Agricultural Innovation Loses Out as Agribusiness Monopolies Grow

Many voices around the world have been urging investment in agriculture to solve growing problems of climate change, dryland farming, inputs, mechanization, and feeding rapidly growing populations.

While research and development in agriculture is important, the current system offers challenges to the R&D process. One, is that research at the land grant universities in the United States is often funded by big agribusiness corporations. Two, some of the best solutions don’t offer huge cash rewards to agribusiness, so it is possible that some of the most worthy farming practices and innovations are not getting adequately promoted. And three, government interventions of mandates, grants, patent laws, and subsidies can dictate where momentum comes from for future farming practice choices.

Another problem is that the biggest agribusinesses are becoming monopolies not only in America, but around the world. While these companies can operate efficiently and afford greater risk-taking than smaller companies, they may also squelch much needed innovation from independent start-ups, and make it difficult for farmers to see profits because of an ever increasing cost for inputs which are dictated by the dominant players. Competition is good and necessary for new innovation and becomes very difficult when new innovators can’t compete economically with the giants. Government patenting regulations also play a significant part and must support new party entrants.


In the USDA’s December issue of Amber Waves, this topic is discussed under the title, “Rising Concentration in Agricultural Input Industries Influences New Farm Technologies“. This article reports that concentration in several global agricultural input industries has risen significantly, and that by 2009, the largest four firms in the five input sectors of crop seed, agricultural chemical, animal health, animal genetics/breeding, and farm machinery accounted for more than 50 percent of global market sales in each sector. Also, by 2009, the top eight firms in each of these five input areas had 61 to 75 percent of the share of global market sales. Ongoing mergers and acquisitions exacerbate this trend. See below.

The farmer has always been the bottom link in the food system. He pays dearly for the equipment and inputs to grow crops, and then takes whatever the market gives in return. Then, his product is used to generate profits for the food services, processors, packagers, and grocers. The farmers share? Sixteen cents of the retail food dollar.

Those producers who opt out of the high inputs required by industrial farming have their own set of challenges. Only through establishing co-ops and larger marketing schemes can the small organic farmer survive financially. The values of the consumer play a supporting role for this growing niche. The farmer who practices 1950′s style rotational grazing and uses his own land to feed his own livestock could perhaps have the advantage but this low input user still struggles to meet today’s living expenses, particularly for health care and college tuition. In addition, it is a difficult lifestyle choice as this type of farmer has far greater labor commitments and is unlikely to have time to earn off-farm income like his industrial crop-producing neighbors. Farmers also need to pay property taxes on their land, which are often set to reflect average expected farm incomes.

During times like these in which agricultural commodity prices are high, input costs often appear to rise more, too. More than one agricultural economist has questioned the high cost of nitrogen fertilizer for the farmer at a time when natural gas prices are low. If the government protects the intellectual property of the largest agribusiness companies, and competition from other firms becomes less, then the largest companies can charge higher prices.

The regulation of genetically modified organisms in countries around the world is currently underway and will set the stage for future global agricultural practices. Daryll E. Ray and Harwood D. Schaffer of the Agricultural Policy Analysis Center, University of Tennessee, recently issued a warning about this.

The subject of large agribusiness is not all negative. In the developing world, farmers struggle when promised high quality seeds and find they paid for low quality ones instead, or, when their government subsidizes their fertilizer and a corrupt middle man sells it to an outside buyer instead. But we have a condition today where the big agricultural input providers are controlling much of the world’s agriculture research and development. Today’s farmers who pay for higher input costs are receiving a high quality product, yet, alternative product options are not being promoted or are not available.

Photo credit for seed bag: Flickr CC by Oculator.

2 thoughts on “Agricultural Innovation Loses Out as Agribusiness Monopolies Grow

  1. Bart

    Great analysis!
    I think it describes the need for creating more value capturing opportunities in agriculture. Currently farmers are givers in the market. More entrepreneurial activity is needed to provide access to their take.

    I’ve written some free-form thinking on this at my blog. Keen to have your insights there if you have some to share:

    http://valuechaingeneration.wordpress.com/2012/08/21/what-if/
    http://valuechaingeneration.wordpress.com/2012/10/06/what-if-continued-reflections-on-business-model-innovation-in-agriculture/

    Thanks!

    Bart

    Reply

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>