The following is the summary and conclusion portion that Bill Bullard — CEO wrote for Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, or R-CALF USA — wrote recently in a 51-page article for the South Dakota Law Review, regarding ag markets and anti-trust issues:
An early twentieth century legal framework preserved competition between the live cattle industry and the beef packing industry by delineating proper roles for industry competitors.
It ensured, for example, that dominant meatpackers could not expropriate the cattle feeding sector from the live cattle industry’s supply chain to eliminate competition between themselves — the concentrated buyers — and widely dispersed cattle feeders — the independent sellers.
The importance of that competition at the interface between the live cattle industry and the beef packing industry cannot be overstated; here, fundamental price discovery occurs for all cattle reared by all livestock producers, be they cow/calf producers, backgrounders, stockers, or feeders.
Throughout the ensuing decades, the competition preserved by that early legal framework fostered the growth of the largest single segment of American agriculture. The recently vibrant live cattle industry once comprised well over one million small businesses, each of which had made crucial, if not irreplaceable, contributions to the economic wellbeing of rural communities all across America.
Similarly, the very competition preserved at the interface between the live cattle industry and the beef packing industry, along with the then concomitant national disdain for beef packer monopolization, encouraged the growth of many hundreds of widely dispersed, hence, decentralized, beef packing and processing wholesale (distribution) firms, which likewise greatly benefited Rural America’s economy.
As the twentieth century waned, however, so too did the nation’s resolve to preserve competition in the live cattle industry and defy monopolization in the beef packing industry.
Beginning in the 1980s, key competitive protections were allowed to expire, chief among them were prohibitions against beef packer ownership and control of the live cattle industry’s marketing channels. Antitrust enforcement was idled, thus sparking a merger mania in the beef packing industry.
In three short decades, the beef packers attained an unprecedented level of market concentration, which conferred upon a handful of them the power to circumvent competition by restricting cattle feeders’ access to the marketplace. This eliminated marketing opportunities for tens of thousands of cattle feeders who, by exiting the industry, helped fuel the rapid concentration and consolidation of the cattle feeding sector.
This rapid feeding sector concentration and consolidation, in turn, eliminated marketing opportunities for hundreds of thousands of cattle producers, including cow/calf producers, backgrounders and stockers who likewise exited the industry.
The live cattle industry now finds itself traversing the same path toward the industrial livestock production model that was previously blazed by the now fully integrated poultry industry and near-fully integrated hog industry. This circumstance relegates the U.S. cattle industry to the meatpacking industry’s Last Frontier.
So brazen have the powerful beef packers become since vigilance over competition ended that they recently infiltrated and then enlisted producer trade associations to join them as they collude to lobby Congress.
Their objective is to perpetuate a relaxed legal framework that will help them propel their vertical integration plan for the live cattle industry. Their plan involves the substitution of their corporate command-and-control scheme for the element of the free market system that America cherishes most: competition.
Today, the beef packers are well on their way to capturing the live cattle supply chain. Competition at the interface between the live cattle industry and the beef packing industry is all but destroyed.
The remaining vestige of a competitive marketplace — the price-discovery cash market — is far too thin to predict a competitive value for fed cattle and is growing thinner, thus causing harm to competition for all cattle producers.
To perfect their ability to manipulate the fed cattle market, the beef packers have deployed a mix of market leveraging strategies that involve captive supplies, which are cattle committed to the beef packer long before they are slaughtered. Beef packers accumulate large volumes of captive supplies via direct acquisitions of feedlots and cattle and through contractual arrangements that often include un-priced or formula pricing. In this century, beef packers demonstrated how their captive supplies can harm competition when they engaged in coordinated actions to use their captive supply cattle to shun the cash cattle market long enough to cause national cattle prices to decline.
