Earlier this month, the efforts continued to look at food and meat production with a nostalgic yearning for yesterday. This time it’s another book with a critical eye on the meat and poultry industries in the United States.
I’ve shared information about these conversations in the past, including the “glass walls project” with a transparent look at the process of animal slaughter and even other nostalgic looks at the industry with the book Gaining Ground. Changes are occurring and making progress toward transparency, and I think they’re for the better, but living in the past isn’t always for the better.
Chris Leonard, former Associated Press agribusiness reporter, released a book, “The Meat Racket: The Secret Takeover of America’s Food Business”, that takes a look at the impact the largest four packers have on the meat industry and how that consolidation has affected farmers and ranchers. Leonard focuses on the poultry industry, but also takes a look at beef and pork, and suggests vertical integration has had a very negative impact on producer relationships with packers.
Leonard’s idea of how the meat industry should look reverts to a vision of the “U.S. in 1982″ as he described recently in a Bloomberg interview. As one dairy farmer asked in recent weeks, “What is it we want to go back to?“
Today, I’m fortunate to be able to share a few thoughts on the issues raised in The Meat Racket. Dr. Michael Dicks is a Professor Emeritus in Agricultural Economics from Oklahoma State University (go Pokes!) and a long time member of the ag economics field, being involved in teaching, research, and extension roles with international reach. Here are a few thoughts he’d like to share in response to the subjects addressed in Leonard’s book.
Checking the Facts on “The Meat Racket”
As an agricultural economist who studies meat and poultry production and the market with great interest, it has been fascinating to see this week’s coverage of the new book The Meat Racket. While author Chris Leonard uses terms such as “meat monopoly,” “feudal power” and other conjecture, improving meat and poultry production in this country will require embracing evidenced based changes, not the misleading statements and poor logic found in the book.
While it’s true that fewer, yet larger companies are involved in meat and poultry production in America, the author completely overlooks the fact that today’s market for animal protein is global and highly competitive, although he did acknowledge in one interview the undeniable fact that the U.S. system is a “technological marvel.”
Checking the Math
The author writes of the economic “power” of one major U.S. meat company, noting that it generated $780 million in profits on $28.43 billion in sales in 2010. However, using simple math, anyone can figure out this represents only a 2.7% profit margin or less than 3 cents on every dollar of sales. That’s hardly a profit margin most people would consider high or powerful. It’s actually low, especially compared to the high profit margins generated by other major companies, including the CBS Corporation, which owns the publishing company that released this book.
Since meat and poultry companies are in a narrow margin business, they must focus on volume and efficiency, in addition to the consistent quality their customers expect. That’s why they provide farmers with performance incentives. For example, poultry farmers who produce the most meat from a flock of birds in a given amount of time can earn more money. It’s a merit-based bonus; the same type of compensation system some people believe should be used by schools to reward teachers. It’s the kind of system that stimulates improvement, innovation and efficiency.
Surviving in Agriculture
The author spends a lot time on a few farmers who failed and blame the meat company they were supplying. I feel badly for these farmers. No one wants to see anyone go out of business. However, based on my knowledge of agriculture, less than 50% of agricultural business of any type survive for longer than 5 years and most of those that don’t survive lack either the agricultural skills, business skills or both. Most of today’s successful farmers know that farming is not just a way of life; it’s a business and one that requires financial competence to make money.
Livestock and poultry production has never been easy. Just ask Pilgrim’s Pride. It was the largest U.S. poultry processor when it filed for bankruptcy in 2008 and is now a subsidiary of a Brazilian company. Ironically, its financial trouble and the failure of other poultry processors during that same time period, received little attention in this book.
It’s true that the meat and poultry industry has evolved and changed dramatically, especially over the last 80 years. However, it’s changed out of necessity. It’s been structured to provide consumers with a steady supply of safe, affordable food, while giving farmers and meat processors an opportunity to make some money. That structure will undoubtedly continue to evolve and change, not because of government rules and regulations advocated by author, but because of changing consumer demands for protein here in the U.S. and in other parts of the world.
Continued efforts to undercut the agriculture and food businesses in this country as evil and overbearing are not productive toward making progress and improvements. This includes the use of fear from food retailers like Chipotle and Panera. Challenges are good to help us evaluate our practices, but those evaluations often show that farmers and ranchers across the country are often doing their jobs well.
I’m also in the middle of reading another recently released book looking at the U.S. meat industry, “In Meat We Trust: An Unexpected History of Carnivore America” by Maureen Ogle. I’d suggest read that one for another perspective on the history of meat and how we arrived to where we are today.
I have to thank the American Meat Institute for helping me with the connection for this guest post. You can connect with AMI on Twitter (@MeatAMI).