We're not the only sector...

Undergoing consolidation.

Coca-Cola Co., the world’s biggest soda maker, is close to an agreement to buy the North American operations of bottler Coca-Cola Enterprises Inc. for about $15 billion including debt, the Wall Street Journal reported on its Web site, citing people familiar with the matter.
The rest of Coca-Cola Enterprises would remain independent and buy Coke’s bottling businesses in Scandinavia and Germany, the newspaper said.
Ben Deutsch, a Coca-Cola spokesman, and spokespeople for Coca-Cola Enterprises didn’t immediately return calls.
PepsiCo Inc., the second-largest soft-drink maker, agreed in August to take control of its two biggest bottlers for about $7.8 billion, ending a three-month standoff and allowing the soda maker to save money by bundling snacks and drinks. [More]

As near as I can tell, neither good times nor bad are interrupting the trend to multinational organizations. Should we expect agriculture to be different or just slower?

Hit the "equals" button...

Posts about income or asset ownership equality always hits reader nerves.  Since I last discussed my own thoughts the topic has taken on renewed interest in light of the semi-spontaneous "Teabagging Tea Parties*".

Last but not least: it turns out that the tea parties don’t represent a spontaneous outpouring of public sentiment. They’re AstroTurf (fake grass roots) events, manufactured by the usual suspects. In particular, a key role is being played by FreedomWorks, an organization run by Richard Armey, the former House majority leader, and supported by the usual group of right-wing billionaires. And the parties are, of course, being promoted heavily by Fox News. [More]

Luckily, right now Lane Kenworthy is collecting and analyzing this issue is what seems to me to be an even handed manner. Like me he has questions about whether inequality is a problem and how much.

Is this really a problem? Would it be better if income inequality were reduced? I think so, for the following reasons.

1. Fairness. Market processes have produced enormous incomes for various financial operators, CEOs, entrepreneurs, athletes, and entertainers in recent decades. A good bit of this is due to luck—being in the right place at the right time, genetic talent, having the right parents or teacher or coach, and so on. I don’t mind some inequality due to luck, and I recognize that monetary incentives are helpful. But the current (or recent, I should say;  the downturn will reduce top incomes somewhat) magnitude of inequality in America strikes me as unfair. An income of several hundred million dollars when the minimum wage gets you about $15,000 is too much inequality. What’s the proper amount of income inequality? I don’t have a precise answer, but that doesn’t mean it’s wrong to feel that our current level is excessive.

2. Inequality’s consequences. Even if you don’t worry about exorbitant incomes in and of themselves, there’s no avoiding the fact that they have consequences for the incomes and well-being of Americans in middle and lower parts of the distribution. The social pie isn’t zero-sum. But our economy hasn’t grown faster in the past few decades than it did before, so the dramatic jump in incomes among those at the top has come in part at the expense of the rest of us. The following chart offers one way to see this. It shows GDP per family and median family income over the past six decades. Relative to growth of the economy, incomes in the middle (and below) have increased slowly since the 1970s. [More of the first post]

[Note the graph is indexed to 1979, so the divergence is the key aspect of value - not the values so much.]

Lane goes on to discuss the linkage with unions, education, and globalization as well.  I found myself in substantial agreement with many of his conclusions.  Especially on the topic of whether inequality is even much of a real problem.

All of these posts are helpful, but when the best graph I have seen to date seems to obliterate the argument rich folks are carrying the rest of us when all taxation is considered.  This is because state taxes - especially sales taxes - are regressive, hitting lower-income earners hardest.

 Data released last week by the Congressional Budget Office underscored the progressive nature of the federal tax system. And in an op-ed article today in The Wall Street Journal, Ari Fleischer, who served as President George W. Bush’s press secretary, used that data — in particular, the income tax numbers — to argue that the wealthiest Americans bear an unfair share of the tax burden. Other research has found that many states and local governments have more regressive tax systems, though, that might offset the progressiveness of federal tax rates. [More]

It's hard to make the case the rich are disproportionately burdened looking at that distribution.

But what still puzzles me is how farmers embrace completely contradictory positions on inequality.  For example, while we seem to be willing to go to the wall to help a few dozen extremely large farms avoid inheritance estate taxes (no, they are not "death" taxes), we get pretty exercised as these farms begin to grow and occupy much of the plat book.

I mean, how hard is it to connect those two dots?

Now add in the outrage over CEO compensation and bailing out "fat cats".  Assailing those actions offers no clear alternative to ending the abuse. What corrective measure would such critics support that would not look like a step away from sacrosanct no-holds-barred capitalism?


