689. Here’s Why Your Hamburger Just Got So Pricey

The complex beef industry

0:00Okay, let's start with a quiz. I'm thinking of an industry, and I want you to guess it. This is an industry that many people feel takes up way too much space. The industry is land intensive. We use a lot of land. Did you guess AI data centers? Great guess, but that is not the industry I'm talking about. Here's another clue. This is an industry where prices have been rising even faster than inflation, and yet consumption isn't falling.

0:38We have really strong demand, 40-year high in demand. Did you guess gasoline? That's another great guess, but also wrong. Here's one more clue. This should get you the right answer. It's about the labor force in this industry. We still have 35 employees whose job title is cowboy. Okay, so now do you know which industry I'm talking about?

1:04I mean, we're a beef-eating nation. That's right. The industry I'm thinking about is the beef industry. Ding, ding, ding. And America is a beef-eating nation. The average adult consumes about 60 pounds a year, which is four times the global average. The U.S. is also a world leader in beef production. So why has your hamburger suddenly gotten so expensive? That is just one of the questions we ask today as we explore an important industry that is also, if we're being honest, a strange one.

1:37You know, if cows had litters, this would be a whole different conversation. That would be a different conversation. Today on Freakonomics Radio, everything you always wanted to know about the beef industry, and maybe a few things you didn't. This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.

Why hamburger prices are rising

2:09We made an episode a few years ago called The Future of Meat, episode number 367, if you want to listen. The premise was simple. Global demand for meat was strong and getting stronger. And because producing meat is so resource-intensive, it seemed as if meatless meat, like the Impossible Burger, was poised for a big breakthrough.

2:40But that didn't happen. Why not? One of the best explanations is also the simplest. A lot of people really, really like to eat meat. When demand is real, supply will find a way. And when it can't, prices will do the work. So, let's start today's episode on the demand side of the beef equation. We talk about beef demand. How is beef demand? But it's really not one thing. It's thousands of different things. That is Daryl Peel.

3:11I am a professor in the Department of Agricultural Economics at Oklahoma State University. Peel also writes for a cattle industry newsletter that is published by OSU. It's called Cow Calf Corner. His writing is precise and refreshingly direct. For instance, here is a line from a recent piece. Cattle prices will likely recover significantly if politicians will shut up and stop proposing actions that will not help cattle producers or beef consumers. There is just so much lack of information, I guess, about the beef industry is the best way to say it.

3:46So, here's something you said not long ago that just shocked me. You said, I've maintained for many years that the U.S. cattle and beef industry, as it operates, is probably the most complex set of markets on the planet. And no offense to you, I'm sure you're going to justify that. But I was thinking, wait a minute, hamburger versus an iPhone? You know, when you think about all the things that it takes to make an iPhone, there's a lot of different components. There's a lot of engineering and manufacturing and so on. But at the end of the thing, you've got one product.

4:16So, marketing iPhones is pretty easy. Most manufactured products are assembly products. So, we take a bunch of inputs and we have one final product. This is disassembly, I guess, right? This is a disassembly process. All livestock markets are disassembly, but beef is the ultimate one of those. It's the biggest animal. There's 4,000 some odd mussels in those animals. And potentially, every one of those mussels is a different product. Are they still discovering new cuts of steak? I'd never heard of Denver steak until maybe 15, 20 years ago or Flatiron or Bavette.

4:48The Flatiron was actually one of the first ones of those and has been probably the most successful, frankly. Somebody recognized that within the shoulder of that animal, when you start breaking down those muscles, there is this one muscle on the top side of the shoulder blade that if you get it out separately, it's actually the second most tender muscle in the animal. After? The middle meats, the tenderloin and so on. This one falls right behind that. But we never recognized it for years because we always just kind of cut across it with everything else and it wound up in a roast.

5:19If you fabricate it a little bit differently, separate it out and get that piece of meat by itself, hey, we've got an excellent new steak here. The other thing about cattle that makes them unique to any other market is their ruminants. So they have the ability to utilize a wide range of feedstuffs. We can use lots of grain and a little bit of forage. We can use lots of forage and a little bit of grain. We can change the timing of these animals. We've got producers all over the country producing these calves. That's really tied to wherever there's grass.

5:51And then they go to a feedlot, oftentimes in a different part of the country. I visited a feedlot in Pennsylvania a few years ago and I was in Lancaster, Pennsylvania, but that's not very far from Hershey, Pennsylvania. And as we were driving by the feed bins, I looked out the window and I said, that's very colorful. What's in those feed bins? And the guy said, well, that one is Reese's Pieces. No, you're kidding. You know, the crumbles from, you know, candy manufacturing, cattle can utilize that. You have to be careful nutritionally. Obviously, you can't just feed them nothing but that, but that stuff can all be utilized.

