Captives

THE FOUR LARGE meatpacking firms claim that an oversupply of beef, not any corporate behavior, is responsible for the low prices that American ranchers are paid for their cattle. A number of studies by the U.S. Department of Agriculture (USDA) have reached the same conclusion. Annual beef consumption in the United States peaked in 1976, at about ninety‑four pounds per person. Today the typical American eats about sixty‑eight pounds of beef every year. Although the nation’s population has grown since the 1970s, it has not grown fast enough to compensate for the decline in beef consumption. Ranchers trying to stabilize their incomes fell victim to their own fallacy of composition. They followed the advice of agribusiness firms and gave their cattle growth hormones. As a result, cattle are much bigger today; fewer cattle are sold; and most American beef cannot be exported to the European Union, where the use of bovine growth hormones has been banned.

The meatpacking companies claim that captive supplies and formula pricing systems are means of achieving greater efficiency, not of controlling cattle prices. Their slaughterhouses require a large and steady volume of cattle to operate profitably; captive supplies are one reliable way of sustaining that volume. The large meatpacking companies say that they’ve become a convenient scapegoat for ranchers, when the real problem is low poultry prices. A pound of chicken costs about half as much as a pound of beef. The long‑term deals now being offered to cattlemen are portrayed as innovations that will save, not destroy, the beef industry. Responding in 1998 to a USDA investigation of captive supplies in Kansas, IBP defended such “alternative methods for selling fed cattle.” The company argued that these practices were “similar to changes that have already occurred… for selling other agricultural commodities,” such as poultry.

Many independent ranchers are convinced that captive supplies are used primarily to control the market, not to achieve greater slaughterhouse efficiency. They do not oppose large‑scale transactions or long‑term contracts; they oppose cattle prices that are kept secret. Most of all, they do not trust the meatpacking giants. The belief that agribusiness executives secretly talk on the phone with their competitors, set prices, and divide up the worldwide market for commodities – a belief widely held among independent ranchers and farmers – may seem like a paranoid fantasy. But that is precisely what executives at Archer Daniels Midland, “supermarket to the world,” did for years.

Three of Archer Daniels Midland’s top officials, including Michael Andreas, its vice chairman, were sent to federal prison in 1999 for conspiring with foreign rivals to control the international market for lysine (an important feed additive). The Justice Department’s investigation of this massive price‑fixing scheme focused on the period between August of 1992 and December of 1995. Within that roughly three‑and‑a‑half‑year stretch, Archer Daniels Midland and its coconspirators may have overcharged farmers by as much as $180 million. During the same period, Archer Daniels Midland executives also met with their overseas rivals to set the worldwide price for citric acid (a common food additive). At a meeting with Japanese executives that was secretly recorded, the president of Archer Daniels Midland preached the virtues of collaboration. “We have a saying at this company,” he said. “Our competitors are our friends, and our customers are our enemies.” Archer Daniels Midland remains the world’s largest producer of lysine, as well as the world’s largest processor of soybeans and corn. It is also one of the largest shareholders of IBP.

A 1996 USDA investigation of concentration in the beef industry found that many ranchers were afraid to testify against the large meatpacking companies, fearing retaliation and “economic ruin.” That year Mike Callicrate, a cattleman from St. Francis, Kansas, decided to speak out against corporate behavior he thought was not just improper but criminal. “I was driving down the road one day,” Callicrate told me, “and I kept thinking, when is someone going to do something about this? And I suddenly realized that maybe nobody’s going to do it, and I had to give it a try.” He claims that after his testimony before the USDA committee, the large meatpackers promptly stopped bidding on his cattle. “I couldn’t sell my cattle,” he said. “They’d drive right past my feed yard and buy cattle from a guy two hundred miles further away.” His business has recovered somewhat; ConAgra and Excel now bid on his cattle. The experience has turned him into an activist. He refuses to “make the transition to slavery quietly.” He has spoken at congressional hearings and has joined a dozen other cattlemen in a class‑action lawsuit against IBP. The lawsuit claims that IBP has for many years violated the Packers and Stockyards Act through a wide variety of anticompetitive tactics. According to Callicrate, the suit will demonstrate that the company’s purported efficiency in production is really “an efficiency in stealing.” IBP denies the charges. “It makes no sense for us to do anything to hurt cattle producers,” a top IBP executive told a reporter, “when we depend upon them to supply our plants.”