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Apr 28, 2022   |  

TIME: Why This Bipartisan Group of Senators Has Beef with the ‘Big Meat’ Industry

By: Abby Vesoulis

Fourth-generation North Dakota cattle rancher Shelly Ziesch needed to offload some of her cattle a few weeks back. It was getting too expensive to continue feeding cows that had already reached the weights necessary to sell them to feed lots.

Only a couple buyers were bidding the day of the auction, driving down competition-and thus the ability for Ziesch to make a profit. But she was in a bind. With the Russia-Ukraine conflict driving up the price of feed, she couldn't afford not to sell the cows to the lowball bidders. "As a live product, we can't just put [cattle] in a bin like we can with our grains and make a better choice later," Ziesch testified during a Senate Agriculture Committee Hearing on Tuesday. She estimates she came up $25,000 to $30,000 short of fair market value for her cattle at that auction.

It was a bad day for Ziesch, but it was hardly an anomaly, she says. Over the past three decades, as the largest four beef-packing firms have amassed control of 82% of the U.S. beef market, independent cattle ranchers like her have born the brunt of an increasingly exploitative power dynamic: With so few buyers in the market, they can either sell off their livestock at bargain basement prices at auctions, or turn to murkier contract sales that help them establish predictable relationships with big buyers, but often for less money. That dynamic, a bipartisan group of Senators now argue, is killing rural America, forcing independent ranchers out of work en masse, and leading to unpredictable consumer prices.

"It always ends the same," said Republican Sen. Chuck Grassley at the hearing Tuesday. "More profits for the packers and independent producers going out of business."

Republican Sens. Grassley and Deb Fischer and Democratic Sens. Jon Tester and Ron Wyden recently introduced a bill, the Cattle Price Discovery and Transparency Act, to address the problem. It would establish minimum thresholds for the proportion of cattle that must be sold through certain types of cash sales prescribed by geographic region, which the lawmakers say would create more pricing transparency. It would also create a publicly available library of marketing contracts.

A second bill, introduced by Tester and co-sponsored by six Republicans and six other Democrats, would bolster anti-competitive enforcement in the broader meat market by creating a new Special Investigator housed at the U.S. Department of Agriculture. The new Special Investigator's unit would help enforce the 1921 Packers and Stockyards Act, which is supposed to enforce anti-competition rules but has seen its power curtailed by insufficient government resources. Both chambers of Congress held hearings on these bills this week, in order to advance the bills to the markup process and then to floor votes where the full House and Senate would vote on them.

"We've seen a mass exodus off the land. Rural America is drying up," Tester, a Montana Democrat and third-generation farmer, said Tuesday. "Consumers are being treated unfairly in the marketplace because there is no competition."

Corporate profits shoot up as ranchers go out of business
From outside the industry, the process seems simple: cattle ranchers raise the cows, then sell them to the feed lots, which subsequently sell them to the meat processors to turn them into everything from hamburger to hanger steaks. In an unfettered market, the products should just sell for market rate.

But that's now how it works in practice, says Sen. Grassley. Since the four biggest beef-packing firms have so much market power, they can use their leverage to pressure cattle ranchers away from cash trades, like auctions, and into what the industry calls "alternative market agreements" (AMAs). Big beef packers argue that these AMAs, such as forward-looking contracts, offer ranchers peace of mind because they help them develop long-term relationships with buyers. But in practice, says Grassley, AMAs also prevent ranchers from gauging fair market rates for their cattle because AMAs are private. Without a public marketplace, you have no way of knowing how much your neighbor is getting for his cattle.

In the last 15 years, the share of cattle sold through cash trades declined from 52% to 20% on average, though ranchers and feed lots in some states, like Texas, Oklahoma and New Mexico, more frequently sell through AMAs than others. And that's happening hand-in-hand with ranchers' profits tanking. In 1970, the annual farmers' share of profits for beef and veal products was 64%, according to the Midwest Center for Investigative Reporting; now, ranchers average just 38%. Dwindling profits are driving independent cattle ranchers to give up the trade, according to a 2019 report by the Open Markets Institute, an anti-monopoly think-tank. Since 1980, an average of nearly 17,000 cattle ranchers have gone out of business each year, the report said.

