This, after Tyson Foods announced it will be closing the doors of its poultry plants in southern Missouri, costing the state more than 2,000 jobs.
The bill would help define certain acquisitions as creating “monopolies.” An acquisition would be deemed to create a monopoly if it: resulted in a Herfindahl-Hirschman Index (HHI) greater than 1,800 on any relevant market or increased the HHI by more than 100 in any relevant market
Also, any acquisition deemed to create a monopoly under these definitions would be considered a violation of section 7 of the Clayton Act.”Today’s meatpacking monopolists are making massive profits while shutting down competition,” said Senator Hawley. “Congress must give antitrust prosecutors the power to end anti-competitive behavior without lengthy court battles. It’s time to hold monopolies accountable and empower farmers.”
The dictionary defines anti-trust as “relating to legislation preventing or controlling trusts or other monopolies, with the intention of promoting competition in business.”
According to the US government, “When a market is competitive, businesses will have greater incentives to lower prices, to improve the quality of their products and services, and to provide buyers with more options. That is, businesses will need to innovate to make their products different and better than the rest.”
This begs the question, then, where is the best balance between efficiency and competitiveness?
Efficiency vs. competition, who are the winners and losers?
R-CALF USA Vice President Eric Nelson, a cattle feeder and producer from Moville, Iowa, said that his organization supports the bill and will work with Congress to get it passed.
Nelson points out that “efficiency” in the cattle industry may create winners and losers. The small independent feeder and producer may become the loser, as the big packers strive for more efficiency, aka, the lowering of their costs. “Efficiency is self-serving.
It’s a wonderful word, but it’s a synonym for ‘gateway to profits’ for whoever is on the concentrated end. It’s wringing out the rest of the industry,” he said.
In an already highly efficient industry, striving for even more efficiency (increased production and decreased inputs) through consolidation and vertical integration, tends to mean that another segment will be squeezed, said Nelson.
“It’s all about efficiency so the meatpackers can fill their needs seamlessly. For them, having cattle accessible at all times so they never have to go into the market and buy cattle on short notice — that’s ‘efficiency.’ But for the producer or feeder, those are the times we see higher prices,” he said. “The practice of captive supply or packer ownership of cattle, ends up shrinking the prices we get paid for cattle, we see that every day,” he said.
“Again, with more concentration, there are fewer details outside of their control. When four packers control 85 percent of the market, there are very few details they don’t have insight on and control over,” said Nelson.
Warren Symens, of Symens Brothers Limousin, Amherst, S.D., who serves as the vice president of the South Dakota Cattlemen’s Association said his organization doesn’t support the new legislation mostly because there are often “unintended consequences” to producers when government mandates are developed and enforced.
The current language of the Packers and Stockyards Act is sufficient but needs to be better enforced, said Symens, whose family also operates a cattle feeding operation.
Should producers have to prove harm to the entire industry in order to have legal standing in court?Currently, because of case law, judges tend to require that anti-competitive behavior is only a violation of the Packers and Stockyards Act if it can be proven that “the entire industry” was harmed rather than one producer or feeder.
“I think if you can prove that there was harm to one producer, there would be proof that the entire industry was harmed,” Symens said.
Part of the reason he doesn’t like the idea of “opening up” the P and S is because he believes animal rights and environmental groups are waiting for the chance to jump in with changes that would harm agriculture, he said.
Studies have shown that breaking up the packer monopoly won’t necessarily solve what the industry thinks it will solve, he said.
“Competition is a good thing,” he said, and then added, “But the packing industry has developed the way it has for a reason. Small packers have been sold to big packers, it’s the same in every industry. This is how the free market economy works. It’s developed this way for a reason, because it’s efficient and because the regulatory processes dictate that packers need to be ‘big’ to succeed,” in today’s economic world, he said.
“As far as whether this is good, bad or otherwise for the producer… it just is. Right now we have record prices,” he said.
He argues that packers are not making massive profits now, although they did after the Holcomb, Kan., fire and during the pandemic, he said.
Right now, producers and feeders are making a profit, and he believes both the packer profits of the last decade and the producer profits of today are due to the cattle cycle as well as the weather, labor issues, etc, not because of packer buying practices.
“It’s the natural progression of the cattle cycle and economy,” he said.
