Corporate Management of U.S. Food Production and Consumption

 Commentary by Bill Bullard, CEO, R-CALF USA

We’re told we live in a capitalistic, free–market economy. Capitalism implies an economic system in which private owners control commerce for profit. A free–market system entails limited government control over a decentralized system in which individuals make economic decisions. 

So, the distinguishing feature of capitalism is private control of commerce, and for a free market, decentralization of that private control.

But we’re not in Kansas anymore.

Let’s look at Walmart. Reports say Walmart is creating an end-to-end vertical supply chain for beef. Walmart will control genetics, the cattle from birth and through feeding and slaughter, and will then sell its beef to customers in its own grocery stores. 

So, the nation’s largest grocer is reportedly creating a closed, vertically integrated system for which it touts new jobs and new marketing opportunities for ranchers.

Some ranchers will be able to participate in this closed, vertically integrated system by invitation. In other words, Walmart is in control of production and consumption, which can influence the price of both cattle and beef. 

Walmart will function as a capitalist in that it will have private control over its beef commerce. But Walmart will not be contributing to our free–market economy, as its vertically integrated system is not decentralized–it is highly centralized, and only Walmart will have the power to make decisions along its entire beef supply chain.

Clearly, in Walmart’s closed, vertical system, it will control production levels, and by varying the retail price of its beef, it can control consumption. It can increase the price of its retail beef if it wants customers to buy more chicken or pork, and vice versa. Walmart is certain to have very sophisticated formulas to maximize Walmart’s profits, likely with little regard for the profitability of ranchers. 

And lest we forget: If consumer demand remains strong during this period of short supplies, Walmart will decide the volume of imports it will source to a) keep its customers coming back and b) maximize its profits. 

See, we’re not in Kansas anymore. 

Walmart is substituting competition with a corporate command-and-control management regime. It will reduce competition in America’s calf market, yearling market and fed cattle market. 

Because this closed, vertically integrated system will reduce competition, we believe it should be investigated for possible antitrust violations. 

And think about this: Walmart is carving out for itself a share of the broken U.S. cattle market–it is a microcosm of what’s been going on in our cattle and beef industries for decades. 

You see, the dominant beef packers have been positioned to impart corporate management over the entire beef supply chain. Here are the factors that give the dominant beef packers managerial power:

The U.S. cattle industry underproduces for the domestic market, and yet the beef packers–by virtue of four of them controlling 80% of fed cattle slaughter–can control production by either increasing or decreasing slaughter.

Consider the hypothetical where dominant packers decrease slaughter in the face of strong beef demand. If they can maximize profits by exporting more beef, they can choose to do so–even if that further tightens domestic beef supplies. But the dominant packers can also choose to import cheaper beef from around the world to buoy up domestic supplies and then sell that cheaper imported beef as if it was produced by domestic cattle. 

But of course it wasn’t, and the imported substitutes can effectively reduce demand for domestic cattle, which lowers the price for domestic cattle–even while beef demand remains strong. 

In our industry, where we persistently underproduce for the domestic market, if we grant to the dominant packers the power to satisfy the shortfall in supplies with cheaper imports–which arguably is more profitable for them than if they purchased and produced the beef from domestic cattle–and if we grant them the power to freely export regardless of the supply situation in America, aren’t we handing the dominant beef packers the power to manage our domestic beef supply chain?

Isn’t that what’s happening now? We have incredibly tight domestic supplies and historically high imports, and the dominant packers and their allies are pushing the Trump administration to grant them more export access. If they sell more exports, they can simply increase imports, depriving the domestic industry of the opportunity to rebuild, expand, and attract new entrants. 

We want to take managerial power away from the dominant packers and substitute corporate power with competitive market forces that will incentivize our industry to rebuild and expand so America can become self-reliant in beef production. 

To do this, we must differentiate imported beef with a country-of-origin label, we must impose meaningful tariffs on imports, and we must enforce our U.S. antitrust laws.


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R-CALF USA’s weekly commentary educates and informs both consumers and producers about timely issues important to the U.S. cattle and sheep industries and rural America. 

 

Ranchers Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF USA) is the largest producer-only trade association in the United States. It is a national, nonprofit organization dedicated to ensuring the continued profitability and viability of the U.S. cattle and sheep industries. Visit www.r-calfusa.com or call (406) 252-2516 for more information.


R-CALF USA | PO Box 30715, Billings, MT 59107 

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