One hundred years ago, U.S. antitrust prosecutors broke down monopolies in meatpacking. But can they do it again?
Supermarket customers are paying more for beef than they have in decades during the coronavirus pandemic. But at the same time, the companies that process the meat for sale are paying farmers and ranchers staggeringly low prices for cattle.
Now, the Agriculture Department and prosecutors are investigating whether the meatpacking industry is fixing or manipulating prices.
The Department of Justice is looking at the four largest U.S. meatpackers — Tyson Foods, JBS, National Beef and Cargill — which collectively control about 85 percent of the U.S. market for the slaughter and packaging of beef, according to a person with knowledge of the probe. The USDA is also investigating the beef price fluctuations, Agriculture Secretary Sonny Perdue has confirmed.
Meatpackers say beef prices have spiked during the pandemic because plants are running at lower capacity as workers fall ill, so less meat is making its way to shelves. The four companies didn’t respond to requests for comment about the probes.
But the coronavirus crisis is highlighting how the American system of getting meat to the table favors a handful of giant companies despite a century of government efforts to decentralize it. And it’s sparking new calls for changes in meatpacking.
“It’s evidence that something isn’t right in the industry,” said Sen. Chuck Grassley, an Iowa Republican who has spoken out against mergers in the agriculture industry. In April, Grassley requested federal investigations into market manipulation and unfair practices within the cattle industry. So have 19 other senators and 11 state attorneys general.
The average retail price for fresh beef in April was $6.22 per pound — 26 cents higher per pound than it was the month before, according to the Bureau of Labor Statistics. At the same time, at the end of April, the average price for a steer was below $100 per hundred pounds; the five-year average for that same week was about $135 per hundred pounds, according to USDA’s weekly summary.
Ed Greiman, general manager of Upper Iowa Beef who formerly headed the Iowa Cattlemen’s Association, attributed the consumer price increase to plants running at lower capacity. At the same time, farmers and ranchers desperate to offload their cattle as they reach optimal weight for slaughter are cutting prices so they won’t have to kill the animals without selling them.
“I’m running at half speed,” Greiman said at an event hosted by the Nebraska Cattlemen’s Association. “Cattle are backing up because we can’t run our plants fast enough. Nothing is functioning properly. We need to be careful not to put blame on any one thing or part of the industry because we can’t get these plants going.”
Exactly 100 years ago, after years of litigation, the five biggest U.S. meatpackers — which were responsible for 82 percent of the beef market — agreed to an antitrust settlement with the Justice Department that helped break their control over the industry.
The Justice Department’s efforts to reduce concentration in meatpacking led to decades of competition. By 1980, the top four firms controlled only 36 percent of cattle slaughters in the U.S., according to a report by the Government Accountability Office.
But during the next 10 years, meatpacking experienced a huge wave of deals, enough that the USDA dubbed the time “merger mania.” By 1988, the new four biggest companies again controlled 70 percent of the beef meatpacking market.
“There’s greater concentration in meatpacking now” than in 1921, said Thomas Horton, an antitrust professor at the University of South Dakota, who previously worked at the Justice Department. The first antitrust laws were “passed to take care of the Big Five. Now we have the Big Four. We’re going backwards.”
Unlike poultry and pork, which take weeks or months to raise, cattle can take as long as two years from birth to butcher. That lifecycle makes it much more difficult to adjust supply. Once cattle reaches its optimal weight, they need to be sold within two weeks, said Peter Carstensen, an antitrust professor at the University of Wisconsin. And realistically, a farmer can only transport cattle about 150 miles to a slaughterhouse.
“You’ve got at most four bidders, but the reality is there are often fewer,” said Carstensen, noting that in some states, there are only one or two meatpackers with plants.
While the structure of the industry has remained stable since 2009, changes in how the meatpackers buy cattle have also had an impact. Before 2015, about half of all cattle was purchased via direct negotiation between a rancher and meatpacker, known as the negotiated cash market. Today, about 70 percent are purchased through contracts where farmers agree to deliver cattle once they reach a certain weight with the price to be determined later — usually a formula that takes into account how much cattle sell for in the cash market.
The increase in these contracts has some advantages for ranchers, because they know they have a buyer and don’t have to spend time on negotiations, said Ted Schroeder, an agricultural economist at Kansas State University. But fewer cash trades have made it harder to figure out the right price for cattle, he said.
Due to the coronavirus pandemic, more than 14,271 meatpacking workers have been sick as of May 15, according to the nonprofit Food and Environment Reporting Network. Worker illnesses and temporary plant closures have led plants to operate at about 50 percent capacity, said Schroeder.
Schroeder, who has focused on cattle prices for more than three decades, said the rising consumer prices and falling cattle prices are consistent with normal supply and demand.
“It’s economics 101. There’s less meat around, but demand is still pretty strong,” he said. “We’ve got plenty of cattle but can’t get it through the system. We are pretty close to what I would expect to happen to wholesale and farm prices given the bottleneck.”
Not everyone is persuaded. Last year, ranchers filed an antitrust suit against the four meatpackers for colluding to depress cattle prices. The suit, pending in Minneapolis federal court, alleges that Tyson, JBS, Cargill and National Beef began coordinating in 2015 to reduce the number of cattle slaughtered while also limiting how many they bought in the cash market. Ranchers with excess animals on their hands were forced to sell for less or enter into long-term contracts beneficial to meatpackers.
“The Big Four simultaneously withdrew from the cash market with intent to reduce prices across the board,” said Bill Bullard, CEO of Ranchers-Cattlemen Action Legal Fund, one of the lead plaintiffs in the suit, in an interview.
The companies were able to coordinate by communicating through trade associations, said Bullard. The lawsuit is based in part on information provided by a confidential witness who worked for one of the meatpackers for a decade. The conspiracy drove prices down at least 8 percent, said Bullard.
If the meatpackers were communicating about prices, that would clearly violate criminal antitrust laws, said Carstensen. But if a company observes what a rival does and matches that behavior — sometimes called “tacit collusion”— that may not violate the law, he said.
“Coordination is not the same thing as collusion,” said Carstensen.
The Justice Department could, however, try to make a case that the meatpackers have monopolized the beef market. They could argue that the companies have engaged in “an anticompetitive set of industry practices, which taken together, violate antitrust law and require a broader restructuring,” he said.
The anti-monopoly Open Markets Institute has outlined a similar theory and pushed for breaking up the Big Four so no company controls more than 10 percent of the market. Sen. Elizabeth Warren (D-Mass.) also advocated for breaking up meatpackers as part of her presidential campaign.
Grassley, meanwhile, said he’s not ready to call for the breakup of major meatpackers, but he has “a great deal of questions about whether they’re operating within the law.”
Bullard’s group is also pushing for broader changes to the industry, such as requiring packers to buy at least half of their cattle from the cash market or prohibiting contracts that don’t include prices.
Kansas’ Schroeder, though, warned against moving the industry backwards. Breaking up the meatpackers would likely lead to higher consumer prices, he said, and insisting on cash sales would eliminate some of the advantages, like stable supply, that contracts offer.
“Too often, we try to stop things from progressing. We want things to be the way they used to be. But the way they used to be wasn’t that great,” he said. “We should be cautious how we approach regulation, so we don’t turn the apple cart upside down.”