The current debate between the federal government and the meat industry is starting to fall around antitrust laws. The House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law held a hearing Jan. 19 to discuss the issue. The front end of these hearings is usually informative, but they turn sour fast when congressmen who haven’t paid attention start bloviating.
Here we are again, for at least the third time in my career. Meatpacking concentration has been discussed for the last 100 years. It’s a tough business and the ugliest portion of our business. But let’s all get on the same page. According to John Nalivka of Sterling Marketing, who is an economist and has been advising meat users of all sizes for 30 years, “In 1992, the four-firm concentration of U.S. beef packers was 81.8 percent and included IBP, Conagra, Cargill and Farmland Foods. Today, 2022, the largest four packers account for 81.4 percent of the fed cattle slaughter. These firms now include Tyson, (formerly IBP), JBS (formerly Conagra), Cargill (formerly Excel) and National (formerly Farmland Foods).” All of these firms changed hands in the early 2000s.
The hearing produced perhaps nothing about competition and that adding regulation would hurt competition. There were plenty of congressmen who liked the idea of breaking up the large companies, but logic will prevail, and they will more than likely do nothing.
But the hearing and supply chain discussion came down to lack of labor in the workforce due to COVID. There are higher fuel prices and government direct payments to workers, which allows people not to work. Too much money chasing, too few goods.
I found one trucking regulation a bit perplexing, where California has different emissions standards for trucks, which promotes changing trucks at the border: no trucks older than 2011 and the Assembly Bill 5 law, which doesn’t allow owner-operators in the state.
The 80/20 rule applies very well to our meatpacking companies, and it applies to the cattle feeding business too. Is fighting concentration with more concentration the right thing to do? Seems so. Cattle feeders have become large corporations, and the top two are Five Rivers and Cactus Feeders, each having roughly a 1,000,000 head capacity, which turns two times a year. These are the guys that are utilizing alternative market agreements. The feeder tells the packer when the cattle are ready and looks at the quality of beef raised. We’ve come a long way since 1990.
Many on the panel were blaming the issue on politics, and the Biden administration is looking for a scapegoat. When it comes to beef prices, it’s not the packer who raises prices on the spot market; it’s the buyer. Most of the beef you find in major retail grocery stores is sold on a formula as well.
There is plenty of room for more beef packers—boutique packers who process a unique type of beef; there are all kinds of niche markets in the meat industry. Let Kroger and Walmart fight it out with the big packers. Most of you sell feeder cattle, and the feeder cattle markets work fine. And cattle feeders send lots of market signals to producers.
Economy of scale is important to the cattle industry. If packers were not able to squeeze every dollar out of a fed steer, they would clearly be worth less to cattle producers. Cattle feeders have realized the economy of scale as well.
I get nervous when these congressional committees start talking about changing laws to accommodate a perceived problem. We have folks in this industry who want government intervention, and there are just as many who don’t. I would say this industry is fairly split on packer concentration.
Antitrust laws do work, if the Justice Department wants to enforce them. In 2008, JBS wanted to buy National Beef. The Justice Department stepped in, as they realized if that merger did happen, it would harm fed cattle markets and competition. The deal was not allowed to proceed. Cargill, Tyson and several cattle feeding states filed the complaint against JBS, who was on a buying spree in the U.S. beef industry.
I can’t remember how many hearings have been devoted to the cattle industry and supply chains. If this COVID virus never occurred, we would be operating normally. If we’re looking to blame, we can all agree that COVID disrupted everything. The market will sort out this problem, not the government. Pray for moisture. — PETE CROW
