Beets, Beef, and Henry Wallace

...Giant corporations and conglomerates are maneuvering into control over vast markets in the food-industrial complex...

...Look, for example, at statistics compiled and analyzed by the ECCF nomic Research Service of the Department of Agriculture...

...Butz told the growers not to worry about falling prLes...

...Hidden in such an increase may be padding and price gouging, for unlike the higher prices for farm commodities, these increases were not necessarily a result of market forces...

...Sugar producers, enticed by the high prices, expanded their output, creating a six-year world-wide glut...

...Production stagnated...

...I don’t mean to say that there is no role for antitrust in regulating the food industry...

...The profits on sales for processors are only three per cent and for supermarket chains one per cent...

...Thus food industry companies can earn high profits for their investors even though the company’s actual profits on sales are low...

...No doubt this simple view contains a germ of truth, for the agricompanies have played their role in the recent price rises...

...Since our prices were generally higher than the free market price, the other sugar-producing countries of the world were pounding on our doors...

...The confusion arises because profits are computed in two ways...

...True, none of the major food companies-except perhaps A&P-was losing money, for long ago they became part of what John Kenneth Galbraith calls “the planning economy...

...Under the Sugar Act of 1948, the Secretary of Agriculture operates an intricate system of price supports, subsidies, and quotas, with two goals-to limit the amount of sugar grown domestically and to limit the quantity of raw sugar imported from some 30 foreign countries...

...The liberal argument is that huge and greedy corporations have destroyed the free market as they destroyed the small farmer...

...The world, however, was consuming more and more sugar, so that by January 1974 the surplus sugar stocks had been reduced to 16.5 million tons or 30 per cent of consumption...

...But those same profits measured in terms not of equity but of sales can produce quite different figures...

...In 1973 the Department of Agriculture moved to change this system...

...He pointed to increasing demand on the world market and the diminishing world stocks of raw sugar, trends which seemed sure to keep the price up...

...The farm share of the retail dollar jumped from 41 per cent to 52 per cent...

...We must move to prevent the frequent violent eruptions that have become so common, for, to switch metaphors, without careful planning, our food economy is balanced scarcely more securely than a heap of jackstraws, and as we have recently learned, it doesn’t take much to upset the whole thng...

...The change was so violently wrenching because no one seemed to foresee the adverse consequences that would follow from depleting ow grain reserves...

...The result, seen in the markets and felt in all our wallets, was an escalation of prices in sugar that placed the consumer completely at the mercy of market forces, creating such anger that one Senate assistant was quoted in Business Week as calling the demise of the Sugar Act “the rip-off of the century .” A mistake, yes, but a rip-off...

...In the end Butz’ estimate proved to be nine per cent too high...

...But, even ignoring the pathetically skimpy 85-year history of antitrust enforcement, there is little chance that the populist-Naderite dream of restoring a market economy could ever perform the wonders its ardent advocates hope for...

...One way to push up the price would be to expand consump tion faster than expected...

...innocent victims destroyed by the cycle, as so many cattlemen have been destroyed here recently...

...Secretary Earl Butz was no friend of the Sugar Act...

...Paradoxically, high profits add little to the price of foods sold...

...Take that $2.1 billion figure, so fondly quoted by every exponent of trust-busting...

...It earned 25 per cent on stockholder’s equity, although its profits-on-sales remained at their traditional three per cent...

...At the same time, news from Europe and the Soviet Union that sugar beet crops were being destroyed by bad weather helped keep sugar prices rising through the summer and fall...

...levels by about 1.4 million tons...

...This was astonishing news-a nine-Dercent increase when in the last 25 years consumption had never risen more than three per cent from one year to the next...

...But there should be no reason why more thoughtful, farsighted management of our agriculturalsupplies could not delegate the actual production to an even greater number of small independent farmers than we have today...

...In the same way that we are finally reexamining our appetite for gasoline as a result of OPEC’s raising the price of oil, the Russian grain sale may help alter some other comfortable beliefs...

