Antitrust Officials Take Corn Millers by the Ear
Department of Justice investigates possibility of predatory pricing
CHICAGO — FROM hot and dry North Dakota wheat fields to sultry Arkansas henhouses, farmers are grumbling about the increasing corporate control of agriculture.
Now federal officials are indicating that they share the concern. The United States Department of Justice recently launched an investigation of leading corn millers, looking into the possibility of predatory pricing by processors of farm goods.
The department's antitrust division subpoenaed three of the largest grain processors in the US: Archer-Daniels-Midland Company, Cargill Inc., and A.E. Staley Manufacturing Company.
The grand jury investigation in Chicago involves "the possibility of anticompetitive practices in the food- and feed-additive industries, and it is international in scope," says Jim Sweeney, a department spokesman in Washington. He declined to elaborate.
The increasing concentration of agricultural companies has been a controversial issue for years. Although the Justice Department has acted against the corn processing industry before, meatpacking is frequently singled out as a sector allegedly involved in collusion and unfair pricing.
The antitrust investigation has so far concentrated on the narrow but lucrative sector of corn milling. Specifically, it is looking at production of high-fructose corn syrup, a sweetener used in a myriad of products including soft drinks, fruit juices, candy, chemicals, tobacco, condiments, processed meats, alcoholic beverages, breads, and snack foods.
Investigators are also looking into the production of lysine, an amino acid added to livestock feed, and citric acid, which is used to make beverages, foods, pharmaceuticals, and photographic materials.
"We feel confident that when the documents and the examination [are] conducted, the facts will speak for themselves," says Garland West, a spokesman for Cargill based in Minneapolis. He says Cargill will fully cooperate with the probe.
The stakes of the investigation are huge. Industry sources declined to apply a reliable dollar figure to the output of corn millers, but the nine members of the Corn Refiners Association in 1993 shipped 18.58 billion pounds of high-fructose corn syrup, according to the Washington-based association. (There are two corn refiners not part of the association.)
Moreover, the industry is rapidly growing as corn syrup is increasingly substituted for sugar and other products. Between 1985 and 1992, the per-capita consumption of refined sugar in the US rose just 3 percent while the consumption of high-fructose corn syrup jumped 17 percent, according to the US Department of Agriculture.
Overall, the amount of corn used to make high-fructose corn syrup in 1994 amounted to 455 million bushels, a ninefold surge over 1975, according to the USDA. The refiners last year supplied 54 percent of the country's nutritive sweetener market, according to the association.
The three firms under investigation control more than 70 percent of the expanding market in high-fructose corn syrup. Their smaller rivals are probably a major driving force behind the investigation, according to analysts.
"In such an industry, the little guys tend to bring to the attention of regulators their much bigger counterparts and say, 'Give me a break, I need some help,' " says Tom Pirko, president of Bevmark Inc., a consultancy in New York for the beverage and food industries.
Large buyers are also likely to point out to federal officials the slightest hint of price collusion, say the analysts.
Still, the domination of an industry by three companies does not inherently inhibit competition and efficiency. Ultimately, fairness hinges on whether market forces determine prices in an industry, say the analysts.
THE investigators will probably pick through the records of the three companies in search of any communication over pricing, say analysts.
Federal officials will also determine whether the prices set by the three firms have moved in lock step. They will also look into whether smaller producers offering comparatively low prices failed to increase their share of sales from major buyers, according to industry analysts.
"I have seen nothing that even begins to give the appearance of a conspiracy," says Mr. Pirko, who often analyzes antitrust allegations. "But are prices managed and regulated [by producers] more than they should be? Are prices too high? That might be an open question."