Meat Industry Consolidation In The U.S.
Meat processing used to be done by small, local packing houses located near the farms and ranches they served. But no more. Meat processing has gone global, and is largely controlled by enormous, multinational firms. Government subsidies have enabled this transformation. Direct payments or tax breaks for production costs, low-interest financing for expansion, and lax environmental regulation have all helped the biggest firms to get even bigger. This government largesse lavished on a few has exacted high costs to farm and rural economies. Meanwhile, small meatpackers have closed, and squeezed finances have driven small farmers out of business. Public health, animal welfare, and local and global ecosystems have also suffered.
More ominously, food production is now highly centralized, making it more vulnerable to disruption from climate change and disease outbreaks. This threatens the resilience of our food system. The authors of this case study examined the growth histories of the three largest multinational firms, Brazil’s JBS, Tyson Foods I the U.S., and WH Group Limited of China. They sought to learn more about the effects of corporate concentration in global meat production. In the U.S., these three firms control 63% of pig processing. Just two, JBS and Tyson, control 46% of cow slaughter and 38% of chicken processing.
Not only have JBS, Tyson, and WH grown horizontally by taking over competitors, they’ve expanded concentrically by entering the packing market for other species. Through vertical integration, they’ve acquired interests in animal genetics, feedlots, feed mills, and packaged brands for food manufacturers. By controlling a variety of brand names, these firms conceal from consumers the extent of industry concentration.
To better understand this phenomenon, researchers analyzed data from 1996-2016 for each of the three firms. This analysis suggested that some of the most important subsidies for meat processors are those which reduce feed costs or help to finance acquisitions. Feed is the largest embedded cost of meat, accounting for 60-70% of expenses in confinement systems, and since meat consumption in the global north has leveled off, firms achieve growth primarily through acquisitions of other firms. While feed and finance subsidies indeed lead to cheap meat for consumers, they fail to account for the externalities caused by industrial methods of production.
Feed subsidies have been key in the rise of Tyson Foods. Its corporate motto is “segment, concentrate, dominate.” To that end, it seeks out opportunities to enter new markets and gain market share. Geographic expansion has focused on Asia through joint ventures in China and India. Tyson has also invested heavily in firms that control chicken genetics and chicken breeding to become a dominant player. The company exploits its growers by punishing deficient producers with lower compensation. It strongly discourages unionization of its facilities. And all of this is enabled by a variety of subsidies from the U.S. government. None are more important than those for corn and soybeans that reduce the cost of animal feed, allowing the firm to become ever larger and more profitable.
By contrast, WH Group has benefitted far more from government financing subsidies. It’s the world’s largest pig processor and has 25% of the U.S. market. China is the largest consumer of pig meat, producing and consuming half the global output. To expand its supply of pig meat, WH acquired the U.S. firm Smithfield in 2013, using a $4 billion loan from the Bank of China. It’s also expanding vertically and horizontally into chicken processing. WH has a goal of becoming the world’s largest packaged meats company and continues to make acquisitions in pursuit of that objective. The Chinese government rationalizes its assistance in the name of efficiency and rural development.
Meanwhile, JBS has taken advantage of both feed and financing subsidies to become the world’s largest meat processor. It dominates both cow and chicken processing across the globe. It was founded in Brazil as a cattle processor. In recent years, the Brazilian government has funded its rise through low-cost loans in exchange for an equity stake. It acquired U.S. firm Swift in 2007 and became a majority shareholder in Pilgrim’s Pride in 2009. It also bought cow, pig, and chicken processing businesses from Smithfield, Cargill, and Tyson, respectively. In addition to cheap financing, Brazilian firms can access corn and soybean feed that is even cheaper than in the U.S. Both government subsidies and government support for transportation infrastructure, along with lax environmental standards, reduce prices for these crops.
The results of the case study clearly show how feed and financing subsidies have driven the rise of multinational meat behemoths. These subsidies have also fostered dangerous, though likely unintended, consequences: risks of disease outbreaks, biodiversity loss from genetic uniformity, destruction of rural economies, and environmental damage all loom large. But governments are beginning to feel some resistance. Animal advocates can capitalize on this growing distrust by supporting movements that seek to reverse or redress the worst of these outcomes.