[Congressional Record Volume 142, Number 34 (Wednesday, March 13, 1996)]
[Senate]
[Pages S1905-S1906]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        FOOD MARKETING POLICY INSTITUTE'S MISDIRECTED PRIORITIES

  Mr. GRAMS. Mr. President, yesterday a mock hearing for the press was 
hosted by Congressmen Schumer and Gejdenson, along with Prof. Ronald 
Cotteril, director of the Food Marketing Policy Institute at the 
University of Connecticut. The topic was price collusion in the cereal 
market, a charge which has not been proved over the past 20 years.
  After review of all of the evidence which refutes the collusion 
theory, I find it difficult to understand why the three continue this 
curious drama.
  I would like to present to my colleagues some history on this issue, 
which began with the dismissal of an antitrust complaint by the Federal 
Trade Commission after 10 years of tedious and costly examination of 
the industry by the FTC.
  Last year Federal Judge Kimba Wood, former nominee for Attorney 
General during the Clinton administration, rejected an antitrust suit 
brought

[[Page S1906]]

by the State of New York to prevent the Post Co. from buying Nabisco 
Shredded Wheat.
  Judge Wood indicated at the time that the cereal industry was 
``highly competitive.'' She indicated that there was no collusion, and 
no one company was able to control prices in any market segment. She 
characterized the testimony of the State's star witness, Professor 
Cotteril, one of the hosts of today's mock hearing, as ``unreliable,'' 
``flawed,'' and ``erroneous.''
  Last year Congressman Schumer and Gejdenson asked the Justice 
Department to initiate a criminal investigation into cereal prices. 
Justice declined the case, based on Judge Wood's decision.
  Judge Wood has also noted in her decision that cereal prices rose 
only 6.6 percent between 1989 and 1993, while food prices rose 12.8 
percent and the cost-of-living index rose 16.5 percent. Widespread use 
of coupons lowers the average retail price by 30 percent. Further, 
Judge Wood found that industry concentration declined about 27 percent 
between 1970 and 1994 and that store brand cereals' market share rose 
to 9 percent in 1993 from 4.8 percent in 1988. This trend is expected 
to double in the next 3 to 4 years, surpassing the market share of 
three of the five manufacturers.
  Judge Wood also noted little brand loyalty among consumers. She also 
indicated that retailers may have had more to do with increasing 
prices. In 1994, one producer reduced its prices 40 percent, yet less 
than two-thirds of this price cut was passed on to consumers.
  Anyone who has been in a grocery store recently knows that the range 
of options and prices is nearly overwhelming. Imports are adding new 
competition. Cereal manufacturers not only compete head on but also 
with other breakfast alternatives, which are also proliferating 
significantly. The business climate is hardly ripe for price collusion. 
It is hard to understand why a trend toward more competition and price 
increases well under cost of living increases would encourage the two 
Congressmen and Professor Cotteril to continue these efforts.
  Professor Cotteril's Food Marketing Policy Institute has received 
earmarked funds from the Congress for quite a few years. If this is an 
example of its priorities, I believe the Congress should reconsider 
funding this institute.
  I look forward to this debate as we pursue the fiscal 1997 
appropriations.

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