Checking the Facts on Chris Leonard’s “The Meat Racket”

Earlier this month, the efforts continued to look at food and meat production with a nostalgic yearning for yesterday. This time it’s another book with a critical eye on the meat and poultry industries in the United States.

I’ve shared information about these conversations in the past, including the “glass walls project” with a transparent look at the process of animal slaughter and even other nostalgic looks at the industry with the book Gaining Ground. Changes are occurring and making progress toward transparency, and I think they’re for the better, but living in the past isn’t always for the better.

Chris Leonard, former Associated Press agribusiness reporter, released a book, “The Meat Racket: The Secret Takeover of America’s Food Business”, that takes a look at the impact the largest four packers have on the meat industry and how that consolidation has affected farmers and ranchers. Leonard focuses on the poultry industry, but also takes a look at  beef and pork, and suggests vertical integration has had a very negative impact on producer relationships with packers.

Leonard’s idea of how the meat industry should look reverts to a vision of the “U.S. in 1982” as he described recently in a Bloomberg interviewAs one dairy farmer asked in recent weeks, “What is it we want to go back to?

Today, I’m fortunate to be able to share a few thoughts on the issues raised in The Meat Racket. Dr. Michael Dicks is a Professor Emeritus in Agricultural Economics from Oklahoma State University (go Pokes!) and a long time member of the ag economics field, being involved in teaching, research, and extension roles with international reach. Here are a few thoughts he’d like to share in response to the subjects addressed in Leonard’s book.

Checking the Facts on “The Meat Racket”

As an agricultural economist who studies meat and poultry production and the market with great interest, it has been fascinating to see this week’s coverage of the new book The Meat Racket. While author Chris Leonard uses terms such as “meat monopoly,” “feudal power” and other conjecture, improving meat and poultry production in this country will require embracing evidenced based changes, not the misleading statements and poor logic found in the book.

While it’s true that fewer, yet larger companies are involved in meat and poultry production in America, the author completely overlooks the fact that today’s market for animal protein is global and highly competitive, although he did acknowledge in one interview the undeniable fact that the U.S. system is a “technological marvel.”

Checking the Math

The author writes of the economic “power” of one major U.S. meat company, noting that it generated $780 million in profits on $28.43 billion in sales in 2010. However, using simple math, anyone can figure out this represents only a 2.7% profit margin or less than 3 cents on every dollar of sales. That’s hardly a profit margin most people would consider high or powerful. It’s actually low, especially compared to the high profit margins generated by other major companies, including the CBS Corporation, which owns the publishing company that released this book.

Since meat and poultry companies are in a narrow margin business, they must focus on volume and efficiency, in addition to the consistent quality their customers expect. That’s why they provide farmers with performance incentives. For example, poultry farmers who produce the most meat from a flock of birds in a given amount of time can earn more money. It’s a merit-based bonus; the same type of compensation system some people believe should be used by schools to reward teachers. It’s the kind of system that stimulates improvement, innovation and efficiency.

Surviving in Agriculture

The author spends a lot time on a few farmers who failed and blame the meat company they were supplying. I feel badly for these farmers. No one wants to see anyone go out of business. However, based on my knowledge of agriculture, less than 50% of agricultural business of any type survive for longer than 5 years and most of those that don’t survive lack either the agricultural skills, business skills or both. Most of today’s successful farmers know that farming is not just a way of life; it’s a business and one that requires financial competence to make money.

Livestock and poultry production has never been easy. Just ask Pilgrim’s Pride. It was the largest U.S. poultry processor when it filed for bankruptcy in 2008 and is now a subsidiary of a Brazilian company. Ironically, its financial trouble and the failure of other poultry processors during that same time period, received little attention in this book.

It’s true that the meat and poultry industry has evolved and changed dramatically, especially over the last 80 years. However, it’s changed out of necessity. It’s been structured to provide consumers with a steady supply of safe, affordable food, while giving farmers and meat processors an opportunity to make some money. That structure will undoubtedly continue to evolve and change, not because of government rules and regulations advocated by author, but because of changing consumer demands for protein here in the U.S. and in other parts of the world.

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Continued efforts to undercut the agriculture and food businesses in this country as evil and overbearing are not productive toward making progress and improvements. This includes the use of fear from food retailers like Chipotle and Panera. Challenges are good to help us evaluate our practices, but those evaluations often show that farmers and ranchers across the country are often doing their jobs well.

I’m also in the middle of reading another recently released book looking at the U.S. meat industry, “In Meat We Trust: An Unexpected History of Carnivore America” by Maureen Ogle. I’d suggest read that one for another perspective on the history of meat and how we arrived to where we are today.

I have to thank the American Meat Institute for helping me with the connection for this guest post. You can connect with AMI on Twitter (@MeatAMI).

