Meat Packing Industry's Forward Contracting
Captive Supplies Personifies "Monopoly Capitalism" 

MARK DOWIE, RANGE MAGAZINE / Agribusiness Examiner i.218, 23jan03

EDITOR\PUBLISHER; A.V. Krebs E-MAIL: avkrebs@earthlink.net 

The last American president who was bold enough to attack corporate corruption head on was Teddy Roosevelt, a pro-business Republican. And his most memorable target for reform was the meat-packing industry.

Back then, in fact even as recently as 20 years ago, American cattle ranchers would brand anyone using a term like "monopoly capitalism" a Marxist crank, or worse. And most felt the same toward anyone who talked nice about government regulation. But having been victims of the modern meat-packers' cartel for a couple of decades, the nation's primary beef producers have changed their tune.

Step onto the Buck Harris ranch south of Pryor, Montana, and the first thing you'll hear is Patti Harris cussin' the packers, who seem to have completely replaced bankers, brokers and bureaucrats on her enemies' list.

"They're the worst," she says. "They're pulling in two or three times what they made when you last worked for me; and this year I'll sell my steers for the exact same price I did back then."

Step into the main house and you might hear her son Mook placing a phone call to their congressman asking support for a ban on packer ownership of cattle.

Segue to St. Francis, Kansas and listen to rancher Mike Callicrate: "Today the packer monopoly is far more powerful than it was back in Roosevelt's time," he says, "and now, as then, the food security of America is in danger, as producers and consumers are both being cheated."

Since 1980 the four largest beef processors in the country --- Cargill, ConAgra, Farmland National, and Tyson Foods, which in September 2001 acquired IBP (Iowa Beef Packers, the largest of them all) --- have increased their share of the steer and heifer slaughter from 36% to 82%. And during those same years, they've wrangled such a tight grip on cattle markets that their profit margins have soared 233% while the price for cattle on the hoof steadily weakened.

According to the U.S. Department of Agriculture, producers' share of the retail beef dollar has declined 25% since 1975, which translates into $400-per-head less at the scales. This, while the cost of almost everything else a cattleman needs to survive-fodder, machinery, labor, insurance and medicine --- has either doubled or tripled.

Of course the same thing has been happening to one degree or another throughout the entire agricultural economy, as giant corporations like Archer Daniels Midland gobble up midsized farms and use their massive buying power to depress the price of harvested food crops. But the meat packing situation appears to be worsening. In fact, it's far worse now than it was at the turn of the century when ranchers were at virtual war with the packing houses --- a situation that required White House intervention.

Economic studies of monopolized industries indicate that when any market becomes dominated by fewer than six firms, fair pricing becomes compromised. So when over 80% of cattle is slaughtered and processed by four large firms, which on any given day own up to 35% of that cattle, we are inviting monopoly.

Here's how it works.

Very much the way Enron and Dynergy manipulated energy markets in California using fictional transactions with nicknames like "Death Star," "Fat Boy" and "Get Shorty," the four largest packers corner the cattle market with captive supplies of anywhere from 20% to 35% of the pre-slaughter cattle in the country. By holding a few million steers over the market every day, packers can keep wholesale prices down. And by joining forces with larger retailers like Wal-Mart, as IBP/Tyson recently did, they can exert a strong influence on retail prices. And who earns the difference between low wholesale and high retail? Not the rancher.

"Packers have gained an economic stranglehold on the independent cattle producer," according to Jay Miller, market committee chairman of The Ranchers-Cattleman Action Legal Fund (R-CALF). The big four companies, he says, "are using captive supplies of cattle to distort the supply and demand relationship and further depress live cattle prices."

Miller and his members are asking Congress to intervene by banning packer ownership of cattle for more than 14 days prior to slaughter. Of course the packers aren't sitting still for that kind of legislation and have recruited the American Meat Institute and a host of K Street bandits to represent their cause on the Hill.

Ranchers have struck back by filing class-action lawsuits against three of the largest packers. Picket vs. IBP, Murdock vs. Excel (Cargill) and Leuking vs. ConAgra all claim that the packers in question use forward contracts and captive supplies in violation of the Packers and Stockyard Act, a trust-busting statute passed in 1921 to hog-tie an earlier packer cartel.

No one is claiming that the big four are conspiring to fix prices. Fact is they don't have to conspire, it being easy enough to watch each other's supplies and bid less aggressively on the remaining cattle needed to meet demand. And when supplies get low, the worst of them will buy a few truckloads of cheap imported cattle and leave American cattlemen with herds at the ranch gates watching prices tumble.

"It was time to draw a line in the sand," says Jack Boehler of Orleans, Nebraska, a plaintiff in the case against ConAgra.

Meanwhile, cattlemen's organizations have been pushing Congress to clean up the system. This spring the Senate passed a farm bill containing a hard-fought ban against packer ownership. The House is considering the same provision. But the packers and their lobbyists are turning up the heat. A few strategically targeted campaign contributions could steer the ban right into a subcommittee trash can.

At a recent forum in Kansas City sponsored by the Department of Agriculture's Grain Inspection, Packers and Stockyard Administration, R-CALF Vice President Kathleen Kelley spoke out. "Why must we regulate market dominance?" she asked. "The free market is, after all, based on survival of the fittest, so shouldn't we allow the most fit to grow, to prosper, to thrive, even though others may be shoved out of business as a result?" Kelley paused to survey the sea of angry faces before her, then answered her own question. "Not when it threatens our democracy." The applause was deafening.

"This isn't about the price of cattle, wheat, cotton or chickens," she continued. "It's about the value of culture, the value of community, the value of creative independent spirit. It's about trusting humanity unchained from big government and big business to mold itself into a dynamic, progressive culture." More applause. She smiled and finished her speech.

"An independent, diverse agrarian production system is vital to the health and well-being of our sovereign nation. A production system that lacks the strength of diversity and competition also lacks the incentive to innovate. It becomes a parasite which meets only the needs it has to foster its own survival and often fails to respond effectively to crisis. We must foster an effective regulatory climate that recognizes the crucial importance of real competition."

There it was, a reluctant but necessary call for regulation, something that would have been booed down by the same crowd 20 years ago.

Mark Dowie is a ranch hand on the Gale Ranch in Chileno Valley, California