GAO-09-746R, U.S. Agriculture: Retail Food Prices Grew Faster Than the Prices Farmers Received for Agricultural Commodities, but Economic Research Has Not Established That Concentration Has Affected These Trends


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Research Has Not Established That Concentration Has Affected These 
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GAO-09-746R: 

United States Government Accountability Office: 
Washington, DC 20548: 

June 30, 2009: 

The Honorable Herb Kohl: 
Chairman: 
Subcommittee on Antitrust, Competition Policy and Consumer Rights 
Committee on the Judiciary: 
United States Senate: 

The Honorable Charles E. Grassley: 
United States Senate: 

Subject: U.S. Agriculture: Retail Food Prices Grew Faster Than the 
Prices Farmers Received for Agricultural Commodities, but Economic 
Research Has Not Established That Concentration Has Affected These 
Trends: 

Over the past 25 years, farmers have received a decreasing share of the 
consumer food dollar. Some analysts and farm interest groups are 
concerned that this decline can be attributed, in part, to increasing 
concentration in agriculture.[Footnote 1] They believe that firms in 
highly concentrated markets may be able to exert market power by 
raising retail food prices while also depressing prices farmers receive 
for agricultural commodities. Others have argued that concentration has 
facilitated changes, such as technological innovations, that have 
improved productivity and served to lower food prices while increasing 
some farm incomes. 

The influence of any one factor, such as concentration, in determining 
agricultural commodity and retail food prices (commodity and food 
prices) varies and is difficult to isolate. Our prior work has noted 
that concentration may be one of a number of factors that can influence 
prices along the food marketing chain from farms to food processors, 
retail stores, and finally, consumers.[Footnote 2] To better understand 
the impact of concentration on commodity and food prices, economists 
have used a variety of analytical techniques and data sets. However, 
their work has been complicated by various issues, such as the 
difficulty in fully accounting for shifting consumer demand for food 
products, the introduction of new processing and distribution 
technologies, interactions between various levels of the food marketing 
chain, and the evolution of agricultural and other government policies. 
For example, some have suggested that changes in consumer preferences, 
such as demand for quick, easy-to-prepare processed foods, may explain 
much of current trends in the declining farm share of consumer 
spending. Similarly, as the dairy industry has become more 
concentrated, it also has been affected by changes in how milk markets 
function. The introduction of better refrigeration, pasteurization, and 
packaging technologies has enabled milk to travel across broader 
regions. Meanwhile, changes in federal dairy policies have affected 
dairy farm incomes and prices. In order to isolate the effect of 
concentration, researchers must appropriately account for these and 
other factors that influence commodity and food prices. 

In this context, you asked us to provide information on (1) trends in 
concentration for various levels of the food marketing chain in major 
agricultural sectors; (2) trends in retail food expenditures and 
prices; (3) trends in prices farmers received for major agricultural 
commodities; and (4) the views of experts on the potential effects of 
concentration on agricultural commodity and food prices.[Footnote 3] On 
April 24, 2009, we briefed your offices on the preliminary results of 
our review. Enclosure I contains the briefing slides we used, which 
have been updated to include more recent data. This report summarizes 
that briefing and provides further information on the views of experts 
on the effects of concentration on commodity and food prices. These 
views are detailed in enclosure II. 

To review trends in concentration, expenditures, and commodity and food 
prices, we analyzed relevant data from government and industry sources 
and our prior work on milk prices.[Footnote 4] We analyzed data for 
agriculture overall and five major agricultural sectors--beef, pork, 
poultry, dairy, and grains. These sectors accounted for 86 percent of 
the market value of food-related agricultural products sold by U.S. 
farms in 2007. We assessed the reliability of these data and determined 
that they were sufficiently reliable for the purposes of this review-- 
to illustrate broad trends in concentration and prices over time. To 
assess the views of experts on the potential effects of concentration 
on commodity and food prices, we analyzed peer-reviewed, empirical 
economic literature on the processing segment of the beef, pork, and 
dairy sectors and on the retail sector overall. On the basis of this 
literature review, we selected and interviewed experts in the sectors 
reviewed. Enclosure III contains additional information about our scope 
and methodology. 

We conducted our work from November 2008 to June 2009 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence to 
meet our stated objectives and to discuss any limitations in our work. 
We believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions. 

In summary, we found the following: 

* Concentration generally has increased at all levels of the food 
marketing chain in all agricultural sectors since the 1980s. At the 
farm level, less than 2 percent of farms accounted for 50 percent of 
total sales in 2007. At the food processors' level, in general, a small 
number of companies accounted for a large and growing portion of sales 
in each of the five major agricultural sectors. For example, in the 
pork sector, the market share of the largest four hog slaughtering 
firms increased from 36 percent in 1982 to 63 percent in 2006. In 
addition, at the retail level, the share of grocery store sales held by 
the largest four firms more than doubled, from 16 percent in 1982 to 36 
percent in 2005. 

* While real annual per capita food expenditures have increased since 
1982, households now spend a smaller share of disposable income on 
food. Total annual per capita food expenditures rose from $3,358 in 
1982 to $3,888 in 2007, in constant 2008 dollars. Meanwhile, household 
spending on food decreased from 13 percent of disposable incomes in 
1982 to 10 percent in 2007. Since 1982, overall food prices and food 
prices in each of the five major agricultural sectors have increased 
about as much as prices for consumer goods and services overall. 
However, from July 2008 through December 2008, food prices increased 
faster than the prices of other goods and services. Since then, food 
prices generally have not changed significantly. 

* Since 1982, farmers have generally received higher monthly prices for 
their commodities, but these prices have increased less than food 
prices and inflation in the broader economy. Specifically, prices 
farmers received, including for beef, pork, dairy, and grains, 
increased by 34 percent from January 1982 to April 2009. For the same 
period, food prices rose by 128 percent, and prices in the general 
economy rose 102 percent. Commodity prices increased significantly in 
2008, reaching a high of 68 percent above their 1982 levels in July 
2008, but have declined since then. 

* The empirical economic literature has not established that 
concentration in the processing segment of the beef, pork, or dairy 
sectors or the retail sector overall has adversely affected commodity 
or food prices. Most of the studies that we reviewed either found no 
evidence of market power or found efficiency effects that were larger 
than the market power effects of concentration. While a few studies 
found some evidence of market power, it is unclear whether this market 
power was caused by concentration or some other factor. All of the 
experts we spoke with said that concentration probably did not cause 
the 2008 increase in commodity and food prices, which were more likely 
due to factors such as higher energy costs and growing global demand 
for grains. Experts generally said that concentration is likely to 
increase in the future. Some said further increases in concentration 
may raise greater concerns in the future about the potential for market 
power and the manipulation of commodity or food prices. One expert said 
further increases in concentration would continue to generate 
efficiency gains and be beneficial. Enclosure II provides further 
information on the views of experts, and enclosure IV lists the studies 
we reviewed on the impact of concentration on commodity or food prices 
in these sectors. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the date of this report. At that time, we will send copies of this 
report to the Secretary of Agriculture, interested congressional 
committees, and other interested parties. In addition, this report will 
be available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Enclosure V lists key contributors to 
this report. 

Signed by: 

Lisa Shames:
Director, Natural Resources and Environment: 

Enclosures (5): 

[End of section] 

Enclosure I: Briefing Slides: 

Agricultural Concentration and Agricultural Commodity and Retail Food 
Prices: 

Briefing for Congressional Staff: 

April 24, 2009: 

Note: Slides updated to include more recent information. 

Objectives: 

1. Provide time series data on trends in concentration for various 
levels of the food marketing chain in major agricultural sectors. 
[Footnote 33] 

2. Provide time series data on trends in retail food expenditures and 
prices. 

3. Provide time series data on trends in prices farmers received for 
major agricultural commodities. 

4. Summarize the views of experts on the potential effects of 
concentration on agricultural commodity and retail food prices 
(commodity and food prices). 

For objectives 1 to 3, we analyzed aggregate, national information on 
long-term trends, generally since 1982: 

* Trends in agriculture overall and in five major agricultural sectors—
beef, pork, poultry, dairy, and grains—that accounted for 86 percent of 
the total market value of food-related agricultural products sold by 
farms in 2007. (See slide 13 for details.) 

* Data from government and industry sources: USDA’s Economic Research 
Service (ERS), National Agricultural Statistics Service (NASS), and 
Grain Inspection, Packers and Stockyards Administration (GIPSA); 
Department of Commerce’s Bureau of the Census and Bureau of Economic 
Analysis; Department of Labor’s Bureau of Labor Statistics (BLS); 
National Chicken Council; and prior GAO work on milk prices.[Footnote 
34] 

For objective 4, we reviewed relevant literature and, on the basis of 
this review, selected and interviewed experts. 

We conducted this review in accordance with GAO’s quality assurance 
framework. 

Results in Brief: 

Results: 

Concentration generally has increased at all levels of the food 
marketing chain in all agricultural sectors since the 1980s. 

While real annual per capita food expenditures have increased since 
1982, households now spend a smaller share of disposable income on 
food. 

Since 1982, farmers have generally received higher monthly prices for 
their agricultural commodities, but these prices have increased less 
than retail food prices and inflation in the broader economy. 

Economic literature review: 

* Economists have used several different techniques and sets of data to 
analyze the impact of concentration on commodity or food prices. 

* Our review focused on the processing segments of the beef, pork, and 
dairy sectors, and retail food sector. 

* Based on our review, empirical economic literature has not 
established that concentration has adversely affected commodity or food 
prices in these agricultural sectors. 

