The Devastating Impact of Centralization on the Cattle Industry: A Discussion with the CEO of RCAF USA

So how are you getting screwed as a consumer of meat and the rancher is getting screwed by raising that mate? Well, I answered a lot of those questions by going straight to a source that understands the industry extremely well. This is the CEO of RCAF USA. So right now, because there’s a shortage of beef in the United States, like live cattle, because of the droughts and everything in the west, the prices are up. So ranchers are getting more money for their cattle right now. Right. So why isn’t that the answer to everything?

So what we’re seeing in our industry is that over the past 40 years, our herd size has been declining for that entire four decade long period. So we’re shrinking.

In a number, herd size. You’re talking the whole United.

States, the number of cattle in the US, cattle inventory has been on the decline. The number of producers have been on the decline. The number of marketing outlets, feed lots, for example, they’ve dropped like flies. In the past 25 years, we’ve lost over 87,000 independent feed lots, primarily the small what we call farmer feeders. These are family sized operations that would raise their own grain and then they would either raise their own cattle or buy cattle, and they’d feed them in a relatively small lot. They have been dropping the, those are the 87,000 that we’ve lost just in the past 25 years, there are, they cannot maintain a profitable entity while they have to deal with these 4 largest meat packers and some of the mega feed lots that are closely associated with those large packers because of the market power emanating.

So where producers now are receiving the highest record prices, nominal prices in history, it’s because of the drought that’s occurring. It was an economic shock that hit the industry, and it shrank our supply so low that the latent forces competition in an industry where competition has all been all but purged has been unleashed. And we’re seeing that in the marketplace today. And so the problem over the last 40 years is the only time that the cattle industry has been profitable is when it experiences an economic shock, and it experienced a widespread drought in the 2011 to 2013 period. Then came along the Covid 19 pandemic in 2020, which incidentally, that’s the time when consumers went to the grocery store in the first time in history. They could not buy the meat they needed for their families because the grocery store shelves are empty across America.

Because they ran low just because of demander.

It was a wake up call. It’s because we concentrated the industry, we centralized it, we skeletonized the distribution system. And when the covid pandemic struck, the industry was incapable of meeting demand. And we never saw that before when we relied upon a family farm structure of agriculture where you had widely dispersed production by disaggregated producers all across America. You had packing plants and, you know, all of the mid size small communities across rural America. It was widely distributed.

And so obviously, if you’re gonna centralize an industry as we’ve done in the cattle industry, you make it vulnerable to economic shocks. And we’ve experienced that in America. What that means is our food securities at risk if we do not reverse the process that we’re undertaking right now in terms of achieving even greater level of consolidation and vertical integration, where the meat packer begins to own the feed lots and it actually controls and owns the cattle production where it’s all done in house, if you will. That’s vertical integration. And the thing about vertical integration is it kills competition, and that’s what our industry is experiencing today is lack of competition, highly concentrated industry, and highly concentrated industry is going to have the ability to exercise market power. So what.

You mean in it like centralization, so used to be you have a whole bunch of little farms and ranches, right? And smaller than we have now typically. And they were making, they were grown a little bit of beef here, a little bit of beef there, whatever, all of them were shipping their cattle to a closer place. Right, to be butchered and distributed in those communities and then outside of those communities. So it was all kind of staying more local. Correct? Right. And now ever, all these little guys are selling beef to one huge location or one massive company or one of the four massive companies, right? And then they distribute it from how many plants do they have, like JBS? How many plants that they have, and how many cattle are they killing every day in those plants? So the.

Four largest packers have approximately 26 plants, and most of them are located down in what’s called the Beef Belt. And once the big packers migrated into this centralized location, the feed lots followed because it’s not economical to transport a slaughter ready animal that weighs 13 or 14 pounds very long distances. So.

They want to be closer.

To this one, to be within about a 300 mile distance from the meatpacking plant. And so as a result, we’ve centralized the industry. We’ve pulled all the feed lots and the meat packers. So.

Anybody that had a feed lot that was away from there.

They’re gone.

They closed up cuz they can’t compete with the person that’s right next to him. Right.

They’re among the 70 or 87 thousand feed lots that we’ve lost over the past.

Five years. Thousand feed lots, that is.

78% all the feed lots.