Washington Insider-- Tuesday

Administration Probes Meat Industry

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

More Dicamba Action This Week

The U.S. Court of Appeals for the Ninth Circuit has ordered EPA to respond by Tuesday (June 16) to an emergency motion filed by environmentalists and farmworker advocates who contend the agency has ignored the court’s directive to vacate registrations that permit the spraying of three dicamba products.

The petitioners then have to file their reply by June 18. The emergency motion focused on EPA’s decision to cancel the registration for three dicamba products, but allow the use of existing supplies of the products through July 31.

The agency action was based on precedence in other cases where the registration of a chemical was cancelled. Their emergency motion urged the court to compel the agency to bar any spraying of the dicamba products and hold EPA Administrator Andrew Wheeler in contempt.

USDA Secretary Sonny Perdue said in a statement that he supported the EPA decision. “At a time when the security of the food supply chain is paramount, the Center for Biological Diversity and its allies seek to cripple American farmers and further limit their ability to feed, fuel, and clothe this nation and the world,” Perdue said. “The Ninth Circuit should not allow plaintiffs’ hostility against the American farmer to cloud the fact that the EPA’s actions follow both legal precedent and common sense.”

It is not yet clear what the court decision will be, but the accelerated timeline hopefully means the matter will be resolved soon.


Trade to be High on the Agenda This Week

Those who are interested in trade will have a busy day on Wednesday.

U.S. Trade Representative Robert Lighthizer testifying twice that day regarding the Trump administration’s trade agenda.

He will testify before the House Ways & Means Committee in the morning and then the Senate Finance Committee in the afternoon.

Both sessions will be “virtual” hearings as has become the norm with many actions in Washington in the wake of the COVID-19 situation.

His sessions before House and Senate trade panels will be watched for his assessments on the U.S.-Mexico-Canada Agreement (USMCA) with implementation coming July 1; the U.S.-China Phase One agreement will be an attention point; and the prospects for a U.S.-UK trade agreement will likely be broached given a UK official’s comments last week that the hope was for a deal by the U.S. November 3 elections.

Washington Insider: Administration Probes Meat Industry

Bloomberg says this week that the Trump administration launched “what could turn out to be the biggest attack in a century against the giants of America’s meat industry.” The probe follows the recent “uproar over employee treatment” during the pandemic, the report says.

The Department of Justice (DOJ) threat is casting spotlight on the industry after coronavirus outbreaks saw thousands of workers get sick, forcing plants to shutter. President Donald Trump in early May called for a probe into beef prices, Bloomberg said.

Farmers have long complained about the dominance of just a handful of companies in beef and poultry markets. The current heightened scrutiny comes less than five months ahead of November’s presidential election and could attract attention from U.S. farmers, a key Trump constituency.

“The market’s been broken for a long time, and the pandemic has just made it worse. Meatpackers are making record profits, and the ranchers are going out of business,” said Ben Gotschall, the interim executive director for the Organization for Competitive Markets, an advocacy group that opposes consolidation in agriculture.

At issue is whether meat behemoths are “thwarting competition” in violation of antitrust laws. DOJ prosecutors this month said executives at two chicken producers, including the second biggest in the U.S. – Pilgrim’s Pride Corp. – illegally conspired to fix prices.

The department is also setting its sights on beef companies and has issued subpoenas to the four biggest producers – Tyson Foods Inc., JBS SA, Cargill Inc. and National Beef Inc., who together control more than two-thirds of all U.S. beef processing.

The power of the meatpackers today echoes that of the early 20th century when the industry was dominated by the “beef trust.” At that time, FTC found that the five biggest companies controlled about 82% of cattle slaughter, monopolized the market and crushed competition. The findings were the basis for an antitrust settlement against the industry in 1920.

If the Justice Department finds new evidence of meatpacker violations, it can sue them to stop or negotiate a settlement—as was done a century ago, when the companies agreed to restrictions such as not owning stockyards or retail meat businesses.

Criminal investigations like the current one involving chicken processors carry higher stakes – executives can go to jail and companies can be criminally fined. Last month, 19 senators, many from agricultural states, asked DOJ to look into whether the companies are suppressing prices.

Meat plant shutdowns in April and May sparked shortages at grocery stores and even Wendy’s Co. dropped burgers from some menus. Though it was just about a dozen plant closures, large producers left few remedies when even a handful of facilities are down.

In total U.S. commercial cattle slaughter, the top four companies in 2018 had market share of 71%, up from 57% in 1987, according to the Cattle Buyers Weekly. “Given the high concentration of meat and poultry processors, closures of a relatively small number of large facilities could disrupt our food supply and detrimentally impact our hardworking farmers and ranchers,” the White House said.

David Turetsky, who was a deputy in the antitrust division at the Department of Justice during the Clinton administration said an earlier probe “didn’t find enough to bring a case. In industries that as highly concentrated at this one, it’s not surprising at all to see concerns,” said Turetsky, now at the University at Albany.

It’s not clear what conduct the Justice Department is focused on now. A class-action lawsuit brought by producers last year accused the companies of colluding to reduce the volume of cattle purchased for slaughter in order to drive down prices. Ranchers’ woes grew more acute in the pandemic as slaughter plants shuttered. They grappled with low prices for cattle, while meat prices paid by consumers at the supermarket spiked.

Wholesale prices have quickly come back down from the peak, but are still about 10% higher since the start of the year even as shutdowns for restaurants meant a loss of demand.

Cattle producers note that most cattle are now sold to meatpackers through longer-term contracts, rather than on the spot market but that this structure “reduces transparency and gives the packing companies a mechanism to pressure prices” according to legislation introduced last month by a bipartisan group of senators from rural states that would require meatpackers to buy a minimum of half their weekly volume on the spot market.

Glynn Tonsor, a professor in the department of agricultural economics at Kansas State University pointed out that plant efficiencies also benefit ranchers and can allow meatpackers to pay more for cattle than they would otherwise.

However, antitrust enforcement today is undergoing a “rethink” Bloomberg said. Economists and lawyers are questioning whether there’s been too much focus on how mergers affect prices paid by consumers and not enough on prices paid to sellers. “Agriculture in general is an area where there is lot of market power to the detriment of consumers on one side and small producers and farmers on the other,” the report said.

So, we will see. Market structure and performance of major ag industries is typically highly controversial, and likely will continue to be. The DOJ and USDA probes are important and should be watched closely by producers as they emerge, Washington Insider believes.

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