Unrestrained concentration in the agricultural commodity market has allowed a handful of companies to maximise profits during a global food crisis.
Audrey Gaughran is the Executive Director of the Centre for Research on Multinational Corporations (SOMO). Çağrı Çavuş is a researcher at SOMO and specialises in competition policy and regulation of digital markets. Vincent Kiezebrink is a researcher at SOMO and investigates a wide range of corporate power issues, including commodity supply chains and tax avoidance.
Cross-posted from Green European Journal
Over the past decade, we have witnessed an extraordinary expansion of market concentration across most sectors of the economy. The top four companies in any given sector now hold a larger market share than 10 years ago. This sharp rise in market concentration is driving a broad range of harms, from negative impacts on consumers to corporate capture of regulators and small suppliers forced into debt or foreclosure. Despite these issues making headlines, public and policy attention to the structural nature of the market concentration problem remains limited. The food inflation crisis of recent years is a case in point.
In 2022, roughly one in ten people went to bed hungry, and the absolute number of people with hunger increased by 40 million. In the same year, the profits of the five biggest traders in agricultural commodities tripled compared to the average for the 2016-2020 period.
The “Big Five” dominate the global agricultural commodity market, collectively holding a monopoly for staples like grain, corn, soy, and sugar. The strategies through which they attained and now maintain their dominant position, including mergers and acquisitions, vertical integration, and joint ventures and investments, are likely what allowed them to increase their profit margins so dramatically during a global food crisis.
Despite the fact that billions were impacted by the steep rise in food prices, these companies and their market power received little attention. The role – or failure – of competition policy and regulatory action in relation to the food crisis has barely been scrutinised, yet competition laws and agencies are central players in this story. They had (and still have) the potential to prevent excessive market concentration and challenge companies that abuse their dominant position. It is potential that has been largely unrealised.
The competition policy toolkit is notably under-utilised. Take the EU for example: since the enactment of the EU Merger Regulation in 1990, only 88 out of 9243 notified mergers (i.e., less than 1 per cent) have been prevented.1Sixty of the merger and acquisition (M&A) cases that European regulators considered – and approved – involved the “Big Five” agricultural commodity traders.2 As this article was being written, the EU approved yet another – the 34-billion-dollar deal between agricultural giants Bunge and Viterra.
The mechanics of market concentration and dominance in agricultural commodity trading show that competition authorities, in the EU and elsewhere, must fundamentally change their approach to address the damaging impacts on society of concentrated corporate power.
The players and their role
Five large multinationals dominate the agricultural value chain: Archer Daniels Midland (ADM), Bunge, Cargill, China Oil and Foodstuffs Corporation (COFCO) and Louis Dreyfus Company (LDC). The “Big Five” are collectively referred to as the ABCCDs.
Although most agricultural products are traded within domestic markets, ABCCDs also play a crucial role in connecting countries. They link surplus production markets with countries where there is demand or insufficient domestic food production.3 Agricultural commodity traders traditionally focus on grains (wheat, maize, rice, and corn), oilseeds (palm kernel and soybean), and other commodities such as sugar, citrus juice, cocoa, coffee, and cotton.4 Over the last few decades, ABCCDs have come to dominate the global trade in these foodstuffs. The Big Five control between 70 and 90 per cent of the global trade in commercial grains.
In Europe, the traders’ dominance comes to the forefront in relation to the import of soy. Bunge and Cargill alone are responsible for more than 30 per cent of all soy exports from Brazil to Europe and dominate the French soybean meal market.5 Moreover, Bunge has a clear monopolistic position in some markets. It is, for example, responsible for 90-100 per cent of crude soybean oil sales in Portugal, while ADM operates the largest oilseed processing and refining complex in Europe.
All of the five ABCCD agricultural commodity traders achieved historically high profits during the 2021-2022 period, when consumers globally were facing soaring food prices. Compared to the average for the 2016-2020 period, during which food prices were relatively stable, net profits in 2021 rose between 75 per cent and 260 per cent for all agricultural commodity traders. In 2022, the net profits of the ABCCDs were 200 to 300 per cent higher compared to the stable period.
The high profits of the commodity traders have a clear link with agricultural commodity prices. These have increased substantially since 2021 – and particularly in 2022 – due to the reaction of the futures market to the Russian invasion of Ukraine. The price of wheat rose by close to 50 per cent in the two weeks following the Russian invasion of Ukraine, followed by palm oil (close to 25 per cent), corn (10 per cent ), and soybean oil (10 per cent).
The chart above shows the evolution of food prices and the average net profits of the food commodity traders. Both follow an almost identical trend. From the onset of 2020, both increase strongly, indicating a possible correlation. Most food commodity traders explain ballooning profits in non-specific terms such as “strong demand”, “tight supplies” or “high prices.”6
Where high profits on the part of these commodity traders could simply reflect increased trade volumes, their increased profit margins show that the ABCCDs increased their capacity to generate profits from their operations. All agricultural commodity trading companies achieved a much higher net profit margin for the years 2021-2022 in comparison to the preceding years. Some even more than doubled their net profit margin.
