The Biden administration meets with farmers and ranches to discuss meatpacking monopolies on January 3rd, 2022. Image courtesy of the White House YouTube channel.

The Biden administration kicked off the new year by promoting an “action plan” for addressing monopolistic behavior in the meat industry, which it blames for rising meat prices and squeezing farmers. The plan largely details how the U.S. Department of Agriculture (USDA) will distribute $1 billion in American Rescue Plan funds to build out new meat processing plants. But some ranching groups and antitrust advocates argue that this investment won’t challenge the core issues of market concentration and corporate power. To deconcentrate meatpacking, prevent collusive price hikes, and help new entrants succeed, the Justice Department (DOJ), Federal Trade Commission (FTC), and USDA need to boldly enforce antitrust law and issue fair competition rules.

At a virtual roundtable of farmers and ranchers, President Joe Biden and other officials expanded on several previous commitments to address meatpacking consolidation. Among the details revealed at Monday’s meeting: The administration plans to distribute $375 million in grants for new plants and $100 million to back guaranteed loans for meat supply chain infrastructure such as cold storage. The administration also allocated $100 million for meatpacking worker training and safety, plus a commitment to work with labor unions on these issues.

Agriculture Secretary Tom Vilsack and Attorney General Merrick Garland also announced a joint USDA and DOJ initiative that will create a “channel for farmers and ranchers to report complaints of potentially unfair and anticompetitive practices.” This adds to anti-monopoly rulemaking and research underway at USDA, including a study of consolidation in food retail markets in collaboration with the FTC and new rules under the Packers and Stockyards Act to better protect farmers from unfair or deceptive tactics by meatpackers.

The Biden administration is doubling down on meat supply chain reform now, in part, because of rising meat prices. Beef cost 20% more this November than a year prior, and the overall price index for meat, poultry, fish, and eggs was up 13%. The administration argues that much of this inflation is the result of monopoly. “The meat industry is a textbook example on the price side” of how consolidated companies control markets, President Biden said Monday. The top four corporations in each industry control 54% of chicken processing, 67% of pork processing, and 85% of beef processing, giving them market power to push down prices for farmers and raise prices for consumers, the White House argues.

Strong evidence for this claim comes from the fact that net profit margins for top meat companies Tyson Foods, JBS, Marfrig, and Seaboard are up more than 300% since the pandemic, according to the White House. Profit margins would not rise if price increases only reflected meatpackers’ increased cost of business; meat corporations are using their market power to charge more and raise profits.

In a healthy and competitive market, economists expect competitors to eat away excess profits by undercutting on price and taking sales. But in an oligopolistic market, companies can more easily coordinate to all raise prices and make more money, whether explicitly or tacitly. “In concentrated industries you don’t need to actually sit down and engage in overt collusion; everybody understands they want to make bigger profits,” says University of Wisconsin law professor emeritus Peter Carstensen. “There are lots of ways to communicate indirectly what your plans are.”

Meatpacking representatives and trade groups contest this explanation, pointing to increased labor, transportation and input costs. The National Chicken Council told The Washington Post that the White House proposal “looks like a solution in search of a problem.” Critics also note that meatpacking has been concentrated for decades yet prices are only jumping now. But economist Hal Singer, managing director of Econ One, argues that cartels often need a cover, like generalized inflation, to get away with sudden excessive price hikes. “Once the market is concentrated and susceptible to a cartel, it still needs a trigger, a pretext to come together and start a price-fixing conspiracy,” Singer says. “[Meatpackers] could have easily gotten together and said, ‘Hey, let’s exploit this inflationary pressure.’”

This leaves a big question — will the Biden administration’s proposals tame meatpackers’ market power and thereby tame consumer prices? Several agriculture and ranching groups applauded the announcement, noting that new processors would give farmers and ranchers more options for selling their animals and increase competition for livestock, thus improving prices for farmers. In the long term, increased competition could steady the meat supply and shrink profit margins for the big packers, but in the near term, new entrants probably won’t break dominant meatpackers’ pricing power.

“[Injecting] another 10% of capacity through new blood into the industry, that really wouldn’t defeat the price increase if they are coordinating in their pricing,” says Singer. “The only way this new entrant can do anything is if customers consider that entrant as a viable substitution … even if you ignored how long it [would take], I doubt it would make a dent on the pricing dynamics.”

Even with startup resources, new plants will also struggle to gain a foothold in the market against dominant packers. “Those smaller scale processing facilities won’t survive over the long term unless we break up concentrated power and deal with the big structural issues” in meatpacking, Stacy Mitchell, co-director of the Institute for Local Self Reliance, told The Hill.

Antitrust and other competition policy can help build a fairer, more competitive, and resilient meat-processing sector. Antitrust enforcers have the authority to set fair competition rules to ensure businesses compete on innovation and service rather than brute size, exclusion, and bargaining power. For instance, under the Packers and Stockyards Act, Carstensen says the USDA could outlaw the preferential pricing and rebate programs meatpackers use to lock in access to grocery shelves and retail markets.

Enforcers can also create stronger deterrents to price-fixing by pursuing criminal charges, which the DOJ is currently seeking in its retrial of poultry executives this February. Singer would like to see the DOJ “come down like a brick and investigate meatpacking” or any other concentrated industry where profit margins rose beyond a certain excessive amount. “Criminal investigations would dampen enthusiasm for a price increase next quarter,” he said.

Unfortunately, Singer and Carstensen both emphasized that excessive consolidation makes more tacit collusion easier and without evidence of an intentional conspiracy, tacitly coordinated price hikes do not violate antitrust law. This leaves a serious case for breaking up the meat industry, to prevent both tacit collusion and ease top packers’ firm grip over livestock markets. 

The DOJ does have the authority to break up big meatpackers and unwind harmful mergers. “It would be quite consistent with existing legal doctrine to go and look at the mergers in the protein industries and say, ‘Oops, we thought efficiency gains would outweigh competitive effects, but we were wrong,’” says Carstensen. “That would really change the structure of [the] industry … but it would be extraordinarily challenging to bring that case.”

Congress could also move to break up the meat industry by legislative fiat, Singer added. A bill to break up the largest tech corporations narrowly passed out of the House Judiciary Committee this summer.