Biden White House Throwing Money, Finger-pointing at Meat Sector

Biden, Attorney General Garland and USDA Secretary Vilsack hold virtual meeting
 

President Biden and some top administration officials held a virtual roundtable Monday to discuss a plan to improve competition and supply chain issues in meat production. Link for a White House fact sheet.

Biden promised to “fight for fairer prices” for farmers and consumers as he announced plans to combat the market power of the giant conglomerates that dominate meat and poultry processing. “Capitalism without competition isn’t capitalism, it’s exploitation,” Biden said. “That’s what we’re seeing in meat and poultry.”

Background. In July, Biden issued an executive order that directed USDA to look at competition and how to improve existing legislation, like the Packers and Stockyards Act. Following the order, USDA requested comments and suggestions from producers, asking how to increase independent processing capacity and foster more competition in the meat industry. The White House said Monday’s action plan is the result of compiling and analyzing those suggestions.

An $800 million USDA effort. USDA has focused on the issue of concentration at the direction of the White House via the Executive Ordered issued in July on competition. USDA Secretary Tom Vilsack said that a key effort from USDA on this front is to help expand processing capacity. He detailed $800 million in funding that would be deployed by USDA, with some of the spending coming after the agency south public feedback on what should be done. Under the $800 million, Vilsack detailed that $375 million would be used to “provide gap financing grants” for independent processing plants. Within that amount, USDA will launch an effort in spring that will be $150 million to provide funding for an estimated 15 projects that were close to being finished or need some extra funding to get to the activation point. This summer will see USDA put out another $225 million in additional projects targeted at independent operations.

A second component under the $800 million will be $275 million in funding to lenders to make more capital available. Those funds will “provide loans and other support to businesses at rates and on terms that increase access to long-term, affordable capital,” a White House fact sheet said. Vilsack noted that effort would also arrive in the summer.

Thirdly, Vilsack said that increasing capacity also means there needs to be an expansion and training effort for the workforce in those areas. USDA will put out $100 million in funding toward this action.

The final component will be $50 million for technical assistance that is aimed at helping new players get into meat processing or expand their existing capacity.

Vilsack and Garland unveiled that the two agencies will soon launch a new portal which will make it easier for farmers to report potentially anti-competitive behavior in agriculture. The new portal will be launched within 30 days.

Garland also said that Congress needs to boost antitrust funding for his agency. "Too many companies have pursued corporate conduct and more aggressive mergers that made all of us vulnerable,” Garland stated.

Biden also pledged the administration would work with Congress to bet bipartisan legislation introduced by Sens. Chuck Grassley (R-Iowa), Jon Tester (D-Mont.) and others that “seeks to improve price discovery in the cattle markets and facilitate actual negotiation of prices between livestock producers and packers.”

USDA is also readying new regulations relative to the Packers and Stockyards Act that seek to address anticompetitive behavior. Further, USDA is also launching a review and revamping of the voluntary Product of USA labels for meat in a way they say will provide more information for consumers on where their food comes from.

Hearing from farmers and ranchers. The session that was made public lasted roughly 30 minutes, with two of five farmers and ranchers delivering remarks before the press was removed from the room.

Scott Blubaugh is a cattleman and president of the Oklahoma Farmers Union. He focused on getting more local processing capacity for cattle in particular to keep more money locally. “If we are able to process our animals on a more local level, we can retain more of our retail food dollar” in local communities and with local farmers, he said. “Multinational meat packers suck out all of the wealth of rural America and put it in their corporate coffers.”

USDA’s Vilsack echoed that observation, noting that there has been an “extraction economy” in rural America where farmers must transport their cattle to a location hundreds of miles away and the profits go thousands of miles away.

Blubaugh said increasing local capacity is a “win-win for everyone, except for maybe these four companies we are talking about.” He also put in plea for efforts to allow farmers to sell more of their product directly to consumers. “Not since Teddy Roosevelt have we had a president that’s willing to take on this big issue,” he said.

American Farm Bureau Federation President Zippy Duvall in a statement said: “AFBF appreciates the Biden administration’s continued work to ensure a fair and competitive meat processing system. We must get to the bottom of why farmers and ranchers continue to receive low payments while families across America endure rising meat prices. Farmers and ranchers want a fair shake. The joint initiative between USDA and the Department of Justice to create an online portal to report competition law violations, and efforts to strengthen the Packers & Stockyards Act, will go a long way to ensuring fairness in the industry. More accurately defining ‘Product of the USA’ labeling will also allow families to make more well-informed decisions at the grocery store. We are encouraged by the administration’s willingness to work with lawmakers on both sides of the aisle to improve price discovery in the cattle markets. We urge bipartisanship throughout this process. Securing fair prices for farmers and for families is a goal that transcends party lines.”