6:24All of this takes place over, from beginning to end, we're talking 24 months at least. So I call it the miracle of the beef industry. You walk into a grocery store any day of the year and there's a piece of fresh meat in there that's probably was a live animal no more than about three weeks ago. But the process that led to this piece of meat being available to you today started two and a half years ago or more with some guy or several people along the way that don't know each other.

6:57And, you know, how does it work?

7:01I am sorry to interrupt Daryl Peel's excellent storytelling here, but I want to highlight a larger point he's making. How does it all work? The miracle of the beef industry is really the miracle of any industry. So many different players come together at so many different stages and somehow create a coordinated market that has essentially coordinated itself. We once made an episode about this idea, too. It's episode 236 with the headline, How Can This Possibly Be True?

7:31OK, back now to my conversation with Daryl Peel.

The economics of ground beef

7:37Let's talk about ground beef for a bit. You've written a couple of things I see here. One is called the ground beef paradox. Record demand meets a shrinking domestic supply. I don't know what share of Americans eat a hamburger or ground beef once a month at least or maybe even once a week, but I'm guessing it's a very high number. I think so. And I would posit that very few people think about what it is other than some version of chopped up cow. I think that's probably right. Yeah. It's a little bit more complicated than that, though, isn't it? Well, there's a lot of pieces to it because, and no pun intended, I guess, ground beef has become a very staple product in the U.S.

8:13It's so versatile. And historically, it's been very economical. My best estimate is that about 47 to 48 percent of the total amount of beef that we eat on average in the U.S. is in the form of ground beef. OK, so what's in it? Ground beef is lean beef of, you know, some type, some muscle mixed with fat. There is a legal definition of ground beef. It has to be a minimum of 70 percent lean. It can be 70-30. Now, we don't necessarily see that a lot anymore.

8:44That would have been in the old days. The 10-pound chubs of the really cheap ground beef might have been 70-30. But it can range anywhere from 70-30 all the way up to 95-5 percent in terms of the lean to fat portion. And so it just depends on the particular market and the individual preference. OK, so if it's 85 percent lean, where is that lean beef coming from? And what is it, I don't know if in competition with is the right phrase, but like where would it go if it weren't going into ground beef?

9:15And then I want to know where the fat is coming from as well, and I want to know how easy it is to make that mixture. Is it a naturally occurring mixture, or do you have to really move your assets around? So about 85 percent of our total beef production in this country comes from what we call fed cattle. These are cattle that are finished in a feedlot. When those animals are processed, they produce a significant amount of trimmings naturally, just as part of the fabrication process. Those can be done in different proportions, but think of it as basically 50 percent lean, 50 percent fat.

9:45We just said that by itself, that's not ground beef. That doesn't even meet the legal definition. So you need some additional lean to mix with it. That lean can come from a number of different places, but the most economical place comes from the other 15 percent of beef production is our cull cows and bulls. What's a cull cow? A cull cow is a breeding animal that is mature. These fed cattle that we're talking about are 15 to 18 months of age typically. But if you have a cow that you're using to produce a calf and she stays in the herd for 10 years, roughly speaking, at some point in time, physically, she's just done.

10:24She's wore out. And so she will be culled, hauled to market. Nothing goes to waste. So that animal will be processed as well. They tend to be quite lean. The quality of that meat is not as tender, but that lean is worth a lot. So if you take seven pounds of the 90 percent lean, mix it with one pound of the 50 percent lean, that'll give you an 85 percent combination about as cheaply as you can make it. Got it. So that's one way to do it. Now, there's about a million other ways to make ground beef, right?

10:54All these combinations of fat and lean. But that would be kind of the standard that you would think of as the ground beef for the fast food industry. So when I look at ground beef prices in May of 2026, consumers paid on average a little over seven dollars a pound for ground beef. That's up around 50 percent from five years earlier. That's outpacing the general inflation rate is what I'm reading here. So talk to me about that. The beef industry in the U.S. is inherently cyclical in nature. It tends to have about 10 year cycles of inventory change.

11:26Now, there's a bunch of reasons behind that, and normally it's a self-correcting cycle economically. So there will be economic incentives at the top to, oh, cut back on production a little bit. Prices for cattle will go down, and eventually the industry will come down, and then we'll go a little too far. And so it'll turn around, and it goes through these cycles. It's been doing that for about 140 years, so it's not a new thing. And what's it driven by? I'm guessing it's not driven by consumer demand. I would think that's less elastic, yeah? Yeah, no, it's not a demand-driven thing. It tends to come from the supply side.

11:57It comes from those long-term adjustments of production, and the fact that we're operating with a forage base that's, well, it's inherently variable. Then that's what makes the cattle cycle unpredictable sometimes. Let's say you've got too many animals, and the prices start to drop. If a producer says, oh, the market's telling me to cut back on production, what is he going to do to cut back on production? He's going to sell some cows. The cows are really the source of supply for the whole industry. Those cows go to slaughter. So if we have too much and prices are dropping, the way we solve that is by making it worse, by putting even more supply on the market.

