The US meat industry is too concentrated, is hurting farmers and consumers and is a notable factor in rising food prices in the country.
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That, at least, is how President Biden views the sector and the US government has set out plans for “a more competitive, fair, resilient meat and poultry sector, with better earnings for producers and more choices and affordable prices for consumers”.
But Biden’s opponents point out that the concentration of ownership is nothing new and that there are a number of factors behind food price inflation.
So who is right?
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Julie Anna Potts, the president and CEO of the industry body The North American Meat Institute (NAMI), is firm in her belief that what we are seeing is a result of market conditions.
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By GlobalData“Cattle producers’ struggles and higher beef prices for consumers are not due to the structure of the beef industry which hasn’t changed in nearly 30 years,” she tells Just Food. “Economist after economist has determined that labour shortages, reduced supply, and record demand are causing inflation, which is not unique to meat and poultry production.”
But the issue shows no sign of going away.
A House Anti-Trust Committee hearing, entitled Addressing the Effects of Economic Concentration on Americas Food Supply, held on 19 January heard from concerned parties and witnesses on both sides of the argument and a compelling case was made by both proponents and opponents of Biden’s stance.
The Biden administration suggests a small group of dominant meatpackers is abusing its market power. In response, it is to spend US$1bn on grants and loans for new independent processing plants. It is also planning to introduce new labelling rules and ways for farmers to report anticompetitive practices in an attempt to improve the way the supply chain operates and to make it more transparent.
It’s true to say the processing of meat in the US is dominated by a few large companies. Some 80-85% of beef processing in the US is in the hands of four companies –Cargill, JBS, Tyson Foods and Marfrig Global Foods. The dominant ‘big four’ poultry companies – JBS, Tyson, Perdue and Sanderson Farms – hold an estimated 54% of the market.
There are concerns the make-up of both sectors creates conditions in which prices are levied to the benefit of the processors and to the detriment of suppliers and consumers.
The case of the meatpackers has not been aided by the fact that, over the last year or so, there have been a number of price-fixing allegations made against meat companies by farmers, customers, consumers and government agencies, some of which have been settled out of court, usually in cases linked to poultry and pork processing.
Biden’s administration is also unhappy a number of meatpacking businesses have reported soaring profits and made bumper payouts to executives at the same time as consumers have had to cope with rising prices.
Tyson, the largest meatpacker in the US, and Kansas-based Seaboard Foods, along with Brazil-headquartered JBS and Marfrig, were criticised over profits in a White House report co-authored by Brian Deese, the director of the National Economic Council, which was published in December.
This followed a similar report in September when Biden and Vice President Kamala Harris claimed half of the increased food prices to the consumer were coming from beef, pork and poultry.
In September, Tyson hit back, saying the company “categorically rejects the conclusions drawn”. At the time, Tyson said in a statement: “It is inaccurate to suggest that consolidation in the meat-processing industry is leading to higher prices for consumers.”
Bodies representing the meat industry have, perhaps unsurprisingly, refuted criticism of the sector and suggestions reform is necessary. Mike Brown, president of the National Chicken Council, said at the start of this month Biden’s plans to shake-up the US meat industry “look like a solution in search of a problem”.
However, a number of contributors to last week’s House anti-trust hearing agreed with committee chairman Representative David Cicilline’s description of “unchecked consolidation” in the meat industry that has “destroyed diversity”, as well as his belief there is “widespread evidence of corporate profiteering”.
Allison Johnson, a sustainable food policy advocate at the National Resources Defense Council, argued the US “food system is in crisis” and suggested “a few food companies are profiteering wildly at everyone else’s expense”.
But opponents of Biden’s initiatives were also in evidence. Peter St Onge, a researcher in economics at the free-enterprise think tank the Heritage Foundation, claimed “the administration is scapegoating [the meat industry] for its own mistakes”.
He added: “The food industry has been concentrated for decades and during that period food had been exceptionally cheap.”
The impact of Covid-19
This point seems to be at the heart of the debate. The meat industry has not recently become concentrated so why has the Biden administration suddenly turned its gaze on its structure and practices?
Covid-19 would seem to be part of the answer. During the height of the pandemic, some large meat plants were shut down temporarily due to outbreaks among their employees, leading to fears of food shortages in the shops.
Increased demand for meat from people stuck at home exposed a shortage of slaughterhouse capacity while plant shutdowns and virus-linked labour shortages further cut the number of cows the factories could process.
Worried about food security, the US administration turned its focus onto the meat supply chain and didn’t like what it found in terms of concentration of ownership, which it has linked to rising prices.
However, Joseph Glauber, a senior research fellow, markets, trade and institutions division, at the International Food Policy Research Institute (IFPRI) in Washington, points to a more complicated state of affairs.
He tells Just Food: “The administration is dealing with high inflation rates and beef prices are currently running about 20% over year-ago levels. High retail prices for beef are coming at a time when cattle prices have not risen much – and in some cases have fallen – and have resulted in a widening farm-to-retail price spread and strong packer/processing margins.
