Packers say AMAs create value, producers say consolidation breaking cattle industry
Senators in the Judiciary Committee brought in Tyson and JBS representatives along with a salebarn operator, independent grocer spokesman and more to discuss the price discrepancy between a live beef animal and the value of the carcass once processed during a hearing named Beefing up Competition: Examining America’s Food Supply Chain on July 28, 2021.
TSLN and many other news outlets have reported for months the $1,000 and higher profits the big four packers are earning on cattle they own most of the time for less than two weeks, meanwhile cattle producers are feeders are in most cases operating at breakeven levels or losses.
The theme from Jon Schaben of Dunlap, Iowa, who operates salebarns in that town and also in West Point Nebraska; Bob Larew, the president of the National Farmers Union and also Mr. David Smith, President and CEO of Associated Wholesalers Grocers was consistent: consolidation, lack of transparency and lack of enforcement of anti-trust laws are allowing the big four packers to take advantage of producers as well as consumers, and independent grocers.
Smith commented on the buying power the larger retailers have over the smaller ones, which puts those stores and chains in a position to lower their prices until the small, independent stores have gone out of business, and then “increase prices at will,” he said. “I’ve seen it happen over and over again, and it’s why little towns…can only rely on dollar stores for their grocery needs. They are not healthy choices,” he said.
“We have a choice, we can choose to end these unfair schemes. We can choose to enforce anti-trust laws that ensure competition throughout the food chain.”
Consolidation at the retail level has encouraged consolidation upstream, he believes. “Meatpacking is a stark example. Suppliers respond to retail consolidation by consolidating rapidly themselves, in hopes that getting bigger will allow them to gain leverage against that domination…the results are predictable. Farmers and ranchers struggle to get fair prices as fewer firms compete for the product. Consolidated supply chains are more vulnerable to disruption.”
The JBS President of USA Fed Beef, Tim Schellpeper, said the most significant challenge his company faces is labor availability, he said they pay their workers about $20 per hour starting wage, and an average across the company of $22 per hour.
“It is JBS’s mission to ensure the best products and service for our customers, a relationship of trust with our suppliers, profitability for our shareholders and the opportunity for a better future for all of our team members,” he said.
Schellpepper testified to the investments they have made in emission reduction – $1billion, along with $100 invested into “on farm research and development.”
He said the cattle and beef markets are cyclical and that producers benefit from AMAs because, prior to the industry-wide practice of forward contracting and grid marketing, producers were not compensated for better quality cattle.
Shane Miller who represented Tyson said the spread between boxed beef and live cattle prices is simply a function of supply and demand. “Multiple unprecedented market shocks including the pandemic and severe weather conditions led to an unexpected and drastic drop in processors’ ability to operate at capacity. This led to an oversupply of live cattle and an undersupply of beef all while demand for beef products was at an all time high, so it should not surprise any of us that the price for cattle fell while the price for beef rose. While Tyson does not and cannot control market forces, our success depends on the entire beef supply chain being properly incentivized to meet America’s demand for higher quality beef.”
Miller said that USDA research has found that AMAs allow for the creation or capture of greater value. Later said, in response to a senator’s question, he said that Tyson is more than willing to work with any feeder who wants to contract their cattle with an AMA.
Schaben, representing the 8,000 member Iowa Cattlemen’s Association, who spoke first, refuted much of what the packer spokesmen said.
He said that a severe lack of cash trade, limited price discovery and an imbalance in leverage between those who raise cattle and those who process them is what has brought the cattle industry to a place of unprofitability.
“It is imperative that we uplift the concerns of those in the production sector. The beef supply chain begins with and relies on thousands of cattle producers,” he said.
“We’ve heard it all the way up today about those black swan events. I hear about how they are responsible for what why we are probably here today, and I don’t think in the context of what they are that that’s actually factual. I think the black swan events were a great example of what’s broken about the marketing chain in live cattle and they show some of the things that need to be changed within this industry. I think it’s unfair to say they are causing the problems when what we have is this great big discrepancy between what our cattle are worth live when we sell them and what they end up with when we sell them as retail beef.”
He went on to point out that in 2015, 51.5 percent of the consumer dollar spent on beef was returned to the producer, while by 2020 that had dropped to 37 percent.
“Most recently we have seen live values of cattle in the $1,500 to $1,700 range but the carcass values when they are processed are in the $2,500 to $2,700 dollar range. This is a $1,000 difference.
“If we process more than half a million head of cattle per week, in my simple math, that is half a billion dollars per week that is eroded out of our rural economy. As we all look for ways to stimulate our rural economy, it looks like if we can bring a functioning cattle market back and get that spread narrowed down, that’s they way we can infuse more cash into our rural sector,” said Schaben.
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A strong fat lamb market offers producers hope after the Covid pandemic and the sale of a major lamb plant coupled with the bankruptcy of a marketing cooperative sent the market into turmoil in 2020.