That’s the title of a new working paper co-authored with Glynn Tonsor at Kansas State University and Lee Schulz at Iowa State University. As I’ve previously written, there has been a lot of interest in price movements of livestock relative to wholesale meat during the pandemic. Just last week, there was another call by the U.S. Congress for research into the issue. Recently, there have been several good discussions of this issue including a piece by Cortney Cowley with the Kansas City Federal Reserve Bank and a report by the USDA Agricultural Marketing Service.
Here is the abstract of our paper:
“The controversy surrounding wholesale and farm-level price movements following a packing plant fire in Kansas was but mere prelude to the unprecedented COVID-19-related disruptions and historic rise in the spread between livestock and wholesale meat prices. Concerns about concentration and allegations of anticompetitive behavior have led to several civil suits and inquiries by the U.S. Department of Agriculture and the U.S. Department of Justice, with increases in price differentials serving as a focal point. This article notes the difference between price spreads and marketing margins, outlines corresponding economic theory, and describes the empirical evidence on wholesale meat and livestock price dynamics in the wake of COVID-19 disruptions. At one point during the pandemic, beef and pork packers were both operating at 60% of the previous year’s processing volume. We explore how such a massive supply shock would be expected to affect marketing margins even in absence of anti-competitive behavior. Moreover, we document how margin measurements are critically sensitive to selection of data and information utilized. Finally, we conclude with some discussion around policy proposals that would pit industry concentration against industry coordination and economies of scale.”
You can read the whole thing here.