In June of 2022, the House Oversight Committee sent a letter to USDA Secretary Tom Vilsak demanding a review of all federal procurement contracts with JBS USA – which since 2017 has sold the U.S. government nearly $400 million worth of meat – after its parent company plead guilty of a multi-million dollar bribery scheme in Brazil that resulted in a $256 million dollars in fines. This guilt is part of a pattern of illegality for JBS, which has also come under scrutiny for violations of U.S. child labor laws, and for purchasing 17% of its cattle from ranches that have engaged in illegal deforestation of the Amazon.
Given that federal law requires that government contractors “conduct themselves with the highest degree of integrity and honesty” and provides for the discontinuation of contracts with entities that have engaged in bribery or antitrust violations, the Committee’s request was an obvious one. However, early in 2023, Politico broke the news that, in a letter later that fall, Secretary Vilsak had declined to consider a suspension of JBS-USA’s contracts, saying, “removing [JBS-USA] from government-wide procurement would potentially impair competitive choice for the taxpayer in securing affordable food for the range of needs that government must provide for, from school lunches to meals for our soldiers.” In other words, USDA thinks there is such little meaningful competition in meat markets that the government cannot even avoid purchasing millions of dollars of meat from flagrantly lawless corporate robber barons.
In 2022, USDA purchased nearly half of its meat from the largest category of meat processors. Even more egregiously, 25% of USDA’s meat procurement was allocated to just four dominant meatpackers: $279 million to Tyson, $13 to Cargill, $5 million to Smithfield, and, despite its criminality, $63 million to JBS. In contrast, less that 7% of USDA’s meat procurement contracts were awarded to small meat processors serving regional food systems.
Regional Meat Processors Need Procurement Reform and a Fair Marketplace
Over the past two years, the USDA has made a number of impactful investments in new regional meat processing enterprises and regional meat supply chain projects, from $73 million in grant funding through the Meat and Poultry Processing Expansion Program – with more on the way – to $150 million in guaranteed lending through the Meat and Poultry Intermediary Lending Program and Food Supply Chain Guaranteed Loan program. These investments have been explicitly billed by USDA as a tactic to increase competition through the introduction of new competitors in meatpacking sectors.
However, these sectors remain highly concentrated; today, a “big four” cluster of giant corporations exert oligopsonistic control over 82% of the beef market, 66% of the hog market, and 54% of the poultry market. Dominant meatpacking corporations routinely use their market power to distort prices and markets to maximize their profits and power and marginalize and sometimes acquire smaller competitors. Economist Robert C. Taylor explains this dynamic in his paper Harvested Cattle, Slaughtered Markets, saying,
In the cattle business… fences have historically separated buyers of slaughter cattle from their sellers. This is no longer true. Large packers and large feeders have sufficient control over scheduling and delivery of captive cattle to flex significant numbers of cattle in or out of the residual cash market in any week…Packers, with their contract supplies of cattle, may literally be on both sides of the weekly cash market. They procure a few cattle in the cash market as buyers. But they push the cash market down because they already control other cattle more favorably priced if the cash price is lowered, and in that sense, they are suppliers motivated to drive price downward…In essence, packers’ ability to flex some committed AMA cattle allow them to tear down the fence.
In the face of such market dominance and procurement capture, significant concerns remain about the ability of the new processing enterprises USDA is investing in to remain independent and viable over the long-term, to say nothing of actually fairly competing with dominant meatpackers. Furthermore, current federal procurement practices by USDA and other agencies (as outlined above) also routinely source millions of dollars of meat from these dominant meatpackers, further unbalancing the scales.
The Strengthening Local Meat Economies Act Explained
Rather than continuing to funnel millions of dollars to dominant meatpackers, the federal government should take a holistic approach to supporting more competitive meat sectors making long-term and high volume purchasing agreements preferentially available to as many regional meat processing competitors as possible, and creating new digital tools to facilitate fairer regional meat economies that are insulated from manipulation by dominant meatpacking corporations. These are the goals of the Strengthening Local Meat Economies Act.
The two main efforts of the Strengthening Local Meat Economies Act – the redirection of meat procurement away from dominant meatpackers to local processors and the development of digital meat exchange platforms – both have the potential to be a countervailing force against out of control corporate concentration in meat industry sectors. Redirection of meat procurement to local processors will position the federal government as an “anchor customer” to those regional meat processors that are currently receiving federal investments, ensuring their long term competitive viability, while partially disinvesting the federal government from supporting dominant meatpackers through its procurement dollars. The development of digital meat exchange tools that are insulated from dominant meatpackers, but openly accessible to producers, local processors, and governmental and private institutional buyers, will address multiple market infrastructure gaps that currently exist in regional independent meat economies that have emerged over the past few decades as a result of corporate concentration.
