Sunday, September 24, 2006

Goliath of the moment...

Who doesn't hate the big guy? It's so American to root for the team from Hickory. So when Smithfield Farms, the largest US pork producer announced they were buying #2 Premium Standard the reactions were almost scripted.
Any American history of pork — the meat, that is — shows a steady concentration of more and more hogs in the hands of fewer and fewer producers. That is what modern agricultural “efficiency” looks like. It’s good for the bottom line of the big industrial players, but bad for farmers, hogs, the environment and, ultimately, consumers. That history took another step in the wrong direction when Smithfield Foods — the biggest pork packer — agreed to buy the second biggest pork packer, Premium Standard Farms. [More]
The pork industry is highly concentrated. But then so are automaking, airplane construction, pharmaceuticals, steel, and as we have discovered recently spinach. The instinctive leap from big to bad is made courtesy of your American farmer, who has effectively offered the agrarian producer as the paradigm of virtue for all things agricultural. Interestingly, this merger could actually be better for independent producers.

Critics may be right, but for reasons other than moral rectitude, which I find self-righteously woven throughout their arguments.

It is hard to operate extremely large organizations. That they work at all is amazing, that they work well - like UPS or ADM - is astonishing. At the same time the simple size imbalance between consumer and corporation has seldom fostered any sense of commitment from the buyer. Being big does not make you omnipotent. Nor is it easy to stay big. Ask the Tribune Co.

The small but growing segment of the food-buying public who are uneasy with how our food is supplied constitute a significant enough force to keep afloat all manner of farms. Community supported agriculture (CSA) has devoted adherents. The popularity of gardening keeps alive what a tomato should taste like. Dismissing these segments as helpless against industrial ag underestimates the power of the US consumer to roil the markets of any sector.

Lest you think I digress, this all impacts the concentration in the pork industry. It is my belief that the consumer now has more avenues to express his/her dissatisfaction than ever before. Hence, market concentration will be decided not in boardrooms but grocery stores, one shopper at a time.

In fact, I think we are moving rapidly toward a multiple-stream food supply, with consumers in command. Allowing Smithfield to a 31% market share means little more than "allowing" GM 31% market share. It could be 10% or 50% a year from now.

The market giveth, and the market can taketh away.

[Thanks, Dan]

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