Less obvious among market leveraging strategies, though no less damaging to competition, is the reported phenomenon whereby packers gain deferential buying rights at certain feedlots by virtue of past buying patterns, thus giving them virtual ownership of certain feedlots. Also less obvious is the additional market power conferred on those concentrated beef packers that also control the production and output of the principal market substitutes for beef — primarily pork and chicken—and that control the timing of procurement for product substitutes for domestic cattle: imported cattle. The exercise of these and other strategies facilitated by their extraordinary market power has enabled the concentrated beef packers to gain significant control over the live cattle supply chain.
But, harm to competition is but one injury inflicted on the remaining participants in the live cattle industry. Other injuries are targeted more and involve the beef packers’ exercise of their superior and unfair bargaining power over individual producers. One example involves a beef packer that bypasses slaughter-ready cattle owned by independent cattle feeders in favor of procuring cattle from farther distances that are not yet ready for slaughter.
However, the beef packer later returns to buy the independent cattle feeder’s cattle only after they had become over-fed and, therefore, less valuable.
Beef packers and their allies find no problem with the loss of competition in the U.S. cattle industry and dismiss any claims of anticompetitive conduct or antitrust violations on grounds that their integration of the U.S. cattle industry is justified by efficiencies gained through economies of scale. However, such a justification cannot withstand the evidence that shows severe market failure in the U.S. cattle industry and U.S. beef industry.
For example, it now costs more than at anytime in recent history to bring the raw cattle product to the consumers’ dinner plate; the U.S. cattle industry has been contracting, and its production has remained stagnant even in the face of growing beef consumption; the U.S. cattle industry’s cattle cycle — the industry’s historical bellwether indicator of industry competitiveness—has been seriously disrupted; and, the marketplace is allocating a smaller share of the consumers’ beef dollar back to the cattle feeder than it did in 1980, when competition was known to be robust.
After years of neglect by Congress, antitrust enforcers, and Packers and Stockyards Act enforcers, the U.S. cattle industry’s fed cattle market is seriously broken.
Immediate action must be taken to restore robust competition at the interface between the live cattle industry and the beef packing industry. If immediate action is not taken, the U.S. cattle industry will soon succumb to the same fate as the previously captured hog and dairy industries that lost 91 percent and 82 percent of their industry participants just since 1980, respectively.
As an initial matter, dominant beef packers must be barred from using their collective market power to lobby Congress for purposes of perpetuating a legal framework that facilitates their ongoing capture of the U.S. live cattle supply chain. If this initial step is not achieved, thereby leaving the beef packers’ current level of congressional influence unchanged, prospects for achieving any meaningful reforms will remain extremely slim.
Presuming an opportunity to overcome the beef packers’ collective influence over public policy, public policies must be changed to force beef packers to relinquish their control over the live cattle supply chain and their proper role in the multi-segmented beef supply chain must again be limited to that of beef packer and nothing more. Specifically, beef packers must be prohibited from owning, controlling or feeding cattle prior to slaughter, and the most egregious of captive supply contracts, the un-priced formula contracts, must likewise be prohibited.
Concurrent with banning their access to captive supply cattle, dominant beef packers also must be enjoined from engaging in unfair and unjust buying practices that injure individual cattle producers. Unless dominant beef packers are so enjoined from such anticompetitive conduct, they will continue to possess the power to accelerate the concentration and consolidation of the cattle feeding sector by forcing independent cattle feeders out of business one at a time.
A significant problem associated with restoring competition to the U.S. cattle industry’s fed cattle market, which has been held under siege with impunity for at least three decades, is that the dominant beef packers’ antitrust activities and anticompetitive conduct are now so deeply engrained as to be institutionalized. As a result, participants within and policy makers outside the cattle industry have become desensitized to practices that, for most of the twentieth century, would have been immediately recognized as contrary to the principles of a free market.
Notwithstanding the significant obstacles that impede reform, cattle producers, their attorneys, advisors and advocates, along with their congressional representatives, must immediately engage themselves and their resources to restore robust competition to the U.S. fed cattle market. Only then can the ailing U.S. live cattle industry be reinvigorated to attract new generations of independent producers who, like their forefathers, will appreciate their roles as independent businessmen and women whose businesses are uniquely suited to serve as the crucial economic cornerstones for rural communities all across America. ❖