GETTING THE ECONOMICS RIGHT.

Let the record show that the last major outbreak of Official Brow-Furrowing about corporate concentration leading to higher prices through an exercise of market power was during the Carter presidency.  (The Soviet Union invaded another country in hopes of installing a friendly government back then, but I digress.)  That brow-furrowing often focuses on specific sectors, such as food processing, and some of that was at work during the Obama administration.  Back then, though, the troubling developments might have been better living through chemistry.  "Concentration in the food business is not in the public interest -- now-a-days advanced genetic modification is the latest way of enhancing profits despite making the food cheaper and more plentiful."  I tend to file that sort of stuff as "Demand your right to pay higher prices from independent suppliers."  That's what we have farmers' markets, artisanal breweries, and the like for.

But then, the senile potted plant inserts himself in the discussion, and it appears he's arguing that we all end up paying more for meat because the meat packers are paying ranchers less for meat.

Given Biden’s incoherence, it’s up to us to make some assumptions about what he meant here. He most likely meant to say there are four major meatpacking companies, not facilities. And given he said four, he probably means beef specifically, not meat in general. The four major beef companies in the U.S. are Tyson, Cargill, National Beef, and JBS. If you branch out into other meats, companies such as Smithfield, Hormel, and Perdue are big players as well.

The Big Four beef companies are responsible for about 70 percent of total U.S. beef production. The reason for the consolidation is economies of scale. Larger facilities are able to slaughter more cattle at lower cost than smaller facilities.

More consolidation means fewer options for farmers, however, and they may have no choice but to accept prices for their meat that they deem too low. More meat used to be priced through public auction, which allowed for greater transparency and gave farmers more power. Now, more meat is priced through exclusive contracts, with terms set by the processing companies that farmers then take or leave.

Farmers are upset about this, which is nothing new. There has always been and will always be tension between farmers and the companies that purchase their goods and bring them to market. Sellers (farmers) will always want prices to be higher, and buyers (marketers and processors) will always want prices to be lower.

As an exercise, work out the welfare implications of a seller's oligopoly that has oligopsony control of a primary input. For extra credit, identify the incentives producers of that input might have to bypass the oligopsony.

Now consider the populist impulse.  If ranchers get paid more, under what circumstances will consumers pay less?

What’s curious here is that Biden is implicitly taking the sellers’ side while complaining that prices are too high. Note that the attorneys general are writing on behalf of producers, not consumers. Farmers want the prices to be higher because they make more money that way. That makes perfect sense for them, and they have every right to ask for it. But Biden wants prices to be lower, so taking the farmers’ side in this dispute is counterproductive for him.

More fundamentally, emphasizing repeatedly that there are “only four” major beef companies raises the question: How many major beef companies should there be? Biden’s answer, implicitly, is “more than four,” but it’s not really clear why or how we should go about increasing the number of companies.

Particularly, as the article notes, if there are substantial economies of scale in packing and shipping beef.