Food Price Narratives

17 April 2024

By Tammi S. Etheridge*

Introduction

Food is a necessity that all people need to survive. Moreover, according to the United Nations Office of the High Commissioner for Human Rights, there is also a legal right to food.[1] It must be available,[2] accessible, and adequate.[3] To be deemed accessible, both economic and physical access to food must be guaranteed.[4] “Economic accessibility means that food must be affordable. Individuals should be able to afford food for an adequate diet without compromising on any other basic needs, such as school fees, medicines, or rent.”[5]

Despite the natural and legal rights to food, today’s consumers have been faced with staggering food price inflation. American food prices are up approximately 30 percent when compared with early 2020 reports,[6] representing at least a forty-year high in both the food index generally and the food at home index specifically.[7] Of all the food categories, meat, poultry, and protein have seen the largest price increases. In 2020, beef and veal prices increased by 9.6 percent, pork prices by 6.3 percent, and poultry prices by 5.6 percent.[8] Real (inflation-adjusted) beef prices were at a record high in 2021 and just slightly lower in 2022. These trends have not stopped; all food prices increased 5.8 percent in 2023, and are predicted to increase another 2.9 percent in 2024, including meat—a staple of the American diet.

Consumers, in turn, are outraged. Their emotions are being fueled by politicians who blame rising profits on a pandemic of greed and collusion and argue that rigid antitrust enforcement is the only solution. The Biden Administration has prioritized curtailing corporate growth as a way to combat high meat prices instead of creating laws and policies that would more quickly lower prices for consumers. According to President Biden, rapid inflation in the meat sector is solely attributable to decades of “rising concentration.”[9] Lax antitrust enforcement allegedly allowed for mergers and acquisitions to proceed that otherwise should not have been permitted.[10] Through those mergers and acquisitions, a few large companies have come to dominate the market, squeezing out small businesses and entrepreneurs.[11] The lack of competition then allegedly allowed these “Big Ag” companies to raise prices, which is now hurting consumers, producers, and the economy.[12]

Yet, there is no evidence of this. The problem with President Biden’s framing of the issue is that American food prices in general, and meat prices in particular, have almost always trended downwards. Moreover, Americans have some of the world’s lowest food prices. If consolidation in the market is really to blame, we would expect to have some evidence of increased prices due to market collusion by now. Yet, prices in constant dollars are not increasing, so consumer surplus is not decreasing, and thus market concentration is not restricting trade. This is contrary to the stories that politicians are telling.

Many economists and Republicans, on the other hand, argue that food price increases have little to do with problems of antitrust enforcement,[13] and that the Biden Administration’s fixation on market concentration is simply an attempt to mask its own role in increasing the cost of food.[14] To them the real problem is government overreach.[15] By this logic, food prices have increased because of increased consumer demand resulting from the fiscal stimulus, market disruptions resulting from simultaneous supply and demand shocks, and the government’s various, pandemic-prompted market interventions.[16] “What is not a plausible explanation [of rising prices],” according to economist Geoffrey Manne, “is increased concentration and the exercise of market power in the food supply chain.”[17]

Both these narratives share a common flaw—the absence of consumer welfare from the dialogue. Whether the food price index has increased due to consolidation or to the heavy hand of government in the market, the reality is that consumers are paying more for their groceries and meat, poultry, and egg prices are the single largest contributor to the rising cost of food people consume at home.[18] The most fungible part of a family’s budget is food.[19] The cause of the food price increases, whether due to consolidation or government overreach, is secondary to the reality that all consumers are paying more for their groceries, especially meat, poultry, and eggs, and that price increases disproportionately impact the most vulnerable sectors of society.[20] The emphasis going forward should thus be on how best to prioritize consumer welfare by decreasing the impact food prices have on American consumers.

I.       Government Response to Rising Meat Prices

President Biden blamed concentration in the meat industry for increased food prices as soon as when he was elected.[21] The Biden Administration routinely points to meat prices as a good example of “dominant corporations in uncompetitive markets taking advantage of their market power to raise prices while increasing their own profit margins.”[22] Even when other factors like increased consumer demand are acknowledged, the inevitable conclusion is that price increases are attributable to a bottleneck in the meat supply chain caused by a lack of competition among meat processors (the monopoly problem). The Biden Administration has relied heavily on these suppositions to deduce that “bold action” is required to “enforce the antitrust laws, boost competition in meat-processing, and push back on the pandemic profiteering that is hurting consumers, farmers, and ranchers across the country.”[23]

Consistent with such a declaration, President Biden began mobilizing his executive resources. In late 2021, he directed the USDA to investigate large meatpackers. The USDA is also using $100 million of the American Rescue Plan’s loan guarantee program to leverage approximately $1 billion in lending capital to help expand the capacity of small meat processors and distributors pursuant to Biden’s objectives.[24] By February 2023, the USDA had already awarded almost $59 billion in federal grants to independent processors in Idaho, Virginia, South Carolina, South Dakota, and Maryland.[25] All of this in addition to the $500 million from the Meat and Poultry Processing Expansion Program, which is dedicated to helping new entrants break into the meatpacking industry to disrupt the largest meat processing companies.[26]

