Policy Brief on the RTE Breakfast Cereal Industry

This brief addresses three issues related to the performance of the RTE cereal industry. First, consumers are dissatisfied with the high price of many breakfast cereals and farmers are concerned about the consequent impact on the demand for agricultural inputs to the industry. Second, although private label cereals are lower priced and their share of market has grown, marketing strategies of the big three cereal companies have blunted its growth and may altogether stop it in the near future. Third, RTE is a specific example of takeovers, leveraged buyouts, and/or mergers in many food industries. In many food industries these have increased prices to consumers, generated lay offs, wage give backs, and lower prices paid for other inputs in order to generate increased cash flows to meet financial terms of such deals. Mergers may generate gains in economic efficiency, but these changes are not efficiency gains. They are corporate transfers of income. By way of background for these points this memo provides a set of charts and graphs and a brief discussion: These charts and graphs have been pulled from other publications so the numbers on them don't start with one and go consecutively up.