How can small meat processors compete against industry giants?

Over the past two decades, Greg Gunthorp carved out a niche operating a small meat processing plant in northern Indiana. He sold several kinds of meat to chic Chicago and Indianapolis restaurants and to Chicago O’Hare International Airport. He also sold direct to consumers.

But selling in grocery stores was not an option, as the largest meatpackers often have those contracts. In his circumstances, he found it difficult to compete in the chicken industry, and he recently stopped raising and slaughtering the bird.

“In an extremely concentrated marketplace,” he said, “it’s difficult for a small processor — especially a plant that slaughters — to find a sweet spot somewhere to fit long term.”

In an industry in which four companies — Tyson Foods, JBS, Smithfield and Marfrig — control most of the meat market, small slaughterhouses are struggling to compete.

The Biden administration has tried to address the concentration, including offering grants to help small processors expand. But it’s not enough for many small processors that face proportionately higher operating expenses than the industry giants, according to interviews with small processors and experts.

“I think we’re gonna see a lot of these plants go out of business or sell,” said Rebecca Thistlethwaite, the director of the Niche Meat Processor Assistance Network, which helps support small processors apply for federal grants and with marketing.

When asked about the problems small processors identified, the U.S. Department of Agriculture responded that the $1 billion in grants it’s invested in expanding small processors “is a historic investment that will directly combat consolidation in the meat processing sector and help build resiliency in the face of market disruptions.”

Controlling markets

Smaller plants that process fewer than a thousand animals a year can serve a region.

But the largest meatpacking plants, the ones that process millions of animals a year and are owned by industry giants such as JBS and Tyson Foods, package the majority of meat that ends up in grocery store aisles across the country.

Just 12 federally inspected plants produced slightly less than half of the country’s beef supply in 2022, according to Investigate Midwest’s analysis of U.S. Department of Agriculture data.

The same year, 14 plants produced about 60 percent of the nation’s pork.

Hundreds of small processors were responsible for less than 1 percent of the nation’s beef and pork supply.

Because of their size, the largest meatpacking companies can keep their expenses low, leading to more profits, experts said. The same economic rules don’t apply to small processors.

In the pork and poultry industries, large meatpacking plants often already own the pigs and chickens they slaughter, so there is no need to buy animals on an open marketplace.

In the beef industry, cattle ranchers still often sell their product to slaughterhouses, but the sparse number of meatpacking plants in a given area lowers what plants are willing to pay.

Large meatpackers also have contracts with retailers, ensuring their product ends up at grocery stores, as opposed to farmers markets or meat counters, said Bill Bullard, the CEO of R-CALF USA, which advocates for independent cattle producers.

“They’ve exceeded any efficiencies associated with economies of scale and are now engaged in controlling the marketplace,” he said.

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Price-fixing?

The North American Meat Institute, a lobbying organization for the meatpacking industry, disagreed with the premise that meatpacking giants make it harder for small ones to compete.

Large processors have experienced their own problems — drops in earnings and recent plant closures, such as the ones in Missouri and Indiana — and have little sway over the meat marketplaces, the organization said.

“If large packers could control price,” Sarah Little, the organization’s spokesperson, said in an email, “they are doing a bad job of it.”

The retail price of chicken hit a record high in early October, which should benefit Tyson Foods and other major poultry processors, according to Reuters.

Meatpackers also have been dogged by accusations of price-fixing: Last year, the country’s largest food distributor accused the largest packers of suppressing supply in a case still pending.

Around the same time, Smithfield Foods, a major pork processor, paid $42 million to settle price-fixing accusations.

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For Gunthorp, to maintain business in the Chicago area, he has to focus on quality over quantity, he said. He has to market directly to consumers, through his website or at farmers markets. Without a contract to sell at grocery stores, he’s cut out of access to many consumers.

He said the USDA’s grant program to expand meat processing capacity can be helpful, but the federal government isn’t addressing core problems.

“It’s a complex problem to solve,” he said. “I don’t know that they delved into it hard enough.”

In Iowa

Major meat companies — Tyson Foods, JBS and Smithfield — have a large presence in Iowa, the nation's largest producer of pork and eggs.

