The Pandemic Exposed Deep Problems in the Meat Industry

The challenge now is how to overcome them without resorting to ill-advised populist ideas.

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We all remember the shortages that defined the early days of coronavirus lockdowns. Retail outlets responded as quickly as possible to shortages of toilet paper, hand sanitizer, and disinfectants. But then the supply chain disruptions hit the meat department of supermarkets everywhere. Consumers encountered empty coolers instead of packages of chicken or steak, and what was available was more expensive. Frustrations mounted. 

But customers weren’t the only angry ones; ranchers are also mad. It’s a little counterintuitive—hamburger prices increased from as low as $1.84 a pound to more than $6 a pound—so ranchers’ anger doesn’t make much sense to the average American. Why wouldn’t the producers of hamburgers benefit from high prices for hamburgers? 

The answer is complex but important. The market for beef and pork isn’t just one market, but several. It is possible for the market for live cattle ready for slaughter to be in surplus, while the retail market is struggling to satisfy demand. That’s exactly what has happened during the pandemic: At the same time that retail prices spiked, farmers suffered from falling prices for their cattle. The extra money you paid for your ground beef went not to ranchers but to meat packers.

Farmers, and the groups that represent them, are very conscious of that price gap, between farm and retail. Having been here before, we have a long list of policy solutions at the ready to improve producers’ position in the marketplace. President Trump may have given renewed life to populism, but populism down on the farm has been around almost as long as cockleburs and grasshoppers. Most of the ideas presently rattling around coffee shops and convenience stores where we farmers gather have been tried before, and most have fallen by the wayside for perfectly good reasons, but we seemed destined to repeat every farm policy mistake of the past. 

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  1. Avatar photo
    Tracie

    "Without the opportunity to maintain and increase exports of U.S. farm products, we have an agricultural sector that is fully a third too large."

    A nice metaphor for how much smaller we make ourselves with isolation.

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  2. @fakeJohn

    Isn't the reason for this current price imbalance because meat packing capacity, because of COVID, is a fraction of what it should be? You have a glut of supply from ranchers, reduced demand from meat packers because they had to close some plants and run others with reduced staff, and constant demand from consumers. That doesn't seem like price fixing to me. Heck, I bet they would prefer paying more if it meant operating at 100% capacity.

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  3. Stephen.D

    Your essay, while well intentioned and moderately well-written, only points at a small segment of the production system while it worries about the system overall. There’s quite a complex order to the equation of our capitalism-inspired (though by no means faithful) meat production system. To illustrate the “Market” effect on supply, (and see that your math teacher didn’t lie) the opposite side or, logistics side, of the equation displays a (read Schumpeter) disruptive imbalance at work.
    In their greed to slurp-up as much yield as possible, these evil-doing packing houses ramped up production to very high levels, and stuffed the system with abundant supply. I know, it wasn’t evident for a week or two, but today, less than a month later, supermarkets are forced to advertise ground beef on sale for $0.99 a pound. Why? Too much beef in the pipeline, and by governmental regulation, this will eventually “age out.” At this point, they lose all their money.
    True, this does not aid the Farmer, and so, for a moment at least, you may continue to feel sorry for her if you must. In truth though, she’s merely displaying her shortcoming by becoming dependent on other players for her security. You see, your essay identifies “…live cattle ready for slaughter” as one element in the equation, and the “…farmers [who] suffered from falling prices for their cattle” as another. You left out an in-between player. The cattle ready for slaughter aren’t “the farmer’s” anymore.
    Farmers, in an effort to amplify their profits, avoid storing any feed grain in their production process. This means, when a calf reaches a certain age, it must be sold forward to a Feed Lot operator because the Farmer can no longer sustain the animal. This Broker-like, futures trader nibbles at the profit from both the Farmer and the Packer.
    What we experience here is a capitalist system that has allowed itself to be overrun by a community of experts. In fact, your quick solution to this problems suggests that “…we have a long list of policy solutions at the ready to improve producers’ position .” The term Producers suddenly replaced Farmers and hints there might be other players in the system than first addressed. Yes, there are, and each in their turn promotes their self-interest to modify what is – and I would argue, must remain – a balanced equation.
    In your quick-switch from farmers and packers to buyer and seller, and that “…most transactions between buyer and sellers of market-ready cattle are private,” you conveniently mask the problem. Too many meddlers scurry around in the system, each modifying the system for their gain; and the privacy incurred is the emolument for risk abandonment. Farmers may no longer own the cattle on their land, they’re merely the wardens. The same is true in Poultry and Hog markets but I’ll leave that alone for the moment.
    More though, this is no longer a Minnesota problem. As you then go on, we might infer that the principal participants are now residents of Wall Street. Even there, within this broken system, many of the producers on Wall Street will commiserate with the Farmer while others will find empathy with the Packers, for they too, under capitalism’s rugged rules, learn: “what you seed, is what you get.” Today’s problem – and not just in the meat producing industry – is that overly “expert” led, highly algorithmic systems work to erode logical capitalism’s perfectivity in an effort to escape risk. More Agencies, Players or Regulations will not change any of that. All it does is winnow down the revenue per participant.

