BEEFING UP COMPETITION: EXAMINING AMERICA'S FOOD SUPPLY CHAIN
Summary
Transcript of the hearing "Beefing Up Competition: Examining America's Food Supply Chain" before the Committee on the Judiciary, United States Senate, on July 28, 2021, Serial No. J-117-31. Chair Richard J. Durbin presided over the hearing on competition and consolidation in America's food supply chain, specifically in the beef industry. Chair Durbin said the hearing was at Ranking Member Grassley's request and that the witness panel included representatives from farm to table. Senators present included Klobuchar, Lee, Cruz, Hawley and Cotton. Additional submissions include statements from the National Grocers Association, the North American Meat Institute and the Family Farm Action Alliance.
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“BEEFING UP COMPETITION: EXAMINING AMERICA'S FOOD SUPPLY CHAIN.”
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[Senate Hearing 117-830]
[From the U.S. Government Publishing Office]
S. Hrg. 117-830
BEEFING UP COMPETITION:
EXAMINING AMERICA'S FOOD SUPPLY CHAIN
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
JULY 28, 2021
__________
Serial No. J-117-31
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
54-738 WASHINGTON : 2024
COMMITTEE ON THE JUDICIARY
RICHARD J. DURBIN, Illinois, Chair
PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa, Ranking
DIANNE FEINSTEIN, California Member
SHELDON WHITEHOUSE, Rhode Island LINDSEY O. GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
MAZIE K. HIRONO, Hawaii BEN SASSE, Nebraska
CORY A. BOOKER, New Jersey JOSH HAWLEY, Missouri
ALEX PADILLA, California TOM COTTON, Arkansas
JON OSSOFF, Georgia JOHN KENNEDY, Louisiana
THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Joseph Zogby, Chief Counsel and Staff Director
Kolan L. Davis, Republican Chief Counsel and Staff Director
C O N T E N T S
----------
OPENING STATEMENTS
Page
Durbin, Hon. Richard J........................................... 1
Grassley, Hon. Charles E......................................... 3, 8
Klobuchar, Hon. Amy.............................................. 4
Lee, Hon. Michael S.............................................. 6
Cotton, Hon. Tom................................................. 8
Sasse, Hon. Ben.................................................. 9
WITNESSES
Larew, Rob....................................................... 11
Prepared statement........................................... 47
Responses to written questions............................... 122
Miller, Shane.................................................... 13
Prepared statement........................................... 67
Responses to written questions............................... 126
Schaben, Jon..................................................... 9
Prepared statement........................................... 80
Responses to written questions............................... 131
Schellpeper, Tim................................................. 14
Prepared statement........................................... 100
Responses to written questions............................... 133
Slover, George................................................... 18
Prepared statement........................................... 102
Questions submitted with no response returned................ 121
Smith, David..................................................... 16
Prepared statement........................................... 111
Responses to written questions............................... 139
ADDITIONAL SUBMISSIONS
Bloomberg Statement, July 26, 2021............................... 150
Bullard, Bill, CEO, Statement, July 28, 2021..................... 143
Family Farm Action Alliance Statement............................ 193
National Grocers Association (NGA) Statement..................... 169
North American Meat Institute (NAMI), July 28, 2021.............. 152
Organization for Competitive Markets (OCM) Statement, July 30,
2021........................................................... 148
BEEFING UP COMPETITION:
EXAMINING AMERICA'S FOOD SUPPLY CHAIN
----------
WEDNESDAY, JULY 28, 2021
United States Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 2:30 p.m., in
Room 226, Dirksen Senate Office Building, Hon. Richard J.
Durbin, Chair of the Committee, presiding.
Present: Senators Durbin [presiding], Klobuchar,
Blumenthal, Hirono, Booker, Ossoff, Grassley, Lee, Cruz, Sasse,
Hawley, and Cotton.
Also present: Senator Hyde-Smith.
OPENING STATEMENT OF HON. RICHARD J. DURBIN,
A U.S. SENATOR FROM THE STATE OF ILLINOIS
Chair Durbin. Good afternoon. The hearing will come to
order.
Today's hearing is on competition and consolidation in
America's food supply chain, specifically in the beef industry.
Our witness panel includes representatives from farm to table
and from cow to consumer.
I might note that the Ranking Member has a cow lapel pin
with the flag of State of Iowa on it. He is properly attired
for this hearing.
We'll have an important conversation about ensuring
competitiveness and fairness in the marketplace for family
farmers and ranchers while also maintaining access to sale--
safe, healthy, affordable food.
This hearing is at Representative--pardon me, at the
Ranking Member Grassley's request. I joined in willingly and
brought in Senator Klobuchar, who was also anxious to be part
of this because of her great work on the Antitrust
Subcommittee.
We're going to discuss challenges facing each link in the
beef supply chain: farmers, producers, packers, grocers,
consumers, and to elevate the concerns of many Americans about
the cost and availability of food particularly during this
pandemic.
Once again, thanks to Senator Klobuchar for her important
Committee--Subcommittee on Antitrust and Consumer Rights--and
the Ranking Member, Senator Lee, who I saw speaking on the
floor as I walked in. So he may join us soon.
This Subcommittee, under Senator Klobuchar, has held a
series of hearings on the Nation's competition policy. Already
this year they've had hearings on prescription drugs, smart
home technology, hospitals, mobile app stores.
They've helped ignite a national conversation on antitrust
and a best-selling book. In industry after industry, they've
identified opportunities to make markets more competitive and
transparent.
Senator Grassley, Senator Klobuchar, and I serve on the
Committee on Agriculture as well. We represent three States in
the Midwest where our farmers and ranchers play a big role.
Over the past century, our agriculture sector has served as
a foundation of the most productive and efficient food supply
on earth. That is the genius of American innovation. Despite
droughts, floods, pandemics, and other disruptions, we continue
to produce an abundance of food and not only feed our people,
but we feed the world.
Yet, the COVID-19 pandemic, where there have been problems
with supplies, wasted crops, and shifts in consumer spending
have shown a bright light on the cracks in our food system that
need to be addressed. We're here today about how the pricing
system in livestock must be structured to encourage quality and
efficiency but also fair, transparent, and competitive.
We must support food producers large and small, start by
addressing the barriers that prevent small farmers and
livestock producers from thriving in the marketplace. We'll
learn about the dangers of consolidation and market
concentration, especially in the beef processing industry,
where just four companies control about 80 percent of the
national market.
There will be discussions about keeping business costs
down, but those efforts must also preserve and strengthen a
safe environment and livable wages for workers. I actually
worked in a meatpacking plant. I won't give you--it's a
heartbreaking story. I won't give you that story again. I did
once, that's enough. I'll just tell you that I understand a
little about this process from personal experience.
Senator Stabenow, the Chair of the AG Committee, has been a
leader in this area. She introduced the Food Supply Protection
Act, which I cosponsored, authorizing financial assistance to
help expand capacity at smaller, regional levels.
Already we've made some progress and expanding support for
these farmers and producers. The December COVID package and the
American Rescue Plan included funding.
Secretary Vilsack has announced the USDA plans to invest $4
billion into our food supply chain, which will include millions
of dollars in grants to develop and expand meat processing.
There's more to do.
We had a hearing yesterday on ransomware. We all know that
one of the major suppliers was hit by a ransomware attack. That
attack briefly forced JBS to shut down all of its beef plants
in the United States. They account for nearly a fourth of
America's entire beef supply. The shutdown cost an immediate
jump in the price of wholesale beef, which sent cattle futures
swinging.
This episode demonstrate--demonstrated the vulnerability
that our food suppliers have when it comes to cyberattacks. We
have to take it seriously. We need to make sure that American
innovation has ensured that fundamentals of our food supply
remain strong, but there are still too many Americans for whom
our food supply is not working.
Today, we'll have an hon--honest conversation on addressing
these shortcomings. I want to turn Senator Grassley for his
opening remarks and then to Senator Klobuchar and Senator Lee.
OPENING STATEMENT OF HON. CHARLES E. GRASSLEY,
A U.S. SENATOR FROM THE STATE OF IOWA
Senator Grassley. Since you didn't remind us of your years
at the packing plant, I won't remind people about my six years
at the Rath Packing Company in Waterloo, Iowa.
Chair Durbin. People are grateful to both of us.
[Laughter.]
Senator Grassley. First of all, I thank Chairman Durbin and
Antitrust Subcommittee Chairman Klobuchar for accommodating my
request to have this hearing. This is an area that I've been
concerned about for a long time. Many other Senators are also
airing concerns from their constituents.
Today's hearing will focus on competition matters within
the meat supply chain, particularly in regard to beef. I'm
pleased that we have two Iowans here with us as witnesses today
and look forward to their testimony. I thank all of our
witnesses for coming and sharing their expertise with us.
Family farmers who feed cattle are the lifeline of rural
communities across Iowa, and they're currently on life support
for more than two decades.
I've expressed strong reservations about consolidation and
concerns about competition in agriculture. My first legislation
on this subject was introduced in 2003. Today, only four
packers, JBS, Tyson's, Cargill, and National Beef control more
than 80 percent of the cattle market. These companies hold a
tremendous amount of market power.
Independent cattle producers in Iowa and across the country
deserve a free and fair market. The amount of cattle trading on
a cash market in the early 2000's were more than 50 percent.
Today, it has dropped to less than 20 percent. All other cattle
contracts use the cash market as base price for their
negotiations but not true of beef.
I've heard from many Iowa cattlemen like one of our
witnesses today, Jon Schaben, who fought to keep auction
markets open and functioning as close to normal during the
pandemic because they're so vital to price discovery in the
cattle industry. My home State has 60 percent cash trade, and
the Iowa cattle producers are frustrated that they're
shouldering this burden of price discovery.
I've also heard that alternative marketing agreements like
formulas offered advantages to some producers. However, these
contracts have no price transparency. Captive supply is unfair
and anticompetitive when packers choose these types of
arrangements to fill their needs and small producers can't get
a bid for their fed cattle.
Many of us believe that packers have so much power that
they unfairly leverage it against other players in the market
and to the detriment of the consumer. Although I have many
concerns with this industry, I would like to recognize and
commend the employees of these packing plants around the
country during the pandemic who continue to work so hard to
keep food on Americans' plates.
The pandemic has shed light on many problems with the
Packers and Stockyards Division and its inability to preserve
our Nation's beef supply chain. According to the U.S.
Department of Agriculture, for every $1 Americans spend on
food, only 14 and 3/10 cents go to the farmers. Meanwhile, the
retail price of beef for consumers has increased and remains
high.
I want to make it clear that I'm not upset about paying
more for beef. What I'm upset about: farmers not getting paid
for the work they do in the sense of not having profit.
As the first link in our food supply chain, farmers and
ranchers assume incredible risk for each crop and each animal
raised. Their livelihoods depend on receiving a fair price.
Even before the pandemic, farmers and ranchers witnessed the
price of their cattle fall while the price of boxed beef from
the processor increased. The market's clearly not working
fairly when demand is extraordinarily strong and supply--supply
at the same time is strong.
The packers are making record profits, and ranchers are
losing money. That's why I believe it's important that the
Department of Agriculture, the Department of Justice, and the
Federal Trade Commission be engaged and aggressive in policing
anticompetitive activity.
A year ago last March, I wrote to Attorney General Barr and
Secretary Perdue, who was Secretary at that time, calling for
an investigation about the possible illegal practices in the
cattle industry.
I know that the Justice Department issued civil
investigative demands in May 2020, but I'm disappointed that
we're not yet able to learn anything about this investigation.
I currently have legislation pending to address the concerns of
some of my colleagues and I have a--and I have about cash trade
in the cattle market.
I also have a bill with Senator Tester to create special
investigator for competitive matters within USDA's Packers and
Stockyards Division to address anticompetitive practices and
enforce our competition laws.
Most recently, I was pleased to hear the Biden
administration and Secretary Vilsack announcement about
restoring the Packers and Stockyards Act to fight unfair
practices and rebuild the competitive playing field for farmers
and ranchers.
I do look forward today's hearing to beef up competition in
our beef supply chain.
Chair Durbin. Beef up competition. Right. Senator
Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
A U.S. SENATOR FROM THE STATE OF MINNESOTA
Senator Klobuchar. Thank you very much, Chairman Durbin,
Senator Grassley. Thank you for holding this hearing.
As many of you know, Senator Lee and I have been
conducting, as mentioned by the Chairman, a series of hearings
in our Subcommittee examining the broad scope of America's
monopoly problem. Today, we are glad to explore the competition
issues in the food supply chain.
The COVID-19 pandemic painfully exposed some of the
inherent risk to our food supply chain resulting from high
levels of industry consolidation. As the spread of the virus
forced closures at major meatpacking facilities, for example,
livestock producers were left with no willing buyers for their
livestock.
Due to consolidation in the meat processing industry, there
weren't really alternatives. The result for consumers was
inflated retail prices for beef and pork products and, in some
areas, empty meat cases.
Of course, COVID-19 has had devastating effects on many
industries. In the meat industry, those effects were
exacerbated by the lack of competition up and down the supply
chain. The takeaway message should be clear. A concentrated
food supply chain is a vulnerable food supply chain. Although
meat products are back in supermarket meat cases and major
meatpacking facilities have resumed operation, the long-
standing structural problems with our meat supply chain remain.
Four companies, as noted by my colleagues, control more
than 80 percent of beef processing. Four companies control 70
percent of pork processing. That is why livestock producers are
as concerned as ever about market consolidation and market
power in the meat supply chain. This is especially true for
independent livestock producers who have seen their margins
dwindle as they're forced to sell at depressed prices and on
unfavorable terms.
We cannot just look at meat processors in isolation.
Further down the supply chain, there are concerns about large
retailers exerting buyer power to suppress product pricing for
meat suppliers putting pressure on wholesalers, packers, and
livestock producers.
According to the Open Markets Institute, approximately 65
percent of grocery sales are controlled by the top four grocery
companies nationwide. That percentage can be much higher in
local markets. Such retailer buyer power risks compromising
independent retailers access to meat supply and other supplies
during times of market disruption and limits consumers'
potential retail choices.
It also risks harming livestock producers, food production
workers, and the rural communities in which they live and work,
as large national retailers capture a larger share of what
consumers spend on products.
We are focused on meat in this hearing, but it is important
to point out that we have excessive consolidation and
competition problems throughout our food supply chain. In
addition to meat processing and retailing, we have seen a
handful of large companies dominating food-relating markets
such as corn and soybean seed, fertilizer, pest control, farm
equipment, food distribution, and food manufacturing.
According to the American Antitrust Institute, only a small
fraction of the 1,300 mergers in the food processing,
manufacturing, and distribution sectors were challenged by the
Government. The rate of agency second request for mergers in
these sectors have been steadily declining.
