Food production facilities involved in mergers and acquisitions (M&As) are highly productive before being acquired, and they significantly improved their productivity afterward, according to a study by USDA's Economic Research Service. The report looked at plant-level data on production inputs and costs for companies in eight major food industries involved in M&As over the period 1977-92.

As ERS notes, M&As 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.

To test these hypotheses, ERS looked at data for companies involved in meatpacking, meat processing, poultry slaughtering and processing, cheese making, fluid milk processing, flour milling, feed processing and oilseed crushing. The ERS analysis suggests that M&As contributed to the general improvement in labor productivity, echoing the findings of an earlier ERS study. Labor productivity is defined as output per worker.

After evaluating labor productivity before and after M&As over two merger periods, ERS researchers found that acquired plants were highly productive before their mergers and became more productive afterward. Overall, says the report, M&As facilitated the transfers of plants to firms that valued them more highly and were, in general, better able to improve their operations (raise labor productivity). The resulting combinations had higher labor productivity than their predecessors.

On the other side of the ledger, data show that plants that closed had very low labor productivity and could not compete in a changed competitive environment.

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