Ag Policy Blog

Biden's Executive Order Takes Aim at Mergers as CN-KCS Seeks Regulatory OK

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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President Joe Biden's executive order on competition goes directly at corporate consolidation and comes while Canadian National is making its push for the Surface Transportation Board to approve a voting trust that would allow CN to move ahead with its $33.6 billion merger with Kansas City Southern railroad. (DTN file photo)

President Joe Biden's executive order on competition, which the president will sign Friday afternoon, takes aim at industries that have faced increased consolidation, which includes agriculture, health care, technology, financial services and transportation.

"That lack of competition drives up prices for consumers," a fact sheet released from the White House stated. "As fewer large players have controlled more of the market, mark-ups (charges over costs) have tripled. Families are paying higher prices for necessities -- things like prescription drugs, hearing aids, and internet service."

The order's drive is to "reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America's consumers, workers, farmers and small businesses."

The executive order will put increased attention on the one major corporate merger right now facing regulatory scrutiny: Canadian National's $33.6 billion bid to buy Kansas City Southern railroad. The president's push against corporate consolidation comes as Canadian National has been waging a public-relations campaign to get approval from the federal Surface Transportation Board to set up a voting trust that would effectively acquire KCS while the Surface Transportation Board continues to review the deal. CN's push is opposed by KCS' initial suitor, Canadian Pacific railroad. CP has been making the case that its rival's move would hurt competition. The two sides have been flooding the Surface Transportation Board with letters from various shippers -- including grain elevators and other major agricultural shippers from both the U.S. and Canada.

KCS and CN announced on Thursday that KCS has set an August 19 date for KCS shareholders to vote on the merger.

But CN-KCS goes against the tenure of the White House push on competition. In a section on the transportation sector, the White House highlights there were 33 "Class I" railroads in 1980, compared with just seven now, "and four major rail companies now dominate their respective geographic regions. Freight railroads that own the tracks can privilege their own freight traffic--making it harder for passenger trains to have on-time service--and can overcharge other companies' freight cars."

In the executive order, the White House "encourages the Surface Transportation Board to require railroad track owners to provide rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly."

The White House fact sheet touched on several other areas. In agriculture overall, the order states:

Over the past few decades, key agricultural markets have become more concentrated and less competitive. The markets for seeds, equipment, feed, and fertilizer are now dominated by just a few large companies, meaning family farmers and ranchers now have to pay more for these inputs. For example, just four companies control most of the world's seeds, and corn seed prices have gone up as much as 30% annually.

Consolidation also limits farmers' and ranchers' options for selling their products. That means they get less when they sell their produce and meat--even as prices rise at the grocery store. For example, four large meat-packing companies dominate over 80% of the beef market and, over the last five years, farmers' share of the price of beef has dropped by more than a quarter--from 51.5% to 37.3%--while the price of beef has risen.

Overall, farmers' and ranchers' share of each dollar spent on food has been declining for decades. In short, family farmers and ranchers are getting less, consumers are paying more, and the big conglomerates in the middle are taking the difference.

Meanwhile, the law designed to combat these abuses--the Packers and Stockyards Act--was systematically weakened by the Trump Administration Department of Agriculture (USDA).

American farmers and ranchers are also getting squeezed by foreign corporations importing meat from overseas with labels that mislead customers about its origin. Under current labeling rules, meat can be labeled "Product of USA" if it is only processed here -- including when meat is raised overseas and then merely processed into cuts of meat here. For example, most grass-fed beef labeled "Product of USA" is actually imported. That makes it hard or impossible for consumers to know where their food comes from and to choose to support American farmers and ranchers.

Corporate consolidation even affects farmers' ability to repair their own equipment or to use independent repair shops. Powerful equipment manufacturers--such as tractor manufacturers--use proprietary repair tools, software, and diagnostics to prevent third-parties from performing repairs. For example, when certain tractors detect a failure, they cease to operate until a dealer unlocks them. That forcers farmers to pay dealer rates for repairs that they could have made themselves, or that an independent repair shop could have done more cheaply.

In the Order, the President:

- Directs USDA to consider issuing new rules under the Packers and Stockyards Act making it easier for farmers to bring and win claims, stopping chicken processors from exploiting and underpaying chicken farmers, and adopting anti-retaliation protections for farmers who speak out about bad practices.

DTN: USDA to Propose New P&S Rules https://www.dtnpf.com/…

- Directs USDA to consider issuing new rules defining when meat can bear "Product of USA" labels, so that consumers have accurate, transparent labels that enable them to choose products made here.

DTN: Defining Product of USA for Food https://www.dtnpf.com/…

- Directs USDA to develop a plan to increase opportunities for farmers to access markets and receive a fair return, including supporting alternative food distribution systems like farmers markets and developing standards and labels so that consumers can choose to buy products that treat farmers fairly.

- Encourages the FTC to limit powerful equipment manufacturers from restricting people's ability to use independent repair shops or do DIY repairs -- such as when tractor companies block farmers from repairing their own tractors.

DTN: Looking at Right to Repair Machinery https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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