The four largest meat processors in the US are enjoying record profits this year leading President Joe Biden to call out a lack of competition in the sector. The Biden-Harris administration points to alarming rises in the cost of meat for American consumers with the price of beef rising by 14.0%; pork by 12.1%; and poultry by 6.6% since December last year.
Meanwhile gross profits for some of the leading beef, poultry, and pork processors are at their highest levels in history. A report from the US government states that Q1 2021 and Q2 2021 were the most profitable quarters in history for some of these companies.
As a result the US government has raised concerns about the level of market concentration. Tyson Foods, JBS USA, National Beef and Cargill control approximately 55-85% of the market – allowing producers to drive down earnings for farmers and ranchers.
This ‘squeeze’ on consumers and farmers to generate record profits at a time when taxpayers have injected significant capital to shore up the meat processing industry during the pandemic is no longer politically palatable.
The Biden-Harris administration had pledged to take ‘strong actions to crack down on illegal price fixing, enforce antitrust laws, and bring more transparency to the meat-processing industry’, and will support smaller processors and improve market transparency.
PIRC has been focused on the challenges associated with market concentration over the past two years. On the one hand shareholders might benefit from inflated profits, yet for the responsible investor there are issues around the exercise of market power that derives from concentration on workers and suppliers.
As we’ve highlighted previously, concentration isn’t just an issue for industries; it also applies to ownership, and we’re seeing continued public policy interests in this topic.
For example, the Australian government has launched an inquiry into the implications of common ownership and capital concentration to better understand the impact of the fund industry’s domination of the Australian stock market. Huge amounts of Australian equity are held by the AUSD 850 billion industry superannuation sector and index funds operated by BlackRock and Vanguard.
Just like the US administration’s fear for the meat processing sector, the Australian government is concerned that such control in the hands of the few leads to competitive behaviour which causes harm to workers and consumers.