The Death of Mr. Clayton

History doesn’t note the first instance of price fixing or monopoly but it’s a safe bet all were around long before Moses and the “Thou shall not steal” commandment.

History does record when the U.S. Congress acted to prohibit monopoly and antitrust in business; first, in 1890, with the passage of the Sherman Antitrust Act and, second, in 1914, with the adoption of the Clayton Antitrust Act.

Both encompass a simple idea: an open, competitive marketplace is a fair marketplace. In a 1993 Sherman Act case before it, the U.S. Supreme Court explained it this way: “The purpose of the Act is not to protect businesses from the workings of the market; it is to protect the public from the failure of the market.”

That underpinning theology, however, has changed over time. Company mergers and corporate joint ventures that just 20 years ago were either unthinkable or considered illegal, or both, are now almost routine.

For example, on May 20 the U.S. Department of Justice blessed a flour milling joint venture between branches of three former competitors, ConAgra, Cargill and CHS. (See for source material.)

The deal, that joins two of the top three flour millers in the nation, marries ConAgra Mill’s 21 mills with the 20 operated by Horizon Milling, an existing joint venture between Cargill and CHS.

The dowry for this three-cornered marriage was dirt cheap: Justice required the proposed new entity to sell mills in Los Angeles, Oakland, New Prague, MN, and Saginaw, TX, to “ensure that competition for hard and soft wheat flour sales is preserved in regions surrounding” LA, Dallas, the Twin Cities and “the Bay Area.”

The ConAgra/Cargill/CHS deal is the second flour deal milled by Justice this spring. The first, which closed May 8, brought together Milner Milling and Cereal Food Processors. Combined, that new firm will mill an estimated 164,000 cwt. (hundredweight, the standard unit of measure in milling) per day.

That may sound big—it is, after all, the third largest daily milling capacity in the U.S.—but it’s puny compared to the capacity of the two bigger boys leading the pack. Number two ADM Flour Milling delivers an estimated 281,000 cwt. per day and the ConAgra/Cargill/CHS firm, called Ardent, will mill a whopping 500,000 cwt. or so.

With that much capacity, it’s estimated that Ardent will control at least 34 percent of the nation’s wheat milling. Colorado Gov. John Hickenlooper, who put together an incentive deal that enticed Ardent to locate its headquarters in his state, called that number “hardly a monopoly.”

Monopoly? No. Huge? Yes.

And there’s more.

The four flour mills the Department of Justice required Ardent to divest in order to be born all went to Miller Milling which, via government edict, grew its daily capacity from about 12,000 cwt. to nearly 100,000 cwt. That explosive growth took Miller from a tiny player in U.S. flour to the fourth largest overnight.

It also means that in the last month the Justice Department and Ardent have virtually remade the entire American flour milling sector. Together the two have anointed a new number one player, Ardent; a new number three, Milner; and a new number four, Miller.

Even more remarkable, perhaps, is that this wholesale change occurred without one public hearing in Congress, the courts or the press.

This near-total lack of public involvement suggests that more food mergers, makeovers and consolidations will be forthcoming because these government-blessed deals are about market power on both sides of the business coin—paying farmers less for the wheat to make the flour, then charging consumers more for it.

It’s an old story first told in the Good Book, then in the U.S. Congress.

That last one isn’t so old. The U.S. House passed the Clayton Antitrust Act exactly 100 years ago this week, June 5, 1914. This June 5, however, all but marks its passing.

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