The meat issue is part of a larger problem. Monopoly and
monopsony power exist up and down the food supply chain. If you
look at history, at the Grangers Movement fight against
monopolies after the Civil War, competition issues in the farm
and food economy are a big part of why we have antitrust laws
in the first place.
In fact, it was Senator Grassley's home State--he wasn't
there after the Civil War, I just----
[Laughter.]
I'm just--okay. It was Senator Grassley's home State, Iowa,
that passed the first State antitrust law in 1888, in large
part to address concerns from farmers and livestock producers.
Yet here we are today, still talking about the serious
competition problems in our food supply chain.
The Antitrust Division's ongoing prosecution against
criminal price-fixing in the poultry industry and its
investigation into potential anticompetitive practices in the
highly concentrated beef processing industry are clear signs
that consolidation in these markets is causing harm.
As Chair of the Senate Competition Policy Subcommittee,
I've been pushing for greater antitrust enforcement across the
board. That's why the bill Senator Grassley and I have, the
Merger Filing Fee Modernization Act, is so important. Our
enforcers need the resources. I thank this Committee for
passing it through, and it passed the Senate and is now
awaiting action in the House.
Second, the Competition and Antitrust Law Enforcement
Reform Act would make sweeping changes. Many others on both
sides of the aisle have been working on this issue. To me, this
is the tip of the iceberg. We are very pleased to have this
hearing today. Thank you, Mr. Chair.
Chair Durbin. Thanks, Senator Klobuchar. Senator Lee.
STATEMENT OF HON. MICHAEL S. LEE,
A U.S. SENATOR FROM THE STATE OF UTAH
Senator Lee. Thank you, Mr. Chairman.
The vitality and stability of our food supply is of concern
to all Americans. The meat processing industry is particularly
important to people in my home State of Utah. During the height
of the pandemic, meatpacking plants either operated under
significantly reduced processing capacity or, in many cases,
closed entirely. The decreased supply of meat products led to
increased prices for consumers and in some areas to a complete
unavailability of certain meats despite a backup of livestock
among many growers.
In this really difficult circumstance, we found that hog
farmers were being forced to euthanize perfectly good hogs
because they were quickly outgrowing the size restrictions of
the pork processing plants. It's sickening that these farmers
had to destroy perfectly good food while out-of-work Americans
were paying higher prices for meat or going without meat
altogether.
Today, we're focused on the dynamics of our beef supply
chain. Fortunately, cattle don't outgrow the processing plant
quite as quickly and easily as hogs do. We're still seeing
significant impacts of processing reductions on the cattle
industry.
The numbers tell an interesting story. Beef prices are up,
and packers are making strong profits. Many of our cattle
producers are operating at negative margins, and some are
quitting the business altogether. If these are natural glitches
in the market caused by the pandemic itself, then the market
should eventually right itself. However, if the market doesn't
self-correct, we have to sort out the problem, whether it's bad
actors, a lack of transparency, overregulation, or
overconsolidation, and do whatever it is that we can to fix it.
First, we have to ensure that the market is operating
freely and fairly, that there's no anticompetitive behavior
forcing new entrants or the feeders who support them out of the
market. If we fight anticompetitive behavior, we need to use
every legitimate means to stop it. Price discovery and
transparency will go a long way toward ensuring a free and a
fair market. The cash market determines the base price for
cattle, which is then used for every other form of price
determination.
However, today, at most 20 percent of cattle are sold on
the cash market. That number is down from about 50 or 60
percent just 15 years ago. This lack of price transparency
makes it difficult to discern whether these pricing dynamics
are disrupting the balance of negotiating power or whether
they're creating a negative feedback loop suppressing all
cattle prices.
Fairness in the market is impacted by packer consolidation.
Where there's lack of competition, packers can dictate the rate
of available supply. We need to ask why chain speeds are down.
Is it due to lingering COVID restrictions? Is it--is production
below capacity because packers simply can't get employees to
come back post-pandemic in light of unemployment insurance
factors or other government precipitated conditions?
Is it low because the packer's not facing genuine
competition in many, many areas of the country, recognize the
benefits that flow to them if supply simply remains suppressed?
We must also ask why this market is so concentrated. If
we've approved too many mergers and made regulations so
burdensome that massive wide-scale consolidation is
unavoidable, then we can't be surprised when we end up with
these regional monopsonies.
Congress is not and should not be responsible for
structuring industries. Many of the proposed solutions I've
seen mostly mandating Government intervention in the market
would ultimately increase the price--the price of beef,
especially the price of beef for the end consumer. Increasing
the cost for the packer won't bless the producer, and it
certainly will harm the consumer.
What we should do is look for opportunities to free up the
free market. Let's lift stifling Federal regulations, which I
believe are responsible for a lot of the problems we see in
this industry. It's why I'm a proud sponsor of something called
the PRIME Act, which would lift many of the onerous Federal
mandates on small meatpackers, allowing them to sell their meat
cuts as allowed by State law.
Let's enforce antitrust law. If and when violations occur,
then let's get out of the way and allow these businesses to
thrive. You see, sometimes when we see a lack of competition,
there's collusion among industry. Sometimes when we see a lack
of competition, it's Government that's driving that lack of
competition. This is one of those places, I believe.
Senator Klobuchar [presiding]. Thank you very much, Senator
Lee. We're going to introduce the witnesses. I believe Senator
Grassley has two witnesses to introduce.
OPENING STATEMENT OF HON. CHARLES E. GRASSLEY,
A U.S. SENATOR FROM THE STATE OF IOWA
Senator Grassley. I do have two witnesses from my State.
Jon Schaben was not even born when his dad was Democratic
leader of the State Senate, and I served with him in the
legislature that particular time. He's from Dunlap, Iowa. His
wife Julie, they have four children, two actively engaged in
agriculture. Jon graduated from Iowa State University with a
degree in animal science, is also a graduate of the Missouri
Auction School.
He was a 2003 World Champion Livestock Auctioneer. Jon co-
owns and operates the Dunlap Livestock Auction and the West
Point Livestock with his brothers. They're the second-
generation to run the Dunlap Livestock, which was started by
his parents in the 1950's. Jon also operates a commercial cow-
calf herd. Jon has been a member of the Iowa Cattlemen's
Association since the 1980's and currently serves on the beef
product labeling task force.
Shane Miller was born and raised in Ruthven, Iowa,
currently resides in Sioux City, Iowa. He's a graduate of
Westmar College with a bachelor's degree in accounting and
finance. He's the group president of Fresh Meats at Tyson's
Food and is responsible for all beef and pork operations and
fresh meat sales. In his role leading Fresh Meats, Shane has
oversight of 35,000 Tyson team members and 25 manufacturing
facilities. Working for three decades in the meat industry,
he's held various roles at Tyson's, including numerous
management and office level positions.
We welcome both of you and thank you for testifying.
Senator Klobuchar. Okay. Very good. Did you want to add
anything, Senator Cotton.
Senator Cotton. Yes.
Senator Klobuchar. Then Senator Sasse has something.
OPENING STATEMENT OF HON. TOM COTTON,
A U.S. SENATOR FROM THE STATE OF ARKANSAS
Senator Cotton. Thank you, Senator Klobuchar.
I just want to take a minute to recognize and welcome Shane
Miller as well. He may be an Iowan, but we also like to claim
him here since he's representing Tyson, which is an Arkansas
company. Shane's been working in beef for three decades, first
with Iowa Beef Processors before he joined the Tyson food
family. And as group president of the Fresh Meat section, he
brings excellent expertise on the beef supply.
I also want to take a moment to recognize those in our food
supply chain who kept things running during the Wuhan
coronavirus pandemic over the last 18 months. Our cattle
ranchers and meatpackers made sure that Americans had beef on
the table. We had an amazing--we have an amazing food supply
chain in the United States, and that's because of hardworking
farmers and ranchers in my State and many other States, along
with companies like Tyson that ensure those products get to our
tables in a safe and affordable way.
I'm glad to welcome Shane Miller here today, and I look
forward to hearing what he and all the other witnesses have to
say.
Senator Klobuchar. Senator Sasse.
OPENING STATEMENT OF HON. BEN SASSE,
A U.S. SENATOR FROM THE STATE OF NEBRASKA
Senator Sasse. Thank you, Madam Chairwoman.
This is obviously a critically important hearing. Thank you
for hosting it. There are a number of questions that we on this
dais have for the witnesses, and we're voting in other
committees and on the floor right now. If I could just ask
unanimous consent, I want to introduce this statement from the
Nebraska Cattlemen to the record. I look forward to returning
later in the hearing as well.
[The information appears as a submission for the record.]
Senator Klobuchar. Excellent. Thank you. It'll be on the
record.
I'm going to finish introducing the witnesses now. Next up,
Tim Schellpeper. He is the president of the Fed Beef division
at JBS USA, where he oversees JBS's feedlot fattened beef
cattle unit. He has held that position since 2017, and he has
more than 35 years of experience in the protein industry.
David Smith. David is the president and CEO of Associated
Wholesalers Grocers, Inc., a position he has held since 2015.
AWG is a cooperative wholesaler that supplies around 3,100
grocery stores in 28 States. He has more than three decades of
experience in the food industry.
Rob Larew. Rob, who I know personally, is the president of
the National Farmers Union, where he represents the
approximately 200,000 farmer and rancher members of the
National Farmers Union. Previously, he spent more than 22 years
working in Congress and for the USDA.
Last but not least, George Slover. George is the senior
policy counsel for Consumer Reports. He formerly worked for the
House Judiciary Committee and the Department of Justice. He is
an expert on competition issues.
After we swear in the witnesses, each witness will have 5
minutes to make an opening statement and then we will turn to
senators' questions with 5-minute rounds. Could all the
witnesses please stand, including the ones at home, to be sworn
in?
[Witnesses are sworn in.]
Senator Klobuchar. Okay. Thank you very much. Mr. Schaben,
why don't you proceed with your statement.
STATEMENT OF JON SCHABEN, OWNER OF
DUNLAP LIVESTOCK AUCTION AND WEST POINT
LIVESTOCK AUCTION, IOWA CATTLEMEN'S
ASSOCIATION, DUNLAP, IOWA
Mr. Schaben. Thank you very much, Chairman Durbin, Ranking
Member Grassley, and Members of the Senate Judiciary Committee.
Thank you for the opportunity to testify on behalf of the
Nation's independent cattle producers.
As I said before, my name is Jon Schaben. I'm from Dunlap,
Iowa. My family operates a livestock auction business in not
only Dunlap, Iowa, but West Point, Nebraska. We do think that
livestock auctions are the greatest form of price discovery out
there as we need competition in our marketplace every day for
those to function.
I'm also a cow-calf producer. My family runs a
backgrounding operation, and we feed out some steers and
heifers annually.
Today, I'm here to represent the Iowa Cattlemen's
Association, which is headquartered in Ames, Iowa, and a
grassroots organization representing nearly 8,000 cattle
producers and industry affiliates.
My hope is that this testimony in this hearing will
encourage meaningful change to benefit all independent cattle
producers.
Cattle producers in Iowa and across the Nation have
expressed grave concern regarding the severe lack of cash
trade, limited price discovery, and an imbalance in leverage
between those who raise cattle and those who process them into
the beef we consume.
When--with an increasing prevalence of extreme market
shifts and limited ability of producers to mitigate market risk
in the cattle industry, it is imperative that we uplift the
concerns of those in the production sector for this Senate
Judiciary Committee hearing. Simply put, the beef supply chain
begins with, and relies upon, thousands of dedicated
independent cattle producers.
I think--I think in this--in this Committee hearing--I'm
going to go off text here just a minute. I think if we don't
hear it here, we've heard it all the way up to date about these
black swan events that have affected our industry over the last
couple of years.
I hear about that they're responsible for why we're
probably here today. I just don't think in the context of what
they are that that's actually factual. I think the black swan
events were a great example of what's broken about the
marketing chain in live--live cattle. They show the--some of
the things that need to be changed within this industry.
I think it's unfair to say that they're causing the
problems that we have, which is this great big discrepancy
between what our cattle are worth alive when we sell them and
what they end up worth as retail beef.
A couple things I think back that up. In 2015, 51-and-a-
half percent of the consumer dollars spent on beef returned to
producers. In 2020, that figure dropped to 37 percent. That--
that's been a steady decline from what the producers are
getting from what the retail dollar is. I think that's one of
the reasons why we're here to address that.
Most recently, we see live values of cattle in the $1,500-
$1,700 range, but the carcass values of when they're processed
in the $2,500-$2,700 range--a $1,000 difference between what
the producers are getting for and what the end product becomes
out. If we process more than a half a million cattle a week in
the fed cattle industry, in my simple math, that's a half a
billion a week that is eroded out of our rural economy.
As we all look for ways to stimulate rural economy, it
looks if we can bring a functioning cattle market back and
bring that spread narrowed down, that's a way we could infuse
more cash into our rural sector.
From the Iowa Cattlemen's standpoint, first and foremost,
we ask that the Department of Justice provides an update
regarding their antitrust investigation into the major beef
packers. Senate Bills 949 and 543 need to prioritize and, in
addition, Senate Bill 2036, we applaud that to bring up the
anticompetitive practices in the meat industry.
In conclusion, cattle producers work hard to manage inputs,
mitigate risk, and raise cattle that ultimately provide the
high-quality beef demanded by meatpackers, retailers, and
consumers. The greatest fear of independent cattle producers is
to lose their livelihoods for the sake of meat packing
efficiency. An example, vertical integration.
We've witnessed vertical integration firsthand with the
swine and poultry industries, so we know what that path is
like. The combination of limited competition, captive supply,
and formula contracting has not only suppressed live cattle
prices, but has placed a tremendous financial burden on the
shoulders of cattle producers.
This is and will continue to lead to the decline of
independent cattle producers in Iowa and across the country.
The lifeblood of our rural communities is agriculture.
Independent cattle producers support their local communities.
They are the best possible caretakers of the land and the
natural resources in America. We must do all we can to ensure
they survive to continue providing high-quality, sustainably
produced, and nutritious beef for consumers.
Cattle producers deserve a level playing field. We're
asking for a transparent, competitive marketplace to strengthen
the beef supply chain. Failure to take swift action leaves
Congress, USD, and the DOJ culpable for the countless cattle
producers that will inevitably be starved out of the industry.
Since 1978, Iowa's lost more than 45,000 family farms that
sold cattle. How many more family farmers and ranchers do we
need to lose before we recognize the negative impacts of the
highly concentrated meatpacking industry on our beef supply
chain and our rural communities?
Thank you, and I'll welcome any questions.
[The prepared statement of Mr. Schaben follows as a
submission for the record.]
Senator Klobuchar. Very good. Thank you. That was quite
fast. I have a feeling you're an auctioneer on the side. We
sometimes have bills read into the record. We may contact you.
Next, Mr. Larew.
