Food Industry Mergers Threaten Competition


It’s no secret that food production is highly consolidated. According to Mary Hendrickson, a professor of food and agriculture sociology at the University of Missouri-Columbia, just 20 feedlots manage half of the cattle in the United States and are directly connected to the four processing firms that control 81 percent of beef processing. Across industry sub-sectors such as manufacturing and retail, corporate giants dominate supply chains. In 2001, the five largest U.S. supermarket chains accounted for over 40 percent of food retail sales, according to Hendrickson. Mega-mergers among these corporations leave consumers with artificially high prices and an illusion of choice, while farmers are increasingly unable to fight the pricing power of supplier conglomerates.

The Federal Trade Commission (FTC) recently filed suit against a Sysco takeover of US Foods, contending that the move would cause the company to control 75 percent of the broadline food service industry, which supplies industrial kitchens in the United States. “This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” said Debbie Feinstein, the Director of the FTC’s Bureau of Competition. “Consumers across the country, and the businesses that serve them benefit from the healthy competition between Sysco and US Foods, whether they eat at a restaurant, hotel, or a hospital.” An administrative trial will begin on July 21, 2015.

Heinz announced on March 25, 2015, that the company will buy Kraft Foods in a US$45 billion mega-merger. The consolidation of these companies into Kraft Heinz will create North America’s third largest food empire, topped only by Nestle and PepsiCo. Sales of both companies have been slipping, due to changing consumer preferences for healthier foods. While the boards of both companies unanimously approved the deal, the merger will still need to get past shareholders and federal anti-trust regulators before closing.

It’s not yet clear whether the FTC will file suit against Kraft Heinz. “Just getting bigger is not a violation of antitrust,” said Ben Gomes-Casseres, a professor at the Brandeis International Business School in Boston. “These two are not in the same market, besides being processed foods…I don’t expect the price of ketchup to go up.” Others anticipate that the merger could lead to higher prices for consumers, due to the shrinking number of food manufacturers and retailers. “All these food-space mergers give [buyers] the illusion of choice. They’re thinking, ‘Oh gosh, look at all these brands,’ ” said Diana Moss, president of the American Antitrust Institute. “But what the consumer doesn’t see is the smaller and smaller number of manufacturers maintaining those brands.”

Other recent big-ticket buyouts have included Hershey’s acquisition of Krave Pure Foods, J.M Smucker’s purchase of Meow Mix, and Tyson Foods’ takeover of Hillshire Brands. Leaders of the investment firm 3G, which negotiated the Kraft Heinz deal, are reportedly eyeing Campbell Soup Co and PepsiCo for takeover. 3G is also the private equity group behind Burger King’s acquisition of Tim Horton’s. According to famed investor Warren Buffet, “these guys have global ambitions.” 

A merger or outright acquisition isn’t the only way of consolidating corporate control in the food sector. Coco-Cola has incrementally purchased shares of Green Mountain Coffee Roasting (GMCR), which is poised to expand its Keurig products internationally. By slowly increasing its share of stock in the company, Coca-Cola is increasing its stake in the success of GMCR and could be preparing for an eventual acquisition.

Organic brands have been subject to the same industry consolidation. In September of 2014, General Mills acquired Annie’s Homegrown, best known for its organic mac and cheese, for US$820 million in cash. Dr. Phil Howard, an Associate Professor at Michigan State, keeps track of “who owns organic,” publishing charts that illustrate industry structure. “Consumers who want food companies that embody more of the original organic ideals would do well to seek out products from independent organic firms,” Howard advises. “Given the very uneven playing field they are competing in, independent organic processors are unlikely to survive without such support.” 

There are reasons that anti-trust laws exist. By dominating market share, a handful of companies are able to dictate prices and squeeze out smaller producers. To stay competitive in an atmosphere of corporate mergers, even the largest firms must be constantly moving to gobble up prospective profit-makers. Mega-corporations in the food industry are also able to negotiate international trade deals , undermining local and regional food systems.

Buying from local and regional producers is important in sustaining small businesses, and asking institutions to do the same can scale up the purchasing power of consumers that believe in truly competitive and resilient markets for sustainable food. Health Care Without Harm is working to improve local sourcing in hospitals and is soliciting survey responses from consumers of health care services. Real Food Challenge is campaigning to remove corporate food from college and university dining halls, emphasizing the importance of local and regional purchasing for sustainable supply chains. The National Farm to School Network is connecting school lunches to local farms, cutting out corporate distributors and food manufacturers. It’s vital to support these local and regional sourcing initiatives and ask schools and institutions to do the same.

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