How corporate power dominates farming
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Jennifer Clapp is a professor at Canada’s University of Waterloo and the author of Titans of Industrial Agriculture.
In this interview she discusses the global power of a handful of firms which dominate the seed, fertiliser, pesticide and farm machinery industries and she explains why governments need to promote a less harmful model for agriculture.
Including:
· Drivers of concentration: market power, technology, political backing (to 06:01)
· Mega-mergers in the last decade (to 12:02)
· Getting locked into “digital farming” (to 17:05)
· Why we need less Big Ag and more agro-ecology (24:58)
You can find these headings in the transcript, which has been edited for clarity.
Diarmid:
Hello, this is Critical Takes on Corporate Power and I'm Diarmid O’Sullivan. The food that we all eat is mostly produced by systems of industrial farming which are controlled by a handful of gigantic corporations. Today I'm delighted to be talking to an expert about how these corporations got so big, why that's a problem, and what we can do about it.
Jennifer Clapp is Professor and Canada Research Chair in Global Food Security and Sustainability at the University of Waterloo. She's the author of a book called “Titans of Industrial Agriculture”, which is a deeply researched and very readable historical study of how we got to this point.
Jennifer, thanks very much for making time to talk.
Jennifer Clapp:
Thanks so much for having me.
Market power, technology and political backing
Diarmid:
You talk in the book about how corporate power came to be so concentrated over quite a long period in four key markets, which are farm machinery, seeds, pesticides and fertilizers. And in each of these markets, it's four companies which dominate globally, if I'm not mistaken, most of which are from North America or Western Europe.
Can you summarize for us how this dominance came about and why it's such a problem for society and nature?
Jennifer Clapp:
Well it's an interesting story and I was prompted to write the book after the mergers that started to take place in the sector after 2015.
Dow [Chemical} and DuPont merged in this giant deal, and then Syngenta was bought by Chem China and then Bayer and Monsanto merged. And we also saw a major merger in the fertilizer industry where two big Canadian companies, Potash Corporation, and Agrium, ioined together and created a new firm called Nutrien.
So I was really interested in what was going on, but as I was looking at the origins and the pressures for these mergers, I realized I had to go back in time to understand how these agricultural inputs became commodities in the first place, and then how they got to be so big, in terms of describing the forces that were there.
I pick out three big dynamics that I talk about in the book, one being market forces. What we’ve seen over time is that the companies, as they get bigger, they benefit from economies of scale, but they also had privileged access to finance from big financiers to do mergers and acquisitions.
And that was one force, but another was technology. As technologies were changing and in the rise of industrialization generally, it was happening in the farm sector too. These companies benefited from patents and first-mover advantages on the technological front.
The third big force is the policy and the political benefits that they got, which largely was in the form of subsidies and other policies that really benefited their business models.
This process of mergers and acquisitions is a product of all three of those forces and it's resulted in each of those sectors in a situation where we have the top four firms in the fertilizer, seeds, pesticides, and chemicals sectors dominating to the extent that they have massive amounts of market share, both at the global level and at the domestic level.
If we look at farm machinery, for example, the top four firms have around 45 per cent of the global market. John Deere alone has over 50 per cent of the tractor market in North America. It’s a similar story with fertilizer seeds and pesticides, where we have over 40 per cent of the market typically being controlled by just four firms.
Economists tell us that when the top four firms have more than 40 per cent of the market, it tends to result in distortions that give incredible power to those firms. They have what economists call market power, but in the book, I argue they have other kinds of power. They have technology power, which allows them to shape technological pathways, and they have political power, which gives them the power to influence what policy and governance looks like.
Diarmid:
Something I found very useful about the book was the way you show the interaction of those different kinds of power.
Jennifer Clapp:
Yeah, because they're all interconnected with one another, it's helped propel those firms to this bigness, and then it enables them to continue their bigness, but also they inflict a lot of costs as they do that.
If we think about market power, that's the power to shape supply and demand conditions so that it benefits the bottom line of these firms, but that can result in higher costs for farmers in terms of their inputs [and] that filters through in terms of higher food prices for consumers. It also leads to less ability for smaller-scale enterprises to make their way into the agricultural sector. So we have fewer small-scale firms, fewer small farmers, less diverse livelihoods.
Their power to shape technology also has enormous costs. It’s led to a gradual de-skilling of farmers. They have less autonomy, they have less agency, they have less voice, and it's had a lot of ecological consequences because the model that these firms are pushing on agriculture is more herbicide use, more chemicals, more heavy machinery, fossil fuel use and a technological lock-in that's hard to get out of.
And then the power to shape policy and governance has weakened the voice of farmers in terms of policymaking, but also the most marginalized people in society have less ability to participate and take part in policy and governance, which really risks undermining democracy. There’s a whole litany of costs that are associated with corporate power in this sector and I think it's really important to connect all the dots; that’s what I was trying to do in the book.
