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Legislation Introduced to Try To Remedy Market Monopoly
from FME 2021
by Heather Smith Thomas
Cattle producers have become increasingly frustrated with shrinking markets (ever-increasing consolidation of packing plants, and some packing companies now owned by foreign interests) and packers’ control of market prices. The sudden shortages of meat in grocery stores during the COVID pandemic in 2020 (in spite of ample supplies and market-ready animals that could not be processed) brought this problem to the attention of the American public. When grocery shelves were bare, it became everyone’s problem. Several bills were introduced in Congress to try to remedy the situation, but with a new administration these efforts had to begin again.
Hearings in the U.S. Senate and House in late July, 2021 explored anew the beef industry’s shaky structure, prompted by increasing discontent of many cattle producers who blame market concentration and anticompetitive practices for the disparity of high packer profits and low cattle prices.
This conflict between producers and packers is decades old, but the supply chain disruptions in the past last two years resulting from the fire at Tyson Foods’ Holcomb, Kansas plant, the COVID-19 pandemic, and a cybersecurity attack on JBS-USA triggered heightened public scrutiny. With the recent labor and slaughter capacity squeeze, and many animals unable to be harvested, it became obvious that there is something seriously wrong with the system.
Hearings were held by the Senate’s Committee on the Judiciary and the House Subcommittee on Livestock and Foreign Agriculture in July, and similar discussions had been held in the Senate in June. Legislators have also been busy proposing bills that aim to help independent producers get more money for their cattle by requiring more cash trade; to improve price transparency; and to empower USDA to enforce the 1921 Packers & Stockyards Act.
The testimony submitted in the latest hearings re-stated the long-held arguments between cattle producers and packers. The producers claim that the market power of four beef packers and the marketing arrangements they have with cattlemen amount to a captive supply that results in unfair cattle pricing. The Packers contend that the market is working according to supply and demand, and that the current system has resulted in improved beef quality that consumers want. The hearing discussions also included academics, economists and other market stakeholders. Jon Schaban (a cattle producer submitting testimony to the Senate, on behalf of the Iowa Cattlemen’s Association) said that the chief concern for independent cattlemen is that ample captive supply allows meatpackers to meet their needed supply of beef animals without participating in the cash market. “As “ . . . the chief concern for independent cattlemen is that ample captive supply allows meatpackers to meet their needed supply of beef a result, independent cattle feeders find themselves as residual suppliers for meatpackers. Despite raising some of the highest-quality cattle in the nation, they are on the ‘short end animals without participating of the stick’ because in the cash market .” of their operating capacity. This predatory practice is widely utilized by four main meatpackers, justified by ‘efficiency,’” Schaban said. The packers’ side once again stated their contention that the beef industry’s structure and economies of scale is due to supply-and-demand fundamentals, and is not the cause of the extreme events that happened over the last two years. In its testimony, the North American Meat Institute said, “… the price is determined by supply of cattle to sell from one segment and the demand for buying cattle by the next segment. That explains why each segment can experience different margins … When any of those segments are out of balance, prices move, and the moves can be dramatic, as witnessed by the COVID-spurred retail beef demand … and the COVID-imposed imbalance within various segments of the cattle sector.” Currently there is proposed legislation to try to resolve this issue, including legislation that would require packers to buy some cattle on the cash market and improve price transparency. Cattle producers again called for the Department of Justice to provide an update on an antitrust probe of Cargill, JBS, National Beef and Tyson Foods that has been going on for more than a year.
Schaben said, “We’d be remiss to not recognize the value of legislation as a pathway forward to address the aforementioned issues, however, we cannot solely count on Congress to legislate their way out of this mess. Thorough oversight of antitrust law and competition policy by the Department of Justice must accompany any legislative proposal.”
In response, the packers pointed to economists’ warnings against government intervention. “Discussions of cattle prices and packing capacity can give the impression that beef and cattle markets represent a zero-sum game,” Jayson Lusk, head of agricultural economics at Purdue University, told the House. “But, one party’s gain does not have to come at the expense of another. What policies increase the size of the pie available to all participants: cow-calf producers, backgrounders, feedlots, packers, retailers, and ultimately, consumers?”
In attempts to remedy an obviously flawed system, legislators have proposed a number of solutions.
