Packer concentration and beef supply chain resiliency weighed on lawmakers minds on both sides of Capitol Hill, as House and Senate panels looked at food production issues during the pandemic Wednesday Ag experts told the House Ag Committee, the beef supply chain, stretched to the breaking point by the pandemic, needs help. But simply adding capacity may not be enough. Purdue University’s Jayson Lusk says, “The costs of adding capacity are not limited to concrete and iron. I encourage you to consider other barriers that limit new entrants. These factors include labor availability, and costs of complying with regulations, related to labor, food safety, zoning, transportation and more.”
University of Missouri’s Keri Jacobs suggested producer-owned processing cooperatives, but with government help and goes on to say, “The margins have to be there, a cooperative model is not a fix to a market, to a business model that’s not profitable, the part of the supply chain that’s not profitable. So, that has to be there, and that’s why I was suggesting there needs to be investment to help understand what the minimum efficient scale is, so there can be margins at producer ownership and processing and help in scaling up to that.”
Witnesses also stressed doing more on cybersecurity, that ransomware attacks will continue to threaten the U.S. food supply. Meantime, Senate Judiciary was looking into anti-competitive practices in meatpacking, as Senator Chuck Grassley pushed for more cash trades and he and others sought more competition, price transparency and scrutiny of mergers and acquisitions. But Tyson Foods’ Shane Miller and Consumer Reports’ George Slover showed just how wide the gap is, not just in boxed beef versus cattle prices, but in opinions. Miller, followed by Slover, go on to say, “The present spread between live cattle and beef prices has everything to do with the law of supply and demand. Multiple unprecedented market shocks, including the pandemic and severe weather conditions this past year, led to an unexpected and drastic in processors’ ability to operate at capacity. This led to an oversupply of live cattle and an undersupply of beef, all while demand for beef products is at an all-time high.” Slover: “Today, after a merger cascade, the top four packers control 85-percent. These multi-billion dollar giants know how to stay out of each other’s way. Now, a feedlot might have one packer show up—no auction, no bidding, no negotiation.”
Slover argued, today most cattle are purchased in advance under long-term contracts with pre-arranged prices, giving packers a captive supply and magnifying their control.