GMA Says Shrinking Export Markets to Blame for Low Farm Prices

July 28,1999

The Grocery Manufacturers of America says a sharp decline in exports is to blame for much of the financial crisis facing U.S. farmers. GMA conducted a study into cereal prices and whether concentration in the industry had reached the point where competition is threatened.

"Only about 2% of the average annual U.S. wheat and corn crop is used for cereals," said William MacLeod, former director of the Bureau of Consumer Protection at the Federal Trade Commission, in testimony on behalf of GMA before the Senate Agriculture Committee.

"By contrast, roughly half of American wheat is exported, and those markets have collapsed," MacLeod continued. "In the early 1990s, with record high wheat prices, as much as 55% of the crop was exported. In 1998-99, with prices dropping, exports are estimated at only 43%."

To find solutions to farmers' financial problems, MacLeod says, "we should be looking for ways to open up and revitalize foreign markets for our crops. He also says cereal industry concentration is at an all-time low. "Concentration has dropped nearly 40% since 1970. The decline continues today. Price competition is intense. Market shares continue to shift from one producer to another." Throughout much of the 1990s, he says, cereal prices have declined, even when grain prices have increased.

"Before a cereal is marketed, companies invest heavily in research and development to produce a product that consumers will enjoy. Then plants and equipment must be dedicated to produce and package the volumes that serve a national market. The costs of distribution and marketing are major expenditures for the cereal companies," he adds.

Concentration in the cereal industry has been investigated "again and again." Last year, the Federal Trade Commission closed an examination of cereal competition that had been requested by to members of Congress. In 1995, a California Superior Court dismissed an antitrust lawsuit based on the same members' allegations, according to MacLeod.

A federal court rejected antitrust challenge to a cereal industry acquisition in 1995, finding the industry "highly competitive." No evidence was found that profit levels reflected anti-competitive behavior," MacLeod says.