U.S. meat slaughter consolidating rapidly

Food Review, May-August, 1997 by James M. MacDonald, Michael Ollinger

In a remarkably short 15-year period, a few large firms have come to dominate U.S. meat slaughter. In 1977, the four largest beef packers accounted for 25 percent of the industry's output. By 1992, the four largest firms accounted for 71 percent of output. That shift is not only confined to beef. Over the same period, the four largest hog slaughtering firms increased their share of industry output from 36 to 54 percent.

Firms could dominate an industry by operating many small plants. But today, most slaughter is done in much larger plants than those operated in the 1960's and 1970's. According to the most recent 1992 Census Bureau data, large plants (those with more than 400 employees) accounted for nearly 90 percent of all hog slaughter and 72 percent of cattle slaughter. Large plants were far less prevalent 20 years earlier, accounting for a little more than half of hog slaughter and only a third of beef slaughter.

The same strong trend holds if we use different measurement bases. For example, plants that slaughtered more than half a million cattle a year handled only 12 percent of cattle slaughter in 1977 (the earliest year for which we have data), but 61 percent of all cattle slaughter in 1992. By any measurement basis, the industry has shifted dramatically toward reliance on large plants. The most recent U.S. Census Bureau data covers 1992, but related USDA data show that the trend to large plants has continued since 1992.

The major plants specialize in slaughter and fabrication into boxed beef and cut-up pork -- operations that large plants can do at a lower per unit cost than smaller plants. While consolidation in the slaughter sector proceeded, suppliers of livestock also consolidated into a network of large cattle feedlots and hog farms that are able to lower costs through economies of scale and locational advantages.

Dramatic industrial changes often raise public policy conflicts. For example, animal producers frequently express concerns that growing concentration has led to less competition and lower prices for their animals. But if the industry remains competitive while moving to fewer but larger slaughterhouses, the concentration that results from scale economies can lead to lower consumer prices and improved choices, without affecting slaughter and animal prices. Consolidation can also have indirect social effects -- large production facilities might lead to serious environmental problems, if environmental controls are not adequate to properly handle the new large volumes. Similarly, food and worker safety regulations will need to keep pace with major changes in plant sizes.

Such dramatic changes are newsworthy, and impose strains on public policy, because they occur so rarely in the U.S. economy Very few industries undergo the large and rapid increases in concentration and large plant consolidation that we have seen in cattle and hog slaughter. This article focuses on explaining how and why the cattle and hog slaughter industry changed, and provides a context for assessing current public policy conflicts. We use data from USDA and from the U.S. Bureau of the Census (see box on data sources) to describe how the organization of products and production processes has changed from 1963 to 1992, particularly specialization, products, and the role of small plants.

Product Mixes Shifted Rapidly, Especially in Large Plants

Most cattle slaughter plants 25 years ago were "carcass" plants -- many were still located near major stockyards or close to consumers. They sold whole or half carcasses to other meat processors or to retailers who then separated the carcasses into retail cuts of meat. Of course, the whole animal was used, then as now. Slaughter plants shipped large volumes of hides, blood, bonemeal, internal organs, and trimmings that were separated from carcasses during slaughter. These byproducts were used to make clothing, pharmaceuticals, sporting goods, animal feeds, and food products. But since the 1970's, slaughter plants have also moved into the further fabrication of carcasses, cutting them up into "boxed beef" and ground beef products (see box on today's cattle industry).

Hog slaughter plants performed several related functions 25 years ago. They slaughtered hogs, cut up the carcasses, and sold fresh pork in addition to processing the meat into bacon, hams, sausages, and other products. More recently, these processing functions have become separated. New large slaughter facilities now specialize mainly in hog slaughter and carcass cutting. Some traditional brand-name pork processors no longer slaughter hogs. Instead, they purchase cut-up carcasses from slaughter plants for processing into bacon, hams, and other brand-name products.

Boxed beef production, particularly in the large plants that now account for most cattle slaughter, has grown dramatically, from 7.9 percent of large plant output in 1963 to 21.3 percent in 1972 and 67.2 percent in 1992 (table 1). (In this article, output refers to the dollar value of shipments from slaughter plants.) Large plants in hog slaughter always performed more fabrication than cattle plants, but hog plants also shifted sharply to cut-up pork production during the 1980's and 1990's. Increased sales of boxed products mirrored declines in carcass sales. Carcasses accounted for less than 5 percent of output from large cattle and hog plants by 1992.