12:35And if prices are low, then the incentive to have bigger herds, I assume, diminishes, yes? That's right. So it goes the other way at the bottom of the cycle, which is where we are now. We don't have enough animals, and the market wants more, but beef production is unique because cows, first of all, they're big, slow-growing animals, and they have one offspring at a time. And so if a cow has a calf, we're trying to do two things. We're trying to maintain beef production. We're also trying to rebuild the herd.

13:05If that calf that hits the ground is a female, we have a choice. She can become part of the beef supply sooner. It'll still take a couple of years to grow her out. But if we want to save her for breeding, then we have to not put her in the feedlot. So when we don't have enough and supplies are tight, the only solution to that is to make the supply even tighter, which is the dilemma we're caught in right now. You know, if cows had litters, this would be a whole different conversation, but they don't.

13:35Once you get into a hole like we are now, it's a multi-year process to get out of it.

13:43So how deep is this hole? Beef cow slaughter is down over 40% in the last four years. So that supply has really gotten dramatically tighter. Ground beef prices have gone up proportionately more than the rest of beef prices, all of which have gone up significantly because of the situation we find ourselves in. And therefore, Daryl Peel tells us. We've seen record beef imports the last couple of years trying to offset that. Today, because of strong consumer demand, particularly for ground beef, one in every six pounds of beef eaten by Americans is an imported product today.

Inside the King Ranch

14:21That is Robert Hodgen, the CEO of King Ranch in South Texas. It's because we're not making enough beef in the United States to satisfy the demand we have. King Ranch sits on 825,000 acres. It is the largest working ranch in the U.S. It's bigger than Rhode Island. It is such a heavyweight that the Ford Motor Company named a pickup truck after it, the King Ranch F-150. I wouldn't do anything else. We couldn't get our jobs done without Ford trucks. But even with trucks like that and ranches like that, the U.S. is increasingly reliant on imported beef.

14:58Over the past 20 years, imports have accounted for about 25% of the lean used to make ground beef. Last year, that figure hit nearly 40%. And last month, President Trump temporarily expanded the low tariff quota for imported lean trimmings, allowing an additional 300,000 metric tons into the country. Why can't U.S. production keep up with U.S. demand? Robert Hodgen has some thoughts. I would say most participants in the beef value chain are only involved in one part of the value chain.

15:32We're involved in really four parts of that value chain. We have about a 1,500-head purebred Santa Gratrudis herd on the ranch. And their job is to be elite genetics to make the best bulls and replacement heifers possible. We are also a commercial cow-calf producer. And then King Ranch is also involved in the feeding phase. We own 50% of cobalt cattle. We're the fourth largest cattle feeder in the United States. And so, for us, having an integrated model, we're able to make genetic decisions in the seed stock herd.

16:03As we think about DNA in cattle today, this is an area that has advanced rapidly over the last 10 years. We can take a hair sample or a small hide sample from a young calf, whether it's a day, older, or first few months of its life. We can get that sample analyzed. And because of the markers and because of the large databases we have today, we can identify the genes within that animal that we know if we grow it a certain way, if we feed it a certain way, that that animal is highly likely to produce a calf that grades prime or grades choice or grades select.

16:38Prime, choice, and select are some of the beef grades established by the USDA, the U.S. Department of Agriculture. The heavily marbled steak you pay a lot for at a restaurant, that's prime. You go to a restaurant today, you'll still hear long-time waiters say, oh, there's only 3% or 4% of the industry that's prime. Today, we're making 15% of the cattle that are prime. We had some weeks in the last year where we made more prime beef than we did select. That's not because of one or two breeders. That's because of genetic advancements across the entire industry.

17:08When you combine the vertical integration of King Ranch with the cyclical beef economy, it means that some parts of their business may be thriving at a given moment, while others aren't. The cattle industry is one of these industries where who captures the economic rents moves every few years and moves more than maybe any sector I've seen. The economics today are at the ends of the barbell. The cow-calf producer, we're winning today, and five years ago we weren't. The retailer, the food service provider, the other end of the value chain is making profits today, and the middle is getting squeezed, both the packer as well as the cattle feeder.

17:45And, you know, at least from my personal perspective, I'm much more of a free market view of the world, and so I don't see the concentration in the middle of the supply chain really as a factor of where beef prices are today. And I say this as somebody who's involved in multiple parts of the sector. I mean, quite honestly, if the four major packers were making a bit of money, prices of beef would be even higher. And who are those big four beef packers?

18:17Here again is the economist, Daryl Peel. The big four right now are JBS, Tyson, which is a big chicken company, but they also own what used to be IBP, National Beef, and Cargill. There's only four of them that control roughly 85% of the beef processing industry. So that looks suspicious on the face of it, or at least it's a big target. With that concentration comes the potential that somebody then could be messing with the market. That's not a very technical economic term, but it's one we can relate to.

