By Jim Puzzanghera Globe Staff, Updated February 19, 2022, 3:46 p.m.
Eric Nelson, a fourth-generation cattle rancher and farmer in Moville, Iowa, is a plaintiff in a class action antitrust lawsuit against the big four meatpacking companies. Jerry L Mennenga for the Boston Globe
WASHINGTON — As a fourth-generation rancher, Eric Nelson really admires a nice cut of beef. So he can’t help but cruise by the meat counter whenever he’s in a supermarket — even when he doesn’t need to buy anything.
Recently, while checking out the offerings at a Fareway Meat and Grocery store near his home in Moville, Iowa, Nelson was overheard by another customer explaining that he raises cattle. “Wow,” the woman told him. “You must really be getting rich with how much beef prices are going up.”
If only, Nelson thought.
Beef and veal at grocery stores cost 16 percent more in January than they did a year earlier, a key factor in the nation’s decades-high inflation rate. And there are some people getting rich off it. The profit margins of the four largest meatpackers have tripled over the past two years, according to a recent White House analysis. But ranchers like Nelson aren’t cashing in.
“We’re actually getting less . . . than at any time in the last 20 years,” said Nelson, 59, noting that it’s ranchers, not meatpackers, who have to pay the higher costs of cattle feed. “The consumer’s not winning and we’re losing. And it’s those dealing in the middle that have been the huge winners.”
The Biden administration and some in Congress on both sides of the aisle agree. They’ve launched investigations into whether some players in the highly concentrated meatpacking industry are using their market power to artificially inflate beef prices — and enrich themselves at consumers’ expense.
Such market-distorting forces could be at work. But the rising cost of beef — from humble hamburger to prime cuts of steak — is driven by multiple factors in a complex industry that demonstrates the difficulty Washington faces in fighting inflation in the short term. That poses a significant political problem for President Biden and the Democrats heading into this fall’s midterm elections as Republicans continue to hammer them on rising prices. The president has touted antitrust enforcement and federal efforts to boost competition in markets like meatpacking and energy as a way of curbing inflation, but that’s unlikely to bring prices down fast.
Beef prices have been driven up recently by worker shortages, supply chain disruptions, drought in cattle country, and accelerating consumer demand. Those problems are layered on top of longstanding issues like lack of competition and disputes between ranchers and meatpackers, as well as the unique nature of an industry dependent on large animals that reproduce slowly. Potential fixes, including a $1 billion Biden administration initiative to expand meat and poultry processing capacity by smaller players, an ongoing Justice Department investigation into possible price fixing, and bipartisan legislation that some ranchers say would curtail the meatpackers’ market power,will take time to have an impact.
Rising demand for beef at the same time as meatpacking capacity is down, exacerbated by pandemic plant shutdowns, is driving the price increases. said Derrell Peel, an agricultural economist at Oklahoma State University.
“If packing plants can’t process the cattle, then the demand for cattle goes down and the price [for cattle] goes down,” Peel said of the lower prices ranchers have been getting even though consumer demand is high. “In the short run, there’s really not anything anybody can do except let this stuff work out.”
Rodrigo Almeida, an industry analyst with Santander Bank, said beef prices have been driven up mainly by the inability of processing plants to meet consumer demand because they’re struggling to attract workers in a labor market with 10.9 million overall job openings.
“They’re not the most attractive places to work,” he said of meatpacking plants. “You can construct a new plant . . . [but] if I don’t have labor for my plant, I can’t do anything about it.”
The White House and some ranchers said the supply and demand equation in the beef industry has been distorted by big meatpackers using their market power to limit processing capacity and drive up costs so they can maximize profits.
“Our farmers and ranchers have to pay whatever these four big companies say they have to pay, by and large. But that’s only half of it,” Biden said last month during a White House meeting on the meat-processing industry. “These companies can use their position as middlemen to overcharge grocery stores and, ultimately, families.”
“This reflects the market being distorted by a lack of competition,” he said.
Prices are displayed on a selection at Union Meat Co. in Eastern Market in Washington, D.C.STEFANI REYNOLDS/AFP via Getty Images
The United States is the world’s largest beef producer, and its 2020 output was worth about $123 billion, according to the US Department of Agriculture. The four biggest meatpacking companies — Cargill, JBS, National Beef Packing Co., and Tyson Foods — control 85 percent of the market for higher quality beef like steaks. The North American Meat Institute, a trade group that represents them and other packers, said that figure drops to 70 percent if you include ground beef for hamburger. The Justice Department has been investigating potential price fixing by the large meatpackers since 2020, but it remains to be seen whether or when the probe would bring charges.