Diarmid:
A very clear theme of the book is that you talk about how “bigness begets bigness.” There might be some flash of entrepreneurial cleverness rise at the start of one of these industries, but above a certain point, bigness itself creates more bigness. That can push an entire industry in the direction that the dominant companies want it to go, which as you say, is not necessarily good for smaller farmers. It can constrain other opportunities.
It's terrible for nature [because] this associated-with-proprietary-IP, heavy-pesticide, fertiliser-heavy model of industrial agriculture is, we know, quite destructive. I think we'll come back slightly later on the question of what the alternatives are to that model.
It seemed to me from your account that the mix of these factors was slightly different in the case of each industry. So for instance, you talked about farm machinery in the early 19th century American Midwest, where the dispossession of indigenous people by white settlers had led to this great expansion of farming to feed the cities.
And then these guys come up with this clever new piece of harvesting equipment, and they have a clever way of marketing it through agents across the Midwest and providing credit and so on. And then very quickly, and this is what really struck me, is that already in the 1860s you have people uneasy about the extent of concentration within the American domestic market.
As you say, by the early 20th century lot of these markets were very concentrated in North America and after the Second World War,they went global. That dynamic of concentration seems to be continuing.
Maybe you could talk a little bit more about that spate of mega-mergers in the last 10 years, what's been driving even more concentration of a historically very concentrated industry?
Mega-mergers in the last decade
Jennifer Clapp:
I'm glad you appreciated the history because that was something that really struck me as well. When I was researching, I hadn't realized that one company controlled around 85 per cent of the farm machinery market as early as 1902.
So in a way, we went from hyper concentrated to maybe a bit less concentrated and now we're going back to more concentration.
Your question is what was driving those recent mergers? And there's a whole host of factors that fall into those general categories I was mentioning, one of them being pressure from shareholders. We've reached a place in this evolution of global finance and investment where the largest investors in these companies are institutional investors who are investing on behalf of people.
These are big asset management companies like BlackRock and Vanguard and State Street, and these are managing people's retirement savings. They're managing pension plans for big companies and they're the biggest shareholders in these firms: not just the agricultural firms, I would say all firms across the S&P 500 [US stock market index} and the big companies.
What we're seeing is pressure from these shareholders to drive higher profits, to increase returns. They're often pushing these companies towards mergers and acquisitions as a way to increase their profit margins. And so that was one factor that was going on.
But there was also other stuff. There was technological change with the rise of digital agriculture and the firms were competing with one another, trying to basically be the one at the forefront. We could say that digital agriculture is a new input into farming, a fifth input, if you will, and they all wanted to be the one to dominate in that space. So they were buying up startups, but then they started to buy each other, trying to dominate that market.
Then there was a big policy factor that's very important to explain. Since the 1980s, we've seen a shift in the way in what we call “antitrust” in North America, but “competition policy” everywhere else. There was a weakening of the application of rules that were trying to prevent mergers and acquisitions from leading to market dominance by just a few firms.
This was based on the writings of Robert Bork and and others who were basically saying that we need to prioritize efficiency over everything else, so if bigness of firms leads to efficiency then it’s okay. And so we saw competition authorities taking a more relaxed look at mergers and acquisitions and waving them through.
All these forces came together and resulted in a huge surge in mergers and acquisitions in that period since 2015. And that sparked a new wave of concern about the rise of bigness.
We've seen a bit of a counter movement now, pushing towards having stronger antitrust policies, which is interesting. But having said that, the Biden administration really tried to move in that direction in North America and then the Trump administration is got rid of all those people, so we we're not really sure how that's going to play out.
Diarmid:
Yes. And in Europe generally, I don’t know how it works out in these particular industries, but in Europe there's now this preoccupation with being globally competitive, which if anything seems to push against enforcement of competition law.
I recently interviewed Chilufya Sampa, who's now with the Shamba Center on Food and Climate, but used to be the head of Zambia's Competition Commission.
When we talk about regulators, we tend to think about the home regulators of these companies. But the point that came across from what he was saying is that, of course, the consequences of this concentration have felt everywhere.
In Africa, people are basically paying more for food, they're paying more for agricultural inputs because these companies are able to charge higher prices. And that it's very difficult for regulators in the countries where these companies invest even to get the information about what those companies are up to in other places, it's difficult for them to demonstrate that a company is practicing monopoly without data from other places.
So there’s what sounds to me like an unhealthy North-South dynamic, which you find in other fields as well, where Northern regulators don't see it as their job to help out regulators in the South with the data. So clearly it's a problem with all sorts of global ramifications.
Getting locked into digital farming
Diarmid:
Can you talk a little bit about digital farming? What is digital farming and what are the implications for farmers?
