BThe planet and US politics have warmed in tandem over the past few decades, but few sectors have been the subject of controversy like the US beef industry. Control of four overpowered meat packers more than 80% in the US beef market, an extraordinary concentration of market power that the Biden administration is not happy with.
A recent executive action signed by the president aims to increase competition in the beef industry, with the White House noting that over the past five years, “the share of farmers in the price of beef sales has fallen by more than a trimester – from 51.5% to 37.3% – while the price of beef has increased ”.
But how did the Big Four slaughterhouses get so much of the beef processing capacity in the United States? They got help.
When explaining the history of consolidation in meat packaging in the United States, it is fitting to start at the time of Upton Sinclair’s novel, The Jungle, from 1906. Following the Sinclair’s messy talk about the industry of the time, Congress passed the Pure Food and Drug Act and the Federal Meat Inspection Act, aimed at cleaning up the meat supply for consumers’ health and challenging the power almost unlimited of these players.
Josh Specht, environmental and business historian, offers another interpretation of this starting point. “These acts accepted the state of the meat packaging industry in 1906,” he writes in his book Red Meat Republic. “The big packaging of meat was no longer questioned, it was regulated.”
A third law, passed in 1921, Packers and Stockyards Act, aimed precisely at breaking the vertical integration of large companies by forcing them to sell their stakes in companies which owned, for example, railways or refrigerated trucks.
It did much to control the power of the big packers, Specht says, although the labor movements of the 1940s and 1950s were equally important. But ultimately the industry would revive the old playbook of making huge profits through large-scale exploitation and labor exploitation, and today the four biggest beef processors of Sinclair’s time. still exist in one form or another.
Today’s Big Four – Tyson, JBS USA, Cargill, and National Beef – are more than heirs to America’s meat-packing heritage. They are also multinational giants, two of which are majority owned by Brazilian companies. In fact, in 2020, many packers were critical for the amount of meat exported at a time when processing was limited due to outbreaks of Covid at processing plants, driving up prices and creating shortages in grocery stores that affected U.S. consumers.
But today’s big four did not become behemoths overnight. By the mid-1970s, they controlled as little as 20% of the meat packaging market. What changed? The answer, in part, lies beyond the meat packaging industry, with corn growers and grocery stores.
It is no coincidence that the 1970s marked the rebirth of a concentrated meat packaging industry. The early to mid-1970s were a time of explosive growth and high demand for agricultural products, when farmers across the country enjoyed some of the highest relative incomes in American agriculture, before or since.
Meanwhile, farmers and ranchers with cash and access to cheap finance were looking to invest in their farming businesses to improve their cash flow. Especially in the Great Plains, cattle feedlots were just the ticket, requiring relatively limited amounts of land. These years were marked by a boom in the number and size of feedlots, as well as advances in antibiotics, animal feed and genetic technologies for livestock.
In the late 1970s and early 1980s, market conditions resulted in a dramatic oversupply of grain, and although many farmers suffered historic losses, those who had invested in feedlots were able to purchase inexpensive feed to fatten livestock in their new or expanded confined feed operations. . These factory-like facilities did what they were meant to do – they helped their owners avoid the risk of declining production of seasonal and weather-dependent crops.
In 1979, grain-fed cattle made up a quarter of total U.S. beef production, but that number has skyrocketed in the past 40 years to more than 60% today.
The most successful feedlots were generally found in the Great Plains, from the Dakotas to Texas, located in a perfect place between the abundance of Midwestern feed grains and the supply of Intermountain Western feeder cattle (young cattle weighing 500 to 600 pounds, which are brought at market weight into a feedlot).
Meat packers followed these feedlots, which also tended to cluster, but not as much as packers. Today, less than 5% of feedlots control 80% feeder cattle market, most of which is located in just five states.
As the number of cattle suppliers that a meat packer had to work with decreased, so did the number of meat buyers and their average size increased.
By the 1990s, the consolidation of the grocery industry in the United States was already well under way, with the nation’s top 20 food retailers selling nearly 40% of all grocery retailers. In 2019, the top four grocery retailers captured that same 40% of sales, according to the USDA, while in metropolitan areas their share was more than 70%. The big four in the grocery store – Walmart, Target, Albertsons and Kroger – are able to wield surprising power over their suppliers, even over the Big Four slaughterhouses.
“That’s what we call the power of the order form,” says Errol Schweizer, former vice president of grocery for Whole Foods, now an industry advisor. “Retail buyers have a lot of say in the supply chain in terms of the ability to send a purchase order or retain the purchase order. ”
The power of the purchase order is important, as contracts with major retailers are both extremely competitive and lucrative. The largest, most centralized meat packers are usually able to offer the lowest prices to provide retailers with reliable, large quantities of familiar cuts of meat every day, and the less a grocery chain works with meat suppliers, the lower their operating costs. In this way, as fewer and fewer grocery chains have more and more market share, they turn to the smaller and larger meat packers, thus strengthening a system of mega-players throughout. along the beef system.
But the weight that comes with being a mega-buyer has its limits, as evidenced by the continued rise in beef prices. These increases are the result of Covid-related downturns in meat packaging, caused primarily by outbreaks at meat packaging plants that have led to thousands of workers fall ill and hundreds die. The packers passed the price increases on to their retail customers, who in turn passed them on to consumers.
The mega-group of feedlots, packers and grocery stores could show signs of fraying. In 2020, Walmart took a small step towards resuming part of its own meat processing by opening a new plant in Georgia to make “ready-to-use” cuts of meat, much like the 2019 opening by Costco of a poultry plant in Nebraska. This seems to be a sign that large retailers are looking to reclaim some margin from meat packers, albeit currently on a very small scale.
Regardless, many believe it is essential to reduce the consolidated power of these large players, not only to keep consumer prices low and ranchers in business, but to protect the food security of the United States. . The global pandemic isn’t the only event revealing how fragile the current consolidated system is – the recent cyberattack on JBS, which cost the company a ransom of $ 11million (£ 8million ), shut down one-fifth of U.S. meat processing capacity. for days, with the effects felt up and down the supply chain.
Advocates say that while one of the goals of reducing consolidation is to improve protections for workers, especially vulnerable meat packaging workers who have fallen ill and died from Covid-19 at rates well above average, the pressure needs to be on the entire food system, not just meat packers.
“Not a single grocery retailer said, ‘Hey, that’s not fair,'” Schweizer said of retail meat buyers when reports of plant-related illness and death surfaced . Instead, he says, retailers prioritize having meat in stock, no matter what, because it’s an important driver of customer retention for grocers. But it was well within their power, he said, to suspend or slow down purchases to put pressure on meat packers to improve conditions and protect workers.
As the food system changes brought on by the pandemic continue to unfold, experts will be watching closely how the Biden administration tries to tackle consolidation in the meat packaging industry. Austin Frerick, a Yale-based competition and antitrust expert, is optimistic that significant action will be taken soon, but says what he has seen so far does not break with the historical trend.
“The state of play over the past 40 years,” said Frerick of political efforts to break down the big meat processors, “has been empty words. It’s a matter of political courage.