The Farmer's Union is not the only organization concerned about the concentration of a few companies in the meatpacking industry. The Department of Agriculture recently charged IBP Inc., one of the nation's largest meatpackers, with breaking antitrust laws by guaranteeing higher prices to one group of Kansas feedlot operators. The same agreement was never offered to other suppliers in the area.
If the USDA wins
the case it could reverse a growing trend toward guaranteed price
agreements, known as "captive supply." Such agreements accounted
for 21 percent of the four largest meatpackers' business in 1994,
reports the USDA.
This is one of the most
divisive issues among cattle ranchers, says Chuck Lambert, staff
economist with the National Cattlemen's Association. "It often
comes down to philosophy. You have those who enter into contracts
and those who don't."
Those who do, say the
contracts allow both parties some stability. They give packers a
steady supply of quality beef and ranchers a certain buyer. Those
who don't sign such contracts want the industry to operate solely
on the old system of auctions, where packers buy cattle on an open
The grumbling over captive supplies has
become far more vocal since cattle prices have plummeted due to
oversupply. "These are the biggest beef supplies since the 1970s,"
says Lambert. "The competition is ruthless. If a packer is running
at full capacity because of prior agreements, then you have little
or no choice than to sell your cattle at basement prices."
Some suppliers say packers have timed the
slaughter of their cows or contract cattle to drive down prices.
Critics of the captive supply system say it allows meatpackers to
exercise unfair leverage in the market.
Strange of the Center for Rural Affairs, a national rural advocacy
group, says the case against IBP Inc. will hinge on whether the
USDA can prove that the company gave "undue and unreasonable"
preference to the one feedlot group. IBP denies its agreement with
Kansas suppliers broke the Packers and Stockyards Act - the
meatpacking industry's antitrust law - because other suppliers were
not "similarly situated." IBP Inc. will likely argue that it needed
the arrangement to ensure a steady flow of quality beef to its kill
floors and to compete with other packers who fill in market slumps
with their own cattle, says Strange.
This is the
first antitrust case in the packing industry in decades, says
Strange, adding that this particular section of the Packers and
Stockyards Act is largely untested. But just by filing the
complaint with IBP Inc., the USDA has taken the unprecedented
position that captive supplies can violate antitrust law, he says.
Strange believes it will be a difficult case -
especially for an agency that doesn't have much practice in
litigation. "I would be pleasantly surprised if they had the moxie
and manpower to do it."
Meanwhile, Congress has
asked the Agriculture Department to look into how consolidation
affects overall cattle prices. Its study, due this December, will
examine the process by which prices are determined at regional
cattle markets and how prior agreements affect overall cattle
* Elizabeth Manning,
HCN staff reporter