STATEMENT OF ROB LAREW, PRESIDENT,
NATIONAL FARMERS UNION, WASHINGTON, DC
Mr. Larew. All righty. Thanks so much. Chairwoman
Klobuchar, Ranking Member Grassley, and Members of the
Committee, thank you for the invitation to testify this
afternoon.
I am Rob Larew, and I serve as President of the National
Farmers Union. Our organization works to ensure that family
farmers and their communities are respected, valued, and enjoy
economic prosperity and social justice. Founded in 1902,
Farmers Union is made up of 200,000 farm families across the
country. Our organization was started in part to help to
restore and enhance competition in agriculture. While there are
many challenges that face our members, having a fair
marketplace remains a central issue for Farmers Union and for
the economy as a whole.
As President Biden said recently, capitalism without
competition isn't capitalism. It's exploitation. Family farmers
and ranchers and our communities are worse off because of the
domination and market manipulation by multinational meat
companies like those represented here today.
The four largest companies in each sector of the meat
industry have grown dramatically in the last few decades.
Today, as has been mentioned, those companies control 85
percent of beef packing, 70 percent of pork processing, and 54
percent of broiler chicken processing. In beef, there's been a
shift toward alternative marketing agreements and a thinning
cash or spot market, which gives packers even greater control
over the cattle supply.
The concentrated markets also increase the opportunity for
manipulation, and there's been a raft of price-fixing
litigation against processors. Allegations have touched all
three major meat sectors, cattle, hogs, and broiler chickens,
and they have--and both of the corporations represented here
today are among the companies that have paid fines or settled
lawsuits for price-fixing.
The danger of an uncompetitive livestock market is not only
economic. It is also felt in food security. This was clear in
the first few months of the pandemic. Closures or slowdowns at
meatpacking plants resulted in loss markets for farmers,
endangered our food supply, and the health of workers, and led
to higher prices for consumers. Soon after, family farmers and
ranchers endured historic spreads between live animal prices
and retail meat prices.
We saw similar issues with the fire at Tyson's Holcomb
plant in 2019 and the cyberattack against JBS earlier this
year. These corporations are too big. When they fail or take
advantage of their power, we all suffer. We must learn from
this experience. Greater emphasis must be placed on resilience
in the food supply and unbridled corporate power must be
checked.
Farmers Union is not the only producer organization that
has joined in the call for swift and meaningful reform. Despite
the very independent nature lots of times of groups that
represent ranchers, the vast majority of these groups got
together and agreed on what needed to be done. With that in
mind, the time for action is now.
Fortunately, there are steps that Congress, this Committee,
and the Administration can take to support a food supply chain
that is competitive and resilient. These reforms can be
investments and incentives but must also include regulatory and
enforcement actions.
First, USDA can support the Packers and Stockyards Act by
implementing rules that ensure specific protections for family
farmers and ranchers. This idea features heavily in President
Biden's recent executive order on competition and is a
monumental step forward.
Second, Congress and USDA can enact reforms to price
reporting and labeling that will provide accurate, reliable,
and timely information. This should include a minimum level of
cash transactions, contract libraries, and the reauthorization
of mandatory price reporting.
Third, there needs to be greater investment in local and
regional marketing and processing options. USDA has already
committed $500 million from the American Rescue Plan to help in
this effort, and more will be needed.
Fourth, we need to better scrutinize mergers with
legislation like Senator Klobuchar's Competition and Antitrust
Law Enforcement Reform Act. Furthermore, it is time to push for
more vigorous antitrust enforcement to rein in the unchecked
power of the packers and, if need be, bust them up.
I look forward to working with this Committee to bring
about greater fairness for family farmers and ranchers. Thank
you for the opportunity in testifying, and I look forward to
answering your questions.
[The prepared statement of Mr. Larew follows as a
submission for the record.]
Senator Klobuchar. Thank you very much, Mr. Larew. Next up
via video, Mr. Miller.
STATEMENT OF SHANE MILLER, GROUP
PRESIDENT OF FRESH MEATS, TYSON FOODS,
DAKOTA DUNES, SOUTH DAKOTA
Mr. Miller. Members of the Judiciary Committee, thank you
for inviting me here today.
I proudly represent Tyson Foods, a company based in
Springdale, Arkansas. I lead our beef and pork businesses from
Dakota Dunes, South Dakota. We are a company based in rural
America. In fact, I speak to you today first and foremost as a
grandson of Iowa farmers. See, I was born and raised in
Northwest Iowa farm country, in a small town called Ruthven.
In rural communities across the country every year, Tyson
invests more than $15 billion with over 11,000 independent pork
producers, cattle producers, and poultry producers. We rely on
these farmers and producers and want them to be successful
because without a steady pipeline of livestock we're unable to
run our business.
The present divide between live cattle and boxed beef
prices is not the result of a consolidated industry, lack of
competition, or the cash markets. The concentration of
ownership within the meat processing industry is virtually
unchanged over the past 30 years. Instead, the present spread
between live cattle and beef prices has everything to do with
the law of supply and demand.
Multiple unprecedented market shocks, including a pandemic
and severe weather conditions this past year, led to an
unexpected and drastic drop in processors' abilities to operate
at capacity. This led to an oversupply of live cattle and
undersupply of beef, all while demand for beef products is at
an all-time high.
It should not surprise any of us that as a result the price
for cattle fell while the price for beef rose. While Tyson does
not and cannot control market forces, our success depends on
the entire beef supply chain being properly incentivized to
meet America's continued demand for higher quality beef.
Accordingly, at Tyson, we are committed to ensuring fair
compensation for ranchers and farmers. We're proud that we have
relationships with producers of all sizes that stretch back for
generations. Producers decide for themselves how to best market
and sell their cattle. With Tyson, they have a variety of
options available, whether that be in the negotiated cash
market or with contracting or tailored alternative marketing
agreements, or AMAs.
Many of our producers prefer tailored agreements because
they provide a stable and reliable market for their cattle. The
agreements also help meet expectations for consistently higher
quality beef as well as demand for customer-specific programs.
This is just not Tyson's beef. The U.S. Department of
Agriculture concluded that the use of AMAs, and I quote,
``provides livestock buyers and sellers with improved risk
management options that lowers costs and allows for the
creation and capture of greater value.''
I would also point out that our agreements don't lock a
producer into selling only to Tyson. They're free to sell to
whoever they choose. Tyson must incentivize producers to
continue to sell the cattle to us. We welcome competition
because it makes us all better, and it helps put more
affordable, higher quality food on American tables.
I can tell you that the competition is intense. Customers
have multiple meat suppliers from which to choose, and they put
suppliers through competitive bidding processes based on the
terms that the customers specify.
Finally, I'd point out that feeding this growing country
while meeting consumers' evolving demands requires operating
efficiently. This has been especially important while
navigating the unprecedented market shocks we faced over the
past 18 months.
With labor shortages across the country, some producing
facilities and some production facilities were idle. However,
Tyson was able to quickly adjust operations, including
reconfiguring our production lines, diverting animals to other
facilities, and rerouting our transportation network. This
allowed us to keep protein products flowing to communities
across the Nation.
Most importantly, our breadth of resources and diverse
capabilities enabled us to keep our team members better
protected during the pandemic. For example, we have spent more
than $700 million related to COVID including sourcing PPE,
bringing medical providers onsite, installing protective
barriers, and providing onsite testing and vaccinations.
In conclusion, for nearly a century, Tyson has been proud
to play an important role in feeding this country and also
protecting our food supply chain all while helping to make
protein accessible and affordable. I thank this Committee for
the opportunity to be here today and to talk about our role,
and I welcome any questions. Thank you.
[The prepared statement of Mr. Miller follows as a
submission for the record.]
Chair Durbin [presiding]. Thank you very much. Mr.
Schellpeper from JBS.
STATEMENT OF TIM SCHELLPEPER, PRESIDENT OF
USA FED BEEF, JBS USA, GREELEY, COLORADO
Mr. Schellpeper. Good afternoon, Chairman Durbin, Ranking
Member Grassley, Chairwoman Klobuchar, and other Members of the
Committee. Thank you for the opportunity to be here.
My name is Tim Schellpeper. I am president of the JBS Fed
Beef division, JBS USA Food Company. I'm a fourth-generation
farmer, and I operate the farm that my great-grandfather
originally settled in 1887. I have led JBS beef division since
2017 and have been in the protein industry for 35 years.
JBS USA and Pilgrim's Pride USA are leading producers of
beef, pork, and poultry in the United States. With 84
facilities across the United States, employing more than 66,000
team members, we contribute millions of dollars each day to
local communities through purchases of livestock, poultry, and
plant supplies.
It is JBS' mission to ensure the best products and service
for our customers, a relationship of trust with our suppliers,
profitability for our shareholders, and the opportunity of a
better future for all of our team members. We do this through
significant, targeted investments in every area of our business
and giving back to the local communities where we live and
work. For example, we are investing more than $130 million in
the beef--U.S. beef industry to increase production capacity.
We are investing $70 million in the local communities through
our Hometown Strong program.
The most significant challenge facing our industry today is
labor availability. To operate our facilities safely,
efficiently, and at capacity, we need a consistent and skilled
workforce. In our beef division alone, we are investing more
than $150 million in annualized pay increases to attract and
retain new workers.
Today, average wages across our beef facilities are more
than $22 an hour. Our starting wages are approximately $20 per
hour. We also invest in our team's education through our Better
Futures program, which provides upfront, free tuition to
community college for our team members and their dependents.
Likewise, sustainability, achieving more with less, is at
the forefront of our culture. JBS is leading the protein
industry with a commitment to achieve net-zero emissions by
2040. We will invest more than $1 billion over the next ten
years in emission-reduction projects and $100 million by 2030
in on-farm research and development.
Without question, the COVID-19 pandemic challenged all of
society and critical infrastructure industries, forcing
everyone to make every resource available to face this
unprecedented threat. Using the best guidance available, we
immediately implemented health and safety procedures to keep
our team members safe and to continue critical operations.
Additionally, we invested more than $600 million in our
response to the pandemic, which included voluntarily removing
vulnerable populations with full pay and benefits, hosting
vaccine clinics at our plants, and providing incentives for our
team members to receive vaccines. Today, nearly 75 percent of
JBS USA team members have been vaccinated.
The cattle and beef markets are cyclical and decisions made
by producers today may not be realized until years from now.
Historically, cattle were sold in lots, and every animal in the
lot received the same average price, preventing producers from
receiving increased returns for higher-quality beef that met
consumer demands. Following the cattle crash in the 1970s and
1980s, when beef lost about 50 percent of the consumer market
share, cattlemen joined together to create alternative
marketing arrangements with processors.
These alternative marketing arrangements, or AMAs, provide
a mechanism for producers to realize premium prices for the
investments they make in superior genetics, herd health
management, and marketing. They also help to ensure a
consistent supply of high-quality cattle for processing that
results in a consistent supply of high-quality beef options at
the meat case for consumers.
It is important to note that JBS purchases from cattle
feeders of all sizes. AMAs help ensure producers capture the
more--more of the consumer beef dollar in an industry where
cattle often change ownership two to three times after they
leave the farm or the ranch.
JBS is committed to supporting innovation, transparency,
and enhancing incentives to keep the U.S. cattle industry ahead
of competition and abroad. We will continue to invest in our
people, our processing facilities, and communities to help
ensure a sustainable, affordable, and resilient food supply.
Thank you for the opportunity to speak with you today, and
I look forward to any questions you might have.
[The prepared statement of Mr. Schellpeper follows as a
submission for the record.]
Chair Durbin. Thank you very much. I believe our next
witness is Mr. Smith.
STATEMENT OF DAVID SMITH, PRESIDENT
AND CEO OF ASSOCIATED WHOLESALE GROCERS,
NATIONAL GROCERS ASSOCIATION, KANSAS CITY, KANSAS
Mr. Smith. Thank you, Chairman Durbin, Ranking Member
Grassley, and Members of the Committee for the opportunity to
testify on the health and competition in the food supply chain.
My name is David Smith. I'm the president and CEO of
Associated Wholesale Grocers, or AWG, which is based in Kansas
City, Kansas. AWG supplies over 3,100 supermarkets in 28
States. I'm testifying today on behalf of the National Grocers
Association, which is the national trade association for
independent community grocers and their wholesalers.
Independent community grocers punch way above their weight.
They account for 1.2 percent of the Nation's overall economy
and generate 1.1 million jobs. AWG is a cooperative, which
means we're owned by independent retailers that we service, and
our profits are all returned to those retailers.
We have approximately 1,100 owner-shareholders or family
businesses. Our cooperative structure is like a farmer-owned
cooperative, but instead of selling food to the suppliers, we
buy for our retailers. We aggregate our collective resources
and purchasing power, which then helps us establish economies
of scale and buy products in bulk. This allows us to keep
prices low for our stores and their customers. Our purchasing
power equates to roughly $22 billion in retail sales annually.
Even though our volume is substantial and have the same
efficiencies as our largest competitors, we don't really
compete on a level playing field. We pale in comparison to our
dominant chain rivals. As Senator Klobuchar mentioned earlier,
the top 5 retailers dominate over 65 percent of the
marketplace. These dominant grocery retailers we call power
buyers use their size and their positions as gatekeepers to the
American consumer to dictate terms and conditions to suppliers.
This ranges from more favorable pricing, more favorable
packaging, and access to exclusive products that we can't get.
Their size and market power alone enables them to secure
advantages for themselves and harm the smaller players in the
food retail marketplace. This pandemic has really put this
problem on full display. Everyday Americans who rely on
community grocers have not been able to access the products
they need to feed their family as the largest retailers demand
priority to high-demand products like cleaning supplies, paper
products, and shelf-stable items.
The problem--the problem of retail consolidation and also
buying power is also why we've ended up with this meatpacking
conundrum. Consolidation at retail causes consolidation
upstream in the supply chain, and meatpacking is a stark
example. Suppliers respond to retail consolidation by
consolidating rapidly themselves in hopes that getting bigger
will allow them to gain the leverage against that retail
domination.
We seek consolidation everywhere, from the protein markets
to consumer packaged goods and even private label
manufacturing. These problems begin with buyer power in the
grocery aisle. The results are predictable. Farmers and
ranchers struggle to get fair prices as fewer firms compete for
the product. Consolidated supply chains are more vulnerable to
disruption, as we saw with the meat during the pandemic.
Smaller food suppliers face high barriers to entry to reach
grocery consumers.
The independent segment is best at providing these
opportunities for small-scale producers like independent
meatpackers or small farmers, but our share of the market has
shrunk in the face of rapid consolidation. In the last 25
years, grocery storefronts have shrunk by a third according to
the U.S. Census Bureau. During the same time period, we've seen
a concerning pattern of food desert growth particularly in
rural and low-income communities.
Full-service grocery stores have often been replaced by
limited assortment dollar stores, and this only threatens the--
not only threatens the public health, including growing rates
of diet-related diseases, but also when a grocery store leaves
a community, it's deadly to a small local economy.
