Big Meat: A Reaction to the Livestock Convention

by Paul Schwennesen

I squandered a beautiful Colorado morning in CSU's ballroom yesterday.  Around 2,000 of us were there to provide first-hand testimony to Attorney General Holder and USDA Secretary Vilsack about the growing concerns over consolidation in the meat-packing industry.

While most of us were wearing hats, I noticed an awful lot of them were in hands, not on heads.  Appealing for help to the 'Suits on the Podium,' about a third of the audience was unashamedly suggesting that the Government come in and rescue the small family rancher.

Look, I'm as concerned about the demise of a way of life as the next man.  I'm as disgusted with the decrease in cattle prices as anyone else.  I too wish ranchers could make the same returns as thirty years ago.  I don't like that 80% of the meat-packing industry is in the hands of four conglomerates.  But where I part ways with some of the crowd is in my view of the solutions to these issues.

Asking government to break the back of "Big Meat" is like asking your hangman to pull the next guy's lever first.

There seems to be an increasingly prevalent view that "something is going on" in the cattle market, that "Big Meat" is brandishing unfair market leverage which screws the little guy.  And don't get me wrong:  I'd be the first to rally if a Federal probe unearthed findings that Cargill, Tyson, National or JBS was engaged in price-fixing, collusion, or fraud.  But I'm afraid that after 6 hours of public testimony, I got no inkling of such manipulations.  What I got was an inkling that some of us would rather see higher prices for our cattle (no kidding?), that ranchers get  a "fair shake" (whatever that means), and that the big guys open their books to their private transactions to let the rest of us see what's going on.  These might sound good, but will they really solve the problem?

In my mind, the consolidation of the meat industry is really due to a couple of problems unrelated to corporate meat processors.  In fact, "Big Meat" is simply the by-product of two seemingly "good" government programs:  agricultural subsidies (particularly feed-corn) and stringent regulation of food processing.

Artificially cheap feed encourages concentrated feedlot systems.  These systems naturally tend to conglomerate as the efficiencies in feeding cheap scale up beyond imagination (500,000 head of cattle in one feed yard is not uncommon today).  Over-regulation of food-processing makes it extremely difficult to enter the slaughter and processing sector since the risks are high and the regulatory hurdles immense.  It's easier to build a centralized feedlot/packing house if you are a Cargill with huge capital reserves and an army of technicians than it is to build a USDA certified mom-and-pop packing facility.  The reason is simple:  reams of paperwork, tests, constantly updated procedures, and risk create an almost insurmountable barrier-to-entry.

We all want to see young people stay on the land and make a respectable living.  One approach is to ask for government programs, grants, and artificial market manipulation.  The other is to ask the government to step away from the meddling behavior that has unintentionally caused the very problems we are trying to address.

We need to be careful what we ask for.  Inviting authoritarian oversight into your competitor's business always seems like a good idea at the time.  But when the same authorities start pounding on your door, the notion starts to lose some of its charm.

Paul Schwennesen is a grass-fed beef rancher at southern Arizona's Double Check Ranch. Paul is an PERC Enviropreneur Institute alum and an 2010 Enviropreneur-in-Residence fellow at PERC.