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As farmers see their livelihoods under pressure and people all over the world struggle with hunger and a rising cost of living, the five largest food commodity traders announced their biggest profits ever. In 2022, the profits of these five companies doubled or even tripled.
Recent farmer’s protests have put food production on the political agenda. But until now, policymakers and regulators have largely ignored the forces that direct global food trade: Big Agri and their monopolies.
Russia’s invasion of Ukraine and the resulting market disruption created price spikes in global food supply chains, Ukraine being a major grain producer. A new SOMO report shows how, in turn, these disruptions allowed grain sellers to raise their prices to such an extent that their profit margins increased, helping them achieve historic profit levels.
The inflation caused by this type of profit margin enhancement was identified through academic research and has since been called seller’s inflation.
Corporate profiteering of this nature — using increased market power due to supply shocks to enhance profit margins — is not a victimless practice. As supply shocks and corporate profiteering caused food prices to skyrocket, the global number of acutely food-insecure people grew by 40 million.
The human suffering caused by seller’s inflation in food markets is hard to imagine. And though it may seem obvious to some, many — including regulators — failed to notice that a food system which allows five oligopolist corporations to increase profit margins during a global food crisis is a broken system.
The five multinational corporations that control upwards of 70 percent of global trade in commercial grains, palm oil and soy are known as the ABCCD, an acronym for their five names: ADM, Bunge, Cargill, COFCO and Louis Dreyfuss Company.
Despite their pivotal position in one of the world’s most important markets, they are barely regulated, and governmental monitoring of their activities is very limited.
The ABCCD’s oligopolistic hold on the food supply chain enables them to influence pricing and costs, which enabled them to increase their profits to $17 billion in 2022.
They are strongly vertically integrated, from supplying farmers with seeds or loans to processing, transporting, and storing food, to then bringing it to markets. The ABCCDs possess immense storage capacity for grains, allowing them to store food when prices are low, and sell as prices go up.
The control they exert on different parts of food supply chains allows them to be well informed on when and where food shortages can be expected. Their access to market information is further strengthened by the ABCCDs close cooperation, both through joint ventures and shared investments.
In fact, this cooperation has at times been so close as to run afoul of the law, with all five having faced regulatory investigations for price fixing or other anti-competitive behaviour.
Fighting Big Agri profiteering
“But what we’ve always found is that in times of high volatility, high prices and high volume, it’s when we have the opportunity to make the most money,” Bunge CFO in Q1 2022 earnings statement
Corporate profiteering during a food crisis is not a force of nature, it can be controlled. The European Commission can, and should, take steps to limit the ABCCDs monopoly power, which seems the central ingredient to their ability to profit from a food crisis.
To do so, it could launch an investigation into the ABCCDs activities in the EU — both in physical and financial markets — to determine whether their market concentration negatively affects their consumers and suppliers. Furthermore, the European Commission should raise problematic market concentration and anti-competitive behavior with the International Competition Network, in cooperation with other states.
Close scrutiny of mergers is also needed, for example in the upcoming merger between commodity traders Bunge and Viterra. The new company would be nearly as big as the world’s largest food trader Cargill, further worsening food market concentration.
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There are more ways to disincentivize corporate profiteering in times of crisis. The EU and other governing bodies can install a windfall profits tax — reclaiming crisis profits for public coffers — and through price gouging laws — outlawing acute price hikes during a crisis.
Proceeds from a windfall profits tax could be put to use for the public interest — for instance, by supporting the just transition of farmers to a sustainable mode of production.
Fighting monopoly power
Since the 1980s, governments have let go of strict anti-trust laws, allowing companies to merge and grow seemingly without limit. The result is that we now have monopolies in a multitude of sectors, from Big Tech to food. These companies have built positions of market and strategic dominance where they’ve become too big to fail, too big to trust, and ‘too big to care’.
Big Agri and food retailers are putting pressure on farmers and our food systems in a variety of ways.
They have accumulated so much market power that they make decisions that deeply affect the lives of all of us, especially when it comes to food.
It is time for the EU to dust off its anti-monopoly tools and put them to use to break up the power of Big Agri.
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