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The short story on meat packing consolidation in America

(Friday, Oct. 15, 2004 -- CropChoice news) -- From "Safety Last" by the Center for Public Integrity
In 1890 the Select Committee of the Senate on the Transportation and Sale of Meat Products – known informally as the Vest Committee, after George Vest, a Senator from Missouri – found price fixing in beef, in contract monopoly and in transportation of food products. In 1918, the Federal Trade Commission (FTC) concluded that the five major meatpackers – Armour, Swift, Wilson, Morris and Cudahy – slaughtered 70 percent of all livestock. In 1920, the five companies entered a consent decree with the FTC, divesting their control of refrigerated storage facilities, stockyards and railroads. The National Packing Company – a giant combination of Armour, Swift and Morris was broken up. After the FTC investigation and the consent decree, Congress passed the Packers and Stockyards Act of 1921 to prevent further concentration.

In 1972, the top four firms, American Beef Processors, Armour, IBP and Swift, held 26 percent of the beef market. There were hundreds of packing companies and plants around the country that shipped full quarters, halves and other large sections of meat and pork across the nation to local supermarkets, grocers, and butcher shops. Skilled butchers then cut the meat into steaks, roasts, chops and the like.

All of that started to change with the rise of IBP. In 1966, Currier Holman and Andy Anderson had a radical idea: placing meatpacking plants closer to the supply of livestock. By locating their plants in rural America , they could diminish the clout of the meat cutters’ union and use a cheaper labor force. They also developed the "disassembly line", where slaughtered cattle would be cut and trimmed, then packaged for shipment directly to supermarkets. Holman and Anderson opened their first plant in Dakota City , Iowa and Iowa Beef Processors – or IBP, Inc., as their company came to be known – was born.

IBP’s innovation closely mirrors those that fueled the rise of the beef trust more than a century ago, when dressed – that is, refrigerated – beef gave the Chicago packers a huge advantage over smaller producers around the country. The great Chicago packers soon eliminated their competition and dominated the rest of the centers of meat production in Wichita and in Kansas City, for example.

Using its cost advantage, IBP quickly went about eliminating its competition. Other meatpacking plants either had to go the way of IBP or go out of business. In the late 1970’s and early 1980’s more than 1,000 meatpacking plants closed, and many companies extracted deep wage concessions from unions to survive.

One that didn’t survive was Hygrade Food Products in Storm Lake , Iowa . Hygrade was typical of the old-line packers that shipped full quarters, halves and the like to their customers. Many of Hygrade’s workers put in thirty years for the company and incomes averaged around $30,000 per year in 1981 when the plant, unable to compete with IBP, closed its doors.

In April 1982, IBP bought the old Storm Lake plant from Hygrade for $2.5 million. The Storm Lake workers were not welcomed back. Hundreds applied for positions at the new plant, but fewer than thirty were hired. Wages averaged $7 per hour, or $14,600 per year – less than half the average salary of the old workers. IBP imported a largely immigrant work force to man the plant.

IBP’s acquisition of the Hygrade plant was the start of a trend that accelerated in 1986: large firms buying up small companies to increase their market share. ConAgra – not even one of the top four packers in 1972 – vaulted to third place in market share by acquiring E.A. Miller, inc.; Swift Independent Packing Company and Val Agri, Inc. At the same time, Cargill’s subsidiary Excel bought up Sterling Beef Company. After Cargill bought another company, Spencer Beef Company, Kenneth Monfort, the president of Monfort, with 10 percent of the market, sued to block the deal, warning that concentration wouldn’t be good for consumers or producers. Monfort lost the case, and shortly thereafter swapped his company for $365 million worth of ConAgra stock.

A 1996 study by the Grain Inspection, Packers and Stockyards Administration (GIPSA) which was created by the 1921 Act to monitor the packers for antitrust violations, concluded that a staggering 82 percent of the beef slaughter market was in the hands of four major meat packers. The consolidation continues today. While GIPSA was conducting its concentration study, there were 13 acquisitions by meat packing companies – including three by INP. In May 1996, the Justice Department investigated IBP’s acquisition of Vernon Calhoun Cattle Company – and took no action.

