The following was written after the 1996 South Dakota Governors Beef Conference. IBP President and CEO, Bob Peterson, and I had a heated exchange.
Written January 1, 1997
“It’s unfortunate that the barter system has driven a wedge between the packer and the producer. Packers want to buy low and producers want to sell high.” IBP CEO and Chairman, Bob Peterson, speaking at the South Dakota Governors Conference.
The United States has seen many years of a free enterprise, democratic society that has led to the most efficient and productive agricultural system in the world. One key element in the rapid growth and technological change of the last century has been the presence of intense competition. Competition motivates. Good things happen when people are motivated to improve. People listen intently, sensing consumers’ wants and needs. Efficiency is improved. Costs are reduced. Both producers and consumers benefit.
The “Wedge” Mr. Peterson talks about is real. When producers are denied access to free, open, and competitive markets, and when anti-trust laws that protect our free enterprise system are ignored by large corporations, the Justice Department, and the USDA, the “Wedge” becomes a barrier of distrust. Producers in most areas of agriculture feel helpless. They are not only being denied a fair price for their output, but they are also being exploited by some of the same corporations on their input costs for food production.
“Non-enforcement of anti-trust laws have cleared the way for a few large corporations to become major predators instead of competitors, forcing producers’ prices far below their cost of production.”
This lack of competition is destroying the very base of wealth creation. Agricultural producers invest vast amounts of capital and labor. They take extreme risks to transform soil, water, and sunshine into the wealth, which is the very foundation of our economic system. Non-enforcement of anti-trust laws has cleared the way for a few large corporations to become major market predators instead of competitors, forcing producers’ prices far below their cost of production. Farm and Ranch families are consuming the precious little equity they have left.
Predator – One that victimizes, plunders, or destroys, especially for one’s own gain.
The three major packers, IBP, ConAgra, and Cargill have acquired 80% control of the finished cattle market. All these companies have a history of market aggression and illegal activity. With this enormous level of concentration and the large numbers of captive supply cattle, the three major packers don’t have to compete. They are predators. How would the officers and shareholders of these corporations like it, if their stock was traded in the same way they trade livestock? These companies have become global, looking for the lowest cost commodities, the cheapest labor, and the highest priced consuming markets. They are commodity dealers with little regard for sustained agricultural practices or regulations and health inspection, that ensure a continuous supply of high quality, safe food. If they can make more money trading commodities in other countries without the regulations and health inspection that make U.S. production safer and higher-priced, they will do so.
Increasing Beef’s market share through higher quality, more consistent, convenient, value-added products doesn’t interest them as long as they are making plenty of money in a non-competitive commodity marketplace. Improving Beef’s quality, consistency and the development of value-added beef products will make no difference for the producer until competition is restored. Beef can regain market share, but until the competitive marketplace that ensures a fair distribution of the benefits is restored, the producer will come up short.
“Strict enforcement of the P&S Act is critical, to prevent beef from going the way of the sheep industry.”
Both producers and consumers must realize that the same factors that will restore free enterprise and fair distribution of the consumer meat dollar, also will create the competitive environment to increase beef’s market share, and eliminate the ridiculous, so-called cyclical fluctuations in beef supplies. Strict enforcement of the P&S Act is critical, to prevent beef from going the way of the sheep industry. Lamb producers were denied access to a competitive market, which led to there demise. A Meeker Colorado sheep producer said, “There isn’t enough lamb produced to even create a demand.”
“We need to understand that predatory pricing to the big packers is not an expense, it’s an investment.”
Today’s predatory market environment blocks producers’ access to the consumer. Mr. Peterson, at the South Dakota Beef Conference, said, he welcomed the newly formed, producer-owned, Northern Plains Premium Beef cooperative to compete. What chance do they have? We need to understand that predatory pricing to the big packers is not an expense, it’s an investment. It is the Justice Department and the USDA’s responsibility to open the way for these producer-owned cooperatives and other new entries to the market by strictly enforcing the current anti-trust laws, which eliminate the non-competitive and manipulative practices of the Big Three Packers. Remember, capitalism without anti-trust enforcement, results in self-destruction. The December 1996 issue of Forbes magazine in an article, “Capitalism with a conscience” stated, “Adam Smith, the intellectual founder of modern capitalism saw a definite but limited role for government in helping create an environment in which both capitalism and social virtues can flourish. No advocate of unfettered capitalism, he wanted laws against monopoly and carefully devised government programs to strengthen the institution of the family and otherwise advance the “public good.”
