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Food Industry Mergers and Acquisitions Lead to Higher Labor
Productivity
Michael Ollinger, Sang V. Nguyen, Donald Blayney, Bill
Chambers, and Ken Nelson
Economic Research Report No. (ERR-27), October 2006
Mergers and acquisitions in the U.S. food industry have provoked
controversy for many years. Critics are concerned that mergers,
by reducing the numbers of firms and increasing industry concentration,
make it easier for firms to increase output prices and lower
wages and input prices. Others argue that M&As increase
efficiencies and boost productivity by allowing companies to
lower costs and provide consumers with goods at lower prices.
What Is the Issue?
Until 1977, consolidation was not much of an issue for most
food industries. At that time, the average four-firm-concentration
ratios for eight food industries—meatpacking, meat processing,
poultry slaughter and processing, cheese making, fluid milk
processing, flour milling, feed processing, and oilseed crushing
(soybean, cottonseed, and corn)—were about 31 percent.
A wave of mergers and acquisitions led to a jump in average
concentration to about 44 percent by 1992. Were these M&As
efficient, and did they foster productivity in “acquired”
companies?
What Did the Study Find?
Labor productivity, or output per worker, is one measure of
production efficiency. Using U.S. Census Bureau plant-level
data to examine processing plants in eight food industries,
ERS and Census researchers found that processing plants in eight
major food industries were highly productive before being acquired
and they significantly improved their labor productivity afterward.
The analysis suggests that mergers and acquisitions contributed
to the general improvement in labor productivity, echoing an
earlier ERS study.
These results for M&As and labor productivity are not entirely
consistent with other previous research. Other researchers found
that large acquired plants had below-average productivity prior
to their acquisitions, but the ERS and Census researchers found
that both large and small plants had above-average labor productivity
before their mergers. Productivity growth results also differed
somewhat.
These differences and substantial variation in estimated effects
across the eight industries suggest that conduct and performance
of individual industries differ from that of a broadly defined
sector such as the entire food industry. Studies at the individual-industry
level are necessary to evaluate the impact of certain types
of economic activity, such as M&As.
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Ollinger and Blayney are agricultural economists
with USDA’s Economic Research Service. Nguyen is an economist
with the Center for Economic Studies, U.S. Census Bureau. Chambers,
now with USDA’s Farm Service Agency, USDA, and Nelson,
now retired, are former ERS agricultural economists.
How Was the Study Conducted?
By using plant-level Census of Manufacturers data from the
U.S. Census Bureau, researchers were able to obtain a detailed
picture of plant outputs, inputs of labor and materials, costs
of production, and plant assets. These data also allow researchers
to trace plants across time and ownership status. The research
concentrated on two merger waves, 1977-82 and 1982-87, which
encompass particularly active times for M&As in an era of
structural change that persists to this day. In the productivity
performance analyses, the labor productivity of plants acquired
over 1977-82 and 1982-87 were compared with control groups of
plants that were not acquired. For productivity growth, researchers
evaluated plants’ productivity growth over 10-year periods
(1977-87 and 1982-92).
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