Is Wal-Mart Devouring the Food System?

Stacy Mitchell posted a really creative info-graphic over at Huffington post, which I've reproduced below.  

The graphic gets a lot of the statistics right, but draws many wrong inferences.  A few comments:

  • The typical concern expressed about Wal-Mart is that they price "too low" and thereby drive all their competition out of business.  I do not doubt that Wal-Mart bankrupts some competitors and creates some adverse consequences for communities (yet the studies cited in this graphic are not a representative selection of the academic research - they convey only the side of the story the author wants to tell).  Moreover, low prices are good for you and I the food consumer.  After all, I've never seen Wal-Mart employees forcing anyone into their stores.  This paper in a 2006 issue of the American Journal of Agricultural Economics, for example, reported: 
    Consumers, in contrast, appear to benefit from Wal-Mart's entry in the form of lower prices. Studies focusing on consumer impacts have found that a Supercenter's entry reduces grocery prices. Not only do Supercenters offer lower prices, but their entry may have the indirect effect of lowering prices at competing stores. Estimates of this indirect effect range from 3% overall to as high as 13% for specific items (Basker 2005bHausmann and Leibtag 2005).
  • The facts reported below could be framed very differently.  Rather than saying Wal-Mart "captures $1 out of every $4" why not say they "earn $1 out of every $4"?
  • Yes, production and retailing of food are highly concentrated industries.  The question is why.  Market power is only one possible explanation, and there is theory and evidence that this concentration could relate to economies of scale and cost savings, capacity constraints, and risk reduction, among many factors. And, you can't just look at size, you have to look at how firms behave.  Coke and Pespi are both very big but anyone watching TV ads knows they are in fierce competition.  
  • It is a red-herring to cite the farmer's share of the retail dollar as evidence of nefarious processor or retailer behavior.   Processing and retailing costs have risen over time.  Here is a nice paper by Gary Brester and colleagues showing that the farmer's share of the retail dollar is uninformative in this regard and "should not be used for policy purposes."
  • It is  untrue that many "farmers are struggling to get a fair price."  Prices for many agricultural commodities are near record highs.  Farm-land values are exploding, in part, due to the extra income on the farm.  For commodities like milk (which is pictured just below the above quote), there are complex government rules that determine the prices farmers get paid.  
  • Worker wages may have fallen in real terms, but this is not unique to the food processing industry but is true of real median wages across the entire economy.  People like Tyler Cowen  have argued that this is a result of declines in productivity growth.  So, again, the statistical "fact" is probably right, but the interpretation is misplaced.   

You may still want to visit local farmers markets or local grocers as this graphic exhorts.  But make it an informed decision.