...This sentiment found its typical voice in an article by Daniel Zwerdling, in The Progressive of January 1975: “While food prices were pushing millions of Americans toward serious financial sacrifice and even poverty, the giants in the food industrial complex were crying all the way to the bank...

...In the food industry, profits on sales are particularly low, as the companies are happy to publicize...

...These all-powerful middlemen have either engineered the whole price rise, or, at the very least, given it a very substantial push...

...World stocks of sugar increased far above the “equilibrium level” of 40 per cent of annual consumption, forcing prices so low that producers were losing money on every pound of sugar sold...

...population comes to only about $10 a person, or $40 for a family of four, which hardly explains the $450 increase in the average family’s market basket cost (according to the Bureau of Labor Statistics) that took place between July 1972, when the sale of massive quantities of grain to the Soviet Union began, and January 1975, the last month for which statistics are available...

...But their part is only a walk-on...

...Individual farmers, assured of a steady source of demand and free from the fear of the disastrous booms and busts, have already proven themselves very efficient producers of food...

...Because it wasn’t until April, when farmers were already planting their crops, that the President’s Cost of Living Council lifted a ceiling on the price of refined sugar...

...Forty years ago, Henry Wallace’s Agriculture Department understood that pure market forces, left to work themselves out, would drive the small farmer out of business...

...It is conceivable that when consumers took Great Western sugar through the supermarket checkout line, they were paying the price-an outrageous price -to help bolster a sagging real estate venture called California City.’’ What nonsense...

...moreover, they helped solve the problem that has plagued American agriculture for years-how to dispose of the huge quantities of grain U.S...

...Certainly the demand among consumers for beef was growing, and feedlots were a convenient solution for coping with that...

...In the years since then, farmsupport policies have lost their sense of emotional rightness, both because so substantial a share of the support payments has gone to large farmers of the James Eastland variety, and because the tight world markets and high grain prices of the last few years have made many American farmers rich, at least temporarily...

...Undoubtedly many of the government policies followed did indeed benefit the large corporations, for such industrial giants almost invariably benefit from government actions to “improve the economy...

...While the shortcomings of the Butz system have been more dramatically demonstrated, neither view fully com prehends the pressures now affecting American agriculture...

...Eighty per cent of this was due to what is called “widening farmretail spreads,” in other words, greater returns for the middlemen than for farmers...

...international tensions developing as we try to restrict exports...

...Free Enterprise...

...The dramatic rise in Great Western’s profits on equity was the result of large inventory profits, most of which had to be plowed back into buying higher-priced raw sugar...

...And even worse, antitrust could actually defuse genuine reform efforts...

...Our domestic producers operate within a tightly controlled market...

...Partly, but 50 per cent of the decrease was due to decisions made by U.S...

...But even if it is accurate, the figure is not particularly enlightening...

...But economists, businessmen, and investors find these figures of less interest, for they tell little about whether a company is a profitable investment...

...I think many of the things wrong with our foods are directly traceable to the overwhelming growth and mass-marketing orientation of the food companies...

...These firms have the sheer financial might to overwhelm smaller competitors and the market power to hold up prices and profits like a single monopolist...

...In the November 11, 1974, issue of Foreign Agriculture, L. C. Hunt wrote that worldwide “beet sugar production will be down from 1973-74...

...It is with heavy heart that one recommends government direction of the economy, because of the obvious peril of the bureaucrats taking over, merging all the farmers into giant tracts to make the paperwork flow more easily...

...Four companies share 90 per cent of the market in breakfast cereals...

...the largest four canners sell 80 per cent of canned fruits and vegetables, and only one company sells 90 per cent of all canned soups...

...It would be far better to manage the reserves and prices of such critical commodities as feedlot grain, so that both consumer and producer can survive...

...Department of Agriculture (USDA) was preoccupied with analyzing price fluctuations from week to week, corporations were exerting their control over just 13 food lines to inflate prices permanently by $2.1 billion...

...Beet producers naturally decided to grow alternate crops-cotton, wheat, soybeans-from which they could expect to make more money...