Farms Have Become More Concentrated (Objective 1): 

Fewer farms make up a major portion of agricultural sales. In 2007, 
less than 2 percent of all farms (32,886 farms) accounted half of total 
sales. 

Table: Number of Farms and Farm Concentration, Various Sectors, 1987-
2007: 

Total number of farms[A]: (all data in this section is shaded) 

Year: 1987; 
All farms: 2,087,759; 
Cattle and calves: 1,150,523; 
Hogs and pigs: 238,819; 
Poultry and eggs: 86,005; 
Dairy: 162,555; 
Grains and other crops[B]: 994,453. 

Year: 1992; 
All farms: 1,925,300; 
Cattle and calves: 1,034,189
Hogs and pigs: 188,167; 
Poultry and eggs: 64,925; 
Dairy: 132,092; 
Grains and other crops[B]: 878,189. 

Year: 1997; 
All farms: 2,215,876; 
Cattle and calves: 1,011,809; 
Hogs and pigs: 102,106; 
Poultry and eggs: 63,246; 
Dairy: 99,238; 
Grains and other crops[B]: 827,385. 

Year: 2002; 
All farms: 2,128,982; 
Cattle and calves: 851,971; 
Hogs and pigs: 82,028; 
Poultry and eggs: 83,381; 
Dairy: 78,963; 
Grains and other crops[B]: 731,234. 

Year: 2007; 
All farms: 2,204,792; 
Cattle and calves: 798,290; 
Hogs and pigs: 74,789; 
Poultry and eggs: 148,911; 
Dairy: 69,763; 
Grains and other crops[B]: 801,489. 

[End of shaded data] 

Fewest number of farms accounting for 50 percent of sales: 

Year: 1987; 
All farms: 75,682; 
Cattle and calves: 7,471; 
Hogs and pigs: 16,480; 
Poultry and eggs: 3,261; 
Dairy: 22,941; 
Grains and other crops[B]: 76,196. 

Year: 1992; 
All farms: 61,673; 
Cattle and calves: 4,842; 
Hogs and pigs: 11,460; 
Poultry and eggs: 3,307; 
Dairy: 15,986; 
Grains and other crops[B]: 63,969. 

Year: 1997; 
All farms: 46,068; 
Cattle and calves: 2,879; 
Hogs and pigs: 2,727; 
Poultry and eggs: 3,545; 
Dairy: 8,128; 
Grains and other crops[B]: 56,759. 

Year: 2002; 
All farms: 34,085; 
Cattle and calves: 3,149; 
Hogs and pigs: 1,909; 
Poultry and eggs: 3,789; 
Dairy: 3,976; 
Grains and other crops[B]: 47,556. 

Year: 2007; 
All farms: 32,886; 
Cattle and calves: 2,862; 
Hogs and pigs: 1,713; 
Poultry and eggs: 3,643; 
Dairy: 2,418; 
Grains and other crops[B]: 43,409. 

Source: Census of Agriculture. 

[A] Census of Agriculture data on total number of farms (shaded) are 
not fully comparable across all years due to methodological and other 
changes. For instance, in 2002, the Census began to use sampling to 
adjust for undercoverage and, simultaneously, updated numbers for 1997. 
In addition, more extensive efforts and outreach may have allowed a 
more accurate count of small farms in 2007, contributing to the 
increase in total number of farms in that year. 

[B] “Grains and other crops” includes oilseeds, dry beans and peas, 
other crops and hay. 

[End of table] 

In General, Fewer Food Processors Account for a Larger Portion of Sales 
(Objective 1): 

Table: Market Share of the Four Largest Food Processing Firms, Various 
Sectors, 1982 to Most Recent Year (See slide 14 for market share 
information for additional years.) 

Sector: Food processors overall - 15 industry average[A]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 45%; 
Market share, Most recent, 2002: 56%. 

Sector: Beef; 
Industry segment: Steer and heifer slaughter; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 41%; 
Market share, Most recent, 2006: 79%. 

Sector: Pork; 
Industry segment: Hog slaughter; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 36%; 
Market share, Most recent, 2006: 63%. 

Sector: Poultry; 
Industry segment: Broiler production; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 27%; 
Market share, Most recent, 2006: 57%. 

Sector: Dairy[B]; 
Industry segment: Fluid milk; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 16%; 
Market share, Most recent, 2002: 43%. 

Sector: Dairy[B]; 
Industry segment: Cheese; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 34%; 
Market share, Most recent, 2002: 35%. 

Sector: Dairy[B]; 
Industry segment: Dry, condensed, evaporated products; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 35%; 
Market share, Most recent, 2002: 47%. 

Sector: Grains[C]; 
Industry segment: Wet corn milling; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 74%; 
Market share, Most recent, 2002: 69%. 

Sector: Grains[C]; 
Industry segment: Breakfast cereal; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 86%; 
Market share, Most recent, 2002: 78%. 

Sector: Grains[C]; 
Industry segment: Commercial bakeries; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 34%; 
Market share, Most recent, 2002: 46%. 

Sector: Grains[C]; 
Industry segment: Flour milling; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 40%; 
Market share, Most recent, 2002: 54%. 

Source: GAO analysis of Department of Commerce, USDA, and National 
Chicken Council data. 

[A] The 15 food processing industries are flour milling; malt 
manufacturing; wet corn milling; breakfast cereals; sugarcane mills; 
beet sugar; frozen fruit, juice, and vegetables; fluid milk; creamery 
butter; cheese; dry, condensed, and evaporated dairy; ice cream and 
frozen desserts; animal (except poultry) slaughtering; seafood canning; 
and commercial bakeries. These 15 industries represented 41 percent of 
the sales of all 47 food processing industries in 2002. 

[B] These three dairy industries made up 85 percent of all dairy 
manufacturing sales in 2002. 

[C] These four industries made up 50 percent of total sales of all 
grain and oilseed milling and bakeries and tortilla manufacturing 
industries in 2002. 

[End of table] 

Retail Food Distribution Has Also Gotten More Concentrated (Objective 
1): 

The share of total grocery store sales held by the largest four firms 
more than doubled from 1982 to 2005. 

Figure: Share of Total Grocery Store Sales Accounted for by the 4 and 
20 Largest Firms, 1982-2005: 

[Refer to PDF for image: vertical bar graph] 

Year: 1982; 
4 largest: 16%; 
20 Largest: 35%. 

Year: 1987; 
4 largest: 17%; 
20 Largest: 37%. 

Year: 1992; 
4 largest: 17%; 
20 Largest: 39%. 

Year: 1997; 
4 largest: 19%; 
20 Largest: 46%. 

Year: 2002; 
4 largest: 30%; 
20 Largest: 56%. 

Year: 2005; 
4 largest: 36%; 
20 Largest: 62%. 

Source: USDA. 

Note: These data include grocery product sales by Wal-Mart 
Supercenters, adjusted for sales of supermarket-like items, but do not 
include such sales in warehouse club stores such as Costco. 

[End of figure] 

Food Expenditures Have Increased, but Represent a Smaller Share of 
Income (Objective 2): 

Real annual per capita expenditures on food increased over $500 from 
1982 to 2007 (in 2008 dollars)[A]. 

Over the same time period, households spent a decreasing portion of 
disposable income on food[B]. 

Table: Trends in U.S. Total and Household Food Expenditures, by Type of 
Expenditure, 1982-2007: 

U.S. total annual food expenditures per capita (2008 dollars)[A]: 

Year: 1982; 
At home: $2,012; 
Away from home: $1,345; 
Total: $3,358. 

Year: 1987; 
At home: $1,922; 
Away from home: $1,558; 
Total: $3,480. 

Year: 1992; 
At home: $1,904; 
Away from home: $1,585; 
Total: $3,490. 

Year: 1997; 
At home: $1,870; 
Away from home: $1,633; 
Total: $3,503. 

Year: 2002; 
At home: $1,904; 
Away from home: $1,752; 
Total: $3,656. 

Year: 2007; 
At home: $2,002; 
Away from home: $1,886; 
Total: $3,888. 

U.S. household annual food expenditures as share of disposable 
income[B]: 

Year: 1982; 
At home: 8.3%; 
Away from home: 4.3%; 
Total: 12.6%. 

Year: 1987; 
At home: 7.3%; 
Away from home: 4.2%; 
Total: 11.5%. 

Year: 1992; 
At home: 6.6%; 
Away from home: 4.0%; 
Total: 10.6%. 

Year: 1997; 
At home: 6.3%; 
Away from home: 4.1%; 
Total: 10.4%. 

Year: 2002; 
At home: 5.8%; 
Away from home: 4.0%; 
Total: 9.8%. 

Year: 2007; 
At home: 5.7%; 
Away from home: 4.0%; 
Total: 9.7%. 

Source: GAO analysis of USDA data. Notes: “Total” food expenditures may 
not equal the sum of “at home” and “away from home” food expenditures 
due to rounding. Data adjusted to 2008 constant dollars using the 
Consumer Price Index (CP). 

[A] Includes all food expenditures divided by the U.S. population, 
including business and government spending such as expense-account 
meals, food provided to inmates and patients, and food donated to 
schools and institutions. 

[B] Reflects only family and individual spending on food. 

[End of table] 

Retail Food Prices Increased in Line with Inflation (Objective 2): 

Retail food prices increased 128 percent from 1982 through April 2009, 
about the same increase as seen in the prices of all other consumer 
items (126 percent). 

The retail prices of food in each of the five major agricultural 
sectors also increased, some more and some less than the rate of 
inflation. (For additional information, see slides 16 to 19 and 21.) 

