FORT COLLINS — A sea of cream-colored cowboy hats, the kind ranchers wear on their days off, fills a conference room at the Fort Collins Marriott. Banners from groups like the Ranchers-Cattlemen Legal Action Fund and the Western Organization of Resource Councils add bright slashes of color, and warn that JBS, the world’s largest meatpacker, now controls 24 percent of all cattle produced in the United States.
It’s August 2010, the night before a national workshop on competition in the livestock industry, and well over 500 ranchers, feedlot owners and their allies are packed into this room.
They’re harassed by many demons: Land, feed and fuel costs have all soared. Health-conscious consumers disdain red meat; environmentalists regularly sue over grazing practices. Retail giants like Wal-mart grab an increasing share of any profits. The price a rancher gets for beef, adjusted for inflation, dropped from $1.97 to 93 cents per pound between 1980 and 2009.
Today, though, the ranchers are focused on a different villain, and one after another, they talk about the meatpackers’ power — how it’s become nearly impossible to make a living as a small operator, because the meatpackers no longer buy much from small operators. It’s harder to get a fair price for cattle, they say, and the meatpackers that slaughter and process the beef conspire to make it so.
Bill Bullard, president of the Montana-based Ranchers-Cattlemen Action Legal Fund (R-CALF), rallies the crowd. “Our cattle industry is shrinking,” Bullard booms. “Folks, these are signs of an unhealthy industry, an industry in severe crisis.” He’s one of many who raise the specter of the nation’s chicken and hog industries, in which once-independent farmers are now treated more like meatpackers’ employees.
Close to 2,000 people show up at the next day’s workshop, held at Colorado State University and sponsored by the U.S. departments of Agriculture and Justice. Agriculture Secretary Tom Vilsack fields questions about the meatpackers and cites a grim statistic: The number of U.S. cattle producers has plummeted from 1.6 million in 1980 to 950,000 today. “We can’t continue these trends,” Vilsack says, “because if we do, we’re going to end up with a handful of farmers, a handful of packers, a handful of processors, a handful of grocery stores, and at that point, the consumers will suffer as well.”
It’s a chord that twangs mournfully throughout U.S. agriculture, as a traditional rural way of life appears to take its last breaths. But the ranchers haven’t given up hope. In fact, many speakers thank the Obama administration for showing more guts than previous administrations — Democrat or Republican — and finally standing up to the meatpacking industry.
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Mergers in the 1980s began a tidal wave of consolidation that leaves meatpackers with nearly double the power they wielded 120 years ago. Four giant companies — Tyson, Cargill, Brazil-based JBS and National Beef — now control about 80 percent of the U.S. beef market.
In 2008, more than 200 ag groups and a bipartisan bunch of senators from cattle and hog states — Jon Tester, D-Mont., Ben Johnson, D-S.D., Dennis Harkin, D-Iowa, and Chuck Grassley, R-Iowa — persuaded Congress to crack down on meatpackers. Language inserted in the Farm Bill directed the Department of Agriculture to devise new rules that establish more clearly when the Packers and Stockyards Act is being violated. The USDA’s Grain Inspection, Packers and Stockyard Administration (GIPSA) proposed rules last June, and the feds are evaluating more than 60,000 public comments.
The meatpackers’ power derives from the industry’s structure, which resembles a pyramid. At the bottom are the “cow-calf” producers — mostly hundreds of thousands of mom-and-pop operations. They’re the ranchers who cope with feeding and calving in the depths of winter, graze their cows on private pasture and public lands in the summer, and then round them up for sale, either to a feedlot or to a “backgrounder” who fattens them up for resale to a feedlot. The feedlots typically keep the cows for only a few weeks of a get-fat-quick diet and then sell them to the meatpackers. There’s just a brief window of time when the cattle can be sold at their prime — and that gives the meatpackers leverage.
