Critics of the beef processing industry constantly claim the “Big Four” packers control more than 80 percent of the U.S. beef supply. The facts tell another story. The four do have an 81.7 percent share of steer and heifer slaughter (my estimate for their 2020 share). But steers and heifers do not account for all beef produced. Cow and bull slaughter must be added. The result is that the four have a 69.8 percent share of total commercial cattle slaughter, a far cry from over 80 percent.
Another fallacy is that the market share of the four largest firms keeps increasing. Again, that is not true. Their share in 2020 declined from 2019. The top three packers had a 2020 market share of total commercial cattle slaughter of 58.8 percent, down from 60.4 percent in 2019. Their share of steer and heifer slaughter declined to 67.7 percent from 68.1 percent in 2019. The top five packers’ share of commercial slaughter in 2020 was 75.7 percent versus 76.1 percent in 2019. Their share of steer and heifer slaughter was 84.3 percent versus 83.8 percent in 2019.
Meanwhile, daily slaughter capacity at the nation’s 30 largest beef processors increased slightly in 2021 from a year earlier. The top 30 packers currently have the capacity to process 127,915 head per day in 55 plants. That’s 1,820 head more than the total capacity of 126,095 head a year ago in 54 plants. The top five packers have a combined capacity of 97,500 head per day in 27 plants, the same as a year ago.
In December, I was fascinated to read remarks by two prominent agricultural economists on processing capacity. Increasing cattle slaughter capacity with additional smaller plants will have benefits for some producers and consumers, but it will not increase resilience in the supply chain overall, says University of Arkansas economist John Anderson, the lead author of a new paper published in Applied Animal Science.
That is because the smaller operations will serve primarily direct-to-consumer markets, which grew significantly during the pandemic but remain a very small segment of the sector. The analysis cautions against seeing new small plants as insulation against the next black swan event, which is how the researchers describe the pandemic.
Noting the disruptions to plants because of the COVID-19 pandemic, Anderson says he was a little surprised by how quickly the system got back to some semblance of normality. He thought the lag in production would be bigger and last longer. But most facilities experienced, at most, four to six weeks of disruption. For larger packers that rely on economies of scale, the multimillion dollar question is how to reduce disruption from any future event, he says.
The pandemic defied any sort of predictability, but such an event remains highly unlikely, says Anderson. Companies might attempt to revisit their risk mitigation plans. But taking up the question of an open-ended disruption like this pandemic is a little bit of a paralyzing thing to think through. Even so, recognizing that human labor was the reason processing proved to be the bottleneck in the supply chain, the incentive to automate has increased in the wake of the pandemic, he says.
Another economist who spoke at the annual meeting of the National Association of Farm Broadcasting echoed that sentiment. You are eventually going to push more and more toward trying to figure out other ways besides labor, said Scott Brown of the University of Missouri. That will make the cost of automation less daunting. Pandemic vulnerability aside, the labor market has grown tight, and managing a workforce in a sector that is physically demanding and at times requires overtime and/or weekend shifts has grown more difficult, he said.
A few new midsized processing plants are in the works in the Midwest, said Brown. But despite the public concern about U.S. meat processing capacity in the wake of the pandemic, the newest plants may find it is not the best time to open an additional packing facility. That is because drought in the West will likely result in fewer cattle going to slaughter just as new plants come online, he said.
Brown expects supplies to remain tight into 2023 and American Foods Group’s new Missouri plant to open in the third quarter of 2024. What has been too many cattle for a period of time might quickly turn around to be not enough cattle even with current capacity. The smallest processors will have to have a premium for their products if they are going to stay in business long term, he said. That is good advice for potential new entrants to the beef processing industry. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
