OCM – 30% of Nothing is Still Nothing – Level of captive supply cattle should be zero!

30% of Nothing is Still Nothing

April 20, 2020 OCM Staff

Currently there is a movement in the cattle industry calling for a mandatory beef cattle cash market volume of 30%.

Corbitt Wall is touting it as the biggest thing to hit the cattle industry since Y-Tex eartags, while patting himself on the back like he just invented a new card game.

Meanwhile, NCBA has been spending our checkoff dollars developing an online cookbook. Beef producers need Market Reform, not Martha Stewart. Perhaps NCBA could spend less of its time and our money developing dinner recipes and do more to stop the corporate takeover of the beef industry.

The fact of the matter is that regardless of the percentage of negotiated cash sales, at the end of the day 4 corporations control 85% of the beef market. At that level of concentration, essentially, there is no competition. With no competition, there is no market.

30% of nothing is still nothing. Farmers and ranchers need real structural change in our industry, not incrementalism. We need fair prices paid for our cattle–in dollars–not lip service.

Even the USDA acknowledges that vertical integration, not the lack of a spot market mandate, is the cause of the divergence from the spot market. Spot market mandates have already been tried in the pork industry, and they didn’t work to restore prices to a sustainable level.

The decline in negotiated cash purchases is a symptom, not a cause. It is a symptom of vertical integration, concentration, and corruption in the meatpacking industry. Those three things have kicked the door open for increased formula pricing, packer ownership, and captive supply.

We need to always be on the lookout for unintended consequences, especially when we are treating symptoms instead of the cause. What will be the effect of mandating a 70% captive supply?

The 30% mandate that all beef producers, Sonny Perdue, and NCBA should be focusing on is 30% market concentration of the Big 4 meatpackers. The last time the Big 4 controlled 30% of the market was in 1978 (see figure below). Not coincidentally, that was the last time U.S. cattle producers had a competitive, functioning market. Concentration has only increased since then, and with it has come packer ownership of cattle, formula pricing, the disappearance of COOL, and plummeting cattle prices. Meanwhile, the disparity between those cattle prices and the price of boxed and retail beef is at record high levels.

ABOVE: Four-Firm Concentration in Steer and Heifer Slaughter and Boxed Beef Production with Selected Civil Antitrust Lawsuits, 1972-2007

How would 30% market concentration impact negotiated cash purchases and prices now?

Let’s not lose sight of the root causes of the problems in the marketplace and what can be done to address them:

  • Reverse Concentration: Break up the 4 biggest meatpacking companies and restore antitrust protections for producers.
  • Enforce the Packers and Stockyards Act as it was intended, to protect producers from the abuses of powerful meatpacking companies.
  • Eliminate Captive Supply: Ban Packer Ownership of livestock.
  • Curb Corruption: Revoke the NCBA’s status as the sole entity responsible for the use of check-off monies. Put checkoff money to work for the beef producers, not for lobbying on behalf of the packers.
  • Implement COOL: Mandatory Country of Origin Labeling must clearly identify beef as born, raised, and slaughtered in the United States.
  • Declare a Moratorium on Mergers: Stop further vertical integration. Sign OCM’s petition below.

Our government used to do its job of keeping corporate monopoly power in check. Unfortunately, over the last several decades our government has failed to do its job. The Big 4 meatpackers have to be reined in. For over 20 years, OCM has been fighting to stop further concentration in the food industry. Join us in standing together with farmers and ranchers to keep bad actors accountable, and to keep our market economy open, fair, and for the people.

Stop the Mega-Mergers and Market Consolidation

It’s time to #BreakUpBigAg. Add your name to our petition calling for a moratorium on food and agriculture mega-mergers and a review of concentration and market power in those sectors.

I support the Food and Agribusiness Merger Moratorium and Antitrust Review Act. This legislation would help restore opportunity for U.S. family farmers, ranchers, and regional and local businesses and help protect consumers from price gouging.