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Déjà Vu For Beef: Big Companies Wield Power Like Packers Of Old

The yards at St. Onge Livestock.

-This story is part of an SDPB series on the food supply chain.-

The coronavirus pandemic could be a pivotal moment for the beef industry, because it’s shining a new light on old problems.

One of those problems is a lack of competition in beef processing. Four big companies control more than 80 percent of the industry. It’s called “packer concentration,” and it's been a sore subject with ranchers for more than 100 years.

Sen. Mike Rounds, R-S.D., says now is the time to do something about it, because the problem has caught the attention of consumers.

It started when beef-plant workers got sick with COVID-19. Production slowed down at beef plants. Stores ran low on beef, and retail prices went up, even as ranchers saw cattle prices stay low.

The average retail price of ground beef, for example, went up to $4.56 per pound in April, its highest level in five years. The average price for all beef cattle in April was $108 per hundredweight, the lowest since last October.

Rounds compares the situation to the 1950s. That’s when Russia took the lead in the space race with a satellite called Sputnik.

“If you believe like I do that this pandemic should serve as our Sputnik moment, our reality check, Rounds said, “we need to seriously modify the way America facilitates its food supply chain.”

If things do change, it’ll be a repeat of history.

‘Control at will’ of the market

A century ago, five packing companies controlled up to 75 percent of the meat industry. Federal regulators investigated. They said the companies were working together to keep livestock prices low and meat prices high.

A 1919 Federal Trade Commission report said the big packers “control at will the market in which they buy their supplies, the market in which they sell their products, and hold the fortunes of their competitors in their hands.”

The companies didn’t just slaughter animals and process meat. They had interests all the way up and down the supply chain, from the stockyards where cattle were sold, to some of the stores that sold the meat.

The federal investigation led to a threat of legal action. So, the companies took a deal. They agreed to break up their sprawling operations and focus on meat processing. That was in 1920. The next year, Congress put more teeth into the changes with a landmark law called the Packers and Stockyards Act.

Over the next several decades, the big companies lost market share. They were down to 30 percent by the 1950s.

But it wasn’t just government intervention that changed things. Historian Bill Warren at Western Michigan University has written books about the meat industry. He said the big packers built their empires on rail connections in Chicago. Then smaller packers took advantage of a new mode of transportation and built plants closer to the animals.

“In the ’20s and ’30s, what really helped with some of this decentralization was the growth of the trucking industry,” Warren said. “So, increasingly, farmers shipped by truck. And trucks can go anywhere. They don’t need to be on rail lines. So the smaller packers really benefitted by this decentralization of the transportation part of it.”

Packers re-concentrate

The heyday of smaller packers and more competition didn’t last. In the 1960s, Warren said, a company called Iowa Beef Packers was founded.

“They figured out a system in which you locate in really small towns out in the middle of nowhere, where trucks could still deliver livestock to plants, and they could really cut costs,” Warren said. “And they adopted new technologies in the plants.”

By the 1980s, the cost-cutting included recruiting immigrant workers. The IBP model swept the industry, and the packers that adapted it started buying up and merging with competitors.

“The industry has basically, from a span over the early ’80s to the present, re-concentrated to a degree even more extensive than it was at the turn of the 20th century,” Warren said.

In the past 40 years, packer concentration has been investigated, subjected to congressional hearings, and litigated. But not much has changed.

SDPB sought interviews with the Big 4 beef packers. That’s Tyson Foods, JBS, Cargill and National Beef. We also contacted two meatpacking trade groups. They all either declined interviews or failed to respond.

Warren, the historian, said meat packers and their lobbyists will resist reform.

“As long as consumers want cheap meat,” he said, “then you’re going to have these economies of scale that really only these super-large packers can provide.”

But farmers and ranchers say they’re losing hundreds of dollars on every animal they sell. Sen. Rounds says it’s time to fight.

“The situation is getting more dire each passing day. And now because of COVID-19, well, it’s impacted the ability of our processing facilities to operate fully, and even more livestock producers are reaching the breaking point,” Rounds said. “We’ve got to fix it, and there are a number of steps we can take.”

Solutions proposed

Some of those steps are underway.

After the pandemic disrupted the meat supply, Rounds and other politicians asked for investigations into packers and price manipulation. The U.S. departments of Justice and Agriculture have started those probes.

Rounds is also co-sponsoring legislation. It would require that meat packers buy at least half of their cattle on the open market, instead of through private contracts. He says that would cause more competitive bidding, and ranchers might get better prices.

Meanwhile, some ranchers support labels on meat that tell consumers where it comes from. They say that would discourage packers from importing cheap foreign beef.

And producers and politicians want more direct sales from ranchers to consumers. Currently, if a South Dakota rancher uses a local locker to process beef, the rancher can’t sell that beef across state lines. South Dakota officials are seeking permission from the federal government to allow that.

- Seth Tupper is SDPB’s business and economic development reporter.