking about people who live in tightly packed areas, or “sustainable” housing, and have low incomes, how do you even approach any sort of independence from an industrial food system?

      Which, naturally, is the problem you are pointing out. I would love to read more from you, so I’ll delve into your 6 part piece. Thanks for the link!

  8. McWatt

    We should end speculation in all commodities and get back to producer/processor only open out cry price discovery. All of the looting of commodities began when everyone who could fog a mirror started trading and when the hedgies went long a trillion with algo trading.

    “Catch-22 says they can do anything we can’t stop them from doing.”

  9. banger

    We’ve seen self-interest and the desire for wealth and position grow over time in this society such that it is now the dominant ethic in our society. Money=Virtue. Compassion=Vice. Most people, of course, don’t really feel that way but they accept it nonetheless. The “better” people are radically selfish and we should defer to them–that is the sub-text of much of our social interaction as reflected by the marketplace–that the marketplace is the chief scene of our social interactions (buying things we don’t need takes up most of resources, not family or friends, truly represents the end of what human beings once called virtue.

    So, is it any surprise that the food industry like all the other industry is approaching the abstract philosopher’s stone of evil, i.e. pure, clean evil.

    Decades ago a friend of mine considered by all, including me, as being “crazy” said that this period we are living in now would see the birth of pure evil — the anti-Christ wasn’t some dude but the spirit of selfishness that, in the 70s was beginning to expand and would flower after 2000, he said. He also said there would be a flowering of an opposition to that evil–he was wrong there.

  10. bluntobj

    Thank you Yves!

    It’s nice to see some scholarly work on the financial dark side of the industrial food system. Small farm types like myself and other localvores have been exposing the monopoly powers granted by government regulation in this area, and the biofuels push has been a major pork barrel spending source for a long time.

    If readers are new to this issue, keep in mind that the bacteria deaths and sicknesses in the past decade or more come from industrial agribusiness, not your local small chicken, beef, or pork farm. The quality you get from on-farm processed meat or grass fed beef will make itself known in the taste and nutrition of your food; I can’t even eat store bought pork or chicken anymore because it tastes like cardboard.

    This flows to regulatory practices. Anything that is now proposed by a national regulatory agency is for the benefit of industrial agribusiness. It is almost automatically disqualified by its very nature. State level rules are getting better, as they are far closer to the voting base and therefore more responsive to the local food movement.

    As a final bit, the consumption of meat is not evil, nor is it unfriendly to the environment. If you are talking feedlot beef, pork, or chicken fed a mix of corn/ground up animal parts/litter/bloodmeal, etc. it is.

    If you are talking about grass-fed, pastured, intensively grazed, naturally raised meat, then it is not. Animals are key to regenerative agriculture. Lots of work on this subject is available, and I see it in action with my poultry and pork. I’ll add cattle this fall; it’s going to be fun to experiment with just how complimentary the three are.

    There is also a zoning aspect to this as well. When zoning is used as a weapon against agriculture, on however small a scale, it’s fully in support of industrial agribusiness, just as suburbs with CC&R’s, big box stores, sprawl, and the bloating of municipal budgets with highly compensated employees support the FIRE, sickcare, and associated industries.

    In the end, it means that a faith and reliance on government to regulate justly is misplaced, and will result in further abuse by the multinationals. Placing faith in a government and entrusting them to “do the right thing” is folly. True solutions, unfortunately, involve aware and acting people, and as such are not able to be fixed by fiat. All I can say is opt out of the stadium and start actually living your life for yourself.

  11. traveler

    I didn’t read the whole paper so don’t know if this was mentioned: It’s not just land that’s wasted to grow pseudo-food and ethanol – water is also wasted.

    1. evil is evil

      No one is putting the full picture together. Pure water is going to be in short supply as the climate goes to hell. The mulching of the human race by a bunch of psychopathic filthy rich is going to lead to wide spread starvation. It will happen in the countries that are filthy rich compared to the ones starving world wide.

      Check out the usage of chemicals in food and the number of industrial chemicals found in the birth cords of newborns.

      New Jersey umbilical cords were found to have over 400 separate identifiable industrial chemicals,

      Not one single one of the chemicals has ever been tested for the effects on the body and genes.

      No one knows how the chemical stews in the children’s bodies will react and form to become more destructive. You can pretty well kiss off the human gene makeup.

  12. American Slave

    Well… As a home brewer hobbyist type when corn is used to make ethanol it doesn’t disappear to oblivion, the only thing they ferment is the starch and the rest of the corn is not used and what’s leftover is a cereal called distillers grains which has more protein than the original corn used and is sold as animal feed.

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