Jennifer Clapp:
Well, in modern times we refer to it as digital because it's using software and computers and the cloud and satellite data and all kinds of analysis through algorithms, et cetera. But it's really an outgrowth of precision farming, which has been around since the 1990s when companies like John Deere first put sensors on their tractors to enable them to collect data for farmers so they can improve analysis of the conditions on their farm.
But now these sensors are connected to satellites and data centers and, and big data analysis programs that are providing a digital analysis of things like soil conditions and moisture in the soil from particular kinds of sensors. Other sensors are detecting temperature and cameras on machinery are looking at things like weeds.
What the sensors are doing is collecting all this data and then providing prescriptions back to farmers through their machinery that tells them, oh, the camera told us there's a weed there, so you only have to spray there and not somewhere else where there isn't a weed.
Or it will say: the soil here [has] fewer nutrients in it than in other parts of your field so you need to fertilise more here or there's pests there and you need to spray there, but not somewhere else.
So it’s leading to these precise recommendations to farmers, which the firms say is leading to resource efficiency for farmers because they're having to use fewer inputs to tackle the kinds of problems they're used to tackling. But they're saying it's helping farmers manage risk by enabling them to better adapt to climate change and et cetera.
So that's one aspect of what we call digital farming. But there's another aspect that we're increasingly understanding as digital, which is the use of digital technologies for genome editing. It’s the next phase of agricultural biotechnology where they're now able to map a genome of a living organism very, very quickly using large computing power, and then able to use particular technologies to edit seeds, for example, much more quickly than they could even do with ag biotech, which itself was much more quickly done than traditional breeding.
We're seeing these kinds of use of computing power in a major way in terms of trying to result in more productive, more efficient farms. And these two technologies go together because they talk about this future where you can collect all the data on the farm through these sensors and then it can prescribe what kind of seeds you should be editing to actually grow on your particular farm field.
It sounds a little bit futuristic, but the vision of these big corporations is to provide this kind of technology to farmers as a essential input to their business.
Diarmid:
I'm sure that they present this as wonderful because this means farmers can use less fertilizers, they can be less wasteful and so on.
But given that these companies exist to maximize profits, presumably what that means is that the profit-making shifts to the intellectual property, in other words, the software and the data and so on. So rather than charging the farmers for x litres of liquid fertilizer, whatever it might be, they sell less of that, so they're going to be charging them for the data.
I think that’s a broader trend in a lot of big business towards trying to turn things into intellectual property based on data, and then charge for that rather than charging for stuff.
Jennifer Clapp:
Yeah, for sure. And part of the business model of these companies now is moving into this data. They make much more profit from the software than they do from the hardware. And they are collecting the data and there's all these questions about who owns the data, who has the rights to the data.
If the farmer signs up for a digital farming package with Bayer, can they decide one day, I don't want to work with Bayer anymore, I want to go to Nutrien’s farming platform, it’s unclear whether they can take their data with them. It's not always interoperable. And so it's resulting in a situation where farmers are getting locked in to these kinds of relationships.
And you're absolutely right. The companies charge the farmers not for the purchase of the software, for example, they actually charge them by how many acres they're farming. There's research showing that the rise of digital farming is leading to more and more land consolidation because the expense of doing this means that farmers want to have bigger farms that they can manage and pay back for their technology, which has been a pattern for over 150 years.
And so we're seeing the companies really making money from the data as much as anything else nowadays. And that's quite a concern for questions of autonomy and the rights of farmers over their data. This is where we really have to look at the big tech sector to understand what's going on in agriculture.
Diarmid:
This is probably a good point to ask a final omnibus question. It's really two questions and I'm just going to blend them into one, which is: where do you think these industries are going? Are they going towards more concentration? Are we going to see more Chinese firms joining the top table?
And let's also talk about what the alternatives are. You’ve laid out why this is problematic and I'm going to play devil’s advocate and make the standard industry point, which is that without all this IP-intensive, chemical-intensive industrial agriculture, you cannot feed the world. People will starve. there is no alternative, et cetera.
So where do you think the industry's going in terms of concentration, and what do you think we could do to try and address the problems that arise from this extreme degree of concentration?
Jennifer Clapp:
These are the big questions. They're great questions in terms of like where we're going. The second half of the book is really about what was happening since 2015 and this push towards increased consolidation, the rise of digitalization and how that's giving pressure to more consolidation.
And I do think that trend is really important for us to understand. We're seeing some contradictory trends at the moment, because on one hand I think it’s not fantastical to think that we're going to see cross-sector mergers again, like there were in the 1980s and 1990s. The pesticide industry and the seed industry used to be completely separate sets of companies, and then they merged, and now that's one sector because the seeds and the chemicals were designed to increasingly work together.