18:48And the beef industry has been the subject of a lot of concern and scrutiny for many, many years. And so for the last, well, really the last hundred years, but certainly the last 50 years in terms of academic type research, what we find is that, yes, the big four packers have some market power and they use it to a very minor extent in terms of impacting cattle prices. That is offset by the fact that probably 10 to 15 times that much value is saved from the cost efficiencies of being as big as they are.

19:22So the winner there is ultimately the consumer and the loser is the rancher? No, both of them win. They both win when we save that cost in the middle. And the packers, they still get a little bit of a margin. And the way they get that margin is largely by trying to be as cost efficient as possible. You know, does Walmart have market power? Of course they do. But we tolerate them because overall prices are lower to consumers because they're so efficient. It is true that the big beef packers are losing money these days, some in the hundreds of millions of dollars.

19:56With demand for ground beef especially so high, how can that be? The most important thing for your listeners to know about the skyrocketing cost of ground beef right now is it encapsulates all this brokenness. Coming up after the break, the beef trust and beef antitrust. This is Freakonomics Radio and I am – you probably know my name by now. We'll be right back.

The decline of the cow herd

20:34As of July, there were 28.5 million beef cows in the U.S., which sounds like a lot. But historically, it is not. The USDA publishes a lot of data on beef cow inventory and the cattle cycle that Daryl Peel was talking about earlier. The number of beef cows peaked in 1975. And with plenty of ups and downs along the way, it's been on the decline ever since. Here again is Robert Hodgen, the CEO of King Ranch. We talk about the cattle industry going through cycles where we build the cow herd in the country, profits go down.

21:08And whether through drought or economics, we have fewer cows and we reduce supply. And today, we think we're either at or close to the bottom of the overall cycle in terms of number of cows and the amount of beef that we can produce. This is a two-, three-, four-year lead time to make changes in the cattle industry. This is not like chickens where we can make that change in months. So we're seeing the price signals today for a beef producer to retain more heifers, to produce more beef in the future.

21:38We are at a point in the cycle where we've got high demand and we're bringing fewer cows to town. We're keeping them on ranches. It might get a bit worse before it gets better. We don't change the American cow herd in months. We change it over a period of years. So biology is a factor, as is drought. The USDA rates more than half of U.S. pasture and rangeland as either poor or very poor. But critics of the beef industry see other problems. Normally, at moments like this, when the profits are good, you breed more cows.

22:10You grow the herd. You're not seeing that right now. That is Austin Farrick. I'm an agriculture antitrust expert, and I recently published a book called Barron's Money, Power, and the Corruption of America's Food Industry. Farrick grew up in Iowa, where his family has been for seven generations. His grandfather worked in a slaughterhouse. Austin was the first in his family to graduate from college. He then got a master's in public policy and briefly worked in the Treasury Department. That's where he got interested in antitrust work.

22:40I was just kind of curious looking into it, and then I stumbled on an article about chicken monopolies. It was written by a journalist turned—she was in law school at the time—Lena Kahn. Lena Kahn would go on to chair the Federal Trade Commission, where she pursued an aggressive antitrust agenda. We interviewed Kahn last year, episode 625. It was called The Biden Policy That Trump Hasn't Touched. So I got coffee with her, and she kind of explained this whole antitrust history to me. And I was like, oh, this is kind of explaining to me what happened in Iowa. When he says what happened in Iowa, Farrick is talking about the economic fallout from years of consolidation in the agriculture industry.

23:16It was always kind of a purple state politically, geographically in the middle of the country, had a very robust, solid middle class. And what we've really seen these last few decades, it's all kind of fallen apart. Farrick thinks this collapse is rooted in how the agricultural system has been changing, including and especially the beef system.

Antitrust concerns and market power

23:34One of the biggest fights the last few decades in cattle has been over the label made in America. Under the old rule, cattle that were raised and slaughtered in Brazil, for instance, could be sold with a product of the USA label as long as the meat underwent some processing here. That rule was changed a couple of years ago, and companies had until early this year to comply. Austin Farrick sees other flaws in the industry. What some of the large packers realized is, it's not just about butchering beef, but it's about butchering all the other types of proteins.

24:05So GABS, it's number one in beef. It's number two in pork. Number one in poultry in the world. It's also recently entered the egg industry. It's in the lamb industry. It does leather for cars. You're seeing a lot of these companies also own the animals themselves. GABS now is building all these fake local meat stores across the country called Wild Fork. Americans want to think they're buying some local food, oh, some fancy meat. So they're essentially trying to exploit that image. What Farrick here is calling exploitation is what most people just call marketing.

24:36Like it or not, marketing is a foundational component of the modern economy, especially when it comes to what we eat and drink. But even the most painstakingly artisanal coffee shop in Berkeley or Brooklyn probably didn't grow its own beans. Here is Robert Hodgen from King Ranch. Think about Driscoll berries. Driscoll doesn't grow all those berries. They've got a brand that the consumer trusts. And then they work with a whole number of producers to make those berries available almost year-round throughout the world.