The two provisions of the Strengthening Local Meat Economies Act – meat procurement reform and new digital exchange platforms – will mutually benefit from each other. For redirection of meat procurement to local processors to succeed, procurement contract opportunities need to be accessible to producers and processors in a custom designed platform like the proposed digital exchange platform(s). For a digital platform pilot to succeed, there will need to be sufficient product demand to attract supplier participants – something that the federal procurement guarantee provides.
How Meat Procurement Reform Can Strengthen Local Meat Economies
In 2022, USDA allocated only $98 million of its $1.45 billion in meat and poultry procurement contracts to regionally scaled meat processing companies processing under 1 million pounds per month. This is by no means an indicator of a lack of capacity at this processing scale. There are over 600 small meat processors across all fifty states that could potentially compete for federal meat procurement contracts. Last year, USDA purchased meat and poultry products from just seven of these processors.
The Strengthening Local Meat Economies Act will require USDA to change course, and begin to redirect millions of dollars into local meat economies. Any independent meat processing business that processes less than one million pounds per month or employs less than 150 full time employees will be eligible to receive or compete for meat procurement contracts with USDA, without interference from dominant meatpacking corporations, which will not be eligible. By making long-term and high volume purchasing agreements preferentially available to regional meat processors, the federal government can further ensure their long-term independence, viability and scalability.
If the Act is passed, USDA will be placed on a path to purchase 20% of its meat from eligible processors within four years, resulting in close to a $200 million influx in new purchasing demand within local meat economies. Critically, the Act empowers USDA to exercise its price reporting expertise to determine fair market price for meat products sourced from eligible processors, taking into account product attributes such as organic, regenerative, and high-welfare. USDA will not be required to accept the lowest possible bid on a meat procurement contract if such prices are deemed to not be viable for eligible processors.
Additionally, the Strengthening Local Meat Economies Act creates a number of preference standards for the allocation of these new USDA procurement contracts. To ensure fairness and equity, USDA will prioritize procurement from small processors that are owned by beginning, socially disadvantaged, or veteran farmers or ranchers, as well as from those that have established labor agreements with their plant workers. In keeping with the Act’s overall goal to strengthen local meat economies, the USDA will also prioritize procurement from processors that source at least 51% of their livestock or poultry from producers located within 250 miles of their plant, or that exclusively sell USDA approved “Product of the USA” labeled meat.
Small and mid-sized meat processing enterprises would have two options for participation in this program. First, they may choose to purchase livestock or poultry on the digital exchange and either sell the processed products through their own marketing channels or to other buyers on the digital exchange, including the federal government. Alternatively, they may choose to enter into a co-packing contract with the digital exchange, and offer a predetermined amount of their processing capacity on a weekly or monthly basis to process and deliver meat that has been sold from producers to buyers in their region for a predetermined fee.
How Digital Exchange Platforms Can Strengthen Local Meat Economies
In addition to reshaping USDA’s meat procurement to more powerfully support local meat economies, the Strengthening Local Meat Economies Act also provides USDA with resources to create new digital tools to facilitate easy access to new procurement opportunities, new opportunities for regional cash market exchange of livestock and poultry, and new tools for tracing and verifying the unique and highly desirable qualities of locally produced meat – all while protecting local meat economies from manipulation by manipulative and predatory meatpacking corporations.
The digital meat exchange platform proposed by the Act would function as a key piece of regional food system infrastructure for local meat economies; creating an additional modern online auction space within which multiple participants in local meat economies could engage in transactions and exchange. USDA would commission, through cooperative agreement – the creation of one or more digital platform(s), likely in the form of an app and/or website, for producers, processors, and buyers of both livestock and live poultry as well as processed meat products to engage in negotiated exchange. USDA has already begun experimenting with the creation of similar structures for other agricultural sectors, using modern technologies including distributed ledgers and smart contracts, to create new regional marketing opportunities, improve the precision of price reporting, and facilitate traceability of product attributes (from product of U.S.A to climate-smart) – all while preserving data privacy and transparency.
