How 4 companies control the beef industry

Summary

This video delves into the cattle ranching and beef industry in South Dakota, focusing on the challenges faced by small-scale ranchers due to industry consolidation. The auctioneer Justin Tupper, who runs St. Onge Livestock, explains the auction process, where ranchers sell cattle through competitive bidding. However, the beef industry is dominated by just four major corporations, creating a bottleneck that limits fair competition and drives smaller producers out of business. The video highlights the impact of these monopolies on rural America and explores potential solutions to promote competition in the market.

Takeaways

• 🐄 South Dakota ranchers bring cattle to St. Onge Livestock auction every Friday for competitive bidding.
• 👨‍👩‍👧‍👦 St. Onge Livestock is a family-run business led by Justin Tupper, who facilitates millions in sales through cattle auctions.
• 🔁 The auction process involves tagging and weighing cattle, followed by competitive bidding from ranchers, creating price discovery.
• ⚖️ Auctions are based on weight, breed, and external factors, with ranchers trying to outbid each other for the best price.
• 📉 In the past 50 years, 40% of cattle ranchers have gone out of business due to low prices and lack of competition in the beef industry.
• 🏢 The meatpacking industry is highly concentrated, with four companies (Tyson, JBS, Cargill, National Beef) controlling 85% of the market, reducing competition.
• 📜 The Packers and Stockyards Act of 1921 was designed to prevent market manipulation, but over time, the industry became increasingly consolidated.
• 📉 Most sales between feedlot owners and meatpackers now happen through contracts (72%), bypassing competitive auctions and reducing price discovery for ranchers.
• 💰 Ranchers and feedlot owners often receive lower prices due to the lack of competition, impacting the entire cattle supply chain.
• ⚖️ Proposed solutions include antitrust reforms, limiting contract sales, and encouraging more meatpacking companies to enter the market to restore competition.

Q & A

What role does Justin Tupper play in the livestock auction process?

Justin Tupper is the owner and auctioneer at St. Onge Livestock. He leads the auction, facilitating the sale of cattle by conducting the auction chant and helping to create a competitive bidding environment.

How does the auction process work at St. Onge Livestock?

Cattle are dropped off in a pen, tagged, and then moved through a labyrinth-like system until it’s their turn to be sold. They enter the sale barn, which is also a scale that shows their weight to bidders. The auctioneer then conducts the auction using a chant, and bidders raise their hands to place bids.

What are the key factors bidders consider when bidding on cattle?

Bidders consider the weight, breed, and age of the cows, as well as outside factors such as the weather and the futures market. They place bids based on these considerations.

Why is healthy competition important in the cattle market?

Healthy competition ensures that numerous small producers and buyers can compete equally, preventing any single entity from exerting outsized control over prices. This competitive environment leads to fair pricing for both sellers and buyers.

What impact has market consolidation had on the American beef industry?

Market consolidation has resulted in the top four meatpacking companies processing 85% of all cattle produced in the US. This high level of concentration has reduced competition, leading to lower prices for ranchers and higher prices for consumers.

What is the significance of the Packers and Stockyards Act of 1921?

The Packers and Stockyards Act was signed into law to assure fair competition and safeguard farmers and ranchers from anti-competitive behavior by meatpackers. It was a response to the excessive concentration of power in the meat industry, known as the Beef Trust.

How do current sales between feedlot owners and meatpackers differ from traditional auctions?

Unlike traditional auctions, where competitive bidding occurs, 72% of sales between feedlot owners and meatpackers happen through contracts, bypassing the auction process. This reduces the opportunity for price discovery and can lead to lower prices for feedlot owners.

What events have highlighted the vulnerabilities in the current meatpacking system?

Events like the 2019 fire at a Tyson plant, the COVID-19 pandemic plant shutdowns in 2020, and the JBS cyber attack in 2021 have shown how the concentration of the meatpacking industry creates bottlenecks. These disruptions led to lower prices paid to ranchers and higher prices for consumers.

What potential solutions are being proposed to promote competition in the cattle market?

Proposed solutions include reducing the amount of contract sales between feedlot owners and meatpackers from 72% to 50%, encouraging the entry of more meatpacking companies into the market, and enforcing antitrust laws to prevent anti-competitive behavior.

What is the impact of market consolidation on small family businesses in rural America?

Market consolidation has made it difficult for small family businesses, like cattle ranches, to survive. Since 1980, about 40% of cattle ranches have disappeared, resulting in the loss of hundreds of thousands of small family businesses in rural America.