Eddie Moore/The Albuquerque Journal via AP
Economic consolidation across the beef industry has made the once comfortable livelihood of small- and medium-sized ranchers nearly untenable.
Since high school, Fred Stokes knew he wanted to be a cattle rancher. Now 86, he still tends to a modest herd of purebred Polled Hereford cattle on his 160-acre property in Kemper County, Mississippi. But his time as a rancher, as for many livestock farmers across the country, has been trying. Only with a working wife and his own military pension was he able to pull himself through a string of tough economic years.
Financial hardship for independent ranchers is universally felt. Around a thousand miles northwest of Stokes’s ranch, at the foot of the Sandhills in eastern Nebraska, David Wright is a fourth-generation cattle rancher who shares Stokes’s passion for ranching. But as he repeated a few times in a phone call last week, “It’s a great life, but it’s a terrible way to make a living.”
In the last three decades, this has become more acute. Economic consolidation across the beef industry has made the once comfortable livelihood of small- and medium-sized ranchers nearly untenable. In Nebraska, Wright described watching young farmer after young farmer squeezed out of the cattle industry and forced to drive semitrucks or work at fertilizer plants to pay off debts. He says nearby farmers were pushed to abandon their cattle and farms after being priced out by the same culprit: Big Beef.
The stranglehold on the beef industry can be traced to the processing and packing companies at the center of the market. Ranchers and legislators say that the four major meatpacking companies—the “Big Four,” as ranchers call them—are to blame. Tyson, JBS, Cargill, and National Beef purchase and process 85 percent of beef in the United States, giving them immense economic control. They operate at the nefarious nexus of being both regional monopsonies and monopolies, having a significant sway on both the price of cattle bought off the ranch and the price of beef bought at the supermarket. These four middlemen firms are both the buyers and sellers.
The “Big Four”—Tyson, JBS, Cargill, and National Beef—purchase and process 85 percent of beef in the United States.
Think of these mega-companies as occupying the slim center of an hourglass. They control how the meat moves from the top of the hourglass, from ranchers, to the bottom of the hourglass, to consumers. Since 2015, the prices of cattle and retail beef have moved in opposite directions; cattle prices have decreased by 35 percent while retail prices have increased by 8 percent. For the major meatpacking companies, buying low and selling high translates into much bigger profits.
As Stokes put it, “The beef pie is not being sliced in anything near a fair way.”
After fielding months of criticism about COVID-19 outbreaks at their plants, the major meatpacking companies faced another crisis last weekend: a cyber attack on Brazilian-owned JBS, which controls 23 percent of the United States’ beef processing. Its plants were closed for only a day, but the attack reverberated through the industry. Although just one company was targeted by the ransomware attack, beef prices spiked nationwide.
“If one event like the cyber attacks can shut down almost 25 percent of beef-processing capacity, we have a really big problem,” Rep. Rosa DeLauro (D-CT) told the Prospect. “We have such a consolidated industry that any one separate event can cause this big of a disruption.”
Congress has started to take notice. Last Tuesday, Sens. Tina Smith (D-MI) and Mike Rounds (R-SD) wrote a letter to Attorney General Merrick Garland demanding that the Department of Justice investigate the consolidation of the meatpacking industry. In a show of joint force, 26 members of Congress signed the letter, from Freedom Caucus members Reps. Paul Gosar (R-AZ) and Louie Gohmert (R-TX) on the right to Progressive Caucus members Reps. Mark Pocan (D-WI) and Ro Khanna (D-CA) on the left.
The signers pointed to the burgeoning profit of meatpackers as one sign that there’s anti-competition at play. The Big Four packers “are seemingly able to control prices at their will, or even defy expectations of market fundamentals,” the letter reads. “From our perspective, the anticompetitive practices occurring in the industry today are unambiguous and either our antitrust laws are not being enforced or they are not capable of addressing the apparent oligopoly that so plainly exists.”
In an interview with the Prospect, Sen. Smith said that she was already concerned about market consolidation before the JBS cyber attack. When she learned of the incident, it only furthered her case. “When one of them is attacked, the entire system is vulnerable,” she said. “It illustrates the concentration in beef processing and why we need to understand why these big processors are making more and more [money] while cattle producers are getting squeezed.”
Cattle ranchers like Fred Stokes have felt the squeeze for years. In the 1970s, mounting debts nearly pushed Stokes out of ranching entirely. He knew the industry was stacked against him—and all independent farmers. In 1998, he founded the Organization for Competitive Markets (OCM), a nonprofit that fights for economic justice in agriculture. The organization has advocated for industry-wide regulatory reform and a moratorium on mega-mergers.
Cattle ranchers and economists say the beef industry remains the last frontier for vertical integration and economic consolidation. Hog and poultry farming have already become breeding-to-packaging industries, in which the farmer is contractually bound to large corporate meat processors at every stage of the production process. Cattle farmers have held onto their independence for longer because bovines are so difficult to raise. In the first months of a calf’s life, the only efficient way to raise it for meat is on an open swath of grass.
