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Government-induced competition rarely works

The U.S. government has created a program to increase competition in meat-packing. It will result in easy political points - but won’t actually work, says Sylvain Charlebois.

United States President Joe Biden recently introduced a billion-dollar program to lower food inflation by increasing competition in meat-packing. It’s likely ill-fated.

A few weeks ago, a damning report out of Washington suggested the top U.S. meat-packing plants have increased profit margins by 300 per cent since the beginning of the COVID-19 pandemic.

The report, prepared by White House economic advisers, didn’t sit well with Biden.

Consolidation in the meat-packing industry has been an ongoing issue in many parts of the world. In the United States, four dominant companies – Tyson Foods, JBS, Marfrig and Seaboard Foods – control as much as 85 per cent of the meat-packing business.

Biden has openly blamed this big four for skyrocketing prices at the meat counter.

While food inflation has been at about 6.4 per cent in the United States over the last few months, meat prices have risen by more than 12 per cent in the last year.

Meanwhile, farmers are getting less for their product.

The Biden administration plans to tackle the lack of competition by supporting smaller and independent meat-packers. Since buying local and food inflation are top-of-mind for Americans, it’s a no-brainer political move for the administration.

And, of course, Americans love their meat – they’re among the top meat eaters in the world. Americans eat almost 240 pounds of meat a year on average. Canadians eat about 150 pounds of meat a year, and that’s a lot, but America’s love affair with meat is unique.

In Canada, three plants process about 85 per cent of all the beef produced in Canada. For pork, oligopolistic forces aren’t as significant; we have dominant players like Olymel and Maple Leaf, but we also have smaller players. The poultry sector is also more balanced than in the U.S.

Still, meat prices have gone up by more than 10 per cent in the last year in many parts of Canada, and that’s more than double the rate of food inflation in general. Many blame meat-packing companies for gouging consumers.

Canadians haven’t seen a report similar to the one the White House produced, so we don’t know what the situation looks like here.

But food processing is challenging and it’s even tougher for meat packing. Food safety standards and other regulations make it close to impossible to start a new federally-licensed plant, a facility capable of selling out-of-province or overseas.

Regional abattoirs, which can only transact within a province, have less reason to worry.

Distribution costs are also considerable in Canada.

But the biggest cost is labour. It has always been an issue for the sector, but the pandemic has made things much worse. While Cargill, Exceldor and Olymel are offering better working conditions and higher wages and benefits to workers, the increased use of robotics is inevitable. It’s happening everywhere, including in Canada. Capitalizing operations will add more financial pressure on meat-packers.

Seeing different market dynamics within the supply chain in a time of crisis isn’t new. When the mad cow crisis hit in 2003, beef producers saw the money they were paid plummet by more than 70 per cent while retail prices barely moved. Ranchers and consumers were upset.

Over 300 meat-packing projects were launched, largely driven by the anger of beef producers toward meat-packers, who were profiting from the crisis. In the end, only two federally-licensed slaughterhouses saw the light of day – after a few years of work.

And it appears both facilities have been closed for years. While there are concerns about meat-packing practices in Canada, it’s simply not an easy business.

More government intervention to change market conditions can only go so far.

Most would agree that more regional processing is critical. But the economics of meat processing make it difficult for any company to survive unless volume and capacity are achieved, especially in Canada.

And for taxpayers who don’t eat meat and believe the sector should be outlawed, seeing governments provide financial support to the sector may not be welcome.

Still, some intervention is called for if meat packers are colluding in the way we saw with bread a few years ago.

If the Biden administration wants to change rules, create more competition and ease the financial burden on American families to score some political points, so be it. Government-induced competition rarely works and Biden’s program likely won’t be effective.

This is more about smoke and mirrors, and Biden knows it.

Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

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