A new meat industry is rapidly emerging in the United States, as food retailers, meat processors, and farms and ranches coalesce into fewer and larger businesses. The industry's rapid consolidation in recent years has triggered alarms that the industry's new giants in retailing and processing could drive up food prices for consumers and drive down livestock prices for producers. How should public policy respond to the industry's consolidation? And how can all participants in the industry-producers, processors, retailers, and consumers-benefit from its new structure? This article studies the striking changes in the meat industry in three steps. First it describes how the industry is changing. Then it examines the forces driving the industry's consolidation. Finally, it considers how consumers and industry participants are affected. While current evidence is scant that market power has hurt either consumers or producers, the industry's rapid consolidation nevertheless warrants vigilance. At the same time, public policy might also play a role in ensuring that all participants in the market benefit from its new structure. I. HOW IS THE MEAT INDUSTRY CHANGING? A wave of consolidation is sweeping the U.S. meat industry. The trend is a relatively new phenomenon in food retailing but well advanced in meat processing and livestock production. The result is an industry of fewer and larger businesses. At the same time, a new supply chain structure is emerging in the industry, bypassing traditional market arrangements to forge tighter linkages among farms and ranches, meat processors, food retailers, and the consumers they serve. Consolidation in food retailing The wave of consolidation that began in the retail grocery industry in the 1990s was spurred by two key events. First, a handful of large grocery stores merged or acquired other stores, spawning several major grocery chains. As these chains grew, they soon spread into other regions of the country. Second, large general merchandise stores and warehouse clubs appeared on the retailing scene. Wal-Mart, for example, joined the ranks as one of the nation's top grocery retailers in the mid-1990s, and by yearend 2000 its Supercenter division had become the nation's top grocery retailer. As a result of these megamergers and the emergence of other large new retailers, the large retail grocers have quickly gained customers at the expense of the smaller ones. From the mid-1990s to 2000, the market share held by the nation's top four food retailers-the four-firm concentration ratio (CR4)soared from 17 percent to 34 percent. Consolidation in metro areas has become even greater. The average CR4 among grocers in the nation's 100 largest cities reached nearly 72 percent in 1998 (Kaufman). Consolidation in meat processing Unlike the food retailing industry, where consolidation is fairly new, the meat processing industry began its trend to fewer but larger processors more than a half century ago. Some consolidation occurred among poultry processing plants in the 1950s, but rapid gains in poultry consumption has supported an almost steady number of poultry plants since the 1960s (MacDonald, Madison, and Ollinger). In contrast, a much more rapid consolidation has recently swept beef and pork processing. Since 1980, the number of slaughter plants has plunged from more than 600 to about 170 for cattle and from more than 500 to about 180 for hogs. The number of meat processing firms has also dwindled rapidly, boosting the market share held by the industry's largest players, especially among beef processors (Chart 1). The rapid consolidation has vaulted the beef processing industry into highly concentrated status, the highest rank in the classification scheme the U.S. Department of Justice uses in its antitrust oversight. The pork processing industry ranks moderately concentrated. The Justice Department uses the Herfindahl-Hirschmann Index (HHI) to measure market consolidation, a gauge that is more comprehensive than the CR4. …

food retailers, meat processors, and farms and ranches coalesce into fewer and larger businesses. The industry's rapid consolida-tion in recent years has triggered alarms that the industry's new giants in retailing and processing could drive up food prices for consumers and drive down livestock prices for producers. How should public policy respond to the industry's consolidation? And how can all participants in the industry, producers, processors, retailers, and consumers, benefit from its new structure? This article studies the striking changes in the meat industry in three steps. First it describes how the industry is changing. Then it examines the forces driving the industry's consolidation. Finally, it con-siders how consumers and industry participants are affected. While cur-rent evidence is scant that market power has hurt either consumers or producers, the industry's rapid consolidation nevertheless warrants vigi-lance. At the same time, public policy might also play a role in ensuring that all participants in the market benefit from its new structure.