The proposed digital meat exchange platform will be designed to benefit both local producers and processors in multiple ways. Producers will be presented with a new openly accessible marketing tool for their livestock and poultry, with the ability to place their animals up for bidding, bid on live animals on sale from other producers in their region, and place bids on forward contracts offered by local meat processors. Producers would also benefit from much more precise price reporting based on real data from their regional meat economy that accounts for the unique product attributes commonly used by small farmers and ranchers to set their products apart. Finally, the new influx of demand for locally processed meat created by the Act’s federal procurement reforms would create new demand for their products.
For local processors, the proposed digital meat exchange platform would serve as the repository of the Act’s new federal procurement contract opportunities for local processors. By providing a custom designed experience for these processing companies, many of which will have never sought federal contracts before, the digital exchange platform will seek to provide a streamlined experience tailored to the particular needs of local processors. The digital exchange platform will also provide a space for local processors to engage in flexible cash purchasing of livestock or poultry, or establish new forward contracting relationships with local producers, as their supply needs dictate.
The digital exchange platform will also be open to state and local governments, private institutions, and other buyers seeking to purchase locally raised meat products. Buying meat locally is an attractive option for a diverse range of entities, but can often involve complicated and one-off relationship building. The digital exchange platform has the potential to unlock a more streamlined experience for local meat purchasing within local meat economies.
Map of eligible meat processors that could benefit from the Strengthening Local Meat Economies Act. See a fully interactive map HERE
The Strengthening Local Meat Economies Act: Section by Section
Federal Procurement of Meat and Poultry from SME Meat Processors
- The Act requires the USDA to publish a report that details the corporate sources of the department’s meat and poultry purchasing and identifies barriers that exist for small processors seeking USDA meat procurement contracts, within one year of the passage of the Act.
- The Act requires the USDA to increase its procurement of meat and poultry products from eligible processors (defined as processors that employ under 150 full time employees or process under 1 million pounds per month) by at least $50 million in the first full fiscal year that occurs after one year following the passage of the Act, at least $100 million in the subsequent fiscal year. In all following years, the act requires USDA to allocate at least 20% of the department’s total meat and poultry procurement contracts to eligible processors.
- The Act empowers USDA to exercise its price reporting expertise to determine fair market price for meat products sourced from eligible processors (taking into account product attributes such as organic, regenerative, and high-welfare), and will not be required to accept the lowest possible bid on a meat procurement contracts if such prices deemed by the Secretary to not be viable for eligible processors.
- The Act requires USDA to prioritize procurement from eligible processors that:
- Are owned by beginning, socially disadvantaged, or veteran farmers or ranchers,
- Exclusively sell USDA approved “Product of the USA” labeled meat
- Source at least 51% of their products from producers located within 250 miles of their plant
- Source at least 51% of their products from the digital livestock exchange platform
- Have established labor agreement with their plant workers
- The Act requires USDA to conduct interagency outreach and technical assistance to facilitate the posting of meat procurement contracts from other federal agencies to the digital exchange platform.
Digital Meat Exchange Platform
- The Act directs the USDA to develop a digital exchange platform – in the form of a digital application and/or website – for regional meat economies. $2,000,000 in appropriations is authorized for this project, and the department may, at its discretion, make grants to or enter into cooperative agreements with private entities to accomplish this objective.
- The Act outlines the following purposes and activities of this digital meat exchange platform:
- Facilitating open access to cash market exchange and open bidding on forward contracts and procurement contracts between producers and other producers, producers and eligible processors, and producers and processors to private institutional and government (local, state, federal) buyers.
- Connecting producers to eligible processors offering copacking services, so that producers may fulfill governmental, retail, restaurant, or institutional contracts directly.
- Providing open source access for producers to a tool that allows them to enhance the traceability of their product attributes (from product of U.S.A, organic, regenerative, climate smart, high welfare, etc).
- Enabling USDA’s reporting of regional agricultural prices, while ensuring data privacy and data ownership for individual digital exchange platform participants.
- Preventing manipulation within markets and transactions across the livestock and poultry industry subject to the Packers and Stockyards Act.
- Testing the value of new forms of technology, including distributed ledger and smart contract technologies, in livestock and poultry market exchanges and supply chains, to accomplish the above objectives.
- The Act establishes that for meat and poultry processors, participation in this digital meat exchange platform will be restricted to eligible processors that employ under 150 full time employees or process under 1 million pounds per month. Processors excluded by these eligibility criteria are prohibited from participating in the digital exchange platform.
- For any livestock sold on the digital exchange platform, the act prohibits the usage of forward contracts (for 50 or more animals) that contains a formula base price, and requires forward contracts for livestock to be posted to the digital exchange platform for public bidding. The Act also categorizes the digital exchange platform itself as a market agency under the Packers and Stockyards Act.