Powerful industrial blocs or cartels are increasingly drawing the attention — and in some cases the ire — of lawmakers who blame them in part for rising inflation.
With sputtering supply chains driving inflation to 40-year highs, market forces of all sorts are coming under the scrutiny of both legislators and regulators. A recurring theme is the power held by a few big companies in many different industries.
Democrats tend to be the party more focused on market concentration in a handful of industries, but Republicans also are increasingly sounding alarms as inflation becomes the number one issue for voters.
As an example of the rising interest, the Ocean Shipping Reform Act breezed through Congress earlier this month with bipartisan support. The new law jacks up regulations on major container shipping companies, empowering the Federal Maritime Commission to crack down on the late fees charged by ocean carriers when they can’t offload their cargo in time.
“South Dakota producers expect that ocean carriers operate under fair and transparent rules,” Sen. John Thune (R-S.D.) said in a statement introducing the bill. “Unfortunately, that is not always the case, and producers across America are paying the price.”
Thune argued the bill would help address “unreasonable practices by ocean carriers, holding them accountable for their bad-faith efforts that disenfranchise American producers, including those throughout South Dakota, who feed the world.”
The World Shipping Council trade association, which represents foreign shipping behemoths like Maersk and Hapag-Lloyd, blasted the bill, saying it is “appalled by the continued mischaracterization of the industry by U.S. government representatives,” adding that congestion at ports will continue “until the import congestion is remedied.”
Republicans in the wake of the pandemic have also sought to regulate blocs in the domestic meatpacking industry, most of which is controlled by only four companies — Tyson Foods, Cargill, JBS USA and National Beef Packing Company. The packing industry is located in the middle of the beef industry’s supply chain, just as the shipping industry lies in the middle of many consumer goods pipelines.
During a House hearing on the meatpacking industry in April, Rep. Randy Feenstra (R-Iowa) took direct aim at market concentration as a driver of inflation while questioning Cargill CEO David MacLennan.
“In my eyes, here is this fundamental problem. You have the big four packers that control a large capacity, up to maybe 80 to 85 percent. You are able to determine how many animals are harvested and how much meat is offered. The market share lets you control the price of contracts,” he said.
Democrats have shown increasing sensitivity to what they see as a lack of competition and a dearth of market participants in the face of rising inflation. In May, Sens. Elizabeth Warren (D-Mass.), Cory Booker (D-N.J.), Jon Tester (D-Mont.) and Jeff Merkley (D-Ore.) introduced legislation that would place an indefinite moratorium on mergers and acquisitions in the food and agriculture sector.
“The agriculture and food industries are highly concentrated with only a few dominant players controlling a majority of the market,” Warren said in a statement. “It’s time to stop mergers that hurt workers and that enable the corporate price gouging that’s leading to higher costs for American families — this bill would help us do just that.”
Economists caution that the relationship between inflation and market concentration is a bit mysterious.
“Concentration is a market outcome, and is one of great interest — how many firms control what share of the market,” University of Chicago Booth School of Business economist Chad Syverson said in an interview, “but it’s not the best measure of how competitive an industry is. It is caused by competition as well as causing competition.”
“You can have a very competitive market that’s also very concentrated,” he added.
Stephen R. Koontz, a professor of agricultural economics at Colorado State University, made a similar point testifying before the Senate Agriculture Committee on cartel power in the meatpacking industry in April.
“The spreading of fixed costs associated with the feeding operation across as many animals as possible given capacity creates substantial economies of size,” he said. “These economies benefit not just the feeding and packing industries, but also consumers in terms of increasing the volume of product offered and lowering the price.”
“Without size economies, beef prices for consumers would be substantially higher,” he added.
Food prices are up more than 10 percent on the year, according to the Department of Labor, with the index for meat, fish, poultry and eggs up more than 14 percent.
The power of OPEC is also under the microscope in an era of $5-per-gallon gas. President Biden is set later this month to visit Saudi Arabia, the leading member of the group.
Though Biden has said he won’t directly ask Crown Prince Mohammed bin Salman to increase oil production in a bid to lower the global price of petroleum, he has indicated he thinks OPEC should start pumping out more oil.