A new meat industry is rapidly emerging in the United States, as food retailers, meat processors, and farms and ranches coalesce into fewer and larger businesses. The industry’s rapid consolidation in recent years has triggered alarms that the industry’s new giants in retailing and processing could drive up food prices for consumers and drive down livestock prices for producers. Should public policy respond to the industry’s consolidation? And how can all participants in the industry—producers, processors, retailers, and consumers— benefit from its new structure? This article studies the striking changes in the meat industry in two steps. First it examines why the industry is changing. Then it considers how consumers and industry participants are affected. While current evidence is scant that market power has hurt either consumers or producers, the industry’s rapid consolidation nevertheless warrants vigilance. At the same time, public policy might also play a role in CENTER FOR THE STUDY OF RURAL AMERICA Federal Reserve Bank of Kansas City

Another big package of government financial aid cushioned the farm slump in 2000 but did little to lift agriculture's spirit. Overall, the industry's major financial indicators stayed remarkably healthy. Farmers delivered more red meat and poultry to supermarkets than ever before, and strong consumer demand in the robust U.S. economy boosted livestock prices and profits. But another big crop swamped still sluggish global markets, and weak crop prices held down farm incomes. In the end, help from Washington propped up the industry's financial indicators for the third consecutive year. Some signs of improvement have emerged, but like the year before, the industry's outlook for 2001 hinges on the weather and Washington. Global food consumption has caught up with agriculture's recent production surge, tightening world grain supplies and brightening prospects for farm exports. Nevertheless, normal weather and another big crop could keep US. granaries full and crop prices low. Livestock producers are likely to have another good year, but weak crop prices could hold down farm income. As in the past three years, agriculture's prospects in 2001 may rest on financial assistance from Washington. I. THE FARM SLUMP CONTINUED IN 2000 Although most financial indicators remained remarkably stable in 2000, the farm slump continued. Thanks to financial aid from Washington, farm incomes and asset values climbed. The year was generally a good one for livestock producers, with consumers buying more meat than ever before. But crop producers were unable to sell their huge crop at a profit, setting the stage for still more government help. Farm finances steady-with government help Farm financial conditions stayed on a remarkably even keel in 2000. Farm incomes and asset values edged up despite weak crop prices, which lingered as the sole reminder of agriculture's continued slump. Despite an early warning of widespread drought, crop producers turned out the nation's fifth consecutive bumper harvest. The big crop swelled crop inventories and held down crop prices, but generous assistance from Washington lifted incomes. Livestock producers notched solid profits, with cheap feed holding down costs and robust consumer demand buoying livestock prices. When all the numbers are in, the nation's farm income for 2000 compared to 1999 is expected to be up slightly. The U.S. Department of Agriculture pegs net cash farm income, a cash flow gauge that measures the difference between receipts and expenditures, at $56.4 billion, up more than 3 percent from the year before. Net farm income, a broader measure that takes into account inventory swings and depreciation, could total $45.4 billion, up more than 4 percent from the year before and slightly above the decade average (Chart 1).1 Livestock producers generally fared well in 2000, with profits fueled by cheap feed and strong livestock prices. The strong prices and big production boosted livestock receipts to a record $99.5 billion, up more than 4 percent from 1999. Hog producers earned strong profits through the year, in a welcome turnaround from two years of substantial losses. Profits for cattle feeders seesawed through the year, solidly in the black at the beginning of the year, deeply in the red by summer, and back in black in the fall. Despite the swing in feedlot profits, high feeder cattle prices kept profits steady for ranchers. Crop producers had a brief opportunity to market their crops at better than break-even prices, when an early spring warning of widespread drought rallied the markets. The price surge was short-lived, however. The summer weather in the southern Great Plains was dry and harsh, but many other areas dodged the drought. By midsummer, prices plunged to their lowest levels since the mid-1970s for soybeans and since the mid-1980s for corn and wheat. The low prices held crop sales at a relatively low $96.6 billion, up about 4 percent from 1999. …