THE FAIR ACT
Several bills have been introduced to try to remedy the current situation. One of them is S. 2558: the FAIR (FEED AMERICA
BY INCENTIVIZING RURAL) MEAT
PACKING ACT. This bill was introduced July 30, 2021 by U.S. Senators Roger Marshall, M.D. (KS), and Mike Rounds (SD), along with Representatives Jason Smith (MO) and Dusty Johnson (SD). This proposed legislation’s goal is to ensure a level playing field for our nation’s cattlemen, and to return to fair prices for both the cattlemen and consumers. The FAIR Meat Packing Act creates two tax incentives to facilitate formation of small and mid-sized meat processing facilities, allowing cattle producers to compete for better prices in the marketplace.
“The success of the Kansas economy relies heavily on the cattle industry at every step from pasture to plate,” said Senator Marshall. “We must ensure robust competition at the packing level by providing butcher shops and medium sized packers more opportunity for success. With USDA providing substantial funding to expand small and medium-sized packing capacity, it’s simply logical to help reduce the construction and operational costs so the formation and expansion of small and medium-sized meat processing facilities is feasible for more folks in the industry.”
“Our cattle producers are some of the hardest-working men and women in the country,” said Representative Smith. “They
deserve access to fair markets. Unfortunately, if the mega meat packers continue their strangle-hold on the market, our hardworking producers don’t stand a chance. This legislation creates choice and competition in the meatpacking industry so that our hardworking cattle producers don’t have to be reliant on the big packers, helping them get better value for their cattle. Ultimately, better meatpacking options will also bring down prices for consumers at the meat counter.”
Representative Dusty Johnson said, “In our hearing this week, we heard from witness testimony that said there is opportunity for new capacity but Congress needs to provide a variety of tools to ensure long-term viability. I’m proud to join Rep. Smith in introducing the Feed America by Incentivizing Rural (FAIR) Meat Packing Act to provide modest tax incentives to small processors looking to compete with the big four. There’s no silver bullet but a number of reforms continue to move us in the right direction, and the FAIR Meat Packing Act is one of those reforms,” he said.
MEAT PACKING SPECIAL INVESTIGATOR ACT
A month and a half earlier, S. 2036: the Meat Packing Special Investigator Act, was introduced by Senator Jon Tester (Democrat, Montana), who says his new legislation is meant to prevent and address the anticompetitive practices in the meat industry that threaten the nation’s food supply and national security. This bill would create a team of investigators within the packers and stockyard division of the USDA.
Senator Tester says the team will have the power to subpoena, allowing them to obtain the information they need, to keep meat packers accountable. “We’re not making any accusations. All we’re saying is, we want to make sure that that’s the case.” The meat packers must be accountable.
The senator says this bill will also help to reduce the rising prices of meat for consumers because it will add more competition. “If you have competition in the marketplace, I believe this will be much better for the consumer than we have right now. Why? Because you have competition, you have folks bidding on the product based on what it’s worth, rather than what they want to pay and what they want to get for it at the retail end,” Senator Tester said.
The Meat Packing Special Investigator Act was announced by Senators Jon Tester (D-MT), Chuck Grassley (R-IA), and Mike Rounds (R-SD) after the ransomware attacks on JBS-USA, one of the country’s largest meat suppliers, resulting in a shutdown of that plant.
“For years, unfair, anti-competitive practices in the meatpacking industry have hit Montana ranchers where it hurts the most–in the wallet–and put our rural communities and family agriculture way of life at risk,” Tester said. “On top of that, corporate consolidation is a direct threat to our national security, because a single cyber-attack that threatens the very food we eat is proof that something must be done, and fast. That’s why this bill is so important; it devotes the needed tools to USDA to shore up our national secu-
rity and address anti-competitive practices in the industry that threaten Montana ranchers and consumers.”
The bill would create the Office of the Special Investigator for Competition Matters within the U.S. Department of Agriculture’s Packers and Stockyards Division and will include the special investigator, along with a team of fellow investigators with subpoena power, dedicated to preventing and addressing anti-competitive practices in the meat and poultry industries and enforcing our nation’s antitrust laws. The new office will act as a liaison between the USDA, Department of Homeland Security, Department of Justice, and the Federal Trade Commission to protect continuation of the food supply and increase our national security.
The bill has gained support from USDA Secretary of Agriculture Tom Vilsack, who stated that “it’s a good proposal, I think it’s part of what needs to be done.” The Act gives the USDA power in terms of meat and poultry that it has not previously had. Jess Peterson from the United States Cattlemen’s Association stated, “This beefs up the system. It gives the Department of Ag the ‘S’ word – a subpoena. More than that, it truly modernizes it.”
