7/31/2019 1721-Clem Ward Cattle
1/26
Clement Ward
Professor Emeritus
Oklahoma State University
7/31/2019 1721-Clem Ward Cattle
2/26
` Put beefpacking concentration and competition issues
in historical perspective` Highlight major market structure changes in
beefpacking
` Note key lawsuits and court rulings` Summarize (briefly) the body of research related to
market structure, pricing, and competition issues
7/31/2019 1721-Clem Ward Cattle
3/26
` Senator John B. Kendrick, Wyoming, 1919
This squall between the packers and the producersof this country ought to have blown over forty years
ago, but we still have it on our hands
7/31/2019 1721-Clem Ward Cattle
4/26
` Passage of the Packers and Stockyards Act in 1921
` Creation the Packers and Stockyards Administrationwithin the U.S. Department of Agriculture
7/31/2019 1721-Clem Ward Cattle
5/26
` William H. Nicholls,J. Political Economy, 1940
Only after considerable further investigation will weknow whether or not reform in the packing industry
is necessary. It is conceivable that such monopoly
elements as exist yield desirable results. A lessextreme possibility is that results are undesirable but
not sufficiently bad to bother about. (emphasis
added)
7/31/2019 1721-Clem Ward Cattle
6/26
` Producers in 1975 filed the Meat Price Investigators
Association and Bray lawsuits against the four largestretailers, four largest packers, and the leading meat
price reporting firm
`
After several years of litigation, all producercomplaints were rejected by the courts
7/31/2019 1721-Clem Ward Cattle
7/26
` Late-1970s and 1980s saw rapid growth in larger
plants in response to economies of size` Was also a tumultuous period in terms of
consolidation (plant closings, acquisitions,
restructuring of labor agreements, plant expansions,and reopenings)
` Note, economies of size pertain toplantsize (in terms
of minimum efficient size) notfirm size (i.e., numberof plants per firm)
7/31/2019 1721-Clem Ward Cattle
8/26
60
70
80
90
100
110
120
130
140
0 300 600 900 1,200 1,500
OSU, Industry data 1985 USDA, Simulated data 1988
USDA, Census data 1992
Dollars per head
Thousand head annual slaughter
7/31/2019 1721-Clem Ward Cattle
9/26
0
20
40
60
80
100
120
140
160
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
50,000-499,000 500,000 +
Number of plants
7/31/2019 1721-Clem Ward Cattle
10/26
0
5
10
15
20
25
30
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
50,000-499,000 500,000 +
Million head annual slaughter
7/31/2019 1721-Clem Ward Cattle
11/26
` Monfort of Colorado in 1985 attempted to block an
acquisition of a competitor (Spencer Beef) by anothercompetitor (Cargill) which was believed would be
harmful both to Monfort and the beef industry
`
Courts allowed the merger to proceed` Opened the door to a series of mergers in 1987,
creating the big 3 packers (IBP, Excel, and ConAgra)
`
Caused a sharp increase in the national four-firmconcentration ratio
7/31/2019 1721-Clem Ward Cattle
12/26
` Producers filed suit in 1996, initially known as
Pickett v IBP, and later known as Pickett v TysonFresh Meats after Tyson purchased IBP in 2001
` Jury in Federal Court ruled in favor of plaintiffs in
2004 and assessed damages of $1.28 billion` But the trial judge set aside the jury ruling and
entered a summary judgment for Tyson, which was
upheld in 2006 by an Appellate Court
7/31/2019 1721-Clem Ward Cattle
13/26
Source: GIPSA, USDA
7/31/2019 1721-Clem Ward Cattle
14/26
Source: GIPSA, USDA
MPIA, Bray case
Pickett v IBP case
7/31/2019 1721-Clem Ward Cattle
15/26
` Competition issues have persisted through time while
the largest firms have changed` Big 3 today are Cargill Meat Solutions, Tyson Foods,
and JBS USA
`
Both mergers/acquisitions and internal growth havesignificantly affected concentration
7/31/2019 1721-Clem Ward Cattle
16/26
` Price discovery and use of alternative pricing
methods
` Initially called captive supplies but more recently
termed alternative marketing arrangements (AMAs)
7/31/2019 1721-Clem Ward Cattle
17/26
` Negotiated cash market purchases