Access to capital through viable rural credit markets will be key to meeting many of the challenges facing Rural America in the years ahead. The menu of capital sources in many rural communities, however, is much shorter than in urban centers. Urban capital sources might include numerous local, regional, and national banks, finance companies, and venture capital firms. In many rural communities, the menu starts and ends with the local community bank. What is the outlook for Main Street’s primary lender in the new century? A recent overhaul of the nation’s banking laws promises to give bankers a new array of tools to finance rural businesses. And technology will continue to redefine how banking gets done, even in rural America. Finally, community banks will struggle with several challenges in the farm lending market, traditionally the cornerstone of their loan portfolios. In the end, a close relationship with its community is likely to remain the defining element of the community bank’s destiny. Thus, the long-standing relationship holds true: as go rural communities, so will go community banks. CENTER FOR THE STUDY OF RURAL AMERICA Federal Reserve Bank of Kansas City

The century’s final year was one of frustration for U.S. agriculture—certainly not the way the industry had hoped to close the millennium. Farmers took pride in their productivity, turning out the fourth bin-busting crop in a row and more red meat and poultry than ever before. But the big production collided with a still sluggish world market, holding down farm commodity prices. Still, farm income held up well above the average for the past decade, due to another big financial assistance package from Washington. The farm slump will likely continue in the year ahead, although prospects for livestock and crop producers diverge widely. Livestock producers could have a very good year, with low feed costs and robust consumer demand boosting profits, but weak crop prices could drag down farm income. As in the last two years, help from Washington may determine whether farm income in 2000 rises or falls. CENTER FOR THE STUDY OF RURAL AMERICA Federal Reserve Bank of Kansas City

How does rural America see its future? To answer that question, the Center partnered with the Bank’s Community Affairs staff to host seven roundtables throughout the nation last summer. The roundtables revealed an across-the-board sense that Main Streets are at risk, with economic challenges rapidly mounting. Out-migration, limited leadership capacity, and a daunting rural business environment were all cited as key challenges. Rural groups also agreed that rural policies must change if those and many other challenges are to be met. But there was little consensus on what policy changes hold the greatest promise. That lack of agreement contributes to an overall sense of frustration about where rural policy is headed. Still, in the end virtually all participants were convinced that rural America has strengths on which to build a better future, none more important than a resilient rural spirit and an abiding commitment to rural places. CENTER FOR THE STUDY OF RURAL AMERICA Federal Reserve Bank of Kansas City

