The price of meat is going up. Ranchers and corporations are split on why.
Damon Watson is a fourth-generation cattle rancher in rural Oklahoma, and his son and daughter hope to be the fifth. In recent years, however, it has become more difficult to envision that happening: The profitability of the farm has fallen and opportunities in Council Hill, a town 60 miles south of Tulsa with slightly more than 100 people, continue to dry up.
Even as consumers pay more for meat at grocery stores, ranchers like Watson have struggled to earn a high enough price for their cattle from meat processors. He’s seen most of the other small farmers in the area give up cattle ranching altogether because it isn’t as profitable.
“Most people have options if you’re selling something,” Watson said. “For farmers and ranchers, you get told by the packers what you’re going to get for it and you better hope you’re happy with it.”
He and other cattle ranchers are increasingly upset by the thin margins they earn, driving a large number of farmers to bankruptcy. Meanwhile, according to the Department of Agriculture, giant meat processors have earned record profits in an industry worth well over $200 billion.
The pandemic has shined a bright light on the tension between farmers and processors, causing members of the Biden administration, a bipartisan group of politicians and advocates to push for greater oversight of the meatpacking industry. They blame meat conglomerates for driving up costs for consumers, keeping profits from farmers and leaving elements of the food supply chain vulnerable.
In addition to the struggle to remain profitable, Watson saw how the pandemic put the supply chain for meat in serious peril — with outbreaks shutting down plants and leading to some scarcity early on.
As a result, Watson has created his own option earlier this year, employing 16 people to open a small meat processing plant for his farm and a few other ranches in the area. It’s one of 19 new small plants that opened in Oklahoma this year largely inspired by meat production slowdowns during the pandemic and frustration with the traditional industry.
“A lot of people weren’t going to have a place to get their meat processed because so many processors were shut, so they wouldn’t be able to sell their stuff,” Watson said, adding that his entire family ethos has come down to supporting the local community.
Opening the small processing plant has given ranchers another option, he said, so they can market their meat locally.
That is one reason that, using funds from the American Rescue Plan, the USDA announced it is investing $500 million to expand local and regional meat processing plants in an effort to create greater competition within the industry. An additional $150 million is targeted at small and very small producers, like the Watsons. The USDA also intends to announce on Monday a loan guarantee program that is aimed at expanding processing capacity in some facilities, which small and midsize processors are expected to benefit from.
The largest meatpackers butcher as many as 35,000 cattle a week in their plants. In comparison, Watson’s processes about 35, with the intent of selling a higher quality, local product directly to the consumer. His family even opened a storefront. Limited exposure and work protocols in Watson’s smaller plant mean a better chance of staying open when larger plants are forced to shut down because of Covid-19 outbreaks.
“If we’re successful in reigning in the corporate monopolies, we’re going to have to be prepared to backfill,” said Walter Schweitzer, the president of the Montana Farmers Union, who is also a cattle rancher working with a new meatpacking cooperative. “We’re going to have to rebuild because we used to have a local meat processing industry throughout America. We have to train more butchers, inspectors and entrepreneurs to get our local meat processing industry up and running again.”
Efficiency versus resiliency
In 1977, the largest beef-packing firms controlled about 25 percent of the market. Now the USDA reports that almost 75 percent of the country’s beef is processed by four companies: JBS, Tyson, Cargill and National Beef Packing Co. The situation is similar in pork and chicken, and the consolidation of meat processing has earned the ire of consumers and politicians in recent months.
Political leaders, advocates and ranchers have been pushing for greater probes into whether the meatpacking industry is resilient enough to face shutdown and supply chain shortfalls. Many believe a greater diversity of players in the industry would better protect the food supply chain and are investigating if these large companies’ continued consolidation is stifling competition and the farming community.
“We’re going to have disruptions going forward, whether it’s worsening effects of climate change, whether it’s any other kind of disruption, like we saw with the pandemic,” said Rob Larew, the National Farmers Union president. “The system is maybe the epitome of efficiency, but the market supply chain is fragile and not very flexible.”
Consumers have only seen the effects and vulnerabilities of this consolidation when disaster strikes, but it does ultimately affect their pocketbooks — especially recently and when it comes to meat prices. Beef, pork and poultry account for half of the recent increase in food at home prices since December 2020, according to the USDA.
Critics of the food processing industry point to disruption within large company plants in recent years for the continued increase in costs, and there are multiple incidents to cite beyond the pandemic.
JBS, one of the world’s largest international meat processors, was hacked earlier this year, which forced the company to take its meat processing systems offline until it paid an $11 million ransom to a Russian hacking group. The suspected culprit said it intends to target the agriculture sector in future.