The Department of Justice has “stepped up [its] efforts to ensure competition and counter anticompetitive practices across all sectors . . . ,” and promises to “continue to vigorously enforce our antitrust . . . laws.”[27] As such, the DOJ’s Antitrust Division is coordinating with the USDA to launch a “one-stop shop to report complaints of potential violations of our competition laws, including the Sherman and the Clayton Act, as well as the Packers and Stockyards Act.”[28] Attorney General Garland argues that these efforts are necessary because “[t]oo many industries have become too consolidated over time. Too many companies have pursued corporate conduct and more aggressive mergers that have made all of us vulnerable. Against this background, our antitrust efforts cannot and will not slow down.”[29] According to Attorney General Garland, rigorous monitoring and antitrust enforcement is justified because multinational meatpackers in particular “suck out all of the wealth of rural America and put it in their corporate coffers.”[30]

Likewise, there has been no shortage of congressional efforts to limit concentration in the meat industry in recent years. Between 2019 and 2023, there have been at least a dozen attempts at such legislation. In May 2019, Senators Cory Booker (D-NJ) and Jon Tester (D-MT) introduced a new bill, the Food and Agribusiness Merger Moratorium and Antitrust Review Act, to immediately halt food and agriculture-related acquisitions and mergers.[31] Senator Booker explained that “excessive levels of concentration and market power are devastating our independent family farmers and ranchers . . . [who] are being forced to sell into ever more concentrated marketplaces that unfairly reduce the prices they receive for their crops and livestock, and unfairly increase the cost of inputs.”[32] Senator Tester added “[t]his bill will help put family farmers back in control of their futures by improving access to a competitive marketplace. Rural America cannot afford to see multi-national corporations put family farms out of business.”[33]

In the summer of 2021, Senator Tester introduced another bill, the Meat Packing Special Investigator Act, which was cosponsored by Senators Chuck Grassley (R-IA) and Mike Rounds (R-SD).[34] Under the bill, a newly-appointed special investigator within the U.S. Department of Agriculture (USDA) would coordinate with various other enforcement agencies, like the DOJ, the Federal Trade Commission, and the Department of Homeland Security, to better enforce the Packers and Stockyards Act by investigating anticompetitive practices in the meat industry. The investigator would also enjoy specially-created subpoena powers to collect evidence.[35]

In November 2021, Senators Tester and Grassley, alongside Senators Deb Fischer (R-NE) and Ron Wyden (D-OR), proposed the Cattle Price Discovery and Transparency Act in an “effort to return fairness to the cattle marketplace dominated by four major meat packers.”[36] The bill would require meatpackers to purchase a regional minimum of cattle from local ranchers so ranchers are not left with cattle they cannot sell anywhere.[37] The bill would also give the USDA the power to create and maintain a public “contract library” of the contracts made between producers and meatpackers.[38]

In February 2022, Senator Elizabeth Warren (D-MA) and Representative Mondaire Jones (D-NY) authored a letter to the DOJ asking it to “scrutinize” whether a proposed $4.5 billion merger between Sanderson Farms and Wayne Farms, the country’s third- and sixth-largest poultry-processing companies, by Cargill and Continental Grain violated any antitrust laws.[39] According to the lawmakers, the “proposed mega merger raises significant antitrust concerns in an industry already marked by price fixing, labor violations, and intense consolidation.”[40]

In February 2023, Senator Booker reintroduced a slate of bills “geared towards reforming the country’s agriculture sector,” including the Farm System Reform Act (previously introduced in 2021 with Senators Warren and Bernie Sanders (I-VT)),[41] Industrial Agriculture Accountability Act, Protecting America’s Meatpacking Workers Act, and Protect America’s Children from Toxic Pesticides Act.[42] According to Senator Booker, our current food system is fragile, but if enacted, these bills “would help mold our food system into one that is more competitive, resilient, humane, and just for everyone.”[43] Such efforts are necessary, in part, because “the status quo created by agribusiness special interests is putting all of us at risk.”[44] The Farm System Reform Act in particular proposes a moratorium on the creation of new or expansion of large factory farms (also known as concentrated animal feeding operations),[45] the phase-out of the largest factory farms by 2040, a voluntary buyout for farmers who want to transition out of operating these farms, and a strengthening of the Packers and Stockyards Act to protect family farmers and ranchers by “crack[ing] down on the monopolistic practices of meatpackers and corporate integrators.”[46]

Like Biden and his appointees, many members of Congress, either explicitly or implicitly, intentionally or unintentionally, seek to align the interests of consumers with those of small farmers, and convince the public that antitrust is the perfect vehicle to get each party exactly what they want. Despite this portrayal, antitrust enforcement is not the panacea its proponents purport it to be. In fact, there are risks associated with rigid antitrust enforcement. One large and routinely undisclosed risk is an attendant increase in food prices. Given the current crisis in food accessibility, any risk of further increasing food prices for the average consumer should be deemed unacceptable and impermissible. Consequently, it is time to question both this narrative and the role of antitrust.

