Charles Grassley, [R] of IA, Adopts my Anti-trust Mantra

Posted on September 20, 2016 by markinaustin

Of course, considering who are the players, it is no wonder why.

see: http://www.nytimes.com/2016/09/15/business/dealbook/monsanto-bayer-deal.html?emc=edit_dk_20160920&nl=dealbook&nlid=55859017&te=1&_r=0

 

Filed under: Economy, Open Thread |

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36 Responses

  1. markinaustin, on September 20, 2016 at 8:43 am said:

    New post.

    Last sentence of story says it all about Grassley, and about me.

    I staunchly support Adam Smith’s notions about capitalism – that the driving force for the “invisible hand” is competition. We have always taken ag competition as close to the model, but the rise of a few agribiz giants, to the point where it is difficult to buy “unpatented” seeds [what a bunch of BS that is] has moved the market quite a stretch from the competitive model of Smith’s system. It is still the best economic system ever, and Smith saw that one government role, aside from enforcing laws against fraud in the market place, was busting monopolies.

    We are in a period of consolidation unparalleled even by the 1880s, because now it is global. And pernicious forces, including the statism of China, compel a trend away from competition as Smith understood it, as well.

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    • ScottC, on September 20, 2016 at 9:47 am said:

      Mark:

      The ultimate (in fact the only) justification for anti-trust regulation is to protect consumers from artificially rising prices in a noncompetitive market. The article is focused on the travails of farmers, who are ultimately producers not consumers, and it points out explicitly that the problem the farmers are facing is rising material prices coupled with falling crop prices.

      Don Halcomb, a 63-year-old farmer in Adairville, Ky., is expecting his profit to vanish this year, largely because of the confluence of falling crop prices and rising costs for seeds and other materials.

      If prices to consumers are actually falling, despite the difficulty farmers are having turning a profit, how exactly is this an indication that the market forces aren’t working, or that we are trending away from competition as Smith understood it?

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      • markinaustin, on September 20, 2016 at 10:02 am said:

        Farmers are consumers of seed, fertilizer, farm equipment, and more. When seed prices are artificially forced upward by monopolization then eventually – and in about one season – consumer prices are forced upward, as well.

        You have artificially segregated those who both produce and consume as producers, only.

        The competition must be protected throughout the supply chain, wherever truly possible to do so [where there is no “natural monopoly”].

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        • ScottC, on September 20, 2016 at 10:22 am said:

          Mark:

          When seed prices are artificially forced upward by monopolization then eventually – and in about one season – consumer prices are forced upward, as well.

          But according to the article, that isn’t happening. In fact the opposite is happening. What is preventing farmers from raising their crop prices in response to their own increased costs?

          You have artificially segregated those who both produce and consume as producers, only.

          Well of course all producers are consumers of whatever inputs are used to produce their product (labor, material, etc). But concern about a properly functioning market in the supply chain exists because of its effect on the cost of the end product to end-user consumers. And if the price of the final product to end-user consumers is actually going down, what justification is there for claiming that market forces are not working as they should?

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        • Kevin S. Willis, on September 20, 2016 at 10:26 am said:

          “What is preventing farmers from raising their crop prices in response to their own increased costs?”

          This is not a field I know much about, but aren’t crop prices set by “the market”, as are many commodity prices? Thus making it difficult to price products profitably? My sense has always been that farmers don’t get to sell their produce as much as “redeem” it for whatever value that market assigns that produce at the time, but that’s just a perception developed through osmosis.

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        • ScottC, on September 20, 2016 at 11:25 am said:

          KW:

          aren’t crop prices set by “the market”, as are many commodity prices?