Fires, including one in September at a JBS plant and another at a Tyson facility in 2019, and the uptick in powerful natural disasters have also shut down production, increasing prices.
Agriculture economists appear less bullish on making major changes to the industry, noting the intense amount of efficiency currently seen in the system to feed a country used to expansive access to meat. They also note that continued disruptions beyond the pandemic shutdowns is being caused by the ongoing labor shortage facing the entire country.
Jayson Lusk, the head of the Department of Agricultural Economics at Purdue University, testified before Congress that it should work to anticipate future challenges, rather than address shortages in the system caused by the pandemic.
In a call with NBC News, he said small processors may be able to find a market with consumers increasingly interested in shopping locally, but he said that slumping cattle herd sizes — the current trend line — will not support the addition of new processing plants, and it could result in processors having too much capacity as they did in the 2010s.
“By further incentivizing this extra packaging capacity, we may be fixing yesterday’s problem,” Lusk said. “Are we going to wake up five years from now and find ourselves in the same situation we were in almost a decade ago where there’s too much capacity relative to inventory and packers are gonna have to shut down, go out of business, etc.?”
New efforts to reign in meatpackers
There’s immense legislative interest in targeting the industry and expanding capacity. In the Senate, Democrats and Republicans introduced bills that would create country-of-origin labels for meat products, a library of contracts to create price transparency and an investigator whose main role would be to probe anticompetitive conduct and enforce meatpacking regulations.
The Biden administration supports those efforts and is pushing many of its own, including investing more in processing and in relief programs related to climate change.
The White House has also directed the Departments of Agriculture and Justice to work together to investigate price fixing and enforce antitrust laws in an effort that it says will create greater equity and transparency in the industry. The two are also working on expanding the regulatory power of the Packers & Stockyards Act, a historic piece of legislation that broke up the power of meatpacking monopolies and had its 100-year anniversary last month.
Tyson spokesperson Gary Mickelson said in an email that meat processors cannot control market forces and were “already in one of the most heavily-regulated and scrutinized industries in the country.”
Mickelson added that Tyson is “pro-small business,” citing the multibillion-dollar company’s origin story. He said competition is already intense within the current system and influenced by customer desires.
“Having Americans rely only on a network of small processors would create inefficiency in the system, meaning families would pay significantly more for their meat,” he said. “It would also increase the burden on retailers and national restaurant chains, as well as regulatory agencies, as the nature of these markets, involving live animals and products with a short shelf life, requires constant coordination.”
JBS, Cargill and National Beef Packing Co. did not respond to requests for comment.
The North American Meat Institute, a trade association for meatpackers, said the industry already faces much regulation regarding price transparency. Sarah Little, a spokesperson for the group, said small processors will face the same labor challenges as the giant conglomerates and will struggle as cattle herd sizes become smaller.
After Agriculture Secretary Tom Vilsack and Economic Council Director Brian Deese said at a news conference in September that the Biden administration will pursue greater regulation and oversight of the sector, blaming meatpackers for driving up food prices, NAMI President Julie Anna Potts pushed back.
“The pandemic seems to be the vehicle spawning new bad ideas, and resurrecting other bad ideas, seemingly without recognizing economic realities and unintended consequences. Indeed, none of the proposals advanced at the press briefing will alleviate the consumer price increases the administration seeks to address,” she said in a letter Little shared with NBC News.
‘Something has to be done’
Maintaining the status quo, however, appears unpopular. Critics seem to only be gaining steam with their arguments that greater diversification of the industry would make the food system more resilient, provide greater equity and promote truer competition and would allow more companies room to operate in the market.
But those critics also have their own qualms with how the White House and USDA are moving forward.
While the monetary investments proposed by the Biden administration could be beneficial, many advocates like Kathryn Bedell believe that for any change to become a long-term reality, the federal government needs to address consolidation first.
Bedell ran a small processing facility in western Colorado before giving it up to push for meat processing reforms. A farm veterinarian who grew up cattle ranching, Bedell said that the Biden administration must first push antitrust legislation and policies that create greater competition.
“USDA is aiming all this money toward building processing space, but I’m worried that unless they deal with the whole picture of problems, that half a billion dollars is going to go to waste and all these small companies will go out of business almost as fast as they can build them,” she said.
Some ranchers noted that they are looking at the Biden administration with renewed interest after the Federal Trade Commission said it would protect farmers’ rights to repair their own machinery.
Schweitzer, the president of the Montana Farmers Union, said delivering antitrust legislation and rule-making could bring the administration a huge amount of support from rural communities.
“I’ve been talking about these corporate monopolies my whole life, and to be heard,” he said, pausing as he began to choke up, “you don’t know how emotional it makes me.”