During a Senate Judiciary hearing on July 28, members from both sides of the aisle voiced calls for antitrust enforcement against those in the food sector. But the big questions remain: what is warranted, and can you go back from the current situation already created?
As noted by several senators, four companies control more than 80% of beef processing and four companies control 70% of pork processing. Sen. Josh Hawley, R-Mo., asked the panel how the industry got to that point.
One of the witnesses George Slover, senior policy counsel for Consumer Reports, replied most of the mergers in the beef packing industry occurred first in the 1980s when the trend of consolidation began leading to over-concentration. Once you get to that place, the incentives diverge in a corporation’s chase for profits. Slover explains it instead goes against responding to competitive pressures in doing what consumers want or paying producers.
But in questioning from Sen. Tom Cotton, R-Ark., he asked leaders who testified on behalf of Tyson and JBS to share their company’s portion of the beef processing pie in 1992 compared to today. For Tyson, it went from approximately 25% in 1992 to 20% last year, actually declining over the last 30 years. And at JBS their share of 23-24% has remained roughly the same over the last 30 years.
In written testimony provided to the committee, the North American Meat Institute notes: “Much of the rhetoric about concentration in the beef packing sector wrongly implies that consolidation is on-going and that packers’ market power is becoming more and more concentrated. That is not the case. The four-firm packer concentration ratio for fed cattle slaughter has not changed appreciably in more than 25 years. According to the Agricultural Marketing Service’s Packers and Stockyards Division, the four firm concentration ratio was 82% in 1994; today it is 85%.”
NAMI adds the last proposed merger of two of the “big four” fed cattle slaughterers occurred in 2008 – and it was blocked by the Department of Justice.
The DOJ broke up the “Big 5” largest meatpackers over 100 years ago. Minnesota Democrat Sen. Amy Klobuchar, chair of the Senate Competition Policy Subcommittee, asked if it’s time to break up the current “Big 4?”
Slover says Consumer Reports has refrained so far from calling for a breakup without an investigation that would justify that under existing laws. “We would not be opposed to that if the facts warrant action. Certainly, that would bring increased competition and more opportunities up and down the supply chain,” Slover says.
When National Farmers Union President Rob Larew was asked directly if his organization was supportive of breaking up the meat processors, he responded, “We are all for shining a light, having a review, and if necessary, break them up.”
Food chain problem
Klobuchar notes meat processors can’t be looked at in isolation.
“It is important to point out that we have excessive consolidation and competition problems throughout our food supply chain,” Klobuchar says. “In addition to meat processing and retailing, we have seen a handful of large companies dominating food-related markets, such as corn and soybean seeds, fertilizer, pest control, farm equipment, food distribution and food manufacturing.”
According to the American Antitrust Institute, only a small fraction of the 1,300 mergers in the food processing, manufacturing, and distribution sectors were challenged by the government
“So, the meat issue is part of a larger problem. Monopoly and monopsony power exists up and down the food supply chain,” Klobuchar says.
In opening comments, Sen. Chuck Grassley, R-Iowa, says it’s important the Department of Agriculture, Department of Justice and Federal Trade Commission be engaged and aggressive in policing anticompetitive activity.
“A year ago last March, I wrote to Attorney General [William] Barr and Secretary [of Agriculture Sonny] Perdue calling for an investigation about possible illegal practices in the cattle industry. I know that the Justice Department issued civil investigative demands in May 2020, but I’m disappointed that we’ve yet to learn anything from this investigation,” Grassley says.
“The take-away message should be clear—a concentrated food supply chain is a vulnerable food supply chain,” Klobuchar warns.
Anticompetitive actions ongoing
There has been a wave of price fixing litigation brought against major livestock industry companies since 2016, with multiple indictments and guilty pleas. Allegations have touched all three major meat sectors – beef cattle, pork and broiler chickens, explains NFU’s Larew in his testimony.
Accusations of collusion began to shadow the broiler chicken industry in late 2016 as the Maplevale lawsuit alleged large poultry companies coordinated prices between 2008 and 2016, resulting in a 50% price increase for broiler chickens, despite a roughly 20-23% decrease in input costs over the same period.
In October 2020, Pilgrim’s Pride, which is majority owned by JBS, plead guilty to one count of conspiracy in restraint of competition, and agreed to pay a fine of $110.5 million. Additional settlements by chicken companies about price-fixing claims followed, and an indictment, of Claxton Poultry Farms, followed in May 2021.
Larew’s testimony highlights that multiple lawsuits were also brought against beef packers and the pork industry in August 2019. In the case of pork, multiple settlements were subsequently announced, including $24.5 million from JBS in December 2020, another $20 million in March 2021, and $12.75 million in April 2021. It was announced in June 2021 that Smithfield Foods would pay $83 million to settle its case.
“These instances of market manipulation are a symptom of concentrated markets,” Larew’s testimony notes. “While the pursuit of these cases by federal regulators is a welcome development, the need for these actions is a product of under-enforcement of existing antitrust laws.”
Klobuchar introduced the Competition and Antitrust Law Enforcement Reform Act to give federal enforcers the resources they need to do their jobs, strengthen prohibitions on anticompetitive conduct and mergers, and make additional reforms to improve enforcement.
The President’s Executive Order on Promoting Competition in the American Economy calls on USDA to consider a number of measures to improve the competitive functioning of the agricultural supply chain and the marketplaces that constitute it, including reinvigorating the Packers and Stockyards Act’s prohibitions against unfair practices. As the PSA nears its 100th anniversary, many will be watching to see how Secretary of Agriculture Tom Vilsack attempts to tackle a growing issue of market power in the food sector.