This spiral of supply chain consolidation and shrinking
access to food coincides with the absence of antitrust law
enforcement. A legal standard meant to protect consumer welfare
is doing just the opposite. Americans who happen to live in
communities served by an independent grocer are faced with
paying higher prices and fewer options and are left behind in
supply crunches.
At the same time, dominant firms rake in record profits,
get preferential terms, and engage in a pattern of behavior
that wipes out competition. I like to call one of those
anticompetitive tactics harvest and invest. They invest by
using their buying power and cash position to lower prices that
their competition can't meet. Then, once they're the last man
standing, they harvest by increasing prices at will.
As a grocer of more than 40 years, I've seen it happen over
and over again. It's why rural towns like Mitchellville, Iowa,
and urban communities like in the South Side of Chicago can
only rely on dollar stores for their grocery needs.
Senators, if you've ever been in one of those stores, you
know they're not what--where a family can find healthy foods
and abundant choices. Senators, we do have a choice. We can
choose to end these unfair schemes. We can choose to support
fairness for retailers, suppliers, farmers, and consumers. We
can choose to enforce antitrust laws that ensure robust
competition throughout the food supply chain.
I thank all of you for inviting me here today to share
AWG's story with you on behalf of Americans' independent
community grocers and wholesalers. I will be happy to take your
questions when you're ready.
[The prepared statement of Mr. Smith follows as a
submission for the record.]
Chair Durbin. Thank you very much, Mr. Smith. Our last
witness is George Slover. Is that correct, George? You've been
here before.
Mr. Slover. Yes, Senator. Yes, I have.
Chair Durbin. I'm glad to have you back from----
Mr. Slover. Thank you.
Chair Durbin [continuing]. Consumer Reports. Take it away.
STATEMENT OF GEORGE SLOVER, SENIOR
POLICY COUNSEL, CONSUMER REPORTS, WASHINGTON, DC
Mr. Slover. Thank you. Competition is key to a marketplace
that works for consumers at the end of the supply chain. It
gives us choice to comparison shop. That spurs businesses to
improve quality and affordability. Nowhere are quality and
affordability more important than the food we eat.
Too many of us, especially in remote rural and marginalized
urban areas, lack good food options--a problem aggravated by
overconcentration. You've heard today from farmers and ranchers
who must sell their produce and livestock to a dwindling number
of larger and more powerful packers and processors.
It's also a consumer problem. For the marketplace to work
for us, it has to be working for everyone, farm to table.
That's how we get our choices. When powerful packers or
processors or high-volume distributors or retailers push
producers to sell at cut-rate or risk being cutoff, pressure to
cut corners can hurt quality, variety, safety, and nip
innovation in the bud.
Some might think consumers should be happy for producer
prices to be pushed down. Doesn't that mean we also pay less?
It doesn't work that way. Market power takes from everyone,
producers and consumers alike. Producers also face
overconcentration for inputs: seed and genetics, fertilizer and
chemicals, feed and additives, and farm equipment.
One illustration: overconcentration has dramatically
restricted how ranchers can market their cattle. Two short
generations ago, the top four beef packers had a third of the
market, and ranchers had options. Typically, cattle sold on the
spot market, priced day of sale by competitive bidding--even
live auction, the ultimate in competitive bidding. A feedlot
might have a dozen packers show up.
Today, after a merger cascade, the top four packers control
85 percent. These multibillion-dollar giants know how to stay
out of each other's way. Now, a feedlot might have one packer
show up, no auction, no bidding, no negotiation.
Today, most cattle are purchased in advanced long-term
contracts, prearranged prices giving packers a captive supply
and magnifying their control. Cattle, like other farm animals
and crops, are perishable. They're carefully fed to be at their
peak. A rancher can't just hold them back for the next sale
date. Ranchers get pushed to cut corners beyond what makes
sense. Some may give up. Either way, it can diminish what's
available to consumers.
Ranchers are most likely to be run off for trying
innovative methods that don't obey the business model dictated
by the packers. These packers can also cut deals with high-
volume distributors and retailers that close them off to
smaller innovative packers.
There are also more acute vulnerabilities. COVID outbreaks
caused widespread meatpacking plant shutdowns. Consumers found
empty shelves at the grocer, while producers were forced to
kill off millions of animals that couldn't be brought to
slaughter.
This spring, a ransomware attack forced JBS to shut down
all its U.S. plants, a fourth of all our beef. These jolts
remind us that competition is about far more than just dry
economic efficiency. When the food supply chain is disrupted,
it can be literally a matter of life and death.
Many competition problems in the food supply chain are the
same we see elsewhere and will benefit from the same reforms. A
bill by Senator Klobuchar and other Members of this Committee
has a number of proposals that would promote more competitive,
better functioning marketplaces, such as by strengthening the
law against harmful mergers and against dominant corporations
using their muscle to freeze out competition.
A bill by Senators Klobuchar, Grassley, and Durbin would
strengthen enforcement resources by raising filing fees on the
largest mergers. A new bill by Senators Lee and Grassley
contains proposals we hope will also be part of discussions
leading to bipartisan consensus.
USDA is considering other measures to improve food supply
chain resilience and competitive functioning. This hearing will
help inform these efforts.
Strengthening competition can give us better food choices
at more affordable prices and a more resilient food supply
chain that can better weather storms foreseen and unforeseen.
Thank you again.
[The prepared statement of Mr. Smith follows as a
submission for the record.]
Chair Durbin. Thank you, Mr. Slover. I'm going to start the
questioning. Let me start with a question for Mr. Schellpeper
and Mr. Miller.
Mr. Schellpeper, in your testimony, you say, and I quote,
``The most significant challenge facing our industry, JBS, is
labor availability.'' You say that, quote, ``to operate our
facilities safely, efficiently, and at capacity, we need
consistent skilled labor.''
I'd like to ask each of you, what percentage of your
processing workforce would you estimate are immigrants?
Mr. Schellpeper. Senator Durbin, this is Tim Schellpeper
from JBS. Thank you for the question. I don't have that
particular piece of information in front of me. I would have to
get back with that information to you, Senator.
Chair Durbin. I wish you would. Mr. Miller. Do you know?
Mr. Miller. Senator, thank you for the question. You know,
as an important employer in many of our communities, we rely on
immigrant labor in a lot of our facilities to--for one, we give
a lot of these folks an opportunity and provide them an entry
point.
I don't have the specific numbers. I will tell you that we
have several team members that come from diverse backgrounds,
and they're going to speak more than 50 different languages,
and it really is a true reflection of America itself.
You know, coming back with an actual percentage or a number
like that is something I'm going to have to follow-up with you
on.
Chair Durbin. Thanks. I wish you would. Let me just say
this. According to the Migration Policy Institute, immigrants
make up about 40 percent of the meatpacking workforce. No
surprise to me. Go to be Beardstown, Illinois, and see who's
working the processing plant there. I can tell you half of them
are speaking Spanish, and many of them are from Africa.
I know that because of the naturalization ceremonies we
have in Springfield, and I meet their families. I make that
point because there are some Members of this Committee who are
opposed to immigration. They say, ``We've got enough. These
people are going to come here and take away American jobs.''
These are tough jobs in meat processing. I think we all
know that, those of us who have any familiarity with it.
Townspeople don't really line up in a queue waiting for the
opportunity for a lot of these jobs. People who are trying to
put together a meat processing facility turn to immigrant
labor, and I believe that they're skillful and dependable, and,
over and over again, they've proven that.
Mr. Schaben, I just asked the Senator next to me where
Dunlap was, and he showed me it on a map. You're really far
west, aren't you?
Mr. Schaben. Yes. Real close to Omaha, Nebraska. Yes.
Chair Durbin. Where do most of your ranchers process their
food? Where do--I mean, their cattle? Where do they send them?
Mr. Schaben. If they are in a--for a finishing process,
there are a--there is a Tyson plant at Dakota City, Nebraska, a
Cargill plant at----
Chair Durbin. Is that processing?
Mr. Schaben. Yes. Final processing.
Chair Durbin. Final?
Mr. Schaben. Yes. Final processing. Yes. Actually, our
proximity to the meatpackers is decent. Unfortunately, we're
real close--15 miles from my hometown, we saw the effects of
losing a packer. Tyson shut their plant down in Denison, Iowa.
I think--I don't know this. I think it might be their most
recent shutdown of a plant.
Chair Durbin. In your testimony, you talked about the
plants that have shut down.
Mr. Schaben. Yes. That was specific to that one. We've had
several in Iowa, and then another one I think that's meaningful
in Iowa, Chairman, we had--we talk about these startup
companies. We had a great example of an independent coming into
Iowa. It was at Tama, Iowa, which is in kind of central Iowa.
They get up and get going and have a marvelous market, a new
buyer in the marketplace, something that we all cherish. When
they got up and got going good, and I assume the profits or the
plant is profitable, they sold out to one of these four
packers.
It's probably one of the things we talk about in this
Committee the--when is it too concentrated? I can promise you,
losing that buyer in the marketplace was pretty significant to
the producers in our--in the Midwest--because not only Iowa
people supplied cattle, but there would have been Minnesotan,
and Missouri, and Illinois people that would have supplied that
plant.
Chair Durbin. I'd like to ask the gentleman who's from the
grocery wholesalers. My impression at the market, the price of
beef is up. That's what I seemed to see when I walked through
either in Springfield or in Chicago. Yet we've heard from some
of the producers here that unless you're in on the deal with
one of these four major producers, it's a struggle.
How do we resolve that contrast that the market for the
consumer is more expensive and yet when it comes to the
profitability of meat--of beef--those who are raising beef,
cattle ranchers and such, it's not a profitable operation? Mr.
Smith?
Mr. Smith. Yes, sir. The answer is, I guess, from our
perspective it certainly is not at the supermarket level. The
cost of the product going to the stores is up a significant
amount. Whenever I think back to during the pandemic, when
retails were the highest and the wholesale cost to our stores
was the highest, there wasn't a direct correlation, as many of
you have mentioned, back to what was being paid to the farmer.
Of course, it is supply and demand. There were a lot of
challenges for them in actually doing the production.
Independent supermarkets were unique in that timeframe, Mr.
Chairman, in that many of them were in--they've still--the vast
majority continues to do all of their store--their in-store
cutting from primals. They didn't go through central processing
facilities. They were much more nimble and were able to stay in
business with fresh meat. They also were able to take up some
of the slack that was in the restaurant supply chain being able
to repurpose that product.
As far as the pricing today, we know what we pay for it. We
don't necessarily have a view, exactly, of the drivers behind
those increases.
Chair Durbin. Thank you, sir. Senator Grassley.
Senator Grassley. Yes. Just so you can plan, I hope we can
have a second round unless every--oh, Okay. Thank you.
Mr. Miller, my first question's for you. Iowa cattle
producers tell me that during the first week of May this year,
Tyson's was buying cattle from independent producers--wasn't
buying cattle. With so few players in the market, that gives
producers limited options, as noted in Mr. Schaben's testimony.
According to data from the National Daily Cattle and Beef
Summary Report at USDA Marketing Service, on May 10th of this
year, the choice boxed beef cutout was valued at more than $309
per hundredweight.
At the same time, cattle producers struggled to break even,
receiving average bids of approximately $118 per hundredweight.
The gross package market--packer market on the average steer
weighing approximately 1,400 pounds with a 63 percent dressing
percentage exceeded $1,000 per head. How do you justify making
such low bids when you're turning such a significant profit?
Mr. Miller. Thank you for the question, Senator. First and
foremost, as I said in my testimony, my oral testimony and the
written testimony, we depend on independent cattle operations
of all sizes. We can't do without all of them. I don't know the
specific date here you referenced in May--what we were doing in
the marketplace that day versus another day. What we pay Iowa
cattle feeders truly depends on the market conditions. How they
end up deciding to sell their cattle, whether they want to
negotiate or put them on an AMA, is totally up to them.
For instance, in the Upper Midwest, a larger percentage of
cattle feeders prefer to use cash basis as a life--of a--as a
method to sell their livestock. As you go further into the
South, they prefer the AMAs. The AMAs guarantee a market for
these specialized cattle, but they also ensure that the
producer is compensated for the value that they add to the
market.
In a long, long-winded answer, I guess, when you look at
the AMAs versus the negotiated trade, the AMAs unlock value
that the customer and, ultimately, the consumer are looking
for.
Senator Grassley. I hope you know how depressive that is
when you're not making money, and packers are making $1,000 a
head, and the price of beef at the supermarket isn't down at
all.
Mr. Schellpeper, are independent producers who negotiate
offered the same opportunities to market their cattle as large
or corporate feedlots do through formula contracts? Would you
be opposed to having the base price, premiums, and any
discounts shared with the public?
Mr. Schellpeper. Thank you for the question, Senator. We
are active in the cash market every single day at JBS. In fact,
in the State of Iowa, we have several buyers that are
headquartered there. Again, active participants, are they
offered the same price? Yes, they are on a cash basis, on a day
in and day out basis.
Relative to publishing contract terms or some type of
contract library, I would need to understand that. I understand
there's dialog in the industry about that. I would need to do
more research on that and to learn more about that issue,
Senator.
Senator Grassley. Without having that information, we don't
have price transparency, and those that negotiate every day on
a daily basis don't know for sure what the price is. Having
that information available is very important to have the
transparency that's necessary in the price discovery.
Mr. Miller, producers in Iowa tell me they can't find
bidders for their fed cattle, and it's a take it or leave it
situation where they feel like price takers. Then producers are
telling me the packer won't accept their cattle for delivery
for several weeks. How do you defend this as an open and fair
marketplace?
Mr. Miller. Yes. Thanks for the question. I think I'll--the
way that I would frame this up is--and if you rewind the tape
here to some degree and you think about what we've all been
navigating with COVID, I think, Senator, the best way to frame
this up, for I think it simplifies it, is it is taking 6 days
worth of processing to get five days worth of cattle harvested
and processed.
In a sense, our teams are working 6 days a week, virtually
every week right now, to work through 5 days worth of harvest--
on our cattle that are harvested. We can out harvest them, but
we can't get them processed. In a sense, what we're having to
do is we're having to revert back to only being able to harvest
and process what we know we can get through our plants. It's
reducing our throughput through our facilities.
The other side of it, we do contract cattle in Iowa. The
volumes vary, but they're mostly market driven. The cattle do
have to be a specific type and kind to fill our customers'
specifications, but we do contract cattle in Iowa, and we do
bid on cattle in Iowa.
In fact, we also go to the sale barns and--excuse me, sale
barns in the State of Iowa and negotiate. However, sale barn
cattle are not included in the negotiated trade as livestock
mandatory reporting is set up today. In fact, we do purchase,
and we do negotiate cattle at sale barns.
Senator Grassley. I'll yield at this point.
Chair Durbin. Senator Blumenthal.