On the poultry side, Corwin Heatwole, a sixth-generation poultry farmer, offered remarks on that industry. He started Farmer Focus, a 100% organic operation which now partners with 73 farmers to provide poultry products to one million consumers. He said the biggest issues the company is addressing are the “three pain points” in the poultry industry — a lack of ownership of the inventory on the farm, the lack of operational control that belongs in the hands of the farmer and the tournament pay system for raising poultry which he said put “farmers against farmers.”

But others were skeptical it would do enough. “The Administration has not announced that it will take decisive enforcement action to protect America’s cattle producers from the harms they’ve been experiencing for the past seven years, and we remain disappointed with that omission,” Bill Bullard, chief executive officer of R-CALF USA, a group that represents independent cattle producers.

Biden didn’t answer a question on whether he would seek to break up large meat-processing companies. His efforts to inject more competition in the industry run counter to decades of consolidation since the late 1970s as the industry shifted to larger plants to cut costs and courts adopted a more permissive interpretation of antitrust law.

    
    
     President Biden met virtually with independent farmers and ranchers to discuss his administration’s work to boost competition and reduce prices in the meat-processing industry. Attorney General Garland and USDA Secretary Tom Vilsack also attended.

After the plan was announced, the U.S. Chamber of Commerce said in a statement on Monday it objected to what it called "misguided" efforts by the administration to combat high meat prices. "It is pretty clear that the administration is attempting to use higher prices to justify their preexisting agenda to overturn decades of bipartisan consensus around antitrust and competition policy in favor of a 'government-knows-best' regulatory approach," Neil Bradley, the Chamber's chief policy officer, said in the statement. Bradley added: "That isn't economics, it is politics and sadly, such government intervention would likely further constrain supply and push prices even higher."

U.S. Attorney General Merrick Garland urged Congress to boost the Department of Justice’s funding for antitrust enforcement. "Too many companies have pursued corporate conduct and more aggressive mergers that made all of us vulnerable,” Garland said during the White House meeting. President Biden also said at the meeting that federal government will vigorously enforce existing competition laws, and that too many industries are dominated by handful of firms.

The president has placed critics of corporate consolidation in key positions across his administration, including Lina Khan as chair of the Federal Trade Commission and Jonathan Kanter as assistant attorney general for antitrust.

Meat industry group takes on the White House. “For the third time in six months, President Joe Biden and his Administration announced the same plans to spend $1 billion to fund government intervention in the market in an attempt to increase prices livestock producers receive while blaming inflation on private industry,” said Julie Anna Potts, President and CEO of the North American Meat Institute (NAMI). “The Biden Administration continues to ignore the number one challenge to meat and poultry production: labor shortages. This tired approach is not surprising because they have refused to engage with the packing and processing sector they attack, going so far as to hold a roundtable on meat packing without a single beef or pork packer present.

Companies including JBS have said that a shortage of workers is affecting operations in every developed nation, limiting production increases and raising costs. “Labor remains the biggest challenge,” Sarah Little, a spokeswoman for the North American Meat Institute, a trade group, said in a statement. “Our members of all sizes cannot operate at capacity because they struggle to employ a long-term stable workforce. New capacity and expanded capacity created by the government will have the same problem.”

NAMI said Monday’s “new” announcement “raises several questions that need to be answered, including:

• How much extra packing plant capacity does the administration think is needed?
• How high should cattle prices be right now?
• How long will the government sponsored processors receive government money?
• How much will the government sponsored processors be required to pay employees?
• There are many small and medium sized packers in the market today that have never received government support – how will they be affected by the influx of government-sponsored competition?
• When will these new plants come on-line? 2024-2025?  What impact will that have now?
• Where are the target areas these plants are needed?
• Will the new plants have sufficient labor?”

“Labor remains the biggest challenge,” Sarah Little, a spokeswoman for NAMI said. “Our members of all sizes cannot operate at capacity because they struggle to employ a long-term stable workforce. New capacity and expanded capacity created by the government will have the same problem.”

Mike Brown, president of the National Chicken Council, a poultry trade group, said levels of concentration in the sector haven’t changed much over the past 20 years. “It’s time for the White House to stop playing chicken with our food system and stop using the meat industry as a scapegoat for the significant challenges facing our economy,” Brown said in an emailed statement to Bloomberg.

