Tuesday, August 05, 2003 | |
The meat oligonomy The emerging meat industry consolidation is analyzed in a paper called "The New U.S. Meat Industry " written for the Economic Review of the Federal Reserve Bank of Kansas City by Alan Barkema, Mark Drabenstott, and Nancy Novack. The article is bland and sober in tone, and in the end gives cautious and small-scale warnings about possible anti-trust actions in the meat industry. But the description itself is indicative of a rapidly changing meat industry, something that most consumers know nothing about. What the authors portray, without using the term, of course, is a tiered oligonomy that has tightened remarkably in the past decade. The authors argue that the industry has dramatically consolidated on three levels: the retail level, the processor/meatpacker level, and in the producer level.
In other words, almost 75% of major city grocery purchases went through the top four companies, Safeway, Kroger, Albertson's and Wal-Mart. These concentrated buyers form an aggressive oligopsony toward the meatpackers. And one of their reasons for growing is to gain leverage over the extensive oligopoly in meat processing that started growing in the 1980s. Of course, the supermarkets and discount stores, as they grow, form an oligopoly toward consumers. That's one tier of our oligonomy. The meat producers form an oligopoly toward the retailer oligopsony. Those same producers are an oligopsony toward the farmers and ranchers who raise the animals the producers slaughter. Tier two of our oligonomy. Producers
They point out that consolidation has been slower to take hold in raising cattle, but that such a trend is inevitable. Here the oligonomy stops. Farmers, whatever their size, are almost powerless against the oligopsony of the meatpackers. More and more, they are becoming independent contractors for the meatpackers, subject to instant dismissal. The independents take all the risk in the volatile commodities market. They often are in debt for supplies to these producers. And the producers quickly squelch any movement of farmers or ranchers to associate for the purpose of negotiating prices or conditions. (All this is pointed out in Schlosser eloquent Fast Food Nation.) In other words, the concentration in the livestock-raising sector is not particularly to the advantage of the farmers and ranchers; rather it makes it easier for the meatpacking oligopsony. In the meat industry, the livestock raisers, like the consumers, have little real power. They are outside the oligonomy. 5:04:22 PM |