Congress tried to crack down with the 1921 Packers and Stockyards Act, which forbade packers from engaging in "unjust, unfair or discriminatory practices" against livestock sellers. At the time the law was passed, "it was viewed as providing the most complete oversight of any sector of the economy," says Neil Harl, an Iowa State University economist and lawyer who has studied it extensively. Yet the meatpackers' grip simply tightened, as they used "intense political pressure" to ward off the Agriculture Department regulators, says Harl. "Whether it was a Republican administration or a Democratic administration, there was not a lot of effort ... to implement the full measure."
While there have been fluctuations -- meatpacker concentration hit a low point in 1977 -- mergers in the '80s began a tidal wave of consolidation that leaves meatpackers with nearly double the power they wielded 120 years ago. Four giant companies -- Tyson, Cargill, Brazil-based JBS and National Beef -- now control about 80 percent of the U.S. beef market.
More than 200 ag groups and a bipartisan bunch of senators from cattle and hog states -- Jon Tester, D-Mont., Ben Johnson, D-S.D., Dennis Harkin, D-Iowa, and Chuck Grassley, R-Iowa -- persuaded Congress to crack down again in 2008. Language inserted in the Farm Bill directed the Department of Agriculture to devise new rules that establish more clearly when the Packers and Stockyards Act is being violated. The USDA's Grain Inspection, Packers and Stockyard Administration (GIPSA, pronounced "jipsa") proposed rules last June, and the feds are evaluating more than 60,000 public comments. Prominent Obama administration officials focused on the issue include Secretary Vilsack, Attorney General Eric Holder and the head of GIPSA, J. Dudley Butler. He's a farmer and lawyer from Mississippi, who was a founding member of the reform-minded nonprofit Organization for Competitive Markets and an R-CALF member. Butler keeps a low profile, but when he was appointed in May 2009, he said he was coming to Washington, D.C., "to enforce the Packers and Stockyards Act."
The meatpackers' power derives from the industry's structure, which resembles a pyramid. At the bottom are the "cow-calf" producers -- mostly hundreds of thousands of mom-and-pop operations. They're the ranchers who cope with feeding and calving in the depths of winter, graze their cows on private pasture and public lands in the summer, and then round them up for sale, either to a feedlot or to a "backgrounder" who fattens them up for resale to a feedlot. The feedlots typically keep the cows for only a few weeks of a get-fat-quick diet and then sell them to the meatpackers. There's just a brief window of time when the cattle can be sold at their prime -- and that gives the meatpackers leverage.
Randy Stevenson, who owns Double S Livestock LLC, a 6,000-cow-capacity backgrounding operation in Wheatland, Wyo., says he's felt the packers' power. From 1985 until a few years ago, he ran a feedlot, but his meatpacker troubles led him to switch to backgrounding, where he can sell to feedlots instead of packers. "I got educated on this out of necessity," says Stevenson, who attended the Fort Collins workshop.
Beginning in the 1990s, Stevenson explains, the number of cattle buyers coming to his feedlot dropped to the point where he'd have just one stopping by once a week. That made it impossible for him to bargain among buyers and get the best price for his cattle. One time a few years ago, a lone "field buyer" stopped by and offered $1.03 per pound for the four truckloads of cattle on Stevenson's lot. Stevenson says he tried to negotiate by offering to throw in five more truckloads if the buyer could offer $1.04. The buyer went back to his office to call his boss and ask if he could bid higher for the larger quantity. Then he called Stevenson to relay a counteroffer. "The field buyer was kind of grumbling," Stevenson recalls. "I said, 'Well, what'd (the boss) say?' "
" 'Tell him to go to hell,' " said the buyer. " 'It's two and a half if they want to do anything.' " The boss had gotten so angry at Stevenson for trying to negotiate a better price that he dropped his offer a half cent per pound -- just to teach the feedlot owner a lesson in who really controlled the deal, Stevenson says. And since Stevenson's cattle were ready, and he had no one else to sell to, that was the price he ended up taking.