Checking the facts Meat Racket book by christopher leonard

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9 Comments

  1. Thank you, Ryan both for writing this post and for linking to my blog series on the book. It is heartbreaking to see our rural communities and food production to be cast in such a negative light. I found The Meat Racket to be a truly depressing read, in addition to inaccurately portraying the life that I live as a farmer in rural America. I would encourage anyone who is interested to follow my blog series critiquing Chris Leonard’s book which can be found at feedyardfoodie.com. Post #3 came up this morning http://feedyardfoodie.wordpress.com/2014/02/25/meat-racket-communities/ and there are more to come.

    Hope that you are staying warm in Montana, Ryan. It is still winter in Nebraska with temperatures of zero degrees this morning!

    Best,
    Anne

  2. Ryan,

    Another wonderful article that educates and does not preach. I especially loved your wrap up sentence. “Challenges are good to help us evaluate our practices, but those evaluations often show that farmers and ranchers across the country are often doing their jobs well.” Please continue the respectful conversation as it is always the best way to be heard, understood and appreciated for your thoughts and facts.

    Debra Vey Voda-Hamilton
    Hamilton Law and Mediation

  3. 3 cents on the dollar profit. I think people should really hear numbers like this more often. Farmers, and their related industry partners should be making more money. Consumers should be paying more for their food, instead of only wanting it safe, cheap, and “not in my backyard”.

  4. I want to thank you for this. When I heard the story on NPR, I wanted to know the ‘rest of the story’. It was obvious to me that that writer had not written an unbiased view of raising meat in the US.
    I am not a farmer, instead I am an urban consumer of the products of our farmers. I live on a tight grocery budget so keeping food affordable is important to me and to millions of others.

  5. While I am no expert with regards to what other beef packers do, nor all farmers, nor the majority or minority for that matter, I have worked for one of the largest beef packers, Cargill, Inc., and I can say I am very impressed and humbled by such an amazing company and the people who work there. Working for Cargill has given me a new appreciation for the beef industry and protein sales in general. I worked in boxed beef sales for three years a year ago this March, and quit to finish my Masters degree and launch my own company. Today I specialize in fruits and some vegetables, their processing for my company’s purpose, and the attempt to give back as much to the Earth I we take from it. How? Through vermiculture and by trying to influence sustainable operations through my entire supply chain. We’ll see how good I get at it.

    While the $0.03 per dollar average may be accurate, the buck does not stop there. Please correct me if I am wrong. National Beef, JBS Swift, Tyson, SuKarne, and Cargill… they all make money on the same beef at least 3 times, thus the reason why they are still in business, still wanting to stay in business, and highly profitable as opposed to the $0.03/dollar comment made is trying to infer otherwise. Packers trade in live cattle as you all know ($0.03/dollar avg. I guess as mentioned), then they trade in boxed beef at the wholesale distribution level between top tier distributors (add another ($0.03 to $0.15 or sometimes even higher depending on the item and the market for it, i.e. tongues, flap meet, chuck rolls), and then they sell to smaller food distributors, meat markets, grocery stores, etc. (add anywhere between $0.03 to above $0.15 as well based on the same conditions). Of course there are operational costs involved at all levels of this supply chain, but money is being made for sure, and profitable this business is; this doesn’t mean however, that recent environmental issues regarding droughts, shifting populations, disease, and other factors that are influencing the price of beef reduces or raises the price as we go… perhaps even to such an extent that these huge corporations might end up diversifying into other protein sources than beef, pork, chicken, and seafood… i.e. insects?? A future source of protein.

    Recently I had an interesting discussing with a few friends of mine who kept pushing for buying local and from local farmers, which is great and I encourage everyone to do so, as I do as well. I love the Farmers’ Market! However, what I disagree with is them talking bad about these large corporations and our food supply as the article refers to… I asked them a very simple question based on the following scenario: What if we all listen to you? What if we all say: Screw you all huge corporations, I will purchase all local from this little farmer person! Well… this little farmer person, when faced with the demand to supply this spike, even with just one school they would as example, this little farmer will have to grow quickly, then will have to ask for help from other farmers quickly… then they will need to become efficient in handling large quantities of animals to supply this spike, thus prone to illnesses shared, etc… thus needing medications, and so on… suddenly we have these huge corporations all over again… Is this what we want? I think it is an unreasonable expectation to believe that small farmers can substitute the need for these huge corporations, which are a result of such a demand for protein and related products.

    The above being said, and as I as a business owner am trying to find the most sustainable way to run my business, I encourage these huge corporations that have the know-how, know-who, and the resources to influence change and become as sustainable as possible. Lets not sacrifice the environment for profits! Whether companies like Chipotle use this as a marketing tool or not, if it is true that they are using as much as they can of a better resource, and being as sustainable as possible… this in my opinion should be applauded and encouraged! And I confess I have never eaten at their restaurants… just going by what I read… and I am no expert in the subject, just someone who knows a little bit and was asked by Dr. Dicks to share my opinion.

    Thank you all and continue the hard work.

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