McDonald’s takes on big beef packers
McDonald’s, the largest beef buyer in the U.S., sued the big four meatpackers – JBS, Tyson, Cargill and National Beef Packers – on Oct. 4.
The four major beef packers dominate the beef packing industry.
“These four packinghouses control about 85 percent of the supply. They’re a player,” says Jerry Hawkes, interim vice president of academic affairs at Casper College.
The lawsuit
In the lawsuit, the fast-food giant accuses major processors of violating U.S. antitrust laws and claims since 2015, meat processors have conspired together to limit beef, creating an anti-competitive and artificial price increase, according to Grantham-Philips in the Associated Press article “McDonald’s sues top meatpackers for allegedly colluding to inflate the price of beef.”
Grantham-Philips also reports McDonald’s is seeking a trial by jury.
However, this is no new action against the major packers, as restaurants, wholesale food providers, grocers and ranchers have filed various lawsuits in the past.
Although some litigation remains pending, Grantham-Philips reports in Associated Press many past lawsuits have resulted in processors paying settlements but never admitting wrongdoing.
“This is not the first time these packers have had a lawsuit filed against them for anti-competitive behavior, so the situation is not new,” says Bailey Samper, assistant professor of agricultural business and economics at West Texas A&M University.
Long-standing
industry concerns
The allegations are part of a broader pattern of legal challenges tied to long-standing industry concerns.
“The lawsuits are directed to the same thing – the Sherman Act – collusion. It’s the same set of concerns we’ve seen in the poultry and the beef industry for decades,” Hawkes says.
Samper points out the market dominance by McDonald’s has the potential to affect the lawsuit’s outcome. The fast-food giant leads global food service, with over 38,000 locations in more than 100 countries.
Still, Samper highlights the intricacies of the beef industry. The industry is shaped by a multitude of factors which can influence market prices for beef products.
“Prices are determined by underlying supply and demand factors in the market,” she says.
Currently, those supply and demand factors are tipping.
“Right now, we see record-high cattle prices because we have the lowest beef cow inventory we’ve ever had. When you restrict supply, prices start to go up,” Samper says.
The pandemic and ongoing drought have also played a role in downsizing the national beef herd, Samper furthers. The COVID-19 crisis forced many producers to shrink herds, leading to a further reduction in supply. The biological cycle of cattle requires time to rebuild a herd, meaning cattle depletion still affects market prices.
While the lawsuit by McDonald’s claims the leading packers set artificially high prices, Samper notes natural supply and demand factors, such as low beef cow inventories, can also lead to price increases. She emphasizes the complexities of the beef market.
Consequences
close to home
Despite the lawsuit’s allegations of collusion and market manipulation, some producers are not on edge just yet.
“I’m not any more concerned with the packers today than I have been as a producer for a generation. They control the market, the supply and the flow of supply. But, there are bigger things facing the industry today,” Hawkes says.
Further, because of Wyoming’s unique cow/calf-focused beef industry, there is no immediate need for concerns from producers.
“One thing, we don’t finish very many cattle in Wyoming feedlots. We’ve got a couple, but for the most part, we’re shipping animals on to be finished elsewhere, so we’re not directly dealing with packers,” says Jim Magagna, executive vice president of the Wyoming Stock Growers Association.
While Magagna acknowledges the possibility of indirect effects on Wyoming producers, he notes any consequence remains limited.
“I don’t think we have seen an impact. There might be some secondary impacts, certainly, but not direct impacts that could easily be proved,” Magagna adds.
Despite the pivotal role McDonald’s plays in the industry, Samper suggests producers should not be alarmed just yet.
“Given how strong beef demand is here in the U.S., and especially on our export markets, I would not be concerned our supply chain is going to influence prices like that. I think our supply chain is more than resilient enough to handle something like this,” Samper says.
While the lawsuit raises important questions about market competition and price manipulation, this is not the first time the big four packers have faced pressure. Experts like Samper suggest the beef industry remains stable, driven by a variety of supply and demand factors.
Kassadee Lym is a corresponding writer for the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
