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US meat processors blamed for the rising prices in grocery

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"Dominant corporations in uncompetitive markets are taking advantage of their market power to raise prices while increasing their own profit margins. Meat prices are a good example," White House says.

Posted on Dec 28 ,07:09

The Biden Administration blames meat packers for rising prices in the grocery segment and noted that beef, pork, and poultry price increases make up a quarter of the overall increase in food-at-home prices last month. In a press release, the White House noted that "November Consumer Price Index data demonstrates that meat prices are still the single largest contributor to the rising cost of food people consume at home. As we noted in September, just four large conglomerates control approximately 55-85% of the market for pork, beef, and poultry, and these middlemen were using their market power to increase prices and underpay farmers, while taking more and more for themselves. New data released in the last several weeks by four of the biggest meat-processing companies—Tyson, JBS, Marfrig, and Seaboard—show that this trend continues. (Other top processors are private companies that don’t report publicly on their profits, margins, or income.) According to these companies’ latest quarterly earnings statements, their gross profits have collectively increased by more than 120% since before the pandemic, and their net income has surged by 500%. They have also recently announced over a billion dollars in new dividends and stock buybacks, on top of the more than $3 billion they paid out to shareholders since the pandemic began."

 

Skyrocketing profits

Some claim that meat processors are forced to raise prices to the level they are now because of increasing input costs (e.g., things like the cost of labor or transportation), but their own earnings data and statements contradict that claim. Their profit margins—the amount of money they are making over and above their costs—have skyrocketed since the pandemic, White House noted.
"Gross margins are up 50% and net margins are up over 300%. If rising input costs were driving rising meat prices, those profit margins would be roughly flat, because higher prices would be offset by the higher costs. Instead, we’re seeing the dominant meat processors use their market power to extract bigger and bigger profit margins for themselves. Businesses that face meaningful competition can’t do that, because they would lose business to a competitor that did not hike its margins," according to the press release.

This created an awkward situation in the US meat market, as meat processors obtained record profits while actually selling less beef than before, as Tyson Foods illustrated in a note for shareholders released on November 15. The company raised beff prices by 35% between the fourth quarter of 2020 and the last three months of 2021. "Here is the bottom line: the meat price increases we are seeing are not just the natural consequences of supply and demand in a free market—they are also the result of corporate decisions to take advantage of their market power in an uncompetitive market, to the detriment of consumers, farmers and ranchers, and our economy," White House said.
The Administration has already announced strong actions to crack down on illegal price fixing and enforce the antitrust laws robustly, investments of hundreds of millions of dollars to create more competition in meat-processing, over a billion dollars in relief to small businesses and agricultural workers hurt by COVID, and many other steps to ensure American families, farmers, and ranchers get a fairer shake.

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