Both houses of Congress took on the multinational beef industry on Wednesday, with Senator Amy Klobuchar (D-MN), and others, saying that one of the main reasons for the price discrepancies hurting American ranchers today is due to the monopolistic nature of the market.
The four biggest meatpackers — JBS, Tyson, Cargill, and National Beef — control over 70% of the market. It’s a similar story small to midsized manufacturers selling widgets to the big brands know all too well, regardless of whether it’s Ford or Boeing. They have a global market to pick and choose from. American ranchers are left competing directly with Brazilian, Mexican, and Australian ranchers. Some argue the market is broken, which leads to higher prices for consumers at a time when politicians are concerned about inflation and weak supply chains.
“An American rancher is now competing against cattle producers in Brazil and Mexico. The globalization of the beef supply chain allows packers to source cheaper cattle and cheaper beef from foreign countries and then sell that beef in the U.S. market as if the animal from which the beef was derived was raised under U.S. standards and the meat met identical safety standards required of domestically produced beef,” said Bill Bullard, a CPA Board Member.
Foreign beef is not labeled by its origin. Meat companies often get their beef or cattle at a lower cost from foreign sources, though it gets priced the same as domestic beef. Consumers don’t receive the cost savings, they are captured by the packer.
CPA advocates for country of origin labeling.
That particular issue was not brought up in Wednesday’s House Subcommittee on Livestock and Foreign Agriculture hearing titled the State of the Beef Supply Chain: Shocks, Recovery and Rebuilding.
Rep. Randy Feenstra (R-IA4) said Iowa’s cattle producers are angry.
“They are worried about getting a raw deal. They see everyone up high on the supply chain making large profits while they are losing money. My in-laws, my friends, my constituents are all seeing their livelihood end because of this,” he told House Committee members. “The packers will very rarely if ever see a loss. While real farmers are on the hook. Congress needs to engage in this and concentrate on price transparency and competition,” he said, talking about ways in which the industry has changed over the years, with the cash market for live cattle going from 52% of cattle purchased in 2005 to 23% in 2019.
A House hearing witness and Purdue professor, Jayson Lusk, said he thought that even if cattle was sold for cash 100% of the time, rather than on contract with the likes of Tyson and JBS, “it wouldn’t improve price levels.”
There are roughly 700,000 farms in the country. Around 90% are family-owned.
Feenstra, one of the more passionate congressmen on this issue at the hearing, said, “We’re going to lose thousands of family farms that are getting bullied out by packers and formulated contracts.”
Rep. Tracey Mann (R-KS1) followed Feenstra in the question-and-answer session. “This is a crucial issue to the agriculture industry. I’m hard-pressed to think of anything more important to American ag than what we are seeing in beef ranches,” he said.
Both the House and Senate heard testimony on Wednesday that touted a need for more meatpackers, not reliance on the Big Four, and shined a spotlight on the power those companies wield over their main supply – beef cattle.
University of Missouri professor and witness, Keri Jacobs, said in her opening testimony that when part of a supply chain is dominated by a few very large investor-owned firms interested in shareholder value it can prove to unsustainable from a market perspective. It’s too much concentration, an issue some CPA agribusiness members have been coping with for the past several years.
Producers and consumers faced similar pricing pressures brought on by a monopolistic market in the early 1900s, she said. Producers trying to market and distribute their producers were outsized and subject to unfair trade terms and pricing. “Congress recognized that the supply chains in grain, dairy, and other critical sectors left producers with too little control,” she said. “It subjected them to predatory pricing and distorted the prices the consumers paid.”
In 1922, in response to those growing imbalances, Congress got involved with a new known as the Capper-Volstead Act, which permitted producers to form associations to collectively process and market their own products, putting them on equal footing with the giants of the time.
“If we find anti-competitive behavior, we have to use every legitimate means to stop it,” said Sen. Mike Lee. His PRIME Act would make it easier for smaller meatpackers to develop and be less at the whim of costly USDA inspections, and more at the whim of more readily available state agriculture inspections instead. This would open up the market for smaller producers to serve local markets; a farm-to-table win for the true foodies out there.
A Senate Judiciary hearing on Wednesday also focused on the beef market. Sen. Chuck Grassley (R-IA), who spent at least six years working in a meatpacking facility in his younger days, called for the hearing. He said JBS, Cargill Tyson, and National Beef hold “tremendous power” in the market. He said the Biden administration, along with the Secretary of Agriculture, were keen on “rebuilding the competitive playing field for farmers and ranchers.”
