Should The Government Ensure Meat Companies Play Fair With Farmers?

May 9, 2017

Cattle ranchers have spent years battling big meat companies, saying the companies have too much market power. Now, those ranchers worry that a Trump Administration move to delay federal rules that would make it easier for them lodge complaints about unfair treatment may spell the end of the new rules altogether. But the industry is divided by the government’s move to make sure meat companies play fair with farmers.

Nebraska calls itself 'The Beef State and that is thanks to places like Cuming County in the northeast part of the state. Around a quarter-million cattle live on feedlots in Cuming County alone, many of them on family-owned operations scattered among the corn and soybean fields.

Steve Krajicek rents space at one of those feedlots near the town of West Point. Krajicek used to run his own feedlot in central Nebraska, but these days he is an investor-feeder, buying a few cattle at a time and paying a feedlot to help fatten them up. Once grown, he sells to the highest bidder, usually one of the big three meat packers in the beef business: JBS, Tyson or Cargill.

At one point, almost all cattle were sold on the open market, like Krajicek’s. Today only about 25 percent of the nation’s cattle are sold at a livestock auction or through price negotiations with meat packers. Ranchers today often work on contract for a big meat packer to produce cattle, or sell on a pre-determined formula that pays a range of prices for higher or lower quality meat. Crucially, that means the vast majority of cattle are sold in a way where the price is usually not reported publicly.

Krajicek says without knowing what those cattle are worth, he’s not sure when he’s getting a good deal. It is like shopping for groceries if the store had no price tags.

“One guy could be getting $10 (per hundred pounds) more than the other guy for the same cattle and same genetics,” Krajicek says. “And that is totally unfair. It looks like that’s the direction we’re headed.”

Steve Krajicek buys and sells cattle as an investor-feeder.
Credit Grant Gerlock / Harvest Public Media

Producers like Krajicek are protected from unfair discrimination by meat packers by the Packers & Stockyards Act, passed in 1921. Recent court rulings, however, have raised the legal standard. To succeed in a suit against a meat packer in court today, it is likely that Krajicek would have to prove a meatpacking company is not just being unfair to him, but creating an unfair playing field for independent cattle feeders.

“You’d have a real hard time getting somebody to take the court case,” Krajicek says. “Because they tried it and it failed.”

One case was Pickett v. Tyson Fresh Meats brought in 2004 by a group of six cattle producers, including two from Nebraska, that claimed the meat packer was manipulating the cattle supply to get a favorable price. A jury awarded the producers $1.3 billion, but the judge in the case vacated the jury verdict and ruled in favor of Tyson, saying that the specific arrangements did not prove ranchers were at a disadvantage and that the marketing agreements were part of fair competition in the broader industry.

“It’s just not realistic to think that one rancher gets cheated on his price on some cattle and you have to show that that affects the whole industry,” says Dudley Butler, an agricultural law attorney in Mississippi. Early in the Obama administration, Butler was in charge of the Grain Inspection, Packers and Stockyards Administration (GIPSA), the agency of the U.S. Department of Agriculture that handles complaints like Krajicek’s.

What Butler is worried about is known as “vertical integration,” when a company controls all stages of production from breeding cattle, to fattening them up, to selling them at your grocery store. That makes big companies powerful enough to shape the market in their favor, he says.

The top four companies in the chicken industry, for instance, control more than half of the market and 96 percent of production is based on contracts where farmers often do not own the birds, but may be penalized by companies if they miss production or quality benchmarks.

“If we don’t get some type of regulations or rules, everything is going to move toward vertical integration, as in the poultry industry and pretty much in the pork industry now,” Butler says.

When he was in Washington, Butler helped write a rule that would make it easier for a rancher to bring a complaint. Under the new rule, a producer would not have to prove there is a meat monopoly, only that they were treated unfairly themselves.

Years later, that rule was finally issued in the last days of the Obama White House. But shortly after taking office, the Trump administration put it on hold, worrying the ranchers who had campaigned to put it in place.  Some in the beef industry, however, would be happy to see it scrapped altogether.

Steve Kay, who writes the beef industry newsletter, Cattle Buyers Weekly, says the rule is unnecessary because the cattle market is still competitive. In fact, it has been surging lately.

“Over the last four weeks, we’ve had a huge rally in live cattle prices that went way beyond expectations and again it’s been mostly supply driven,” Kay says.

Kay says many cattle producers have left the cash market over the years by choice to work with meat companies offering premium-pricing programs for higher quality meat. He says that has pushed ranchers to raise better cattle and, in turn, sell more meat.

“But that has got nothing to do with GIPSA or competition,” Kay says. “That’s just a function of the way cattle feeders want to market their cattle.”

Some cattle producers are happy with the market as it is.

“We don’t need the government’s involvement telling us how to market our product,” says Craig Uden, who runs a feedlot in central Nebraska and is the current president of the National Cattlemen’s Beef Association.

Most of Uden’s cattle are not sold on the open market. They are sold directly to a meat packer, some branded as Certified Angus. Producers already have a fair choice, Uden says: they can stay in the regular market or sign up with one of those programs.

“If I didn’t have processors, how am I going to market my cattle?” Uden says. “I try to fit into the program and I want to add value to my livestock all the way through.”

Dudley Butler, the ex-regulator, says it is good for producers to find security by developing a niche. But he says the beef industry is the last segment of the livestock business to have an open market for producers on the ground. For independent producers to stay in business, Butler says, they need stronger regulations to keep their influence in the market, even if it is a fraction of the size it once was.

“You just pick away at the marketplace,” Butler says. “And once you pick away at it enough it’s as we say down south, it’s “death by duck bite” where the marketplace just fades away.”

The Trump Administration has until October 19 to repeal the rule, change it or let it take effect.