Monday afternoon, President Joe Biden met virtually with small independent farmers and ranchers to discuss solutions to rising meat prices stemming from what he sees as a lack of competition in the meat packing industry. In conjunction with the meeting, the White House released a fact sheet detailing the administration’s plan to address those issues.
“Over the last few decades, we’ve seen too many industries become dominated by a handful of large companies that control most of the business and most of the opportunities—raising prices and decreasing options for American families, while also squeezing out small businesses and entrepreneurs,” the White House fact sheet reads.
The president cited the meat packing industry as what the release called “a textbook example” of this lack of competition, saying the top four companies in the beef, poultry and pork packing industries control anywhere from 54 to 85 percent of the market, driving up prices for consumers and squeezing out smaller, independent producers by driving prices down for them.
Glynn Tonsor, Professor of Agricultural Economics with Kansas State University, however, said recent research by agricultural economists does not support the hypothesis that the beef industry is driven by non-competitive pricing. Citing recent studies, Tonsor noted that processor conduct during the pandemic has been, from an economic standpoint, “no different than perfect competition.”
And while area agricultural organizations support the president’s efforts to address these issues, officials say the solutions may not go far enough to address what they see as a much more complicated issue.
“More broadly, it is important to recognize that prices of any good, including cattle and beef, are a function of supply and demand forces,” said Tonsor. “There are many supply and demand forces at play in today’s complex industry. Strong meat demand (both domestically and abroad in our globally connected marketplace) itself leads to higher meat prices. Meanwhile, elevated costs of converting live animals into edible meat items is regularly found by economists to lead to lower livestock prices (via reduced derived demand) and higher meat prices.”
Kansas Farm Bureau President Richard Felts also said the answer is more complex.
“Immediately, I don’t think there’s a short sharp answer,” said Felts. “All the things we have to do (to shore up competition), we just don’t have the capacity right now - and labor - to accomplish what we need to accomplish.”
Part of the president’s plan includes $375 million in United State Department of Agriculture (USDA) financing grants to support small independent processing plant projects, with the goal to support small independent producers provide more competition in the meat packing industry. This includes providing additional capital to lenders who lend to small independent producers and distributors.
Biden’s plan also seeks to improve oversight of larger processors by strengthening enforcement of the 1921 Packers and Stockyards Act.
The president also wants to strengthen and clarify product labeling requirements.
“Under current labeling rules, meat can be labeled ‘Product of USA’ if it is only processed here—including when meat is raised overseas and then merely processed into cuts of meat here,” the release notes. “We believe this could make it hard for American consumers to know what they are getting.”
This makes it harder for domestic producers, to compete sufficiently with overseas producers who do not have to be transparent with their labeling and pricing.
“The dominance of opaque contracts and insufficient competition undermine price discovery and fairness in the independent livestock markets, which ultimately lock producers into prices that aren’t the product of free and fair negotiation,” the release notes.
Felts said the plan does not go far enough to address what he sees as a key component of the current supply chain bottleneck.
“You can have some alleviation there but when you look at the number and magnitude of the numbers of animals that we have that are being processed, it’s questionable, on the small end particularly, whether it’s going to help alleviate the demand side that much,” Felts said.
While the president’s plan also seeks to address the labor shortage issues, and Felts said the agriculture industry supports those efforts to build and train an additional workforce, Felts said it takes a lot of time to adequately build and train a skilled labor force.
Because much of the funding is geared towards smaller processors, he said, the plan will not address labor issues that also plague larger facilities, which are contributing to the supply processing bottleneck.
“We just do not have enough labor available in these large processing plants for them to operate at their optimum or maximum capacity,” Felts said. He added that some in the industry see the support of smaller independent producers without also supporting existing producers actually hinders competition and may actually worsen the bottleneck. Right now, he said, processing capacity at all levels is not enough to keep up with consumer demand.
“Supply and demand intersect significantly, and when you have an overabundance of product to be processed and limitation on that process, and you have good demand, it creates a lot of disparity,” Felts said.
The KFB, he noted, supports increasing opportunities for all producers to market their products.
Felts, however, does see some potential relief on the horizon for farmers and consumers from the president’s plan.
Tonsor observed the plan’s potential effectiveness will be determined by how it is implemented.
“The impact of any proposed action ultimately relies on detail of how things are implemented,” Tonsor said. “Here, the exact timing, location, and duration of federal resources being added to the processing sector will drive any realized impact.”
“Farmers are going to be able to expect more of an opportunity to market their commodity, and hopefully the consumer is able to see a little bit of relief in price,” Felts said.
The full White House plan can be found here.
