R-Calf USA asks the federal government for an investigation
In official comments submitted last week to the Federal Trade Commission and Department of Justice, R-CALF USA told both agencies that while beef packer concentration has plateaued since 2009 at the four companies at between 83% and 86%, it is now It is evident that major concentration and vertical integration efforts are underway in the feedlot sector of the live cattle industry. The group said the oligopolistic structure of the beef packing industry is now being pushed up the live cattle supply chain.
The group explained that nearly 85,000 feedlots have exited the feed industry over the past 25 years, with 1,000 small farmer/fattener feedlots exiting last year. He says this represents a loss of more than 75% of the nation’s livestock feeders, with most being smaller, independent farmers/feeders.
But while smaller independent feedlots are emerging rapidly, the group said the number of the nation’s largest feedlots has grown from 45 to 77 in just 25 years, and that those 77 largest feedlots controlled nearly 35% of all feeder cattle marketed in 2021.
The group told the agencies that the feedlot industry represents the market opportunities for hundreds of thousands of ranchers and cattlemen who sell ground cattle and is consolidating rapidly.
In its comments, the group urged agencies to investigate to determine the degree of buying power concentrated beef packers wield over these feedlots — specifically, the 77 largest feedlots.
The agencies had requested public comments to help them improve enforcement of US antitrust laws regarding horizontal and vertical mergers. The group proposed several other improvements needed by the beef industry and pointed to several unique characteristics of the US beef industry that make it particularly susceptible to monopsony power. Here are some of those features:
- Fed cattle have the longest life cycle of any farmed animal, making it difficult for the industry to respond to changes in demand.
- Fattened cattle are highly perishable and must be marketed within a limited time frame or the animals will deteriorate in quality and value.
- Fed cattle are expensive to transport. Research found that the cost of transporting livestock over long distances creates a limited supply area for meatpacking plants, resulting in a higher concentration of packers in some states than nationally. .
- Fed cattle are very sensitive to very small changes in cattle supply, with every 1% increase in the number of fed cattle expected to lower fed cattle prices by 2%.
- As confirmed by a recent study, a 1% increase in the fraction of fed cattle purchased under alternative marketing arrangements (AMA) is associated with a 5.9% reduction in the cash market price.
- Research has found that individual producers will agree to enter into captive supply contracts such as AMAs knowing that the overall effect of AMAs is to drive down the spot market price and make everyone worse off. producers, including himself. The research explains that this is because individual growers cannot coordinate changes in the market that allow packers to gain acceptance for exclusionary contracts.
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