          I would certainly hope so. But although any one farmer is, of necessity, a price taker, farmers collectively are price makers. That is, “the market” is comprised of buyers and sellers, and if the production costs to all sellers are increasing (due to monopolization of production inputs), one would expect “the market” to factor that increase into the final price of the commodity, and prices would rise. But according to Mark’s article, the farmers are getting squeezed by increased production costs and lower crop prices. My question is what is forcing crop prices down if it really is the case that production costs are increasing due to monopolization along the supply line? The fact that end-user prices are going down suggests to me that either 1) it really isn’t the case that all farmers are facing these increased costs (ie the input isn’t really monopolized) or demand for the particular product has decreased significantly for non-price related reasons.

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        • ScottC, on September 20, 2016 at 10:27 am said:

          Mark:

          Put another way, anti-trust regulation does not exist to ensure that producers can make a profit. It exists to ensure that end-user consumers face the lowest possible prices. Shouldn’t the measure of whether the market is functioning properly be the trend in prices of food products to end users rather than the profit margin of the producers of that food?

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        • Brent Nyitray, on September 20, 2016 at 10:53 am said:

          Not a lawyer by any means, but I remember antitrust regulators looking at every step of the supply chain from my days doing risk arb. For example, Baker Hughes and Halliburton are oil services companies who serve the big drillers and that merger was blocked.

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        • jnc4p, on September 20, 2016 at 12:34 pm said:

          “but aren’t crop prices set by “the market”,”

          Nope. See agricultural subsidies.

          https://en.wikipedia.org/wiki/Agricultural_Adjustment_Act_of_1938

          And of course our old nemesis Wickard v Filburn.

          Liked by 1 person

        • ScottC, on September 20, 2016 at 12:41 pm said:

          jnc:

          See agricultural subsidies.

          It’s apparently not an anti-competitive practice if the government does it.

          Liked by 1 person

    • Kevin S. Willis, on September 20, 2016 at 10:23 am said:

      I tend to agree with you, Mark, although I’d prefer not to. 😉

      It does seem to me that in the case of the farmers, as customers for seeds, they are consumers in that equation. But that is not a product of monopolization so much as broken patent law.

      Not sure how I feel about a German company buying Monsanto . . . not sure how that will play with the FTC.

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      • Brent Nyitray, on September 20, 2016 at 10:55 am said:

        The foreign buyer aspect will be handled by CFIUS, not FTC.

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      • markinaustin, on September 20, 2016 at 11:47 am said:

        Broken patent law essentially creates monopolies. Same song, different verse. Monsanto has been a serial abuser.

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      • markinaustin, on September 20, 2016 at 12:11 pm said:

        I am willing to consider Bloomberg’s view, but I would have to know more about the market shares in the overlapping markets. A merger that does not affect market shares in a way to cause monopolization is AOK. In some cases like this, one party to the merger is forced to spin off the overlapping market share, canola seeds or whatever. Then a merger that might increase the efficiency of R&D can go forward.

        Bloomberg’s caveat that mergers are often worthless to the merging companies is supposedly true, in that I have read that many times about specific mergers and acquisitions. But in my own practice, when I represented a small company with a niche proprietary product/service that got acquired by a big company, the big company always made out like a bandit and the price of the product always rose [3 occasions]. Of course, my clients got instantly rich, too, on two occasions, and did much better than break even on the third, where they were facing bankruptcy without the acquisition.

        My former brother-in-law was not represented by me when RJR acquired his tobacco company and he retired on 9 figures. I also don’t know whether RJR raised the price of American Spirit cigarettes after. But that was not a monopoly threatening acquisition.

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        • ScottC, on September 20, 2016 at 12:32 pm said:

          Mark:

          I am sincerely interested in why crop prices would be falling if farmers production costs are going up, if any one has any ideas.

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        • Brent Nyitray, on September 20, 2016 at 12:51 pm said:

          @Scott… Reminds me of an old saw in commodity trading: the cure for high prices is high prices..

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        • ScottC, on September 20, 2016 at 1:39 pm said:

          Brent:

          Reminds me of an old saw in commodity trading: the cure for high prices is high prices..

          Exactly. Even monopolists are subject to the forces of supply and demand.