Senator Blumenthal. Thanks, Mr. Chairman. This hearing
really affects all Americans. Obviously, Senators from the
Midwestern States have the biggest stake in the production of
beef and other agricultural products. Connecticut also is a
producer, and certainly, all of us in Connecticut are
consumers.
What we're seeing impacting consumers all around the
country is a bottleneck supply chain that is a result of
consolidation, bigness, that's been permitted under both
Republican and Democratic administrations. This hearing is not
a partisan exercise.
Today, the beef industry is dominated by the big four as
you all know. They are the titans that package an astonishing
85 percent of the American beef slaughtering and packaging.
Thirty-five million cattle are slaughtered in the United States
annually. That's 26 billion pounds of beef, and it's done at 50
plants. They account for 98 percent.
We've also seen the rapid consolidation in the food supply
chain at the retail level, as you all know. Now, entering this
market is Amazon, which has used its economic power to bulldoze
its way into new markets, not just groceries with the purchase
of Whole Foods but also entertainment, audiobooks, smart
devices, gaming. Every time our antitrust enforcers have taken
a narrow view and given these acquisitions the green light.
I would like to ask what you see as the impact of Amazon's
entry through its purchase of Whole Foods, as well as the data-
rich resources that it is gaining through Amazon Prime and the
Amazon marketplace, enhancing the power of its acquisition.
Amazon has unique access to vast troves of data that none of
you can lay claim to.
That economic power, I fear, will aggravate the kinds of
bottlenecks that we've seen in our supply chain. By tying
Amazon Prime membership to discounts at Whole Foods and opening
a new line of Amazon Fresh grocery stores, Amazon has cleared
another path to potential monopolization of commerce, and it's
on track to double its sales over the next 5 years and overtake
Walmart as Americans--America's dominant grocer.
Is that a cloud on the horizon so far as you all are
concerned?
Mr. Larew. Senator, from the Farmers Union's perspective,
we certainly have grave concerns about the growing level of
concentration throughout the entire food chain. Today's focus
on the beef packers, I think, tells a story though that
resonates through that. As we look at what that means
throughout the rest of the chain and for big players like
Amazon, what was once, I think, kind of, maybe even laughable
or not a vision that anybody could imagine we now--it wouldn't
be too surprising to see an Amazon even acquiring one of the
big four in a market like this.
The consequences of that would be devastating. We've seen
vertical integration and the impact that that has on certainly
family farmers and ranchers, but all the way up the chain, it
would have devastating consequences.
Senator Blumenthal. Anyone else?
Mr. Smith. Senator, this is David Smith with AWG. I think
about it in your home State, and our sister cooperative
Wakefern with the ShopRites and the Price Rite stores that you
have there and competing. The situation with Amazon is really
just a further expansion of the power buyers. The meat
discussion we're having today is really a single ingredient in
an overall situation that is created when you have these power
buyers.
Companies such as the manufacturers and producers are
unable to be able to get the pricing that they need because of
the tremendous dominance that they have. When a singular
retailer can have 30 or 35 percent of all your sales, but yet
you and your products may represent 1 percent or less of that
retailer sales, there's a disproportionate risk.
The power buyers, what I was speaking about earlier with
harvest and invest, in Amazon, I think they may have defined
it. I think they may have actually came up with the very
definition for harvest and invest by leveraging Amazon Web
Services to produce incredible income in order to be able to
get into the retail business.
Is that an existential threat to supermarkets? Yes. Is it
an existential threat to suppliers? Of course. Having so much
of a--of an aggregated power with those companies--it's a
tremendous risk.
Mr. Slover. Senator, those concerns you expressed resonate
with us across the entire economy. Here in the food supply
chain, in the retail grocery sector, it would be indeed ironic
if some of the grocers--the chain store grocers who now
dominate that segment start expressing concerns about Amazon's
entry and overconcentration at that level.
Senator Blumenthal. Thank you. You know, I can't say you
heard it here first because you didn't hear it here first. It's
a question and a fear that I think is shared widely throughout
your industries and across the country. It's one of the reasons
we're here today. It affects beef, but as you've rightly
pointed out, many other products are at risk as well in terms
of competition that benefits consumers and the producers. I
think it's an important point.
Senator Klobuchar [presiding]. Thank you.
Senator Blumenthal. Thanks very much.
Senator Klobuchar. Thank you. Next up, Senator Lee.
Senator Lee. Thank you. Mr. Schaben, I'd like to start with
you. As I mentioned in my opening remarks, I'm a proud sponsor
of something called the PRIME Act. This is an act that
recognizes that some of our problem relates to regulatory
bottlenecks, and this is a piece of legislation that would
allow States to exercise their regulatory jurisdiction over
meatpacking plants that operate solely intrastate and would
free local packing facilities from costly Federal regulation,
which is, right now, exclusive. It's pervasive. You can't get
around it except in very, very rare circumstances.
As I understand it, the large meat-packers process about 85
percent of beef. I've also been told that these big players no
longer purchase many animals, if any animals at all, from
smaller feeders or producers. The average cow-calf operator now
is in a strange position because the average cow-calf operator
owns about 40 head of cattle.
If these dynamics are correct, then the little guy, the
smaller producer, is in real trouble. In your opinion, Mr.
Schaben, would the PRIME Act allow these smaller suppliers
greater access to the marketplace?
Mr. Schaben. Senator, thanks for the question. A couple
comments. The--I don't--and in my testimony, I don't think I've
ever mentioned that or said that--that these large meatpackers
don't participate in the cash market or don't participate in--
with smaller producers because, actually, I don't think that's
factually correct. They probably do. It's at what level that we
are concerned about and what level of transparency that is
done.
As small-scale producers, do we have all the access to
information to make the best marketing decisions that we can
and are we at a disadvantage to somebody that's significantly
bigger that gets, you know, quote, unquote, ``a better deal.''
In relationship to your PRIME Act, first of all, I commend
you for--I think in my State of Iowa and--and around, small
local processors have been tough to stay in business. I can
only imagine that regulation would be one of those things.
I think anything that we could do to make--to make local
processing better for local producers is a great thing. In
relationship to your act, the only thing--and the reason I
won't comment, when it comes to food safety in relationship to
inspection regulations, I am not near expert enough to comment
directly on that.
The thought process of it, making it easier for those
small-scale producers to operate, seems fantastic to me because
we've just--in our local communities, we've watched these
smaller locker plants just, I mean, literally dissolve. What
did--what we did find out in our COVID--through our COVID
system is that the supply chain and the ability to participate
in that did get broken, so a lot of smaller producers were
looking for avenues just like you're talking about.
We were shut out of some of those because, I mean, it--you
might talk around it. To book--to book a spot or two to get a
local process now could be a year out, could be longer than a
year out. Obviously, that's not been--it's probably because
just exactly like you say, they've been overregulated.
Senator Lee. Right. Over time, people have assumed that it
always has to be this way, you know? Of course, the Federal
Government is not a government of general jurisdiction, doesn't
have general police powers. It has specifically enumerated
powers. One of those powers, the one that's invoked here, is
the power to regulate interstate commerce. There's no reason--
it's understandable why for meatpackers that operate nationally
or across State lines and they're selling interstate, it's
understandable why that--there might be some good reasons to
have a Federal meat inspection system there. There's no reason
why it ought to apply for intraState operations.
That same access that you acknowledged, presumably, that
same access could help improve the ability of producers to get
competitive prices for their animals, right? If you had some
place else to go, that could open things up for you a little.
Mr. Schaben. Anything that creates more capacity in a
competitive market-related thing is good. In this instance,
there--if you're processing your own, then the market--the spot
market probably doesn't mean as much to you. From an industry
standpoint, yes. Increase--increased processing capacity is one
factor, is one thing that we're all talking about. It's sure--
when I saw your--that--your bill, when it first came out,
looked to me like a, you know, not--again, not knowing all the
innards of how we--how we regulate inspection services, looks
like a great deal to increase capacity.
Senator Lee. Thank you. Madam Chair, got one more question
I wanted to ask. Is that all right? Thank you. Thank you.
Mr. Miller, if social distancing mandates required packers
to operate with slower chain speeds during COVID, we shouldn't
be surprised that the reduction in supply led to increased
cost. That slowing of production would naturally result in
higher prices for consumers.
I'd first like to know whether that's right, and then what
would happen if retail--to retail prices if the Government
mandates that packers run less efficient businesses or we
increase cost by requiring you to pay USDA inspectors more.
Would that also result in higher cost to the consumer?
Mr. Miller. Thanks for the question, Senator Lee. A couple
things here. Yes, if you go back to the pandemic, yes, we were
throttled back considerably. It was really, specifically,
driven around the fact that we didn't have the team members to
come into the facility to work. Therefore, the chain speeds,
the amount of pounds we were producing was curtailed
dramatically.
Since then, we've been able to get some of our chain speed
back. We're still not back to the level we need to be and back
to pre-COVID levels. In--and as a result of that is we're
producing less food through our facilities than what we were
prior to COVID. Prices have moved up as a result of that from a
supply and demand economics perspective.
Senator Lee. Thank you. Thank you, Madam Chair.
Senator Klobuchar. Thank you. Thank you, Senator Lee.
Mr. Smith, America has a monopoly problem and it--I
discussed it in the opening. It affects many different
businesses, from cat food to caskets. We now have about one-
third fewer grocery stores across the country than we had 25
years ago. How does the loss of local grocery stores impact
consumers, especially in rural communities?
Mr. Smith. Fantastic question, Senator. I guess let me tell
you a story. One of our member retailers, which operates
several different stores--and he already competes with the
largest retailer here in the U.S.--he had been receiving a lot
of requests to open a new store in an area that really only had
a supercenter there to serve the needs. They wanted a full-
service supermarket with really great prepared foods and
everything else.
He did his homework. Prior to going into the town, he had a
service do a full book, retail price check, to make sure that
the retail pricing there was comparable to the other markets
where he was at that he was already competing with that
competitor. Sure enough, he found that it actually was higher.
He checked that off the list and said, ``That's not really
a concern.'' He spent millions of dollars preparing the
facility and opened it up. After opening, the retail pricing in
that market, because it was isolated--he was--he was kind of
carved out. The retail prices there at that competing store
undercut him at every turn. Anecdotally, from the people from
that competitor's store, we were hearing that a store lost
millions of dollars during that period of time that that store
was open. Our member lost millions of dollars from his family
business and ultimately closed. To put the----
Senator Klobuchar. At the--Okay.
Mr. Smith. Yes.
Senator Klobuchar. I think that it's example too how it is
to be a new entrant as a small business. Just a quicker answer
on this one. What about the dominance of power buyers and their
anticompetitive behavior? How does that affect independent
grocers?
Mr. Smith. Yes. The power buyer, they--it isn't directly
related to efficiencies. It's a misnomer. What I was speaking
to a moment ago is that this notion of consumer welfare,
Senator, is that the consumer is benefited by the lower prices.
Those are very short-term. Actually, they pay more because of
that harvest and invest. They invest in those areas to drive
out competition. Then after the competition goes away, it
increases.
The power buyers are using that positioning against the
manufacturer, which they've even cited in their own SEC
filings, that that's one of the biggest threats against their
ability to compete for the manufacturers because it's not
proportionate to the risk as I mentioned earlier if it's----
Senator Klobuchar. Okay.
Mr. Smith [continuing]. Thirty-five percent. Yes. It's too
much.
Senator Klobuchar. I'll ask you some more questions later
on the record about how we can fix this because I want to go on
to a few other things.
Mr. Schaben, second-generation family farmers you
explained. Could you tell us about how the price paid for your
cattle has changed over the course of your career? Do you think
farmers like you will be able to survive into the next
generations?
Mr. Schaben. We have--yes. Thanks for the question,
Senator. The price that we've received--I think what's changed,
and what I mentioned before, was the percentage of the retail
dollar. That's the thing, I guess, for me is the simplest to go
off of, as it just has eroded down, as I mentioned before, from
50 cents to that dollar in 2015, to now down, I think, to 37
cents to the dollar that we receive that's spent on beef.
If you spent all this time and effort to promote your
product and to do it in the marketplace----
Senator Klobuchar. I think that's a good point.
Mr. Schaben [continuing]. And you don't get it.
Senator Klobuchar. Let me just follow-up with Mr. Miller,
Mr. Schellpeper. Why do you think the farmer share has dropped
so significantly and so fast?
Mr. Miller. Thanks for the question, Senator. You know,
there's a couple things that play into that. Similar to other
commodities, you can take into consideration chocolate or
coffee, for example, the value in today's food often comes from
its processing and in items being further valued up the supply
chain.
For example, in our industry, more is being done to prepare
food before it even gets to the table, hence the reason more
items are cut, marinated, breaded, precooked, which all adds
more value to the product. In addition to that, more people are
also eating away from home. This means the farmer is going to
receive a smaller share because the price of the restaurant
meal typically is going to include preparation, service, we all
know the labor situation and the marketing it corresponds with.
Senator Klobuchar. Okay. Thank you. You want to answer that
as well?
Mr. Schellpeper. Senator.
Sentor Klobuchar. Yes.
Mr. Schellpeper. The beef industry--thank you for the
question. The beef industry fundamentals are based on supply
and demand. They are going to be shifting over time. At JBS,
over the last several years, we worked hard on changing our
product mix inside of our plant with more value-added products,
more branded products, more products into the food service
channel. We are doing more and more inside of our facility that
is adding value to that beef. Therefore, it's being sold in a
different fashion, if you will, to our customers.
Sentor Klobuchar. Okay. Maybe Mr. Larew do you want to
respond to this? Because, you know, Mr. Schaben's shown us how
the farmer's share of a dollar spent on beef has dropped from
52 percent in 2015 to about 37 percent in 2020. You heard the
answers from our witnesses. How do you respond to that?
Mr. Larew. I would simply say that when you look at USDA
data and you look at the information on how they capture and
measure that share of the food dollar for these packages, we
are not talking about restaurant investment. We are not talking
about a lot of this further processing for these core products.
When we look at the spread, we are indeed trying--we are
capturing that farmers, in particular, are not only capturing
less of that dollar but indeed some of that money is going
elsewhere. I think what we are talking about today is that
spread that has been mentioned before and how much of that
dollar is actually being captured somewhere else in the middle
perhaps by the packers.
Senator Klobuchar. Mr. Slover, do you want to add anything
to that as well as any comments of my last question here on the
grocer issues we raised?
Mr. Slover. On your last question, I would say it's no
coincidence that in this very concentrated supply chain, in all
these different levels, the two parts that are hurting the most
are the least concentrated, the least able to exert any of
their own choices against the concentrated levels.
Senator Klobuchar. Thank you for summing that up. I think
next up we have Senator Hawley.
Senator Hawley. Thank you very much, Madam Chair, and
thanks to all the witnesses for being here.
