In keeping with President Biden’s theme of repeating everything he has said for the past year in the State of the Union address, he went off script to repeat the claim that the meatpacking industry is uncompetitive because there are only four major meatpacking companies.
The bit about meatpacking was not in his prepared remarks as provided by the White House, but during the speech, Biden said:
Small businesses and family farmers and ranchers — I need not tell some of my Republican friends from those states. Guess what? You got four basic meatpacking facilities. That’s it. You play with them or you don’t get to play at all, and you pay a hell of a lot more, a hell of a lot more because there’s only four.
Given Biden’s incoherence, it’s up to us to make some assumptions about what he meant here. He most likely meant to say there are four major meatpacking companies, not facilities. And given he said four, he probably means beef specifically, not meat in general. The four major beef companies in the U.S. are Tyson, Cargill, National Beef, and JBS. If you branch out into other meats, companies such as Smithfield, Hormel, and Perdue are big players as well.
The Big Four beef companies are responsible for about 70 percent of total U.S. beef production. The reason for the consolidation is economies of scale. Larger facilities are able to slaughter more cattle at lower cost than smaller facilities.
More consolidation means fewer options for farmers, however, and they may have no choice but to accept prices for their meat that they deem too low. More meat used to be priced through public auction, which allowed for greater transparency and gave farmers more power. Now, more meat is priced through exclusive contracts, with terms set by the processing companies that farmers then take or leave.
Farmers are upset about this, which is nothing new. There has always been and will always be tension between farmers and the companies that purchase their goods and bring them to market. Sellers (farmers) will always want prices to be higher, and buyers (marketers and processors) will always want prices to be lower.
A bipartisan group of state attorneys general from cattle-producing states signed a letter to the USDA that argued, “Structural changes in [livestock] markets, including increased concentration and changes in sales and marketing practices, have threatened producer viability, resulting in attrition, and reducing the number of producers participating in livestock markets.” They called on the USDA, the DOJ, the FTC, and state authorities to strengthen antitrust enforcement against the meatpackers.
What’s curious here is that Biden is implicitly taking the sellers’ side while complaining that prices are too high. Note that the attorneys general are writing on behalf of producers, not consumers. Farmers want the prices to be higher because they make more money that way. That makes perfect sense for them, and they have every right to ask for it. But Biden wants prices to be lower, so taking the farmers’ side in this dispute is counterproductive for him.
More fundamentally, emphasizing repeatedly that there are “only four” major beef companies raises the question: How many major beef companies should there be? Biden’s answer, implicitly, is “more than four,” but it’s not really clear why or how we should go about increasing the number of companies.
If there were five major beef companies, would Biden be happy? What if we split all of them in half so there were eight? In quarters to get 16? When doing antitrust, we don’t just count companies or look at market share anymore to decide whether to break them up or not. We look at whether companies are restricting output, raising prices above the market rate, and whether new firms can enter an industry.
Proponents of antitrust enforcement at the Open Markets Institute recommend reforms that would reduce output and increase prices in agriculture. Aside from breaking up the economies of scale that’s inherent to breaking up the beef companies, they call for slower speeds at slaughterhouses and increased supply management from Congress, decrying current farm policies that “promote maximized production, often beyond demand, driving down prices and pushing farms to survive on volumes.” They also call for prosecuting predatory pricing, forcing companies to pay workers more, and changing labeling standards to benefit domestic producers. If that’s what antitrust enforcement would look like, expect prices to go up and output to go down compared with the status quo.
Biden’s line about four meatpacking companies, which he felt was important enough to mention yesterday even though it wasn’t part of his prepared speech, raises more questions than it answers about antitrust and competition. Farmers are complaining that prices are too low, not too high. By siding with them and calling for an indefinite higher number of meatpacking companies, Biden is demonstrating yet again the incoherence of his agenda.
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