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in markets where they had higher percentages of the total business. The most interesting comparison was between Memphis and Denver. In 1958, National Tea had 5.8 percent of the Memphis market; in Denver, 24.1 percent. Memphis was not dominated by chains; Denver was.

In Memphis, gross profit margins (sales price less cost of goods sold) ranged from 13.06 cents to 15.49 cents for each dollar of sales. In Denver, the gross profit margins ranged from 16.82 cents to 19.70 cents for each dollar of sales. The company made money in Denver, and lost money in Memphis.

National Tea had significant advantages in Denver. Among these were an estimated $300,000 a year in concessions from Beatrice Foods on purchases of dairy products. No other store in the Denver area had anything like this kind of competitive advantage--averaging about 12.5 percent discount on its purchases from Beatrice, the FTC said. Discounts and allowances to other stores in the Denver area ranged from zero to nine percent, on much lower volumes, of course.

The FTC case continues:

57. There is one advantage, however, that National Tea does not enjoy over its independent competitors--superior efficiency. Respondent's officials and witnesses have argued repeatedly here that National Tea is, in effect, less efficient than its local competitors. There is some evidence that this is true. For example, in 1959, respondent's Memphis stores, on an average 'gross profit' margin (difference between cost of goods sold and sales price) of some 14.5¢ per dollar of sales, had direct store losses of about $64,000, or just under 1¢ per dollar of sales. Average overhead' for the Memphis branch in 1959 was 4.7¢ per dollar of sales, thus bringing the total loss of the Memphis stores to well over 5¢ for each dollar of sales. Having lost more than 5¢ on a gross margin of 14.56, the 'break-even point for those stores in 1959 would have been a markup of some 19%.”.

Indeed, National's policy indicated it had relatively little interest in profits in Memphis. Its purpose seemed to be to get a larger share of the market. One indication of this purpose was its advertising expenditures. In Memphis, National spent 1.09 percent of gross sales on advertising in 1959. In Denver, the percentage was only .21 percent. In that year, profits in Denver were $1,604,887. In Memphis, losses amounted to $1,149,598.

Taking the two areas, then, the net profit was about $450,000. The people of Denver paid substantially higher prices--from 3.76 percent in lowest-profit margin stores to 4.21 percent in the highest. Average it off at 4 percent and it comes to $2 million extra that National's buyers in Denver



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paid for the necessities of life. And the United States of America lost $1,149,598 in taxable corporation income!

Just what National Tea had in mind for the future was revealed in a statement by McNamara in 1959 while ostensibly calling for an end to “below cost” pricing. The FTC interpreted the statement to be actually a call for his more vigorous competitors to raise their prices:

“We are hopeful that after the industry has had an opportunity to analyse earnings for 1958, some offending operators might merchandise with a little more intelligence in 1959 for the general benefit of the industry, as well as the public. This is essential to the improvement of earnings, the protection of investment and the steady growth of the industry. In our opinion, a profit margin of 14 cents out of the sales dollar would be fair to everybody, operators, shareholders and consumers alike.”

The basic question then for the American people to answer is: Was it worth this much to finance National Tea's attempt to get control of the grocery business in Memphis?

How much is it costing America to finance National Tea's egg farming business in Wisconsin and in Illinois? And at what cost to farm families who must look elsewhere for their opportunities?

And then there is an even broader issue.

Dr. Mueller gave the following expert opinion on the significance of what was going on in the food retailing industry:

"If the top 20 chains of 1960 and all other chains with 11 or more stores were to continue to expand their market shares at the respective rates which they experienced between 1954 and 1958, by about 1984 chains of 11 or more stores (about 180 of them) would be doing all of the grocery store business, with the top 20 of 1960 doing 84 percent and all others 16 percent.”

Considering the already enormous buying power of the supermarkets, what would this mean to farmers?

We know in theory what it could mean (see Chapter II), and we know in practice what it did mean. Denver is the scene of the action, where National Tea owned a feed lot and the biggest slice of the retail market.

