AAI Advisor Robert Taylor Issues New Analysis on the Market Power Problem in Beef

Economic & Policy Analysis

AAI Advisor Robert Taylor Issues New Analysis on the Market Power Problem in Beef, Lays Out New Policy Framework for Ensuring Competition and Fairness in Cattle and Beef Markets

April 27, 2022 | C. Robert Taylor

Today, AAI Advisor and agricultural economist, C. Robert Taylor (Alfa Professor Emeritus in the College of Agriculture, Auburn University) issued the new report Harvested Cattle, Slaughtered Markets?

In this seminal report, Professor Taylor explains that cattle and beef production is increasingly horizontally concentrated and vertically integrated, from cattle feedlots to packers/processors to beef retailers. Although size and integration may lead to economic efficiencies, narrowly defined, they may also be a deadly combination that lead to abuses of market power and many undesirable market and externality consequences, including an illusion of choice for consumers, unfairness and harm to the competitive process. He highlights the current challenge of developing appropriate policy to neutralize the potential for market power exploitation, to internalize externalities, to insure or even increase efficiency by adoption of technology, and to insure competition and fairness in the future.

In the report, Professor Taylor analyzes the market power of the four largest beef packers and its relationship to certain contractual and trading markets practices. In particular, the report explores certain current market practices that may undermine fair and competitive markets, and harm competition as an active, dynamic process. These practices include, among others: (1) overreliance on Alternative Marketing Arrangements (AMA) base prices tied to the residual cash market; (2) the opacity of and variability around what “live cattle” is being priced in the markets; (3) limited depth and competitiveness in certain cash negotiated markets; (4) the risks of market manipulation arising from captive supply flexibility by dominant packers and/or large captive feeders; (5) preferential deals; and (6) partial vertical integration by dominant firms.

The report explains that since the advent of AMAs, tens of millions of taxpayer dollars have been spent by academic and government economists studying cattle markets. All reflect an “ideology,” over-simplified economic models, largely untested but critical assumptions, standards of statistical significance that may not be appropriate for policy prescription, and limited as well as sometimes inaccurate data. Professor Taylor emphasizes that that restoring competition and fairness to cattle and beef markets requires moving policy beyond a number of prevailing assumptions and conventions. These include narrow economic ideology and hidden value judgments inherent in oft-cited academic studies of cattle and beef markets. Moving policy beyond textbook models of monopsony and monopoly is also vital, due to the dominance of complex giant transnational corporations with vast webs of corporate legal entities and financing and risk sharing arrangements offered only to a few aligned businesses.

The report concludes with analysis of several pathways for change, including: modest reforms, breaking up the giant corporations; developing and protecting a parallel system; and exchange trading.