“Several factors have caused the current situation in the industry. The plant shutdowns in early 2020 due to Covid outbreaks caused a sharp increase in retail prices because of the shortage in processed meat products and a sharp drop in producer prices because of the glut of cattle on the market that couldn’t be slaughtered.
“While the situation improved in the second half of 2020, labour shortages and Covid issues that have slowed line speeds continue to be a problem. And the wholesale-to-retail spread has increased as well because of supply chain issues like transportation costs, energy costs, and labour issues.”
Some agri-economists in the US have also suggested the administration may have got it wrong and argue rising prices reflect a surge in demand, pandemic-constrained supplies and rising costs for labour and transport.
Professor Derrell Peel from Oklahoma State University points to market-driven consolidation that left the industry with no spare capacity to handle the Covid-19 demand surge.
He says: “It’s worth reminding people that the structure of the beef industry hasn’t changed for about 30 years. “Two things have brought this [the Biden administration’s focus on the sector] to a head. Part of it is linked to the disruption we have seen with the pandemic. There has also been a process of downsizing [amongst processors].
“But the beef industry in the US is very cyclical and there has been an expansion in cattle numbers again in the last six years while capacity has declined. This has fundamentally changed the supply-demand issue and really pushed the limits. Producers have been hollering about packers for 100 years in this country and that has reached a peak in the last few years.”
Professor Glynn Tonsor from the department of agricultural economics at Kansas State University echoes Peel’s comments.
“While 80-85% of beef processing in the US is in the hands of four companies that has been true for the last 20 years,” he says. “It is important to not become misleading by linking recent pricing patterns to concentration solely. It is misleading to make that jump.”
Glauber at the IFPRI says: “Covid has caused a very large shift in food demand away from restaurants to at-home consumption. The US is seeing record meat exports as well, with large sales to China and other markets. All of this has kept beef and other meat prices high at the retail level.
“Plants have been operating near capacity with daily cattle and pork slaughter running near 2019 levels. All of this has contributed to very high margins.
“In my view, the question boils down to if profits are so high, why hasn’t the industry expanded to create more capacity, which would reduce consumer prices and raise prices at the producer level? Is this due to collusion? My answer would be there may be collusion but I have no evidence of it.”
Peel at Oklahoma State University suggests beef producers have been unfairly lumped in with other meat processors in this regard.
“[Market manipulation] has had a minimal impact in the beef industry,” he says. “It’s more about the poultry and pork industries. Those industries are truly vertically integrated. None of the beef groups own their own cows so they can’t control the market. It’s easy to be lumped in together by the casual observer.”
If such collusion does exist – and the high-profile price-fixing settlements suggest it has done in the past in the poultry sector – would the Biden administration’s $1bn investment encourage new players to enter the market to break up any over-cosy relationships?
Peel isn’t so sure. “It [$1bn] really isn’t a lot. The level of investment needed to get to a level would be very big,” he says. “A small- to medium-sized packing plant probably wouldn’t work. The reason we have the industry we have now is that the small plant owners we had in the past exited the industry. A niche or targeted [offering] might work as a sub-sector but doesn’t change the broader industry at all.”
Kansas State’s Tonsor agrees. “A billion dollars is both a big and a small number. Compared to the size of the industry it is quite small,” he says. “It could lead to a marginal expansion of some small businesses but it doesn’t move the needle in aggregate. And the sole goal [of niche players] is not to be a cheaper producer, so that isn’t changing prices for the consumer.”
Glauber at the IFPRI adds: “My concern is that you might have a situation analagous to the micro-brewery market over the past 20 years, where you initially saw a proliferation of small craft beer producers in the late 1980s and 1990s only to see most of them gobbled up by Anaheuser Busch-InBev, Molson Coors, etc within a few years.”
What might happen next?
One thing already happening is Cargill’s proposed takeover of peer Sanderson Farms, in conjunction with investor Continental Grain, is being examined by the US government over concerns about what it might mean for competition in the sector. Given the US administration’s rhetoric, it would be surprising if the $4.5bn deal, agreed in August, were allowed to go ahead.
But is further action at an industry level above and beyond what has been announced so far likely?
Peel at Oklahoma State says: “I don’t think it’s likely that the Biden administration will do anything as drastic as breaking up the current industry structure. Whatever they say publicly, it is not necessarily what they will do at the end of the day. Cattle numbers are falling, so capacity restraints will be less of a problem over the next few years. Some of these issues will die down.”
Earlier this month, a spokesperson for NAMI also suggested things are calming down. “The market has already begun to balance itself,” it told Just Food, adding “packers have begun to clear the backlog of cattle created by the pandemic”.
But there is a widespread belief there needs to be significant investment in infrastructure moving forward.
Glauber at the IFPRI says: “A lot of uncertainty in the market may be a factor that is preventing companies from expanding.
“At the end of the day, I am sceptical that adding capacity will have much impact on what the administration says it want to address – inflation. As cattle numbers decline, we should see improved producer prices. Futures prices would indicate that we are seeing some rebound now. Packer margins will decline. This is a normal pattern by the way.”
Peel at Oklahoma State thinks one of the big meatpackers will be the one to invest in additional investment and infrastructure.
“But they will wait until there is sufficient cattle and market demand to justify their investment.”