Ahead of Biden’s meeting with family and independent farmers and ranchers, the White House announced it is sending $1 billion to independent meat and poultry producers. The money, which comes from the American Rescue Plan, is intended to strengthen competition and ease prices, amid ongoing inflation/supply chain woes and renewed antitrust fervor in Washington. As part of the plan, USDA will provide up to $375 million in grants for independent processing plant projects, $275 million in partnership with lenders to provide loans and other support to businesses to increase access to capital, $100 million for workforce training, $50 million for technical assistance and research and development and $100 million to reduce overtime inspection costs to help smaller processing plants.

Food inflation has finally caught the White House’s attention. The announcement comes as food prices — particularly for beef — skyrocket and inflation remain a top concern of the White House. Persistent global supply chain issues and the emergence of the Omicron variant of Covid-19 threaten to prolong these rising prices. "Over the last few decades, we've seen too many industries become dominated by a handful of large companies that control most of the business and most of the opportunities -- raising prices and decreasing options for American families, while also squeezing out small businesses and entrepreneurs," the White House said. Beef prices in November were up 20.9% from a year earlier, according to the US Department of Labor, and grocery prices jumped 6.4%, which is the largest 12-month increase since December 2008. Consumer price inflation, which includes gas prices and other categories, rose by 6.8% in the 12-month period ending in November, hitting its highest level in 39 years.

Meatpacking industry representatives have blamed soaring prices on labor shortages, rising fuel prices and supply-chain constraints. NAMI said the chart below shows that since 1994, profit margins have varied between all sectors of the fed cattle market with no one sector benefiting consistently at the expense of another.

NAMI adds: “According to USDA data, fed cattle prices are rising on their own, without government intervention. Fourth quarter 2021 fed cattle prices are the highest in five years (even as wholesale beef prices have followed seasonal demand and decreased steadily since Labor Day, the end of the traditional annual high demand period).”

In November, ranchers received 36.7 cents for every dollar consumers spent on beef at the grocery store, down from 51.5 cents in 2015, according to USDA. Fifty years ago, their share was more than 60 cents, according to the White House. “This is a decades-long trend that we are seeing,” said Bharat Ramamurti, Deputy Director of the National Economic Council, in an interview with Bloomberg Television. “The result, based on the economic literature, is higher prices for folks, fewer options for workers, which means that there’s downward pressure on wages. It also means that there’s less innovation and productivity.”

Political linkages. Rep. Cindy Axne (D-Iowa), a member of the House Agriculture Committee and Co-Chair of the Rural Reinvestment Task Force, said in a statement: "Even as consumers are paying more and more for their meat, cattle producers are making less while large packers dominate with record profits. I've heard it consistently from Iowa cattlemen: we need more competition and transparency in the market. “President Biden and Secretary Vilsack's announcement… will go a long way in providing more market opportunities and fairness for cattle producers in Iowa and across the country. I'm grateful that the President highlighted my legislation, the Cattle Price Discovery and Transparency Act, in his announcement.”  

Iowa Attorney General Tom Miller also welcomed the administration’s plan to increase competition in the meatpacking industry. “Livestock is vital to Iowa farmers and Iowa’s economy. Fair and robust competition in meat processing benefits livestock producers and consumers,” Miller said. On Dec. 21, Miller joined a bipartisan coalition of 16 attorneys general in sending a letter to Vilsack with recommendations to improve competition in the livestock industry. Miller was joined by the attorneys general of Minnesota, Wyoming, California, Delaware, Hawaii, Illinois, Idaho, Maryland, Nevada, New Mexico, North Dakota, Oregon, Rhode Island, South Dakota, and Utah.

Bottom line: Ted Schroeder, a Kansas State University agricultural economics professor who specializes in livestock markets, told Bloomberg it’s difficult to forecast the overall impact of Biden’s efforts, but expressed doubt the federal aid for independent processors will alter the market much. Meatpacking is a cyclical business and processors may soon be squeezed again as droughts and higher feed grain prices drive up cattle prices, he said. “How can smaller, higher cost, highly leveraged new plants hope to survive through such a market environment in the next few years? I am concerned many will not,” Schroeder said. Meanwhile, one ag industry contact said: “I think it will be difficult to enact a new farm bill without some iteration of the Grassley/Fischer/Tester livestock pricing bill included. Near term, the Cargill/Continental acquisition of Sanderson now faces longer odds.” Other observers note that if such legislation ordering a certain level of cattle be sourced in the cash market, packers will find a way to potentially circumvent such requirements. And others point out that the actions could stifle the development of new pricing methods that could also benefit producers.