Does not matter: Price-check on big beef

May 26, 2020

With help from Helena Bottemiller Evich

Editor's Note: Morning Agriculture is a free version of POLITICO Pro Agriculture's morning newsletter, which is delivered to our subscribers each morning at 6 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro.

Quick Fix

— Disparity in the meat industry has worsened during the pandemic, drawing scrutiny from federal investigators over potential price-fixing by major beef processors.

— Booming interest in hemp farming is turning out to be a bust, due to an oversupply of the crop and the lack of federal guidelines for cannabidiol products.

— The Agriculture Department's food box delivery program is facing fresh criticism, with lawmakers questioning the agency's decision to hand out large contracts to companies with unclear qualifications for large-scale food distribution.

HAPPY TUESDAY, MAY 26! Welcome to Morning Ag, where your host misses eating out at restaurants, but apparently not as much as these increasingly aggressive rats. Send tips to rmccrimmon@politico.com and @ryanmccrimmon, and follow us @Morning_Ag.

Driving the Day

THE BIG BEEF PRICE-CHECK: USDA officials and federal prosecutors are probing the wide gap between what consumers pay for beef at the grocery store (the highest in decades) and the painfully low prices that livestock producers are paid for their cattle, POLITICO's Leah Nylen and Liz Crampton report.

By the numbers: The average retail price for fresh beef in April was $6.22 per pound, or 26 cents higher per pound than the previous month, according to the Bureau of Labor Statistics. But the average price for a steer at the end of April was less than $100 per hundred pounds. The five-year average for that same week was about $135 per hundred pounds, according to USDA's weekly summary.

According to meatpackers, beef prices are up during the pandemic because processing plants have scaled back operations as workers fall ill, meaning less meat is making its way to grocery store shelves. The reduced capacity also means less demand for live cattle from farmers and ranchers, pushing livestock prices lower.

But farmers and lawmakers think there's more afoot than simple supply-and-demand shifts in an industry that has been a focus of federal antitrust efforts for more than a century. One hundred years ago, the five largest meatpackers accounted for 82 percent of the beef market, before agreeing to antitrust measures. Today, four companies control about 85 percent of the market: Tyson Foods, JBS, National Beef and Cargill.

"It's evidence that something isn't right in the industry," said Sen. Chuck Grassley (R-Iowa). He's one of 20 senators and nearly a dozen state attorneys general who have asked the Trump administration to take a closer look at the beef market.

USDA has been investigating potential price-fixing since last August, and the Justice Department is now reviewing the so-called Big Four beef processors, according to a person with knowledge of the probe.

A group of ranchers is also suing the four companies for allegedly colluding to depress cattle prices since 2015, a case that is pending in Minneapolis federal court. The four meatpackers did not respond to requests for comment on the federal probes.

A hemp plant is pollinated | AP Photo

HIGH HOPES FOR HEMP FALL SHORT: Farmers and manufacturers piled into hemp production after Congress legalized the plant in the 2018 farm bill, causing hemp acreage to more than triple in 2019 and fueling projections of a multibillion-dollar boom in the industry. Eighteen months later, the green rush appears to be losing steam, write Pro Cannabis' Mona Zhang and Paul Demko.

— Several CBD businesses have gone bankrupt in recent months, including GenCanna, a hemp processing facility in Kentucky that Senate Majority Leader Mitch McConnell visited last year. "I hope that hemp will be for us some day what tobacco was at its peak," McConnell said at the time.

— Instead, the industry is beset by a mix of economic and regulatory headwinds: The surge of new farmers led to a glut of hemp, causing wholesale prices to tank; cannabidiol remains unregulated by the FDA, leaving consumers with little clarity about the legality, safety and purported benefits of various CBD goods; and many farmers and producers are struggling to pivot to other uses of the plant, like fiber.

— "Everybody and their mom and dad ... jumped in just to grow CBD," said Dion Oakes, a Colorado hemp farmer. "We saw it crash the market."

Covid impact: The hemp industry has fared better than other ag sectors as the coronavirus has disrupted supply chains. While dairy, produce and other farmers saw their sales dry up as schools and restaurants closed, hemp growers and processors already sold a greater portion of their goods to grocery stores and other retailers that remained open.

USDA barred hemp farmers from applying for federal aid through its $16 billion direct payment program, along with a handful of other crops and livestock that officials determined did not suffer a significant market impact because of the pandemic. Other producers can start signing up for relief checks today.

