Sysco has a beef with the Big Four meatpackers

Catie Clark//July 22, 2022

Sysco has a beef with the Big Four meatpackers

Catie Clark//July 22, 2022

U.S. Dept. of Agriculture Economic Research Service data on national average live cattle and wholesale beef prices, January 2014 through December 2021. Click to enlarge. Graphic by Catie Clark

This article is the first of a two-part series on how big meatpackers affect the national and local beef business

A quiet, out-of-sight event happened in a U.S. District Court in Houston, Texas on June 24. Sysco, the world’s largest wholesale food distribution firm, filed an antitrust civil suit against the “Big-Four” meatpackers in the United States, accusing the companies of price-fixing beef. Since 2015, profits at the Big Four have gone up over 400%, according to Congressional watchdog media outlet The Hill, or 500% according to U.S. Senator and Montana farmer Jon Tester.

Federal investigations

The lawsuit has been an interesting event since as recently as April 2022; the CEOs of the Big Four — Cargill, Tyson, JBS USA and National Beef Packing — testified under oath in front of the U.S. House of Representatives Agriculture Committee that the rise in retail beef prices was due to inflationary pressures and the economics of supply and demand.

The congressional hearings aren’t the first federal action in the last few years. The U.S. Department of Justice (DOJ) issued subpoenas to the big corporate meat packers at the end of May 2020, though the effort appears to have stalled since the DOJ has never issued any updates or further inquiries on this investigation.

The Biden administration has targeted the Big Four twice in White House briefings in September 2021 and December 2021, leading to a new initiative by the DOJ and the U.S. Department of Agriculture (USDA) to uncover unfair practices by the big meat packers launched in February 2022.

The view from the ranch

Ask any Idaho rancher about the beef market and you’ll hear some variation of the same story: since 2015, beef ranchers have gotten squeezed as the price they receive for “live cattle” has gone down. At the same time, the wholesale price of beef has gone up.

Data from the Economic Research Service of the USDA bears these trends out. The spread between farm and wholesale price was less than $0.50 in 2014 and 2015. By 2018, the difference had widened to over $0.70. At the beginning of 2022, the price spread was over $1. At the same time, the net selling price for beef producers has remained at $3/pound or less for the last six years. Remarkably, the net selling price of $3/pound in January 2014 was the same in December 2021. Cattle producers trying make a living really do have a beef.

The resentment aimed at the big meat packers is very real. One example of this is the description of the beef from a ranch in the Marsh Valley of Bannock County: “Truly a local product. The cattle are not hauled to the Midwest to be fattened on government-subsidized corn, butchered in a Brazilian-owned factory, and then trucked back through a chain of brokers and giant supermarkets.” The ranch in question specializes in direct sales of pasture-raised, grass-fed beef to local consumers and is also available at a handful of specialty shops in the Pocatello area.

photo of beef cattle
Beef cattle. File photo

Industrial cattle

The view of local versus industrial beef from this Bannock County ranch’s website is hardly an exaggeration. Increasingly, beef in the grocery store was raised on a large feed lot. The now-bankrupt Easterday Ranch (ER) recently reported on by the Idaho Business Review (IBR), is close to the face of the new industrial cattle producer: a large operation with thousands of cattle in feedlots measured in the hundreds of acres, fed grain-based feed, often under a strict contract with terms that can go awry.

The former 2014 ER contract with Tyson is an example of how ranchers get locked into a contract arrangement with a meat packer: Tyson loaned money at 4% interest to ER to buy, feed and raise “feeder cattle” calves. When the calves became “live cattle” ready for slaughter, Tyson bought the cattle for market price. ER would pay off the Tyson loan plus interest out of that revenue. The ranch made money by pocketing the difference. More than half of the beef in the United States is currently raised this way on feedlots.

Approximately 85% of the nation’s beef is bought and processed by the Big Four meat packers. The quip by the Bannock County ranch about meat factories owned by Brazilian companies is an apt description of two of the Big Four: JBS USA is the wholly owned U.S. subsidiary of JBS S.A. and the National Beef Packing Co. LLC is owned by Marfrig S.A., which are Brazil’s largest and second-largest food processing companies.

The Sysco lawsuit

Sysco filed its suit in the U.S. District Court for Southern Texas (case 4:22-cv-02049). The case was transferred to the Minnesota District Court (case 0:22-cv-01750) on July 12. The lawsuit accuses the Big Four of a conspiracy to suppress the number of cattle slaughtered since 2015 in order to drive beef prices up. Sysco’s complaint cites two unnamed witnesses from the meat packing industry who attested to the existence of the conspiracy between the Big Four.

The transfer of the case to Minnesota may signal that the federal court is considering a consolidation of the Sysco suit with a similar suit pending in the Minnesota District Court since 2020 filed by ranchers, wholesalers and grocery retailers.

Neither Sysco, Cargill, JBS, Tyson nor National Meat Packers responded to IBR’s request for comment before this article went to press.