` Formula price arrangements (typically tied to the
cash market)
` Forward contracts (tied to the futures market)
` Packer ownership of fed cattle
7/31/2019 1721-Clem Ward Cattle
18/26
0
50000
100000
150000
200000
250000
300000
350000
5/20/2001
7/20/2001
9/20/2001
11/20/2001
1/20/2002
3/20/2002
5/20/2002
7/20/2002
9/20/2002
11/20/2002
1/20/2003
3/20/2003
5/20/2003
7/20/2003
9/20/2003
11/20/2003
1/20/2004
3/20/2004
5/20/2004
7/20/2004
9/20/2004
11/20/2004
1/20/2005
3/20/2005
5/20/2005
7/20/2005
9/20/2005
11/20/2005
1/20/2006
3/20/2006
5/20/2006
7/20/2006
9/20/2006
11/20/2006
1/20/2007
3/20/2007
5/20/2007
7/20/2007
9/20/2007
Week
Head
5St Total Head NegCas h Natl FwdCon Head Natl NegGrid Head Natl Form Head Natl PkrOwned Head
Source: AMS, USDA
7/31/2019 1721-Clem Ward Cattle
19/26
Source: AMS, USDA
90.00
100.00
110.00
120.00
130.00
140.00
150.00
160.00
170.00
180.00
5/20/2001
7/20/2001
9/20/2001
11/20/2001
1/20/2002
3/20/2002
5/20/2002
7/20/2002
9/20/2002
11/20/2002
1/20/2003
3/20/2003
5/20/2003
7/20/2003
9/20/2003
11/20/2003
1/20/2004
3/20/2004
5/20/2004
7/20/2004
9/20/2004
11/20/2004
1/20/2005
3/20/2005
5/20/2005
7/20/2005
9/20/2005
11/20/2005
1/20/2006
3/20/2006
5/20/2006
7/20/2006
9/20/2006
11/20/2006
1/20/2007
3/20/2007
5/20/2007
7/20/2007
9/20/2007
Week
$/cwt
5St DS Price NegCash Natl FwdCon DS Price Natl NegGrid DSPrice Natl Form DS Price
7/31/2019 1721-Clem Ward Cattle
20/26
` Market structure, behavior, and performance
` Economies of size in slaughtering and fabricating` Relative geographic market for fed cattle
procurement
` Pricing methods and impacts, especially for captivesupply or alternative marketing methods
` Oligopolistic and oligopsonistic market power in
meatpacking
7/31/2019 1721-Clem Ward Cattle
21/26
` Most found a positive relationship between fed cattle
prices and number of buyers (Ward 1981; Ward1992; Schroeder el al. 1993)
` And a negative relationship between fed cattle prices
and concentration (Menkhaus, St. Clair, Ahmaddaud1981; Ward 1992; Marion and Geithman 1995)
7/31/2019 1721-Clem Ward Cattle
22/26
` Several found modest evidence of oligopsony
behavior (Schroeter 1988; Schroeter and Azzam1990; Azzam and Pagoulatos 1990; Azzam and
Schroeter 1991; Koontz, Garcia, Hudson 1993;
Weliwita and Azzam 1996; Koontz and Garcia 1997)
` Others found little or no evidence of oligopsony,
oligopoly behavior (Driscoll, Kambhampaty, Purcell
1997; Muth and Wohlgenant 1999; Matthews, Jr. et
al. 1999; Ward and Stevens 2000; Schroeter, Azzam,
Zhang 2000; Paul 2001)
7/31/2019 1721-Clem Ward Cattle
23/26
` Economies of size found by alternative methods,
data, and time periods (Sersland 1985; Duewer andNelson 1991; MacDonald et al. 2000; Paul 2001)
` Related research shows the importance of plant
utilization (Sersland 1985; Duewer and Nelson
1991;Ward 1990; Barkley and Schroeder 1996; Paul
2001)
7/31/2019 1721-Clem Ward Cattle
24/26
` When compared, economies of size have been found
to more than offset oligopsony price distortions(Azzam and Schroeter 1995; Paul 2001)
7/31/2019 1721-Clem Ward Cattle
25/26
` Studies have consistently found small negative price
impacts associated with use of alternative marketingarrangements (Elam 1992; Schroeder et al. 1993;
Ward, Koontz, Schroeder 1998; Schroeter and Azzam
2003, 2004; Muth et al. 2008)
` Studies also suggest problems with formula pricing to
the cash market (Crespi and Sexton 2004, 2005; Xia
and Sexton 2004)
` But feeder-packer relationships help explain their
persistence (Hunnicutt , Bailey, and Crook 2004)
7/31/2019 1721-Clem Ward Cattle
26/26
` Economic factors (though not in isolation) have led toincreased concentration in beefpacking
` This industry trend parallels a similar trend in theU.S. economy
` Economic research has estimated both the gains and
losses associated with changes in concentration andpricing in beefpacking
` Identifying correct regulatory intervention at specific
points in the past is difficult a point not verysatisfying both to many agricultural producers andpolicymakers
Top Related