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.

Outlines

00:00

🐄 The Auctioning of Cattle at St. Onge Livestock

Every Friday, ranchers in South Dakota bring cattle to St. Onge Livestock for sale, run by Justin Tupper, the auctioneer. His family helps with various tasks, and the auction facilitates millions of dollars in sales. The process includes cattle being tagged, weighed, and sold via competitive bidding. The atmosphere is tense as ranchers bid on cattle based on weight, breed, and other factors. It is a tradition rooted in competitive market practices, but with growing concerns about pricing fairness in the industry. This auction, like others, plays a critical role in determining the value of cattle.

05:02

📉 Decline in Small Ranchers and Industry Challenges

Over the years, competition in the American beef industry has become imbalanced. Due to consolidation and lack of competition, many small ranchers have gone out of business. In the 1920s, the Packers and Stockyards Act was signed to ensure fair competition, but since the 1980s, mergers and a shift in antitrust policies allowed large meatpacking companies to dominate. Now, four companies process the majority of beef in the U.S., leading to fewer options for ranchers and creating higher environmental costs. This concentration has severely affected small ranchers, whose businesses are at risk.

10:06

💼 Impact of Market Concentration on Cattle Auctions and Ranchers

As the beef industry became concentrated, cattle auctions became less competitive, impacting ranchers like Ted and Brad, who rely on auctions for fair pricing. Nowadays, 72% of cattle sales between feedlots and meatpackers happen through contracts rather than auctions, eliminating price discovery for many transactions. Ranchers are left with fewer bidders and lower prices, which have devastating effects across the supply chain, from cow-calf producers to feedlot owners. The shrinking competition is a major reason why many ranchers have been forced out of business, eroding family legacies and rural economies.

Keywords

💡Livestock auction

A livestock auction is a public event where cattle ranchers gather to buy and sell livestock, primarily cattle. In the video, the auction is a central part of the rural economy in South Dakota, allowing ranchers to sell their cattle competitively. This process of price discovery sets the market value for the animals, as seen in the St. Onge Livestock auction.

💡Price discovery

Price discovery refers to the process of determining the price of a commodity in a market through the interactions of buyers and sellers. In the video, the auction facilitates price discovery for cattle, as ranchers bid competitively, which ultimately establishes the fair market value. The video emphasizes how competition drives up prices and benefits the sellers.

💡Consolidation

Consolidation in the context of the meatpacking industry refers to the concentration of market power in the hands of a few large companies. The video highlights how four major corporations, including Tyson and JBS, control 85% of the U.S. beef market. This consolidation has reduced competition, negatively impacting cattle prices and the livelihoods of small ranchers.

💡Antitrust laws

Antitrust laws are regulations designed to promote competition and prevent monopolies. The video references the Packers and Stockyards Act of 1921, which was implemented to safeguard competition in the cattle industry. The video argues that a lack of enforcement of these laws since the 1980s has allowed meatpacking companies to dominate the market, leading to unfair practices.

💡Feedlot

A feedlot is a type of farm where cattle are fed a high-energy diet to 'finish' them before they are sold to meatpacking companies. In the video, feedlots are a key intermediary in the beef production cycle, where cattle are fattened after being raised by cow-calf producers and backgrounders. The lack of competitive bidding from meatpackers has hurt feedlot owners' ability to secure good prices.

💡Cow-calf producer

A cow-calf producer is a rancher who raises cattle by breeding cows and selling their calves. These small-scale ranchers are one of the groups affected by the decline in competition in the beef industry. The video introduces Matthew Kammerer, a cow-calf producer in South Dakota, who discusses the challenges of sustaining his family business in a market dominated by large corporations.

💡Meatpacker

A meatpacker is a company that processes cattle into beef for consumer markets. In the video, companies like Tyson, JBS, Cargill, and National Beef are identified as the dominant players in the meatpacking industry, controlling 85% of the market. Their control over the industry and use of contracts rather than competitive auctions has led to reduced prices for ranchers and higher prices for consumers.

💡Contracts

Contracts in the beef industry are agreements between feedlot owners and meatpackers that set the price for cattle without going through an open auction. The video explains that over 70% of cattle sales are conducted this way, which limits competition and hurts the price discovery process. The reliance on contracts is contrasted with the more competitive and transparent auction system.

