Executives from some of the biggest beef processors — Tyson, JBS USA, Cargill and the National Beef Packing Company — rebuffed criticism from lawmakers this week that they manipulated the prices of their products.
At a Congressional hearing held by the House Agriculture Committee on Wednesday, beef executives were grilled about why their companies were raking in record profits while consumers are struggling. The price of beef has spiked 16% between March 2021 and March 2022, according to the Bureau of Labor Statistics.
Their testimony took place as the Biden administration calls out consolidation in the meat industry and the impact it has on smaller competitors and meat prices. The four biggest beef-packing firms control 82% of the market, according to the White House.
When asked by Rep. David Scott, a Democrat from Georgia, if there was an agreement between large producers to fix the prices of beef, each executive denied the charge.
Tyson Foods CEO Donnie King defended his company’s record-breaking earnings last quarter, saying that the meat industry is the “most transparent in the world” as producers are required to report the prices they pay for cattle and the prices at which they sell their beef twice a day to the USDA. He added that Tyson is using the additional earnings to help drive down costs.
“Tyson’s returns are also strengthened by our efforts to become a more agile and efficient company through innovation and automation,” King said in his testimony.
Tim Schellpeper, CEO of JBS USA, said that his company sells its products at wholesale prices to grocers and foodservice locations, and that those prices have actually decreased since last year.
And Tim Klein, CEO of National Beef Packing Company, said that one reason behind the higher beef prices is higher transportation costs and bottlenecks within the supply chain.
“The biggest single factor we’re dealing with right now is where we’re at in the cattle cycle,” Klein said. “There are simply more cattle available every week than there is demand capacity to process and scale.”
Several Congress members probed the fairness of an industry where a handful of companies have such high market share. Rep. Randy Feenstra, a Republican from Iowa, said that the biggest meat companies are able to use their clout to control prices through contracts and line speeds at their facilities.
“The system is set up where the packers will never see a loss, creating massive guaranteed profits while rural farmers lose their livelihoods,” he said.
Gilles Stockton, a Montana cattle farmer and representative of the Montana Cattlemen’s Association, said in his testimony that the farm to retail price spread for beef has shrunken from 71.3% in 1975 to 36.5% in 2021, meaning for every dollar spent on the meat at a grocery store, ranchers and cattle feeders get only 36.5 cents. The big meat packers exercise their power through “captive supplies,” or cattle that they either own outright or have an arrangement with producers to buy, Stockton said. He charged that these arrangements allow beef companies to control prices and block a large number of farmers from competing.
“With captive supply levels now approaching 80% of all fed cattle, you can readily see how much ranchers and feeders are losing in this rigged market system,” Stockton said.
JBS’ Schellpeper said the meat giant buys some cattle through these alternative marketing arrangements, which he said allow producers to recoup their investments in genetics, animal health and marketing. He said JBS also buys in cash markets as well, allowing smaller farmers the chance to compete.
“JBS is active in the cash cattle market every day, and we will compete for quality cattle in the market wherever and however producers wish to sell them,” Schellpeper said.
Ranchers said that Congress can stop anticompetitive practices by regulating captive supply agreements through enforcement of the Packers and Stockyards Act, a 1921 law aimed at preventing meat industry domination by larger players.
David MacLennan, CEO of Cargill, said his company is committed to investing in the farmers that supply its beef. He said the market of supply and demand in the industry is a cyclical process, and that family farms could see higher profits in the coming years.
“We’re also committed to empowering and providing the livelihoods of the people who grow and raise our food,” MacLennan said. “We know how hard and cyclical the cattle industry is.”
Tyson’s King said that beef processing concentration has remained constant over the last 30 years, and that profits for cattle ranchers and producers increased in that time, calling it “the market at work.” King also added that changing consumer demands for better-quality and more sustainable beef will drive change needed in the supply chain.
“Innovation in the supply chain is going to be critical going forward,” King said. “We as packers need to find ways to incentivize ranchers and producers to be able to do the things necessary to provide that end product.”
Some lawmakers did not believe that consolidation was the cause of massive profits, and questioned the Department of Justice’s investigations into price-fixing in the meat sector. Rep. Glenn Thompson, a Republican from Pennyslvania, said the hearing was a political attack on the beef industry on behalf of the Biden administration.
“If there has been collusion, manipulation, or other wrongdoing by packers, then the law should be enforced under the existing authorities at USDA and DOJ,” Thompson said. “Absent such findings, it’s time to stop demonizing the packing industry out of political convenience.”
The beef packers’ testimony came a day after Congressional hearings on two bills aimed at addressing critics’ concerns. The Cattle Price Discovery and Transparency Act aims to introduce market reforms to give producers more control and information when they sell livestock. The Meat and Poultry Special Investigator Act seeks to establish a special investigator within the USDA to investigate alleged anticompetitive practices in the meat sector.
This year, President Joe Biden also made a significant step toward addressing industry consolidation by giving smaller meat processors $1 billion in funding to drive competition. The funds will go toward independent processing projects, as well as boosting financing options, technical expertise and providing a livable wage for smaller farmers and their employees.