Economist: Mergers can benefit farmers

Washington State University economist Randy Fortenbery says the merger of grain companies can benefit farmers because they have to ability to reduce transportation and other costs.

The recent spate of wheat company mergers in Eastern Washington could ultimately benefit farmers, a grain economist predicts.

Randy Fortenbery, an economist at Washington State University, said he doesn’t know specific details about the mergers but one major advantage is creating economies of scale.

As companies develop large shuttle trains and encourage larger movement of grain by railroad, they might find reasons to merge.

“It’s a way to reduce cost per unit of handling product,” Fortenbery said.

Several grain companies and cooperatives have merged — or announced plans to merge — in the past year. Whitgro Inc. will merge into Northwest Grain Growers May 1. Central Washington Grain Growers Inc. of Waterville, Davenport Union Warehouse Co., Odessa Union Warehouse Co-Op and Reardan Grain Growers Inc. will all merge on April 1, and purchase Almira Farmers Warehouse Co. to form HighLine Grain Growers Inc. Last year, Co-Ag merged with Pacific Northwest Farmers Cooperative.

Fortenbery said that in extreme cases farmers could end up with only one buyer for their product because of reduced competition. He cited two historical examples of extreme instances.

Roughly 120 years ago, a Durham, N.C., tobacco company was broken into smaller companies as part of one of the first antitrust actions by the federal government. It was the only buyer of tobacco in the southeastern U.S., and farmers didn’t have enough competition and were being taken advantage of.

In the 1980s when the rail industry was deregulated, farmers were financially better off in many places, Fortenbery said, because railroads could get rid of unprofitable rail lines. The result was transportation savings for hauling larger volumes of grain.

“...(S)ome of the producers actually came out ahead because they benefited from the reduced transportation costs of moving their grain,” Fortenbery said.

If the companies are merging to take advantage of cost savings, Fortenbery said, farmers could see a benefit, although the extent remains to be seen. He doesn’t think the mergers would drive prices down.

Fortenbery said he will continue to track local prices in relation to national prices. Prices across Washington state in November and December were running 30 to 40 cents per bushel higher than the national futures prices, he said.

“It doesn’t mean prices are higher, it means (the farmer’s) local price is better relative to the national market than it has been in the previous couple years,” Fortenbery said.

But a lot of things can drive the difference in prices, not just buyer concentration, he said.

“It’s something we’ll be watching, but I don’t have any sort of predictions about where we’re actually going to end up,” he said.

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