II.       The Misuse of Antitrust

The U.S. obsession with protecting small farm profitability is an old one, grounded in the country’s nascency. But the reality is antitrust law is not supposed to protect small farms any more than it is meant to punish big business. Instead, the goal of American antitrust law is to advance consumer welfare, not to increase competition for its own sake. The Supreme Court explicitly acknowledged the primacy of the Consumer Welfare Standard in Reiter v. Sonotone by citing the principle’s founder, Robert Bork, for the proposition that “Congress designed the Sherman Act as a ‘consumer welfare prescription.’”[47] Extensive judicial reliance on Reiter since it was decided in 1979 has only solidified the Consumer Welfare Standard’s status as antitrust canon.[48] Under the Consumer Welfare Standard, “conduct that makes consumers better off does not violate the antitrust laws; but behavior that impairs consumer welfare does.”[49]

While it is true that antitrust attempts to advance consumer welfare by preserving or increasing competition through antitrust enforcement, this does not necessarily mean that advancing consumer welfare and increasing inefficient competition are synonymous. The consumer welfare model seeks to “make consumers better off, by condemning conduct that raises prices, reduces output, etc.—even if doing so means some less efficient competitors are driven from the market.”[50] Using antitrust to raise prices for consumers, then, has always been antithetical to the purpose of antitrust law.

There is strong evidence to suggest that some concentration in the meat industry, though harmful to small farmers, is in fact good for consumers.[51] The benefits of consolidation are varied. Firms might benefit from enhanced access to research and development, new or needed distribution channels, and/or the reduction of financial risk.[52] Most often, in the context of food, however, firms are incentivized by the various economies. Merging will often help a firm to streamline operations, and increasing scale can reduce fixed costs. This is especially important in the livestock context, where the scale has already expanded significantly. The production “locus” between 1987 and 2002 “increased by 60 percent in broiler, 100 percent in fed-cattle, 240 percent in dairy, and 2,000 percent in hog production.”[53] Consequently, a large, single firm can produce a range of products at lower cost relative to individual firms manufacturing single products or product lines (this is the scope of economies).

Not only are businesses able to use economies of scale to do more with less, but a recent study conducted by economist Sharat Ganapati found that every ten percent increase in national market share by the four largest firms correlated to a one percent increase in real output.[54] This means that larger companies are better able to increase supply. Likewise, the study found no effect on prices resulting from this increase in concentration—i.e., we get more food for the same cost, and the result is lower prices. This has been true for decades. In 1990, the U.S. Government Accountability Office studied concentration trends in the food supply chain and found that “[e]mpirical economic literature has not established that concentration in the processing segment of the beef, pork, or dairy sectors . . . has adversely affected commodity or food prices . . . . Most of [the thirty-three reviewed studies] found either no evidence of market power, or efficiency effects that were larger than the market power effects of concentration.”[55]

The same holds true regarding today’s ongoing food price inflation. According to the USDA’s Economic Research Service’s 2016-2020 Consumer Price Index (CPI), the “all-food” and “all-items” CPI categories both increased by 7.8%, which was below the 11.9% increase for medical care and the 11.4% increase in housing costs.[56] Even when accounting for the 2019-2023 CPI, where food rose by 25.0%, all-items by 19.2%, and transportation by 27.1%, the rates do not deviate enough to justify accusing the entire food industry of collusion and profiteering.[57] In fact, the USDA itself notes that food price inflation actually slowed in 2023 as inflationary factors (including the Coronavirus pandemic, the avian influenza outbreak, and the conflict in Ukraine, among others) began to ease.[58]

If consumer welfare remains the focus of antitrust, then market concentration is not inherently harmful to consumers, as long as they do not have to pay more as a result. Granted, increased competition is generally associated with lower prices and innovation, but having lots of firms in the market is not an economic panacea per se. Increasing the number of market competitors cannot be treated as an end unto itself because sometimes consumers’ interests are best served through other means.[59] In times of grave economic hardship, the public would benefit most from a rigid adherence to the Consumer Welfare Standard, as opposed to increased antitrust enforcement. This would presumptively lower food prices for all consumers and increase economic accessibility, as is consumers’ legal right.

To this point, the term “consumer welfare” has served merely as a powerful tool of rhetoric for politicians. Yet, as a practical matter, courts have elected to apply a true consumer welfare standard: one that prioritizes the end-user and their surplus. This is not only important, but also the right approach, because while everyone else in the supply chain is making a business or livelihood decision, poor consumers require food to survive. If antitrust enforcement is used to break up Big Ag, especially out of concerns for “fairness,” there will almost certainly be an adverse effect on food prices. This is because if you view Big Ag as a threat to small farmers, then you must also believe that Big Ag creates food prices that are too low and will inevitably force smaller, less efficient, producers out of production.

Conclusion

The use of antitrust in the context of food is problematic because it so clearly violates the Consumer Welfare Standard as prescribed by the courts. Ultimately, antitrust rhetoric promoting ad nauseam enforcement will not improve consumer welfare. Advancing consumer welfare in the food industry must mean prioritizing lower food prices over some arbitrary threshold of market competition or protecting small farms. Courts can and should begin distinguishing these goals immediately.