A recent surge in U.S. agricultural exports has triggered a wave of optimism about the industry's prospects in the world food market. At the root of the industry's recent export gains are rapidly growing populations and incomes across Asia and Latin America. Adding fuel to U.S. agriculture's newfound optimism is the recent emergence of China-the world's most populous nation and most rapidly growing economy-as a net importer of food. The world food market may not live up to current expectations, however, without substantial investment in food processing and distribution infrastructure in developing countries. Much of the developing world has limited capacity to process and distribute food, whether imported or produced domestically. For example, in China and Mexico-two of U.S. agriculture's most promising markets-the existing transportation and distribution systems are inadequate to meet current food system needs. Such infrastructure limitations could become a crucial bottleneck for exports of some U.S. farm commodities. At the same time, however, exports of other kinds of products, including U.S. farm and food technology, could be strengthened by efforts to upgrade the infrastructure supporting the food systems in the developing world. This article examines how an inadequate food system infrastructure in the developing world may affect U.S. agriculture's prospects in the world food market. The first section assesses the potential size of the world food market. The second section evaluates how limitations in food system infrastructure in developing countries could limit that potential, focusing on China and Mexico as illustrative case studies. The third section considers implications of infrastructure limitations for U.S. farm and food exports. The article concludes that inadequate infrastructure could tilt U.S. exports toward food technology and products and away from traditional bulk commodities. WHERE IS THE WORLD FOOD MARKET GROWING? U.S. agriculture is facing its best prospects in the world market since the 1970s. Economic growth continues in traditional developed markets, such as Europe, Japan, and Canada. What makes the period ahead especially promising is the potential for a number of small and large developing countries to increase food purchases substantially. Countries across Asia and Latin America are experiencing rapid growth in both their economies and their populations. Thus, not only is food need growing, but consumers increasingly have the incomes to improve their diets. Based on the forces at work, Asia and Latin America appear to hold particularly bright prospects for U.S. exporters of food and agricultural products. Before looking ahead, it should be recognized that Asia and Latin America already have made a big impact on U.S. agricultural exports. Five of the top seven markets for the nation's agricultural exports in 1995-Japan, Mexico, Korea, Taiwan, and China-are in Asia and Latin America. While the industrial countries of the European Union are still a big market for U.S. farm products, the European share of U.S. agriculture's exports has declined, shrinking from a fourth a decade ago to about a seventh in 1995 (Chart 1). Meanwhile, Asia has quietly become U.S. agriculture's dominant customer. Together Japan, China, and a cluster of other high-growth nations around Asia's Pacific Rim now account for nearly 40 percent of the industry's foreign sales. China's imports of U.S. farm products have tripled in the last few years. Mexico is the fourth-largest market overall. Sales to Mexico lost some steam last year due to the downturn in the Mexican economy, but Mexico and Latin America remain promising markets of longterm potential. Recent trends in population and income promise to make Asia and Latin America even more attractive markets for U.S. producers in the years ahead. Today, the world's population is about 6 billion. Only a fourth of the world's residents live in the high-income, developed nations, while three-fourths live in the developing countries of Asia, Latin America, and Africa. …

A griculture represents both the past and the future of the rural economy in much of the Heartland. While many communities have diversified their economies into manufacturing, and others have discovered rapid growth through expanding services, much of the rural Heartland will remain primarily dependent on agriculture—for better or for worse. The region contains vast reaches of farm and ranch land, and much of it has little use other than for agricultural production. With its abundant agricultural resources, the region produces nearly two-thirds of the nation’s wheat, more than half of its beef and pork, and just under half of its corn. Thus, Heartland agriculture is critical to the region’s rural communities. Agriculture is undergoing enormous change, fundamentally altering one of the region’s traditional economic anchors. The region’s farms are getting bigger and fewer. Contract production and vertical integration are bypassing traditional marketing channels. The global market for the region’s farm products is shifting. And government farm programs underpinning the region’s farm income are being scaled down. Together, these changes are altering agriculture’s links with the region’s rural communities, raising the question: How can the region derive the fullest benefit from its agricultural resources in the years ahead? This chapter examines how Heartland agriculture is changing and what these changes imply for the region’s rural economy. The first section describes the major changes taking place in Heartland agriculture and explores how these changes are affecting the industry’s links with the rural economy. The second section considers strategies Heartland communities might pursue to build on the region’s abundant base of agricultural resources. The chapter concludes that the decade ahead will be one of change and challenge for Heartland agriculture and the rural communities that it supports. Many rural communities will inevitably decline, but others will survive or thrive by successfully harnessing their agricultural resources to new opportunities.