25:06You look at the growth of Wagyu beef over the last 20 years. That's a differentiated product with a very clear consumer who likes the product and pays a premium for it. It's my understanding those calves are not harvested at one of the big four. And so that's a case where the consumer said they want something different and they've found a supply chain to work for that. But Austin Frerich has a different view. Remember, he's an antitrust scholar. He doesn't see what Daryl Peel calls the miracle of the beef industry.

25:36He sees an industry that is over-concentrated. Too few firms with too much leverage, especially at the packer level. Historically, there's these things called sale barns in rural America. You bring your cattle to a barn, kind of like eBay, people would bid on it. Companies like JBS, they essentially want to destroy that market. They want to move you to contract where you essentially just take a price they have. The USDA maintains a database of these contracts, and you can see that most of them, more than three quarters, were based on a government price report that does reflect the cash sales that Frerich mentioned.

26:08Still, this spring, Todd Blanche, then the acting attorney general, announced that the Justice Department was investigating the four big packers, JBS, Cargill, Tyson and National Beef, for possible price manipulation and other anti-competitive activity. And then Blanche made an appeal to people inside the beef industry. If the information you provide helps us secure a criminal penalty in excess of $1 million, you can be entitled to recover and receive 15 to 30 percent of the money that we recover.

26:41Whether you're a farmer, a purchaser, a processor, you can help protect food security in America by reporting these types of violations and potentially criminal conduct. As far as we can determine, no one from the beef industry has cashed in yet. But if you think you've heard this song before, big meat packers accused of collusion, as Daryl Peel reminded us, yes, you have. You heard it during the Biden administration, but also going back more than a century.

27:12You have hugely powerful firms that have enormous market power. But to the firms, it's never a monopoly. Maybe it's an oligopoly, but it's highly competitive. That is Roger Horowitz. I guess you could describe me as a food historian. A couple of decades ago, Horowitz published a book called Putting Meat on the American Table. These days, he runs the Center for the History of Business, Technology and Society at the Hagley Museum and Library in Delaware.

History of the beef trust

27:38So, how did America become, as Daryl Peel called it, a beef-eating nation? Here is where Roger Horowitz likes to start the story. 1865 New York City, you could walk down and see the animal that you wanted killed. A few hours later, there it was available at your favorite butcher shop to buy. But what the companies did, they developed refrigerated warehouses in major cities to hold the beef. So, you kill an animal in Chicago, you cut it into four pieces, 200-pound pieces.

28:08You hang them, hanging beef it's called, from a rail car. The car gets to New York City, and the meat is eventually brought to what was called a branch house, a building in Lower Manhattan, in what used to be called, it's still called, the meatpacking district. And butchers in the city would then go down to the Armour branch house and buy a quarter to bring back to their butcher shop, and they would then cut it up into cuts for you to buy. And you had some competition on price, because you had not just Armour, you had Swift, you had Cudahy, you had Morse, who were in that network there.

28:39This network that Horowitz is describing, it also included Wilson and company, they were the five big packers that collectively came to be known as the Beef Trust. That network puts a priority on size, because the larger the network of branch houses, the more you can produce, and the more you can reduce prices on that. The branch house system allows the big five to dominate the industry. And what they end up doing, this has happened to the 80s and the 90s, they buy out local meatpacking companies, one after the other.

29:11There's a huge race for that, because they want to build a system. So they are doing what we call today vertical integration. It's actually more like forward integration, if you will, where the cattle are still being bought at auction in the stockyards, in the major areas. All the major meatpacking centers, they're still owned by the farms and by the drovers who bring them in there. They're sold to the packers in Chicago, Kansas City, Omaha, Fort Worth, Texas, places like that. What they're really doing is preventing competition. They have the distribution systems that have locked other companies out of there.

29:45And any sort of business economics will tell you that's a bad idea, because it means that the established funds can sit there and not have to innovate. By 1905, 1910, they've got all these refrigerator rail cars that they own. They've got all these branch houses that they own. And so if you're a firm, you want to amortize that investment. So what they start doing is going into other products that they can sell through the same refrigerated network there. Makes sense. So in the aughts and in the teens, Swift makes a big entrance into the poultry business, which it stays in for the next 60 odd years.

30:17They get into the egg business. They get into other kinds of groceries. They just expand their range. And they were really oriented to become, if you will, supermarkets. So there's a lot of consolidation. There's a lot of what sounds like market power. What happens then? Does someone, either activists, a government, get involved in saying, our prices are being driven up by this consolidation? Yeah. By the 1890s, this is not the only industry in the United States, which is a very small number of large concerns that dominate things. And the Meat Trust is one of the trusts that is targeted by a variety of reformers.