In January, 1963, the price of choice steers was skidding downward. The price had been 29 cents a pound in the previous November, but less than 200 a week were being bought from farmers on the Denver market. The rest were coming from the supermarket-dominated or supermarket-owned feedlots. Quite naturally, with so few being bought on the open, competitive market, the price began to go down. By the third week in January, the price was down to 25 cents a pound. This was apparently the magic price, because in that CORPORATE HORSEPOWER


week chain store purchases in the open market suddenly jumped to more than 700 head. The week before, the figure was below 300 head. But prices were on a toboggan slide downhill. The first week in February, they were under 24 cents a pound, and the supermarkets bought 1,246 choice steers in the terminal market in Denver.

Prices skidded downward to 22 cents a pound until the first week in March, when they began climbing. By the first week in April, prices had gone back up almost to 24 cents. The supermarkets just stayed away from the market entirely that week and the next week bought less than a dozen head. It triggered a disastrous decline in prices that didn't stop until the first week in May when choice steers were selling at 21 cents a pound. Wouldn't you know it? The supermarkets in that week bought 700 head in the terminal market. In the last week in May, purchases by the supermarkets went all the way up to 865 head. It was not to be that high again during 1963. Prices climbed back to 25 cents in early July. But again, the supermarkets stayed in their own feedlots, ordinarily buying about 100 head a week. The market began skidding once more, and by mid-December was once more at the 21cent low.

What was happening to the price of beef at the grocery counter during this period? Prices hardly changed at all. Round steak sold for $1.20 a pound in Denver from mid-February until December without any change whatever. Sirloin remained virtually the same, and there was no relation to prices farmers were getting. Indeed, in the middle of the disastrous July to December, 1963 decline (when prices to farmers were going from 25 cents down to 21 cents), the price of sirloin climbed upward to $1.10 a pound at the grocery counter and stayed there from August to November.

Angus McDonald, the Research Director of the National Farmers Union, estimated that Denver consumers paid at least $4 million more for food than they should have!

And in that same year, United States livestock producers lost an estimated $2 billion!

Let us ponder these facts as we examine the action of the Federal Trade Commission in the matter of the National Tea Company. Remember, the FTC did not even include the feedlot operations in the scope of its case. At the time, there was discussion in the lower reaches of the FTC staff that this angle should be explored. But, unaccountably (as such things happen in Washington when big issues and big corporations are joined), that part of the case was not pursued.

What the FTC did was enjoin National Tea from purchasing any more food

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stores for ten years “without prior approval of the Federal Trade Commission."

Again, what the FTC did not do is as important, if not more so, than what it did do. It did not order National Tea to sell any of its stores, for example.

No question about it--those horses plunging on the statues outside the Federal Trade Commission building are bound to win.



John A. Prestbo, staff reporter of the Wall Street Journal, said candidly in a report on August 9, 1967:

“There seems to be little chance of stopping the trend to corporate ownership, however. It's already well-established in some segments of agriculture and it's rapidly spreading to others. About 40% of the estimated 2.7 billion broiler chickens to be produced in the U. S. this year, for instance, will come from highly automated, factory-like farms run by a dozen big corporations such as Ralston Purina Co., Pillsbury Co., Swift & Co., and Textron, Inc. Similarly, big canners like Minute Maid Groves Corp., a subsidiary of Coca Cola Co., and Libby-McNeill & Libby now own an estimated 20% of Florida's citrus groves, compared with less than 1% in 1960.

“Many companies until recently limited their farm operations to such lines as egg, poultry and cattle production, which can be automated and systematically organized with relative ease. But new machines and chemicals that boost the yield to heretofore low-profit row crops like corn and soybeans have prompted companies to begin growing them as well."

Wallace's Farmer commented on February 24, 1968 that:

"The broiler industry is now highly integrated, and it remains a sick, unprofitable business. But the big companies that integrated it can continue to take losses on their broiler business for many years. Sooner or later things will shake down to a handful of big operators. Then they'll be in position to get control of production and force prices up to profitable levels."

Who ever heard of reduced competition meaning lower prices?--for long, that is.

Senator George McGovern (D-S. D.) told the 1968 convention of the National Farmers Union at Minneapolis that:

"If I were a Martian who had been asked to rocket over to earth and address a farm meeting in the United States of America this evening, there would be one chance in ten that I should open by saying: 'Mr. Chairman and members of the Board.'

"A little more than 10 percent of agricultural production is this country

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