A beef with ‘bigs’: Why rethink of competition starts with meat industry

A beef with ‘bigs’: Why rethink of competition starts with meat industry

February 18, 2022

By Laurent Belsie Staff writer @lbelsie


Mike Callicrate doesn’t mince words: “Break ‘em up,” says the Kansas cattleman of the four meatpackers that dominate his industry. “We’ve got to have a different model going forward. It’s going to be a smaller, more local, regional model.”

It’s a notion that is gaining attention, and not just in agriculture. While few would go as far as breaking up companies, the idea that concentrated corporate power needs more government oversight is catching on. From academia to Congress to the White House, people are reconsidering “bigness.”

The industries getting the most scrutiny so far are Big Tech and meat. Complaints about the reach and influence of giant technology companies such as Meta (formerly Facebook) are rising from both sides of the political spectrum. And shutdowns of huge packing plants before and during the pandemic, which sent meat prices soaring, have caused the White House – as well as bipartisan groups of rural-state senators – to propose new steps for reform. The idea is: Reliance on a few players with big, efficient operations may be hurting the economy’s resilience in the face of unexpected challenges.

Why We Wrote This

Has a trend toward corporate bigness gone too far? The meat industry is becoming an important test as President Joe Biden and lawmakers in both parties consider regulatory changes. But the issues involved are complex.

Even some economists are beginning to reconsider their devotion to efficiency and are asking: “Should we start thinking about sacrificing some cost and efficiency to guard against future pandemics?” says Azzeddine Azzam, an agricultural economist at the University of Nebraska, Lincoln.

Big meatpackers have survived public scrutiny before, such as food-safety scandals in the early 1900s and price-fixing concerns in the 1920s. Today’s talk of resilience, however, poses a bigger challenge because it goes to the heart of how the industry is set up. “It represents a larger potential for change than food safety,” says Bill Winders, a sociologist at Georgia Tech in Atlanta and co-editor of “Global Meat,” a 2019 book on the industry.

Four big companies

Four international corporations control 85% of U.S. beef processing capacity, according to the White House: JBS S.A., the world’s biggest meat supplier; Tyson Foods Inc., the biggest U.S. meat company by sales; Cargill Inc., the nation’s largest privately held corporation; and National Beef Packing. The other popular meats – pork and poultry – are also highly concentrated and controlled by some of the same players. But beef is drawing the most attention, in part because it’s the most concentrated and also because it’s an inflation leader, with an 11% jump that’s the fastest 12-month rise in beef prices in four decades.

The Biden administration blames much of that price rise on the lack of competition within the meat industry. “Capitalism without competition isn’t capitalism. It’s exploitation,” President Joe Biden said last month in announcing his plan to help smaller processors, the same phrase he used last July when signing an executive order taking on Big Tech’s anticompetitive practices.

Charlie Riedel/AP/File

A Tyson Fresh Meats plant in Emporia, Kansas, April 27, 2020. Tyson is one of several big meat packers that has faced, and settled, price-fixing lawsuits. Because the processing plants are so big, they have also raised environmental concerns – plus worries about whether food-industry resilience is threatened if several plants face temporary shutdowns, as occurred during the pandemic.

But the reality is more complex. Weather, an historic drought in the West, the constant supply adjustments by ranchers to price signals, plus changes in consumer demand brought on by the pandemic have had a big impact on meat prices. “The Biden Administration continues to ignore the number one challenge to meat and poultry production: labor shortages,” Julie Anna Potts, president and CEO of the North American Meat Institute, said in a statement last month.

With bigness, efficiency

Nor is it clear that bigness is always bad. A 2021 study for the National Bureau of Economic Research found that while concentration increased in consumer-facing industries over the past quarter-century (think airlines or rental cars), product concentration actually went down. In other words, the more dominant corporations became, the more fiercely they competed with each other, crashing rivals’ markets with new products of their own. And the efficiency of the big packers has kept meat prices low for American consumers over the long term, certainly lower than in Europe, which has adapted a model closer to what reformers are proposing.

And while the big processors have been squeezing ranchers, taking a bigger and bigger share of the consumer dollar spent on beef, their extreme efficiency has allowed them to afford to pay ranchers more than they otherwise would get, says professor Azzam, the University of Nebraska economist. That sounds contradictory, but packers don’t want to build an expensive plant and then wipe out their suppliers, he points out. The packers’ efficiency-powered profits give them more leeway to pay ranchers what they need to stay in business.

But there are also costs to bigness – some apparent and some hidden. (Neither the meat institute, which represents the processors, nor three of the biggest processors themselves responded to emails for comment.)

One is wages. By moving plants from the Corn Belt to the Great Plains to get plants closer to ranchers, processors were also able to shed unionized workers and replace them with rural, poorly paid, nonunion – and eventually immigrant – labor. Another is manipulating prices. JBS, Tyson, and pork-processing giant Smithfield Foods have all settled lawsuits for price fixing.

Then there are the environmental and health problems. Because the processing plants are so big, they generate enormous amounts of waste. Last year, for example, Tyson agreed to a $3 million settlement for releasing thousands of gallons of partially treated wastewater into an Alabama river, killing an estimated 175,000 fish. The five largest meat processors also were hit hard by the pandemic, with at least 269 worker deaths attributed to COVID-19 in the first year of the pandemic, according to a House select subcommittee.

To counter this market power, the Biden administration has a plan that would extend $1 billion in federal aid to small processors and expand and strengthen regulations to try to level the playing field.

David Zalubowski/AP

U.S. Agriculture Secretary Tom Vilsack and his wife, Christie, pay for an order during a visit to Wheat Ridge Poultry and Meats, a locally owned butcher shop, on Jan. 14, 2022, in Wheat Ridge, Colorado. Mr. Vilsack made the stop to talk about Biden administration efforts to widen market opportunities for American farmers, ranchers, and consumers.

A new political climate in Congress

Efforts at reforming the industry are also underway in Congress – and in a bipartisan way. Republican Sens. Chuck Grassley of Iowa and Deb Fischer of Nebraska have joined with Democratic Sens. Jon Tester of Montana and Ron Wyden of Oregon to require that packers buy a certain amount of their beef on the cash market, rather than rely on private contracts whose terms are not disclosed. The idea is to make price-setting more transparent.

Last fall, a larger bipartisan group of senators also introduced a bill to reinstate the American Beef Labeling Act, so U.S. meatpackers would no longer be allowed to put a U.S. label on beef imported from abroad. Even small processors who might benefit from the Biden program doubt that such measures will come close to leveling the playing field. “We really appreciate what the Biden administration is trying to do,” says Mike Lorentz of Lorentz Meats, a niche meat processor based in Cannon Falls, Minnesota. And “we have grown exponentially in the past 20 years. But we are still not even a blip on the radar.”

The difference in operating scale is just too great to overcome – and not just in beef, but in pork and poultry as well. Mark Curran and Bill Kuhnert, partners in Vermont Family Farms, which buys cattle and hogs from small farms and aggregates them into lots that can be sold to niche processors, say they can get 120 hogs processed a day. But they point out that Smithfield’s Tar Heel, North Carolina, plant, the world’s largest, processes 32,000 hogs a day. “It’s just so far apart,” Mr. Curran says. “You’d need a whole lot of plants to get close to matching that or have any meaningful impact.”

The political power is also tilted in favor of the bigs.

When President Biden was vice president, President Obama proposed strengthening federal laws against price fixing in agriculture, “The power of those big processors undermined it, says Philip Howard, a professor in the department of community sustainability at Michigan State University at Lansing. “It’s a different political climate now. [But] it’s going to be difficult to see substantial change.”