Under Siege: The U.S. Live Cattle Industry
Bullard, Bill, South Dakota Law Review
Although the largest U.S. agricultural sector--the live cattle industry--is still comprised of hundreds of thousands of independent producers, it is currently on a trajectory to become a vertically integrated supply chain controlled by just a handful of dominant meatpackers. This is the fate already suffered by the nation's hog and poultry industries within which once competitive markets have been replaced with corporate command and control and opportunities for independent livestock businesses have largely disappeared. Only by renewing the nation's long lost appetite for antitrust enforcement and other legal actions to preserve livestock market competition can the ailing cattle industry be revitalized for future generations.
I. AMASSING MARKET POWER
Following behind the hog and poultry industries that blazed the initial trail toward industrial livestock and poultry production, the U.S. live cattle industry is quickly succumbing to efforts by dominant meatpackers to capture control over the live cattle supply chain. With gross receipts averaging $50 billion annually, the live cattle industry is the single largest segment of American agriculture and is, consequently, critically important to the prosperity of Rural America. (1) In many respects, the live cattle supply chain is the meatpackers' "Last Frontier," as it represents the last major U.S. livestock or poultry sector that continues to resist the birth-(or egg-)to-plate corporate control manifest under the industrialized livestock and poultry production model. (2)
The live cattle supply chain is comprised of hundreds of thousands of disaggregated firms that independently birth, grow, and feed live cattle. (3) The interrelationships among and between these independent live cattle firms and the meatpackers that ultimately procure live cattle for slaughter have until now been defined by competitive market forces. This is because the live cattle industry, which seeks to sell cattle for the highest possible price, is a separate and distinct industry within the multi-segmented beef supply chain (4) and a clear demarcation point exists between it and the meatpacking industry, which seeks to buy cattle for the lowest possible price. The demarcation point between the live cattle industry and the meatpacking industry is so profound that often there is an inverse relationship between economic prosperity in the live cattle industry and economic prosperity in the meatpacking industry. (5)
In a society that values free markets, competition is the preferred method for reconciling the inherent economic antagonism between the two distinct though interdependent industries within the beef supply chain, where one is a seller and the other a buyer. And, for more than a century competitive market forces have so effectively and efficiently reconciled this inherent antagonism that the two competing industries have prospered.
However, now the dominant meatpackers intend to eliminate those historically efficient competitive market forces that have so effectively reconciled the inherent antagonism between the live cattle industry and the meatpacking industry and replace them with corporate command and control. Their strategy to accomplish this subterfuge is to capture control of the live cattle supply chain through direct or indirect vertical integration or both.
A. CHANGED LEGAL FRAMEWORK
The U.S. Department of Justice ("DOJ") considers vertical integration to be a non-horizontal merger (i.e., a merger of firms that do not operate in the same market). (6) Direct vertical integration occurs when the merger involves a change of ownership, such as when a cattle feedlot is acquired outright by a meatpacker. (7) But, the unique nature of the live cattle supply chain affords meatpackers considerable flexibility in their ability to achieve the control or leverage they seek over the live cattle supply chain without ever having to invest in land, brick, or chattels. …