Where's The Beef??? A Market Expert Weighs In

“It’s true it is long overdue there should be a study of the functioning of the sector in Canada and how that is effected by international trade flows,” Professor Jared G Carlberg University of Manitoba.

By Robert Thomas

Part Six Of A Series

Dr Jared G Carlberg is an agricultural economics professor with the University of Manitoba who has spent a majority of his academic career looking into cattle and beef pricing.

He has written numerous reports on the economics of the cattle industry and been hired a s a consultant to do research and give an opinion regarding mergers within the meat packing sector. Dr Carlberg spend close to an hour speaking to MJ Independent on the phone about the industry, its problems and what might be the solutions.

He has co-authored such works with Rude, J., D. Harrison, and J. Carlberg. "Market Power in Canadian Beef Packing." Canadian Journal of Agricultural Economics 59(2011): 321-336. Which looked at the market influence fewer and larger packing firms had on the beef industry.

Dr Carlberg said the concentration of too few players is a double edged sword. The larger but fewer megaplants are suppose to be more efficient but at the same time large firms can use their influence in the marketplace to eliminate competitiveness to maximize profit.

“That’s the concern,” he said about too few players operating processing facilities and thereby exerting too much competitive control.

Professor Carlberg said he had recently visited his PhD advisor Dr. Clem Ward who in 1988 literally wrote the book - “Meatpacking Competition and Pricing” - which looked extensively into the industry pricing who concurred about the skewed cattle markets. And the concerns are warranted.

He called the beef processing industry an oligopoly.

An oligopoly is where there are only a few players in an industry and because of that they control pricing and supply almost as a monopoly would.

It leads to the lack of competitive pricing and a lack of information about the actual market, Professor Carlberg said.

The opportunity for too few players in the marketplace to exert major pressure to skew the laws of supply and demand as well as potential collusion amongst players is a concern in markets which are an oligopoly, he said.

“Approximately 20 years, or maybe a little bit before that, they brought in mandatory price reporting in the US because they had these concerns for many years.”

Professor Carlberg said the consolidation in the processing industry has had a major impact on the competitiveness and pricing at the slaughter, processor and packing level.

“There is an old saying in industrial organization (the field of economics which studies competition, or lack there of in industry) which says when it comes to competition four (firms) are few and six (firms) are many. The point of that it does not take much of a change from a lot of firms to a few firms to have a great impact on the degree of competitiveness,” he said.

The consolidation of the industry may have seen the development of efficiencies through economies of scale but at the same time the fewer and now larger players have put pressure on smaller processors.

“With a really considerable concentration in the federally inspected beef packing sector with the struggles there are to succeed as provincially inspected packer because if is so difficult to compete with the big boys especially internationally.”

Calves reach through the fence to get the new and tender green grass that has sprouted as a resulted of recent rains - MJ Independent photo

Asked for his how opinion on the market forces given there were 57 processing plants in 1974 processed 88 percent of the beef to the three plants of today which process 85 percent of the federally inspected beef Carlberg said it points to a lack of competitive forces.

“That is really, really what you would call it on the surface really strong on the surface or circumstantial evidence (of decreasing competition),” he said.

Professor Carlberg pointed to problems in ascertaining the true nature of the markets because there is some raw reporting of costs to Statistics Canada but the data itself is incomplete, no firms are identified and the way it is stored and catalogued makes it difficult to draw accurate conclusions.

“It is always a very gross complicated process because the data isn’t very good that there is nothing going on but we all know there really is.”

He compared the way the beef processors set prices similar to what is happening in the retail gasoline sector where there is allegedly competition but in reality that marketplace is not and all filling stations have the same price.

“It is suppose to be competitive but surprise, surprise gasoline prices go up every long weekend.”

Professor Carlberg agrees there needs to be an investigation into the slaughter cattle/beef pricing sector.

“It’s true it is long overdue. There should be a study of the functioning of the sector in Canada and how that is affected by international trade flows,” he said, adding the cattle markets in Eastern Canada were not the same as in Western Canada because the trade does not flow east and west but rather north and south.

“You can talk about Canada as a whole but really it is an international market.”

Where Canada exports and imports beef originate - SOURCE

At the present time the Biden Administration is taking action to help encourage the development of smaller regional packing plants and thus more competitive pricing in the industry.

Additionally President Joe Biden has met with American cattle producers and ranchers going on to state the beef pricing market from the concentration of slaughter/packing facilities gives the few players to much market control.

“It is a interesting case for sure but it would be very difficult for any logical conclusion to be made that there is not anti-competitive aspects due to the highly concentrated sector,” he said.