Randy Stevenson, who owns Double S Livestock LLC, a 6,000-cow-capacity backgrounding operation in Wheatland, Wyo., says he’s felt the packers’ power. From 1985 until a few years ago, he ran a feedlot, but his meatpacker troubles led him to switch to backgrounding, where he can sell to feedlots instead of packers. “I got educated on this out of necessity,” says Stevenson.
Beginning in the 1990s, Stevenson explains, the number of cattle buyers coming to his feedlot dropped to the point where he’d have just one stopping by once a week. That made it impossible for him to bargain among buyers and get the best price for his cattle. One time a few years ago, a lone “field buyer” stopped by and offered $1.03 per pound for the four truckloads of cattle on Stevenson’s lot. Stevenson says he tried to negotiate by offering to throw in five more truckloads if the buyer could offer $1.04. The buyer went back to his office to call his boss and ask if he could bid higher. Then he called Stevenson. ” ‘Well, what’d [the boss] say?’ ” Stevenson asked.
” ‘Tell him to go to hell,’ ” said the buyer.
The boss had gotten so angry that he dropped his offer a half cent per pound, Stevenson says. And since he had no one else to sell to, that was the price he ended up taking.
It’s “economic waterboarding,” says Stevenson. The impacts are obvious: 30,000 small feedlots have closed in the past 15 years, says R-CALF’s Bullard.
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Cattlemen have another word for what’s happening: “chickenization.”
More than 90 percent of all poultry in the U.S. is now raised by growers who don’t own the birds or negotiate basic terms like price per pound. Over the past 50 years, chicken packers (known as integrators) like Tyson, Perdue and Pilgrim’s Pride have talked chicken farmers into signing contracts that lock them into a relationship, rather than selling and buying birds on the open market. Over time, as the big poultry packers gained control of the majority of chickens raised in the U.S., the terms of the contracts deteriorated.
Many chicken farmers these days are forced, contractually, to invest hundreds of thousands of dollars in chicken houses that meet ever-changing packer specifications for feeding systems. Farmers often start off with five-year contracts and invest based on the assumption they’ll be in the business long-term. After the initial contract period, though, poultry packers sometimes shorten contracts to a year or even a few months, putting more pressure on the farmers to cooperate.
It’s a perfect system from the poultry packers’ perspective: The chicken farmers take on the risk and the capital investment, and the packers can cancel their contracts at almost any time. Many chicken farmers complain about take-it-or-leave-it contracts and financial promises that never come true. But if they protest or look for a different buyer, retaliation may follow in the form of contract termination.
That’s what it means to be chickenized. And hog farmers have experienced the same.
With fewer buyers to sell to, more and more feedlot owners are accepting packer-offered advance marketing agreements, which guarantee they can sell their cattle. It seems much safer than waiting for a buyer to come around — or not — and watching cattle get overfat and decrease in value.
The big meatpackers already have a lot of cattle locked up through these advance contracts; the cash market now makes up less than 40 percent of the total market. And the meatpackers are paying less than they used to for cows on the cash market, because they don’t need those cattle as much anymore, Taylor says.
Mike Callicrate, a Colorado rancher and feedlot owner, is a leader in the fight against the big meatpackers and the trend toward advance marketing agreements in the beef industry. In 1996, Callicrate was one of five ranchers who challenged a meatpacker with a class action lawsuit in federal court in Alabama. In Pickett vs. IBP (now Tyson), they charged that the company violated the Packers and Stockyards Act by distorting prices on the cash market and paying ranchers less than their cattle were worth. The five ranchers sought damages for themselves and all the cattlemen allegedly injured by IBP’s market manipulations.
In 2004, Callicrate’s side won the Pickett case. Jurors awarded $1.28 billion to the class of ranchers who had been injured by the company’s market manipulation. But U.S. District Judge Lyle Strom, a Reagan appointee, vacated the ruling and ordered the ranchers who had brought the case to pay Tyson’s court costs, under the rationale that the Packers and Stockyards Act applies only if the damage caused by Tyson’s market manipulation meets the standard antitrust definition of injuring marketplace competition as a whole. Similar verdicts by other judges have stymied lawsuits by other cattle ranchers and poultry farmers — spurring demands for a clearer interpretation of the act in favor of ranchers.