30:54The Greatest Trust in the World, it's called in one book. In the 1890s, they would sit down weekly in the office of Swift, accountant Arthur Veeder, and he would record in a book the sales territories, amounts that they would have. And they would allocate, you could have 25% of the market, you had 15% of the market. The price for a quarter was this or that. And they essentially controlled the market and reduced the competition between them in order to have more predictability in their prices there. Was this illegal at the time or no?

31:25After the Sherman Antitrust Act, it becomes illegal. And they are very embarrassed when the investigation reveals this.

31:35The big blow is the 1919 Federal Trade Commission investigates. And they get Mr. Veeder's black book, which records over a period of years, this exact process of carving up the marketplace. And they're dead. He didn't keep two sets of books like most people would do in that case? No, it was very genteel. And what happens to the firms? Do some of them collapse? Do they get sold off? FTC sanctions them and says, you can only do business inside the meat industry. You've got to get rid of the non-meat elements of your portfolio.

32:09So they can stay with chickens, but they can't have any more cottonseed oil. They can't have apples. They can't have milk. All that stuff is severed from them. But that results in a huge gap in the marketplace where food distribution is suddenly wide open again. The meatpacking companies can't compete. And give that 10, 20, 30 years, out of that comes supermarkets, A&P, and all that. It creates a space for the large supermarket chains. The theory behind that is countervailing power. That maybe you can't stop combination of large firms because it's more efficient, but you can

32:43prevent them from dominating the whole industry by allowing other firms to compete with them for the dollars. And what do you think of that argument? Does that hold up? Well, I think it was effective in curbing their power. It does create the conditions by the 1950s and 60s of undermining this group of companies altogether, including the brands for a new consolidation of the meatpacking industry, which really takes place in the 70s and the 80s. By 1977, the four largest beef packers handled only around 25 percent of the American market.

33:18But that didn't last. During the 1980s and early 90s, a wave of mergers and plant closures left those four firms with 70 percent of the market. This was the biggest increase in any American manufacturing industry since the Census Bureau started keeping track. And today, as we heard earlier, those four big firms cover around 85 percent of the market. So you're back, if you will, to the jungle. The jungle is Upton Sinclair's 1906 novel, an expose of the harsh work conditions in Chicago's

33:50meatpacking industry. The antitrust scholar Austin Frerich doesn't love this comparison. It's kind of cliche now to say we're back in there of the jungle. It's worse. The degree of power these packers have is at a point we've never seen before. Frerich argues that we have not learned the right lessons from the past. So much of our antitrust law in America is rooted in Louis Brandeis, the former Supreme Court justice. And it was really rooted in the notion that we want to avoid concentrations of economic power because it corrupts the political system. So that's actually where a lot of that Glass-Steagall structural separation comes from.

34:22Glass-Steagall was an 1833 law that separated two different kinds of banking. On one side, taking deposits and making loans, and on the other, underwriting and dealing in securities. The idea was that some businesses should be kept separate, even if one company could benefit from running both. This echoed a similar move a decade earlier, when the FTC and the Justice Department trimmed the wings of the big five meatpackers, forcing them out of the public stockyards and the retail meat business. After we did these structural separations, we really saw that industry really stabilize.

34:57People like my grandpa really benefited from it. We saw meatpacking what used to be a low-wage job become a solid middle-class job. We saw cattle ranchers really benefit from those stable systems. But what we've seen since then is a systematic attack on this. You essentially had the new model take hold in the 1980s, called the Consumer Welfare Standard, where basically any merger can be approved if you show that prices are lower for consumers. Austin Freire's claim here is probably an overstatement. Lower prices didn't give an automatic green light to any merger. But the winds had definitely shifted.

35:29In the meatpacking industry, along with many other industries, consolidation became the new normal. And now, it's the old normal. Coming up after the break, what is the future normal? Also, if you were interested in what Roger Horowitz said about the creation of the American supermarket, well, it's even more interesting than you know. Check out the episode from our archive called How the Supermarket Helped America Win the Cold War. It's episode number 386. I'm Stephen Dubner.

35:59This is Freakonomics Radio. We will be right back.

36:05How the Supermarket Helped America Win the Cold War

36:35I'm a pretty big believer in markets. You've probably figured that out by now. And it is a self-correcting cycle, so it will get corrected. I'll say this. I probably shouldn't. But if you're an impatient politician, that's not going to work for the next election cycle. Unfortunately, that's just the reality. There's nothing we can do about it in the short run here. And so it's going to take some time to rebuild this thing. This environment that we're in has basically created margin challenges for pretty much everybody in the industry at some degree, but some more than others.

37:06There's no big holes here. There's no big place where you can go and say, we've got to pull all this excess out of the market someplace. At the end of the day, everybody works for a living.

