How the Federal Government Destroyed the Meat Industry

President Joe Biden has pledged to address the growing cost of beef, the latest example of government pretending to tackle a problem it caused.

Meat costs have increased by 16 percent in the last year. Beef prices have increased by 20.9 percent. The problem, according to Biden, is a lack of competition in the meatpacking business.

“Capitalism without competition isn’t capitalism — it’s exploitation,” Biden said.

According to a factsheet released by the Biden administration, four processing companies control 85 percent of the beef market. The largest four firms control 70 percent of the pork market and 54 percent of the poultry market.

The Biden plan is to distribute $1 billion in coronavirus relief funds to help independent meat packers expand their businesses. According to the AP, the plan would also allocate funding to train workers in the industry and improve conditions. New standards for meatpackers and labeling criteria for being classified as a "Product of USA" would also be issued by the government.

However, the topic of how a few large businesses came to dominate the meatpacking sector remains unanswered. Biden and other proponents of government action in the economy would have you think it's merely capitalism's inexorable march. Greedy businesses continue to grow in size, swallowing out the "little guy." High meat costs, according to this story, are the result of corporate greed and the inherent faults of the free market.

This concentration in the meatpacking sector was not driven by "capitalism" or selfish firms. It was the federal government that was to blame.

Congress broke the meat supply chain decades ago.

Meat must be killed and processed at a federally inspected slaughterhouse or at a facility inspected in a state with meat inspection standards at least as severe as federal requirements, according to the Wholesome Meat Act of 1967. The federal criteria were difficult, if not impossible, to achieve for small processors. It was simply too expensive. Large firms, of course, can afford regulatory expenditures. As a result of the act's passage, the meat processing sector saw substantial consolidation.

The number of slaughterhouses has decreased from over 10,000 to 2,766 after the implementation of the Wholesome Meat Act in 2010. Instead of hundreds of enterprises processing meat, the sector is now dominated by three giants.Custom processed meat - meat from an animal slaughtered and processed at a facility where an inspector is not obliged to be present to watch the killing and conduct an ante mortem and post mortem inspection of the animal – is likewise prohibited from being sold interstate.

We keep hearing about supply chain problems caused by the coronavirus outbreak. (Or, to be more precise, the government's response to the epidemic.) However, supply concerns were already present in 2015 due to a lack of suitable processing capacity due to consolidation. A report by the Farm-to-Consumer Legal Defense Fund sounded the warning at that time.

“The bottleneck caused by the lack of slaughterhouses has frustrated small livestock operations in getting their products to market and has led to an inability to meet the overall demand for locally produced meat. The 1967 Act has been one of the worst laws ever passed for local food; what’s more, it was known from the beginning that the Act would have the effect it did.”

The impact on small meat processing businesses was apparent within years of the passage of the act. In 1971, the Small Business Administration (SBA) presented a paper to the United States Senate Select Committee on Small Business titled: “The Effects of the Wholesome Meat Act of 1967 upon Small Business – A Study of One Industry’s Economic Problems Resulting from Environmental-Consumer Legislation Prepared by the Small Business Administration.”  The paper warned that the cost of compliance would have adverse impacts on small-scale slaughterhouses and packing plants, saying “the Wholesome Meat Act was as much of a disaster for many small meat firms as a hurricane.”

“[T]he meat industries are among the more competitive in the American economy. But the Wholesome Meat Act could lead to a significant diminution of competition. How many firms would have to shut down because they could no longer compete due to the new law? … Would the Wholesome Act lead, however unwittingly, to an undesirable increase in concentration in the meat industries? Questions such as these, highly fundamental questions, were barely raised during the legislative process.”

It should come as no surprise that these laws resulted in substantial meat processing sector concentration. It's no wonder, therefore, that this consolidation has resulted in supply chain failures. Centralized systems are prone to failure. They don't have any redundancy. They don't have any escape valves. They're prone to failing when they're under duress. Supply networks, economies, and governments are all examples of this.

To put it another way, this was completely expected.

But now Biden wants to spend more money to mend what the federal government has broken.

Why not just do away with federal control entirely?

Supporters of federal intervention will scream “Safety!” But if the Wholesome Meat Act was really about food safety, it doesn’t even deliver on its own terms.

The danger of widespread contamination increases when meat processing is concentrated in a small number of facilities. In one of these industrial slaughterhouses, a single ill cow may infect hundreds of pounds of beef. In a more varied, decentralized structure, epidemics are more likely to be contained to small geographic areas. "The Wholesome Meat Act has not resulted in the production of safer meat today; there are more recalls than ever for positive pathogen testing in meat products," according to a Farm-to-Consumer Legal Defense study. In the period of varied meat production, nationwide recalls were uncommon.

More generally, states with “food freedom” laws that allow small producers to sell food outside of the established regulatory structure have not seen increases in foodborne illnesses. According to Forbes, representatives from health departments in Wyoming, North Dakota and Utah reported exactly zero outbreaks of foodborne illnesses connected to a business operating under a food freedom law. Meanwhile, "the Centers for Disease Control and Prevention investigated and advised the public on 24 multistate outbreaks of foodborne illness last year, the most in over a decade, with federally regulated romaine lettuce, chicken salad, and even Honey Smacks Cereal all linked to outbreaks that hospitalized Americans," according to the CDC.

In some ways, Biden is correct: the beef market in the United States needs additional participants. However, the government is to blame for the crisis, and there is no self-reflection or accountability. Only promises to mend what the federal government has already messed up.