I just want to follow-up on this same line of questioning
about how we got to this point. Mr. Slover, maybe I'll just
start with you. You, earlier this year, stated in a written
testimony to the Antitrust Subcommittee that antitrust
enforcement has grown weak over the years in part because
courts have tended to require the Government to prove
demonstrable, concrete, imminent, quantifiable harm.
We've known--I think it's been well-documented at this
hearing. We've got four in the beef sector--we've got four
packers, four companies that produce--that process, rather, 85
percent of beef in the United States. Over on the pork side,
that's three that do 63 percent. That's pretty dramatic
concentration.
Can you just give us a sense of how we got to this point?
In particular, I'm wondering, you know, you said earlier in
your testimony that we need to reaffirm that acquisitions by
the largest corporations that already have significant market
power are anticompetitive and unlawful, subject to a clear
showing that they're not. Should--with some of these mergers
that led to this kind of concentration, should they have been
prevented? I mean, how did we get to this point that we are now
with this kind of mass consolidation?
Mr. Slover. Yes. I think there was a lull--most of the
mergers that we're talking about in beef packing, at least the
first wave of them, were in the 1980s. There have been some
more recent acquisitions of already large companies. JBS is a
relatively new entrant in the U.S.-based giants. It has been a
trend of consolidation leading to overconcentration.
Then about once you get to that place in a marketplace, the
incentives, the corporate incentives for chasing profits
change. They change in a way that goes against responding to
competitive pressures and doing what consumers want because you
know that there's somebody else out there ready to do that. I
think in essence that's what's brought us to where we are.
Senator Hawley. Very good. Thank you for that. Mr. Larew, I
want to ask you about something that you wrote. Last year, you
had some very pointed words to say about this issue of
excessive concentration in the meat industry. You said that
price-fixing in the meat industry is not a new phenomenon. You
talked about the example of a century ago. Then you go on to
say, ``As was true 100 years ago, radical and immediate action
is needed to create a fair and balanced food system.''
What do you have in mind? I mean, what's the--what does the
response needs--need to be from a policy perspective?
Mr. Larew. Right. I think it's a combination of things,
Senator. It is about shining light on the issue. It is about a
greater antitrust review--even review and look back as
suggested just a moment ago--and really making sure that--
although today we are hearing a lot of conversation about
supply and demand, seasonality, and the way markets fluctuate,
all that is very much true.
What should not be happening is coordinated efforts in that
space, dark markets. We need a lot more light brought into
these markets for fairness both in terms of the price but then
also in terms of how the packers themselves are functioning as
a unit.
Senator Hawley. Yes. I think you mentioned this, but just
to put a fine point on it, I mean, how about breaking up some
of these--some of these packers?
Mr. Larew. Look. We are all for shining a light, having a
review, and if necessary, break them up.
Senator Hawley. I want to ask you, Mr. Schellpeper. I can't
leave this topic without asking you about the consent decree or
two that you entered into--your company entered into in 2018.
You entered into a consent agreement with the Department of AG
to pay tens of thousands of dollars in fines after inaccurately
reporting beef prices, meaning that a number of farmers, shall
we say, quite a few, got underpaid.
In 2016, USDA found that there were similar problems with
reporting inaccurate weights at two of your facilities in Texas
and in Colorado. That happened because you were using
inaccurate scales. In 2018, your company had to pay tens of
thousands dollars more in penalties for doing that.
My question to you is, given this, I mean, why wouldn't
American farmers be concerned about concentration among
meatpackers when they're staring down the barrel of practices
like those?
Mr. Schellpeper. Thank you for the question, Senator. We
work hard every single day on State, local, and Federal laws.
This is a very competitive industry. I think it's also--keep in
mind that we are very active in the cash market with the
producers. Margins do shift. Markets go in cycles. To answer
your question specifically, we work very, very hard to be
compliant with all State, Federal, and local laws.
Senator Hawley. I think I'll just say--my time's nearly
expired. I'll just say in closing that I can just tell you from
hearing the cattle ranchers in my State, the State of
Missouri--we're a big beef producing State. From hearing from
my own relatives--I happened to marry into a cattle-ranching
family. My wife is generation number six, I think it is, born
to the ranch.
The present situation for, particularly, small producers,
cow-calf operations, is simply untenable. It is untenable. It
cannot be sustained. We cannot have this level of concentration
in this industry and have the farmer, the rancher be paid less
and less and less, the consumer charged more and more and more.
Something is seriously wrong here, and it cannot go on as it
currently is. I, for one, think it's time to take that kind of
action you were talking about, Mr. Larew. I think we need
antitrust enforcement, and I think we as a Committee have got
to look forward some policy suggestions to change the balance.
Thank you, Madam Chair.
Senator Klobuchar. Well said. Next up, Senator Booker,
who's with us remotely.
Senator Booker. I appreciate that, Chairwoman. I have to
say I feel strongly in alignment with many of the people who've
spoken before and really celebrate what Josh Hawley was just
talking about. I'm going to submit some questions for the
record.
I want to dive in because in the past years I've been
sounding an alarm about how deeply broken America's food system
is. We are in a crisis, and now we've seen unprecedented
consolidation. Amy Klobuchar has been talking about that, with
a few multinational corporations now in control of our entire
food system.
Today, I want to spend some time talking specifically about
how our meat production system is broken and how it was broken
in large part--really the innovator in this brokenness was
Tyson Foods, our Nation's biggest meat company. Up to 50 years
ago, farmers throughout our country farmed in ways that were
very similar to their parents and grandparents, the way they
had farmed. In fact, it goes back for generations. This was our
precious heritage. Up until about 50 years ago, farmers and
ranchers raised livestock in a way that, you know, treated
animals humanely; that was environmentally sustainable; that
allowed our farmers and ranchers to make a decent living.
As our independent family farmers prospered, so did rural
communities. Independent businesses such as feed mills,
hatcheries, slaughter plants, and food processing facilities
created good jobs for rural residents. The wealth created by
farmers circulated throughout those rural communities.
Then Tyson's created a vertically integrated business
model, where they bought up all the independent businesses in
the supply chain. While Tyson's didn't buy up all the farms,
they took control of them through the use of restrictive
contracts. These restrictive contracts that Tyson's entered
into with farmers forced those farmers to adopt the
industrialized model of livestock raising that we have today--a
model which poisons our air and our water, tortures animals,
and has contract farmers often living below the poverty line
and with staggering amounts of debt.
In order to compete with this business model, independent
family farmers were forced to either get big or get out. We've
seen a massive disappearance of independent family farmers and
ranchers in America. Today, Tyson's--excuse me. Tyson's first
brought this model into the chicken market and then expanded it
into the hog market. This caused 90 percent--90 percent--of
independent hog farmers to disappear in America and led to
higher prices for consumers but lower prices for the farmers,
as Tyson's has kept the difference for themselves.
It led to the horrible hollowing out of rural America as
all the wealth that used to circulate on Main Street in rural
communities among the independent family farmers and
independent businesses was sucked into Tyson's corporate
headquarters to the benefit of Wall Street.
The big four meatpacking companies, Tyson's, JBS, Cargill,
and National Beef are trying to do our cattle ranchers--to do
to our cattle ranchers what they did to our independent chicken
farmers and pig farmers. The critical task for Congress that we
face now is to make sure this does not happen.
In 1980, there were approximately 1.6 million cow-calf
operators in the United States. The big four meatpacking
companies controlled only 36 percent of cattle slaughter, and
almost all cattle were sold on the cash market.
Fast forward to today and almost half of the cow-calf
operators are gone. Gone. The big four meatpackers now control
over 80 percent of the cattle slaughter, and only 25 percent of
the cattle are sold on the cash market. Companies like JBS
import beef from other countries and deceptively label that
meat as product of the USA.
Congress needs to act quickly and take action to protect
our----
Senator Klobuchar. Senator Booker, you went mute.
Senator Booker. Thanks a lot, Senator Klobuchar.
Senator Klobuchar. Okay.
Senator Booker. We need to amend the Packers and Stockyards
Act to require that at least 50 percent of cattle are purchased
on the spot market. We need to ban packer ownership of more
than seven days prior to slaughter, and we need to mandate that
only cattle born, raised, and slaughtered in the United States
are labeled as product of the United States of America.
The Farm System Reform Act, which I recently reintroduced
this Congress, would do all these things. We must actually do
more. I'm calling on the Department of Justice, the FTC, the
USDA to enforce existing antitrust laws and break up companies
like Tyson and JBS, who have gotten so large that they now use
their economic and political power to rig the entire system in
their favor.
These Federal agencies also need to address the extreme
levels of concentration in the retail grocery sector, which has
now led to suppressed wages and a lack of bargaining power for
workers.
Thank you, Chairman, and I'm going to put a lot of
questions to the witnesses for the record. I'm very happy to
hear a lot of agreement across the aisle on the crisis we have
in the American food system. Thank you.
Senator Klobuchar. Okay. Very good. Senator Cotton.
Senator Cotton. Thank you, Madam Chair. Before I begin the
questioning, I'd like consent to enter into the record an
article published by Bloomberg News on Monday. It's entitled,
``Prices For Young Cattle Are Soaring, Signaling Expensive
Beef.''
[The information appears as a submission for the record.]
Senator Klobuchar. It'll be entered in the record. Thank
you.
Senator Cotton. I'm going to welcome all of our witnesses
both here in person and virtually as well. Mr. Schaben, it's a
pleasure to get to visit with you earlier as a fellow family
cow-calf operator. I think your operation is a lot bigger than
the Cotton family's. Thank goodness. Welcome to you all.
There's been a lot of talk about price transparency this
afternoon in regards to pricing. I want to explore that a
little bit more.
Mr. Miller, testifying virtually, under the Mandatory
Livestock Reporting Act, Tyson Foods has to report what they
pay for cattle and what they sell beef for every day to the
U.S. Department of Agriculture. Is that right?
Mr. Miller. Yes, sir. Senator, we actually--under the
Livestock Mandatory Reporting Act, we report what we buy for
cattle in the morning and then we turn around and report what
we purchase by the end of the day. Those are--those reports go
out twice a day. In fact, there's additional reports that are
produced on a weekly basis. There is plenty of information that
can lay out how many cattle we're negotiating, how many cattle
were purchased under a forward pricing arrangement, and how
many cattle were purchased under some sort of alternative
marketing agreement.
The same holds true on the--on the boxed beef side of it
and pork side of our product sales too. Those products are
negotiated. Anything that's negotiated is reported twice a day.
The same thing at the end of the week. There's a weekly report
that shows what's been sold globally and at the international
space--how many pounds--the same thing as what's been sold
forward, what's been sold in the spot market. There is plenty
of transparency in this business.
Senator Cotton. Mr. Schellpeper, is that the same for JBS?
Mr. Schellpeper. Thank you, Senator. Yes, it is.
Senator Cotton. Okay. Mr. Miller, if someone is interested
in finding out those prices you just discussed, where would
they go to look up that information?
Mr. Miller. Yes. The USDA--so the AMS Division of the USDA
publishes it daily. There's a website out there that if I need
to, I can get information to all the senators so they can pass
it on to your constituents. It's readily available.
Senator Cotton. That's quite all right, Mr. Miller. I'm
sure everyone can Google. I want to turn to another topic that
we've discussed a lot today here, which is concentration in the
meatpacking segment. Obviously, that has antitrust
implications, which is squarely within our jurisdiction.
Mr. Miller, do you know about how much of the beef market
share Tyson had in 1990?
Mr. Miller. Yes. I started with the company in 1992. I
would guess that number to be approximately 25 percent.
Senator Cotton. What about a decade later in 2000?
Mr. Miller. That number would have been somewhere near 23,
24 percent.
Senator Cotton. What about last year in 2020?
Mr. Miller. This past year, we're approximately 20 percent
of the market share.
Senator Cotton. Your market share for beef has declined
over the last 30 years?
Mr. Miller. Yes, sir.
Senator Cotton. Mr. Schellpeper, do you how much beef
market share JBS has today?
Mr. Schellpeper. Thank you, Senator. Yes, I do. In total,
we'll be something around 23 or 24 percent.
Senator Cotton. Thank you. Mr. Miller, I want to go back to
the combined market share now of the four biggest beef firms.
In 1994, do you know what their combined market share was?
Mr. Miller. It was approximately 80 percent.
Senator Cotton. What's the combined market share of the
four biggest beef firms today?
Mr. Miller. Yes. Approximately the same level. It's moved,
you know, a percentile or two up and down over the past 30
years, but directionally, it's virtually unchanged over the
last 30 years.
Senator Cotton. Okay. A third topic we've heard a lot about
is the price of cattle. I have heard a lot of references to
2014 and 2015. Do you know what the price was in 2015, Mr.
Miller?
Mr. Miller. I don't have that in front of me. I do know the
value of the product in 2014, 2015 was around $2.35-$2.40 a
pound.
Senator Cotton. Yes. The price is $166, which is pretty
high historically. If you go back 10 years, 2011, it was only
$110. If you go back 11 years, it's $88. Obviously, the
starting point for some of these figures influences the size of
the growth or the decline. I've just got one final question I
want to discuss. Mr. Miller, formula transactions or
alternative marketing agreements, AMAs, we've heard a lot about
how these are causing cash cattle trade to decline.
Can you talk to me, Mr. Miller, about how Tyson uses AMAs
and how they help contribute to a sufficient supply of
specialty products and why some producers might choose to use
AMAs?
Mr. Miller. Yes. A little bit of background on that. AMAs--
the advent of AMAs had been around for probably 30--25 to 30
years, maybe even a little bit older than that, but somewhere
in that range. Over time, if you go back to the 19--early
1990s, as an industry, our typical cattle grade from a meat
quality perspective, we were grading somewhere right around 60
percent choice or higher.
This past year in 2020 and 2021 had been record grading
years from a quality attribute perspective. Choice or higher
has been grading 83 to 85 percent and upwards of--if you look
at the prime category, which is the category above choice,
historically, that would trade--that would be somewhere right
around 1 to 3 percent of the supply would meet that prime
grade.
This past year, those numbers have been upwards of 10 to 15
percent. We've had tailwinds at times closer to 18 percent. The
quality that we're supplying our customers is matching what the
consumer wants. That's a better eating experience when it comes
to beef.
Senator Cotton. All right. Thank you, Mr. Miller. My time
has expired.
Senator Klobuchar. Thank you very much, Senator Cotton.
Next up, Senator Hirono patiently waiting in the wings.
Senator Hirono. This has been very interesting. There you
go. Thank you very much, Madam Chair.
I have questions for Mr. Miller. In 2019, Immigration and
Customs Enforcement conducted raids at a handful of chicken
processing plants in Mississippi, carrying out one of the
largest immigration raids in recent history, arresting nearly
700 people. In the end, it was the workers who paid the price,
and the companies and the people who knowingly hired them faced
little, if any, consequences.
Then during the pandemic, one of the few times that
President Trump used the Defense Production Act was to keep
meatpacking plants open. These people who worked in the
meatpacking plants were deemed essential workers.
