By David Lawder

WASHINGTON (Reuters] – Biden’s administration has targeted a few meat packers to raise prices for beef, pork, poultry, and other products. It claims they have been putting consumers at risk and are fueling inflation.

The U.S. meatpacking market is controlled by few international companies that claim prices reflect increased demand, shortages of supplies and increasing labor and transport costs. They dispute the pandemic-profiteering claims of the Administration.

According to economists from the agricultural sector, there has been a glut in meat production, particularly beef. It is similar to other supply chains.

“I think there’s probably some truth on both sides,” said David Anderson, a livestock economist at Texas A&M University, about the White House’s battle with meat processors.

Consumers buy beef. He said that exports were booming. As an economist I believe that what we are seeing in prices is exactly what should be seen given the bottleneck. The capacity issues are not going to get solved in an instant.

The limited choices available to cattlemen for selling their herds are frustrating, he stated, “I don’t think it’s a bad idea that the government looks into this stuff.”

MEAT INDUSTRY

As with supply chain problems, the core issue lies in the unusually high demand for beef and meat by consumers.

Americans were unable to travel and entertainment during the pandemic, so they resorted to buying consumables. During a diplomatic dispute, China traded Australian beef imports with U.S. grain-fed beef.

This jump collided to a U.S. beef processing system that was already at its limit by decades of long-term efficiency and profit drives. Only four companies remained to be the dominant players in the beef packaging market.

CoVID-driven plant closures, safety protocols spacing workers further apart, labor shortages and worker separation reduced the cows these plants could process. They also decreased the prices paid to cattle farmers while increasing the price of the final product for consumers.

U.S. beef wholesale, livestock prices https://graphics.reuters.com/USA-BIDEN/MEAT/myvmnbgnnpr/chart.png

According to data from U.S. Department of Agriculture, beef retail prices increased 30% between the start of 2020 and before pandemic lockdowns began. They reached a peak of $7.90 a pound in October before falling slightly in November, December, and then rising again in 2020.

Over the same time, the price that cattle farmers received declined. The National Farmers Union believes more competition in the meat packaging industry is necessary.

EXPLOITATION OR CAPITALISM?

To curb “exploitation”, President Joe Biden announced that he would increase competition in the beef, pork, and poultry processing industries to reduce what he calls “exploitation”.

Action Plan: $1 Billion for loans and grants for independent processors, $100 Million for worker training and labeling, and 100 million for ways to help farmers report unfair practices.

This is after the White House stated in December that four large meatpackers were – Tyson Foods Inc (NYSE:), JBS SA (OTC) During the pandemic, Marfrig Global Foods SA had more than tripled its net profit margins and Seaboard Corp had nearly doubled it.

JBS’s U.S. beef business more than doubled its operating margin in the third quarter – that is, the difference between revenues and costs – to 21% compared to the same period of 2020 and 2019, as the Brazilian company’s earnings statements shows.

JBS Q3 profit margins soar on beef demand https://graphics.reuters.com/USA-BIDEN/MEAT/lbvgnjodwpq/chart.png

PAYMENT OF QUOTED PRICES

Derrell Peel of Oklahoma State University is a livestock economist. He cited the problems with beef processing. These aren’t due to deliberate anti-competitive behavior. They are caused by 30 years worth of market-driven consolidation, which has left the industry without enough capacity to deal with the COVID-19 spike in demand.

The economics of cost efficiency is the main reason we have the industry structure that we have today. These small-scale packers went bankrupt. Peel explained that those who got larger survived.

Both the North American Meat Institute representing pork and beef packers and the U.S. Chamber of Commerce believe that rising meat prices can be temporary results of factors that fuel inflation in the economy.

Sarah Little (Vice President of Communications for North American Meat Institute) stated that the market behaves predictably. She noted that grocery chains are in competition for meat supplies, setting retail prices. Not meat processors. Americans will pay more for beef.

“There will always be times when packsers are losing money while cattlemen earn more,” says the author. That cycle has been seen before.

According to Jayson Lusk of Purdue University, the head of Purdue University’s agricultural economics section, U.S. supermarket chains’ prices reflect a lack in labor, high costs for trucking, and foreign competition.

Chinese demand for pork has slowed as the country recovers from an epidemic of African swine flu. According to Dermothayes, Iowa State University economics professor, pork processing margins have returned to their average five-year period.

Hayes noted that price increases are an indication of the need for some industry slack. Hayes stated that more farmers could be encouraged to create processing plants in order to make more from selling live animals rather than meat.