HAPPENING TOMORROW – GLOBAL BANKING AND INVESTING DURING A PANDEMIC: Join Global Translations author Ryan Heath tomorrow at 9 a.m. EDT for a virtual interview with Suma Chakrabarti, president of the European Bank for Reconstruction and Development (EBRD). Why is so much of the Covid-related government spending is inefficient? How did EBRD became the world's first Covid-only bank? Will the push for the private sector to become more sustainable pay off? Don't miss out on this fascinating conversation presented in partnership with The Atlantic Council. REGISTER HERE.

QUESTIONS MOUNT ABOUT USDA FOOD BOX CONTRACTS: The Agriculture Department continues to take heat for some of the contracts it awarded companies to distribute produce, meat and dairy boxes to people in need, including a $40 million deal that was abruptly yanked last week and a large contract for a wedding planner that reportedly made dubious claims about its clients and credentials.

House Ag Democrats have a long list of questions: Reps. Marcia Fudge (Ohio), Jim Costa (Calif.), and Del. Stacey Plaskett (V.I.), who each chair relevant Ag subcommittees, asked Agriculture Secretary Sonny Perdue on Friday to explain the department's decision making, including why entities were selected without proper experience or certifications.

"We share USDA's goal of providing effective and timely assistance to families, farmers, and food supply businesses like food distributors," the lawmakers wrote. "We are concerned, however, that contracts were awarded to entities with little to no experience in agriculture or food distribution and with little capacity to meet the obligations of their award."

Event planner under fire: One of the most scrutinized companies was a Texas-based wedding and event planner that received a $39 million contract to distribute food boxes across the Southwest. It's the seventh most lucrative contract out of nearly 200 distributors tapped by USDA for the food box program.

Produce industry experts have questioned whether the company, CRE8AD8 (pronounced "create a date"), is equipped to handle a massive food distribution effort. Now, the company is under fire for making dubious claims about its clients, credentials and other business affiliations, according to an investigation by the San Antonio Express News.

USDA also scrapped a $40 million contract with California Avocados Direct, a small produce company with annual sales up to $2 million. "It feels like a giant prank," the company's CEO told the Washington Post. "There are a lot of hungry people, and there are 60 food banks calling me for delivery. I'd already sent out lots of food."

THE ROBO-MEATPACKER REVOLUTION: A top U.N. food and ag expert predicts that coronavirus outbreaks in slaughterhouses around the world will accelerate the adoption of meatpacking robots and other automation, POLITICO Europe's Arthur Nelsen reports.

"Human labor will be increasingly replaced by machines," said Josef Schmidhuber, deputy director of the U.N. Food and Agriculture Organization's trade and markets division. That will represent what he called "a fundamental change" from the conditions that have turned slaughterhouses into hotbeds of contagion, like the lack of protective equipment and crammed workspaces.

In Europe, Schmidhuber said the meatpacking sector's "dependency on skilled labor will lead to automatization in pig and cattle slaughter operations similar to what we have seen in the poultry meat packaging industry," which he described as "completely automated."

Row Crops

— The Trump administration released rules governing how small business stimulus loans can be forgiven. But the long-awaited plan, which was unveiled late Friday night, falls far short of what businesses and lawmakers are demanding for the Paycheck Protection Program loans, Pro Financial Services' Zachary Warmbrodt reports.

— Deere reported higher than expected quarterly sales and profits, suggesting a rebound in demand for farm machinery including tractors and harvesters. The company could also benefit from USDA's infusion of stimulus funds for farmers and ranchers. Reuters has the details.

— POLITICO's Women Rule interviewed Claire Babineaux-Fontenot, CEO of Feeding America, a network of food banks and meal pantries, about changing the group's model to respond to the pandemic and other topics. Check it out.

— The National Association of State Departments of Agriculture hired Zachary Gihorski as associate director of public policy, leading NASDA's work on issues related to food systems, nutrition, plant agriculture and pesticide. Read the announcement.

MAKE SENSE OF THE WORLD: Our Global Translations newsletter, presented by Bank of America, layers global news, trends and decisions with sharp contextual analysis from the sharpest minds around the world. From the interesting approaches foreign governments are taking to get their economies moving again, to longer-term challenges, including inequality, technology, trade and climate change, Global Translations offers a unique perspective that cannot be found anywhere else. SUBSCRIBE TODAY.