The Fertilizer Oligopoly Stinks
Corporate subsidies and consolidation that farmers just have to eat.
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This week, 18 organizations (my own, the American Economic Liberties Project, included) released a letter calling for the Federal Trade Commission and Department of Justice to investigate the proposed takeover of Iowa Fertilizer Company, a fertilizer plant in Wever, Iowa, by Koch Industries.
The potential sale of the plant brings together a bunch of important and nasty issues: Agricultural consolidation, rampant mergers and acquisitions, and corporate subsidies, creating a perfect stew that would harm the public in multiple ways were it to be approved.
Iowa Fertilizer Company is owned by OCI Global, which agreed to sell it to Koch Industries for $3.6 billion, with an expected closing date for the sale of later this year. Yes, Koch Industries is a boogeyman for the political left because its owners spend a lot of money funding conservative causes, but that’s not the issue here: The problem is that Koch is one of the four major players in the U.S. who have cornered the nitrogen fertilizer industry, and in this instance would be purchasing a plant that received significant taxpayer subsidies because it was supposed to be a competitor to Koch, not subsumed into its operation.
Currently just four firms — CF industries, Nutrien, Koch, and Yara-USA — produce 75 percent of the nitrogen-based fertilizer in the U.S., down from 46 producers as recently as 1984. (And that’s actually a thriving competitive market compared to that of potassium-based fertilizer, where the entire North American market is supplied by two corporations: Nutrien and the Mosaic Company.)
Three of the nitrogen kings have received hefty corporate subsidies from state governments and the federal government to support their fertilizer efforts, alongside their other lines of business: Koch Industries has received more than $672 million, Nutrien has received more than $272 million, and CF Industries is closing in on $1 billion, mostly from Louisiana. That’s a lot of money to entrench dominant players across agricultural markets.
Iowa Fertilizer Company received the largest subsidy package in Iowa history — $133 million from the local government, $112 million from the state, and $300 million from the federal government — on the explicit grounds that it was supposed to be a competitor to that oligopoly in general, and Koch Industries in particular. Then-Iowa Gov. Terry Branstad even said competition with Koch Industries justified the expenditure on behalf of the public.
“I understand the Koch brothers don’t want the competition and they’re behind a lot of the negatives that are being thrown out there,” said Branstad. “I don’t have anything against them. They want to keep out competition. We want competition. We want good jobs in Iowa, whether it’s from them or Iowa Fertilizer, CF Industries or John Deere.”
Now, though, if Koch consummates this purchase, it will have received taxpayer help to further consolidate an already consolidated industry, purchasing a competitor that was propped up by the government so this exact scenario would not come to pass.
“While we would harbor grave concerns about any acquisition that further consolidates an agricultural sector as concentrated and as critical as fertilizer, those concerns are much more serious given this deal involves hundreds of millions in taxpayer dollars,” the letter from the 18 groups says. “To safeguard our economy and indeed our democracy, our enforcers must prevent dominant firms from capitalizing on investments made with public resources.”
I’ve written about this phenomenon before in other sectors, from warehousing and logistics to semiconductor manufacturing: Dominant corporations receiving public support to consolidate power and elbow out competitors. Allowing Koch to buy Iowa Fertilizer Company would be a particularly absurd addition to the genre, given the history.
But the problem isn’t just corporate subsidies and whether they encourage or combat consolidation. Overall, unchecked power in the fertilizer industry is harming farmers and ultimately making food more expensive.
As journalist Scott Syroka wrote recently, “Because of monopoly power, Big Fertilizer can fluctuate its prices in sync with grain prices to steal from farmers’ profits, rather than being subject to traditional concepts of market supply and demand.” Indeed, studies show that fertilizer prices move alongside food prices, rather than reflecting any underlying change in the inputs required to manufacture it, meaning fertilizer manufacturers aren’t constrained by any real market discipline. They’re just opportunistically gouging farmers. And some of that increased cost is inevitably going to wind up in the prices of the food you purchase at the grocery store too.
When the U.S. Department of Agriculture in early 2022 asked farmers about fertilizer manufacturers, nearly three quarters of the responses described concerns about their power and their ability to dictate prices that are divorced from any other market indicator. “Our country has allowed nearly a monopoly to occur in the ownership of fertilizer resources. The monopolistic behavior of companies such as Mosiac, Nutrien, and CFI virtually guarantees artificial product shortages and price gouging,” said one comment. “Unless regulatory action takes place, this type of anti competitive market behavior will continue and will impact farmers and consumers alike.”
This is certainly not a new issue. Back on January 1, 1888, in fact, you could read on page eight of The New York Times about the “Monopoly in Fertilizers” with large firms trying to corner the market so that farmers would have to pay more to access their products. The very explicit argument was that farmers were paying too little for their fertilizer, so prices needed to be hiked and access restricted.
Fast forward to today and the kind of consolidation corporate overlords could only dream of a century ago has come to pass. But there are also antitrust enforcers who can and should do something about it. That’s why those organizations wrote to the FTC and DOJ asking them to intervene (and a state attorney general could as well). Further corporate consolidation in agricultural markets is bad enough, but it’s especially bad when taxpayers are forced to pay for it.
JOIN OUR CAMPAIGN TO END JUNK FEES: Last week, my organization launched the End Junk Fees campaign, an effort to pass bans on junk fees — those ubiquitous processing and convenience fees levied on live events tickets, hotel rooms, cable bills, and on and on — at the state level. You can read some good coverage of the launch here.
For the campaign to succeed, though, we need your help! Visit the campaign hub here and tell us your story of having to pay bogus or surprise fees, and we’ll put you in touch with the folks in your state who are working on the issue. You can also read up on the latest research and polling, and track legislative progress. Check it out!
SHAMELESS SELF-PROMOTION: I spoke to Mother Jones for a piece about how Elon Musk is building the modern incarnation of the company town in Texas. You can read it here.
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— Pat Garofalo