Research in 2023 on food inflation in the EU found some inflation was “unexplained”. The same research noted that reductions in commodity prices had not helped lessen food price stress in Europe and that in April 2023, “most food commodities [were] trading at levels close to or slightly above those of 2021.”
This observation is in line with the phenomenon of seller’s inflation,7 where companies across various sectors used their market power to increase prices following the Covid-19 pandemic and the Ukraine crisis – not to cover their costs but to increase their profit margins. The 2022 UNCTAD Trade and Development report noted that “[e]nergy and food markets are complex, highly concentrated, and prone to anti-competitive practices such as abuse of market power by dominant firms or oligopolistic price fixing, which can cause higher prices and lower service”.
The market power to which UNCTAD refers has been amassed through deliberate strategic actions of the ABCCDs, actions which have largely gone unchecked by government regulatory bodies, including those tasked with addressing anti-competitive practices.
Strategies for amassing market power
Research by Maarten Hietland and SOMO identified three strategies used by the ABCCDs that have enabled them to amass such vast market power and acquire a position that allows them to thrive from higher and more volatile agricultural commodity prices.
Market consolidation (mergers and acquisitions)
One of the strategies to increase market concentration is through mergers and acquisitions. M&As allow companies to eat up their competition and expand their business to gain control over numerous variables in the value chain, and the ABCCDs have carried out many mergers and acquisitions throughout the last decades.8
Although the deals have been scrutinised, for example, by the competition regulators of the EU, there has been almost no intervention to prevent consolidation. The EU competition regulators have assessed a total of 60 cases of mergers and acquisitions related to the ABCCDs since 19909, all but one of which were approved unconditionally. These include the approval of inter-ABCCD transactions such as the unconditional approval of Bunge’s acquisition of two European oilseed processing facilities from Cargill.10
At the core of the EU’s failure is, ironically, a narrow focus on consumer prices as the main “harm” or risk of mergers and acquisitions. Looking narrowly at the scope of individual deals, the regulators approve mergers that do not appear to have immediate negative impacts on consumers (or which can be presented as likely to have positive impacts).
The larger harms to society of intensified corporate power are not considered as part of the regulatory process.11 As the EU’s Directorate General for Competition (DG COMP) underlined in the Bayer/Monsanto merger, while wider, global concerns are of great importance in competition cases, “they cannot form the basis of a merger assessment.” This means that even the risks to consumers are not adequately addressed because the cumulative impacts of concentration of power in a sector, such as agricultural commodities, are not always determining factors in M&A decisions.
The EU is far from the only regulator that has, over the past decades, been asleep at the wheel as the ABCCDs have “merged and acquisitioned” their way to market dominance. While US policymakers have taken a somewhat different approach recently, they and anti-trust agencies in many regions have tended to assess the M&As in front of them without adequately considering wider factors. In particular, there is a lack of monitoring of agricultural commodity traders on a global level, something which was also noticed by Abdolreza Abbassian, a former senior economist at the UN’s Food and Agriculture Organisation.
Market consolidation works together with other strategies to build market dominance. Mergers and acquisitions enable horizontal integration (when companies acquire other similar businesses), and are also one of the main mechanisms used to expand vertical integration (when a company gains control over multiple, or all, parts of its value chain).
Vertical integration
The ABCCDs dominate large parts of the value chain, from supplying farmers with loans, seeds, fertilisers and pesticides to storing, processing and transporting food commodities. Due to their size and their involvement at various stages of the production process, these companies have expanded their influence and control over actors in the value chain. Farmers – even when technically independent from the multinational companies – are increasingly beholden to and dependent on them to plant and sell crops or rear livestock.
For example, the acquisition of Monsanto by Bayer created, in the words of DG COMP, “the largest global integrated seed and pesticide player”. The Bayer/Monsanto deal was, again in DG COMP’s words, “the third in a row in the seeds and pesticides sector” following the Dow/DuPont and ChemChina/Syngenta mergers.12 European regulators see the problem yet appear blind to the implications.
The reality of vertically integrated trading houses is a trend confirmed by the sector itself. According to Sucafina, a Swiss-based coffee trader: “If we were content to stay at this size and we weren’t vertically integrated, we would eventually get acquired by someone. (…) The trade house of the future will be more vertically integrated, and a big part of that’s going to have to come from the farming side.”
Interconnectedness
The five agricultural commodity traders compete with each other for market shares in certain regions. They focus on the same commodities and serve, to some extent, the same customers. At the same time, they also operate as business partners through joint ventures, joint investments, and industry-wide cooperation.
