Changes to the meat industry factor into recent beef price increases
For barbecue fans, the cost of a pound of brisket has risen dramatically over the past few months. Unfortunately, those price increases haven’t been passed through to barbecue joint owners, who are raising prices just to break even on brisket sales.
In the past year, the average price for a pound of brisket at a barbecue joint went from about $24 to
$30. So where is that extra $6 going, if not to the restaurant owner?
Though the beef industry is one of the most complex markets in agriculture, a brief explainer on how it currently works offers some insight to the why’s and where’s of the price increases we are all experiencing.
Very generally: Cattle ranchers breed and raise cattle, which they sell to feed lots, which fatten the cattle. The feed lots sell the cattle to meat packers, which slaughter the cattle and package the finished beef into the cuts that are sold to consumers and restaurants through distributors and retail outlets.
According to cattle industry lobbying groups, such as R-CALF USA, as well as recent investigations by the U.S. Justice Department, alleged price manipulation in beef markets can be traced to the concentration of the meat packing industry into four large companies (JBS, Cargill, Tyson and National Beef ) that control 85 percent of the beef processing market.
From the cattle rancher’s perspective, prices are being artificially depressed due to how the cattle is purchased from the feed lots and ranchers. As the meat packer’s purchasing power increased due to consolidation, they began demanding long-term contracts at lower, fixed prices in order to guarantee beef supplies.
This is in contrast to “spot” markets, in which the feed lots and cattle ranchers could potentially get higher prices based on real-time market conditions.
In effect, cattle ranchers have had to settle for lower prices than true market conditions would dictate, due to the meat packer’s demand for these fixed contracts, known in the industry as “alternative marketing arrangements.” This has resulted in cattle operations going out of business, thus reducing the supply of cattle, which can result in higher beef prices.
From the retail side of the industry, private lawsuits as well as a Justice Department investigation have alleged price fixing and bid rigging among the big four meat packers related to artificially constraining supplies of cattle.
So, according to the ranchers and retailers, that extra $6 we pay for brisket at our local barbecue joint is going into the pockets of the big four beef processors. Recent financial reports seem to bear this out: A study commissioned by the Biden administration shows the net profit margins for meat packers increased by over 300 percent in the past few years.
For their part, the meat packer’s response is that the consolidation of the industry is a natural evolution of beef markets, which continue to see huge increases in demand for premium beef, especially since the easing of the pandemic and the associated rise in economic activity. Consolidation allows for efficiencies and economies of scale to supply this growing demand for beef. They also point to the global pandemic and labor shortages as other reasons for the lower supply and higher prices of beef.
As the legal and legislative challenges to the meat packer’s market power slowly play out, cattle ranchers have taken matters into their own hands.
Some are banding together to build their own beef processing facilities to compete with the big four meat packers, or partnering with smaller, local processors.
Look no further than Marfa in West Texas, where a new business called Marfa Meats works with local ranchers to process their cattle locally and sell it directly to consumers.