...The story was similar for other refiners...

...beet growers in early 1974 not to produce beets for that year...

...It is, rather, the result of applying to agriculture the same mass-production, assemblyline principles used to produce ball bearings...

...Sugar Daddy But Secretary Butz wasn’t taking any chances...

...But with the addition of poor crops and contradictory government policies, we ended up with a world sugar production shortage of 1.5 million tons, and just at the time when we should have been trying to stimulate a build-up of depleted sugar stocks...

...The tale is familiar, but still sad...

...Why...

...By analyzing these trends, those who followed the market in sugar could readily predict that the price of sugar would rise in 1974...

...The food economy must be managed...

...The satisfied producers did not lobby against Butz’ proposed action, and Congress agreed to let the Act run out at the end of the year...

...In less than a year grain prices tripled, turning the tables on the meat industry, which over the previous 20 years had become dependent on cheap grain to raise cattle and hogs...

...Was this that old nemesis, the weather, again...

...Meanwhile, decisions were being made elsewhere in the U.S...

...About 95 per cent of this increase was reflected in higher returns for farmers...

...Far better known than the history of the sugar price increase, and cer-tainly easier to comprehend, is the story of meat prices...

...Amstar Corporation, the nation’s largest sugar refiner, boosted its profits by 300 per cent in 1974...

...Of our annual national consumption of sugar (1 1.5 million tons in 1974), roughly 30 per cent is produced from beets, which are grown extensively in the U.S...

...In November 1973, the Department of Agriculture announced that there would be an Administration campaign to abolish the 1948 law...

...Refined sugar comes from either sugar beets or sugar cane...

...The price fell from the 1964 high of 10 cents a pound to as low as 1.9 cents...

...Large price increases have also occurred in processed fruits and vegetables and in cereals...

...It comes from a 1970 Federal Trade Commission memo...

...Take sugar and meat, for example...

...Four FTC economists I talked to doubt its accuracy...

...Many sugar growers were none too pleased about the proposed change, for it meant the elimination of $90 million a year in subsidies and the end of the acreage restrictions and quotas that supported the high domestic price...

...Largely because so many cereals, salad dressings, canned and frozen foods, bologna, soft drinks, and hundreds of snack foods contain large amounts of sugar, the price of these foods rose as well...

...For example, the factory model of raising chickens has led to lower prices for consumers, but at the expense not only of quality but also of the chicken farmers who have become oppressed hired hands, forced to buy all their supplies at the “company store...

...In fact, if profits were completely eliminated from the food industry, prices would drop an average of only eight per cent...

...What other reason could there be for the large profit increases for the food companies while farmers are suffering from rapidly rising costs and - now-declining prices...

...No, the full explanation is more complicated than agribusiness greed or vagaries of climate-and may be more unpleasant to contemplate than either...

...James Hightower and his associates at the Agribusiness Accountability Project are correct in condemning this trend as one of the primary failings of the food industry...

...by 1973, 83 per cent of the cattle slaughtered under federal inspection were coming through feedlots...

...The Russian grain deal can now be seen as merely the precipating event in this sudden, but long overdue, change in agricultural patterns...

...wheat harvest...

...For some foods, like cereals and soups, the drop might be greater...

...We can see that monopoly power played only a small role in precipitating the inflation of meat and sugar prices...

...As the price of sugar rose, Amstar’s three per cent was a larger absolute figure, and its overall profits rose astronomically...

...Once refined the two types are interchangeable...

...yet meat packing is one of the least concentrated of all food industries...

...Undoubtedly, some of this fell into the hands of agricorporations with extensive land holdings...

...The remaining 70 per cent comes from sugar cane, two-thirds of which is imported...

...The troubles reflected in rapidly rising prices, then, are far more complex than many have supposed...

...Earl Butz’s solution, which is probably nearer to1 realization, is to leave the agribusiness structure intact but remove any taint of government “interference...

...It is of little benefit to the consumer to pay bargain rates for beef today if he will have to pay $3 a pound next year, after the cattlemen have been driven out of business and the newspapers start talking about the “beef shortage” once again...

