Packer Investigation Update
Reports indicate the Department of Justice (DOJ) is investigating the “big four” beef packers (Tyson Foods Inc., JBS SA, Cargill Inc., and National Beef Inc.). This investigation is being led by DOJ’s Antitrust Division and is likely focused on coordination between the packers which could lead to a Sherman Act antitrust violation, such as price fixing.
The U.S. Department of Agriculture (USDA) began investigating beef packer margins (divergence between box beef and live cattle prices) following the Holcomb, Kansas Tyson beef processing plant fire in August 2019. In April, this expanded to also consider the COVID-19 situation.
LMA supports a thorough DOJ investigation of the packers and is pushing for the investigation to examine all potential antitrust, Packers and Stockyards Act, futures market manipulation, and other legal violations. Expanding the scope to ensure the investigation considers all potentially concerning activity is a top LMA priority.
What are they Looking For?
The DOJ Antitrust Division enforces criminal violations of the Sherman Act, which prohibits any agreement among competitors to fix prices, rig bids, divide marketplace, or engage in other anticompetitive activity.
Examples of Sherman Act Violations
- An agreement between competitors to hold cash prices at a certain level
- An agreement between competitors to jointly manipulate futures prices
- An agreement between competitors to not compete in certain territories or for certain classes of animals
Although many in industry believe the major packers act in ways that harm producers and the competitive pricing of cattle, that behavior may not necessarily involve coordination as the Sherman Act requires. However, some of these activities may violate other laws, in particular the Packers and Stockyards Act (PSA).
USDA enforces the PSA, which in Section 202 prohibits packers from engaging in any unfair, unjustly discriminatory, or deceptive practice or device. The PSA also prohibits any undue or unreasonable preference or advantage. The legislative history shows Congress understood the sections of the PSA were broader in scope than earlier legislation such as the Sherman Antitrust Act. However, court rulings and a lack of enforcement have narrowed how the PSA is applied in practice.
Examples of PSA Violations
- Taking turns buying
- Apportioning territory or supply
- Packer buying practices which restrict competition, for example exclusive dealer arrangements or entering into arrangements with a dealer to refrain from competing against the dealer in the purchase of livestock and instead acquiring a substantial percentage of the livestock from a dealer without competing
Examples of Activities Which are NOT Sherman Act or PSA Violations
- Significant packer profits, including a large spread between cattle price and boxed beef price, without additional culpable behavior
- Using marketing agreements to procure livestock without additional culpable behavior
- Refusing to buy certain types of livestock (e.g. dairy cattle) if there is a business reason behind the decision
- Closing packing facilities, even if fewer facilities reduces the competition for animals
How can I help?
Investigators would be best aided by concrete evidence of the violations listed above. The more specific and documentable, the better.
If you have information may be of value, please email it to firstname.lastname@example.org.
Opinion: LMA to Focus on Pricing Investigations
By Larry Schnell for Livestock Marketing Association
(May 1, 2020) – To say times are tough in cattle country would be an understatement. Livestock Marketing Association (LMA) member livestock auction owners and their producer customers are speaking up with significant concerns about volatility, the futures market, and especially, livestock producers not getting their fair share of the beef dollar. While COVID-19 and the Holcomb, Kan. packing plant fire last August are bringing these issues further to the forefront, they are illustrations of long-standing concerns regarding pricing and competition.
Livestock auction markets are an integral part of the process of price discovery, but our value is totally dependent on the success and profitability of the cow-calf producer, and the cattle feeder.
LMA supports the ongoing efforts by livestock organizations and individuals to bring about a pricing mechanism that would better serve the cattle feeder, and thereby the cattle producer. Our businesses are rooted in achieving competitive prices for cattle producers, and we want to see this occur throughout the beef supply chain.
