Powerful industrial blocs or cartels are increasingly attracting the attention – and in some cases the ire – of lawmakers who blame them in part for rising inflation.
With pulverized supply chains pushing inflation to 40-year highs, market forces of all kinds are under scrutiny from lawmakers and regulators. A recurring theme is the power wielded by a few large corporations in many different industries.
Democrats tend to be the party most focused on market concentration in a handful of industries, but Republicans are also increasingly sounding the alarm as inflation becomes the number one issue for voters.
As an example of the growing interest, the Ocean Shipping Reform Act passed Congress earlier this month with bipartisan support. The new law tightens regulations on major container shipping companies, allowing the Federal Maritime Commission to crack down on late fees charged by ocean carriers when they cannot unload their cargo on time.
“South Dakota producers expect shipping carriers to operate under fair and transparent rules,” Sen. John Thune (RS.D.) said in a statement introducing the bill. “Unfortunately, that’s not always the case, and producers across America are paying the price.”
Thune argued that the bill would help combat “unreasonable practices by shipping carriers, holding them accountable for their bad faith efforts that starve American producers, including those in South Dakota, who feed the world.”
The World Shipping Council trade association, which represents foreign shipping giants like Maersk and Hapag-Lloyd, blasted the bill, saying it was “appalled by the continued mischaracterization of the industry by U.S. government officials. “, adding that congestion at ports will continue “until the import congestion is resolved.
Republicans in the wake of the pandemic have also sought to regulate the nation’s meatpacking industry blocs, most of which are controlled by just four companies – Tyson Foods, Cargill, JBS USA and National Beef Packing Company. . The packaging industry sits in the middle of the beef industry supply chain, much like the shipping industry sits 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 the CEO of Cargill, David MacLennan.
“To me, here is this fundamental problem. You have the big four packers controlling a large capacity, up to maybe 80-85%. You are able to determine how many animals are harvested and how much meat is offered. Market share allows you to control the price of contracts,” he said.
Democrats have shown growing sensitivity to what they see as a lack of competition and a dearth of market participants in the face of rising inflation. In May, the senses. Elizabeth Warren (D-Mass.), Cory Booker (DN.J.), Jon Tester (D-Mont.) and Jeff Merkley (D-Ore.) introduced legislation that would impose 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 the majority of the market,” Warren said in a statement. “It’s time to stop mergers that hurt workers and allow corporate prices to rise that lead to higher costs for American families – this bill would help us do just that.”
Economists warn that the relationship between inflation and market concentration is a bit of a mystery.
“Concentration is a market outcome and is of great interest – how many companies control how much of the market,” said Chad Syverson, an economist at the University of Chicago Booth School of Business, “but it’s not “Competitiveness is not the best measure. An industry is. It is caused by competition and causes 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, gave similar testimony before the Senate Agriculture Committee on the power of cartels in the meat industry in April.
“Spreading the fixed costs associated with the feeding operation over as many animals as possible given the capacity creates substantial cost savings,” he said. “These savings not only benefit the food and packaging industries, but also consumers in terms of increased volume of products offered and lower prices.”
“Without scale savings, beef prices to consumers would be significantly higher,” he added.
Food prices rose more than 10% on the year, according to the Labor Department, with the index for meat, fish, poultry and eggs rising more than 14%.
The power of OPEC is also under the microscope in the age of $5-a-gallon gas. President Biden is expected to visit Saudi Arabia, the core member of the group, later this month.
Although Biden said he would not directly ask Crown Prince Mohammad bin Salman to increase oil production in an effort to bring down the world price of oil, he indicated he believed OPEC should start to pump more oil.