💡Competitive bidding

Competitive bidding is the process in which multiple buyers place bids on cattle, with the highest bid winning. The video illustrates how competitive bidding at auctions benefits sellers by driving up prices. However, the absence of competitive bidding between feedlots and meatpackers due to the use of contracts has led to lower prices for ranchers.

💡Legacy ranching

Legacy ranching refers to the multi-generational family businesses involved in cattle ranching. The video showcases how many small ranches, such as those run by families like Matthew Kammerer’s, have been passed down for generations but are now struggling due to market consolidation. The disappearance of these ranches is symbolic of the broader decline of rural America and its traditions.

Highlights

Ranchers from South Dakota gather every Friday at the St. Onge Livestock auction to sell cattle, managed by owner and auctioneer Justin Tupper.

The St. Onge Livestock auction is a family business with Tupper’s family actively participating in different roles during the auction.

Millions of dollars are facilitated in sales during a typical auction day, with Tupper estimating between three to five million dollars.

The cattle auction system involves tagging and weighing cattle before they enter the sale ring, where bidders, mostly other ranchers, evaluate factors like weight, breed, and age.

A critical part of the auction process is the auctioneer's chant, designed to generate excitement and encourage higher bids.

Small farmers and ranchers rely heavily on the highest bids for their cattle, which sometimes represent their entire year’s income.

Over the past 50 years, 40% of cattle ranchers have gone out of business due to declining prices and increasing market consolidation.

The American beef industry is now dominated by four major meatpacking companies: Tyson, JBS, Cargill, and National Beef, which process 85% of the country’s beef.

In 1921, the Packers and Stockyards Act was introduced to prevent unfair competition in the beef industry, but the market has since become overly concentrated again.

The shift from auction-based sales to contracts between feedlot owners and meatpackers has removed competitive price discovery, harming small ranchers.

In 2021, about 72% of cattle sales between feedlot owners and meatpackers were through contracts, reducing competitive bidding and transparency.

Natural disasters like the 2020 pandemic and the 2021 JBS cyberattack exposed vulnerabilities in the meatpacking industry, with ranchers being paid less and consumers charged more.

Ranchers believe the lack of competitive bidding and concentrated market control by meatpackers maximizes corporate profits at the expense of small producers.

Proposed solutions include reducing contract sales between feedlot owners and meatpackers and enforcing antitrust laws to promote fair competition.

The American rancher, once a symbol of independence, is losing autonomy due to the market power of large corporations controlling the beef industry.

Transcripts

Every Friday, ranchers around South Dakota bring their cattle here

to this livestock auction

just outside the small town of St.Onge

to be sold by this man

Justin Tupper, the owner and auctioneer at St. Onge Livestock.

TUPPER: So, a lot of guys bringing in those cows.

They're bringing them in for the normal sale day.

St. Onge livestock is a family business.

TUPPER: Emily's helping clerk, Maggie's been helping outside, Cody'll be here in a little

bit and he'll work the night shift, and Brooke, my wife, is doing the books.

Justin’s sale barn facilitates millions of dollars in sales on a day like today.

TUPPER: I would guess somewhere between three and five million.

And it happens like this.

Cattle get dropped off in this pen.

Then they’re tagged and shuffled along this labyrinth-like system.

Until it’s their turn to be sold, and they enter the sale barn here.

This ring is actually a huge scale, so bidders know how much the cattle weigh.

As the bidders, who are other ranchers, watch from the stands

Justin or another auctioneer lead the auction with what’s called a chant.

(indistinct auction chant)

TUPPER: So that's what the auction is all about.

It's trying to get a fever pitch that get you to bid one or two more times more than

you anticipated because you're caught up in the moment.

Bidders are looking at the cows’ weight, breed, and age, and considering outside factors

like the weather and the futures market.

An almost imperceptible raise of the hand indicates a bid.

And it all ends with the highest bidder.

(indistinct auction chanting) Sold!

This process happens more than 100 times that day.

It is price discovery at work—creating a value for a commodity

in this case through, friendly competition.

TUPPER: When they come into the cafe , they'll sit

and visit with each other and be very cordial.

TUPPER: Sooner or later, they'll be split up out in the seats

and they'll be bidding against each other.

Small farmers and ranchers selling their product at auction has a long legacy in the US.

And the stakes are high for people selling cattle.

For some, the highest bid on this board is all the money they’ll make that year.

And lately those prices haven’t been enough for many of them to make it.

In the past 50 years, about 40% of cattle ranchers have gone out of business.

Healthy competition in a market means that there are numerous small producers and buyers

who compete equally for a commodity.

