Editor’s note: The following was written by Lee Schulz, Iowa State University Extension livestock economist, for the university’s Iowa Farm Outlook June newsletter.
Coffee shop chatter suggests that the giants are taking over the beef packing business. The data say otherwise.
In 1999, packing plants that slaughtered more than 1 million cattle per year slaughtered 19.9 million head or 56.1% of the federally inspected (FI) cattle slaughter. In 2018, plants with over 1 million head per year capacity slaughtered 18.4 million head or 56.5% of the FI slaughter.
Their volume is down, and it’s a stretch to characterize a 0.4% rise in market share over 20 years as a takeover.
The relatively small rise in market share by the giants suggests that smaller slaughter facilities, in aggregate, are maintaining market share. In 2018, packing plants that slaughtered between 1 and 9,999 head slaughtered 427,300 head or 1.3% of the FI cattle slaughter; 3.5% for plants slaughtering between 10,000 and 99,999 head annually; and 38.7% for plants slaughtering between 100,000 and 999,999 head annually. This compares to 1.5%, 4.4% and 38%, respectively, in 1999.
Packing plants of all sizes have important roles in the beef industry. Finding a role is all about responding to beef customer and consumer interests and providing a constant supply of consistent, high-quality beef at competitive prices.
Beef packing generates considerable contributions through its forward and backward linkages in the economy. For example, according to the Iowa State University Extension and Outreach study, “Economic Importance of Iowa’s Beef Industry,” Iowa’s cattle slaughter and beef processing sector generated $327.77 million in output and $78.19 million in value added in 2016, of which $57.61 million was labor income to 1,054 workers.
Packing capacity trends
The U.S. has fewer FI cattle slaughter plants than it had 20 years ago. But the number has held relatively stable in recent years.
In 1999, the U.S. had 759 FI cattle slaughter plants. Plant numbers bottomed at 626 in 2007 and 627 in 2012, before settling up at 663 in 2018.
In 2018, 482 or 72.7% of FI slaughter plants each slaughtered between 1 and 999 head annually, 15.2% slaughtered between 1,000 and 9,999 head and 10.1% slaughtered between 10,000 and 999,999 head of cattle. Plants that each slaughtered over a million head only comprised 2% of the total number of U.S. FI cattle slaughter facilities. This compares to 73%, 14.4% and 10.7%, respectively, in 1999.
In line with cattle supply
After a prolonged and painful period of underutilization (overcapacity) in the mid-2010s, the industry has emerged with national, if not regional, packing plant capacity in much better balance with available cattle supplies. This balance has been accomplished by a combination of plant closures in primarily cattle deficit regions and by rising cattle inventories.
Getting packing capacity in line with expected cattle supplies should spread fixed costs of existing packing plants over a more optimum level of cattle slaughtered. That should decrease cost per head of cattle slaughtered.
It is important to note that these data are not granular enough to clearly look at structural changes in meat packing. For example, slaughter level does not address changes in meat packing firm size from divestitures, internal growth, mergers and acquisitions, levels of concentration and packing plant efficiency gains. The data simply speak to the number of FI packing plants and plants by size.