Asked if the highly concentrated nature of the packing industry does not give Canadian beef better international market access than if more firms were marketing internationally Professor Carlberg said no.

“I don’t think it would necessarily matter,” he said.

“I don’t think it creates greater access for us in the US because those products can go south through a series of smaller packers. I think it is a real question as to subsidizing or making it more attractive to smaller packers to be successful.”

Mergers and consolidation in the meat packing industry is argued for by industry players as a means to take advantage of economies of scale.

Economies of scale are where larger firms can produce something cheaper by being more efficient. Efficiencies can be found in the meat packing industry through moving production lines and added automation.

“What the Competition Bureau has been doing is allowed mergers because there are greater efficiencies argument. A bigger firm we clearly know can produce something at a lower cost per unit,” he said, adding “that is the positives. We get higher levels of concentration with few large firms and costs go down.”

The problems arise when firms take advantage of the oligopoly situation they are in.

“In theory they can pass those cost savings on to consumers. The problem is obviously the more market power you have the greater opportunity to there is to restrain supply and effect prices. And so you have those two balancing factors going on,” Professor Carlberg said.

Dr Carlberg saw the opposite of the 1976 Commission of Inquiry into beef and veal pricing that larger plants were seen as more hygienic than smaller plants. The issue comes down to a change in attitude when it comes to such things as food recalls, he said.

“But I think there is such an interest these days in the traceability of food and locally supporting producers in your province and area that there could be a case there is an opportunity there without having to just export everything.”

“I think there is probably an opportunity for some specialized product but I don’t there has been a huge amount of research done on it,” he said.

Asked about the US marketplace being the most important export market for Canadian cattle and thus the US’s share of the market in fact sets prices north of the border Dr Carlberg said that is not always true.

“I think we are one component of a big beef and cattle market. I don’t think it is safe to say we are only off of the US market. There is a single (North American) market that US largely comprises. Prices are based off of futures markets which in turn a function of expected supply and demand for not only cattle but inputs for cattle.”

Despite the US being the world’s number one beef producer of beef - 20.5 percent of the world’s production in 2020 - and Canada being number 11 on the list of top beef producers world-wide he said the Canadian market itself is large enough to have an effect on the market.

In 2020 Canada exported 937 million pounds of beef or 47.4 percent of the total beef cattle in Canada. Canada imported 417 million pounds of beef in 2020.

On a net basis 33 percent of Canada’s beef and cattle production was exported. The total value of exports is estimated to be $3,26 billion in 2020.

Asked if the beef processing industry needed “the Standard Oil treatment” where the oligopoly is broken up by government intervention and legislation he said such action today is unlikely.

In 1906 the US government took anti-trust action against Standard Oil - due to its near monopoly position - and forced its breakup in 1911.

“I think in those days there would be far less ability of those companies to tie that plan up in a long legal process. So I don’t think in general specifically for the beef sector that it is a large enough problem affecting enough people in a significant amount to in a way the government would take significant anti-trust action like that.”

“The best we could maybe hope for if there could be the incentivization of some smaller regional plants with more famer and rancher ownership.”

In the United Stated the Biden Administration announced such a program in early 2022 whereas in Canada there is no dedicated program to encourage the development of regional beef processing plants.

He said there needs to be a greater amount of information flow to consumers about actual beef prices to build better confidence in the system.

“I think to if there was greater transparency of price levels so there was better confidence (from consumers) For example if a steak was going to be AAA and $21 a pound there would be somebody to say yeah that steak is 21 bucks (per pound) but everything is a function of inflation, because of monetary policies but also corn is expensive, inputs are expensive but even at $21 (a pound) packers aren’t making that much money it is within what we consider a reasonable rate of return on the capital invested.”

“Information is a very good thing. Firms of course they play a very straightforward game. They try to restrain the flow of information because information tends to illustrate yeah they do make money…but if firms use market power to make excessive amounts of profit at the cost to consumers especially now in high inflation times we do restrain the costs of other important consumer goods like chicken, eggs and dairy.”

A small herd of cattle turned out onto grass (pasture) for the summer near Moose Jaw - MJ Independent photo

In the 1975 the National Farmers Union called for supply management in the beef industry but the request was soundly rejected by all other players in the industry - producers, packers and retailers.

Urges Move To Cooperatives

Professor Carlberg said he would like to see emphasis and efforts placed on smaller producer owned cooperatives to process and market beef as a way to put more money into producers’ hands.

“All I am pondering when it comes to food and when it comes to controlling the cost if what we can do just stopping short of supply management we could embrace increased scrutiny and transparency so we know exactly who is making money and where that might be a step in the right direction,” he said.