Rob Larew, President of the National Farmers Union, did not hold back his feelings for other Senate witnesses yesterday. Thanks to Zoom calls, the representatives from Tyson and JBS did not have to deal with the face-to-face scorn of those representing ranchers. Both executives were not present in the Senate building.
“Family ranchers and their communities are worse off because of the anti-competition of multinationals and their concentration has grown dramatically over the last few years,” Larew said. “There has been a raft of price-fixing allegations against the big packers and JBS and Tyson have both paid fines or settled lawsuits for price-fixing. These corporations are too big.”
Both JBS and Tyson said that part of the reason prices are so low is because of oversupply at the time, and demand constraints caused by the pandemic.
“The pandemic led to oversupply of beef and that is why prices fell,” said Shane Miller, Group President of Fresh Meats at Tyson Foods in Dakota Dunes, South Dakota. “Tyson does not control market forces. Our success depends on the entire supply chain being incentivized to stay in business and we have relationships with ranchers of all sizes going back generations,” he said.
Both companies were put on the defensive yesterday.
Klobuchar said that while the pandemic exposed the inherent risk to our food supply chain due in large part to our concentrated supply chains for livestock producers, there were “no other alternatives and that led to higher prices and low supply. That’s all because of weak competition in the supply chain. The long-standing structural problems are due to the fact that four companies controlling over 70% of meat supply. Consolidation in this market causes harm,” she said.
Klobuchar’s Competition Antitrust Law Enforcement Reform Act passed the Senate and is awaiting action in the House. She thinks the bill would make it harder to be a monopoly power.
Klobuchar asked Jon Schaben, Owner of Dunlap Livestock Auction and a member of the Iowa Cattleman’s Association in Dunlap, Iowa when prices have been falling. He said that over the last five years, at least, prices have been in decline for ranchers, while rising for final product out of the meatpacking firms.
“The beef supply chain relies upon thousands of independent cattle producers,” Schaben told the Senate. “We have heard it before that these black swan events have impacted ranchers over the years. But those black swan events are not the problem. They show what is broken about the supply chain in this industry. They are not causing the problems,” he said. “If you want to stimulate the rural economy, bring the spread down between what live cattle are priced at and what the packers get for it which is about $1,000 more. The lifeblood of our rural communities is the agricultural producers. Cattle producers deserve a level playing field. We are just asking for price transparency and competition in this market. Otherwise, the domestic ranchers and small meatpackers will be starved out,” he said.
The biggest structural change for the industry has been the concentration of the sector. Those mergers and acquisitions were helped along by a shift in public policy – a shift of deemphasizing competitive market forces in favor of achieving efficiencies through large-scale factory farming.
The other, less obvious structural change was the globalization of cattle and beef supply chains, which means a Minnesota rancher is now competing with a Brazilian one. JBS is Brazilian, for example. This shift occurred immediately after the concentration of the beef packing sector and constituted a deemphasis of the interests of individuals and their smaller businesses in favor of catering to the newly concentrated beef packing sector – a sector that mimicked every other global supply chain. A few monstrous OEMs at the top lord over their supply chain serfdom, constantly forcing producers to lower prices as they are competing with ranchers in much poorer countries.
Klobuchar came out strong against this type of market concentration.
In keeping with the monopolization theme, Sen. Richard Blumenthal (D-CT) raised another question. What does it look like if Amazon grows out its grocer business and can dictate the prices it is willing to pay to Cargill and Tyson?
“That economic power will aggravate all kids of bottlenecks, I think,” he said. “It clears another path towards monopolization of grocery commerce by huge players. You could see Amazon overtake Walmart as America’s dominate grocer.”
Imagine Walmart and Amazon telling Cargill they’ll pay no more than $3 a pound for beef, and they just have to figure out how to get it there. This is hypothetical, of course. Put Walmart and Amazon at the top of a food chain, placing orders with JBS and Tyson, already at the top themselves, who then dish out what they will pay to a rancher in Connecticut with 1,000 head of Angus cattle. Blumenthal thinks it’s something worth watching, but will the Senate block such a move if Amazon were to expand in this arena?
What does the National Farmers Union think about another global corporate giant sitting on top of America’s food chain, dictating prices for those who grow and raise the food in the first place?
“It would have devastating consequences,” Larew said.
“It’s fair to think that your industry, and its consumers, share this concern,” Blumenthal said.