When you control over 25% of the U.S. grocery market and more than 50% of grocery sales in over 200 regions, you pretty much get to do whatever you want. Walmart, whose SuperCenter stores have been driving out local businesses in a town near you for over 30 years, has now decided it wants to try its hand at meatpacking.
And why not? Cutting out the middleman is good for the bottom line. Keeping as many processes in-house and under-thumb makes a lot of sense when you’re trying to dominate the marketplace and keep your costs as low as possible. While you would think that this cost savings would translate into lower beef prices for consumers, this is not always the case. Nor is it the case that higher prices paid by consumers ultimately means higher cattle prices for farmers. Farmers and ranchers, who depend on competition in the marketplace to establish what would amount to a living wage, don’t often see higher consumer beef prices equate to higher cattle prices.
Likewise, from a consumer standpoint, lower cattle prices do not translate into lower prices for beef at the meat counter. For example, from 2013 to 2016, cattle prices paid to farmers dropped by 13%. At the same time, prices paid for beef by consumers at the grocery store increased by 4%. This type of market manipulation at the expense of producers and consumers alike is allowed to happen due to the fact that the largest four meatpackers control over 80% of the market. Actual competition among them is merely an illusion.
If Walmart, the largest retailer in the country, doesn’t want to participate in such a consolidated marketplace, what do you suppose family farmers and independent ranchers want? More market concentration? Sadly, unless something changes, that’s what they’ll get. But, leave it to Walmart to offer its version of a solution to the problem.
What is Walmart’s solution to monopolization of the meat industry, with all the vertical integration and captive supply that goes along with it? Well, it’s to vertically integrate, obviously! And with its own captive supply, of course! Vertical integration, when two or more stages of production are combined within one company, goes hand-in-hand with captive supply, which is when a company controls (without owning) part of its inputs. These are tools that have been used by the largest meat companies in order to gain leverage in the market. What do you do if you’re tired of swimming in the same pool as the Big Four meatpackers? Get your own pool where you’re the biggest fish. Save money and live better, right?
How has this worked out before, for example, in the dairy industry? When Walmart got into the dairy processing game, what were the effects of that? One of them was that Walmart’s private-label dairy supplier, Dean Foods, went bankrupt. Another was that hundreds of independent dairy farmers who supplied Dean lost their contracts. Are the lives of those farmers and their families better now as a result of Walmart saving money?
What does this mean for the farmers and ranchers who will be supplying beef for Walmart? For those suppliers there may be the illusion of now having an additional market choice, but the choice they are facing is like that of choosing between rowing a boat rapidly taking on water or jumping overboard to swim with the sharks. They merely get to decide which corporate behemoth they will be forced to align with.
Walmart’s new entrance into the beef retail packaging industry is based on a closed vertically-integrated supply system, and does not provide an additional buyer for cattle in the marketplace. Walmart is not bidding against other monopolistic companies such as JBS, Cargill, Tyson or National Beef, but rather is contracting with specific ranchers to raise specifically-bred black angus cattle. These contracts are not subject to price discovery and market transparency.
Historically, closed vertically-integrated supply systems based on contracts will result in lower prices for all cattle producers. Why? Because prices in forward contracts are almost always based on a market average price. A new captive supply removes live cattle from the open market. In response to fewer cattle, meatpacking companies dump their own live cattle into the open market. This drives prices down further, because with one less buyer like Walmart in the mix, there are then fewer buyers for more cattle.
We used to live in a country where our government kept corporate monopoly power in check. Unfortunately, over the last several decades our government has failed to provide needed safeguards, and farmers, ranchers and consumers suffer as a result. Walmart and other agriculture, food, and grocery retail monopolies have to be reined in. For over 20 years, OCM has been fighting to stop further concentration in the food industry. Join us in standing together with farmers and ranchers to keep bad actors accountable, and to keep our market economy open, fair, and for the people.