Symens believes that for the cattle industry to continue down the same “path” it’s on without major regulator change will allow feeders and producers like himself to be profitable, and he believes the biggest reason the industry has lost a significant number of small, independent cattle feeders is due to labor, not competition issues.
“The Packers and Stockyards Act needs to be enforced, the industry needs to be constantly scrutinized so that the P and S can be enforced to its fullest,” he said.
He pointed out that the Department of Justice has an ongoing investigation into the possibility of violations of the P and S, and “We haven’t gotten any results where anything was violated,” he said.
On the other hand, Nelson, a plaintiff in the R-CALF USA anti-trust lawsuit, believes violations are occurring.
Nelson said in just the past month, independent feeders in northern states are being denied delivery times by packers, which provides the packers with access to cattle because the cattle are purchased but not yet slaughtered. “They will say, ‘oh that’s for efficiency,’ so they never have to get in a hurry or an emergency and buy at higher prices.”
Additionally, Nelson said feeders in his region have recently experienced extremely long wait times for unloading after delivering cattle to a plant. “Unload times are getting grotesque. Cattle sit on trucks eight, nine or 10 hours before being unloaded,” he said. Nelson explained this causes shrinkage and could cut the value of the cattle by $50-$75 per head.
Robert Taylor, a retired agricultural economics professor has some concerns that the HHI aspect of the bill could create a “safe harbor” for companies. Right now he is neither supporting nor opposing the bill.
Says Taylor, the Alfa Eminent Scholar (Distinguished University Professor) emeritus in Agricultural Economics and Public Policy in the College of Agriculture at Auburn University: “The HHI threshold may create what is known in antitrust law as a “safe harbor.” Depending on market definition, several industries may fall under the HHI threshold of 1,800, which may allow them to engage in activities that would otherwise be anticompetitive and unfair. A safe harbor.
“Another issue is that the proposal does not state whether the HHIs would be for the buyer or seller side of a market. Typically, concentration measures are only given for the seller side of the market. In agriculture, particularly in poultry and meat production, the buyer side of the market (fat cattle) is much more concentrated (much higher HHIs) than the seller side (beef). If the law applies only to the seller side of a market, buyer side market abuses may continue,” he said.
“Throughout antitrust economics an HHI below 1,800 does not necessarily mean that firms will not engage in anticompetitive and unfair activities, it simply means that it is less likely,” he explained.
Another concern of Taylor’s is this: “The Packers and Stockyards Act provides for actual damages only, and does not provide attorney fees (lawyer pay is up to the judge). Actual damages only is not adequate to deter anti-competitive or unfair behavior under the PSA. If the chance of getting caught is less than one (one-half for example) the packer can still be “expected” to make money even if successfully prosecuted.”
NCBA President Todd Wilkinson, a DeSmet, S.D.-based cattle feeder, said that his organization has not yet fully evaluated the bill to determine its actual implications.
More packing capacity is a priority for NCBA, and ideally the added capacity would come in the form of independent packers, he said.
However, he believes that funding the Packers and Stockyards Act in order to fill open positions would be a more effective answer than changing the language of the act. He said that because of staff openings that aren’t being filled, lag times for follow-up investigations are too long.
“When you file a complaint it should be investigated on a timely basis. I’ve been involved in a couple over the years for clients…the last one I was involved in, we didn’t hear from an investigator for two-and-a-half months,” he said. “That’s frustrating.”
As far as whether “harm to the industry” should be the standard, Wilkinson believes that “it is the standard,” after five or six circuits have issues opinions to this effect. He believes that if one producer can allege a violation, it will allow for producers and feeders who are currently being paid premiums for high quality cattle to be negatively impacted by complaints of those who are being paid less.
South Dakota Stockgrowers Association President Vaughn Meyer, Reva, S.D., said his organization supports the bill.
“Hopefully this legislation would stop collusion of the big four packers and slow down their ability to regulate the market by either bringing in foreign supply or trading among themselves with inventory which allows them to hold off from entering the market for a period of time,” he said.
Additionally, he hopes the bill and discussions surrounding it will shine a light on the Packers and Stockyards Act and cause regulators to enforce that law, particularly by allowing one producer who is harmed by anti-competitive behavior legal standing in a court.
Meyer hopes this legislation could also give smaller, independent packers a chance to compete against the big four — which provides a more competitive bidding situation when it comes to the packers purchasing fat cattle.
“Hopefully it would force the packers back into the market to get more transparency,” Meyer said.