October 14, 1964

Purchase of A&P by Farmers Logical Response To "Bigness"

One of the few things we remember from our high school physics course is the law of nature that "for every action there is an equal and opposite reaction." The axiom has proven so often true whether applied to planetary motions, chemistry, human nature or economics.

Thus it seems only inevitable that the unprecedented growth of supermarket chains should provoke a counter move by the farmer squeezed hard by retail competition.

The American Farm Bureau Federation, spearheaded by its Ohio affiliate, proposes to purchase one of the "big three" grocery companies --- A & P, Kroger and Safe-Way. The proposal is significant in view of the domination of the food market by chain groceries. Multi-unit operations ac-count for 75 percent of all food sold in the U. S. The big three control 18 percent of the market; but A & P, the largest, sells 12 percent.

At this writing, the Farm Bureau is non-committal as for which of the big-three it is negotiating. However, it doesn't take a crystal ball to figure out that A&P is the prize.

Control of the nation's largest grocery chain by the nation's largest cooperative probably wouldn't affect the price we pay for bread, corn flakes, sausage or other food items. However, if the venture is successful in improving the farmers' profits it will have profound influence on our so called "private enterprise system."

The Farm Bureau was formed in 1914 to help the farmer cope with the economic squeeze preceding World War I. The organization combines the purchasing power of its 1,600,000 members to obtain favorable prices on all farm needs — from seeds and equipment to marketing information and insurance. In fact, its insurance subsidiary, Nationwide, is one of the largest such companies.

A & P, more formally known as the Great Atlantic and Pacific Tea Company, is proud of its more than a century of business. A decade ago the chain was wholly owned by the Hartford family and had cornered more than a third of the retail grocery trade. The government felt that A & P's purchasing pressure on food producers and suppliers was in violation of the federal anti-trust act and instituted suit to break up the operation.

After prolonged hearings — which A & P appeared to be winning on the basis its policies resulted in low prices to consumers — the government backed off. It agreed to drop its suit in return for relinquishment of complete ownership of A & P by the Hartford family.

Accordingly, the Hartfords put about one-third of the company’s stock on the open market. The family still retained control of the empire through its large personal block of stock and that of the Hartford Foundation.

Subsequently, the government held that the Hartford Foundation failed to meet the tests of a philanthropic organization and ordered it to put its A & P stock on the open market by 1967. Presumably, it is this stock which the Farm Bureau now seeks to buy. With it, and any support at all from the rest of the stockholders, the Farm Bureau would exercise control.

The financial newspaper, "Wall Street Journal," estimates the Hartford Foundation's A & P stock to be worth about four hundred million dollars. An $80 per year investment by just one third of Farm Bureau members over a five-year period would raise the necessary cash.

In discussing this proposal with Bill McNutt, an organization director for the Farm Bureau, the boldness of the plan is revealed.

"We neither expect, nor want, control of the market. The competition of others in the grocery field will keep prices at normal levels. We do anticipate, though, to gain some control of retail shelf space.

"In other words, we hope to assure our members of a market for their farm products before they invest in land, seeds, fertilizer, equipment and animals. In this way they won't overspend or be frozen out of a glutted market.

"We hope to improve our income by lowering our costs rather than increasing prices," he says.

McNutt believes that the National Farmers Organization -- which is making headlines by organized boycotts of processing plants — is on the wrong track.

"The processors are in the same squeeze as the farmers," says McNutt. "The supermarkets can make or break a processor with a few orders, even at low profits, because of the huge volume. More and more the chains resort to `specification buying' which assure them uniform quality and price. The practice even allows them to establish their own brand names."

It is true that most businesses produce under an actual contract or for a known market. If the market diminishes, so does production. But the farmer starts out in the spring with little more than faith insofar as his fall market is concerned. With control of retail shelf space, the Farm Bureau hopes to guarantee a minimum market.

McNutt acknowledges that as a cooperative with certain tax advantages not accorded private businesses, the Farm Bureau might encounter some opposition from ardent sup-porters of private enterprise. "The alternative to group action, however, is more federal aid," McNutt says.

Our feelings on the proposal are somewhat like those of the man who watched his mother-in-law drive his new Cadillac over a cliff. We hate to see another vital product brought under the sway of any one group in the merchandising chain —producer, wholesaler or retailer. When this hap-pens, more individual businessmen saddled with a full range of taxes and lacking purchasing power, go under. The opportunity for our children to become owners dwindles.

On the other hand, the retail grocery chain has already gained the upper hand. This may be fine if you are a consumer, but devastating if you are a supplier with a family and employees of your own for which to provide.

The Farm Bureau's proposal is a self-help move sorely needed in these times of high taxes and free handouts. It is the logical response to the bigness that stops short of illegal monopoly.

The consumer is king, but what sacrifices are required of the private enterprise system to satisfy him?

Author: Lindsey Williams