Do you support, Mr. Miller, a pathway to citizenship for
such workers?
Mr. Miller. First off, thank you for the question, Senator.
I'm not familiar with the specific poultry reference you did
make. However, I will say this. We believe in a comprehensive
immigration reform plan that can help to provide border
security but also proper documentation of future applicants.
As I mentioned earlier, our team members come from diverse
backgrounds. As I mentioned, we have more than 50 languages in
our beef and our pork facilities. They truly reflect the
makeup, and the thread, of what America is itself. We believe
in immigration reform. We believe that allowing these
immigrants into our communities provides an entry point for
many Americans and also immigrants. We give them an opportunity
to thrive and succeed.
Senator Hirono. Thank you. Has your company taken a public
position in support of comprehensive immigration reform, which
also, basically up to now, in the 2013 Immigration Reform Law,
provided a pathway to citizenship? Has your company taken a
public position?
Mr. Miller. Senator, this is not really an area of
expertise for me. I'm not familiar with the position we've
taken. I will go back to my team and then we can revert back to
you and get you a response with that.
Senator Hirono. You just testified that you support
comprehensive immigration reforms. That is good news to me, and
it would be helpful if other companies who utilize immigrant
labor also took that kind of position.
Mr. Slover, I was particularly interested in your testimony
because you come at it from a consumer standpoint. You note in
your testimony that you support various bills that you listed
in your testimony. Is any one of these bills more important in
terms of what we should do first to provide more competition in
the areas that we're talking about so that it ultimately
benefits to--benefits the consumer?
Mr. Slover. I listed three bills. One of them is the bill
that Senator Klobuchar introduced, S. 225, which I believe
makes a number of well-founded reforms based on established
antitrust and competition principles that we have supported, I
think, since before it was introduced. I would put that one at
the top of the list as the right starting point for bipartisan
discussions that need to take place.
The bill that Senator Klobuchar introduced with Senator
Grassley and Senator Durbin to change the filing fees to raise
them on the largest mergers will increase enforcement
resources. I think that one's important too.
There's also a bill that's been introduced recently by
Senator Lee and Senator Grassley that has a number of proposals
that I think should--that we think should also be a part of
that mix. I would start with those three.
Senator Hirono. Good. Bipartisan. In the early 20th
century, the Justice Department broke up the 5 biggest US
meatpackers, and we had decades of competition in the beef
industry. After the five largest meatpackers were broken up, we
had a lot of competition, apparently, in this industry. We're
down to the big four now. In your view, is it time to break up
the giants in the meatpacking industry once again?
Mr. Slover. We have refrained so far from calling for a
breakup without the investigation that would justify that under
existing law or under the principles underlying existing law.
We would not be opposed to that if the facts warranted, and
certainly, that could bring increased competition and more
opportunities up and down the supply chain.
Senator Hirono. Clearly----
Mr. Slover. We're not just--we're not unfavorable toward
it.
Senator Hirono. Right now, the Justice Department, I think,
is investigating a certain--the corporations in the industry--
for price-fixing. That's a per se violation of the antitrust
laws. When you have so few players, you have a lot of parallel
behavior going on. I think you call that accommodating
reactions. We may be at the point for our consumers to really
look at breaking up these big companies. Thank you, Madam
Chair.
Mr. Slover. That's----
Senator Klobuchar. Next up, Senator Cruz.
Senator Cruz. Thank you, Madam Chair. Welcome to the
witnesses. Competition is critical to our economy. Competition
helps workers, helps employers, and it helps consumers to lower
prices and to increase quality. I'm concerned about the very
real lack of competition in the meatpacking industry.
In 1988, the 4 largest companies controlled 70 percent of
the market. That share grew to 81 percent of the market in
1999. Today, the market share of those 4 companies, that
oligopoly, is now at 85 percent. We need to make sure that even
in the face of market concentration there remains real and
meaningful competition and price transparency.
Mr. Schaben, I'd like to start with you. In your judgment,
what steps can Congress or the USDA take to bring more
transparency in pricing, to ensure competition, and to
facilitate more negotiation between producers and packers?
Mr. Schaben. Senator, thanks and I appreciate your
comments. I think there are several things, and I do think some
of those are addressed in what we refer to as Senator
Grassley's 5014 bill. And one thing I want to be clear about,
we're hearing a lot about these alternative marketing
agreements. We're not dictating how people market their cattle.
What we're trying to see is that it's done in a competitive
fashion and that it's not done to take competition away, the
very thing that you have stressed from the second you started
speaking. It's vital to all our industries.
Somehow through this--through our beef business, we've
tried--they've tried to take that away from us and tried to
take the competition. I think there's a number of things.
Better--when we talk about livestock market reporting, a better
system to know exactly what's going on in relationship to how
the marketing agreements--what they constitute, so producers
have an idea of what they're doing.
More cash trade. Those alternative marketing agreements
they keep talking about producing--bringing the quality of the
product up. The north plat--northern cattle feeders are--have
the highest quality, and yet we have the lowest alternative
marketing agreements. I don't see the correlation that I keep
hearing here today.
We just think we need a robust--a system of how to do it.
We think an enforcement of the Packers and Stockyards Act,
which was put in place ironically after they broke up the big
five, that came into play. That's why I guess I'm here, to beg
you, as a Committee. I think what producers are asking for is
just a fair playing field. We like the game. We're up for the
fight. We just want the rules to be fair.
Senator Cruz. What would help produce a fair playing field?
What would ensure that capital are able to moved at a fair
market value?
Mr. Schaben. One thing that takes so much away today is all
the contracted cattle. All the alternative marketing
agreements, they're contracted. Just like a simple supply and
demand, when you have X amount of cattle that are contracted
ahead of time, obviously, that's going to take away demand for
the cash cattle market. Yet all those formula cattle are based
off that market. How great it is--it's a great tool. I credit
the packers for doing it. It's not helping the cash market for
producers.
When we talk about the concentration issue--and I don't
have the figures in front of me--but just 20 or 30 years ago,
when almost, probably 80, 90 percent of our cattle are traced--
are sourced on an open, competitive market--that thing has
literally flip-flopped today, Senator Cruz, where there's--
where now our cash in some states gets down to less than--can
get down to less than 10 percent of a competitive open market.
Senator Cruz. In your experience, what percentage of your
business is done on a formula basis?
Mr. Schaben. I don't know the percentage. The State of Iowa
and in the Midwest is considerably low. As we trend farther
South, and I believe in your home State, it gets pretty high. I
think their percentage of their formula cattle get there to
where it might be in the 90 percent or more.
Once again, how you market them isn't so much. It's how the
prices derive. Is it competitive when we do it? As a livestock
auction market owner, Senator Cruz, I can tell you the way to
fix it is if all of them are have--well, had to be procured in
an open competitive daily market, but that would be a little
self-serving.
The two gentlemen here representing the packers are
customers of mine. They come buy cattle at my market every
week, and I'm darn happy to have them. What's happened over
time, and that concentration issue, is to where we used to have
five, six, seven buyers, we've got it down to two. That is
fundamentally a problem.
I don't think any people in here would disagree that if 20
people are bidding on this bottle of water, it's probably going
to bid--bring more than if one or two are bidding on it. I
think that's what we're trying to accomplish in this--through
this hearing.
Senator Cruz. Okay. Let me ask one final question of Mr.
Schaben and Mr. Larew. President Biden has proposed, as part of
his multi-trillion dollar tax increase, ending the stepped-up
basis in tax treatment. How would that impact farmers and
ranchers? What kind of damage, what kind of devastation would
eliminating stepped-up basis cause for farmers and ranchers all
across the country?
Mr. Larew. Yes. Certainly, I appreciate that. For Farmers
Union, we have communicated very clearly to the administration
and to any Members of Congress who have proposed that, that
this would have devastating impact on family farmers and
ranchers and the ability for them to, quite frankly, remain
economically viable in many cases.
Senator Cruz. Mr. Schaben.
Mr. Schaben. I would have said the exact same thing. The
stepped-up basis is--helps family farms stay generational. It
is a very--very important thing, I think, to our people and all
the customers that I represent. It--obviously, in the
agriculture industry, most of our customers live asset rich and
cash poor, but to be in a position at the end to have to--to
not have a stepped-up basis, probably, would see a drastic
shift in land ownership, I would think, and pretty scared about
that, I guess. I think Mr. Larew and I are 100 percent on the
same page.
Senator Cruz. Thank you.
Senator Klobuchar. Next up for a second round, I think
Senator Blackburn may join us in a while. Oh, I want to mention
that Senator Hyde-Smith has been with us as well. Thank you for
joining us today. Outside of our Committee, we always welcome
visitors and interested parties. Senator Grassley, you have
some additional questions.
Senator Grassley. Let me add that Senator Hyde-Smith took a
very active role in this same subject as a Member of the
Agriculture Committee and has some very tough questions----
Senator Klobuchar. Yes
Senator Grassley [continuing]. On this every issue. I'm
going to take off with the recent discussion that Senator Cruz
had with you, Mr. Schaben. Also, I think it's central to what
Senator Cotton asked about. Senator Cotton asked appropriate
questions. He got appropriate answers and as he should.
When you say that we have the cash market, and you report
daily--so I'm talking to Miller or Schellpeper. When you say
you report twice daily these sales, remember, you're reporting
on about less than 20 percent of your sales in most cases.
Consequently, then, what we need is that other 80 percent to
have transparency so that people that are selling on a cash-
negotiated basis on a daily basis knows that--what they're
getting. If we had that, I don't think we'd be here today with
this issue.
It's my understanding from the laws that are already on the
books that Secretary Vilsack might have the authority to bring
about more transparency in these contracts that are out there.
Confi--confidentiality's part of those contracts, but these
packers can't give those prices out. What's the reason for
keeping that secret? I don't know. I don't understand at all
that that should be secret. If you had 100 percent of this
daily kill being reported, then those people that negotiate
price would know exactly what they're--what they're getting.
I just think I ought to point that out. There was nothing
inappropriate with any of these questions about what
transparency there is, but there isn't enough of it. That's
because of these contracts having these confidential clauses,
or whatever you want to call it, in them.
I'm going to go to you, Mr. Schaben. I know your family
farm's been in the livestock business since 1950. Besides
livestock auctions, your farm includes cow-calf. I'm excited to
hear that your kids are also involved in the agriculture. How
does the lack of cash trade in other regions impact livestock
markets today, like your livestock market?
Mr. Schaben. The lack of cash trade, and if we're right in
saying that it brings a more robust, and in this instance, a
more price-appropriate response back to the cattle feeders, how
it makes a great deal is the people that we service, Senator,
in our auction markets are the independent cow-calf producers.
As the price of fed cattle rises, the bids that then go
back to the people who produced it from the start get higher.
It's a--it'd be the quickest way to add value into the rural
sector. That's--that is the big thing here that we push about.
If that money that can get created in this system gets trickled
down so fast, and anybody that's been around agriculture knows
that that's a continuous wheel that literally goes 24 hours a
day, and they--and that money gets recirculated back as good as
it goes. Putting it back into rural America's the best we can
ask for.
Senator Grassley. Mr. Schaben, how many packers do you
participate with in any given week? Would more competition
benefit you and the independent producers?
Mr. Schaben. Of course, more competition, Senator, is going
to benefit all independent producers. It's in--as it was
pointed out by Senator Cruz, it's the backbone of our whole
society. It's going to benefit it for sure. As far as how we
deal with--ironically, the two gentlemen that are represented
here today, like I said before, are direct customers of mine.
They come to my market every week and participate it and that--
for that, we're very thankful.
Over time, what we've seen through consolidation,
specifically in my business, to the cull cow market, to the--to
what ends up back in the ground beef chain, sir--we have seen
such a consolidation in that industry that 20 years ago, 15
years ago, maybe 10 years ago, we would have had between five
and eight buyers weekly at our market to purchase the cull cows
that go back into the hamburger supply chain. We have two
today. We have two.
We're so glad we have two. We're just afraid that what
happens if we go to one--in consolidation if we go to one or--I
don't know. It's a very scary proposition.
Senator Grassley. I'm going to ask Mr. Miller and Mr.
Schellpeper. With regard to the Tyson fire and also JBS
ransomware attack, the highly concentrated meatpacking industry
showed it's extremely vulnerable; shutting down one plant even
for a few days, weeks, or months backs up production, leads to
higher prices for consumers, lower prices for farmers, and meat
shortages.
Would you agree these disruptions highlight the need for
more competition?
Mr. Miller. Senator, thank you for the question. One thing
I want--I want to revert back to a statement you had just made
in a question you had asked the gentleman prior to me. We do
report every purchase. The USDA then takes it from there,
whether it's a formula purchase or a negotiated trade. Then
they move it into the specific report. The same for the sale of
product. Whether it's sold on a formula basis or a negotiated,
it goes into those varying reports. I just want to clarify that
for you and the Committee.
Senator Grassley. Have you answered my question? Would you
agree that these disruptions highlight the need for more
competition?
Mr. Miller. I'd like to speak a little bit on the Holcomb
disruption. If you go back--you know, and an unexpected
disruption similar to this will shock the system. There's no
doubt. However, we took measures to lessen the impact of the
fire by shifting cattle out of that region to other production
facilities, to be able to take advantage of our other five
facilities in the United States here, and to increase our
harvest capacity in those plants.
We also temporarily moved team members around from plant--
from that Kansas region up into our other facilities to
increase our chain speed.
Senator Grassley. Mr. Miller, you want to answer that
question? Would you agree that these disruptions highlight the
need for more competition?
Mr. Miller. When we talk about competition, we welcome all
the competition there is. There's small players. There's large
players. As I said in my opening testimony and in the written
testimony, the competition is intense. In fact, if you look at
the announcements that have been made in the last 60 to 90
days, there's upwards of 8 to 10 thousand head of additional
harvest capacity that's scheduled on our line over the next
several years. We do welcome more competition.
Senator Grassley. This will be my last question. You just
said that you report data. As a matter of fact, it's not made
public. Would you be okay with removing confidentiality blanket
in those contracts?
Mr. Miller. I'm sorry, Senator. Are you referring to----
Senator Grassley. The----
Mr. Miller [continuing]. The library of contracts? Are you
reported--are you talking about reported trades?
Senator Grassley. I'm talking about the fact that you say
you report daily or maybe----
Mr. Miller. That's right.
Senator Grassley [continuing]. Twice a day all the data,
including what's precontracted and any other arrangements you
have. That information is not made public. It goes to the USDA.
Would you be okay with removing the confidentiality blanket
that's in these that keeps this information from being made
public?
Mr. Miller. I believe that is a question for the USDA and
AMS Division to make a decision on that. I do believe
confidentiality plays an important role in this too, especially
if there's only one party that's negotiating or trading that
specific day. We have to take confidentiality into
consideration.
Senator Grassley. Okay. I----
Senator Klobuchar. Very good.