Figure: Consumer Price Indices of Food and All Items Less Food, 1982-
April 2009 (Jan. 1982=100): 

[Refer to PDF for image: multiple line graph] 

Date: January 1982; 
All food: 100.0; 
All items less food: 100.0. 

Date: January 1987; 
All food: 117.0; 
All items less food: 118.0. 

Date: January 1992; 
All food: 143.0; 
All items less food: 147.0. 

Date: January 1997; 
All food: 163.0; 
All items less food: 170.0. 

Date: January 2002; 
All food: 184.0; 
All items less food: 189.0. 

Date: January 2007; 
All food: 208.0; 
All items less food: 216.0. 

Date: April 2009; 
All food: 228.0; 
All items less food: 226.0. 

Source: GAO analysis of Department of Labor data. 

Note: Price indices measure relative changes in prices over time as 
compared to a certain base period and do not show relative price levels 
or absolute values. 

[End of figure] 

Farm Prices Increased, But Did Not Keep Pace with Inflation (Objective 
3): 

The index of prices farmers received for their products increased 34 
percent from January 1982 to April 2009. In July of 2008, these prices 
reached a twenty-six year high of 68 percent above their 1982 levels, 
but have declined more recently. Since 1982, commodity prices increased 
less than food prices and less than inflation in the broader economy 
(102 percent). 

Prices farmers received for beef, pork, dairy, and grains generally 
mirrored these overall trends. We did not identify reliable information 
on prices poultry farmers received. (For additional information, see 
slides 16 to 19 and 21.) 

Figure: Indices of Prices Received by Farmers for All Farm Products and 
Economywide Prices, 1982-2009 (Index: January 1982, Q1 = 100): 

[Refer to PDF for image: multiple line graph] 

Date: January 1982; 
Farm prices: 100.0; 
Economywide prices (GDP price index): 100.0. 

Date: January 1987; 
Farm prices: 89.0; 
Economywide prices (GDP price index): 118.0. 

Date: January 1992; 
Farm prices: 101.0; 
Economywide prices (GDP price index): 140.0. 

Date: January 1997; 
Farm prices: 113.0; 
Economywide prices (GDP price index): 154.0. 

Date: January 2002; 
Farm prices: 99.0; 
Economywide prices (GDP price index): 168.0. 

Date: January 2007; 
Farm prices: 128.0; 
Economywide prices (GDP price index): 196.0. 

Date: April 2009; 
Farm prices: 1342.0; 
Economywide prices (GDP price index): 202.0. 

Source: GAO analysis of USDA and Department of Commerce data. 

Notes: Farm prices are monthly, and economywide prices are quarterly. 
Price indices measure relative changes in prices over time as compared 
to a certain base period and do not show relative price levels or 
absolute values. 

[End of figure] 

Additional Information Related to Objectives: 

Agricultural Overview Information: 

In 2007, the major agricultural sectors (shaded) examined in this 
review accounted for 86 percent of the total market value of food-
related agricultural products sold. 

Figure: Market Value of Food Related Agricultural Products Sold in 
2007: 

[Refer to PDF for image: pie-chart and sub-chart] 

Grains, oilseeds, dry beans, and dry peas ($77 billion): 30%; [shaded] 
Cattle and calves ($61 billion): 23%; [shaded] 
Poultry and eggs ($37 billion): 14%; [shaded] 
Milk and other dairy products from cows ($32 billion): 12%; 
Hogs and pigs ($18 billion): 7%; 
Other ($35 billion): 14%: 
- Fruits, nuts, and berries ($19 billion): 7%; 
- Vegetables, melons, potatoes, and sweet potatoes ($15 billion): 6%; 
- Aquaculture ($1.4 billion): 1%; 
- Sheep, goats, and their products ($0.7 billion): 0%. 

Source: GAO analysis of USDA data. 

Note: Does not include some segments, such as cotton seed, which may 
also include some food-related production. 

[End of figure] 

Concentration Trends Among Food Processing Sectors (Objective 1): 

Table: Market Share of the Four Largest Food Processing Firms, Various 
Sectors, 1982-Most Recent: 

Sector: Food processors overall - 15 industry average[A]; 
1982: 45%; 
1987: 46%; 
1992: 48%; 
1997: 51%; 
2002: 56%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 46%; 
Market share 2002: 56%; 
Upward trend. 

Sector: Beef; 
Industry segment: Steer and heifer slaughter; 
1982: 41%; 
1987: 67%; 
1992: 78%; 
1997: 78%; 
2002: 79%; 
2006: 79%; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 41%; 
Market share 2006: 79%; 
Upward trend. 

Sector: Pork; 
Industry segment: Hog slaughter; 
1982: 36%; 
1987: 37%; 
1992: 44%; 
1997: 54%; 
2002: 56%; 
2006: 63%; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 36%; 
Market share 2006: 63%; 
Upward trend. 

Sector: Poultry; 
Industry segment: Broiler production; 
1982: 27%; 
1987: 36%; 
1992: 40%; 
1997: 44%; 
2002: 48%; 
2006: 57%; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 27%; 
Market share 2006: 57%; 
Upward trend. 

Sector: Dairy[B]; 
Industry segment: Fluid milk; 
1982: 16%; 
1987: 21%; 
1992: 22%; 
1997: 21%; 
2002: 43%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 16%; 
Market share 2002: 43%. 

Sector: Dairy[B]; 
Industry segment: Cheese; 
1982: 34%; 
1987: 43%; 
1992: 42%; 
1997: 35%; 
2002: 35%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 34%; 
Market share 2002: 35%; 
Upward trend. 

Sector: Dairy[B]; 
Industry segment: Dry, condensed, evaporated products; 
1982: 35%; 
1987: 45%; 
1992: 43%; 
1997: 47%; 
2002: 47%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 35%; 
Market share 2002: 47%; 
Upward trend. 

Sector: Grains[C]; 
Industry segment: Wet corn milling; 
1982: 74%; 
1987: 74%; 
1992: 73%; 
1997: 72%; 
2002: 69%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 74%; 
Market share 2002: 69%; 
Downward trend. 

Sector: Grains[C]; 
Industry segment: Breakfast cereal; 
1982: 86%; 
1987: 87%; 
1992: 85%; 
1997: 83%; 
2002: 78%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 86%; 
Market share 2002: 78%; 
Downward trend. 

Sector: Grains[C]; 
Industry segment: Commercial bakeries; 
1982: 34%; 
1987: 34%; 
1992: 34%; 
1997: 39%; 
2002: 46%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 34%; 
Market share 2002: 46%; 
Upward trend. 

Sector: Grains[C]; 
Industry segment: Flour milling; 
1982: 40%; 
1987: 44%; 
1992: 56%; 
1997: 48%; 
2002: 54%; 
2006: [Empty]; 
Percentage starting and ending trends, 1982 - most recent: 
Market share, 1982: 40%; 
Market share 2002: 54%; 
Upward trend. 

Source: GAO analysis of Department of Commerce, USDA, and National 
Chicken Council data. 

[A] The 15 food processing industries are flour milling; malt 
manufacturing; wet corn milling; breakfast cereals; sugarcane mills; 
beet sugar; frozen fruit, juice, and vegetables; fluid milk; creamery 
butter; cheese; dry, condensed,and evaporated dairy; ice cream and 
frozen desserts; animal (except poultry) slaughtering; seafood canning; 
and commercial bakeries. These 15 industries represented 41 percent of 
the sales of all 47 food processing industries in 2002. 

[B] These three dairy segments made up 85 percent of all dairy 
manufacturing sales in 2002. 

[C] These four segments made up 50 percent of total sales of all grain 
and oilseed milling and bakeries and tortilla manufacturing industries 
in 2002. 

[End of table] 

Trends in Food Expenditures (Objective 2): 

Postfarm value added, also known as the marketing bill, has increased 
from 1980 to 2006 as a share of consumer expenditures on domestically 
produced farm food. 

Figure: Share of Consumer Expenditures for Domestically Produced Farm 
Food by Farm Value and Marketing Bill, 1980-2006: 

[Refer to PDF for image: stacked line graph] 

Marketing Bill is a combination of farm value, labor, packaging 
materials, intercity transportation, energy, profits, and 
miscellaneous. 

Year: 1980; 
Farm Value: 31%; 
Labor: 31%; 
Packaging materials: 8%; 
Intercity transportation: 5%; 
Energy: 3%; 
Profits: 4%; 
Miscellaneous: 18%. 

Year: 1984; 
Farm Value: 27%; 
Labor: 33%; 
Packaging materials: 8%; 
Intercity transportation: 5%; 
Energy: 4%; 
Profits: 3%; 
Miscellaneous: 21%. 

Year: 1988; 
Farm Value: 24%; 
Labor: 35%; 
Packaging materials: 8%; 
Intercity transportation: 5%; 
Energy: 4%; 
Profits: 3%; 
Miscellaneous: 22%. 

Year: 1992; 
Farm Value: 22%; 
Labor: 36%; 
Packaging materials: 9%; 
Intercity transportation: 4%; 
Energy: 4%; 
Profits: 3%; 
Miscellaneous: 23%. 

Year: 1996; 
Farm Value: 22%; 
Labor: 37%; 
Packaging materials: 9%; 
Intercity transportation: 4%; 
Energy: 4%; 
Profits: 4%; 
Miscellaneous: 20%. 

Year: 2000; 
Farm Value: 19%; 
Labor: 39%; 
Packaging materials: 8%; 
Intercity transportation: 4%; 
Energy: 4%; 
Profits: 5%; 
Miscellaneous: 23%. 