...and in sugar-the complex pricing of which we have already described...

...But with demand pressing so closely on supply and likely to continue doing so for the foreseeable future, one can say with virtual certainty that the next time there is a drought, or late frost, or devastating blight, prices will soar once more...

...If only it were so simple...

...The Justice Department and the Federal Trade Commission can perform a valuable watchdog function over oligopolistic markets...

...In 1964, following years of low prices when sugar was one of many surplus commodities, Cuba took nearly five million tons of sugar off the world market to sell directly to Russia...

...Of 32,000 food companies, the 50 largest earn 61 per cent of the profit...

...Butz had no way of doing that, but he was ableto achieve the same effect on the commodity markets merely by suggesting that consumption would rise...

...growers would continue to produce sugar instead of switching to other crops...

...On top of the news that the Sugar Act would probably die, this prediction created such uncertainty in the commodity market that the price of sugar jumped 50 per cent...

...Oddly enough, there has arisen a sort of consensus, between the most wildly disparate elements, that the solution to our agricultural difficulties lies in restoring the “free market...

...Food-industrial complex,” “control over vast markets,” “crying all the way to the bank”-the phrases fairly glide from the pen...

...for others, like meat, it might be less...

...Cry, the Beloved Country Ham Don’t misunderstand...

...It violated his wellknown antipathy toward government intervention in the agricultural economy...

...So Butz confidently predicted in January 1974 that United States consumption of sugar would reach 12.5 million tons in 1974...

...in fresh meat (where the largest four meat packers share only 22 per cent of the market...

...To liberals, this means breaking up the agribusiness monopolies and letting the decentralized market right itself...

...The proponents of this view assert that we pay at least $2.1 billion more than we would if all the agricultural companies were small businesses freely competing...

...We can continue to talk about “competition,” which is absolutely powerless to cope with these cycles...

...No one can predict that there will be a drought or crop failure this summer...

...I’m not defending this...

...We could find ourselves spending 10 years agitating to break up General Mills, only to find after succeeding that nothing had changed...

...Major food companies (like most manufacturing firms) regularly earn profits measured between 12 and 22 per cent by this calculation...

...The purpose was to insure, by keeping the price up, that U.S...

...farmers are capable of producing...

...Since Great Western sugar was no more expensive than any other brand, Great Western was hardly-unless it was vastly more efficient than Amstar-capable of generating more than a three-percent profit on the price...

...What is needed is some coherent policy that will have to consider many diverse purposes, not only price rises for consumers and producers, but also the needs of exporting food to help our international financial situation...

...In each case, government policies aggravated the effects of the price rise...

...government that further contributed to the sugar shortage...

...This means, of course, that Amstar raked off a three-cent profit from every dollar spent on Domino sugar...

...By July raw sugar cost 26 cents a pound...

...But when we turn to price increases of specific commodities we find that the greatest increases were in such products as fresh vegetables, dry beans, and oils (which are marketed by numerous companies...

...But neither do their large profit increases fit into the pattern antitrusters might find intriguing...

...In 1955 feedlots were practically unknown...

...And to get that, he had to be sure the price would rise...

...Thomas Redburn is an editor of The Washington Monthly...

...The answer requires a bit of background...

...After August 1973, prices at the supermarket level continued to rise another 13 per cent above the July 1972 price...

...He knew that to get Congress to end the Sugar Act he had to have the growers’ support...

...For both sugar and beef, the basic cause of the price rise was the change in the world food market from surplus to shortage...

...Of course the fast-growing world demand and the low stocks meant that sugar prices would have risen during 1974 even if Earl Butz had acted with divine guidance in setting USDA policy...

...By December 1974, the price had risen to $3 and in some places almost $4...

...What is interesting is that Butz prescribed exactly what many economists and consumer advocates have suggested as the cure for our food troubles : competition...

...But however large these windfall profits were, it is still difficult to leap to Daniel Zwerdling’s paranoid conclusion: “. . . did Great Western Sugar soak consumers to help pull its parent conglomerate out of desperate financial straits...

