Congressional Hearings Shed Light on Cattle Market Failures and Competition

Cattle production and competition in the beef industry has been center stage in U.S. Congress. The House Agriculture Committee addressed the topic of the state of the beef industry and beef supply chain issues during a hearing. On the same day, the Senate Judiciary Committee reviewed consolidation of meat packers on Capitol Hill.

The Senate Judiciary hearing, called “Beefing up Competition: Examining America’s Food Supply Chain,” followed a hearing last month in front of the Senate Ag Committee. At that time, leaders got input from cattle producers and industry groups about the supply chain, and concerns about lack of transparency, but no one from the meat packing sector took part in the Senate Ag Committee hearing.

Wednesday’s Judiciary hearing included witnesses representing producers, meat packers and grocers. The list included: Jon Schaben, Iowa Cattlemen’s Association, owner of Dunlap Livestock Auction, Rob Larew, president of the National Farmers Union, Shane Miller, president of fresh meats at Tyson Foods Group, Tim Schellpeper, president of USA fed beef at JBS USA, David Smith, president and CEO of the Associated Wholesalers Grocers, George Slover, Consumer Reports senior policy council.

Miller of Tyson stated in his testimony, “Questions have been raised about whether the beef processing industry is consolidated in a way that harms cattle producers, customers, and consumers. At Tyson, we are committed to ensuring fair compensation for farmers and ranchers, and that safe, high-quality meat, across the product offerings Americans are demanding, remains reasonably priced in all the places we call home. We believe market forces are working as they should.”

Schellpeper with JBS defended AMAs, “These Alternative Marketing Arrangements, or AMAs, provide a mechanism for producers to realize premium prices for the investments they make in superior genetics, herd health, management, and

marketing. They also help to ensure a consistent supply of high-quality cattle for processing that result in a consistent supply of high-quality beef options at the meat case for consumers. It is important to note that JBS purchases from cattle feeders of all sizes. AMAs help ensure producers capture more of the consumer beef dollar in an industry where cattle often change ownership 2-3 times after they leave the farm or ranch.”

When asked about participation in AMAs, Miller proclaimed that Tyson will setup an agreement with any producer, regardless of the size of their operation.

Larew of National Farmers Union shed light on the “get big” nature of the consolidation, “The incentives for firms to merge or acquire rivals are strong, since getting bigger can increase bargaining power relative to customers and suppliers. Firms also gain market power through vertical integration, where they control multiple links in the supply chain to their advantage. Consolidation, both horizontally and vertically, can help firms exclude smaller rivals from accessing markets, increase barriers to enter markets and compete, and create the conditions for large rivals to work together to manipulate markets to their shared advantage.”

He later broke it down as follows, “There has also been a shift toward greater alternative marketing arrangements and a thinning cash or spot market, that give packers greater control over the cattle supply. AMAs in the form of formula pricing averaged nearly 65 percent of total fed cattle procurement, compared to about 45 percent a decade earlier. By comparison, the negotiated grid and cash market for fed cattle declined to an average of about 24 percent nationally in 2019, compared to over 45 percent in 2009. Heavy corporate consolidation in beef packing, and the shift toward fewer, very large plants, makes the industry more vulnerable to shocks. This puts producers at greater risk of experiencing lower prices and consumers are more likely to see high prices at retail.”

David Smith shed light from the retailer perspective, “High levels of concentration allow the dominant retailers to act as gatekeepers to consumers. These retailers use their control over the market to advantage themselves at the expense of everyone else. They dictate terms and conditions to suppliers, including more favorable pricing and price terms, more favorable packaging, and access to exclusive products. Some even pressure suppliers not to sell certain products to independents.”

He mirrored the similarities to the cattle market, “In meatpacking in particular, farmers and ranchers face the same buyer power problem we do. With such a high level of concentration in meatpacking, the dominant players dictate prices to farmers and ranchers, who have no one else to sell to and therefore no choice but to acquiesce, even with prices so low that they are pushing these workers into poverty. And consolidated supply chains are more vulnerable to disruption, as we saw with meat during the pandemic.”

The unprecedented attention the cattle industry is receiving from Congress demonstrates a genuine concern. KCA will continue to push Congress to not just discuss the issues, but to push for action on minimum negotiated trade.