Year: 2004; 
Farm Value: 20%; 
Labor: 39%; 
Packaging materials: 8%; 
Intercity transportation: 4%; 
Energy: 4%; 
Profits: 5%; 
Miscellaneous: 22%. 

Year: 2006; 
Farm Value: 19%; 
Labor: 39%; 
Packaging materials: 8%; 
Intercity transportation: 4%; 
Energy: 4%; 
Profits: 5%; 
Miscellaneous: 22%. 

Source: USDA. 

[A] "Miscellaneous" includes such items as depreciation, rent, 
advertising, interest, taxes, licenses, and insurance. 

[End of figure] 

Trends in Retail, Wholesale, and Farm Prices for Beef (Objectives 2 & 
3): 

Figure: Retail, Wholesale, and Farm Beef Prices, 1980-2008: 

[Refer to PDF for image: multiple line graph] 

Year: 1980; 
Retail (cents per pound): 234; 
Wholesale (cents per pound): 171; 
Farm (cents per pound): 146. 

Year: 1985; 
Retail (cents per pound): 229; 
Wholesale (cents per pound): 149; 
Farm (cents per pound): 127. 

Year: 1990; 
Retail (cents per pound): 281; 
Wholesale (cents per pound): 190; 
Farm (cents per pound): 168. 

Year: 1995; 
Retail (cents per pound): 284; 
Wholesale (cents per pound): 164; 
Farm (cents per pound): 138. 

Year: 2000; 
Retail (cents per pound): 306; 
Wholesale (cents per pound): 182; 
Farm (cents per pound): 149. 

Year: 2005; 
Retail (cents per pound): 409; 
Wholesale (cents per pound): 226; 
Farm (cents per pound): 192. 

Year: 2008; 
Retail (cents per pound): 432; 
Wholesale (cents per pound): 235; 
Farm (cents per pound): 197. 

Source: GAO analysis of USDA data. 

Note: Data, presented in nominal terms, are retail weight equivalents 
and represent annual averages of monthly data. 

[End of figure] 

Trends in Retail, Wholesale, and Farm Prices for Pork (Objectives 2 & 
3): 

Figure: Retail, Wholesale, and Farm Pork Prices, 1980-2008: 

[Refer to PDF for image: multiple line graph] 

Year: 1980; 
Retail (cents per pound): 148; 
Wholesale (cents per pound): 103; 
Farm (cents per pound): 74. 

Year: 1985; 
Retail (cents per pound): 171; 
Wholesale (cents per pound): 106; 
Farm (cents per pound): 84. 

Year: 1990; 
Retail (cents per pound): 225; 
Wholesale (cents per pound): 124; 
Farm (cents per pound): 102. 

Year: 1995; 
Retail (cents per pound): 206; 
Wholesale (cents per pound): 104; 
Farm (cents per pound): 78. 

Year: 2000; 
Retail (cents per pound): 258; 
Wholesale (cents per pound): 114; 
Farm (cents per pound): 79. 

Year: 2005; 
Retail (cents per pound): 283; 
Wholesale (cents per pound): 125; 
Farm (cents per pound): 88. 

Year: 2008; 
Retail (cents per pound): 294; 
Wholesale (cents per pound): 125; 
Farm (cents per pound): 82. 

Source: GAO analysis of USDA data. 

Note: Data, presented in nominal terms, are retail weight equivalents 
and represent annual averages of monthly data. 

[End of figure] 

Trends in Retail and Wholesale Prices for Poultry (Objectives 2 & 3): 

Figure: Retail and Wholesale Prices for Whole Chickens, 1982-2008: 

[Refer to PDF for image: multiple line graph] 

Year: 1982; 
Retail (cents per pound): 71.4; 
Wholesale (cents per pound): 46.4. 

Year: 1987; 
Retail (cents per pound): 78.5; 
Wholesale (cents per pound): 47.4. 

Year: 1992; 
Retail (cents per pound): 86.9; 
Wholesale (cents per pound): 52.6. 

Year: 1997; 
Retail (cents per pound): 100.2; 
Wholesale (cents per pound): 58.8. 

Year: 2002; 
Retail (cents per pound): 107.4; 
Wholesale (cents per pound): 55.5. 

Year: 2008; 
Retail (cents per pound): 120.7; 
Wholesale (cents per pound): 79.7. 

Source: GAO analysis of USDA data. 

Notes: Data are in nominal terms. The reported wholesale price for 
whole chicken is based on a weighted combination of data from twelve 
cities. 

[End of figure] 

Figure: Retail and Wholesale Prices for Chicken Composite, 1990-2008: 

[Refer to PDF for image: multiple line graph] 

Year: 1990; 
Retail (cents per pound): 145.5; 
Wholesale (cents per pound): 62.2. 

Year: 1995; 
Retail (cents per pound): 144.11; 
Wholesale (cents per pound): 62.4. 

Year: 2000; 
Retail (cents per pound): 155.3; 
Wholesale (cents per pound): 53.5. 

Year: 2005; 
Retail (cents per pound): 174.1; 
Wholesale (cents per pound): 67.7. 

Year: 2008; 
Retail (cents per pound): 175; 
Wholesale (cents per pound): 71. 

Source: GAO analysis of USDA data. 

Notes: Data are in nominal terms. “Composite” chicken includes whole 
bird, breast, and leg pieces weighted by estimated quantities purchased 
by consumers each year. Composite chicken does not include any boneless 
or skinless meat. 

[End of figure] 

Trends in Retail and Farm Prices for Dairy (Objectives 2 & 3): 

Prices farmers received for dairy products increased less than retail 
dairy prices from 1980 to 2008. 

Figure: Indices of Retail and Farm Prices for Dairy Products, 1980-
2008: 

[Refer to PDF for image: multiple line graph] 

Index, 1980 = 100. 

Year: 1980; 
Index of Retail prices: 100; 
Index of Farm prices: 100. 

Year: 1985; 
Index of Retail prices: 113; 
Index of Farm prices: 99. 

Year: 1990; 
Index of Retail prices: 140; 
Index of Farm prices: 106. 

Year: 1995; 
Index of Retail prices: 146; 
Index of Farm prices: 96. 

Year: 2000; 
Index of Retail prices: 177; 
Index of Farm prices: 103. 

Year: 2005; 
Index of Retail prices: 200; 
Index of Farm prices: 124. 

Year: 2008; 
Index of Retail prices: 231; 
Index of Farm prices: 151. 

Source: GAO analysis of Department of Labor and USDA data. 

Note: Price indices measure relative changes in prices over time as 
compared to a certain base period and do not show relative price levels 
or absolute values. 

[End of figure] 

From 1996 to May 2004, farmers received a consistent share (ranging 
from 44 to 46 percent) of the retail price of a gallon of 2-percent 
milk. 

Figure: Portion of the Retail Price of a Gallon of 2-Percent Milk 
Received by Farmers, Cooperatives, Wholesale Processors[A], and 
Retailers, Select Markets, January 1996-May 2004: 

[REfer to PDF for image: stacked vertical bar graph] 

Year: 1/1996-2/1998; 
Farmers: 44%; 
Cooperatives: 10%; 
Wholesale processors: 31%; 
Retailers: 16%. 

Year: 3/1998-9/2000; 
Farmers: 44%; 
Cooperatives: 5%; 
Wholesale processors: 33%; 
Retailers: 19%. 

Year: 10/2000-5/2004; 
Farmers: 46%; 
Cooperatives: 6%; 
Wholesale processors: 35%; 
Retailers: 13%. 

Source: GAO analysis of earlier GAO reports. 

Notes: Percentages may not total 100 due to rounding. The select 
markets are Atlanta, Boston, Cincinnati, Dallas, Denver, Miami, 
Milwaukee, Minneapolis, New Orleans, Phoenix, Salt Lake City, San 
Diego, Seattle, and Washington, D.C. More recent data for retail and 
wholesale prices were not readily available; retail data must be 
purchased and wholesale data are proprietary. 

[A] We used commissary price data, obtained from the Defense Commissary 
Agency, as a proxy for wholesale price data because the latter data are 
proprietary. In general, commissary prices for milk do not include a 
mark-up similar to that in retail stores. 

[End of figure] 

Trends in Retail and Farm Prices for Grains (Objectives 2 & 3): 

Data on prices farmers received for grains are not directly comparable 
to the prices consumers pay for such processed foods as cereals and 
breads made, in part, with grains. 

Figure: Indices of Retail and Farm Prices for Grains (Cereals and 
Bakery Products), 1980-2008: 

[Refer to PDF for image: multiple line graph] 

Index, 1980 = 100. 

Year: 1980; 
Index of Retail prices: 100; 
Index of Farm prices: 100. 

Year: 1985; 
Index of Retail prices: 128.6; 
Index of Farm prices: 84.7. 

Year: 1990; 
Index of Retail prices: 166.7; 
Index of Farm prices: 82. 

Year: 1995; 
Index of Retail prices: 200; 
Index of Farm prices: 99.1. 

Year: 2000; 
Index of Retail prices: 223.8; 
Index of Farm prices: 67.6. 

Year: 2005; 
Index of Retail prices: 248.8; 
Index of Farm prices: 86.5. 

Year: 2008; 
Index of Retail prices: 292; 
Index of Farm prices: 172. 

Source: GAO analysis of Department of Labor and USDA data. 

Note: Price indices measure relative changes in prices over time as 
compared to a certain base period and do not show relative price levels 
or absolute values. 

