Food Processors

 

Many large corporations stand between the farmer and the eater. Among the most powerful are the corporations that “process” food by turning raw ingredients into the products the consumer eats. Many of the best-known food processors – including Anheuser-Busch InBev, Kraft Heinz, Nestle, Coca-Cola, and Grupo Bimbo – dominate entire markets. Each of these companies has built or bolstered its dominant position through mergers and acquisitions. Apart from the occasional divestiture, large food and beverage companies have largely been allowed to expand as swiftly as they want, with little antitrust scrutiny.

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Consider Anheuser-Busch InBev, formed by the 2008 takeover of Anheuser-Busch by InBev – itself a combination of the Belgium’s Interbrew and Brazil’s AmBev. This one corporation alone now controls 50% percent of the American beer market and 20% percent of the global market (a number that will rise to 30% if its proposed takeover of SABMiller is approved). ABI is also the second largest beer distributor in the country, just behind Chicago-based Reyes Beverage Group. Recently, ABI has also sought to grow its market share by moving into the craft-brewing sector, with the high-profile acquisitions of Goose Island in 2011, Blue Point in 2014, and Elysian Brewing in 2015, among others.

Such market dominance gives processors immense power both over rival producers and over their own suppliers. ABI, for instance, has the power to squeeze out smaller competitors from the distribution channels it owns. ABI also has the power to dominate markets for hops, aluminum cans, and other inputs. ABI is so large that it appears to have the power to raise the price consumers must pay for their beer. In 2008, shortly after InBev acquired Anheuser-Busch, ABI and MillerCoors began to raise prices simultaneously. At the time, the United States was mired in the deepest recession since the Great Depression and beer consumption had fallen dramatically.

Kraft Heinz dominates numerous aisles of the grocery store. The corporation is the third-largest food processor in the United States, and the fifth largest in the world. Among its most well-known brands are Oscar-Meyer, Jell-O, Velveeta, Cool Whip, Capri-Sun, and, of course, Kraft macaroni and cheese and Heinz ketchup. Here too, the company’s immense size gives it the power to charge buyers more and to pay suppliers less. In 2015, the Commodity Futures Trading Commission charged Kraft with manipulating wheat prices through futures speculation beyond the permissible limit established by the CFTC and the Chicago Board of Trade.

Coca-Cola is the largest beverage company in the world. In 2014, it controlled about 42% of the U.S. soda market. Its brands include Sprite, Odwalla, Dasani, Honest Tea, and VitaminWater. The company has used its size and influence to sway regulation and law at even the lowest level of government. Coca-Cola has been involved in lobbying extensively against legislation such as bottle recycling laws and soda taxes that would in any way raise the price of soda, believing that higher prices will reduce consumer demand. A 2015 report from the Center for Science in the Public Interest showed that Coca-Cola, PepsiCo, and the American Beverage Association (a soda industry trade group) spent at least $106 million from 2009 to 2015 on lobbying and advertisements to fight local, state, and federal public health initiatives. The company also has funded seemingly grassroots organizations, sometimes called “astroturf” groups, to sway voters on soda taxes and other policies that might threaten soda sales.

In the bakery and bread sector, processors have rolled up a marketplace where until recently power was widely dispersed. A decade ago, the bread market was distributed among eight major players; today three giants control it. The largest is Grupo Bimbo, which alone controlled over 30% of the U.S. market for bread in 2013, and is the world’s largest baking company. The next largest, Flower Foods, is closely tied to Walmart, the U.S.’s largest food retailer, with sales of nearly $600 million to Walmart in 2011. Flower Foods’ familiar brands include Nature’s Own, Wonder, Whitewheat, Tastykake, and Sunbeam.

Though their products may appear to be more wholesome, organic food processing companies are consolidating in a similar fashion to traditional food companies. Hain Celestial Group, the second largest organic food processing company after Dean Foods, has grown through over a dozen mergers and acquisitions in the past 20 years. Hain Celestial is itself the product of the 2000 merger of Hain Foods and Celestial Seasonings. The majority of Hain Celestial’s sales are through Whole Foods, itself a major player in the food processing sector through its private 365 Everyday Value brand.

The giant food processors sometimes work together to divvy up the marketplace. Practices like category management, in which retailers delegate stocking and shelving responsibilities to the largest suppliers in a sector, only further reinforces the market power of the largest food processors. Large food processors can use their direct or de facto control of shelving and distribution to keep newcomers out of stores. Executives at Honest Tea struggled for years to access distribution channels and shelf space that were controlled by the giant soda retailers. When in 2011 Honest Tea’s owners sold their business to Coca-Cola, the company’s products soon were made much more widely available.

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Photo by Wilson Ring/Associated Press.