Livestock markets are broken. They’re broken because of Covid-19, but livestock producers are convinced markets were broken long before the virus ever reached our shores. Over 80% of cattle are processed by just four companies. The pork market is also dependent on just a few companies for most of the bacon on grocery store shelves. Not only are there few buyers for livestock, but both industries are dominated by a handful of very large plants.
Several of those plants have been shuttered or are operating at less than full capacity because workers are ill, leading to plummeting farm prices, empty grocery shelves, sharply higher retail prices, and market ready animals with no place to go.
Some of the problems we are seeing now will ease as life returns to normal. Some will not. The challenge for producers, legislators, and regulators will be to sort out temporary disruptions from long term problems.
Would we be facing fewer problems if we had more, smaller packing plants? Perhaps so, but workers in smaller meat processing plants have been stricken by COVID-19 as well. If larger plants and bigger companies can process animals more cheaply than smaller plants and companies, then the costs of more and smaller plants will likely be passed on to the consumer in the form of higher prices, leading to less meat consumed. That outcome would be welcomed by the small but vocal part of the population that is convinced that meat consumption is the source of most of our environmental and health problems. But it won’t be good news for livestock farmers.
If, on the other hand, consolidation has occurred not because of the efficiency of larger individual plants and companies, but because firms have pursued consolidation to secure pricing power in an oligopolistic market, then changes in the industry can be made without increasing costs to the consumer. In fact, more competition might lead to both lower prices to consumers and higher prices for producers. That’s certainly the opinion of most of the cattle producers I know.
It’s been exciting to see the increased interest in direct farm to consumer sales. We need to increase the availability of capital for upgrading existing plants and building new processing plants and make sure the rules surrounding the processing of meat don’t treat small processors unfairly. We also need to increase the number of young people who are being trained in the industry, because a lack of available labor for processing is perhaps the biggest obstacle to increasing opportunities for farmers to market meat directly to consumers.
Some observers have called for the transformation of the packing industry into what would in essence be a public utility, with allowable packer margins set by fiat. That would have the advantage of making sure that packers would never again see high margins like what we see today. Of course, public utilities aren’t known for cost cutting or innovation. To fix margins is to freeze the industry at a time when it’s obvious to all of us that the industry needs major changes. Cattle producers might want to visit with dairy farmers about the glories of an industry with formula driven processing margins. The only people who might possibly be madder than cowboys are the folks who milk cows.
Senator Grassley has once again introduced a bill to require that 50% of cattle be traded in open markets. Many producers are in favor of Grassley’s bill, convinced that more transparency will lead to higher prices, but other growers strongly believe that they benefit from formula pricing that rewards them for producing higher quality animals.
Many cattle producers are upset about beef imports, as retailers struggle to fill consumer demand. Now, beef can arrive from foreign places as live animals, or after processing. We only import live cattle from Mexico and Canada. Beef imports from those two countries are covered by the recently signed USMCA. Agriculture clearly benefits from the agreement, and we ought to at least let the ink dry before we jettison the deal.
Or, we could stop the importation of processed beef. If I were a packer, I’d encourage that idea. Restricting imports of processed beef would increase packer margins even more. It’s not at all clear to me why we would want to pad the bottom line of the “Big 4” packers. Not only would import restrictions raise consumer prices and packer margins, but continued shortages and high prices will force consumers to look beyond meat. Consumers don’t have to buy beef and substitutes for meat are readily available. It’s extraordinarily frustrating that off shore producers benefit while U.S cattle producers suffer, but we need to think past the short term and protect consumer demand for U.S. meat.
The U.S. exports more beef than it imports. Imports of beef into the U.S. have been flat for over a decade while exports have increased by nearly 20%. Pork exports are booming, accounting for nearly a third of pork sales. Abandoning trade agreements and withdrawing from international agreements may feel good for a while, but the best path forward is to increase competition in U.S. markets rather than limiting our exposure to the only growing market that we have.
Investigations into livestock markets have been going on for months, with little sign of progress. U.S. producers and consumers desperately need answers, and action as well. Would anti-trust action to increase the number of firms in the industry improve competition, reduce consumer prices, and perhaps even make the industry better able to deal with a pandemic? How quickly can we ramp up a vibrant network of small, local producers? No investigation can answer all of our questions or provide a path forward, but a well-researched and sober snapshot of our present situation can help as we try to figure out what the future should look like.
About the author: Blake Hurst is a third-generation farmer and president of the Missouri Farm Bureau board of directors.