[End of figure] 

[End of section] 

Enclosure II: Potential Effects of Concentration on Agricultural 
Commodity and Retail Food Prices: 

Empirical economic literature has not established that concentration-- 
the extent to which a small number of firms controls most of the sales 
or purchases in a specific market or industry--in the processing 
segment of the beef, pork, or dairy sectors, or the retail sector 
overall has adversely affected agricultural commodity or retail food 
prices (commodity or food prices). Most of the studies that we reviewed 
found either no evidence of market power, or efficiency effects that 
were larger than the market power effects of concentration. While 
several studies found some evidence of market power, it is unclear 
whether concentration caused it. All the experts we spoke with said 
that concentration probably did not cause the 2008 increase in 
commodity and food prices, which were more likely due to factors such 
as higher energy costs and growing global demand for grains. Experts 
generally said that concentration is likely to increase in the future. 
Some said further increases may raise greater concerns in the future 
about the potential for market power and the manipulation of commodity 
or food prices. One expert said further increases in concentration 
would continue to generate efficiency gains and be beneficial. 

Background: 

Concentration in agricultural industries can have two opposing impacts 
on commodity or food prices--the adverse impact of market power and the 
beneficial impact of efficiency gains. First, economists have suggested 
that higher levels of concentration can contribute to market power in a 
given market, other things being equal. In turn, market power can 
enable firms to affect the commodity or food prices of goods they buy 
or sell. Therefore, concentration could adversely affect commodity or 
food prices by enabling food processors, for example, to pay farmers 
lower than competitive prices for cattle or to sell beef to retailers 
for more than competitive prices. On the other hand, concentration may 
also lead to cost savings and efficiency gains, which may be passed on 
in the form of lower food prices. To the extent that efficiency gains 
lead to lower food prices, this can potentially also lead to greater 
demand for products at the farm level and, therefore, positively affect 
farmers. Ultimately, the impact of concentration on commodity and food 
prices depends on which of these two effects--market power or 
efficiency--dominates. 

The influence of any one factor, such as concentration, in determining 
commodity and food prices varies and is difficult to isolate. To better 
understand the impact of concentration on commodity and food prices, 
economists have used a variety of analytical techniques and data sets. 
They have sought evidence of market power, examined the link between 
market power and efficiency, or analyzed the behavior of firms to 
assess whether they act competitively. In particular, economists have 
looked at these issues in concentrated sectors such as the processing 
segments of the beef, pork, and dairy sectors, and in the retail sector 
overall. Their efforts have been complicated by a variety of issues, 
including that many other factors could also influence market power and 
generate efficiency gains. For example, market power can be affected by 
product differentiation, the difficulty firms have in entering a 
market, and the structure of contracts between farmers and food 
processors. Similarly, technological changes, new business practices, 
and other factors can drive efficiency gains. In addition, government 
policies or economic events can affect concentration and commodity and 
food prices. Therefore, it is not easy to establish the effect of 
concentration on these prices. 

To summarize the views of experts on the potential effects of 
concentration on commodity and food prices, we reviewed the literature 
and interviewed experts in the processing segment of the beef, pork, 
and dairy sectors, and in the retail sector overall. (Enclosure III 
provides further information on our scope and methodology.) 

Experts and Economic Literature Have Not Established That Concentration 
Has Had an Adverse Effect on Commodity and Food Prices: 

Experts Said Concentration Probably Did Not Cause the 2008 Increase in 
Commodity and Food Prices: 

Prices for many agricultural commodities and consumer foods increased 
significantly in 2008, although all the experts we spoke with told us 
that concentration probably did not cause these trends. By July 2008, 
the prices farmers received for their commodities had reached a 26-year 
high, 68 percent above their 1982 levels according to U.S. Department 
of Agriculture (USDA) data. Meanwhile, food prices overall, as measured 
by the Bureau of Labor Statistics' (BLS) Consumer Price Index, 
increased 5 percent from December 2007 to August 2008, the fastest 8- 
month increase in food prices since 1990. Commodity prices have since 
declined, and food prices have stabilized. According to all experts we 
spoke with, concentration was probably not the cause of these commodity 
and food price increases for two broad reasons. First, many experts 
said that several other factors were more likely to be the causes, such 
as the use of crops for the production of biofuels, higher energy 
costs, and the growing global demand for grains in developing 
countries.[Footnote 5] Second, some experts said that although there 
has been a long-term trend toward increasingly concentrated markets, 
there was no sudden jump in concentration in 2008 that could have 
generated significant increases in market power and the potential for 
price manipulation. While experts told us concentration did not cause 
the commodity and food price increases, some experts suggested that 
concentration may nevertheless have affected food prices. Some experts 
told us that market power, to the extent it exists in these industries, 
would likely have dampened this food price impact. This is because 
firms with market power may absorb some rising input costs, rather than 
pass them on to consumers in the form of higher food prices. However, 
other experts said that market power, specifically at the retail level, 
may have played a role in maintaining high food prices. Commodity 
prices declined significantly after the 2008 price spike, and these 
declines may not have been reflected in food prices. Experts suggested 
that market power could be a contributing factor in these trends. 

Research Has Not Established That Concentration Adversely Affected 
Commodity or Food Prices: 

Empirical economic literature has not established that concentration in 
the processing segment of the beef, pork, or dairy sectors or in the 
retail sector overall has adversely affected commodity or food prices. 
We reviewed 33 studies published since 1990 that were relevant to 
assessing the effect of concentration on commodity and food prices in 
these sectors.[Footnote 6] Most of these found either no evidence of 
market power, or efficiency effects that were larger than the market 
power effects of concentration. For example, one study compared the 
market power and efficiency effects of concentration to evaluate the 
impact of concentration in the beef processing sector.[Footnote 7] 
Results from that study suggested that from 1970 to 1992, the benefits 
from efficiencies from concentration were twice as large as the costs 
from market power. 

While several studies we reviewed found evidence of market power, 
primarily in the retail and dairy sectors, it is unclear whether 
concentration affected this market power. Even though concentration is 
one potential source of market power, other sources could also affect 
market power, depending on the particular characteristics of the 
industry. Therefore, the evidence of market power does not, by itself, 
mean that concentration is the source of that market power. 

Specifically, in the four sectors reviewed, we found the following. 

Beef Processing. The 13 studies we reviewed in this sector suggested 
that concentration has not enabled beef processors to pay farmers less 
than the competitive price for cattle or to charge retailers more than 
the competitive price for beef. These studies fell into three broad 
categories. In the first, four studies explicitly took cost 
considerations into account and measured the relative importance of the 
market power versus efficiency effects of concentration. All of these 
studies found that concentration in the beef processing sector has 
been, overall, beneficial because the efficiency effects dominated the 
market power effects. For example, three studies by one economist found 
little evidence of exploitation of market power, but significant 
evidence of efficiencies.[Footnote 8] 

In the second category, five studies used relatively newer empirical 
techniques to test for market power, and only one of these found 
evidence of market power among beef processors. That study used data 
from 1988 to 1991 and identified evidence that beef processors had 
market power over farmers.[Footnote 9] However, the other studies found 
no evidence of beef processors exercising market power over farmers or 
retailers.[Footnote 10] 

In the third category, four studies used more disaggregated data and 
advanced techniques to evaluate market power. Two of these found little 
or no evidence of processor market power in the procurement of cattle, 
though one did find evidence of market power over retailers.[Footnote 
11] The other two studies examined bidding data from cattle auctions in 
Texas.[Footnote 12] One of these concluded that the bidding process was 
not very competitive, and the other found some evidence of market power 
abuse in the form of mark-downs in the prices paid to farmers for 
cattle. 

Although we reviewed a number of more recent studies in the beef 
processing sector, our findings were not substantially different from 
those of a 1996 study sponsored by USDA's Grain Inspection, Packers and 
Stockyards Administration (GIPSA), which reviewed a number of empirical 
studies on this issue.[Footnote 13] The GIPSA study found that the 
empirical evidence suggesting that the industry was uncompetitive was 
not convincing, but by the same token, this did not mean the industry 
was perfectly competitive. 

Pork Processing. Overall, the six studies we reviewed did not find 
conclusive evidence of the effect of concentration in pork processing 
on commodity or food prices. Two of these found some recent evidence of 
market power.[Footnote 14] However, neither attempted to evaluate 
whether concentration was a source of that market power. Another study 
attempted to measure how market power changed with concentration, and 
found evidence of market power in the 1970s but not in 1980s, despite 
the increasing concentration over this period.[Footnote 15] The authors 
suggested that large processing plants achieved cost economies by 
ensuring a smooth and undisrupted flow of hogs so they could operate 
their plants at near full capacity. Therefore, their desire to continue 
purchasing hogs to achieve these cost savings could overwhelm any 
incentives to exercise market power by restricting purchases. 

Dairy Processing. Overall, four studies found that concentration in 
dairy processing had little or no adverse impact on commodity or food 
prices. For example, one study found some evidence of market power but 
concluded that the market power identified was close to competitive 
levels.[Footnote 16] Three studies attempted to identify the market 
power and efficiency effects of concentration in various food 
processing industries, including fluid milk. These studies generally 
found that concentration had a statistically significant effect on 
market power, but the efficiency benefits were greater than the market 
power effects of concentration in the fluid milk processing sector. For 
example, one study found that fluid milk consumers would benefit 
considerably with additional increases in concentration owing to these 
efficiency effects.[Footnote 17] To the extent that dairy processors do 
have market power, its impact on commodity prices dairy farmers receive 
may be offset by the market power of dairy cooperatives.[Footnote 18] 

Retail. The 12 studies we reviewed were generally insufficient to 
assess the influence of concentration in the retail sector on food 
prices, although all found indications of market power. Most of the 
studies sought to assess whether retailers had market power. None of 
the studies assessed whether (1) concentration is a source of market 
power or (2) retail concentration generated efficiency gains. The 
results from a study on retail sales of breakfast cereals suggested 
that firms with larger market shares had lower costs.[Footnote 19] This 
implies that increases in concentration may be associated with 
efficiency gains. Moreover, retail firms may engage in nonprice 
competition, such as by offering greater variety and level of service 
to consumers. To the extent that retail firms compete in this manner, 
measures of market power used by many economists may not appropriately 
capture how firms compete. Since current economic research has not 
addressed these aspects, the literature offers only a partial picture 
of the possible impact of retail concentration on food prices. 

