Is competition disappearing?
February 9, 2010
It’s a story based on old accusations. Some agricultural producers say increasing concentration in the meat and poultry processing industry, resulting in fewer and larger companies, as well as other changes in the agricultural marketplace, results in less competition. This hurts the ability of producers to receive fair prices for their animals and to stay in business and succeed, they say.
But does the meat and poultry industry operate in a way making it harder for animal producers to get a fair price for their animals, especially as a result of fewer and bigger meat packers and poultry processors slaughtering and processing most of the animals sold to them by livestock producers and poultry growers?
The U.S. Department of Justice and the U.S. Department of Agriculture want to find out. In fact, both federal agencies want to explore competition and regulation in the entire American agriculture industry, not just the meat and poultry processing side of it. The agencies are holding a series of hearings in cities around the U.S., beginning in March and extending through the end of this year.
Federal officials will be looking at issues including concentration in the meat industry, vertical integration and “buyer power” by packers and processors putting animal producers at a disadvantage. The hearings and workshops will take a look at prices paid to producers, production contracts in the poultry industry, including the agreements and payments poultry-processing companies set up with their growers. An examination of discrepancies between prices received by farmers and those paid by consumers will also be on the table. Seeking input
The DOJ and USDA have asked various parties, including the agriculture industry, to react to its proposal. The American Meat Institute, which represents the large players in the industry, says anti-trust and competition laws existing right now work well for industry as a whole. Additional or special laws pertaining only to the meat industry are not needed, it adds.
Others disagree. R-CALF USA, made up of independent cattle producers, told DOJ and USDA there is new evidence of beef-industry action to reduce competition even further, with beef packers and concentrated feedlots eliminating competition in the American fed-cattle market. It described an agreement between Hitch Enterprises and National Beef Packing Co. to limit access to the fedcattle market for independent cattle feeders, with Hitch selling cattle from its three feed yards only to National.
In contrast, larger producer groups like the National Cattlemen’s Beef Association, don’t have the same concerns about increasing concentration. NCBA wants a free-market system to continue, with a relatively unregulated domestic and international marketplace. It does not want the government to have the authority to set prices or manipulate domestic supply and demand. But federal regulators should have the ability to prevent anti-trust, collusion, pricefixing and other activities that could damage cattle markets, it says.
In an interview with Meat&Poultry magazine, AMI’s Mark Dopp, the association’s senior vice president for regulatory affairs and general counsel, cites the meat industry as one of the most regulated in the American economy, with regulation and oversight actually increasing over the past 20 years as a response to new safety issues coming up, including E. coli O157:H7 in beef and Listeria monocytogenes in ready-to-eat products.
“There is no doubt FSIS foodsafety policies, especially with respect to E. coli O157:H7, have led to consolidation of the meat industry,” Dopp says.
Dopp also told DOJ and USDA the growing scientific knowledge base leading to evolving food-safety policies and a much safer food supply has contributed to a more concentrated food industry. In other instances, he says, cattle slaughter and processing companies have merged to enhance their chances of surviving in the case of E. coli recalls.
“We’re certainly not saying food safety is a bad idea; we petitioned the government for HACCP,” Dopp points out. “But efficiencies in how the industry operates have resulted, and that’s just one of many reasons for consolidation. Look at the consolidations, with Taylor selling to Cargill, Moyer selling to Smithfield, to name a few.” Harder time competing
Dopp says a smaller meat and poultry industry, with fewer scientific resources and less scientific expertise, has a harder time competing with the industry giants in an increasingly science-based regulatory system, levied by a federal inspection agency making more and more demands on plants, leading to more buyouts and greater industry concentration.
He also says expectations on the part of retailers and the consumers buying from them, including changing consumer demand and the changing structure of retail customers, have affected the amount of competition and structure in the meat industry, which includes leading to more concentration and less competition, like “club” stores. Case-ready meats, for example, are playing a major role in reducing the number of slaughtering firms in the industry.
Not everyone agrees. Jay Wenther, executive director of the American Association of Meat Processors, which represents the small and very small meat processors in the industry, says he does not believe industry consolidation with fewer, larger firms will result in safer meat, but consolidation of companies into larger and larger organizations may result in larger amounts of meat being recalled. He also disputes claims most recalls are taking place in the small and very small industry sectors . They’re not, but it may appear so because 95 percent of the industry is made up of small or very-small firms. Wenther agrees food-safety regulations have caused owners to make specific business decisions about products and whether to continue making them.
But continually changing regulations haven’t helped the small industry, while the large industry has an easier time coping with seemingly never-ending changes. “While small industry received help with HACCP in the beginning, that help has dropped off, while interpretation of these regulations continues to change,” he says. There’s no doubt this has made it more difficult for small plants to implement these regulations easily and effectively.
Wenther believes ever-changing expectations concerning HACCP and how USDA thinks plants should “address” E. coli O157:H7 have made it more difficult for the small industry to implement government food-safety policy. “Independent processors can’t determine whether the changes are in regulatory requirements, interpretations, expectations, inspectors’ personal opinions, political pressure or public statements,” he says. •
Bernard Shire is M&P’s Washington correspondent, a contributing editor and a feature writer based in Lancaster, Pa. With a background in editing and writing for daily news publications, he also works as a food safety consultant and writer for Shire & Associates.