"This situation is what I call economic waterboarding," says Stevenson. It happens when sellers are limited in who they can sell to -- one meatpacker instead of 20. The impacts are obvious: 30,000 small feedlots have closed shop in the past 15 years, says R-CALF's Bullard.
Cattlemen have another word for what's happening: "chickenization."
More than 90 percent of all poultry in the U.S. is now raised by growers who don't own the birds or negotiate basic terms like price per pound. Over the past 50 years, chicken packers (known as integrators) like Tyson, Perdue and Pilgrim's Pride have talked chicken farmers into signing contracts that lock them into a relationship, rather than selling and buying birds on the open market. At first, farmers were pleased, because it gave them a guaranteed sale and a price they could count on. But over time, as the big poultry packers gained control of the majority of chickens raised in the U.S., the terms of the contracts deteriorated.
Many chicken farmers these days are forced, contractually, to invest hundreds of thousands of dollars in chicken houses that meet ever-changing packer specifications for feeding systems. Farmers often start off with five-year contracts and invest based on the assumption they'll be in the business long term. After the initial contract period, though, poultry packers sometimes shorten contracts to a year or even a few months, putting more pressure on the farmers to cooperate. Meanwhile, nearly all chicken farmers get their chicks from the poultry packers. Sometimes the chicks are puny because they come from either very young birds or very old ones that tend to lay small eggs. The poultry packers constantly experiment with different breeds to find chickens that gain weight more rapidly, but it's just the luck of the draw as to which chicks a farmer gets. Since farmers are paid by how well their chickens convert feed to weight, any farmer with a puny flock will do worse than other farmers. About the only way a farmer can get ahead is by investing in pricey technology that may give him a bit of an edge over his neighbor.
It's a perfect system from the poultry packers' perspective: The chicken farmers take on the risk and the capital investment, and the packers can cancel their contracts at almost any time. Many chicken farmers complain about take-it-or-leave-it contracts and financial promises that never come true. But if they protest or look for a different buyer, retaliation may follow in the form of contract termination -- leaving the farmer deeply in debt, surrounded by piles of chicken manure, a pollution liability, and with no alternate buyer to turn to, since there is frequently only one buyer in a region.
In Fort Collins, Vilsack said that during an Alabama hearing on competition in the poultry industry last May, many farmers complained about their contracts being shortened to 90 days -- which he called "flock-to-flock contracts" -- and "we heard many stories of people who were reluctant to speak because of fear they'd be retaliated against."
That's what it means to be chickenized. And hog farmers have experienced the same.
Cattlemen don't want their industry to become so "vertically integrated," with the packers owning or controlling the animals from birth to slaughter. It's unlikely that the beef industry would end up exactly like the chicken or hog industries, mostly because cattle aren't as manageable and fast-growing, says Robert Taylor, an agricultural economist at Auburn University in Alabama who specializes in analyzing marketing agreements. The risk Taylor sees is in a weakening of the cash market for cattle. Before the '90s, almost all cattle were sold on the cash market: Meatpackers' buyers came to feedlots and auctions and paid a cattle price set each day at the dollar mark where supply and demand met -- in much the same way that stocks are traded on Wall Street. The demand of a large number of buyers, combined with how they value a limited supply of stocks or cattle, is considered a pretty good way to determine real value. When the chicken industry became vertically integrated, poultry farmers lost their access to the cash market.
That's essentially what happened to Randy Stevenson and to many other feedlot owners. With fewer buyers to sell to, more and more feedlot owners are accepting packer-offered advance marketing agreements, which guarantee they can sell their cattle. It seems much safer than waiting for a buyer to come around -- or not -- and watching cattle get overfat and decrease in value.
The big meatpackers already have a lot of cattle locked up through these advance contracts; the cash market now makes up less than 40 percent of the total market. And the meatpackers are paying less than they used to for cows on the cash market, because they don't need those cattle as much anymore, Taylor says. Because the price of the contracted cattle, or "captive supply," is based on the price of the cash market, the packers benefit twice. "If they depress the price on the cash market, not only do they get those cattle cheaper, but they also get all of the captive supply cheaper," Taylor says. "So that means there is a multiplier incentive for them to manipulate the market."