Smithfield, for example, has nine facilities in Iowa as well as 521 contract farms and three feed mills.

Iowa has been working to help small-scale meat processors with grants to scale up operations and market directly to consumers — a niche that can't be filled by large packing plants.

Direct-order meat sales in Iowa totaled just under $30 million in 2020, according to U.S. Department of Agriculture statistics cited by Amanda Van Steenwyk, farm business development manager for the Iowa Farm Bureau.

About 3,000 Iowa farms now are selling meat directly to consumers, up 50 percent from 2015, the Farm Bureau reported.

The Iowa Legislature in 2021 created the Butchery Innovation and Revitalization program, which provides grants of up to $50,000 for meat lockers to improve operations so they can provide specialty products, like inch-thick pork chops or jalepeno beef sticks.

Online sites like ChopLocal.com, started by two Iowa entrepreneurs, helps farmers connect with customers. Farms or butcher shops pay a fee to ChopLocal, which helps them set up an online store with appealing photos and product descriptions. ChopLocal markets the meat and handles the online sales, relieving small-scale producers from having to employ staff for these purposes.

— Erin Jordan, The Gazette

Feds try to combat consolidation

The meatpacking industry’s concentration has far-reaching effects. During the COVID-19 pandemic, some plants were forced to close for days or weeks as workers fell ill or died. Animals must be delivered to plants as soon as they reach a certain weight, but the closures interrupted the supply chain. Some producers were forced to kill their animals en masse.

Responding to the supply chain issues, the Biden administration announced last year a $1 billion program to combat consolidation in the meatpacking and food sectors.

Any processors outside of the industry giants were eligible for funding. Plants in Iowa, Nebraska and North Dakota — states with large beef and pork footprints — have received the most funding. About $450 million has been awarded overall as of October.

When he announced the program, President Joe Biden said, “We’ll give farmers and ranchers more options beyond giant processing conglomerates, and shore up the weak points in our food supply chain.”

The funding is a promising sign in addressing the industry’s concentration, said Peter Carstensen, a professor of law emeritus at the University of Wisconsin and an antitrust law expert. But the administration should also be using its antitrust enforcement capabilities more than it is, he said.

"There is a real challenge to get to a scale large enough to be able to compete," Carstensen said. "It's a real problem for the smallest slaughter operations."

About those grants

The USDA’s grants have had a tangible impact on the White Earth Reservation in northern Minnesota, home to just under 10,000 people.

The grant helped Paul Benson start construction on a meat processing plant on the reservation. Once up and running in 2024, it will be able to slaughter and pack about 30 beef cattle a week.

"We're not feeding the world,” Benson said. “We're feeding a very small community.”

In west Texas, a small processor had the opposite experience.

After opening in summer 2021, Marfa Meats closed in January, said owner Christy Miller.

Miller applied for a USDA grant but was denied. In her proposal, which she shared with Investigate Midwest, she requested about $48,000 to help her expand production: She needed a larger freezer space, compost equipment and packaging materials.

The grant funding must be spent on projects or new equipment, but Miller said what would have been most helpful was if she had been able to spend the money on general operating expenses, which isn’t allowed.

"I'm bringing in a million dollars a year, and I'm still not able to close the gap,” she said. “If you want me to stay in business, throw me a bone here.”

Miller said she routinely paid more for cattle because she could not buy in the large quantities of a large processor.

She had a hard time finding people who knew how to slaughter and carve an animal. Large processing plants use an assembly line approach.

She needed to charge premium prices — a couple more dollars per pound than what chain grocery stores charge.

The USDA grant would not have been a silver bullet even if she had received it, she said. It would have given her breathing room, but the grants do not address root problems in the industry, she said.

"What upsets me is all of the lip service that they're giving to these grants," Miller said. "I'm living proof that it's not a sure thing by any means."

Investigate Midwest is an independent, nonprofit newsroom. Our mission is to serve the public interest by exposing dangerous and costly practices of influential agricultural corporations and institutions through in-depth and data-driven investigative journalism.Visit us online at www.investigatemidwest.org.

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