He spoke about smaller beef processing cooperatives that once existed in the United States and the impact they had on producers’ incomes.

“They were targeted to help farmers capture some of the downstream costs of their commodities. People look back on that time to 25 years in the rearview mirror and say ‘oh none of them worked’ and succeeded but when I talk about not solving it through supply management…but things like encouraging investment in beef processing so farmers can be ranchers and feedlots be the ones capturing some of the value. There are not particularly expensive things.”

He said there needs to be government assistance to get the ball rolling and see investment. It is the path the Biden Administration is now taking in the United States.

“Government could give direct incentives and capital investment to small regional plants but other things as well such as tax forgiveness to encourage the development of regional players.”

He said some in Canada might say that if investments in smaller regional plants received subsidies through tax credits concerns would likely be raised without realizing that “money might come back ten times over.”

“Governments always look at it and say ‘oh that is our money so how can we give up some revenue and why would we give a tax break we have got to have that money. Whereas they traditionally lack the ability to see the bigger picture that those dollars would come back many times over by creating jobs and stimulating investment in local economies.”

Dr Carlberg sees governments helping out as a way to help bring more dollars into producers and small communities’ pockets.

“Certainly provincial and municipal governments should be doing everything they can to support and really bending over backwards with legislation and tax forgiveness to help keep people in local communities and help farmers capture a lot more of those dollars that are so important.”

Professor Carlberg is a three time Canadian beer brewing champion and as such used that industry as an example of how smaller - and less efficient plants - can produce a product that is more expensive to make but is of better quality and also has a large local or regional following.

“I remember when I was young every city had a brewery and it moved to where we can have these big breweries and have beer cheap and you can’t argue against the economies of scale. But then a funny thing happened. It happened with coffee first and then it happened with beer people took a greater interest in what they were drinking they didn’t just want to have that standard lager their dads and their grandpas had been drinking.”

The aspect of locally produced is something which could be used to attract local consumer loyalty and repeat purchases.

Cattle in a pen at the Moose Jaw Exhibition Grounds. A few local farmers rent their livestock for events at the Golden Mile Arena and are paid for it. It is one unique way of putting a few more dollars in a producer’s pocket - MJ Independent photo

“Having those smaller plants certainly eliminates the efficiencies of scale, and it works against the idea of cheap food in this era of cheap food…but I do know if you go into the Carnduff Co-op or the Estevan Co-op and it is from a local farmer you might be willing to pay a little bit more for it. You might be a little bit less inclined to be upset with the prices given it was produced locally,” he said.

Another area with the rise of any local or regional packing plant - although smaller - is there would be reduced costs for fuel.

In an era of concerns about global warming the fact there would be less carbon produced by no shipping to a large plant and then shipping the finished product back could be a selling point as it is in vegetables at local markets, he said.

“One way or another I think there is there opportunity to eat local and consumers to pay a little extra and in that way get some more dollars back into farmer’s pockets.”

Jason Kenney visits the JBS Brooks, Alberta facility during the 2018 election campaign. The plant is seen as a major economic driver for the province - photo credit Twitter

Professor Carlberg said he was aware of failures in trying to create local processing co-ops but what existed in the past - local abattoirs and butchers shops selling locally produced meat - is the way of the future for producers and not the past.

“I know there has been some expensive failures and some lessons learned so people are hesitant. So we have got to try to find the will to do something or just shake our heads and be happy with the way things are.”

It needs to be noted in 1976 the Federal Commission of Inquiry recommended moving towards consolidation and doing everything - including the cutting into prepared meat cuts (commonly known as boxed beef) - at large plants instead of at a retail butcher shop.

“The potential is there because the unintended consequence was of all these big plants and economies of scale and all of those savings mostly haven’t gone back to consumers,” he said, adding “they have gone to somebody in a board room somewhere. And that is what it is. They haven’t gone into consumers’ pockets. They haven’t gone into farmers’ pockets. So that only leaves one other party in the supply chain where those profits might be.”

He described the move back to an era of more plants as a “frightening prospect”.

“It is going to take some help. It is going to take some creativity and it is going to take some will on part of ranchers, feedlots and governments and everybody else. But I would like to see something work there.”

He reiterated the concerns and difficulties starting up smaller regional processing cooperatives but said with the price of cattle not increasing to benefit producers while the price of beef is at record highs at the retail level what other choice is there.

“It might be difficult to start but you have to look at the situation now that is clearly not working for people in the industry. Somebody is making money, steaks are expensive…but boy oh boy I don’t think the increase in the price of cattle has kept up with the increase in the price of steak.”

NEXT - Where’s The Beef??? A Local Co-op Set To Challenge Status Quo