The US administration kicked off the new year with an industry roundtable intended to put the pressure on big agri businesses and announced a $1bn fund to develop processing competition to the major players.
In the beef processing sector, four companies – JBS, Tyson, Marfrig, and Cargill – control 85% of beef processing and as Scott Blubaugh, president of the Oklahoma Farmers Union, pointed out for many farmers there was no choice at all, as their only practical market outlet was one of these companies.
The Biden presidency has been on the case of the US meat processors consistently during the second half of 2021, as they published ever increasing profits at a time when food inflation was increasing faster than general inflation.
In November alone, the meat, fish and egg price index increased by 13%, more than double the general food price increase for that month.
Government push back against big processors
In the summit on Monday, hosted by President Biden, Agriculture Secretary Tom Vilsack and Attorney General Merrick B Garland announced the creation of a centralised portal within 30 days to which farmers and others in the supply chain can make complaints about anti-competitive practices.
The general theme was that the US industry has become dominated by a small number of large companies that control most of the business, increase prices and reduce options for consumers while squeezing out small businesses.
In an attempt to tackle this, the administration announced that it will dedicate $1bn (€885m) to encourage expansion of an independent processing sector
The meat and poultry processing sector were cited as the textbook example of this.
In an attempt to tackle this, the administration announced that it will dedicate $1bn (€885m) to encourage expansion of an independent processing sector as a counter balance to the large groups.
This will include $375m (€332m) in development of facilities, $100m for lenders that invest in independent food companies, $100m in training and $100m to reduce inspection costs as the larger elements of the investment.
Other side of the story
The North American Meat Institute, which represents processors, pushed back hard against the administration’s claims. It pointed out that meat processing was particularly disrupted in the earlier stages of COVID-19 and employee protection measures and wage costs have escalated dramatically over the past year.
It also contends that increasing energy and distribution costs have a disproportionately high impact on the increase of costs incurred beyond the farm gate and highlighted that cattle prices are at the equivalent of €4.31/kg on a 60% kill out at the end of 2021, compared with €3.43/kg in the last week of 2020.
The reality is that companies like JBS, Tyson and Marfrig, global superpowers in meat processing, enjoy economies of scale that create an immediate advantage over the smaller independent processors
There is also a valid debate that can take place on the merits of the US government attempting to develop the smaller independent processing sector to “take on” the large groups.
The reality is that companies like JBS, Tyson and Marfrig, global superpowers in meat processing, enjoy economies of scale that create an immediate advantage over the smaller independent processors.
They are also likely to have preferential market access to the best customers, as they can offer volumes and continuity of competitively priced supplies that are difficult – if not impossible – for the smaller players to replicate.
Smaller independent companies survive and thrive by exploiting gaps left behind in the market by the big players. That can be at both ends – on the supply side by being more accessible and flexible with farmers and identifying customers that are big enough for a single business but unlikely to attract the attention of the larger groups.
While there is always an element of politics in government intervention against big business in support of farmers and consumers, events in the US are a reminder of the window that exists in the US on the processing sector compared with Ireland.
Irish farmers are still waiting for the appointment of an Ombudsman
The level of factory profitability is visible through published accounts and the USDA has probably the best daily meat market reporting system in the world.
Meanwhile, Irish farmers are still waiting for the appointment of an Ombudsman, while the Unfair Trading Practices legislation is a minor preliminary step on the road to exercising some control on what happens beyond the farm gate.
There is little point in Irish farmers looking to the Government to follow the example of the Biden administration and take on ABP, Dawn and Kepak, which control two-thirds of the beef processing here. What the Irish Government could do is bring transparency as a requirement for doing business and it should be a condition for securing Government grant assistance in the processing sector.