What the beer aisle tells us about who really controls the food system

The beer aisle can teach us about consolidation

The beer aisle can teach us about consolidation

Sustainable food systems expert Phil Howard says food monopolies are everywhere. Don’t see them? Just go to the grocery store.

Go to the dairy case of your supermarket, says Phil Howard, and you’ll see a dozen or more brands of margarine. Look closer and you’ll notice that the majority are made by just two megacompanies: Unilever and ConAgra. Travel further through the store and, in category after category, you’ll see the same story: The apparent glut of independent brands masks a stranglehold by a handful of giants, with four companies controlling 40 percent of the market at almost every level. Not even natural and organic brands, brands that tout the idea they do things in a different way, are immune. Kashi? It’s part of Kellogg. Honest Tea? It’s Coca-Cola now. And Stonyfield is part of Dannon, Cascadian Farms reports to General Mills, and Plum Organics shows up on the balance sheet of Campbell’s Soup.

In a new book, Concentration and Power in the Food System, Howard argues that this sort of industry consolidation tends to be a bad thing—for farmers, for the environment, for workers, and for consumers. As companies build market power through consolidation, they use it to drive down the prices they pay employees and suppliers, impose onerous conditions on vendors, and demand agriculturally indefensible practices from farmers. They outmarket their small-batch competitors or swallow them whole, to the detriment of the food system.

Phil Howard

I asked Howard, an expert on sustainable food systems and associate professor in the department of community sustainability at Michigan State University, what the food movement needs to know about how megacompanies “stay ahead” and what the recent acquisition wave might mean for the future of market control.

What follows is a transcript of the conversation, edited for clarity and length.

Juice in the storeJoe Fassler

Why should the food movement care about industry consolidation?

One reason is that it makes it that much more difficult to implement the values people are trying to achieve—like organic and humane treatment of animals and local. The goal of the dominant food corporations is to increase their power, which makes it harder for people who are trying to create alternatives to that dominant system.

At several points in the book you make the distinction between power and profits. How does that work?

A lot of theories assume that corporations are out to maximize their profit, but that’s a very difficult thing to do. Instead, what corporations try and do is increase their power faster than other firms. That’s the game they’re playing. Michael Moore had an article once titled “Why Don’t General Motors Sell Crack?” That would be a way to maximize profits, but it would very quickly backfire, so today corporations try and increase faster than other firms, and consolidation is often a reflection of the fact that they are not able to achieve organic growth and they have to buy out their competitors or innovative firms and increase their market share through acquisitions and mergers rather than being innovative themselves.

If you don’t think the world is getting better you haven’t taken a look at the beer section in your supermarket lately.

And when you reach a certain level in an attempt to increase your power, then other values are going to be lost. You can’t get to be as big as InBev and have a product that’s going to be good for the workers who produce it, good for the consumers who consume it and for everyone in the system that brings it from farms where the ingredients are produced to plants where it’s made to where people consume it, because at every step in the chain, InBev is going to want to increase their power over the process, often at the expense of consumers and the environment.

At the moment we seem to be in a period of accelerated consolidation (and not just in the food industry). Is that true?

It’s definitely true. There have been a lot of acquisition waves in American history. For example, the late 90s/early 2000s was a good example of dramatic consolidation, and there was a downturn in 2007 and 2008, but it is picking back up. There are a lot of sectors that are seeing a lot of consolidation again.

Why now?

Part of it is that when growth was slow for everyone, it was easy to grow a little faster than everyone else. Now that growth is starting to pick up, staying ahead requires more drastic measures. And access to finance is easier now than it was two years go. The financing to pay for some of these acquisitions is just astronomical, amounts that have never been seen before. Oftentimes you’ll see evaluations in mergers that are more than the value of the two firms combined. It doesn’t really make sense except that there’s an expectation of greater power, greater ability to continue to grow at faster rates than others in the industry.

Organic industry consolidation, Phil Howard

Detail from Phil Howard chart “Organic Industry Structure: Acquisitions and Alliances.” Click to view full-size

How do companies use their power?

A number of different ways. You can think of upstream processors and suppliers negotiating lower pricing from their suppliers and then passing on higher prices to consumers. And that’s just for prices. In the food industry, retailers have a lot of influence over supply chains.

They have detailed contracts of production practices for suppliers of vegetables, some of which make absolutely no sense because they’ve been drawn up by lawyers who are worried about food safety issues. In California, where I used to live, large food companies were encouraging farmers to have no wildlife whatsoever on their land. All the beneficial aspects of having diversity on the land were thrown right out the window. They wanted farmers to remove wildlife buffers and throw out any food if there was any evidence that a frog or something had been in there.

Many people in the food movement want to opt out of building scale and power—they want to sell at farmers’ markets, sell regionally, stay small. Is that possible?

Definitely. Probably the most successful example of that is the craft brewing scene. The big brewers are merging with each other because their sales are flat or even declining, and they’re losing a lot of market share at the expense of craft brewers, who are focusing on a lot of different tastes and local production and even sourcing from local farms in some cases. I heard someone say, “If you don’t think the world is getting better you haven’t taken a look at the beer section in your supermarket lately.” The same thing happened with some of the pioneering organic food processors. Some of them made principled decisions to remain independent, despite tremendous buyout offers.