Global production and Brazil

37:16For most of history, relevant history anyway, the U.S. has been the biggest beef-producing country in the world. We're not anymore, you're saying? The last two years, Brazil has actually passed the U.S. as the biggest beef-producing country in the world. How and why? Was that a strategy to become number one or did it evolve organically? What were the factors that went into that? The industry in Brazil has been growing. Brazil has about twice as many cattle as we do, but historically, their industry has not been structured exactly the same way and in many ways, not as productively efficient,

37:49I guess. It's a path they've been on for probably 20 years, and they just finally reached the point where they passed us. Austin Frerich, the antitrust researcher, highlights a different piece of the Brazilian success story. In economics, people talk about the development philosophy called state champions, where countries essentially get behind certain companies and make them a monopolist so they can then go out and dominate global markets. And that's kind of what essentially happened here with JBS. JBS is the biggest of the big four meatpackers in the U.S.

38:22It's listed on the New York Stock Exchange, but it is controlled by two Brazilian brothers, Joe Wesley and Wesley Batista. Another of the big four, National Beef, is also controlled by a Brazilian firm. JBS entered the American market in 2007 when it bought Swift, one of the original members of the Beef Trust. How did JBS become so dominant? Here's Frerich again. They became a monopolist through bribery. I'm not talking, you know, campaign contributions.

38:53They pled guilty to bribing politicians. In 2017, the Batista's holding company admitted to paying bribes to nearly 1900 Brazilian politicians, and they paid a record $3.2 billion fine. Three years later, the firm pled guilty in a U.S. federal court to violating an American anti-bribery law. The SEC found that some of those bribes helped facilitate JBS's acquisition of the American chicken producer, Pilgrim's Pride. Pilgrim's Pride gave $5 million to Donald Trump's 2025 inaugural committee.

39:28Three weeks after his inauguration, Trump signed an executive order pausing enforcement of the Foreign Corrupt Practices Act, the law that JBS had pled guilty to breaking. And the Department of Agriculture moved to make permanent the faster slaughterhouse line speeds that the beef and poultry industry had been asking for. Critics like Senator Elizabeth Warren asked if the company's donation had anything to do with the administration's moves. JBS says it didn't.

39:59Here's Austin Frerich. You shouldn't be allowed to keep a dominant market position through bribery, yet they have. This checkered JBS history has nothing to do with the current Department of Justice investigation we heard about earlier regarding possible antitrust behavior by JBS and the other Big Four U.S. meat packers. The Big Four have also been accused by U.S. retailers of anti-competitive practices. McDonald's is the largest buyer of beef in the world. And usually in most lines of business, you treat your largest customer the best.

40:30McDonald's even filed lawsuits against the packers a few years ago for price gouging. Technically, the charge was price fixing, not gouging. McDonald's alleges that the price fixing goes back to at least 2015, and they claim the packers met at conferences and trade shows to hold down supply and coordinate prices. Target, Aldi, BJ's Wholesale, and Sodexo filed related lawsuits. The big packer Tyson has since agreed to pay more than $80 million to settle a suit from grocers.

41:01JBS paid more than $50 million. Neither company admitted wrongdoing. Are these guys absolutely shining stars? I'm not going to say that. That, again, is the economist Daryl Peel. My take on when you see these kinds of settlements, in most cases, that's just cheaper than paying lawyers to keep fighting it. You know what? Let's just write a check and get this thing over with. I work with them enough to know that's what's going on in many cases. I mean, they're corporate, right? But this is America. That's kind of the way this game is played. We want to play by the rules.

41:32So we try to have rules, and we try to make sure people follow the rules. And if they don't, you know, there can be consequences of that. I think the fact that these large, concentrated industries receive so much attention really just comes out of the fact that they are an obvious target. There's a lot of statements made that are very sweeping and very damning, and they have absolutely no basis behind them in terms of any evidence. And the research we do have, on the beef side at least, is pretty clear, that the net benefits to the country, to consumers, to producers, and everybody is for us to have

42:03the industry structure we have. So if we broke them all up, we would suffer because we'd have a less efficient industry, and it would cost everybody more. And in 25 years, it would reassemble itself back into something like that if we let the markets work.

Retailer margins and legal battles

42:16This September, the Justice Department expanded its beef investigation into eight retailers, including Costco and Walmart. Walmart has its own slaughterhouse now in Wichita, and partly, it's in response to JBS. That, again, is Austin Frerich. Walmart, it doesn't want to fully own the beef industry, but it wants a cost in sight, because it wants to know when it's negotiating with these packers, you know, what are the actual cost structures here?

42:41The retailer, by and large, works on a margin. And that, again, is Robert Hodgin, the CEO of King Ranch in South Texas. They're very percentage-focused. And so, you know, the retailer is passing on what they buy from the packer. They mark that up, and they sell that to the consumer. The retailer, as well as food service, play a vitally important role in the beef value chain and in the supply chain. We can't get the product to the consumer every day without them. But if they work on, you know, 27% to 35% margins within the beef cases, I've been told,

43:19well, those dollars, you know, when you've doubled the price of beef over the last 20 years, the absolute dollars are a lot bigger. The Justice Department asked those eight retailers for six years of documents relating to their beef costs and margins, as well as pricing strategy, purchasing arrangements with the packers, and the company's own internal analysis of why beef prices have moved the way they have. In July, USDA data showed Choice Beef selling for $10.49 a pound at retail, up from $9.69 a year earlier.