An old maxim holds that too much of a good thing can be bad for your health. That maxim pretty well sums up U.S. agriculture's predicament in 1994. The nation's crop producers harvested record crops, with bins overflowing onto Farm Belt streets. Livestock producers sent record amounts of meat to the nation's meat counters. The abundance of food, however, brought the industry back to its traditional problem--record supplies bring low prices. Hence, farm income declined in 1994. Fortunately, most farmers and ranchers had healthy balance sheets to cushion the fall. In the year ahead, the farm economy should stabilize. With bigger grain stocks overhanging the market, crop prices probably will stay low in 1995. Export markets should lend some support to crop prices, however, as recovering economies in Europe and Asia boost world food demand. Also, relatively low feed prices will brighten livestock prospects, particularly if cattle and hog prices continue to recover from 1994 lows. A new farm bill will be written in 1995 and, while the new bill will have little if any effect on the farm economy in 1995, the major overhaul of farm programs that now seems possible will have a lasting impact in years to come. A PRODUCTION BOOM IN 1994 In many respects, 1994 was a record year for the nation's farmers. Crop producers harvested the biggest corn and soybean crops on record. Livestock producers sent more beef, pork, and poultry to market than ever before. But much to farmers' chagrin, the production boom quickly drove down farm prices to the lowest levels in years. The result was a sharp fall in farm income, cushioned only by the industry's strong balance sheet. A DOWN YEAR FOR FARM FINANCES Farm financial conditions turned down in 1994, although returns were quite mixed across the industry. Most crop producers had strong profits after harvesting record crops, a welcome turnaround from the weather-damaged crops the previous year. Livestock producers, on the other hand, had a difficult year as cattle and hog prices sank to levels not seen in recent years. The nation's net cash farm income, which nets cash expenses from cash receipts, was $51 billion in 1994. That was down nearly 13 percent from 1993 and was the lowest since 1986 (Chart 1). (Chart 1 omitted) Adjusted for inflation, cash income was down 14 percent. A sharp drop in livestock earnings and government payments to crop producers accounted for most of the drop. Net farm income, an alternative income measure which takes into account changes in farm inventories, was almost unchanged from 1993 due to the huge 1994 harvest, which refilled farm granaries to overflowing. The district's net farm income in 1994 fell even more than in the nation due to the importance of the livestock industry in the region. District livestock producers bore the brunt of the income drop in 1994. In the cattle industry, most feedlots began the year operating at a small loss, which quickly widened to $100 to $150 per head in early summer when big meat supplies triggered sharp slide in fed cattle prices (Chart 2). (Chart 2 omitted) Feedlot losses quickly pushed down the price of feeder cattle, dragging down incomes for district ranchers. The big meat supplies put gradual downward pressure on hog prices until September, when prices plunged to the lowest levels since the early 1980s triggering big losses for pork producers. District crop producers fared better than livestock producers in 1994, a switch from recent years Crop prices remained high during the first half of the year, boosting incomes for those farmers who waited to sell the small crop harvested in 1993. The strong first-half prices also offered farmers an opportunity to boost incomes further by selling in advance their newly plated 1994 crops. Anecdotal evidence suggests, however, that relatively few farmers sold the new crops before prices plunged at midyear. The missed opportunity was made worse when the high first-half prices led to a decline of more than $5 billion in government subsidies designed to compensate farmers for low prices. …

AgribusinessVolume 11, Issue 5 p. 483-492 Industry Note The many paths of vertical coordination: Structural implications for the us food system Alan Barkema, Corresponding Author Alan Barkema Assistant Vice President Economist and Mark Drabenstott is a Vice President and Economist at the Federal Reserve Bank of Kansas CityFederal Reserve Bank of Kansas City, Kansas City, MO 64198Search for more papers by this authorMark Drabenstott, Mark Drabenstott Economist and Mark Drabenstott is a Vice President and Economist at the Federal Reserve Bank of Kansas CitySearch for more papers by this author Alan Barkema, Corresponding Author Alan Barkema Assistant Vice President Economist and Mark Drabenstott is a Vice President and Economist at the Federal Reserve Bank of Kansas CityFederal Reserve Bank of Kansas City, Kansas City, MO 64198Search for more papers by this authorMark Drabenstott, Mark Drabenstott Economist and Mark Drabenstott is a Vice President and Economist at the Federal Reserve Bank of Kansas CitySearch for more papers by this author First published: September/October 1995 https://doi.org/10.1002/1520-6297(199509/10)11:5<483::AID-AGR2720110511>3.0.CO;2-QCitations: 14AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume11, Issue5September/October 1995Pages 483-492 RelatedInformation