When Beefing Up Competition Bleeds at Consumers’ Misfortune

Aurelien Portuese January 4, 2022
January 4, 2022

President Biden announced a billion-dollar plan to beef up competition in the meat processing industry this week to reduce price increases for meat. Inflation affects all sectors of the economy. But the Biden administration is seeking to divert attention from government-created causes for inflation (i.e., loose monetary and fiscal policy) by blaming large companies. Now it is the meat industry that is under attack. Global food prices have increased because the Covid pandemic disrupted the labor market supply chain. And yet, the alleged solution is antitrust, although antitrust is neither the cause nor the answer to inflation. 

President Biden blames high meat prices on monopoly without evidence. The price of a beef round in the United States is $11.92, thereby placing the country at the 25th position in terms of the price of beef rounds. Switzerland ($52.68) and Norway ($29.71) top the ranking with their small and uncompetitive domestic markets. Countries such as France ($18.74), Australia ($13.28), and Canada ($12.03) have higher meat prices than the United States. The large domestic U.S. market enables scale economies and low prices, but most importantly, this positive consolidation also helped technological improvements for the benefit of consumers.

Moreover, while it notes that profits have increased since 2019, it fails to provide data for earlier years. Perhaps profits in 2019 were low compared to normal. Without more data, something the administration has not provided, it’s hard to know whether the current structure of the meat industry is problematic. Also, if monopoly is a problem, why did meat processors not raise prices in 2019 or earlier?

Indeed, as Jen Skerritt notes, “There’s a reason meat is so cheap in America compared with the rest of the world. A big part of that is the rapid consolidation that’s allowed meatpackers to operate on huge economies of scale and run lines at lightning speeds that continue to increase.” In other words, consolidation, rather than being evidence of the lack of competition in the meat industry, as Biden explicitly suggests, enables fierce price competition and innovation for the benefit of consumers. Innovation and scale generate corporate profits because low meat prices drive demand. Historically, United States meat prices have remained low.

The Biden plan for the meat processing industry uses taxpayers’ money to help farmers and ranchers who remained non-integrated and less innovative to cope with the fierce competition exerted by the meat processing companies. This is not fair competition; it’s competition distorted by the government with taxpayers’ money in order to limit the benefit of disruption.

The administration decided that the Department of Agriculture will provide $1 billion in guaranteed loans for independent producers’ food processing and distribution infrastructure investments. This measure alone will undermine the efficacy of the food processing capabilities of the leading meat producers. This plan does not beef up the competition, it makes consumers bleed. 

Biden’s plan on the meat industry is illustrative of the broader vision of the executive order on competition that President Biden passed last July. It relies on flawed assumptions about consolidation and an alleged lack of competition, it forces innovative companies who aggressively compete to treat more “fairly” their rivals (i.e., help them), and it embraces a populist narrative of big-is-bad against the reality of consumer benefits. As ITIF has shown, overall, the United States economy has not gotten more concentrated between 2002 and 2017.

Beefing up the competition by unfairly funding the competitors of innovative, large-scale companies will harm productivity, cost taxpayers’ money, and distract from the need to have more (not less) innovation as a driving force for competition. Regrettably, the populist narrative will continue to flourish as Biden’s executive order on competition unfolds.