The president wants beef prices to fall to relieve consumers, except when he wants them to rise to aid cattle ranchers. He is learning through interventionism that every price paid is someone else’s income. Therefore, the administration is seeking a scapegoat.
It has found one in meat processors — the companies that slaughter, butcher, and package beef. Last November, the president directed his subordinates to investigate potential collusion or price-fixing among the four firms that account for 85 percent of the beef-processing market. It was a conclusion in search of evidence. The Department of Justice is currently investigating the four major companies, and acting Attorney General Todd Blanche believes he has unearthed “anti-competitive activity.”
If this saga sounds familiar, that’s because it is the same playbook the Biden administration rolled out when beef prices rose amid broader inflation. Industry middlemen are perennial punching bags for politicians who are looking for easy answers. Shoppers are keener to resent Big Meat than to resent local farmers, and ranchers despise processors already because they negotiate against one another on cattle prices.
The story goes like this: Beef processors are squeezing ranchers by forcing them to sell at prices below what a competitive market would fetch. Simultaneously, they are jacking up beef prices for buyers. Fix this monstrosity, and both ranchers and consumers would be better off. Like magic.
Some questions arise. Why did meat companies wait until recently to increase prices? Did they become greedier or cleverer all of a sudden? If beef prices were higher than the market can bear, wouldn’t processors be losing business? And if cattle prices are artificially low, what is stopping a processor from paying more to steal market share from its competitors?
The greatest problem with this tale, however, is that for it to be true, meat companies would have to be raking in cash. Successfully lowballing ranchers on one end and upcharging consumers on the other must be quite profitable.
Why, then, is the same Trump administration that is investigating meat-packers also giving the industry $500 million to keep these companies in business? The Wall Street Journal reports that the government plans to pay small- and medium-size meat processors to maintain their processing volumes. Why do meat-packers need to be subsidized if they are doing so well ripping everybody off?
Turns out they are not doing well, because “dwindling cattle supplies” have driven up the prices that meat-packers pay ranchers. Meat processors are losing an estimated $300 per head of cattle, as even high consumer prices cannot compensate for the supply squeeze. If meat-packers are responsible for high beef prices, they must not have planned correctly.
But perhaps only the smaller meat-packers are struggling, while the big four companies benefit. Not at all. The major processors that the Trump administration has targeted are bleeding billions of dollars on their beef divisions. One leading firm, JBS, is running a negative profit margin on North American beef and is set to shutter a processing plant because of high procurement costs. Tyson Foods, another top beef processor, is in the same boat.
If meat-packers’ profits are not to blame, there must be another cause behind high beef prices. Unfortunately for demagogues of both parties, there is no villain at work. Beef prices are high because cattle prices are high, and cattle prices are high because U.S. herds are the smallest they have been in 75 years. Lifting import restrictions could help, but the only genuine solution to bring back affordable beef is for ranchers to gradually expand their herds. They are understandably reluctant to do so, however, because ranchers are earning more revenue on current beef prices than ever before.
Beef prices are a simple function of supply and demand. The supply of cattle is historically tight, and demand has been resilient, so prices are historically high. Newfound money in beef is overwhelmingly going to ranchers, not processors — though costs for ranchers are high as well. In fact, like consumers, meat-packers would much prefer lower beef prices.
The government’s sprinkling cash on processors to maintain output won’t do much good when there simply isn’t enough beef to process. Supply is what it is. If anything, the subsidies will raise prices further by spiking what companies can bid for a finite number of cows.
Throwing money at struggling meat-packers is useful, however, insofar as it dispels the government’s own fiction of why beef prices are elevated in the first place.