In the past 20 years, a revolving door has swung between the meatpackers’ biggest lobbying firm, the North American Meat Institute, and the USDA.
In the last decade, major acquisitions have winnowed the big beef-packing players. The last substantial antitrust legislation, the Packers and Stockyards Act, passed exactly 100 years ago. Most national antitrust laws protect consumers, but this one protected producers. At the time, five large companies controlled multiple stages of the production process—a phenomenon known as “vertical integration”—as they owned the railcars, cold storage facilities, and stockyards. The act forced these packaging firms to sell off their other interests. The legislation helped farmers to stand a fair chance at the negotiating table.
A century later, ranchers are worse off. The Packers and Stockyards Act was originally passed because of what was then known as the “Big Five.” Now, there’s one less company peddling beef, and the remaining four control a significantly larger part of the market. In addition, a form of vertical integration has crept into the industry. Packers own “feeder cattle” that they place with ranchers or their own feedlots. And through “forward contracts” and exclusive purchasing agreements, ranchers sell at prearranged prices to the packers, divorced from supply and demand. This creates “captive supply” for the packers, increasing their control over how many cattle they purchase and at what price.
With antitrust laws still on the books, ranchers and policy experts suspect that a lack of enforcement could be to blame. In the past 20 years, a revolving door has swung between the meatpackers’ biggest lobbying firm, the North American Meat Institute (NAMI), and the U.S. Department of Agriculture (USDA). NAMI’s director of product marketing and promotion worked for the USDA for 37 years before joining the lobbying group; its senior vice president for international affairs worked for the USDA for 29 years. The USDA oversees the enforcement of the Packers and Stockyards Act.
Stokes says that the close ties between NAMI and USDA are preventing effective regulation. “The packers have placed a fox in every henhouse in USDA,” he said. “They pay campaign contributions, and in exchange they’re able to nominate their people to key enforcement positions for the rules that apply to them.”
At the time of publication, the USDA had not responded to a request for comment.
When asked for comment, NAMI responded with a fact sheet countering “common meat market myths.” The document insists that the four firms control only 70 percent of beef production, rather than 85 percent. It also claims that the industry is already subject to intense antitrust regulation, and that the market controls cattle and beef prices, not the Big Four.
But the revolving door also applies to antitrust regulation. In April, JBS unveiled Kevin Arquit as its new chief legal officer. Arquit previously served as general counsel and head of the Federal Trade Commission’s Bureau of Competition. The appointment arrived after JBS dodged a series of antitrust class action lawsuits, all of which ended with settlements.
Cattle ranchers and policy aides told me that JBS is the most aggressive of the four firms, with the greatest reputation for antitrust violations. Several sources also described the company as a criminal enterprise, as its parent company, run by Brazilian brothers Joesley and Wesley Batista, was charged with bribery this past fall. The parent company paid $256 million in criminal penalties.
The company’s U.S. division has also drawn a powerful group of former regulators and legislators to work among its ranks. Former House Speaker John Boehner and former Securities and Exchange Commission Chairman Harvey Pitt serve on JBS’s four-person independent advisory board. (Pitt resigned as chairman after only 18 months, following a series of political missteps.) And the company’s global head of food safety was a longtime administrator for the USDA’s Food Safety and Inspection Service.
But for ranchers, the Biden administration brings some promise. “The Packers and Stockyards Act is a vital tool for protecting farmers and ranchers from excessive concentration in the poultry, hog, and cattle markets,” Andy Green, a senior adviser for fair and competitive markets at the USDA, said in an email. “It should not be used as a safe harbor for bad actors.”
Campaign promises are starting to turn into action. Yesterday, the USDA announced a $4 billion investment through an effort called the Build Back Better initiative. The fund is designed to target a range of inequities in the agricultural sector, and it specifically mentions the need to spur greater competition for smaller meat processors.
According to Green, the USDA is actively working to determine ways to “strengthen the fairness and resiliency” of livestock markets. “You can point to example after example exposing a food system that is rigid, consolidated, and fragile,” he said. In addition to the $4 billion program, Green added that the department is increasing “transparency and competition with attention to how certain types of conduct in the livestock markets and the meat processing sector have resulted in thinly-traded markets and unfair treatment of some farmers, ranchers and small processors.”
Green was formerly a senior fellow of economic policy at the Center for American Progress, a progressive think tank. In a phone call, Stokes told me, “Andy is a straight shooter and a pure heart.” He didn’t say the same of many former USDA officials.
Rep. DeLauro tells the Prospect that the DOJ needs to investigate the four firms for monopolistic behavior, but the USDA’s work is also critical, and that litigation can be complemented by legislation. Federal procurement programs designed to provide relief to meat companies have historically doled out tens of millions of dollars to the largest companies. In 2019, JBS won a quarter of the USDA’s trade war relief contracts for pork––amounting to $78 million. DeLauro says federal aid to the Big Four needs to end.
According to Stokes, the Mississippi rancher and founder of OCM, there’s been almost no relief for small-scale, independent farmers. “There’s nowhere near a fair apportionment of the beef dollar,” he said. “We don’t want any preferential treatment. We just want a fair game.”