To help bring that about, LMA is focusing on the investigations of the differential between the wholesale price of beef and the price that cattle feeders are receiving for their cattle. Beyond encouraging these investigations, LMA is conducting independent research and having additional discussions to pinpoint specific areas of concern for the U.S. Department of Agriculture, the Department of Justice, and hopefully, the Commodity Futures Trading Commission. This includes looking at futures market issues in addition to issues with fed cattle pricing.
The cattle industry needs answers regarding what is behind the dramatic spread between live cattle and boxed beef prices, and these investigations are critical in answering these questions. Our goal is long-term solutions that will address problems within finished cattle marketing, and a pricing mechanism that results in profitability for all segments of the industry.
These are uncertain times, and this is a difficult task. But with every challenge also comes opportunity. Consumer attention is on the fundamentals of life – and ready access to high-quality protein is one of them. Congresspeople are hearing from their cattle country constituents, and they want to help.
At LMA, we are dedicated to working with our legislative and industry allies for the betterment of the livestock industry and our consumer customers. If we focus on this, and we are successful, we’ll be setting up cattle producers to enjoy the good times and weather the tough ones for generations to come.
LMA Vice President
LMA Encourages Investigation of Beef Packers
(April 13, 2020) – The Livestock Marketing Association (LMA) is encouraged to see Secretary Sonny Perdue’s announcement that the U.S. Department of Agriculture (USDA) will be extending its oversight to determine the causes of divergence between boxed and live beef prices, beginning with the Holcomb, Kansas beef processing plant fire and now incorporating the COVID-19 pandemic.
LMA calls for the investigation of beef packers to be comprehensive and expeditious. It should consider all potential anticompetitive and oligopolistic issues. This investigation should also include Department of Justice (DOJ) participation.
From the beginning, LMA has supported USDA’s investigation into beef pricing margins, which was opened in August 2019 following a beef processing plant fire. At that time, LMA wrote to USDA encouraging the agency to conduct a thorough investigation of all facets of this issue and underlying forces. LMA urged that if unfair trade practices, price manipulation, collusion, or other violations of the Packers and Stockyards Act or antitrust laws were found, rapid enforcement actions had to follow.
LMA went on to point out that the market volatility following the Holcomb plant fire was “only one illustration of long-standing concerns regarding pricing and competition.” The LMA letter urged USDA’s investigation to analyze issues related to competition in a larger context than the fire, including looking at issues experienced due to lack of competition in the entire live cattle marketing complex.
Unfortunately, less than a year later, we still await the results of the initial investigation and the structural concerns are proving true once again. The cattle market in the wake of COVID-19 has responded similarly to how it did after the Holcomb plant fire. Once federal, state, and local authorities began instituting recommended and mandatory economic shutdowns in early March 2020, the cattle industry experienced a sharp decline in fed cattle and feeder cattle prices. At the same time, boxed beef prices skyrocketed. Consumers spoke volumes as evidenced by empty meat cases and high prices paid because they view our beef as essential for survival in this pandemic. The combination of these factors resulted in significant packer profit margins. All the while, livestock producers continue to receive a shrinking portion of the retail beef dollar paid by the American consumer. Additionally, a dramatically depressed futures market only worsens the pain by removing opportunities to manage price risk.
LMA is the national trade organization representing more than 75 percent of the regularly selling fixed facility livestock auction markets in the U.S. LMA also represents online and video marketing entities, and professional buyers: livestock dealers and order buyers. Our more than 800 livestock marketing business members each work with hundreds and even thousands of producers to utilize competitive markets to bring them the best prices for their animals. This adds up to hundreds of thousands of cattle producers served by markets.
Our industry needs producers, feeders, markets, and packers. It is critical that each of these sectors have a reasonable opportunity to make a profit during the business cycle, ensuring a healthy and sustainable industry. However, if anti-competitive practices are at play in one segment, it risks pushing participants in other segments out of business. The cattle industry needs answers regarding what is behind the dramatic spread between live cattle and boxed beef prices and if there is any illegal activity involved. LMA believes that coordination between the USDA and DOJ in conducting an investigation is one step closer to market transparency and participant confidence.