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    1. @fakeJohn

      All of the things you are describing as antithetical to capitalism, the futures trading and "meddlers [who] scurry in the system", are the logical outcome of a capitalistic system. Selling cattle to feed lots allows a farmer to free up working capital and de-risk his operation which in turn makes the overall supply chain more efficient. The expert highly algorithmic systems don't work to erode capitalism's perfectivity, they are capitalism's perfectivity. The problem is that these systems become so efficient that when a black swan event like COVID comes along, they cannot adapt and the wheels fall off. The only way prevent systems from becoming too efficient is through regulation because you have to mandate that inefficiencies be driven into the system. My hope is we don't overreact. I spent a number of years helping companies become "SOX compliant" after the Enron fiasco. Consultants made a mint helping US companies comply with burdensome regulations which made them less competitive in the global market and 8 years later we had another, bigger, crash because of a different Black Swan event.

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      1. Stephen.D

        John, you misread my comment. I did not incline toward their being antithetical to capitalism, only that as a modification of the clear edicts of the game, they tend to weaken the system. My comment was aimed toward Blake's essay, only alluding to the other external influences. You are quite correct to target a Black Swan event as disruptive to the system, except that was not the point of Blake's essay. Taking the lead from your inclusion of a Black Swan's effect however, I shall put forward his (Nassim) two more important elements in any operational structure:
        Fragility
        Skin in the Game.

        Eliminating risk make you more Fragile because you have less Skin in the Game.

        My compliments to your narrative.

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  4. CatoTheElder

    Although my comment will necessarily run the risk of driving off into the weeds, I’ll add that the type of near-monopoly power allowed in the meat packing industry, largely in the name of “efficiency”, is part of a trend seen at various levels in other industries, and the use of onerous regulation to limit competition—while passing the cost on to the consumer and complaining about “government interference” causing higher prices—is an old, old tactic. There are now only three major carriers for mobile phone service in the US; is the resulting paucity of competition a boon to the consumer? Hardly. Not just with regards to the meat-producing and -packing industries, but in at least most similar instances we would be better off with more actual competition, reduced barriers to entry, and decreased burdensome and costly regulation. Economies of scale will always favor the larger entities, and there’s little if anything to be done about that, but reducing or even better reversing the trends toward allowing monopoly-like power (and ignoring the screams about “reducing shareholder profits” and “limiting growth reduces innovation and efficiency”) would prove healthy in the long haul.

    Maximally efficient proves to be inhumane, reduces outside-the-box experimentation and innovation, and grinds everything into a uniform pablum. Resiliency, as we’re learning from the effects of the big and building ongoing Anthropocene Extinction, is built on diversity, ability to turn on a dime, and evolve quickly, and has the added benefit of being more human in scale, more capable of meeting varying needs and tastes, and, not unimportantly, bringing forth surprising bits of beauty and goodness that the Massive Maximally Efficient Company cannot even dream of.

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  5. Avatar photo
    Shawn Steene

    Efficiency and resiliency are in tension with each other -- and always will be. Those bigger meat processors can take advantage of economies of scale and be profitable on smaller margins than "the little guy" could survive on.

    The disparate impact of the regulations and inspections, in terms of smaller meat processors having to amortize the cost of the inspections over lower volume and thus higher unit costs, is something we should look at and attempt to remedy.

    If I lived back in rural MN where I grew up, or in rural WI where my wife grew up, we would be able to buy animals directly from the producer and either butcher them ourselves or have them processed by a local meat market where we know the proprietors. If I know the meat producer, and I know the meat processor, and I have enduring relationships with them...that is not the same dynamic as going to the local grocery store and purchasing meat that is of unknown origin and was processed by unknown operators.

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    1. Eric H

      Re: "If I know the meat producer, and I know the meat processor, and I have enduring relationships with them...that is not the same dynamic as going to the local grocery store and purchasing meat that is of unknown origin and was processed by unknown operators."

      Agreed. But the point I was trying to make is that theoretically my meat goes through the same inspection system as the meat at the grocery store. It is FSIS inspected and we ship nationwide. HOWEVER, the small processors I use MUST have an FSIS inspector on site, and pay the cost of that. On the other hand, the large meat packers may appoint one of their own employees as the inspector, and the meat is not necessarily inspected by FSIS. Thus, their incremental unit cost is correspondingly lower and the price to the consumer is lower . . . putting me and others like me at a competitive disadvantage. The regulatory framework is aligned with those with monopoly power.

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        Shawn Steene

        I don't see a conflict in my post and your point -- I completely agree that the current setup economically advantages the larger-scale processors...whether they are monopolies or just one of several large processors, the effect is to squeeze the smaller-scale processors. That's why I wrote that there is a disparate impact when the regulations and inspections make the smaller-scale processors amortize the cost of the inspections (and compliance with regulations) over lower volume thus pushing up the unit costs (e.g., the price per pound that they must charge)...and we should look at that situation and attempt to remedy it.