All of the retail studies found some indications of market power. 
However, economists have not been able to do a comprehensive analysis 
of the existence of retail market power overall.[Footnote 20] Instead, 
studies have either looked at specific products or firm behaviors to 
deduce the degree of retail competition. For example, one study 
examined retail grocers' behavior in purchasing iceberg lettuce from 
California and Arizona and tomatoes from California and Florida. 
[Footnote 21] The study found evidence of grocers' market power in the 
purchase of lettuce from California and Arizona and for tomatoes from 
California, but not for tomatoes from Florida. Another study looked at 
supermarket data and found some evidence of collusion, the coordination 
of pricing and other decisions by competing firms, which may be 
facilitated in concentrated markets.[Footnote 22] Other studies looked 
at competition among retail stores for the sale of specific products 
and concluded that retailers had some degree of market power in these 
markets.[Footnote 23] Finally, two studies analyzed the relationship 
between retail concentration and food prices and found little evidence 
of concentration affecting food prices in recent years.[Footnote 24] 

We also reviewed three studies of regional retail milk markets that, 
for the most part, suggest evidence of market power. For example, one 
found evidence of noncompetitive behavior in nine metropolitan markets 
in California and four other western states. Two other studies looked 
at the Boston retail fluid milk market and found evidence of some 
market power among retailers. 

Studies Have Significant Limitations: 

In general, the studies we reviewed had several significant drawbacks 
that limit their usefulness in assessing the role of concentration on 
commodity and food prices. First, many of these studies only measured 
market power's effect on commodity and food prices and did not assess 
cost-efficiency effects. In addition, many studies did not account for 
the causes of this market power or link it to concentration. Some 
experts noted that one significant limitation was that some studies 
used data at a level of aggregation that was too high to be meaningful 
for certain products. Some experts, as well as the economic literature, 
found that certain models of market power use assumptions to facilitate 
their analysis, but these assumptions may not be realistic. Other 
experts explained that most current studies do not examine the market 
power and efficiency effects of successive layers of the food marketing 
chain--such as how market power at the processor level may interact 
with market power at the retail level. However, some experts also noted 
that there may be good reasons for some of these deficiencies in the 
studies, such as a lack of appropriate data for certain levels of the 
food marketing chain. 

Current Trends of Increasing Concentration May Raise Concerns in 
Future: 

Most experts we spoke with said that concentration is likely to 
increase, leading to fewer, larger beef, pork, and dairy processors and 
retail outlets, although opinions were mixed on the likely impact of 
this potential trend. Several said that the potential for efficiency 
gains for larger companies will provide incentives for companies to 
merge or grow larger to take advantage of lower costs. However, some 
experts said that economies of size already may have been exhausted in 
some sectors. A few experts told us that large retail firms may be 
exerting pressure on food processors to consolidate because some 
retailers prefer to deal with relatively large suppliers. In this way, 
concentration at the retail level can lead to further concentration at 
the food processor level. 

While most experts said they expect the concentration to increase, they 
differed on the likely impact. One expert said the increase would 
likely be beneficial, on balance, because efficiency gains were likely 
to continue to outweigh market power effects. In the retail sector, 
some experts said that future growth in concentration is less of a 
concern because of healthy competition from new retail outlets such as 
super center stores. Others said that future trends could heighten 
concerns about the potential for market power and the manipulation of 
commodity and food prices. They suggested that, particularly in 
meatpacking, additional mergers in already concentrated industries 
could allow processors to realize market power without corresponding 
efficiency gains. In other words, even though current research suggests 
that efficiency gains have outweighed market power effects in the past, 
additional increases in concentration may tilt this balance because 
efficiency gains may be exhausted while market power could continue to 
increase. In the retail sector, one expert expressed concerns about the 
effect on food prices in the future if food retailing becomes dominated 
by a handful of large chains. 

[End of section] 

Enclosure III: Objectives, Scope and Methodology: 

Our congressional requesters asked us to provide information on (1) 
trends in concentration for various levels of the food marketing chain 
in major agricultural sectors; (2) trends in retail food expenditures 
and prices; (3) trends in prices farmers received for major 
agricultural commodities; and (4) the views of experts on the potential 
effects of concentration on agricultural commodity and food prices. 
Concentration is the extent to which a small number of firms controls 
most of the sales or purchases in a specific market or industry. 

To provide trend information on the first three objectives, we 
generally considered data from 1982 to the most recent year available 
in each case. We collected aggregate, national data on three levels of 
the food marketing chain--farms, processors, and retailers.[Footnote 
25] At each level, we examined agricultural markets overall and five 
major sectors--beef, pork, poultry, dairy, and grains. These sectors 
accounted for 86 percent of the market value of food-related 
agricultural products sold by U.S. farms in 2007. We adjusted indexed 
data so that the base period is the earliest period presented in this 
report.[Footnote 26] All price data are presented in nominal terms, and 
we adjusted expenditure data to constant 2008 dollars using the 
Consumer Price Index published by the Department of Labor's Bureau of 
Labor Statistics (BLS).[Footnote 27] 

More specifically, to provide information on trends in concentration 
for various levels of the food marketing chain, we took the following 
steps. At the farm level, we analyzed data from the Census of 
Agriculture and data compiled for us by the U.S. Department of 
Agriculture's (USDA) National Agricultural Statistics Service (NASS) 
that were based on the Census of Agriculture.[Footnote 28] We reported 
trends for "grains and other crops" rather than grains alone to ensure 
data are consistent for all years. At the food processor level, we 
examined data on the market share held by the largest four firms from 
three sources: (1) the Department of Commerce's Economic Census, 
conducted by the Bureau of the Census, for food processors overall and 
the dairy and grains sectors;[Footnote 29] (2) USDA's Grain Inspection, 
Packers and Stockyards Administration for beef and pork sectors; and 
(3) the National Chicken Council for poultry (broiler) production. 
Finally, at the retail level, we reported estimates made by USDA's 
Economic Research Service (ERS) of the share of grocery store sales 
accounted for by the 4 and 20 largest firms nationwide. 

To provide information on trends in retail food expenditures and 
prices, we obtained data from ERS and BLS. We used BLS's Consumer Price 
Index data for trends in prices for food and non-food items, and for 
dairy and grains-related foods.[Footnote 30] To analyze trends in the 
retail prices of beef, pork, and poultry, we analyzed ERS data. We used 
ERS data to show components of the marketing bill, the postfarm value 
added to retail food such as for processing and packaging, and farm 
value as a share of total consumer food expenditures over time. 

To provide information on trends in agricultural commodity prices, we 
analyzed data from NASS, the Department of Commerce's Bureau of 
Economic Analysis (BEA), ERS, and BLS. We used NASS data to assess 
trends in prices farmers received for farm products overall and BEA 
data to compare these trends to economywide price trends. We used ERS 
data to assess trends in beef, pork, dairy, and grain prices at the 
farm level and poultry prices at the wholesale level and BLS data to 
compare the farm-level trends to trends in food prices. We also 
analyzed past GAO reports to provide additional information on the 
share of the retail price of a gallon of 2-percent milk received by 
farmers, wholesale processors, and retailers in 14 U.S. markets. 
[Footnote 31] 

To summarize the views of experts on the potential effects of 
concentration on commodity and food prices, we analyzed 33 peer- 
reviewed, empirical economic studies and interviewed 10 experts we 
identified through the literature. We examined the processing segment 
of the beef, pork, and dairy sectors, and the retail sector. These 
sectors are among those with a significant body of empirical economic 
research on the effects of concentration. We used three criteria to 
select studies for review: (1) published in peer-reviewed journals; (2) 
involved an empirical analysis of data in one of the relevant sectors; 
and (3) published in 1990 or more recently, using data from at least 
the 1990s.[Footnote 32] To identify studies, we first conducted key 
word searches on academic databases. In addition, we obtained 
recommendations of additional studies from relevant experts. Enclosure 
IV lists the studies we reviewed. We identified experts on the basis of 
their contributions to the literature and ensured that we had coverage 
for each of the four sectors selected. We interviewed these experts and 
summarized their views on the role of concentration in the 2008 
increase in commodity and food prices, and on potential future trends 
in concentration and their likely impacts. Since we did not speak to a 
probability sample of experts, our results may not be representative of 
the views of all experts. 

To assess the reliability of the data used to address these objectives, 
we reviewed the data and relevant documentation describing how the data 
were developed, interviewed officials responsible for the data 
regarding the steps they take to ensure the data's accuracy, and, where 
possible, compared these data with those from other sources. We 
discussed discrepancies identified through this process with agency 
officials and, where necessary, adjusted data accordingly. While not 
all data sources are completely comparable over time, we determined the 
data were sufficiently reliable and similar for illustrating broad 
trends in concentration and commodity and food prices. 

