BARGAINING: A DEPARTMENT OF AGRICULTURE VIEWPOINT
For rrany years, IIDSt farmers have been "price takers." Traditionally, they have brought their products to IIBrket and have taken the price that was offered.
Farmers are the classical example of suppliers in a competitive IIBrket, a market in which there are so rrany suppliers that no single one can
appreciably affect the price that is paid. Thus farmers who operate in the traditional manner have weak bargaining power. This is true not only with respect to the determination of price, but also in another important respect, the sale of product. Consider a farmer who is set up to grow a crop which is intended for canning or freezing and needs a contract in order to have a home for his product. To the canner, this particular farmer may be but one of a hundred growers; whether t;he canner contracts with this particular farmer or not is to the contractor a
matter of relative indifference. But to the farmer, getting a contract is a crucial matter. If the farmer doesn't get a contract, he faces a market situation of great uncertainty. Spot markets are usually thin and erratic in situations where contracting is the standard procedure. The farmer's exposure may be so.great that he will have to turn to some other enterprise. The alternatives open to him may not only be inferior from a profit standpoint, but may also entail major capital outlays.
Labor has bargaining power through its unions and negotiates wages by collective bargaining. Industry limits output and thereby makes possible the attainment of its price objective. Of the major economic groups, only farmers have traditionally brought their products to market and passively accepted whatever the market would bri.ng. Farmers have
Statement by Don Paarlberg, Director of Agricultural Economics, U.S. Department of Agriculture, at the National Bargaining Conference, Washington, D.C., January 12, 1976.
not fared well under this situation. They have had to contend with an inordinate degree of price instability. This has made it difficult for them to plan their activities and carry out efficient farming
operations. From time to time farmers also suspect that they are objects of exploitation by buyers. This is galling and humiliating to farmers, especially when prices are low, and reinforces their worst suspicions about buyers and the entire ITBrketing system.
Farmers have traditionally made economic decisions individually and have dealt with a market structure involving substantially IIDre concen-tration of economic power. They have concluded that they are disadvantaged relative to those who operate on the buying side of the trade equation. Farmers have reasoned that if they could somehow organize and combine they could improve their economic position. Farmers feel that if they could follow the IIDdels of labor, or the IIDdels that industry has achieved through internal growth involving horizontal and vertical integration, they could effectively exercise group bargaining power. They reason that they would be in a position to name the price for what they sell and to :impruve their economic position. That is the vision.
That is the vision. What is the reality?
The reality is close enough to the vision as to have been validated at least in part. Through their cooperatives, with their ITBrketing orders and by the help of their bargaining organizations, farmers have:
- Increased their incomes.
- Improved quality and acceptability of many farm products. - Invented new and useful marketing techniques.
- Retained a decisionmaking role that might otherwise have been taken over by nonfarm agribusiness firms.
But the gains to be obtained by group bargaining power, though real, are limited. Gains are limited by two principles. One is that if a higher price is achieved, other things equal, the amount of product to be sold will be reduced. If possible, buyers will turn to alternative sources of
supply. That is the first principle. As an economist with many years of research experience, I know of no exceptions to it. The second principle is that if a higher price is achieved, other things equal, the supply will be increased. I know of no exceptions to this principle, either. So, if substantial price increases are to be obtained, it will be necessary to limit the supply. This may not be evident in the short run but it becomes clear with the passage of time. Most farmers have not been willing to accept more than a limited amount of discipline regarding supply.
Those who sell farm products through cooperatives have learned the hard way that the amount of bargaining power they can bring to bear, even with the protection of a friendly government, is rather limited. The thing that pinches is that if the price objective becomes ambitious, the need for and the difficulties of applying production control become very grave.
The public has been willing to accept only a limited amount of
interference with supply and price. The public has recognized that farmers are at a disadvantage in bargaining; it was
in
order to provide for agreater equivalence of bargaining power as between buyer and seller that the Capper-Volstead Act was enacted, well over fifty years ago. In the
Capper-Volstead Act, cooperatives were given limited exemption from the
antitrust laws. They were permitted to undertake such group action as
would not "unduly enhance prices." The Secretary of Agriculture was given
responsibility to see that farmer use of market power was not abused.
The principle behind this Act, which has stood the test of half a
century, is that farmers should have countervailing power, that they should
be able to meet the buyers of their products across the bargaining table on
reasonably even terms. The idea was that an equivalence of bargaining power was desirable, as between buyer and seller, and that it was desirable to equate this bargaining power at a low rather than a high level. If either party were to abuse his natural or governmental-conferred rnarket power, he w::>uld be restrained by the court.
Some people think the Capper-Volstead Act is pro-farmer because it permits collective action by farmers to improve their economic position. Some farmers think it doesn't do enough for them because it places restraints on what they might otherwise do to advance their interest. I think of it neither as over-generous or inadequate, but as an instrwnent for striking a balance of power as between buyer and seller. Apparently, the public thinks of it this way, too. The Act remains, since 1922, very nearly as it was passed.
Public attitude toward farmer bargaining power has changed somewhat
in recent years. As a result of increased food prices , there is now rrore
concern about price enhancement, whether through goverrunent programs or through the exercise of private market power.
What has been the experience, over the years, in strengthening farmer bargaining power? These efforts are most successful when the following conditions prevail:
- When production is concentrated ma small area, making supervision easy.
- When the nwnber of producers is few and they are highly specialized. - When growers have had successful past experiences in working
together.
- When skillful leadership has been developed.
- When realistic price objectives have been established after thorough, good ITBrket analysis.
These conditions have been sufficiently prevalent so that as of 1972-73 approxirrB.tely 28 percent of our fann products are sold through cooperatives, and about 17 percent of our fann supplies are purchased cooperatively.
In summary, the position of the Department of Agriculture regarding bargaining power is to:
- Defend the Capper-Volstead Act against those who would change it, either to reward or punish fanners. An effort to give the farmers
substantially more bargaining power would be unlikely to succeed in the present climate of public opinion; to give them less would be both injurious and unjust.
- Accept the responsibility placed upon the Department to see that the law is not used to enhance prices unduly. If this responsibility is not accepted, it will in all likelihood be transferred to some other
- Administer marketing orders, one of the chief instruments of increased bargaining power, in a sympathetic and responsible manner.
- Strengthen fanner bargaining power by amending the Agricultural Fair Practices Act so as to require that when farmers have effectively
organized themselves, the buyers of their products would be required to recognize the farmer organization and to bargain with them in good
faith.
- Support farmer bargaining efforts, within the policies stated above, prirriarily through the efforts of the Fanner Cooperative Service,
which is the chief advocate of farmer bargaining within the Deparbnent. Some equivalence of bargaining power is appropriate, farm as
compared with nonfann. There are TuD ways to achieve something like equivalence. One way is to allow a high degree of concentrated economic power in the hands of labor and industry, and to build up agricultural
bargaining power to a comparable level. This would permit labor, industry, and agriculture to slug it out with one another on approx:imately equal terms from positions of enormous strength.
The other way is to resist concentrated economic power as exercised
by labor and industry, and to permit fanrers to develop that degree of
collective action which would redress their natural disadvantage, subjecting all sectors to legal discipline through one form or another of antitrust action. This would equate bargaining power at a low rather than at a
high level.
In rough outline and with some lapses, this second approach has been
the policy in this country for the past fifty years. We stand to gain, I
think, by helping to ffi3.ke this policy work rather than by exchanging it for another.
