White House Takes On 'Big Meat,' Says Inflation Isn't the Source of Swelling Retail Protein Prices

After months of discussions about price manipulation among major meatpackers, the White House made a bold move in early September, declaring a tougher stance toward meatpacking companies. Talking to mainstream press, the administration cited sticker shock at the grocery store as the main driver of the quest for change.

During a press conference at the White House, USDA Secretary Tom Vilsack said consolidation in beef, pork and poultry processing is leading to higher prices at the store. Vilsack claimed major meat processors are raising prices, while generating record profits during the COVID-19 pandemic. And that’s what prompted the Biden administration to take action.

"Our job is to make sure the farmer gets a fair price, and that when I go to the grocery store and I’m in the check-out line, I’m paying a fair price and I’m not paying more than I should,” Vilsack told reporters at the White House. “And right now, because of the concentration, we have two issues. One, we have the issue of fairness and two, we have the issue of resiliency. Any one of these facilities, whether it's a cyber-attack or COVID basically shutting down some of Tyson's facilities, it causes disruption in the market."

The administration said it will push $1.4 billion in COVID-19 pandemic aid to small meat processors, that leaders say will also help farmers.

Tyson Foods responded to Vilsack’s announcement, saying it "categorically rejects" the conclusions drawn at that White House briefing.

“Multiple, unprecedented market shocks, including a global pandemic and severe weather conditions, led to an unexpected and drastic drop in meat processors' abilities to operate at full capacity,” Tyson Foods said in a statement. “This led to an oversupply of live cattle and an undersupply of beef, while demand for beef products was at an all-time high. So, as a result, the price for cattle fell, while the price for beef rose. Today, prices paid to cattle producers are rising. Labor shortages – the inability of the industry to adequately staff its plants – has exacerbated the situation. Labor shortages are also affecting the nation's pork and poultry supply." 

The North American Meat Institute (Meat Institute), which represents meat processors, also attributes prices to the labor shortage.

Economics Vs Market Manipulation

The debate over market manipulation versus higher prices due to basic economics is one that has been ongoing for multiple years. And currently, Lee Schulz, an agricultural economist with Iowa State University, says packer capacity, along with labor woes, are aiding processing challenges today.

“It’s operational capacity,” he says. “A lot of times we talk about physical capacity for new plants coming online. But operational capacity is much lower. It's much lower in this environment, because of the labor challenges that we've seen, have really highlighted kind of that that constraint we have.”

Schulz says the constraints are making national news, but the basic economics of the situation are still a factor.

“This has been an observation that's been made for some time now, as we've seen the spread between wholesale prices, which would be your middleman before retail prices, and cattle prices or hog prices that are widening right and now,” says Schulz. “You're seeing retail prices at some of the highest levels we've ever seen. And so, there are people asking questions, ‘why is that the case?’ I think a lot of it is market fundamentals, as we're seeing tighter supplies.”

Schulz says domestic demand continues to be robust, something that continues to drive prices higher. The historic trends in domestic demand is something AgriTalk host Chip Flory says creates a solid demand story.

“The willingness to consume more meat at a higher price is causing a real increase in demand,” says Flory. “It's not fake. And we are seeing it big time for both beef and pork.”

“That’s the case for exports, too,” says Schulz. “They came out with the July export numbers and quantities were higher and prices were higher. There's only one way you get that, and it's an increase in demand.”

Record Retail Prices

The U.S. Consumer Price Index (CPI) showed beef and veal prices in July were up 6.5% from a year earlier, while poultry prices were up 5.3% and pork prices were 7.8% higher. Last year's jumps in poultry prices were the most since 2004 and the most since 2014 for beef and veal as well as pork.

USDA says four companies slaughtered about 85% of U.S. grain-fattened cattle that are made into steaks, beef roasts and other cuts of meat for consumers in 2018.

The big four processors in the U.S. beef sector are Cargill, Tyson Foods, JBS SA and National Beef Packing Co., two of which are owned by Brazilian companies.

During the announcement in September, the administration also stated it intends to continue work with Congress regarding the transparency issues within the meat sector, and says it is encouraged to see bipartisan legislation that seeks to improve price discovery in the cattle markets.

As the White House continues its quest to address why meat prices at the retail level continue to climb to new levels, the Meat Institute says the efforts are just creating more division.

"Issuing inflammatory statements that ignore the fundamentals of how supply and demand affects markets accomplishes nothing,” the Meat Institute said.