By the FTC’s own definition, the meatpacking industry is highly concentrated. Yet the FTC doesn’t have the jurisdiction to investigate it. That job falls to GIPSA. The FTC, when conducting an investigation into antitrust violations, uses teams of economists and lawyers. GIPSA, by contrast, had just six economists on its staff, only one of whom had enough experience with statistics to conduct the kind of market analysis necessary to determine whether the packers were colluding on price.

In a 1997 report by the Inspector General of the Agriculture Department, GIPSA’s lack of the economic and legal expertise needed to investigate the packers was laid bare: "The use of staff with little or no educational background in (economics or law) or no experience with anticompetitive issues will not result in effective investigations."

When a few agricultural economists warned of the dangers the giant packers posed in the late 1980’s, Congress was silent. For example, John Helmuth, an Iowa State University economist, testified before the Senate Agriculture Committee in 1990 that the cost of concentration to consumers, in the form of higher prices, and farmers who were paid less than market value for their herds, was $12.2 billion between 1978 and 1987. In 1988, economists at the University of Wisconsin found a direct correlation between greater levels of concentration and lower cattle prices. ConAgra’s chairman at the time, Charles M. Harper, scoffed at the idea that consolidation was bad for the industry. "If we could control cattle prices," he told the New York Times in 1988, "the feeders wouldn’t be making as much money as they are and the money would be going into our pockets instead."

Which is precisely what has happened.

Prices for livestock fell by as much as 24 percent between 1994 and 1996. Very little of that drop in prices showed up in grocery stores; consumer prices dropped by a mere two percent during the same period.

The Utah Commissioner of Agriculture, Cary G. Peterson, released figures on the collapse of rancher profits from 1991 to 1996. They fell from roughly $8 billion a year to $1.5 billion. During the same period, profits of the packers skyrocketed.

The packers have controlled prices by entering preferential deals and long term contracts with the largest producers, thus freezing out smaller ranchers and forcing them to take lower prices. They’ve also been vertically integrating – selling feed to cattle and hog producers, buying up feedlots, and, in the case of pork, raising hogs themselves – further squeezing producers. The 1920 consent decree that Armour, Swift, Wilson , Morris and Cudahy signed was supposed to prevent that sort of behavior.

In 1997, IBP decided to vertically integrate its hog processing and become one of the largest swine producers in the nation. When the state government in Iowa objected to IBP’s intent to create a huge industrial farm, the company slashed 1,000 jobs at two of its plants, noting that the state had demonstrated a "hostile social and political climate for agriculture and livestock production in Iowa."

Congress relied on the flawed GIPSA study in determining that packer concentration didn’t contribute to the decline in livestock prices. Quoting GIPSA, the Congressional Research Service, which advises members of Congress, concluded that concentration was not an issue. "Various government studies have been inconclusive on the relationship between concentration and low cattle prices," its report said. GIPSA, it noted, "could find no definitive evidence that concentration had an appreciable effect on cattle prices."

As the meat packing industry has become dominated by four firms and as industry practices – such as the higher speed chains – the chances of food contamination have risen. Concentration affects the public health, not just its pocket book. It creates a system whereby a food-borne pathogen may be distributed to a large population of consumers.

In 1995 when USDA began investigating IBP’s preferential contracts with large suppliers, Representative Earl Pomeroy, a Democrat from North Dakota , applauded the effort. "We must not tolerate what amounts to a cattle cartel designed to shut out family and small-time ranches," he said.

In 1996, Pomeroy joined two other Representatives – Democrat Tim Johnson of South Dakota and Republican Joe Skeen of New Mexico – in introducing a bill that would have made the anti-competitive practices of the packers illegal. Pat Roberts, then chairman of the House Agriculture Committee and a Republican Senator from Kansas, never scheduled a hearing for the bill.

Pomeroy was led to ask whether Roberts "cares more about the packers than the producers." The public and cattle producers, of course, were left to care for themselves.

Between 1987 and 1996 Pat Roberts received $178,750 in campaign contributions from the meat industry. He ranked tenth on the list of recipients according to the amount of money received. During the same time frame Roberts received $129,500 in campaign contributions from meat and poultry processing interests, ranking first on the list. Between 1987 and 1996 Roberts received $19,000 in speaking fees from meat producing, packing and processing industries.