Are U.S. Beef Prices Being Manipulated By Meat Packers?

A recent news item is causing a flurry of agitation across the U.S. beef industry.

According to an Associated Press report, the Department of Justice and U.S. Department of Agriculture have launched an investigation into whether the nation's largest meat-packing companies have been manipulating and driving down cattle prices.

So far, there has been no comment from the Grain Inspection, Packers and Stockyards Administration (GIPSA), the federal agency responsible for regulating trading practices within America's livestock industry. The GIPSA has come under criticism in the past for not putting enough bite into its role as a watchdog. A 2006 report by the Government Accountability Office said GIPSA hadn't taken sufficient steps to correct "identified weaknesses in GIPSA's investigation and enforcement activities."

David Ray, vice president of public affairs for the American Meat Institute, a meat packers trade group, says the reports of a government investigation are both unsubstantiated and ironic -- considering, he says, that "cattle prices are 10% to 12% higher than a year ago, and are predicted to remain strong through 2010."

Others in the industry point out an unprecedented joint effort by the Justice and Agriculture departments, launched earlier this year -- not an investigation, but a series of nationwide public workshops on competition and regulatory issues within the U.S. agriculture industry. In a press statement issued in March, U.S. Attorney General Eric Holder said the workshops underscore the Obama administration's commitment to "enforcing the antitrust laws effectively to ensure fair and open competition that protects both consumers and farmers."

Jeremy Russell, spokesperson for the National Meat Association, another meat packers organization, notes those joint workshops are looking at competitiveness across nation's entire agriculture industry, and not just at beef. "They're casting a big tent," he says. "They're really looking to bring everybody in to talk about this issue, and get all of the opinions."

Russell believes the Livestock Mandatory Price Reporting Act, which requires meat packers to report daily price, volume, import and export information to the USDA, has helped maintain a level of transparency in the industry.

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But some cattle producers remain concerned about the decades-long shift by meat companies away from buying cattle on the cash market -- a shift which reportedly hurts smaller feedlot and ranching operations. "These producer groups continue to create a scuffle that has serious serious political and economic impacts," Russell says. "And [the producers] have a lot of political capital, so they can push on Washington and move them in different ways."

Other analysts believe that consumers benefit from the current pricing situation. "The goal of meat packers is to make profits by satisfying consumers," says Dr. Alexandre Padilla, economics professor at Metropolitan State College of Denver. "They provide quality meat at a lower price than other companies. There is no doubt that some small farms and ranches will lose out ... but it's not up to the government to decide who should make profits and should not make profits or what should be the price of meat. It's up to the consumers via the market."

The current rise in beef prices, says Russell, "has to do with input costs, the price of corn, the expense of transport, the rising cost of fuel." And those corn prices, notes Ray of the AMI, are also contributing to a significant reduction in the number of cattle in the U.S.

"In 2007, when the government passed the Renewable Fuel Standard mandating that nearly 30% of the corn raised in the U.S. would be burned as fuel, animal agriculture quickly pointed out that this would drive some producers out of business," says Ray. "[W]hen corn prices skyrocketed to nearly three times their historic average in 2008, many producers either went out of business or started liquidating their breeding animals. That has been one of the primary [reasons], but not only reason, why the U.S. finds itself with a smaller herd in 2010."

While those variables affect current market prices, Russell says, the anti-competitive issues are part of the meat industry trying to become more efficient. "In the face of these really big changes that are happening, whether it's ethanol or just rising fuel costs in general," he says, "those are the kind of things that are ... having an impact on the bottom line."