There are many joint ventures between ADM, Bunge, Cargill and LDC. For example, LDC’s 2022 Annual Report lists joint ventures with Cargill in port terminals for grain and sugar export.13 They also have joint investments. Both ADM and Cargill have a strategic investment in the French biotechnology company InnovaFeed SAS, for example.
The ABCCDs also work together to develop and adopt new technologies, such as blockchain. All ABCCD companies have a stake in the blockchain platform Covantis. The goal of the platform is to improve communication between agricultural commodity traders in order to improve logistic processes.
This interconnectedness and cooperation allow for more vertical integration and broad control over all facets of the market, and it can enable price setting, anti-competitive behaviour and cartel formation. There is a basis to take such risks seriously when considering the cumulative impact of the strategies described above and the consumer price outcomes witnessed in 2021-2022.
Risk of abuse of dominance: red flags
The ABCCDs have expanded to achieve positions of market dominance. While regulators have mostly allowed this to happen, there have been cases taken against most ABCCDs for anti-competitive behaviour. These cases, even though isolated and insufficient to address the development of the companies’ excessive market power, provide red flags for regulators regarding the ability (and willingness) of the ABCCDs to abuse their power.
In the US, ADM was accused of price-fixing in the peanut sector and paid a settlement of 5 million dollars in 2021. Bunge has been under investigation since March 2023 by the Romanian authorities over possible collusion on the sunflower oil market. Cargill was accused in 2022 of violating antitrust law by improperly communicating with other companies in the poultry sector about worker wages and benefits. Together with two other companies, Cargill negotiated with the US Justice Department and ultimately paid 84.4 million dollars to settle the allegations. Cargill has also been accused of price fixing in South Korea and the US.
Notably, these cases are all relatively recent, and there are very few examples within the EU. Insofar as the EU has begun to consider market dominance, it has tended to focus on the tech sector. However, further action may be forthcoming. In March 2023, the European Commission announced it would develop new abuse of dominance guidelines by 2025.
Considering the dominant market power of the agricultural commodity traders and the evidence of anti-competitive behaviour, the extraordinary profits of 2021-2022 should have been anticipated. According to a study by insurance company Allianz, up to 20 per cent of food inflation can be attributed to profiteering. Profiteering for agricultural commodity trading companies is even higher than for oil companies due to more predominant concentration.
The ABCCDs’ monopolistic hold on the food supply chain enables them to influence pricing and costs. Their role in speculation on the food commodity markets has been exposed by several researchers. Anna Kolesnichenko of the Foundation for European Progressive Studies noted that, in Europe, most food commodity derivatives trading (95 per cent) takes place over the counter, meaning it is largely unregulated.
In addition to their sheer size and the power that comes with vertical integration, the ABCCDs possess immense storage capacity for grains, allowing them to store food when prices are low and sell as they go up. The control the ABCCDs exert on different parts of the food supply chains allows them to be well-informed on when and where food shortages can be expected. In 2022, the International Panel of Experts on Sustainable Food Systems (IPES) noted that agricultural commodity traders hold significant grain reserves and observed that this capacity creates an incentive for these traders to “hold stocks back until prices are perceived to have peaked”.
All in all, each element of the ABCCDs’ strategies for acquiring dominant positions intersects to make abuse of dominance easier.
Cumulative impacts
The societal harms caused by concentrated market power are not due to any one merger, acquisition, or joint venture. The dangers are due to the cumulative buildup of market power.
The failures of competition policy to prevent and address the situation described above reflect a longstanding narrow approach to this policy domain. But even now, when the consumer welfare line is crossed, there are other factors that drive the failure to adequately address massive market concentration and power.
Geopolitical competition between nations to assert economic dominance and to emerge as winners in the green transition has given corporate narratives about the risks of over-regulation even more weight with policymakers, many of whom are inculcated in neoliberal economic logic. The recently passed EU Critical Raw Materials Act is an example of this. Corporate narratives framing regulation as an impediment to European energy security and jobs led to clauses allowing regulatory exemptions for strategic mineral projects, compromising environmental safeguards.
Having allowed companies to become so big, and states to become so reliant on them, has further strengthened the hand of corporate power. Across the EU policymakers listen to the very actors they should oversee and have internalised their narratives.
Yet there is also an opportunity to address the problems, particularly where competition regulators are seeing the harms and waking up to the latent potential of competition and anti-trust tools to combat outsized corporate power. The food and inflation crisis has been a clarion call to look not just at consumer prices, but the cumulative and global picture of market dominance and corporate power. Will this call be heeded, or will the very corporate power that competition authorities should control be the tool used against them?
A key test was on the table as this article was being drafted – a merger between agricultural commodity giants Viterra and Bunge. The deal is unprecedented in size in the global agriculture sector and will move the new company closer to the size of ADM and Cargill. It will further strengthen the ABCCDs’ dominant market position.
