Meatpackers Face Inflation in US
President Biden has found a scapegoat for rising inflation: the meat industry. Mr. Biden claimed last week that meatpackers—who handle the processing, packaging and distribution of meat raised by farmers and ranchers—are price-gouging, driving a surge in consumer prices for beef, chicken and pork. As they say in cowboy country, Mr. Biden’s claim is all hat and no cattle. Unable or unwilling to acknowledge the problems actually driving inflation, Mr. Biden is proposing solutions based on the same failed policies that got us into this inflationary mess in the first place.
Meat prices are surging because the meat industry, like virtually every other industry, is facing dramatically higher input and labor costs. This isn’t a secret. Start with feed costs, which are at historic highs. As the Journal reported on Dec. 27, feed costs skyrocketed in 2021 and are expected to be volatile this year. This makes it more expensive to raise livestock, which in turn creates higher costs for meat.
Feed costs are higher in part because fertilizer costs are higher. American Farm Bureau Federation data show costs for anhydrous ammonia, used in nitrogen fertilizer, were up 210% in September 2021 compared with a year earlier.
Fuel costs have soared, with gasoline prices up 58% in November compared with the previous year, according to the Bureau of Labor Statistics. That increases the cost of transporting livestock to processing plants and finished products from processing plants to your local grocery store.
Labor costs are also higher—a lot higher. The Washington Post reports that meat processors were paying a starting wage of $14.50 an hour before the pandemic—a figure that has jumped to $22. Tyson Foods recently announced it spent $500 million last year on wage increases and bonuses, including $50 million on employee bonuses. But with 10.6 million job openings in November, only 6.8 million people unemployed and 4.5 million people having quit their jobs, meat processors, like most businesses, had trouble finding and retaining workers despite significant wage increases. This labor shortage creates supply bottlenecks.
With the demand for meat up world-wide, higher costs plus labor-induced supply shortages are obviously driving dramatic price increases. Supply and demand isn’t hard to understand. But common sense goes out the window when politicians play the blame game.
Mr. Biden wants to increase federal scrutiny of meatpackers on antitrust grounds as a means to get prices down. Four packing companies account for about 80% of beef processing, 70% of pork processing, and a little over half of poultry processing. But the “big four” companies the president identified compete with each other, much like big companies in other industries. About half the chicken market is controlled by competitive regional companies, not the big guys. Nonetheless, prices are increasing. Mr. Biden’s claim that “capitalism isn’t capitalism without competition” rings hollow when there actually is competition.
In reality, the competitive field in meatpacking is essentially unchanged from before the pandemic. Meat prices have surged because of skyrocketing costs and labor shortages, not a lack of competition. Acknowledging and addressing those issues could actually help reduce inflation.
Instead, Mr. Biden is reaching for the standard big-government playbook—increased regulation and federal spending. The White House issued a statement committing to issue “new, stronger rules under the Packers and Stockyards Act” targeting meatpackers. The Justice Department and Agriculture Department will also step up their scrutiny.
Does anyone outside the White House believe that increasing regulatory burdens for meatpackers will bring meat prices down?
As for more government spending, Mr. Biden pledged to spend $1 billion subsidizing smaller processing plants to increase competition. Helping smaller businesses is certainly a laudable goal. But, government giveaways offer short-term help at best. A more effective approach would be to reduce, rather than increase, the regulatory costs that competitively disadvantage smaller processors. Larger companies are better able to absorb those costs.
Several farm-state Republican congressmen have introduced bills to deregulate state-inspected meat sales, which, provided they don’t reduce food safety, are worth supporting. The U.S. Department of Agriculture in collaboration with the Occupational Safety and Health Administration recently announced regulatory changes for a pilot program designed to increase line speeds at pork processing plants, which could lower costs if adopted broadly.
Inflation is a growing problem that requires effective solutions. Mr. Biden’s plan to ignore the underlying causes and scapegoat others isn’t a solution. Absent a policy change, come November voters may well be wondering: Where’s the beef?
Source: https://www.wsj.com/articles/meatpackers-are-biden-latest-inflation-scapegoat-beef-pork-chicken-labor-fertilizer-fuel-bottleneck-work-force-participation-agriculture-11641759774
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