Building a better meatpacking industry

MARCUS, Iowa — The last time the federal government decided that a few big meatpacking firms were abusing their market power, in the early 1920s, it chopped those companies into smaller pieces.

These days, it's almost impossible to imagine the nation's political leaders mounting that kind of frontal assault on businesses. So to curb the power of Big Beef, instead of wielding a cleaver, the Biden administration is counting on people like Chad Tentinger.

Tentinger, a 44-year-old cattle farmer in this town in northwestern Iowa, is seeking to persuade his fellow farmers to bet tens of millions of dollars on an audacious plan to build their own meatpacking plant near Council Bluffs, about 120 miles south of here. In July, Tom Vilsack, the secretary of agriculture, visited Council Bluffs to announce $500 million in federal support for smaller meatpackers. This month, President Joe Biden announced he was doubling the total commitment to $1 billion. "Capitalism without competition isn't capitalism — it's exploitation," the president said.

The administration's focus on meatpacking is reflective of a larger shift in thinking about the costs of monopoly power. For years, the only thing that carried weight in debates about competition was whether the customer came out ahead. But people are more than just consumers. They are also producers. And they are members of communities that depend on diverse and sustainable economies to flourish.

All of which has made the cattle business a ripe target. Corporate concentration is a growing problem across the economy, but meatpacking is especially afflicted. Four companies produce more than 80% of the nation's beef, and their dominance has come at the expense of cattle farmers, meatpacking workers and American consumers, who eat an average of 55 pounds of beef each year.

"I'm a cattle farmer who cannot afford my own meat," Melissa Dunford, who operates a small farm in southwestern Virginia, wrote to the Department of Agriculture this past summer — one of the dozens of letters the department received from farmers and small meatpackers eager for government aid.

There is a clear need for politically viable strategies to counter the concentration of corporate power, and seeding new kinds of competition is an intriguing experiment. Cracking down on corporate behemoths is politically difficult; it's also hard to compel good behavior from companies that profit from bad behavior. If alternative models flourish, they might produce enduring changes.

And the Biden administration's approach is less likely to find a foothold in the chicken and pork industries, where corporate concentration has left fewer independent farmers.

But the first question is simply whether Tentinger and other aspiring meatpackers can break into the business.

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Tentinger, bluff and bearded, takes evident delight in being a cattle farmer. He raises 30,000 head of cattle each year in long feeding barns of his own design. At the end of one, he has built a wood-paneled whiskey room with big glass windows where he can sit and watch his cows.

The 2,000 animals in the barn live on perforated rubber floors through which they push their manure into a concrete basement. Long feeding troughs, filled by trucks, run along both sides of the barn. The interior columns are rounded to protect animals from bruising. The roof is peaked to draw air upward. The design allows one person to tend hundreds of cows. Tentinger built the first such barn for his brother's farm. His construction company now builds about 15 barns a year in Iowa and surrounding states.

"You go to other parts of the country, when their main industries dried up, when the coal industry dried up or the steel industry dried up, those towns did not survive," he told an audience of cattle farmers in Greenfield, a recent stop on a barnstorming tour of Iowa's many small farm cities, where he hopes to find investors. "Don't think it can't happen here."

He is quick to volunteer that he doesn't know how to run a meatpacking plant. But he is convinced the big meatpacking firms aren't doing a particularly good job. Companies that dominate a market tend to get fat and lazy. Corporate concentration reduces innovation. Tentinger plans to buy new equipment from Europe, where meatpackers operate under greater competitive pressure. That will reduce his need for labor and allow him to pay higher wages, an important edge in an industry that's struggling to find enough people. Instead of six workers to begin cutting up a carcass, for example, he plans to employ two robots — and two workers to replace the cutting blades.

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After breaking up the big meatpackers in the early 1920s, the federal government prevented the industry from consolidating for more than half a century, part of a broader commitment to checking corporate power throughout the economy. Then, in the early 1980s, the Reagan administration decided to embrace consolidation.

"We must recognize that bigness in business does not necessarily mean badness," declared Attorney General William French Smith.

The North American Meat Institute, a trade group for the big meatpackers, argues that the industry consolidated because big factories produce meat at lower cost, and that consumers have reaped the benefits. The price of beef, adjusted for inflation, did fall significantly in the early decades of consolidation, but those declines had substantially eroded even before the pandemic pushed retail beef prices to new heights.

Efficiency also was a fancy word for taking advantage of workers. Meatpacking companies replaced unionized workforces with cheaper labor, including immigrants living in the country illegally. In the first decade of consolidation, wages fell by 35% after adjusting for inflation. Reported workplace injuries increased by 40% over the same period.

The big meatpackers insist that cattle farmers, like consumers, have benefited from the industry's consolidation because more efficient factories can pay higher prices for cattle.

This is the prevailing view among agricultural economists, too. In June, academics at a conference funded in part by the Department of Agriculture concluded there was no clear evidence that meatpackers are using their market power to take advantage of cattle farmers — a judgment the conference report acknowledged was "not necessarily a popular position."

But the rosy view that cattle farmers are doing just fine is contradicted by federal data. The government estimates that in the 1970s, cattle farmers got about two-thirds of every dollar that consumers spent on beef. In 2020, they received less than 40%.

Tentinger's company, Cattlemen's Heritage, aims to process about 400,000 head of cattle per year, or roughly 1% of the nation's beef. It's not the volume that makes the plant so intriguing — it's the business model. The company is offering a better financial deal to farmers, and if it succeeds, it's not hard to imagine other groups of farmers organizing to build more plants. (Indeed, a group in Nebraska already is working to build a similar plant.)

Tentinger also is offering a better deal to workers. He chose Council Bluffs in the hopes of wooing workers from meatpacking plants across the river in Omaha, with the promise of higher wages and better working conditions, including on-site day care.

Consumers could benefit, too. If productivity rises, prices could fall.

But too much is made of the price of beef. The administration's effort is worthwhile even if it does not reduce retail prices. Consumer welfare is not the only measure of economic policy. In the words of economist Alfred Kahn, "It is not true, even though Adam Smith said it."