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The Obama administration’s proposed GIPSA rules are especially geared toward the poultry industry, making it illegal for packers to retaliate against poultry farmers who speak out about unfair contracts, and making the payment system more transparent. But cattlemen are also optimistic. If the rules are finalized as written, they would make it clear that any action by a meatpacker to manipulate or wrongly depress prices paid to any individual producer would count as competitive injury, thus making market manipulation illegal regardless of whether it affects one rancher or all of them.
Yet while many ranchers and small-feedlot owners are cheering the reforms, some experts believe the real cause of the cattlemen’s pain is the notion that “bigger is better.” This ambivalence was reflected in Fort Collins, where about a third of the cattlemen voiced opposition to the reforms.
Rich Sexton, an agricultural economist at the University of California-Davis, says the meatpackers’ marketing contracts increase efficiency by minimizing the transaction costs embedded in the old system, in which many cattle buyers roamed across rural landscapes bidding on small lots of cattle. Sexton not only believes the proposed GIPSA rules would increase inefficiency, he also says that the packers would quickly circumvent the rules anyway.
“I can pretty much guarantee that if these things get put into place, there will be a nightmare of unintended consequences,” says Sexton.
And the USDA’s James MacDonald, an economist who studies the effects of concentration, doubts that the new GIPSA rules or similar interventions would impact the marketplace enough for most cattlemen to even notice. The average feedlot size is growing mainly due to economies of scale, he says, and none of the other factors threatening cattlemen will disappear under the proposed GIPSA rules.
“All of these are probably inexorable trends,” Sexton says. “They are good in that they drive some costs out of the system, and they are bad because they leave some people behind. . . . People will leave, and the communities that rely upon agriculture as a primary industry are going to be affected.”
The American Meat Institute, which represents 95 percent of the red-meat packers in America, says the new rules are supported by cattlemen who are stuck in the mentality of the past — the days when they could make money without having to market their beef aggressively. Yet many reformers say the GIPSA rules are still not tough enough on the meatpackers. Not only would the rules not prevent packers from owning cattle, they also wouldn’t address the basic, insurmountable fact that four meatpackers now control almost the entire marketplace.
“We didn’t get into this predicament overnight, and we’re not going to fix it overnight, either,” says R-CALF’s Bullard. He and his allies have petitioned the USDA to strengthen the cash market for cattle and limit the amount of captive supply packers can lock up, and also prohibit the largest packers from owning cattle. • • •
On a blustery gray February day, Norm Smith, a rancher near Paonia, drives his Ford F-110 to a high pasture near the Gunnison National Forest. Smith, 61, is too busy working the land to get involved in politics. He’s stayed out of the GIPSA fight, and even though he’s worried about the meatpackers’ power, he also distrusts the government’s ability to fix the problem without making things worse.
“I don’t think any of us understand the market,” Smith says. “I know that the large concentration is bad. . . . There’s been situations where those large packers have blacklisted feedlots. . . . I hope that’s what [the GIPSA rules are] used for — to crack down on people who are abusing the system.”
Smith owns 2,300 acres, runs about 150 head of cattle and sells to feedlots as far away as California. His father was also in ranching.
When Smith moved up here in 1959, every house belonged to a rancher; every part of the landscape was worked. “I’m the last one left out here who is in agriculture,” he says. “This guy over here has 77 acres [for sale] for a million-two. I mean how can you ever, ever, get into agriculture? It’s really disheartening.”
Soon it will be time for Smith to sell his yearling cattle. This year, he expects a good price. Smith will be able to make a living raising cattle for a while longer. But it seems that no one else on this mesa is even trying to do so anymore.
Stephanie Paige Ogburn is High Country News’ online editor and lives in Paonia. For the full version of this article, go to .