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  4. jnc4p, on September 20, 2016 at 1:18 pm said:

    Couple of good Glenn Greenwald pieces:

    “WashPost Makes History: First Paper to Call for Prosecution of Its Own Source (After Accepting Pulitzer)
    Glenn Greenwald
    Sep. 18 2016, 11:05 a.m.”

    WashPost Makes History: First Paper to Call for Prosecution of Its Own Source (After Accepting Pulitzer)

    “Hillary Clinton: Boycotting North Carolina Is Noble and Just; Boycotting Israel Is Bigoted and Hateful
    Glenn Greenwald
    Sep. 13 2016, 1:17 p.m.”

    Hillary Clinton: Boycotting North Carolina Is Noble and Just; Boycotting Israel Is Bigoted and Hateful

    Liked by 1 person

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  5. ScottC, on September 20, 2016 at 2:31 pm said:

    Corn prices have dropped 47% in the last 5 years, and have dropped 77% from their peak in 2012, despite this being an era of consolidation.

    http://www.macrotrends.net/2532/corn-prices-historical-chart-data

    Wheat and soy follow a similar trend.

    This most recent trend puts prices back on the same general trend seen in the last 80 years, of decreasing crop prices overall. (After a brief period of rising prices in the first decade of the 2000s.)

    http://www.ers.usda.gov/data-products/chart-gallery/detail.aspx?chartId=40093

    Isn’t this all indicative of a healthy market?

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    • Kevin S. Willis, on September 20, 2016 at 2:39 pm said:

      But it hurts farmers, grocers, and restaurants!

      http://www.wsj.com/articles/food-price-deflation-cheers-consumers-hurts-farmers-grocers-and-restaurants-1472490823

      I don’t see a lot of the price savings at the supermarket, but we don’t have enough competing supermarket chains here, maybe.

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    • markinaustin, on September 20, 2016 at 3:52 pm said:

      I did not know this about major commodity prices dropping, aside from corn. Corn pricing is related to an over-supply fueled in no small part by the stupid ethanol push. I have no idea why wheat prices fell – I don’t think there is a worldwide oversupply.

      In fact, I think there has been a shortage of wheat in several years since 2000.

      But I haven’t lived on a farm since 1955.

      You have piqued my curiosity.

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      • ScottC, on September 20, 2016 at 7:41 pm said:

        Mark:

        In fact, I think there has been a shortage of wheat in several years since 2000.

        There was until about 2012. But not since.

        http://www.agweb.com/article/2016-outlook-no-good-news-for-wheat-prices-naa-tanner-ehmke/

        Analysts aren’t cheerful about wheat’s outlook for 2016, with a record world wheat crop hanging on the market like a wet blanket.

        “In general, I’m awfully pessimistic,” says Darrell Holaday of Country Hedging in Frankfort, Kan. “My optimistic view is I think we will put some sort of long-term bottom in wheat in 2016, but I think unfortunately it will be lower than people can probably bear or think we could possibly go.”

        Dragging on prices are two back-to-back record world wheat crops. USDA estimates the world produced 725.12 million metric tons in the 2014-2015 marketing year, with another 732.79 million metric tons figured for the 2015-2016 marketing year. World ending stocks, meanwhile, are seen ballooning to a record 227.3 million metric tons for the current crop year.

        With enough wheat to go around, the U.S. faces a lot of competition on the export front, Holaday says.

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        • ScottC, on September 20, 2016 at 7:54 pm said:

          But in any event, this is why I don’t think it makes sense to think that anti-trust action against the agribusiness is appropriate. As I mentioned, the ultimate point of anti-trust regulation is to protect the buyers of consumer products, not to protect the profits of producers of those consumer products. And based on current and long term price trends, the market is doing a fine job of protecting consumers from artificial price hikes in agricultural commodities.

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    • Brent Nyitray, on September 20, 2016 at 4:01 pm said:

      but if the yields are going up, then it might be a wash…

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  6. markinaustin, on September 20, 2016 at 3:45 pm said:

    Autumn related quotation is up.

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