The meat institute denied any price fixing and said the high costs paid by consumers were caused by supply and demand mismatches that are starting to ease. But some in Washington are dubious the market is functioning properly.
“When you have that kind of concentration of the market in just a few or several companies and you see prices going up so rapidly, much beyond inflation . . . then you have to be concerned that other factors are at play,” said Representative Raja Krishnamoorthi, an Illinois Democrat. “We are very concerned that the meat-processing industry is engaging in potentially predatory business practices with their pricing.”
He chairs a House oversight subcommittee and has written to the executives of the three publicly traded large beef meatpackers — JBS, National Beef, and Tyson Foods — as well as major pork processor Seaboard Foods asking for details about their price increases. The inquiry was spurred, he said, following numerous complaints about rising meat prices from his constituents.
The price of food increased 7 percent in January compared to a year earlier, about the same as the high overall inflation rate, according to the Labor Department’s consumer price index. But beef and veal prices rose far more steeply at 16 percent, with some cuts like beef roasts jumping even more.
Ranchers and grocery store owners have attempted to fight the market clout of the large meatpackers in court, and that effort got a boost this month.
JBS agreed to pay $52.5 million to settle a class-action lawsuit over beef price fixing, without admitting any wrongdoing. Grocery stores and wholesalers sued all four companies in 2020, alleging the meatpacking giantsbegan working together starting in 2015 to reduce the number of cattle being slaughtered to help increase beef prices. R-CALF USA, a nonprofit representing independent family farmers and ranchers like Nelson, also filed an antitrust lawsuit against the four large meatpackers in 2019.
But reversing the companies’ stranglehold on the market requires overhauling an industry where the problems have only gotten worse since the pandemic. The share that ranchers receive of every retail dollar spent on beef dropped to 37 percent last year from 45 percent in 2017, according to USDA data, although that figure moved up to 39 percent in January as cattle prices have risen recently.
“Competition has been purged from the entire live cattle supply chain and the highly concentrated packers have perfected their ability to exploit their use of market power,” said Bill Bullard, chief executive of the ranchers’ group. “Beef prices were already elevated at an artificial level when inflation settled on the rest of the economy and now they’re riding the wave.”
Cattle grazed in a cornfield on Eric Nelson’s farm in Moville, Iowa. Jerry L Mennenga for the Boston Globe
Meatpackers have boosted their ability to control the market by pressuring ranchers into selling their cattle in long-term, exclusive deals instead of on the open market, he said.
Those deals, known as alternative marketing arrangements, tie the price of cattle sold in the future to an average based on open market sales at the time the cattle are ready for slaughter. That, Bullard said, enables the meatpackers to both reduce the amount of cattle sold on the market and control future prices. In other words: They are set up to win both ways.
Bipartisan legislation in Congress would set minimum amounts of cattle that have to be purchased on the openmarket.
Nelson, who is a plaintiff in the ranchers’suit, raises about 1,000 cattle for slaughter every year and also grows corn, soybeans, and hay on about 1,400 acres in western Iowa. He said he hasn’t signed alternative marketing arrangements because he doesn’t want to be locked into selling his cattle in the future for a potentially artificially low price.
This fall, he believes that stance led to the large meatpackers initially refusing to buy 100 of his cattle on the open market. Nelson said he was told the meatpackers didn’t want them because most had red hides — an explanation he couldn’t believe given the color of the hides have nothing to do with the quality of the beef. It took him about six weeks to finally sell them, but at that point their value had degraded as they had become too fat.
Between the lower price and the additional grain needed to feed them, Nelson estimated the delay cost him between $10,000 to $15,000 in total, wiping out any profit on the cattle.
“They were trying to send a message . . . that I can’t afford to have this happen again. I need to take one of your long-term contract deals to assure I can get my cattle slaughtered no matter what,” Nelson said.
Sarah Little, a spokeswoman for the North American Meat Institute, declined to comment on Nelson’s allegations. But she said alternative marketing arrangements are voluntary and benefit ranchers as well as meatpackers. Her group opposes “hasty reforms” that would inject the federal government further into the market.
“The meat industry in America is one of the most highly regulated industries out there, probably second only to airlines,” she said. She noted that cattle prices have been rising since the fall and consumer beef prices have declined since November.
But Nelson said the market is still out of whack, with meatpackers raking in profits because of high beef prices while ranchers struggle. He estimated that if he received the same share of the wholesale price for cattle today that he did about two decades ago, he’d be getting roughly $400, or 20 percent, more per head. And his costs, such as feed, have more than doubled.
“The tail’s wagging the dog,” Nelson said.
Jim Puzzanghera can be reached at jim.puzzanghera. Follow him on Twitter: @JimPuzzanghera.