Many industries are confronting new challenges due to the pandemic, but American farmers are in a particularly difficult spot. As demand from restaurants, hotels and schools dries up, American farmers are facing even more pressure on their margins, which have declined considerably in recent years. As of 2018, farmers were the least profitable level of the food supply chain, operating on margins below 10% on average. This situation is not getting better, at least for the foreseeable future. In its 2020 Crop Costs and Return Guide, Purdue University concludes that “margins will be tight again in 2020.” Unless market prices increase, Purdue University estimates that the average American corn and soybean farm will operate at a loss per-acre this year. Low commodity crop prices can partially explain the difficult market conditions for farmers, but that is only half the equation.
The Market Structure
The other half of the equation is expenses. The USDA’s 2017 Census of Agriculture showed that the average farmer’s expenses have tripled since 1987, reaching a record level of $159,821 by 2017. By contrast, yields have only grown about 33%. The largest variable expense for farmers is crop inputs, making up more than 68% of the total for corn and soybeans and about 70% for wheat. Many industry observers have attributed the steady rise in crop input prices to heavy consolidation in the crop input industry. For example, after the latest round of mergers (between Bayer AG and Monsanto, between Dow Chemical and DuPont, and between Syngenta and ChemChina), a study published by the USDA showed that the top four seed manufacturers hold approximately 85% of the market for corn seeds and 76% for soybean seeds. While farmer’s margins have remained small, margins for these manufacturers have remained steady. Crop input prices remain high even as commodity prices fall.
The market for crop inputs involves a complex, four-tiered distribution system with manufacturers at the top, then wholesalers, then retailers, and then farmers at the bottom. A system of rebates and loyalty incentives applies at each level of the distribution chain, makes it hard for farmers to see whether they are getting a fair market price for crop inputs and determine how much of each dollar goes to pay overhead, while also providing retailers with incentives to recommend particular products to their customers. As a result, some sources report that the prices farmers pay for crop inputs can vary as much as 60% even in the same region for the identical product.
According to allegations in a recent investigation formally launched by the Canadian Competition Bureau, crop input manufacturers, wholesalers, and at least one major retail network may have colluded to maintain the status quo. Farmers Business Network (“FBN”), a Bay Area startup, launched in the United States in 2014 aiming to create an electronic platform that would allow farmers to view transparent crop input pricing and buy product online at a cheaper price. The platform would have also allowed farmers to pull objective performance data together to see how the latest crop inputs affects yields using data provided by other farmers. Similar to a high-tech version of Amazon, but just for crop inputs. FBN alleges that large manufacturers including Corteva Inv. (formerly DowDupont), Bayer AG (formerly Monsanto), and BASF AG have refused to supply it with crop inputs because the industry views it as a threat to profit margins. After unsuccessfully attempting to buy crop inputs from large manufacturers and wholesalers in the United States, FBN bought a Canadian retailer, Yorkton Distributors Ltd., that had pre-existing supply agreements in place with manufacturers and wholesalers. According to FBN, these suppliers refused to continue supplying Yorkton as soon as FBN arrived on the scene out of concern that FBN would erode their profit margins by selling crop inputs to farmers at lower prices. For example, one email from a Univar executive, a major crop input wholesaler, calls on crop input manufacturers to refuse to supply FBN because “Margin Compression is not the way to a brighter future.”
If proven, these allegations could help explain why crop input prices have remained stubbornly high and why the distribution system has not evolved beyond the traditional model. Consider taking the following three steps:
- review your crop input spending and see whether you might be paying more than other farmers for the same or similar products,
- make sure you are getting objective performance data before choosing a more expensive seed or chemical, and
- bear in mind that wholesalers and retailers may have financial incentives to sell more of one particular product than another when you decide which crop inputs to buy for your farm.
Have questions? Contact Christian Levis (firstname.lastname@example.org) 914-733-7220 and Roland St. Louis (email@example.com) 914-733-7231 to discuss this issue further.
Christian Levis is a partner and Roland St. Louis is an associate at Lowey Dannenberg P.C., a law firm with offices in White Plains, New York, and West Conshohocken, Pennsylvania. Christian and Roland represent private investors, state and local governments, and consumers in antitrust cases nationwide.
 Jesse Newman & Jacob Bunge, Farmers Dump Milk, Break Eggs as Coronavirus Restaurant Closings Destroy Demand, Wall St. J. (Apr. 9, 2020, 9:42AM), https://www.wsj.com/articles/farmers-deal-with-glut-of-food-as-coronavirus-closes-restaurants-11586439722.
 Craig Dobbins & Michael Langemeier, 2020 Purdue Crop Cost & Return Guide (Late November Comments), Purdue Univ. Center for Com. Agric. (Dec. 18, 2019), https://ag.purdue.edu/commercialag/home/sub-articles/2019/12/2020-purdue-crop-cost-return-guide-late-november-comments/
 Zoe Willingham and Andy Green, A Fair Deal for Farmers, Center for American Progress, (May 7, 2019), https://www.americanprogress.org/issues/economy/reports/2019/05/07/469385/fair-deal-farmers/.
 KS Farmers’ Costs for Growing Crops Increasing Despite Drop in Oil Prices, CBS KWCH12 (Apr. 17, 2020, 7:04PM), https://www.kwch.com/content/news/KS-farmers-costs-for-growing-crops-increasing-despite-drop-in-oil-prices-569746451.html.
 Paul Schrimpf, Crop Protection Rebates: Playing the Game, CropLife Magazine, (Oct. 11, 2017), https://www.croplife.com/management/crop-protection-rebates-playing-game/
 See Sean Pratt, Competition Bureau Investigates Major Crop Input Makers, Sellers, The Western Producer (Feb. 13, 2020), https://www.producer.com/2020/02/competition-bureau-investigates-major-crop-input-makers-sellers/