Meanwhile, some of the biggest meat-processing companies-Tyson, JBS, Marfrig, and Seaboard-have seen their gross profits increase by more than 120% collectively since before the pandemic, and their net income skyrocket 500%, according to a December report by the White House.

That's bad for ranchers and rural communities, the lawmakers argued at the hearings. But it's also bad for Americans' wallets. Several events in the last few years showed how consumer prices can fluctuate rapidly when there are so few companies competing. When a fire broke out at a Kansas Tyson's plant in 2019, wholesale beef prices jumped 10%. When meat processor JBS experienced a ransomware attack in 2021, prices for bone-in pork butts swelled 25%. Pandemic-outbreaks at various meat processing plants also caused prices to increase and grocery stores to run out of certain cuts of meat because there were fewer alternative meat packers to send livestock to, and thus fewer brands that customers could purchase from. Ranchers, meanwhile, were stuck with too much livestock even though consumer demand was high.

‘The cows no longer pay for themselves'
Coy Young, a fourth-generation Missouri cattle rancher, paints a clear picture of the downfalls of market consolidation. During the Wednesday House Agriculture Committee Hearing, Young detailed the dozens of ranchers calling it quits and the receding returns in the industry. "Everyone in the farming community has one, two, or three jobs outside of the farm in order to pay their bills and make ends meet. The cows no longer pay for themselves-and haven't for a very long time now," Young testified. "I never thought I'd see the day where feeding America would become a part-time job."

But if the problem is apparent, a legislative fix may be less straightforward.

During the Senate hearing Tuesday, some Senators said the cattle pricing bill may go too far. Ranking Senate Agriculture Chair John Boozman acknowledged that cattle ranchers are frustrated by lower returns on livestock in contrast with rising consumer prices for meat, but argued that the cattle price transparency bill's aim-to mandate a minimum threshold of cash sales versus AMA ones-could harm some geographic regions more than others, based on how dependent those regions currently are on AMA sales.

Boozman also raised concerns on the second bill, asking how a new Special Investigator's office at the USDA would merely "duplicate functions" already performed by the USDA or other agencies.

Donnie King, CEO of Tyson Foods, the world's second-largest meat processor, argued during the House hearing that basic market conditions like supply and demand, rather than market consolidation, is to blame for lower cattle rancher profits. A pandemic-induced labor shortage "resulted in too many live animals ready for processing and too few facilities staffed to properly process those animals," King said in his prepared testimony, causing a "sudden and swift rise in oversupply of cattle [leading to] a corresponding sharp and swift drop in the market price for them."

Julie Anna Potts, President of the North American Meat Institute, a trade group representing meat companies, says that the cattle price transparency bill was "designed to punish the largest companies and their suppliers." Potts warns that Congress' interest in applying mandates to sales mechanisms should frighten all sorts of companies. "The mandate is an antitrust tool that could be used in any industry," she said in a testimony submitted to the Senate committee. "If a company gets too large, it will be punished with a government mandate directing how the company can purchase inputs. Such a government mandate should elicit opposition from anyone interested in protecting the free market."

But while some have concerns about increasing government intervention in the meat sector, others argue the cattle price transparency legislation isn't strong enough as written. Sen. Cory Booker said, for example, that lawmakers should consider stipulating AMA sales have base price starting points to improve leverage for ranchers. "I'm concerned Senate Bill 4030 does not go far enough to address the dire state of cattle markets today," he said at the Senate hearing Tuesday.

Bill Bullard, the CEO of the Ranchers-Cattlemen Action Legal Fund, a cattle trade group, agrees that the bill doesn't do enough to prioritize cash sales over alternative market agreements. "This is really a bill that is attempting to preserve for the meatpacking industry the alternative marketing arrangements to the greatest extent possible," he tells TIME. "This is a serious crisis we're in. We could soon reach the tipping point where we no longer have sufficient numbers of participants, or a competitive infrastructure to even sustain an industry."

Ziesch says she hopes her ranch can continue operating under future generations-but that is only possible, she says, if there is a competitive industry for them to operate within. "I urge the committee to pass these two bills," she told lawmakers on Tuesday "because they will provide my three daughters and my grandchildren the transparent and fair markets they need to carry on our family's ranching tradition."

https://time.com/6171326/meat-beef-industry-congress/

Office Contact Information

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