Idaho professors say President Biden’s antitrust plan for farms is the wrong policy tool

On July 9, President Joe Biden issued an executive order that, among other things, promotes the use of antitrust policies in the agricultural industry, stating that “big ag is putting the squeeze on farmers.”

While the order encourages more competition in the agricultural sector, it also has the goal of helping small farms. While the devil is in the details, these two objectives are likely to be at odds with each other and it should be understood that the use of antitrust policy was designed for the explicit purpose of protecting consumers from high prices, not promoting high prices to help certain producers.

There are clear economic reasons as to why farms are getting larger and many small farms are struggling.

Technology has made it feasible for many firms to produce large quantities of food at low cost. This trend has been present for decades, at least since the early 1970s when then-Secretary of Agriculture Earl Butz (in)famously told farmers to “get big or get out.”

These technological innovations have increased the fixed costs (e.g. more expensive farm equipment) but lowered the marginal cost of production (e.g. reduced the cost of farming an additional acre).

This has had the effect of lowering prices of agricultural products, thus putting pressure on farmers who do not have these scale efficiencies. Therefore, breaking up “big ag” could have the disastrous effect of raising food prices, which would likely have a disproportionate impact on poorer households.

Antitrust policy is designed to lower prices for consumers, and in the case of food, this should be of the utmost importance.

While helping small farms may be a laudable goal, antitrust policy is not the right tool for this job.

Other tools, such as targeted assistance programs or deregulation may be more prudent in helping small farmers. However, protectionism is completely antithetical to the goals of antitrust policy.

To be sure, agricultural markets are becoming more concentrated, and the Department of Justice and the Federal Trade Commission should analyze agricultural markets to see if they are causing prices to rise and if antitrust enforcement can help consumers.

However, market concentration is not necessarily reason to impose antitrust restrictions. Large agricultural firms should in no way be broken up to help smaller farms if it results in increasing food prices.

It is imperative that federal authorities determine whether market concentration is a result of anticompetitive measures and associated barriers to entry, or simply changes in production that result in more efficient and large firms. The answer to this may depend upon the specific food supply chain. If market concentration is not leading to anticompetitive behavior and rising food prices, then antitrust interventions are not warranted and would be counterproductive.

Many consumers are already entrenched in their preferences for either low-price, conventional food, or more expensive niche types of food. These differences in consumer preferences are a welcome development.

We argue that reducing the availability of low-price food would be a mistake.

While the executive order has the potential to make agricultural production more efficient and help consumers, we would suggest that it is vital that the order does not result in increased consumer food prices.