In April, the Competition Bureau of Canada said the merger is likely to result in substantial anti-competitive effects in agricultural markets in Canada. Despite these concerns, Viterra and Bunge were confident that the deal would go through.
The European Commission received notification of the merger on 14 June. On 1 August, the Commission gave its assent without initiating a deeper investigation. Given the risks and civil society’s public concerns about the deal, the failure of the Commission to delve deeper was a significant disappointment. It was, however, not unexpected. The proportion of in-depth investigations established by the EU regulator after it has been notified of a proposed merger has declined, from over 9 per cent in the 1990s to less than 2 per cent by 2023.
The merger now needs to be approved by Canadian and Chinese authorities. While there is little known about the situation in China, farmers’ associations in Canada have been heavily protesting the deal. Nonetheless, current indications are that the merger will go ahead.
A different economy
After the lessons of 2021-2022, the Bunge-Viterra case emphatically underlines the failure of piecemeal competition policy approaches to global corporate power challenges.
To meaningfully address the situation, we need a paradigm shift. More forceful enforcement of competition and anti-trust laws can go a long way – certainly, far further than is currently the case. The narrow focus currently being used to assess M&As and scrutinise abuse of dominance cases should be reconsidered. There is ample evidence of cumulative and broad societal harms that extend beyond individual jurisdictions, sufficient to justify more robust action and, where needed, amendments to competition guidance and law.
But in the end, more is needed. Competition law, however well enforced, cannot solve the problem entirely. The concentration of corporate power has expanded dramatically over the past few decades and needs to be unwound through deliberate legal action. We must also dismantle the structures and incentives that drive market concentration in the first place. “Growth at all costs” is a fundamental belief of most multinationals, and in service of this belief, they have promoted an edifice of tax, investment, and trade laws, all of which – whether it was the intention of governments or not – promote growth and concentration (of profit, shareholder value, and power).
Robust guardrails can limit corporate power, but not the pressures towards its creation. Containment cannot be the only strategy. In order to truly address the problems our economic system has produced, we must look at wider reforms of the whole system. An economy based on principles of degrowth and decolonisation is, ultimately, the antidote to concentrated, inequality-driving corporate power.
- This includes mergers prohibited by the European Commission (33) and mergers withdrawn by the merging parties after the European Commission opened a detailed (Phase II) investigation (55). European Commission (2024). Statistics on Merger Cases (up to 31 May 2024). Available at <https://bit.ly/46TyAmu> ↩︎
- The “Big Five” are also known as the ABCCDs, as explained later in this article. The 60 mergers approved involved Archer Daniels Midland, 22; Bunge, 10; Cargill, 25; Cargill, China Oil and Foodstuffs Corporation, 2; Louis Dreyfus Company, 6. European Commission (2024). Competition Policy. See <https://bit.ly/3T1AMmb> ↩︎
- Jonathan C. Kingsman (2017). Commodity Conversations: An Introduction to Trading in Agricultural Commodities California: Createspace Independent Publishing Platform. ↩︎
- Sophia Murphy, David Burch & Jennifer Clapp (2012). Cereal Secrets: The World’s Largest Grain Traders and Global Agriculture. Oxfam International. Available at < https://bit.ly/3TlujTx>. ↩︎
- European Commission (2017). Case M.8199 – Bunge / European Oilseed Processing Facilities. Available at <https://bit.ly/3MbVLPo>. ↩︎
- See, for example, research by Groundwork Collaborative. Retrieved December 18, 2023, from <https://endcorporateprofiteering.org/latest-research>. ↩︎
- See, for example, Isabella M. Weber & Evan Wasner (2023). “Sellers’ Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?” Economic Department Working Paper Series. Available at <https://bit.ly/3Mg39cx>. ↩︎
- Joseph Baines & Sandy Brian Hager (2023). “Commodity Traders in a Storm: Financialization: Corporate Power and Ecological Crisis”. Available at <https://bit.ly/4dUTfsA>. ↩︎
- ADM 22; Bunge 10; Cargill 25; COFCO 2; LDC 6. Available at <https://competition-cases.ec.europa.eu/search>. ↩︎
- European Commission (2017). Case M.8199 – Bunge / European Oilseed Processing Facilities. Available at < https://bit.ly/3MbVLPo>. ↩︎
- There is considerable debate in EU competition policy circles about theories of harm, types of harm and how competition law does/does not relate to them. See <https://bit.ly/3MhRfPj>. ↩︎
- See European Commission (2018). Case M.8084 – Bayer / Monsanto. Available at <https://bit.ly/3WZPLyk> ↩︎
- Louis Dreyfus Company (2022). 2022 Annual Report. Rotterdam: Louis Dreyfus Company. Available at <https://www.ldc.com/annual-report-2022>. ↩︎
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