In formal comments submitted last week to the Federal Trade Commission and the Department of Justice, R-CALF USA told both agencies that while beef packer concentration has plateaued since 2009 at the four-firm level of between 83% and 86%, it is now evident that major concentration and vertical integration efforts are underway in the feedlot sector of the live cattle industry. The group stated the oligopolistic structure of the beef packing industry is now being pushed upstream into the live cattle supply chain.
The group explained that nearly 85,000 feedlots have exited the feeding industry during the past 25 years, with 1,000 smaller farmer/feeder feedlots exiting just last year. It states this represents a loss of over 75% of the nation’s cattle feeders, most all of them smaller, independent farmer/feeders.
But while small independent feedlots have been exiting fast, the group said the number of the nation’s largest feedlots increased from 45 to 77 in just 25 years, and those 77 largest feedlots controlled nearly 35% of all fed cattle marketed in 2021.
The group informed the agencies that the feedlot sector represents the marketing outlets for hundreds of thousands of cattle farmers and ranchers who sell backgrounded cattle and it is consolidating rapidly.
In its comments, the group urged the agencies to investigate to determine the degree of buyer power the concentrated beef packers exercise over those feedlots – in particular, the 77 largest feedlots.
The agencies had called for public comments to help them improve enforcement of U.S. antitrust laws regarding both horizontal and vertical mergers. The group offered several other improvements needed by the cattle industry and pointed out several unique characteristics of the U.S. cattle industry that make it uniquely susceptible to monopsony power. Just a few of those characteristics include:
- Fed cattle have the longest biological cycle of any farmed animal, making it difficult for the industry to react to changes in demand.
- Fed cattle are highly perishable and must be marketed within a narrow time window, otherwise the animals would degrade in quality and value.
- Fed cattle are expensive to transport. Research has found that the cost of transporting cattle long distances creates a limited procurement area for meat packing plants, resulting in higher packer concentration within certain states than nationally.
- Fed cattle are highly sensitive to very slight changes in cattle supplies, with each 1% increase in fed cattle numbers expecting to decrease 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 (AMAs) is associated with a 5.9% reduction in the cash market price.
- Research has found that individual producers will agree to sign captive supply contracts such as AMAs even while knowing that the aggregate effect of AMAs is to depress the cash market price and make all producers, including him/herself, worse off. The research explains it is because individual producers cannot coordinate changes in the marketplace that enables packers to obtain their acceptance for exclusionary contracts.
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