We conducted our work from November 2008 to June 2009 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence to 
meet our stated objectives and to discuss any limitations in our work. 
We believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions. 

[End of section] 

Enclosure IV: Empirical Economic Studies on the Impact of Concentration 
in the Beef, Pork, and Dairy Processing Sectors, and Retail Sector 
Overall on Agricultural Commodity and Food Prices: 

Beef Processing: 

Azzam, A.M. "Measuring Market Power and Cost-Efficiency Effects of 
Industrial Concentration." Journal of Industrial Economics, vol. 45, 
no. 4 (1997): 377-386. 

Azzam, A.M. "Testing the Competitiveness of Food Price Spreads." 
Journal of Agricultural Economics, vol. 43, no. 2 (1992): 248-56. 

Crespi, J.M., and R.J. Sexton. "A Multinomial Logit Framework to 
Estimate Bid Shading in Procurement Auctions: Application to Cattle 
Sales in the Texas Panhandle." Review of Industrial Organization, vol. 
27 (2005): 253-278. 

Crespi, J.M., and R.J. Sexton. "Bidding for Cattle in the Texas 
Panhandle." American Journal of Agricultural Economics, vol. 86, no. 3 
(2004): 660-674. 

Driscoll, P.J., S.M. Kambhampaty, and W.D. Purcell. "Nonparametric 
Tests of Profit Maximization in Oligopoly with Application to the Beef 
Packing Industry." American Journal of Agricultural Economics, vol. 79, 
no. 3 (1997): 872-879. 

Mathews, K.H. Jr., W.F. Hahn, K.E. Nelson, L.A. Duewer, and R.A. 
Gustafson. "U.S. Beef Industry: Cattle Cycles, Price Spreads, and 
Packer Concentration." Technical Bulletin, no. 1874, U.S. Department of 
Agriculture, Economic Research Service (1999). 

Morrison Paul, C.J. "Cost Economies and Market Power: The Case of the 
U.S. Meat Packing Industry." The Review of Economics and Statistics, 
vol. 83, no. 3 (2001a): 531-540. 

Morrison Paul, C.J. "Market and Cost Structure in the U.S. Beef Packing 
Industry: A Plant-Level Analysis." American Journal of Agricultural 
Economics, vol. 83, no. 1 (2001b): 64-76. 

Morrison Paul, C.J. "Production Structure and Trends in the U.S. Meat 
and Poultry Products Industries." Journal of Agricultural and Resource 
Economics, vol. 24, no. 2 (1999): 281-298. 

Muth, M.K., and M.K. Wohlgenant. "Measuring the Degree of Oligopsony 
Power in the Beef Packing Industry in the Absence of Marketing Input 
Quantity Data." Journal of Agricultural and Resource Economics, vol. 
24, no. 2 (1999): 299-312. 

Reed, A.J., and J.S. Clark. "Structural Change and Competition in Seven 
U.S. Food Markets." Technical Bulletin, no. 1881, U.S. Department of 
Agriculture, Economic Research Service (2000). 

Schroeter, J.R., A.M. Azzam, and M. Zhang. "Measuring Market Power in 
Bilateral Oligopoly: The Wholesale Market for Beef." Southern Economic 
Journal, vol. 66, no. 3 (2000): 526-547. 

Weliwita, A., and A.M. Azzam. "Identifying Implicit Collusion Under 
Declining Output Demand." Journal of Agricultural and Resource 
Economics, vol. 21, no. 2 (1996): 235-246. 

Pork Processing: 

Inoue, A., and T. Vukina. "Testing for the Principal's Monopsony Power 
in Agency Contracts." Empirical Economics, vol. 31 (2006): 717-734. 

Morrison Paul, C.J. "Production Structure and Trends in the U.S. Meat 
and Poultry Products Industries." Journal of Agricultural and Resource 
Economics, vol. 24, no. 2 (1999): 281-298. 

Reed, A. J. and J. S. Clark. "Structural Change and Competition in 
Seven U.S. Food Markets." Technical Bulletin, no. 1881, U.S. Department 
of Agriculture, Economic Research Service (2000). 

Schroeter, J., and A.M. Azzam. "Marketing Margins, Market Power, and 
Price Uncertainty." American Journal of Agricultural Economics, vol. 
73, no. 4 (1991): 990-999. 

Schroeter, J., and A.M. Azzam. "Measuring Market Power in Multi-Product 
Oligopolies: The U.S. Meat Industry." Applied Economics, vol. 22 
(1990): 1365-1376. 

Zheng, X., and T. Vukina. "Do Alternative Marketing Arrangements 
Increase Pork Packers' Market Power?" American Journal of Agricultural 
Economics, vol. 91, no. 1 (2009): 250-63. 

Dairy Processing: 

Liu, D.J., C. Sun, and H.M. Kaiser. "Market Conduct Under Government 
Price Intervention in the U.S. Dairy Industry." Journal of Agricultural 
and Resource Economics, vol. 20, no. 2 (1995): 301-315. 

Lopez, R.A., A.M. Azzam, and C. Liron-Espana. "Market Power and/or 
Efficiency: A Structural Approach." Review of Industrial Organization, 
vol. 20 (2002): 115-126. 

Lopez, R.A., and C. Liron-Espana. "Price and Cost Impacts of 
Concentration in Food Manufacturing Revisted." Journal of Agribusiness, 
vol. 23, no. 1 (2005): 41-55. 

Lopez, R.A., and C. Liron-Espana. "Social Welfare and the Market Power- 
Efficiency Tradeoff in U.S. Food Processing: A Note." Journal of 
Agriculture & Food Industrial Organization, vol. 1 (2003). 

Retail: 

Arnade, C., M. Gopinath, and D. Pick. "Measuring the Degree of Retail 
Competition in U.S. Cheese Markets." Journal of Agricultural & Food 
Industrial Organization, vol. 5 (2007). 

Canan, B., and R.W. Cotterill. "Strategic Pricing in a Differentiated 
Product Oligopoly Model: Fluid Milk in Boston." Agricultural Economics, 
vol. 35 (2006): 27-33. 

Carmen, H.F, and R.J. Sexton. "Supermarket Fluid Milk Pricing Practices 
in the Western United States." Agribusiness, vol. 21, no. 4 (2005): 509-
530. 

Chavas, J.P., and A. Mehta. "Price Dynamics in a Vertical Sector: The 
Case of Butter." American Journal of Agricultural Economics, vol. 86, 
no. 4 (2004): 1078-1093. 

Chidmi, B., and R.A. Lopez. "Brand-Supermarket Demand for Breakfast 
Cereals and Retail Competition." American Journal of Agricultural 
Economics, vol. 89, no. 2 (2007): 324-337. 

Chidmi, B., R.A. Lopez, and R.W. Cotterill. "Retail Oligopoly Power, 
Dairy Compact, and Boston Milk Prices." Agribusiness, vol. 21, no. 4 
(2005): 477-491. 

MacDonald, J.M. "Demand, Information, and Competition: Why Do Food 
Prices Fall as Seasonal Demand Peaks?" The Journal of Industrial 
Economics, vol. 48, no. 1 (2000): 27-45. 

Marion, B.W. "Competition in Grocery Retailing: The Impact of a New 
Strategic Group on BLS Price Increases." Review of Industrial 
Organization, vol. 13 (1998): 381-399. 

Richards, T.J., and P.M. Patterson. "Retail Price Fixity as a 
Facilitating Mechanism." American Journal of Agricultural Economics, 
vol. 87, no. 1 (2005): 85-102. 

Sexton, R.J., M. Zhang, and J.A. Chalfant. "Grocery Retailer Behavior 
in Perishable Fresh Produce Procurement." Journal of Agricultural & 
Food Industrial Organization, vol. 3 (2005). 

Stiegert, K.W., and T. Sharkey. "Food Pricing, Competition, and The 
Emerging Supercenter Format." Agribusiness, vol. 23, no. 3 (2007): 295- 
312. 

Villas-Boas, S.B. "Vertical Relationships between Manufacturers and 
Retailers: Inference with Limited Data." Review of Economic Studies, 
vol. 74 (2007): 625-652. 

[End of section] 

Enclosure V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Lisa Shames, (202) 512-3841 or shamesl@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, James R. Jones, Jr. (Assistant 
Director), Namita Bhatia Sabharwal, Kevin Bray, MacKenzie Cooper, 
Barbara El-Osta, Ronald Fecso, Quindi Franco, Brandon Haller, Susan 
Offutt, Kelly Rubin, and Carol Herrnstadt Shulman made key 
contributions to this report. 

[End of section] 

Related GAO Products: 

Concentrated Animal Feeding Operations: EPA Needs More Information and 
a Clearly Defined Strategy to Protect Air and Water Quality. 
[hyperlink, http://www.gao.gov/products/GAO-08-1177T]. Washington, 
D.C.: September 24, 2008. 

Concentrated Animal Feeding Operations: EPA Needs More Information and 
a Clearly Defined Strategy to Protect Air and Water Quality from 
Pollutants of Concern. [hyperlink, 
http://www.gao.gov/products/GAO-08-944]. Washington, D.C.: September 4, 
2008. 

Spot Cheese Market: Market Oversight Has Increased, but Concerns Remain 
about Potential Manipulation. [hyperlink, 
http://www.gao.gov/products/GAO-07-707]. Washington, D.C.: June 21, 
2007. 

Packers and Stockyards Programs: Continuing Problems with GIPSA 
Investigations of Competitive Practices. [hyperlink, 
http://www.gao.gov/products/GAO-06-532T]. Washington, D.C.: March 9, 
2006. 