And as a result, not one player exerts outsized control over its price.

But in the American beef industry, something’s off-balance.

And it’s ruining the competition for everyone.

The buyers and sellers coming to these auctions represent the different stages of cattle ranching

all of which are affected by a lack of competition in the industry.

KAMMERER: I'm Matthew Kammerer from Rapid City, South Dakota.

Matthew is a cow-calf producer, a small-scale rancher who breeds cows

and raises calves on grass until a certain age.

KAMMERER: From getting up and all kinds of weather and times at night to check on

first calf heifers, to branding in the springtime, putting up hay for feed in the winter.

KAMMERER: And hopefully we bring one hell of a product here for the backgrounder.

A backgrounder is the next ranch cattle usually cycle through — another small or medium-scale

ranch where calves graze until they reach a certain weight.

VEURINK: I buy from the producer who raise that calf as a baby.

They'll feed them to an age of seven hundred pounds.

Then a backgrounder sells to a feedlot, like this one.

THOMPSON: I'm Ted Thompson from Lakewood, South Dakota.

We take cattle to feed yards and finish cattle.

Just like it sounds, finishing cattle is the last step of the cattle production cycle.

The feedlot owner then sells the finished cattle to the meatpacker, the company that

slaughters them and sells their meat to consumers.

Companies like Tyson or National Beef.

These three types of ranchers do all of their sales

through competitive bidding at livestock auctions like Justin’s.

But the sale between feedlot owners and the meatpackers looks a lot different.

And that has to do with this powerful player and over a century of history.

KELLOWAY: The creation of our antitrust laws really is tied to the meat industry.

Claire Kelloway, is a reporter and researcher on consolidation in agriculture.

KELLOWAY: I report on everywhere where corporate power shows up across the food supply chain.

KELLOWAY: Around the turn of the century, there were highly consolidated meatpackers.

They were called the Beef Trust.

Five companies controlled most of the market.

KELLOWAY: That's generally considered excessively concentrated.

And so you have risks of companies not competing for the lowest prices.

All different kinds of what we would consider anti-competitive or unfair behavior.

KELLOWAY: It prompted an outcry over the prices and conditions for farmers who are working

with these meat packers.

In 1921, President Warren Harding signed the Packers and Stockyards Act into law

to assure fair competition and to safeguard farmers and ranchers.

In the decades after this law was passed, the top four meatpacking companies in the

beef industry controlled about 25 percent of the market.

That’s under the 40 percent threshold

of what’s considered an overly concentrated market.

Under the Reagan administration, the US legal system transformed their approach to big business.

KELLOWAY: Around the nineteen eighties, a really conservative school of economic thought

took over a lot of policy, including antitrust.

KELLOWAY: And this allowed for a super permissive antitrust policy.

What followed was 40 years of mergers and acquisitions, especially in the meatpacking

industry, without the US government intervening.

Over that same time, while ranches went out of business

feedlots got a lot bigger to service their corporate customers.

KELLOWAY: This drive to become bigger and to cut costs, pushing more destructive forms

of livestock production.

KELLOWAY: So, the rise of more concentrated animal farms

which have huge externalized costs on the environment.

The result is a beef industry where the top four companies process 85 percent

of all the cattle produced in the US

well above the anti-competitive threshold.

Today, those companies are Tyson, JBS, Cargill and National Beef.

And if you eat beef, you more than likely buy it from them

when you shop at a conventional grocery store.

KELLOWAY: Concentration might not be something that most people see.

KELOWAY: There are some big name brands that we're familiar with.

KELLOWAY: But because these companies

have bought up a lot of other companies

it creates sort of an illusion of choice.

The fact that just 4 companies buy and process nearly all the beef in the US

creates a bottleneck here

between them and the feedlot owners

who buy from the backgrounders and cow-calf producers.

The public might only see the vulnerabilities of this structure when disaster strikes.

Like when a fire took out a Tyson plant in 2019.

When multiple meatpacking plants shut down in 2020 due to the covid pandemic.

Or, in 2021, when JBS underwent a cyber attack, forcing plant closures.

During these events, they paid ranchers less, and charged consumers more.

In a July 2021 Senate hearing, a Tyson representative

attributed this price spread to the law of supply and demand

because of closed plants, the supply of live cattle

outpaced processors’ ability to process those cattle.

But many people see the reliance on so few plants to process cattle as exactly the problem.