Senator Grassley. Thank you.
Senator Klobuchar. Thank you, Senator Grassley. On
remotely, Senator Ossoff.
Senator Ossoff. Thank you, Madam Chair. I want to thank you
and Chair Durbin. I want to thank, in particular, Ranking
Member Grassley for his leadership on this issue and for
putting together a bipartisan coalition that's trying to get a
fair shake for cattle farmers in Georgia and in Iowa and across
the country. Thank you, Ranking Member Grassley.
First question's for Mr. Larew. Mr. Larew, there are 15,000
cattle producers in the State of Georgia. While we're known for
peaches and pecans, cattle is actually the fourth largest
commodity from our State. While demand for beef has continued
to grow, most cattle producers, like the 87 percent of Georgia
cattle producers who have less than 100 head, don't know
whether they will make or make lose money on their next calf
crop.
My question for you, Mr. Larew, is what is the biggest
barrier to establishing a more stable and profitable market for
Georgia's cattle farmers and cattle farmers across the country?
Mr. Larew. Very succinctly, it's a lack of competition,
transparency, and really shining a light on things also like
labels to make sure that consumers are not only being misled,
that producers out there are able to market their product in
a--in an open and truly truthful way. Right--I would say first,
it's competition. We don't have fair competition right now. The
rules of fairness need to be rebuilt. Then it's a question of
transparency to add to that, and then labeling.
Senator Ossoff. Thank you, Mr. Larew. Appreciate that. Mr.
Schaben, as I said, there's about 15,000 cattle producers in
Georgia, around a million farms nationwide, and they all
compete against each other, but most of the livestock winds up
going to one of just four packers. Mr. Schaben, who would you
say has the biggest influence on the short-term demand for the
cattle you sell? Is it consumers or is it someone else?
Mr. Schaben. On the short-term demand meaning--can you
rephrase the question?
Senator Ossoff. Yes. Who is driving the demand dynamics,
and who is setting the prices for your products and the
products of farmers in similar position?
Mr. Schaben. If it's about who's setting the prices, then
that would fall directly to the end users. I mean, if you're a
cow-calf producer, the one driving the price is the feeder
that's bidding on them. The feeder's prices are derived from
what they get from the packer. The packer's prices, we'd like
to hope and think, are derived from the consumer and what
they're willing to pay for beef. That's where we found a major
impasse.
We have finally created this system that has our product
selling so good, and in an event as COVID, and through that
crisis, when people turned to what they knew, and they knew the
best and bought all this beef product up and bought it so well,
and that these prices on the retail level shot through the
roof, the prices that the feeders received went down almost in
reverse the same.
Then, of course--then the prices that they paid the cow-
calf producers in your State and all the other cow-calf
producers went down. There is a part in the system where it
hasn't worked. When we talk about supply and demand, and I hear
that all the time, the problem with the supply and demand issue
is if too many of these cattle are forward contracted and at--
and then we don't have an open, competitive cash market, it
probably sets an artificial floor where the cash price is and
probably sends dynamics down the system that really aren't
truthful to the market.
Senator Ossoff. Thank you, Mr. Schaben. Appreciate that.
Mr. Slover, there have been recent widely covered events that
have had a huge impact on the market for beef: the Tyson plant
fire in 2019, the recent ransomware attack targeting JBS. When
we have this kind of consolidation in the packing sector, what
does that mean in terms of the impact on the market of these
events that can have a huge impact at one facility or for one
company?
Mr. Slover. It makes the supply chain more vulnerable to
these disruptions. It points out starkly that the marketplace
and competition means more than just a dry economic efficiency.
It's a matter of severe consequences, potentially life and
death.
I would also like to say in reference to your previous
questions that it's the concentration in the middle of the
supply chain. All of those points of starting with the packers
and ending with the retailers--that's got the producers on one
side and the consumers on the other suffering. They're bearing
the brunt of the choke points along the rest of the chain. It's
just a question of how those choke points are interacting with
each other. The signals for demand at the consumer side are not
making their way through to the producers at the supply side
without interference by those choke points.
Senator Ossoff. Thank you, Mr. Slover. Appreciate that.
Certainly, my office is hearing from cattle producers in
Georgia about the impact that concentration in the packing
sector has on them. I want to thank you again, Ranking Member
Grassley for convening this hearing, Chair Durbin, and Chair
Klobuchar. Appreciate our panel's attendance, and I yield.
Senator Klobuchar. Also Ranking Member Lee. We thank him. I
will note, Senator Ossoff, you had the best lighting of any of
our guests so far remotely. That was kind of----
Senator Ossoff. Regards to Ranking Member Lee as well.
Appreciate it. Thank you, Senator Klobuchar.
Senator Klobuchar. Yes. We like----
Senator Lee. That really should come with a prize or----
Senator Klobuchar. With the green. With the look. It was
really--it was actually very good.
Senator Lee. Yes. It was good and very well done.
Senator Klobuchar. Very well done. Okay. Senator Lee.
Second round, I guess.
Senator Lee. Mr. Larew, we've heard from the meatpackers
that they're already required by law to report, I think, twice
each day to the U.S. Department of Agriculture the price they
pay for all cattle and the price at which they sell. Is that
right?
Mr. Larew. Yes.
Senator Lee. If that's the case, why is that reporting not
enough to ensure adequate price discovery?
Mr. Larew. Most of what is actually reported does not show
a true cash--or because cash is now such a small part of what
ends up being reported, we don't have a true capture of where
that market lies. Because we have such a large amount of that
now captured by the AMAs, this actually has a loop effect. Not
only does it have an effect of driving that cash price down,
but then that gets built in to the AMAs because that's
typically used as the base price, which then further erodes
that cycle.
I would--if it would be okay, I would just draw to the
Committee's attention--earlier there was a reference to a
report from 2008 that talked about the benefits of an AMA from
USDA and their Packers and Stockyards Program. There is a 2014
report which describes this process that we are now seeing with
the increase of AMAs and the lack of transparency in those, the
effect that that has on the cash price, and then that loop and
eroding effect.
Senator Lee. Are there changes that can be made to the
mandatory reporting requirements that would be more helpful--
that would make it more helpful?
Mr. Larew. Yes. First of all, I do believe that we need to
make sure that we are increasing the amount of cash or spot
market negotiations. I think that on top of that, bringing some
light and transparency to the terms of these marketing
agreements through a contract library would be very helpful.
Senator Lee. Mr. Schellpeper, these AMAs and contract
cattle are said to encourage better quality animals and bring
efficiencies into the system. Of course, the Government can't
be in the business of mandating against efficiencies and
quality. That being the case, all producers and feeders could
probably make better business decisions if they had a reliable
base price.
Can you tell me about what percentage of the cattle that
JBS produces each week--what percentage comes from the cash
market as opposed to cattle that come to you under contractual
obligations?
Mr. Schellpeper. Thank you, Senator. I don't have that
particular piece of information in front of me on what that
percentage is. I think it's important to note that when we talk
about AMAs, that this is then a producer decision as well, that
they have to----
Senator Lee. Wait. Why wouldn't you know that? I'm confused
as to why you wouldn't know that information.
Mr. Schellpeper. I don't have that information in front of
me, Senator. I can certainly get back with you or your office
with that information.
Senator Lee. Okay. You have a rough----
Mr. Schellpeper. Yes, what we are----
Senator Lee [continuing]. Approximate guess?
Mr. Schellpeper. We are--Senator, I would like to note that
we are very active in the cash market. We're in the cash market
every day. We're in numerous sale barns every day. We are also
a very active participant in video markets. We are very much a
supporter of the cash market, and we are an active participant.
We have both AMAs and active participation in cash markets.
Senator Lee. Okay. Mr. Miller, what about--what about you?
What percentage of the cattle Tyson purchases each week come
from the cash market as opposed to cattle coming through
contractual obligations? Did we lose you Mr. Miller?
Senator Klobuchar. Senator Lee, hold on. Mr. Miller?
Mr. Miller. Yes. I'm here. Can you hear me?
Senator Lee. Yes.
Senator Klobuchar. Yes. Thank you.
Mr. Miller. Not sure what happened there. All right. Sorry
about that. Senator, thank you for the question. What I was
saying was that, you know, the competitiveness of this
marketplace--obviously with a competitor on this--in this
hearing and this call, I don't really want to divulge my
specifics. I will say this. From a formula-based AMA
perspective, over 50 percent of those cattle that we do
purchase are under an AMA.
The other piece of this too that we're leaving out, another
component that's in the negotiated trade are component--a by--
I'll say it's a by-product of the negotiated trade, is our
forward contracts. We do contract with specific producers
because they want to have a risk management program in place to
allow them to minimize their risk, but also from a banking
perspective too, that if they're able to lock in a specific
price on a forward contract they can go back to their bank and
say, ``Look. I have my cattle sold off in the futures market at
X.''
There are some other components to this too, hence the
reason I don't want to give you specifics. I can certainly--we
can certainly follow back up with you, Senator.
Senator Lee. In your opinion, would--would better price
discovery and transparency benefit the producers and feeders
who are left out of the AMAs and other contract pricing?
Mr. Miller. I think one thing--AMAs do not lock out any
supplier to selling to Tyson. We'll put together an AMA with
anyone. I think that the negativity that's being cast on the
AMAs is not accurate. They do give producers a forward look of
what the value of their cattle are going to bring. But they do
not lock them. We don't say, ``If you're a smaller producer,
you can only bring 100 head. We're not going to put you on an
AMA.'' That's not true.
Senator Lee. Okay. Thank you.
Mr. Miller. You're welcome.
Senator Klobuchar. Thank you. Do you have anything else,
Senator Grassley, follow-up? Okay. I just have one or two
very----
Senator Grassley. Oh. Hey, there is one thing I wanted you
to see.
Senator Klobuchar. Oh, of course. Yes. Okay. You see----
Senator Grassley. Unanimous consent to add to the record a
letter from R-CALF USA.
[The information appears as a submission for the record.]
Senator Klobuchar. Okay. So be added. Just quickly, Mr.
Larew, Secretary Vilsack--I know he was recently in your State,
Mr. Schaben, with--and talking about his home State, some of
the things the USDA can do that are contained in the
President's executive order on competition. Do you want to
elaborate a little bit on that?
Mr. Larew. Yes. Absolutely. I appreciate it. We are excited
and hopeful that the President's executive order will provide
some movement forward in this space. First of all, the Packers
and Stockyards Act that's been mentioned a few times today is
celebrating its 100th birthday in just a matter of days and yet
has really kind of been eroded in terms of enforcement and
really good fair protections for family farmers and ranchers.
USDA has signaled that they will begin rulemaking to
address some key challenges within the Packers and Stockyards
Act and to provide protections for growers out there. We see
major problems in contract growers of poultry. We see
challenges within the hog industry and certainly within the
beef industry as well. Bringing greater clarity for what are
unfair practices, bringing greater certainty for protections,
including protections against retaliation against some of these
players.
They also in that executive order have clarified that they
will be looking at labels such as product of the USA, which
right now in meat products can be used even if it contains
foreign meat. As long as those products has been partially
modified, once they are imported, they are able to use the
product of the USA label.
We certainly feel, and I think most family farmers and
ranchers believe, that this is a--is not only anticompetitive
but for--from the consumer's point of view is an egregious
failure to provide truthfulness in labeling.
We're encouraged by these actions and certainly would
encourage additional action to bring competition to this
marketplace.
Senator Klobuchar. Mr. Smith back there, we haven't heard
from you a little bit. Just sort of the same type of question,
not on rulemaking necessarily but just what you see as a
solution for some of the grocer issues you raised.
Mr. Smith. Thank you, Senator. Yes. Certainly, I'm a
grocer. All we're asking for is a level playing field.
Robinson-Patman, we thought, should ensure that we get fair
terms and fair prices for the same product. What we're dealing
with is that it's gone unenforced. We really see nothing that
is stopping the continued increase of market power by those
power buyers. It's the same thing. It's transparency and
fairness and an equal opportunity. That's all we're asking for.
Senator Klobuchar. Okay. Very good. Thank you. Maybe we end
with Mr. Slover because you mentioned my bill a few times as
well as Senator Grassley and Senator Lee's bill. Just the idea,
as we look at targeted approaches, from the meatpacking
discussions we've had today to pharma, where there is
bipartisan work being done there and has been done, especially
with the two people right here sitting with me and also on
Tech.
At the same time, if we want to get at some of this
consolidation overall, the virtue of doing at least some
changes that would help us with consolidation in general to
make it easier to bring these cases--because I view this as
pro-competition going way back to Adam Smith, who always warned
about--as he talked about the invisible hand and the importance
of capitalism. He literally, from the beginning of our country,
warned about the unbridled army of monopolies and what could
happen if we let that go.
Could you just talk briefly about the importance of making
some changes that would be more comprehensive to make it easier
to bring some of these cases, not just to--in the food industry
or grocers as just discussed, but in general?
Mr. Slover. Yes. Thank you, Senator. Two things that I
highlighted in my written statement that are in your bill, one
of them would strengthen merger enforcement by focusing on the
largest mergers and creating presumptions that are--have been
recognized in the courts before but aren't recognized as often
as they should be to have the merging parties justify that
their mergers are not going to cause harm.
The other one that I highlighted in my testimony is
strengthening the laws against abuse by dominant corporations
closing off competition by sabotaging essentially the
competitive efforts of their rivals and making that be able to
reach more clearly to all of the dominant firms that have that
power.
Then very briefly, I would just like to piggyback on what
Mr. Larew said, that we are all in favor of country-of-origin
labeling. Consumers want to know where their food is coming
from as well. Thank you.
Senator Klobuchar. Okay. Very good. I just think, to my
colleagues, as we forge ahead here and look at some of these
specific industries, we also should try to find common ground
on some of these changes we can make in general to the laws
because then it's going to be another industry, and then it's
going to be online travel, and then it's going to be something
else because I think if we get the resources to the agencies,
shift the burden in these biggest cases, and make some changes
that I truly don't think will be radical and will help the vast
majority of businesses, it's going to take some leap of faith
because everyone's going to have business that won't like it.
Then when you really push it, I think they're going to tell
you that, you know, they can survive in a competitive market. I
think that is our challenge and our burden as we go forward
here. This has been a fantastic hearing. Thank you for staying
to the end, Senator Cotton. You get the prize.
[Laughter.]
Also, just thank you to Senator Grassley, Senator Durbin,
Senator Lee, and really everyone that took part in this. I hope
you saw the best of a spirited discussion, some different views
but also some commonalities. That's what we're really trying to
carve out here in this area of competition, so we can find some
areas where we can work together.
Thank you all. We're going to keep the record open for this
hearing for a week until August 5th, 2021. We welcome further
questions, comments, or anything you want to say.
With that, I'm going to have to reach over to adjourn the
hearing. The hearing is adjourned.
[Whereupon, at 5:03 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows.]
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