...This is not, however, primarily a problem of monopoly, for the same costcutting pressures would exist if there were four firms or 400...

...And of the decline of specialty products such as country ham that don’t lend themselves to mass marketing...

...Domestic producers supply about 50 to 55 per cent of our sugar needs...

...The world price rose...

...When this next cycle begins, we will see the same catastrophic pattern as before: consumers screaming for relief as food prices rise...

...Butz also reminded them of the predictable cycles of supply and demand and that the price was due to rise...

...The market need not be destroyed, merely guided in a purposeful direction...

...These explanations range from the Earl Butz Act of God Theory-that the price rise is due to bad weather ind unkind fate, which, admittedly, are factors-to the answer many liberals find so seductive-blaming it all on agribusiness...

...Profits, for example, increased most sharply in the meat-packing business...

...Price Rise Sixteen months ago, in January 1974, sugar cost about 85 cents for a five-pound bag...

...Large reserves should be built up, not only to prevent shortages that will lead to higher prices for Americans, but to fulfill our responsibility in the face of famine elsewhere in the world...

...Or we can decide that fundamental principles of public policy require us to intervene against the cycles...

...But some confusion arises in trying to view it in the familiar light of monopoly...

...the harvest may indeed be abundant...

...The MonoDolv Game Far less hysterical, but still animated by the same fear of unseen corporate manipulation, are the views of James Hightower, director of the Agribusiness Accountability Project, which provides a valuable service in monitoring the actions of the food industry: “The manufacture and distribution of the hundreds of items you see on the grocery shelf are controlled by a small number of huge food processors and supermarket chains...

...But that’s a far different matter than suggesting-as so many critics do-that the cause of the inflation can be traced to the greediness of agribusiness...

...But Hightower’s trust-busting, which he envisions as resulting in lower prices through lower profit margins, will unfortunately have very httle effect on the consumer-for the same reasons we saw in the Amstar case...

...another four control 65 per cent of the bread market...

...One method measures a company’s earnings in terms of the equity held by shareholders...

...One analyst in the Department of Agriculture estimates that 20 per cent of the total increase in, food prices during 1974 was due to the inflation in the price of sugar...

...The number of feedlots had increased for a number of reasons...

...The explosion in price was precipitated in the summer of 1972 when the Soviet Union began feeling the effects of a drought and subsequent crop failure and bought one-third of the U.S...

...2.1 billion divided by the whole U.S...

...This is not to say that oligopolistic companies don’t engage in price fixing and gouging for profits...

...In the years from July 1972 (the Russian grain deal date) to August 1973 (when controls on food prices were lifted), food prices rose 26 per cent, or about two-thirds of the total increase between July 1972 and January 1975...

...By now most of us are familiar with the “factory” chicken raised to be practically tasteless because it can be made that way cheap ly...

...Unless monopoly power in the food industry is broken, we’ll never see the price of food come down...

...But it is this very change in the world food situation, from a permanent surplus to an apparent permanent shortage, which makes a carefully thought-out, carefully controlled plan of government intervention all the more essential...

...For years the price of sugar had followed a regular cycle...

...Further, laws which offered tax shelters to outside investors in the cattle business encouraged an overexpansion of the industry...

...While the U .S...

...And when all of the profits for the 50 largest food companies are comput ed-not just the increases- the room for cutting prices appears rather small: the 1973 before-tax profits of $2.8 billion represents only two per cent of the $145 billion dollars consumers spent on food...

...These two items, which both underwent spectacular price increases, accounted together for more than half the total increase in the price of food...

...But if every bit of Amstar’s profit had been knocked off the purchase price, consumers would have saved only three per cent-hardly enough to justify the argument that greedy entrepreneurs forced the price up...

...It has been even more difficult to avoid the countless articles attempting to explain why prices have risen...

...Why should they do that...

...The profit on sales is of interest to consumers, because it represents the additional cost the company is charging for food in order to earn its profit...

...On the face of it, Hightower’s assertion seems valid...