Washington Insider -- Friday

Amazon, Whole Foods and Walmart

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USDA Extends CRP Emergency Grazing Authority in Kansas, Oklahoma, Texas

Emergency grazing on Conservation Reserve Program (CRP) lands in Kansas, Oklahoma and Texas was extended by USDA to aid ranchers affected by recent wildfires, according to a June 16 letter sent to Senate Agriculture Committee Chairman Pat Roberts, R., Kan., from USDA Secretary Sonny Perdue.

“USDA is using all of the tools available to help livestock producers recover from devastating wildfires in March,” Roberts said. “Allowing emergency grazing to continue on CRP lands through September will help ranchers stay in operation during such an uncertain time.”

The current emergency grazing authority for wildfires is extended through September 30, 2017, according to the letter. "USDA will continue to work diligently with producers to ensure they are aware of all USDA programs that offer assistance," it said.

EPA Does Not Intend to Relocate, Reorganize Regional Offices: Pruitt

Relocation or reorganization of any of the Environmental Protection Agency's (EPA) 10 regional offices and ongoing discussion of that prospect is “pure legend,” EPA Administrator Scott Pruitt told House members last week.

That statement comes after months of speculation over a regional shakeup, which has drawn criticism and concern from outside groups and internally at EPA.

Further, the agency does not plan to lay off any workers in the coming year, despite a Fiscal 2018 budget proposal that calls for a reduction of more than 3,000 employees, Pruitt told the House Appropriations Subcommittee on Interior, Environment and Related Agencies. The Trump administration's budget proposal would slash EPA funding by nearly a third.

“The proposed cuts to personnel in this budget will be achieved through attrition, through voluntary buyouts and through the hiring freeze that is currently in place,” Pruitt remarked, adding that agency staff is aging and nearing retirement. Around 400 to 500 buyouts could take place this fiscal year.

Washington Insider: Amazon, Whole Foods and Walmart

Well, the national print media awoke to an economic blockbuster last week—Amazon’s purchase of Whole Foods. For example, the New York Times interpreted the move as proof that the online retailer is on a “collision course with Walmart to try to be the predominant seller of pretty much everything you buy.”

Each one is trying to become more like the other, the Times says. Walmart is “investing heavily in its technology” while Amazon is “opening physical bookstores and now buying physical supermarkets.”

However, this is more than a battle between two business titans, according to the Times. Their rivalry “sheds light on the shifting economics of nearly every major industry, replete with winner-take-all effects and huge advantages that accrue to the biggest and best-run organizations, to the detriment of upstarts and second-fiddle players.” This has been a “boon for consumers but also has more worrying implications for jobs, wages and inequality.”

Amazon is the dominant player in online sales, and is particularly strong among affluent consumers in major cities. It is now experimenting with physical bookstores and groceries as it looks to broaden its reach.

Walmart has thousands of stores that sell hundreds of billions of dollars’ worth of goods. It is particularly strong in suburban and rural areas and among low- and middle-income consumers, but it’s playing catch-up with online sales and affluent urbanites.

The key, according to the Times, is that “the modern economy, rather than reflecting diminishing returns to scale, now shows positive returns.” The biggest companies have a huge advantage over smaller players. That tends to tilt markets toward a handful of players or even a monopoly, rather than an even playing field with countless competitors.

Already, “retailers must figure out how to manage sophisticated supply chains connecting Southeast Asia with stores in big American cities so that they rarely run out of product.” They need mobile apps and websites that offer a seamless user experience so that nothing stands between a would-be purchaser and an order.

Larger companies that are good at supply chain management and technology can spread those more-or-less fixed costs around more total sales, enabling them to keep prices lower than a niche player and entrench their advantage.

This “scale effect” could become even more pronounced, the Times says and suggests “a landscape of high fixed costs and enormous returns to scale,” for several subsectors.

Now, “a relative few winners are taking a disproportionate share of business in a wide range of industries, including banking, airlines and telecommunications.” A recent study by Council of Economic Advisers found that in 12 of 13 industry sectors, the share of revenue earned by the 50 largest firms rose between 1997 and 2012.

Those successful firms create winners and losers in the workforce, as well.

Research by the Social Security administration and others has found that most of the rise of inequality in pay from 1978 to 2013 was because some companies are paying more than others--not because of a wider gap between high-paid and low-paid workers within a company.

“Employees inside winning companies enjoy rising incomes and interesting cognitive challenges,” Stanford economist Nicholas Bloom, one of the co-authors of the Social Security paper recently wrote in the Harvard Business Review. “Workers outside this charmed circle experience something quite different.”

And David Autor of MIT and several colleagues found in a recent paper that the rise of “superstar firms”-- the big winners in the kind of face-off that Walmart and Amazon are now engaged in -- is a likely explanation for the decrease in the share of the overall economic pie going to workers.

How much of that is because of shifting technology, as opposed to changing corporate behavior, or loose antitrust policy, is an open debate. However, the Times sees the current economic maneuvering as a “tiny battle in a war to dominate a changing global economy”... with enormous implications, especially for companies that can’t compete on price and technology.

Certainly, these large, well-financed firms with their new business models imply vast changes not only for retailing but for the Nation’s economic and employment structure. While these trends are well recognized in some quarters, they are little discussed in others in spite of their implications for large chunks of the economy—and, should be watched closely by producers as they emerge, Washington Insider believes.

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