43:52But the wholesale price, what the store paid the packer, had gone down from $5.72 a pound to $5.58. Does that represent retailer misbehavior? Not necessarily. The wholesale cost of beef is only one of the costs of selling it. Retailers have to pay for labor, energy, real estate, and more. But that divergence, a drop in wholesale prices and a rise in retail prices, is bound to draw attention, especially in an industry with a history of market power.

44:26Austin Frerich still sees a lot of problems in the beef industry, but he also sees promise. I actually think the best piece of meat legislation ever introduced in U.S. Congress just happened recently. It kind of got lost because of all of this Iran stuff. But Chuck Schumer introduced a piece of legislation I think is incredible. It says, you can only do one line of protein once you're so big. So if you butcher hogs, you cannot butcher beef. First of all, you essentially break up most of these meat packers because they're in multiple lines of protein. I would add on to that. I don't think companies should own animals.

44:56I mean, Iowa has this rule in the books. We don't enforce it. It's called the packer ban. I would do that nationwide. I don't think a corporation should own an animal. But there is a problem. Robert Hodgen of King Ranch says it's gotten a lot harder to own animals if you are not a corporation. It's almost impossible, even at these prices, to go buy a ranch, put cows on it, and quote unquote, make the bank payment if you got to go borrow 60, 70, 80 percent of that money. And so even at these prices, I don't want to make the case that as a rancher that we're making wild profits relative to the value of the land in the United States.

45:29The American cowboy is having a resurgence in culture, which is a really great and interesting phenomenon. The people that actually want to do the work are hard to find. We operate in rural areas across five or six different states, and I can tell you labor's tight. And while it's fun to talk about AI and maybe there's some AI opportunities and picking genetics and doing those things, at King Ranch, we still have 35 employees whose job title is cowboy. Each of those cowboys has three to five horses, and they get up and they're on horseback almost

46:02every day. This is not a business that we think drones are going to replace or AI is going to replace tomorrow.

The future of American ranching

46:08I think if you step back and look at the industry as a whole, and you talk about the graying of America, you talk about the fewer and fewer people produce the food we eat every day, right? The average American farmer feeds hundreds of people around the world. We've got great demand, we're making a great product, but who's going to keep producing this in the future? The mom and dad want to retire, they've got a few cows. Do the kids want to come home and mess with those 20 or 30 cows? No. Over the past several years, the U.S. has lost more than 100,000 beef cattle farms and

46:42ranches, roughly 15% of the total. Most of them are small producers. The average producer's got like 25 or 30 cows, and so that average producer probably has another job, probably works in town, is retired, and even at today's profit levels, is that enough dollars to want to have 20, 30, 40, 50 cows on that producer's available land? And so to me, the biggest headwind is how do we keep supply up to match demand? In August, the Department of Agriculture announced a package to help rebuild the U.S. cattle herd.

47:17It includes insurance for ranchers who hold heifers back from slaughter, loans for people starting out in the industry, and a program to recruit former military personnel into ranching. I hope all this beef info we learned today gives you a lot to think about the next time you bite into a burger, if you are the burger-biting kind of person. My thanks today to Robert Hodgen, Austin Frerick, Daryl Peel, and Roger Horowitz, and thanks especially to you for listening. If you have something to say about this episode or anything, our email is radio at freakonomics.com.

47:52Coming up next time on the show, plainly, you know at least a little bit about podcasts because you're listening to one right now, but what do you know about the podcast industry? It grosses about $9 billion a year and counts hundreds of millions of listeners, but one of the most knowledgeable economists in the podcast space has a confession. I don't understand the economics of podcasting. It doesn't behave like other media industries have behaved in history.

48:22That's next time on the show. Until then, take care of yourself. And if you can, someone else too. Freakonomics Radio is produced by Renbud Radio. You can find our entire archive on any podcast app. It's also at freakonomics.com, where we publish transcripts and show notes. This episode was produced by Mandy Gorenstein. It was edited by Ellen Frankman and mixed by Eleanor Osborne with help from Jeremy Johnston. The Freakonomics Radio network staff also includes Dalvin Abawaji, Elsa Hernandez, Jake Loomis, Pete Madden, and Teo Jacobs.

48:53Our theme song is Mr. Fortune by The Hitchhikers, and our composer is Luis Guerra.

49:01Daryl.

49:05Like Daryl, but with an E, right? Yeah, it's all E's, R's, and L's. So people will go, D-A, how do you spell that? And I go, well, you're already wrong. The Freakonomics Radio network, the hidden side of everything.