Can Whistleblowing On Meatpackers Curb Retail Prices? Stay Tuned

Late last week, the Biden Administration’s departments of Agriculture (USDA) and Justice (DOJ) rolled out the federal government’s latest effort to curb “potentially unfair and anticompetitive practices” in the U.S. meat trade: An online portal where farmers and others in the livestock production chain can report incidents that may violate the Packers and Stockyards Act (PSA) or other antitrust laws.

At the new site, parties can report anonymously and complaints will undergo review by USDA and DOJ staff to see if any “raises sufficient concern” to be investigated by the appropriate agency. The idea is to protect smaller players in the nation’s meat supply chain – and as Attorney General Merrick Garland said about it, “When we talk about protecting consumers in this context, we are talking about whether food will be affordable for everyone in America.”

Long, long ago, in 1921 – pre-dating even Betty White – Congress enacted the PSA in response to a small handful of companies dominating the U.S. meatpacking trade. It designed the law to protect farmers and livestock producers, who had much less power in the domestic supply chain relationship, from being taken advantage of and to see that they would be paid fairly based on animal weight.

This came about three decades after the feds first began investigating meatpackers for colluding to fix beef prices to consumers, and the 1890 Sherman Antitrust Act. In 1935, the PSA was amended to include poultry as its own industry, rather than just targeting the poultry-producing operations of meatpackers of primarily beef and pork.

(When you hear “livestock” in farm circles, on a marketing and policy level that generally means the four-footed food variety – meat birds and eggs are often considered separate.)

For a century, the PSA has undergone challenges and changes. It used to have its own federal office, but in 1994 the USDA reorganized it under the umbrella of GIPSA, where the “G” led for Grain Inspection. Five years ago, things were shuffled yet again and PSA oversight ended up under the Packers & Stockyards Division of the USDA’s Agricultural Marketing Service.

For several decades, the PSA did put a sizable crack in the meat monopoly. In 1921, five meatpackers controlled the bulk of their industry; 50 years later, the four largest doing business at that time were handling only about one-quarter of U.S. meatpacking, the rest being done by several smaller processors.

Today, once again, meat production has consolidated to fewer players. For instance, just four major meatpackers – Tyson, Cargill, JBS S.A. and Marfrig Global Foods S.A. (through National Beef Packing Co.) – control more than 80% of U.S. daily beef slaughter, said Dr. Scott Brown, an ag economist and director of Strategic Partnerships for the University of Missouri College of Agriculture, Food and Natural Resources. Similarly, the White House notes that USDA data show only four processors handle about 66% of daily pork and 54% of daily poultry slaughter. But federal regulators have been sounding the alarm about the re-concentration of meatpacking operations for at least three decades.

Margins Aren’t Marginal

A big issue just predating the Covid-19 pandemic has been one of price discovery in cattle markets, said Brown. In August 2019 a fire that gutted a Kansas Tyson Foods plant exposed how concentrated the beef supply line had become into a few hands. That one plant was responsible for 5% of the nation’s daily slaughter, but he explained the loss temporarily took about 20% of the nation’s daily capacity offline – causing backups in supply that further enriched the remaining suppliers.

He said there were some livestock farmers who felt like packers took advantage of them by lowballing payments for cattle, since the same number of animals were still available for daily purchase – just into a narrowed supply chain. On the other hand, he said there are economists who will point out anytime supply overruns processing capacity, that generally means less is paid for the supply materials.

The same chorus repeated just months later in March/April 2020 when Covid shutdowns sabotaged even more processing plants and slowed the supply chain. “We’ve gone from the fire to Covid-19,” Brown observed, “and it’s just never gone back to anything that’s normal.”

Healthy earnings reports for major beef processors illustrate the widening margin between what farmers are paid for their cattle and what meatpackers sell the finished product for on the other side.

But “this is not a national ‘all cattle producers are mad’ situation,” Brown said.

He explained the larger feedlots in the Southern Plains of Texas, Oklahoma and Kansas – which are also closer to major meatpacking operations – have overall fared better on animal sales than smaller feedlot owners in Iowa, Nebraska and Missouri. During the worst of Covid slowdowns, some smaller operations didn’t have any meatpackers coming to bid on their cattle, leading to even more speculation that big feedlots have “sweetheart deals” with Big Meatpacking.

One thing President Biden is trying to do through efforts such as the Farmer Fairness reporting tool, Brown said, is to combat high retail beef prices, in arguing that costs to the consumer would be lower if farm-to-wholesale margins would go down. While the Mizzou economist allows that more competition does lead to better price discovery, it does not guarantee farmers higher prices for their cattle. There could be a loss of “economy of scale” that is present in a more consolidated supply chain, which could lead to higher costs of production. Too, there is no guarantee that narrowing margins alone would drop retail beef prices.

“We don’t know all the unintended consequences of mandating minimum levels of cash trade” as some lawmakers are working to pass, he added.