The senators state that the act will also reduce the price of meat for consumers due to new competition. “Congress knew in 1921 what we know today – anti-competitive behavior in the meatpacking industry hurts both consumers and producers,” Rounds stated. “Unfortunately, packer concentration in the beef industry is more consolidated today than it was when the Packers and Stockyards Act was first signed into law 100 years ago. South Dakota cattle producers are going broke, while consumers are paying an over-inflated premium for beef at the grocery store. It’s long past time to address this problem. Our legislation strengthens USDA’s ability to investigate harmful anti-competitive behavior to apply the Packers and Stockyards Act as intended.”
Earlier, Senator Rounds led a group of 26 colleagues with Senator Tina Smith (D-Minnesota) in calling on the attorney general to investigate the meatpacking industry to determine if antitrust violations exist. He also addressed cattle producers during a virtual town hall focused on meatpacker concentration in the cattle industry, and introduced bipartisan legislation to foster more competitive cattle markets by requiring that a minimum of 50 percent of a meatpacker’s weekly volume of cattle purchases take place on the open or spot market.
H.R. 4973 - PRODUCT OF USA LABEL
In early August, 2021 a bipartisan group of senators introduced the USA Beef Act to address the issue of “Product of USA” labeling on foreign beef products. This bill’s goal is to amend the Federal Meat Inspection Act to modify requirements for a meat food product of cattle to bear a “Product of U.S.A.” label, and for other purposes.
According to a press release from co-sponsor Mike Rounds (R-South Dakota), the legislation would limit the use of “Product of USA” labels only to beef products from cattle born, raised and slaughtered in the U.S. Currently, USDA rules allow foreign beef raised in other countries to receive that label.
“Consumers deserve to know where their beef comes from, and accurate, transparent labeling supports American farmers and ranchers,” Round stated. “It’s long past time we fix this once and for all.”
The bill’s co-sponsors include John Barrasso (R-Wyoming), Cory Booker (D-New Jersey.), Bill Hagerty (R-Tennessee), John Thune (R-South Dakota.), Cindy HydeSmith (R-Mississippi), Cynthia Lummis (R-Wyoming) and Steve Daines (R-Montana.). Rep. Matt Rosendale (R-Montana.) is introducing companion legislation in the House of Representatives.
These legislative initiatives come in the wake of President Biden’s executive orders promoting competition in the U.S. economy. In July, the president promised new rules for when meat can have the “Product of USA” label.
The proposed bill outlaws the current practice of allowing foreign beef to be labeled “Product of USA” and restores integrity to a currently misleading, but valuable tool for consumers and cattle producers.
“It’s pretty simple – only beef born, raised and slaughtered in the United States should receive the ‘Product of USA’ label,” said Rounds. “As I continue to work with my colleagues on re-establishing mandatory country of origin labeling, we must fix the current labels to protect consumers and producers. For far too long, South Dakota producers have suffered as their high-quality, Americanraised beef has lost value as it’s mixed with foreign beef, raised and processed under different standards. This is wrong.”
Thune said, “South Dakota cattle ranchers work hard to produce some of the highest quality beef in the world, and they deserve to proudly showcase their products with accurate labeling. This straightforward legislation will ensure that consumers know they are getting their beef from cattle that were born right here in the U.S.A.”
This legislation is endorsed by US Cattlemen’s Association, R-CALF, South Dakota Farmers Union and the South Dakota Stockgrowers Association. At the urging of Senator Rounds and hundreds of ranchers in South Dakota and around the country, USDA announced in July a full-scale review of the “Product of USA” label. In conjunction with USDA’s announcement, the Federal Trade Commission finalized a rule tightening the use of the “Made in the USA” label, but the rule does not require specific actions be taken regarding beef labeling.
The debate on all of this is far from over, however; the NCBA wants to eliminate “Product of USA” labels for beef. Senator Rounds recently submitted a comment in opposition to the National Cattlemen’s Beef Association’s petition to eliminate “Product of USA” labels for beef.
“If FSIS adopts NCBA’s proposal, consumers would have to sacrifice knowing where their beef comes from–only to merely know where their beef is processed,” Rounds said in a press release. “Consumers deserve greater transparency. FSIS should strive to apply a more accurate definition to the current ‘Product of USA’ label. The most accurate way to describe ‘Product of USA’ would be to allow its use only if the product is born, raised and processed in the United States.”
The battle over how beef is labeled has been ongoing for years. It’s become even more contentious since the World Trade Organization in 2015 struck down country-of-origin labeling, a move that was echoed by the U.S. courts in 2018. The issue is one that pits beef producers against processors–who benefit from the economics of importing cheap cattle or boxed meat to fill their needs. ▫