For the most part, many farmers are simply being tools for the the rapid consolidation in our industry.  With medium sized farmers carrying the water for the tiny number of huge operations, I can only assume they truly believe they will be some of those few survivors.

I admire their moxie, question their math.

(*Erk - I lead a sheltered life, I guess.)

The world's most expensive grain bin...

May pay off in the long, long run, after all. [More about the Platinum Grain Bin here] My Cargill rep forwarded an article (it's in the Spring 08 issue of Grain and Feed Manager that is not posted on their website, so I'm reluctant post it in its entirety here) Written by Glen Ludwig for grain merchandisers, he looks at grain handling from a new angle - theirs. He makes several good points, but I have excerpted the ones that struck me.

• The most highly valued service provided to producers by the country elevator is fast turn around of grain transportation vehicles at harvest, a service from which most elevators
  generate no direct revenue. There's a disconnect between value to the customer and revenue generated for the service provider. In many cases investment in grain receiving capability has been short changed by elevators in the last 5 years, as focus has been on increasing storage capacity. Until demand subsides the cost to build and operate grain storage and receiving capacity is likely to continue to escalate.
  
• Elevators provide a large percentage of the grain storage in Illinois and to a lesser extent in the other states CAS serves. As production agriculture continues to consolidate and cash rented acres increase, grain producers are likely to be less interested in building on-farm grain storage. This is particularly true if a fast unload is being provided at the elevator. Elevators with strong profits and solid balance sheets may well have the
  opportunity to increase the percentage of the crop stored at the elevator. [My emphasis]
  

Come to think of it, large operators seem to spring up more readily near terminals or processors which can unload lots of grain in a hurry (just an impression - no hard data to back it up). While certainly not deliberate, this complementary advantage would be a strong contributor to shifting to cash rents which, as stated above then discourages on-farm storage. Which raises demand for fast fall unloading...

Voila - ladies and gentlemen, a positive feedback consolidation loop!

While I have groused about not having a range of ethanol plants and river terminals within 4 miles to choose from, maybe I should count myself lucky to be living in relative backwater without development pressure or easy grain disposal.

There are many factors contributing to grain farm consolidation and the rise of BTO's. As noted below in the comments, more than a few of us struggle to pinpoint exactly why this is so unsettling. I will try to explore the reasons in a later post, but like this example, I suddenly see (or imagine I do) more subtle influences leading grain farming down this path to a very few operations. Not unlike animal agriculture, I might add.

From the need to equalize bargaining power on the input side (it takes a UAW to bargain with a GM), high commodity prices, increased risk, apparent economies of scale, and technology fallout, the range of causal factors is wide and interrelated. It appears rental land will be increasingly controlled by ambitious, aggressive and result-oriented businesses. So far, I have seen no evidence outraged competitors have developed viable counter-strategies to slow the trend. As for government policy saving the day, farmers won't even support any meaningful limit on payments, so why should elected officials care about farm size?

Discovering exactly why the tide is flowing one way may take more time than some of us have, but the consequences have been laid out more sharply this year than ever before.

And I suspect 2009 will be even more shocking to too many middle-sized farmers.

You call that big?...

The injection of enormous new profits into agriculture should be the answer to the survival of small farms, right? I'm not so sure.

We're just beginning to grasp that the economies of scale for industrial ag are over the horizon. From new module-building cotton pickers, to Class MMDXVL combines, fewer actual people are needed to reap those higher profits.

While smaller agrarian farms will flourish, the middle cannot hold, I believe. It cannot occur overnight, because of land ownership patterns, but the trend to consolidation is immune to government policy. The economics are simply too powerful to tolerate irrational business models.

Proof #16 - This announcement from EU dairy giant Danone:

Danone is mulling the creation of several giant dairy farms around the world in order to secure supplies amid rising milk prices.

The farms could be similar to that run by Al Safi, its partner in Saudi Arabia.

Al Safi runs reputedly the biggest dairy farm in the world, situated 40 kms from Riyadh with a herd of 32,000 cows imported from Europe and the US. Danone uses milk from the farm to produce yogurts. [Via the always excellent justfood.com, but gated]

I will be in Las Vegas this week talking to the top of our dairy industry at the Elite Producers Conference. Those guys can teach the grain industry a few things, I'll bet.

I'll let you know what they are thinking about the next decade.

Update: Check out the new dairy-focused blog by Chris Galen. (He's a newbie, so I'll let the "udder" pun pass this time.)

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