Opinion: Ag companies' loyalty programs unfairly extract profits from consumers

We’ve all heard the standard accounts of why food prices have climbed over the last year. The pandemic disrupted supply chains. So did the Russian invasion of Ukraine. But here’s a factor behind high food prices that you may not have heard about: corporations scheming to keep farmers’ costs high.

Last week, the Federal Trade Commission, where I am chair, partnered up with a bipartisan coalition of state attorneys general to file a lawsuit against two of the biggest pesticide manufacturers in the world, Syngenta and Corteva, accusing them of illegally blocking cheaper competitors from the market. This forces American farmers to pay many millions of dollars more every year for pesticides than they should, and ultimately raises the price of the food you eat.

The scheme starts with patents. Companies like Syngenta and Corteva are in the business of inventing new active ingredients for pesticides. Each time they do, they get to patent that invention. A patent entitles an inventor to a 20-year period where only they are allowed to sell the invention. But there’s a compromise: Once the patent expires, anyone is free to bring a generic version into the market. That’s why when you have a headache, for example, you can choose between Tylenol and generic acetaminophen. When someone holds a patent they can generally charge high prices, given that nobody else can sell that product. But once the patent expires and generics come in, the original patent holder should have to compete with them, including on price.

More:Iowa joins 9 states in suing ag pesticide makers, alleging anticompetitive practices

Syngenta and Corteva weren’t satisfied with this compromise. They wanted to keep raking in big profits even after the patents expired. To do that, our lawsuit alleges, each company plotted to cut farmers off from cheaper generic alternatives. In general, manufacturers don’t sell pesticides directly to farmers. They sell to distributors. Syngenta and Corteva realized that these distributors were a potential choke point. So they each launched “loyalty programs” in which distributors who bought their products would receive large payments, styled as a rebate. The catch: If those middlemen distribute too many generic pesticides, they don’t get the money. In other words, distributors get paid to exclude generics.

This works out the way you’d expect. Distributors don’t want to miss the payments, so they go along with the program. After all, it doesn’t hurt them to spend more on brand-name pesticides, because they get to pass those costs on to retailers and, ultimately, to farmers. With distributors under-stocking generics, farmers end up having little choice but to buy Syngenta and Corteva. And here is the payoff to the whole scheme: Because farmers are locked into buying their stuff, Syngenta and Corteva can keep charging inflated prices, as if their products were still under patent. The pesticide giants can make more profits by blocking rival products from the market than by competing with them. Those profits ultimately come from you. Farmers likely end up charging higher prices to pay for the more expensive pesticides. Your money travels all the way up to Syngenta and Corteva, with some left over to reward the distributors for their “loyalty.”

The FTC lawsuit aims to force Syngenta and Corteva to shut down their “loyalty program” and let generic rivals compete fairly. If we win in court, it will mean not just lower prices for farmers, but better and more innovative options. That’s because generic manufacturers often come up with new and improved mixtures of existing ingredients — but the loyalty programs have kept many of them from even bothering to try.

This case fits into the FTC’s broader mission to use our power to promote fair competition for all Americans — whether it’s small businesses, independent farmers, or a mom or dad shopping for groceries. These days, when people talk about antitrust and monopolies, they’re usually talking about Big Tech companies. The truth is, dominant firms can be found everywhere. Syngenta was acquired by a Chinese state-owned company. Corteva is the result of a merger between the chemical giants Dow and DuPont — one of the biggest corporate deals of all time.

Mega-mergers like these have been especially disastrous for farmers. Indeed, farmers were central to the movement that led Congress to pass our first antitrust laws around the turn of the 20th century. They had firsthand experience of the harmful effects of the dominant monopoly of that era, the railroad company. But in recent decades, antitrust enforcement hasn’t kept up. Today, farmers are getting squeezed from all sides. Fertilizer prices have skyrocketed far beyond inflation. Giant meatpacking monopolies dictate prices to cattle ranchers who have no one else to sell their beef to. Chicken and hog farmers are in a similar position. It’s no wonder that poverty in rural communities has gotten out of control: In much of the country, it has become impossible to make a living.

No one can solve these problems overnight, but my agency is committed to using all our tools to protect Americans from monopolistic abuses — and reviving the power of those antitrust and competition laws that America’s farmers fought so hard for more than a century ago.

Lina M. Khan is chair of the Federal Trade Commission.