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The Meat Monopoly Takes a Pounding

by RUSSELL MOKHIBER And ROBERT WEISSMAN

Those days are long gone. Today, most U.S. cattlemen and women operate at the mercy of huge meatpacking conglomerates.

Small meatpackers are, for the most part, a thing of the past, acquired or driven out of business by a handful of giant corporations.

Where small-scale ranchers once sold cattle on the open market to small-scale packers, most cattle producers now sell, often under long-term contractual arrangements, to just four companies — Tyson/IBP, Cargill/Excel, Swift/ConAgra, and Farmland National Beef — which together control roughly 80% of the U.S. market.

The cattle producers have vastly diminished control of how they raise cattle, and they can’t negotiate a fair price.

Over the last decade, especially as the federal government has refused to intervene to promote market competition, many cattle producers have given up hope of maintaining their independence, making a decent profit or staying in business.

But not all. Some refused to concede even in the face of overwhelming economic power.

Working with a group of lawyers, some cattlemen found a way to fight back.

They filed suit against the meat packers for violating the terms of the Packers and Stockyard Act, a venerable statute which protects competition in the cattle market.

Last month, they won a landmark decision.

A jury found Tyson/IBP (Tyson purchased IBP after the litigation began) to have engaged in anti-competitive practices over the last decade, and awarded $1.3 billion to a class of 30,000 cattlemen and women. Suits against the other leading packers are pending.

“In the cattle market, cash on the spot market is the traditional way of buying and selling,” explains Michael Stumo, general counsel for the Organization of Competitive Markets, and an attorney who assisted the law firm that handled the cattle producers’ case. “The custom and practice is for packers to bid and get delivery within seven days. That stops packers from storing cattle and dropping the prices” they bid.

Relying on their market power, IBP and the other leading meat packers have largely abandoned this traditional way of doing business, instead relying on “captive supplies” of cattle. The giant firms “use contracting strategies to lock up cattle months beforehand” at pre-established prices, Stumo explains, so that they can reduce aggressive bidding on the open market, or stop bidding on the open market altogether.

As a result, independent cattle producers trying to sell on the open market find that prices are artificially low. Sometimes they have trouble finding buyers altogether.

“In the event Plaintiffs and others similarly situated reject IBP’s unfairly low price,” the cattle producers contended in the complaint filed in the lawsuit, “IBP then slaughters the cattle from its captive supply leaving Plaintiffs and their class members without a fair price for their cattle. Plaintiffs must accept IBP’s unfairly low price because they have no other viable market except the market controlled by IBP.”

In short, Stumo says, what has happened is that the packers have leveraged their market power on the demand side into control of the market on the supply side.

The jury agreed with these claims. It concluded that Tyson/IBP’s manipulation of the market drove down prices by three to four percent, a huge reduction in the very low-margin cattle-selling business.

Immediately after the verdict, Tyson/IBP announced it would appeal.

“Our company canOt demand that cattlemen sell to us,” Tyson/IBP said in a statement issued after ruling. “Anyone who raises or feeds cattle can sell to whomever they want. So we compete with other packers for available market-ready cattle. A majority of the cattle we buy are purchased on a daily cash market basis. Others are bought through various marketing arrangements that were initiated by cattle producers who came to us seeking a more efficient way of selling their livestock.”

Tyson/IBP argued that it had valid business reasons for the contract arrangements that give it a captive supply, but Stumo says that evidence at the trial showed each of the company’s alleged business justifications was phony. Tyson/IBP is able to obtain a consistent supply on the open market, product on the open market is actually of higher quality than that from Tyson/IBP’s captive supply, and the transaction costs from buying on the open market are minimal.

What’s really at stake is the packers’ ability to control markets. The industry is actually considerably more consolidated now than it was in 1921, when the Packers and Stockyard Act was passed to head off what was viewed as dangerously high levels of centralization. At that time, the five biggest packers controlled 65% of the national market. Today, Tyson alone has an approximately 40% market share.

Unfortunately, concentration in the agribusiness sector is typical in the economy (think ExxonMobil, ChevronTexaco, Citigroup, GlaxoSmithKline, Microsoft, Daimler Chrysler, AOL Time Warner) rather than exceptional.

What the cattle producers have shown is that, with persistence and creativity, it is possible to fight back against the corporate behemoths who maintain an ever tighter chokehold on the political economy.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter.

Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and co-director of Essential Action, a corporate accountability group. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press; http://www.corporatepredators.org).

(c) RUSSELL MOKHIBER and ROBERT WEISSMAN

 

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