Recent data shows dominant meat processors are taking advantage of market power to raise prices and increase profit margins
By: Brian Deese, Sameera Fazili and Bharat Ramamurti
The Biden administration has worked at all levels to resolve supply chain issues affecting prices. Many of these issues are linked to the pandemic, such as changes in demand patterns, bottlenecks or closures. But for some price increases affecting Americans, there is another culprit: dominant companies in uncompetitive markets taking advantage of their market power to raise prices while increasing their own profit margins. Meat prices are a good example.
In September, we explained that meat prices are the biggest contributor to rising grocery prices, in part because only a few large companies dominate meat processing. The November Consumer Price Index data released this morning shows that meat prices are still the main contributor to the rising cost of the food people eat at home. Price increases for beef, pork and poultry account for a quarter of the overall increase in home food prices last month.
As we noted in September, only four large conglomerates control around 55-85% of the pork, beef and poultry market, and these middlemen were using their market power to raise prices and underpay farmers, while taking more and more for themselves. New data released in recent weeks from four of the biggest meat processing companies – Tyson, JBS, Marfrig and Seaboard – shows this trend continuing. (The other major processors are private companies that do not publicly report on their profits, margins or revenues.) According to these companies’ latest quarterly income statements, their gross profits have collectively grown more than 120% since before the pandemic. , and their net income jumped 500%. They also recently announced more than $ 1 billion in new dividends and share buybacks, in addition to the more than $ 3 billion they have paid to shareholders since the start of the pandemic.
Some argue that meat processors are forced to raise prices to where they are now due to rising input costs (for example., things like the cost of labor or transportation), but their own data and tax returns contradict that claim. Their profit margins – the amount of money they make beyond their expense– have exploded since the pandemic. Gross margins increased by 50% and net margins by more than 300%. If higher input costs led to higher meat prices, these profit margins would be roughly stable, as higher prices would be offset by higher costs. Instead, we see dominant meat processors using their market power to squeeze ever-larger profit margins. Firms facing serious competition cannot do this, as they would lose business to a competitor who does not increase their margins.
As a large meat processor pointed out to investors in its call for results, their pricing actions “more than made up for the higher cost price. [cost of goods sold]. “Comparing the fourth quarter of 2021 to the same quarter of 2020, this same company increased the price of beef so much, by more than 35%, that it made record profits while selling less beef than before.
Here’s the gist: The increases in the price of meat we are seeing are not only the natural consequences of supply and demand in a free market, they are also the result of corporate decisions to take advantage of the market. their market power in a non-competitive market, to the detriment of consumers, farmers and ranchers, and our economy. They highlight why promoting competition is central to the economic agenda of the Biden-Harris administration.
The administration has already announced strong action to crack down on illegal pricing and vigorously enforce antitrust laws, investing hundreds of millions of dollars to create more competition in meat processing, over a billion dollars. dollars in aid for small businesses and farm workers injured by COVID, and many other measures to ensure American families, farmers and ranchers get a fairer shake. These are just a few of the actions we take under our existing powers.
Just yesterday, the Agriculture Ministry announced that its loan guarantee program to invest in small meat processors and distributors is now open for business. The program will use $ 100 million in US bailout funding to mobilize approximately $ 1 billion in loan capital through community and private lenders to expand meat and poultry processing capacity and fund other infrastructure in the food supply chain. This significant investment in new private sector capacity will provide producers with more options, help increase competition in the meat processing industry and close the vulnerabilities in the food supply chain revealed and exacerbated by the pandemic. This is in addition to the previously announced $ 500 million investment to increase meat and poultry processing capacity.
In September, we also called on Congress to work together to embrace greater transparency in livestock markets. We are encouraged to see that senators have since announced further new efforts to work together to advance bipartisan legislation.
Together, these actions will support families, farmers, ranchers and workers, and tackle the concentration in meat processing that makes it easier for dominant companies to raise prices.