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    Idontdocute

    It seems like a small comment section so I will indulge in some cut and paste over something that disturbed me at the time. This is from a Reuter’s article, 6/24/2020, about meat packing owners being called to testify to the Senate on why there was such a spike in meat shipment to China when there was a shortage of product for American consumer, why workers were forced to return to work despite strong numbers of covid infections if the the product of their labor was to be shipped to China. If I remember, and I admit I am half asleep, that the most offensive packing plant is partially owned by Chinese businessmen and there may have been a concern raised by Rachel

    “Such companies exported 112,327 tonnes of U.S. pork to China in April, more than any previous month and up 257% from a year earlier, according to U.S. Department of Agriculture data.

    The exports raise questions about why U.S. meat prices soared during the pandemic and President Donald Trump in April ordered slaughterhouses to stay open to protect the nation’s food supply, Warren and Booker said in a letter to Tyson, JBS, Smithfield and Cargill Inc this week.

    Reuters reported on May 11 that Trump, a Republican, was facing criticism from some lawmakers, consumers and plant employees for putting workers at risk in part to help ensure China’s meat supply.“

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      Idontdocute

      Told you I was asleep, raised by Rachel Maddow that the CDC inspection report of that plant was written as a list of suggestions allowing it to reopen rather than a plan to keep more workers from dying of covid. This has been disturbing me since then.

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        Idontdocute

        https://www.msnbc.com/rachel-maddow/watch/marked-change-in-tone-in-cdc-meat-plant-reports-raises-questions-82911301638

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    Peter A

    I really appreciate the opportunity to read a thoughtful perspective on this issue. Once again, I am reminded of the short-sighted nature of our politicians in throwing away the opportunity to join TPP in late 2016. Trump and Clinton lied about it effects to the voters, and most in congress dutifully lined up against one of the few policy proposals from the Obama administration with which I whole-heartedly agreed. Of course if we want to push back against China's malign behavior around the world, the answer is to align ourselves with a bloc of countries susceptible to falling under its spell. We need to offer an American alternative to China to these countries, not only to help them grow, but to help ourselves. The countries that are party to this agreement would have provided a massive trade opportunity for vast segments of our producers across many industries. Trump's isolationist tendencies are among his most odious beliefs, and we are worse off as a nation for them.

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    Nick H

    One of the few things that Trump has been consistent on over the past 30 years is his love of high tariffs. Likewise, the most stable part of his administration has been the advisors who share his positions on trade. I don't see much hope in convincing him that his trade policies are the problem here and not the solution.

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  9. Eric H

    Monopoly power among the meat packers is a problem on many levels. Certainly Covid-19 has revealed the lack of resiliency in the system. When just a few meatpacking plants being shut down leads to shortages in the grocery store then there are too few plants. There are too few plants because of monopoly power. When Judge Robert Bork led the anti-trust division of the the Reagan Justice Department, antitrust enforcement was changed in the name of "efficiency." Previously, antitrust enforcement was designed to create competition. Since then, consolidation has resulted in a few meatpackers controlling 85% of the market.

    That monopoly power is used in pernicious ways. For example, in my home state of Arkansas I am only aware of three independent FSIS inspected facilities that a producer can take animals to. These smaller facilities are at a regulatory disadvantage. They have to bear the cost of an FSIS inspector to be on site. Which is fine; meat should be inspected. There is no problem with that. However, the large meatpackers may appoint their own employee to serve as the FSIS inspector. The small independents cannot do that. Thus, not only could the meat a consumer buys at the grocery store from a large meatpacker be uninspected by FSIS, the meatpacker does not bear the cost of FSIS inspection like a small plant does.

    As a pig farmer (www.terrenoirefarms.com) that sells directly to the consumer, I have few choices in independent meatpackers, and the regulations make my prices higher in some respects compared to the large meatpacker. That difference is not the result of a "free" market, but rather the result of monopoly power being used by the large meatpackers for disparate, and more favorable, regulatory treatment.

    We have seen steady growth over the years in our direct farm-to-consumer meat production. That growth has certainly been accelerated by Covid-19. Our problem now is that there is not enough capacity in the independent meat processing facilities to meet the demand, and that is not because of pandemic caused shut downs, but because not enough independent meat processors exist.

    I am also a lawyer, and navigating the regulations to sell direct to a consumer is sometimes difficult for me. I can only imagine the barriers they present to non-lawyer farmers. Especially when the regulations unnecessarily, and unfairly, favor the large meatpackers.

    Certainly if antitrust rules were applied to ensure competition, as they were pre-Reagan administration, then there would be more independent meatpackers, more resiliency in the system, less producer dependence on a few meatpackers, more opportunity for producers to sell direct to consumers, and more opportunity for producers to make a profit.

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      JonathanRRogers

      It sounds like all the problems you describe stem from regulatory capture. Perhaps if regulations weren't designed to benefit big packers, there'd be less need for anti-trust action.

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    2. CatoTheElder

      Thanks for a comment that helps readers see the issue through a specific real-life example. I’d love to see a piece by you more deeply discussing the states of affairs in the meat-producing and meat-packing worlds and how they affect each other. In the meantime, I’m gonna type your URL into my browser....

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    Chris L

    This is an excellent primer on the pervasiveness of the economy of the American Heartland. Much needed perspective when so much trade/economic news tends to be centered on the coasts and offshore.

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