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Who controls the world beef industry?

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In Irish terms ABP, the Larry Goodman-controlled beef processing company, is quite enormous. With slaughterings of 1m cattle across its 23 sites in Ireland, the UK and Poland, ABP carries enormous clout in terms of determining the price that is ultimately paid to the producer. Between them, 'the big three' - ABP, Dawn and Kepak - control a majority of the slaughtering capacity on the island of Ireland. There is currently a beef deficit across the globe which means that Irish cattle producers are somewhat protected from the natural instincts of meatpackers to control pricing. There is no real evidence to suggest that oligopolies (see below) such as exist in the Irish beef processing sector are necessarily working to the detriment of either the producer or the consumer. Some 'market co-ordination' can help to stabilise prices and prevent extreme volatility that is in no ones interest.

An International Phenomenon

The fact that most of the slaughtering capacity is in the hands of relatively few companies is neither new nor confined to the Irish meat industry. In the US, 80 per cent of the beef slaughtering capacity is in the hands of four companies. Between them Tyson Foods, Cargill, JBS and National Beef process 28m of the annual 35m cattle slaughtered each year. The Brazilian-owned JBS is the largest meat processor across the globe, though in beef terms, with sales of $9.2bn, it trails Tyson Foods, which accounts for $12.7bn of all beef sales in the US.

Large-Scale Beef Processing 'Nothing New'

Armour and Company was an American meatpacking company founded in Chicago, Illinois in 1867 by Philip Danforth Armour. By 1880, Armour was Chicago's most important business and helped make the city and its Union Stock Yards the centre of the American meatpacking industry. Armour was the first company to produce canned meat and also one of the first to employ an assembly line technique in its factories.

The sheer scale of the Armour operations in the early part of the last century is impressive. At its peak, employee numbers totalled 55,500 with a wage bill running to just under $79m. It was reckoned that 184,000 railroad cars, fully laden, would be required to transport the output of the Armour plants for the full year. That would have made up a train approximately 1,200 miles long extending from Chicago to San Antonio, Texas. In fact, freight charges accounted for over $42m of Armours total processing costs each year. Total payouts to American livestock producers amounted to just under $400m per annum. Some 10.5m head of livestock were slaughtered in the company's 17 processing plants in 1920. Pig purchases accounted for the largest single cost, amounting to over $192m. Next was cattle at $158m with sheep farmers being paid almost $25m. Interestingly, calf purchases accounted for $16.5m.

Business Philosophy

In a booklet, published in 1920, the company outlined its business philosophy across a range of issues. Here is an extract from the booklet on the subject of The Future Of Livestock production. ''Upon the future of the livestock industry depends an important food problem. But equally related to it is the question of what we must pay for clothing, shoes and numerous other necessaries. For meat production and the production of leather and wool go hand in hand. By being a meat-eating nation we make prices for leather and other goods lower than they would otherwise be. With the exception of a temporary revival during the war, livestock production has steadily declined during the past two decades, though population has steadily increased. The year 1920 showed a continuation of this downward trend. During the first eleven months the slaughter of cattle, sheep and swine at the principal packing centres was less by nearly five million animals than in 1919. At the same time birth of calves on the farms decreased by 22 per cent and pigs 10 per cent during the first half of the year. It has become increasingly difficult for the producer to raise or fatten meat animals at a profit. Greater expertness in feeding is needed. More capital is required. The days of cheap feed, cheap land and rough and ready methods belong to times that are past. These facts are laying a restraining hold on livestock production."

A Different Set Of Facts

While the above extract from the Armour publication sounds almost altruistic in its concern for American meat producers the reality was somewhat different. A major price fixing cartel in the meat industry in the early 1890s was exposed through a whistleblower who was intimately involved in the industry.

Peculiarly, this beef cartel began with the price of cattle rising and the price of meat falling. The average consumer price of beef tenderloin, for example, dropped from 27¾ cents per pound in 1883 to 16¾ cents in 1889. Per capita consumption of beef rose from an average of 77.8 pounds during the 1870s to 87.2 pounds during the 1880s. Cattle prices had declined through most of the 1870s, but rose to unprecedented levels in 1884. Higher cattle prices led to larger cattle numbers - 70 per cent more by 1890 than 15 years earlier. However, the boom had gone bust by 1885. Cattle prices declined from a peak of $25.56 per head in 1884 to $16.49 in 1891. The downturn in prices, plus the inability of local butchers and slaughterhouses to compete with lower priced fresh beef from the major packers raised widespread concern.

In response to demand for legislation, the US Senate, in 1888, adopted a resolution to appoint five senators "...to examine fully all questions touching the meat products of the United States and whether there exists or has existed any combination of any kind by reason of which the prices of beef and beef cattle have been so controlled, or affected as to diminish the price paid the producer without lessening the cost of meat to the consumer."

The investigation lasted two years and resulted in what was known as the Vest Report. The Report charged that the 'Big Four' - Armour, Hammond, Morris, and Swift - colluded to fix beef prices, divide territories and business, divide the public contract business, and compel retailers not to buy from packers outside the Allerton Pool. The 'Pool' evolved from an 1886 agreement involving the 'Big Four' and Samuel Allerton, another Chicago packer, and resulted in the regulation of meat shipments and stabilisation of prices. The pooling agreement marked the beginning of an 'oligopolistic' interdependence in the meatpacking industry. (The market condition that exists when there are few buyers or sellers, as a result of which they can greatly influence price and other market factors). In fact, no action was taken on foot of the Vest Report as the weekly meetings of the meat packers were considered to be a constructive effort to coordinate the beef market and stabilise prices.

An Industry Under Pressure

In more recent times, the US cattle production sector has been contracting with producer numbers down from 1.6m three decades ago to under 1m today. Likewise, cattle numbers have fallen over the period, though actual tonnages of beef produced have increased with improved management practices as well as access to growth promoting hormone implants. But the industry at producer level is still under pressure, with farmers complaining that too few processors have too much control over prices. So, what's new?