Livestock Market Reporting: USDA Has Taken Some Steps to Ensure 
Quality, but Additional Efforts Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-06-202]. Washington, D.C.: December 9, 
2005. 

Dairy Industry: Information on Milk Prices, Factors Affecting Prices, 
and Dairy Policy Options. [hyperlink, 
http://www.gao.gov/products/GAO-05-50]. Washington, D.C.: December 29, 
2004. 

Livestock Agriculture: Increased EPA Oversight Will Improve 
Environmental Program for Concentrated Animal Feeding Operations. 
[hyperlink, http://www.gao.gov/products/GAO-03-285. Washington, D.C.: 
January 16, 2003. 

Economic Models of Cattle Prices: How USDA Can Act to Improve Models to 
Explain Cattle Prices. [hyperlink, 
http://www.gao.gov/products/GAO-02-246]. Washington, D.C.: March 15, 
2002. 

Dairy Industry: Estimated Economic Impacts of Dairy Compacts. 
[hyperlink, http://www.gao.gov/products/GAO-01-866]. Washington, D.C.: 
September 14, 2001. 

Dairy Industry: Information on Milk Prices and Changing Market 
Structure. [hyperlink, http://www.gao.gov/products/GAO-01-561]. 
Washington, D.C.: June 15, 2001. 

Fluid Milk: Farm and Retail Prices and the Factors That Influence Them. 
[hyperlink, http://www.gao.gov/products/GAO-01-730T]. Washington, D.C.: 
May 14, 2001. 

Justice's Antitrust Division: Better Management Information is Needed 
on Agriculture-Related Matters. [hyperlink, 
http://www.gao.gov/products/GAO-01-188]. Washington, D.C.: April 6, 
2001. 

Packers and Stockyards Programs: Actions Needed to Improve 
Investigations of Competitive Practices. [hyperlink, 
http://www.gao.gov/products/GAO/RCED-00-242]. Washington, D.C.: 
September 21, 2000. 

Slotting Fees: Effort to Study the Use of These Payments in the Grocery 
Industry, [hyperlink, http://www.gao.gov/products/T-RCED-00-295]. 
Washington, D.C.: September 14, 2000. 

Food and Commodities: Federal Purchases and Major Regulations That 
Potentially Affect Prices Paid. [hyperlink, 
http://www.gao.gov/products/GAO/RCED-00-173R]. Washington, D.C.: June 
15, 2000. 

Dairy Industry: Information on Prices for Fluid Milk and the Factors 
That Influence Them. [hyperlink, 
http://www.gao.gov/products/GAO/RCED-99-4]. Washington, D.C.: October 
8, 1998. 

Animal Agriculture: Information on Waste Management and Water Quality 
Issues. [hyperlink, http://www.gao.gov/products/GAO/RCED-99-300BR]. 
Washington, D.C.: June 28, 1995. 

[End of section] 

Footnotes: 

[1] Concentration is the extent to which a small number of firms 
controls most of the sales or purchases in a specific industry or 
market. The term consolidation is closely related to concentration, and 
refers to the organizing of farms, food processors, or retail stores 
into fewer, larger firms. For the purposes of this report, we have 
focused on concentration because the relevant economic literature has 
assessed its role in market power price manipulation. 

[2] GAO, Dairy Industry: Information on Milk Prices, Factors Affecting 
Prices, and Dairy Policy Options, [hyperlink, 
http://www.gao.gov/products/GAO-05-50] (Washington, D.C.: Dec. 29, 
2004); Economic Models of Cattle Prices: How USDA Can Act to Improve 
Models to Explain Cattle Prices, [hyperlink, 
http://www.gao.gov/products/GAO-02-246] (Washington, D.C.: Mar. 15, 
2002); and Beef Industry: Packer Market Concentration and Cattle 
Prices, [hyperlink, http://www.gao.gov/products/GAO/RCED-91-28] 
(Washington, D.C.: Dec. 6, 1990). 

[3] Commodity and food prices are factors that impact farmer and 
consumer well being from the production and purchase of foods. Other 
factors, such as sales volumes and productivity, also affect farmers, 
while food safety and quality and environmental impacts can be 
important to consumers. Since these factors have changed over time and 
were outside the scope of our review, we did not conduct a full 
assessment of the impacts of concentration on farmer and consumer well 
being. 

[4] [hyperlink, http://www.gao.gov/products/GAO-05-50]; Dairy Industry: 
Information on Milk Prices and Changing Market Structure, [hyperlink, 
http://www.gao.gov/products/GAO-01-561] (Washington, D.C.: June 15, 
2001); and Dairy Industry: Information on Prices for Fluid Milk and the 
Factors That Influence Them, [hyperlink, 
http://www.gao.gov/products/GAO/RCED-99-4] (Washington, D.C.: Oct. 8, 
1998). 

[5] For further information on factors contributing to increases in 
agricultural commodity prices, see R. Trostle, "Global Agricultural 
Supply and Demand: Factors Contributing to the Recent Increase in Food 
Commodity Prices." Outlook Report, no. WRS-0801, U.S. Department of 
Agriculture, Economic Research Service (2008). 

[6] Enclosure IV lists the studies we reviewed, including full 
references for the studies cited in this enclosure. 

[7] Azzam (1997). 

[8] Morrison Paul (2001a, 2001b, and 1999). 

[9] Azzam (1992). 

[10] Matthews, et al. (1999); Muth and Wohlgenant (1999); Reed and 
Clark (2000); Schroeter, et al. (2000). 

[11] Driscoll, et al. (1997); and Weliwita and Azzam (1996). 

[12] Crespi and Sexton (2005); and Crespi and Sexton (2004). 

[13] A.M. Azzam and D. Anderson, Assessing Competition in Meatpacking: 
Economic History, Theory and Evidence, report prepared for USDA Grain 
Inspection, Packers and Stockyards Administration, GIPSA-RR 96-6 
(1996). 

[14] Zheng and Vukina (2009); and Morrison (1999). 

[15] Schroeter and Azzam (1991). 

[16] Liu, et al. (1995). 

[17] Lopez and Liron-Espana (2003). 

[18] Dairy cooperatives are member-owned organizations that assist 
producers in the marketing of their milk. Research on dairy 
cooperatives' market power has found mixed effects on commodity and 
food prices. A 2002 study examined the role of cooperatives in 
facilitating premiums for milk sold in the Michigan milk market. This 
study found that these premiums increased fluid milk retail prices by 
about 6 percent in 1998. See Christopher Wolf and Duane Banderob, 
"Voluntary Over-order Fluid Milk Premium Agreements and Implications 
for Policy Choices," Journal of Cooperatives, 17 (2002): 33-48. 

[19] Chidmi and Lopez (2007). 

[20] Since retailers can carry in excess of 30,000 products, more 
sophisticated techniques are not possible. 

[21] Sexton, et al. (2005). 

[22] Richards and Patterson (2005). 

[23] Arnade, Gopinath, and Pick (2009), three cheese products; Chavas 
and Mehta (2004), butter; Villas-Boas (2006), yogurt. 

[24] Marion (1998); and Stiegert and Sharkey (2007). 

[25] Concentration and price trends on a regional or local basis, or 
for specific products within these agricultural sectors, may differ 
from the aggregate, national level data presented here. 

[26] Price indices measure relative changes in prices over time as 
compared to a certain base period and do not show relative price levels 
or absolute values. We used indexed data when actual aggregate prices 
were not available. 

[27] We did not adjust price data to constant dollars because doing so 
would require making a number of assumptions about the appropriate 
deflator to use for each level of the food marketing chain in each 
sector. The use of different deflators can affect conclusions, and 
there is no consensus about which deflator is most appropriate in each 
case. Therefore, we present unadjusted, nominal prices. 

[28] The Census of Agriculture defines a farm as any place from which 
$1,000 or more of agricultural products were produced or sold, or 
normally would have been sold, during the census year. This includes a 
large number of small farms. In 2007, about half of all farms produced 
less than $5,000 in sales. 

[29] We used the bureau's crosswalk to identify and link data for 
comparable industry segments across two different industry 
classification systems. We reported data for the 15 industry segments 
with comparable data from 1982 to 2002. 

[30] We used the "Dairy and Related Products" index for dairy prices 
and the "Cereal and Bakery Products" index as representative of trends 
in prices for grains and products made with grains. 

[31] GAO, Dairy Industry: Information on Milk Prices, Factors Affecting 
Prices, and Dairy Policy Options, [hyperlink, 
http://www.gao.gov/products/GAO-05-50] (Washington, D.C.: Dec. 29, 
2004); Dairy Industry: Information on Milk Prices and Changing Market 
Structure, [hyperlink, http://www.gao.gov/products/GAO-01-561] 
(Washington, D.C.: June 15, 2001); and Dairy Industry: Information on 
Prices for Fluid Milk and the Factors That Influence Them, [hyperlink, 
http://www.gao.gov/products/GAO/RCED-99-4] (Washington, D.C.: Oct. 8, 
1998). 

[32] For the pork processing sector, we also included papers with data 
in the 1980s since this sector has not been studied as much in more 
recent years. 

[33] Concentration is the extent to which a small number of firms 
controls most of the sales or purchases in a specific market or 
industry. The food marketing chain includes farms, food processors, 
retail stores, and consumers. 

[34] [hyperlink, http://www.gao.gov/products/GAO-05-50], [hyperlink, 
http://www.gao.gov/products/GAO-01-561], and [hyperlink, 
http://www.gao.gov/products/GAO/RCED-99-4]. 

[End of section] 

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