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. 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. 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.