Many of them know that if the parent company logo was on [the product] it would be like a skull and crossbones to people.

A couple of CEOs who are the most vocal about this are Michael Potter at Eden Foods and Arjan Stephens at Nature’s Path and Gary Erickson at Clif Bar. In Gary Erickson’s case, he came very close to selling his 50 percent share in the company for $60 million. At the last minute he backed out, realizing what would happen to the values he had brought to the company if he followed through.

There are the companies that hold out, and others—Annie’s is one that comes to mind—that are acquired and seem to be making at least some changes in the company they are acquired by. Are we just seeing greenwashing, or is there some fundamental change going on that’s being helped along by these acquisitions?

It’s a little bit of both. In almost every acquisition I’ve seen, the founder who agrees to the purchase uses some variant of “We’re not selling out, they’re buying in.” Justin’s nut butter said exactly that a few weeks ago when they sold out to Hormel. But the examples of where these huge firms have bought in are pretty small and they’re rare. I think Seth Goldman [CEO of Honest Tea] thinks he’s doing that at Coca-Cola, but if you take a longer-term perspective you have to wonder how many of those changes will hold. The reason Coke is willing to take a chance on organic ingredients is because it’s been proven to be so successful in the marketplace—not because Seth has been so convincing that Coca-Cola is going to do the right thing with its business practices rather than try to become more powerful.

Phil Howard’s “Soft Drink Industry Structure,” 2008. Click to zoom

They’re buying the image of an alternative to the dominant food system, and many of them know that if the parent company logo was on there that it would be like a skull and crossbones to people. People have a lot of different values, and some people buy organic because it’s about personal health and wanting to avoid pesticides, but some of those really committed, idealistic consumers have other values that they want to support, and they would avoid a General Mills organic cereal and maybe buy a Cascadian Farms organic cereal, thinking it is an alternative to General Mills, not realizing that the big firm . . .

When these smaller companies are bought, do any of them get to continue doing what they were doing before, or are they really doomed?

Long term I’m pessimistic, but in the short term some companies have found a way to hold onto some of those values. A good example is Gary Hirschberg at Stonyfield. He spent a long time negotiating that buyout, and he was able to retain some degree of independence. But as I understand it, it’s all bets are off if he isn’t able to hit his sales targets.

I’d like to return to craft beer. Big brewers are buying up small breweries very quickly, though the creation of new breweries seems to be going on at such an enormous pace that they can’t keep up. Is there a tipping point at which fake craft beer is going to drive actual craft beer out, or is there something different about beer?

I think it is different. There will always be a segment of consumers that may not figure out that Third Shift is owned by Molson Coors, but some people are just so passionate about beer and about the independence that was lost for so long, until home brewing was legalized again, that there is a lot of outrage when craft brewers are acquired. There have been just a few such acquisitions until this last year or so, and it’s really picked up because big brewers are in trouble. They’re going to buy innovation instead of trying to fake it, but I think they can’t do what we’re seeing in craft brewing now, which is that almost every town has a craft brewery where you can bring in your growler—there’s no way InBev can have that model. And there are all these new niches for craft brewers to make a living with small-scale operations. They don’t have to break into the distribution system that is still very difficult to get into. They can build up a big enough following at the local level.

Phil Howard’s “Ownership of Beer Brands and Varieties,” 2010. Click to zoom

It sounds like the world might be a better place if a lot of businesses were willing to structure themselves so they didn’t have to keep growing, if there were a lot of people willing to say “This is enough.” Do you see any sign that that is happening?

I think there are millions of people who want to do that. The trouble is that government regulations make it very difficult to compete with bigger firms. In South Korea I think it’s still the case that beer is only allowed to be brewed by two firms, there are a few smaller firms, but the restrictions on brewing are so draconian that there’s essentially just a mass market because the government has structured it that way. Because of changes in the law in the U.S., we’re not going back to that, like the 1970s, when we had about 50 brewing facilities in the whole U.S. The question is whether people are going to demand change so that other parts of the food system can be similar. A lot of states are passing cottage food laws, which allow people to produce food in their own kitchens—certain foods that are deemed to be less of a risk of food safety issues—and people can bootstrap their way into business, which would have been impossible if they had to go to a commercial kitchen.

At the same time, you look at the organic standards, and you see this gradual shift: Certified organic food, which on some level was intended to be small in scale, is going to be impossible except at large scale.

I think that for certain processed foods at certain price points that’s going to be true. We almost have this dual system where there’s still a lot of demand for local organic produce and farmers’ markets, that’s a lot of times the image people have and the image is reinforced by corporate logos and marketing, but there’s still room for people to have CSAs and sell in farmers’ markets. It’s that intermediate space where you’re adding value and processing your food where it can sometimes be difficult to compete.


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Patrick Clinton is The Counter's contributing editor. He's also a long-time journalist and educator. He edited the Chicago Reader during the politically exciting years that surrounded the election of the city’s first black mayor, Harold Washington; University Business during the early days of for-profit universities and online instruction; and Pharmaceutical Executive during a period that saw the Vioxx scandal and the ascendancy of biotech. He has written and worked as a staff editor for a variety of publications, including Chicago, Men’s Journal, and Outside (for which he ran down the answer to everyone’s most burning question about porcupines). For seven years, he taught magazine writing and editing at Northwestern University's Medill School of Journalism.