So when we're seeing digital agriculture increasingly designed to work with all of these inputs, it's not fantastical to think there might be mergers across the sector. We might see fertilizer and machinery companies coming together, or we might see seeds and pesticides and fertilizers all as one set of companies because of these technological changes.
But at the same time, we're seeing other things going on. So Corteva, which was the first big merger in 2015 that brought together to seed and chemical companies, is actually breaking up the pesticide and seed parts of their industry now, and that's very interesting.
But when you look into it, you see these really specific reasons for that happening. In this case, there's a lot of lawsuits against the company for contamination by forever chemicals, the PFAS chemicals that are connected to the pesticide sector. Stuff is going on, like leaching from plastic bottles into the pesticides, making its way into the soils, et cetera. And so they want to basically insulate the seed company from the pesticide company because if the lawsuits are successful, they don't want it to bring down both sides of the industry. So that's a strategic separation, let's say, for legal reasons.
We've also seen in recent weeks, Nutrien talking about potentially spinning off part of its business as well.
So for me, I see this as partly the curse of bigness. That's Louis Brandeis, the Supreme Court Justice in the US in the early 20th century who wrote a book called The Curse of Bigness, where he was concerned about the rise of mergers and acquisitions.
He saw it as negative because it's creating all kinds of costs. And his concern was the undermining of democracy from bigness. But it also: the bigger you get, you can reach a point of inefficiencies. And so maybe it's just the curse of bigness coming back at us. I'm not sure. I'm really following this closely and I'm really interested about it
But in terms of what do we do, do we need these big companies to feed the world? We’ve been hearing these kinds of Neo-Malthusian warnings for a long time, perpetuated by the companies themselves saying that unless we have Big Tech in agriculture or Big Ag in agriculture, people will go hungry.
They use that to justify ever more expansion of the industrial agricultural model. But if we look at the figures on world hunger, we know that the number of people experiencing chronic hunger has been increasing in the last five years despite industrialization of agriculture. We're actually going in the opposite direction we need to be in to end hunger and meet Sustainable Development Goal Number Two, yet we are producing more calories than the world needs to feed everybody.
The problem is that half of it's going to biofuels and to animal feed, so it's not feeding people directly, and then the rest is simply maldistributed. There's a host of reasons for world hunger, that technology is not going to solve. Because what we're seeing is over-subsidization of agricultural production in rich countries that's wiping out livelihoods of farmers in poor countries. We're seeing conflicts, high levels of debt, all of these factors are contributing to hunger and producing more food will not solve that. We already have too much.
So I think that argument is always put in this future: if we don't do this, we're going have this major hunger crisis in the future. But it’s preventing us from investing in the actual solutions to ending conflict, supporting livelihoods, et cetera. And instead it's going towards technology that's producing ever more food.
So it's creating a greater inequality problem as we go. But that argument is often put forward by the companies themselves as the reason why they think mergers and acquisitions should always be approved in this sector. I would say we need a different approach.
To come back to your question, what do we need? I think we need more public support for alternative modes of agriculture. We are in a lock-in of industrial models and we need to get out of that. And that's a big ask. I can say “we need more public investment and alternative agriculture like agroecology”, but it's a big ask because we have to get out of the lock-ins in the first place.
What we’ve seen historically is states have really invested in the rise of industrial agriculture, and I think they need to really invest in the rise of agroecology. There is a lot of public investment going to agriculture. It just needs to shift to different kinds of agriculture, and we also need those stronger antitrust policies to break up monopolies, to prevent them from happening in the first place.
We need to really have better guidelines for those authorities that are making decisions on mergers and acquisitions to stop them from getting so big and to break them when they're already too big. But part of the problem is that corporations themselves have these policies captured. They influence what money goes towards agricultural research and they influence how antitrust is applied.
Sso we need policies to undo corporate capture of these policy processes. I know that's like a huge ask, but I think all three of those things have to go together because because we need to tackle the market power, we need to tackle the political power and we need to tackle the technology power of these firms. We need a co-ordinated response.
Diarmid:
Absolutely. Obviously each industry has its particular characteristics, but in the general sense, we can see that applies to some other industries. It very clearly applies to Big Tech where again, there needs to be public investment in alternatives and also in pharmaceuticals and some other industries as well.
So that formula of making the biggest companies smaller, investing in alternative systems and prising the claws of flaws of the industry lobby off policy makers. One of the things I found interesting about the book was not [just] that I learned a great deal about the history of industrial agriculture, but also that I was seeing a lot of parallels with other industries.
That's been a fantastically useful and and deeply informative overview of a really fundamental problem because cause we all need to eat, right? So thank you very much for making time to talk.
Jennifer Clapp:
Thank you very much for the conversation. I really enjoyed it.
This is the end of the transcript