KELLOWAY: Cattle producers who are saying this is clear evidence of highly concentrated

meat packers using their position in the middle of the market to maximize their profits.

Before the industry got so concentrated again in the 80’s, meatpacker representatives

from different companies used to fill these stands like everyone else

contributing to price discovery and higher prices for ranchers.

But today they aren’t there.

KELLOWAY: Packers don't like bidding for cattle.

They want to be running their plants at full capacity and

they want to know how much cows are coming in.

That’s why about 72% of the sales in 2021 between feedlot owners and meatpackers is

through a contract instead of an auction

which removes them completely from the price discovery process.

The other 28% is still negotiated.

But with only four big meatpackers there are fewer bids, and they typically

don't take place at an auction.

Instead, buyers from the packing industry

often go straight to the feedlot owner like Ted.

THOMPSON: They'll typically go around to feed yards and see their show list.

TUPPER: Many times they don't see any buyers.

They may get a phone call from them and say...

THOMPSON: This is what we'll give today.

TUPPER: There's not a competitive nature that happens there.

In Colorado, for example, 2 years of USDA reports like this one, show negotiated cattle prices

as “confidential” because there are so few bidders that disclosing prices

might reveal who the bidder is, a violation of confidentiality laws.

More competition raises praises, something a cattle rancher, like Brad, knows from experience.

I gotta check this one.

He paused our interview to bid on a livestream open auction at a sale barn.

There's all the information, just like you see the sale barn, 14 head.

(indistinct auction chant)

I'm gonna bid right here.

(indistinct auction chant)

So did it go through?

Yep.

(indistinct auction chant)

See, he tells me.

(indistinct auction chant)

I'm gonna stay out.

(indistinct auction chant)

-So you didn't win that one? -Nope.

No, it was too high?

That's where I want to stop, 70 bucks.

So what did you do for the person that won that bid?

I think he is asking 160.

So between me and the people in the seats there.

That's 40 bucks that rancher put in his pocket just because he had competitive people per calf

and then that's a huge deal in a lot of times it's make or break.

TUPPER: Probably the most important bidder in the price discovery or the auction process

is the guy who didn't get it

because he bid against the guy who got them right up to the last bid

so he drove that price there.

Not having those competitive bids for the sale between meatpackers and feedlot owners

means Ted might get a lower price.

Which means they have less to bid on for the backgrounder, like Brad.

And the backgrounder has less to give to the cow-calf producer, like Matthew.

And that trickle-down effect is one reason why about 40% of cattle ranches

have disappeared since 1980

which means rural America has lost hundreds of thousands

of small family businesses.

I'm wondering whether you're worried about the survival of your business?

Yup.

It's a legacy out there.

And it's not gonna get any easier for these families.

It's losing the legacy of the family, the family ranch and stuff.

KAMMERER: Great grandpa came her in 1882.

KAMMERER: And I live in the same log house that he built.

TUPPER: It's infuriating.

Think of what some of that money... if it would have trickled down to the countryside

where we would be.

"The Senate agriculture committee looked at cattle industry markets

including the rise in beef prices."

In 2021, the US government started investigating whether lack of competition in cattle markets

requires legal or policy intervention.

And Justin Tupper was there to testify.

JOHN THUNE: I want to welcome to the committee, Mr. Justin Tupper.

TUPPER: Since 2015 corporate packers gross margin has ballooned from average of

100-200 a head to well over 1,000 a head

while cattle producers go out of business and

consumers pay double or even triple at the meat counter.

Solutions to promote competition include a proposed bill that would reduce the amount

of contract sales between feedlot owners and meatpackers from 72% to 50%.

Or making it easier for more meatpacking companies—more bidders, in other words—to enter the market.

To enforcing antitrust laws that were created for this very purpose.

The American rancher also serves as a symbol of independence.

But they've lost their independence from the few corporations that control the beef industry

and make it impossible to compete

Thanks for watching this first episode of our series with Future Perfect

a team at Vox that explores big problems

and the big ideas that can help tackle them.

We'll be diving into crucially important issues

like climate change, animal welfare, and global health.

We'll be exploring them through angles that are often neglected

and identifying the most effective solutions.

In this first season, we're looking at the human cost of meat.

The current scale of industrial meat production undoubtedly has an impact on animals

but it also deeply affects people.

People who consume meat, people who work in the meat industry

and people who live next to factory farms.

In future episodes, we'll be looking at

other ways that the meat industry has changed the way people work and live.