At the South Dakota Beef Conference, I stated, “In the spring of 1994, IBP pulled out of the cash market for six weeks, driving the cash market $17.00 lower.” Mr. Peterson shouted, “That’s a bold faced lie, a bold faced lie! IBP has never stayed out of the cash market for six days let alone six weeks.” I answered, “You’re right Bob, you had to buy enough cash cattle to at least set the formula price.” IBP is considered the world leader in the beef industry. IBP has broken the other packers to lead, sort of speak. The profitability of trailing behind IBP has made them happy to follow. A Canadian producer said, “IBP is the price leader in Canada, they always have been and always will be.” When IBP steps out of their leadership role in the cash market and kills large numbers of non priced negotiated formula cattle, the effect on the cash price is devastating in all beef producing countries whose price is set off the U.S. market.
“What is the long-term effect of replacing high quality domestically produced beef with imports?”
An example of how seriously the current marketplace is failing is the current severe shortage of choice beef. Restaurant owners and Exporters report partial deliveries on orders. One restaurant owner stated, “The U.S. could sell 10 times more choice beef if it was produced.” Clearly there is a great demand for choice cattle. So, why are we driving the full-time rancher that produces the best cattle out of business? The U.S. has opened its borders to lower-priced, lower-quality imported beef. Beef’s market share compared to poultry and pork is declining. What about the U.S. domestic beef producers share of beef sold in the U.S.? Close to 17% of the beef consumed in the U.S. last year was imported, up dramatically from previous years. What is the long-term effect of replacing high quality domestically produced beef with imports?
“Your KLA executive Committee decided that rather than try to be popular, they owed it to the membership to be something more important…..truthful …”
Cattleman organizations are considered our spokesmen. The past president of the Kansas Livestock Association stated in his departing address in December, “Your KLA Executive Committee decided that rather than try to be popular, they owed it to the membership to be something more important…..truthful. The facts were and are that during every single cattle cycle in history, we have always searched for some outside scapegoat in order to explain our lack of profitability.” The Executive Committee?? What about the membership? He suggested that large beef production and loss of market share were the reasons for low cattle prices. Can you blame these people for their lack of understanding? Many in the beef industry are still basing their beliefs on the recent, faulty USDA research. If you still have trouble understanding the problem, go to the restaurant and grocery store and check quality and prices, and on the way, stop by the car dealer, (if you still have one) and see, how many calves it takes to buy a pickup today, compared to 1975. Also, if you see any consumers, apologize for the lack of beef’s quality and consistency, and tell them we are working on correcting the problem.
In my discussions with cattle feeders and producers recently, I have encouraged their attendance at the upcoming January 29th through February 1st NCBA convention in Kansas City, MO (303-694-0305 for information). This summer and fall have seen many productive state and local cattlemen meetings, resulting in resolutions, asking for enforcement of anti-trust laws, labeling beef by country of origin, etc. Many producers don’t have the money to attend the convention and are troubled that the people without the grassroots best interests at heart have the expense accounts to make the trip. If you have the ability to attend, please do so. The resolutions must be defended; your survival depends on it. We can only hope association staff and leadership recognize this situation and will act appropriately. The future of the Beef industry depends on it!
Mike Callicrate St. Francis, Kansas
Today in late 2020: We’ve now lost nearly half our ranchers and 75% (over 84,000) of our independent cattle feeders. The producers’ share of the consumer beef dollar dropped to 27% in June, the lowest on record, down from over 65% before the industry was monopolized. Small to medium-sized meatpackers are essentially gone due to predation, onerous regulations, and lack of market access. As a nation, we are now unable to feed ourselves and are dependent upon foreign countries and corporations to eat.
When we lose our markets, we lose our freedom!
Food security is national security.
First three points: (1) as a national security issue some government involvement is needed, not what is presently in place (2) new approach to increase the numbers of producers to start rebuilding the other part of the word _ _ culture. Rural needs to reverse its decline (3) push for anti-trust.
These will demand new financing methods (present banking is a major problem, that includes the present small town bank who are corresponding with large banks); the audience needs to be the under 50 generations; new market focus; new farming methods (organic as present sold is a lie unless proved otherwise to me) like regenerative, producer coops; urban coops tied to rural.
Mike, a new mindset is needed.
Just some general thoughts but Food security is national security but not from the top down but bottom up from rural. Know OCM has fought this fight but realistically who won. Time to build a separate system without the existing parties. This to me is the discussion that is needed, not how to change the existing.
Keep up your business, its a ray of hope for others and those of help who want to be engaged.
Thanks for the above great article from the past. Its just worst and that is sickening.