When procurement professionals think about negotiating with a supplier, they often start by considering the leverage they have (or don’t) based on the size difference between the two companies.
Even large companies often have to think about the same thing, as we see playing out in a New York District court: McDonald’s, the largest buyer of beef in the world, v. four of the world’s largest meat producers: Tyson, JBS, Cargill and National Beef Packing.
Cast of Characters in the Beef Supply Chain
Like any other market, there are many steps and hands that cattle pass through on their way to the food supply. In this case, we start with the ranchers and their cattle.
Ranchers raise and sell cattle, in this case referred to as “fed cattle” because they are ready for slaughter.
Then there are the meatpackers. They slaughter the cattle and process the meat so it can be packaged for a number of preparation and consumption formats. Their customers are companies like McDonald’s, but also grocery retailers and wholesalers.
When added together, JBS, Tyson, Cargill, and National Beef Packaging are responsible for 80 percent of U.S. beef production. The McDonald’s suit claims that they have participated in “restraint of commerce,” violating the Sherman Antitrust Act by slowing plant production and causing the price of beef to go up.
The court filing reads in part, “In 2018, Defendants (Tyson Fresh, CMS, Swift/Packerland, and National Beef) (collectively “Operating Defendants”) sold approximately 80% of the more than 25 million pounds of fresh and frozen beef supplied to the U.S. market. Collectively, they controlled approximately 81–85% of the domestic market-ready fed cattle processed (or slaughtered) during the Conspiracy Period.”
So while these four companies sell 80 percent of processed beef, they buy 81-85 percent of all cattle. The numbers are simply staggering.
The “Conspiracy Period”
McDonald’s claims that illegal activity has been taking place in the beef industry since 2015 and that it continues to this day.
The company started using fresh meat for its Quarter Pounders in 2018. Although consumers were thrilled, McDonald’s had raised the bar for themselves. Fresh meat is often more expensive and subject to more market shifts because the meat can’t be opportunistically pre-bought and then frozen when prices are favorable.
McDonald’s is not the only company that has sued the packers. A group of cattle ranchers in Minnesota sued, as did BJ’s Wholesale, Sodexo, Target, and Aldi.
In the cases that the meatpackers have settled, they don’t admit any wrongdoing, but the settlement amounts run into the tens or hundreds of millions of dollars each time.
Tyson agreed to pay $221.5 million in a 2021 class action chicken price fixing lawsuit that included Walmart and Chick-fil-A as plaintiffs, and in 2022, JBS agreed to a $52.5 million settlement in a price fixing case brought by wholesalers and grocery stores.
McDonald's says it has evidence that the meat producers conducted daily meetings from 2015 to 2019 "typically from their head offices" and that they met up at industry events like conferences to agree upon volumes and prices.
The meat producers claim that other factors, like worker shortages, especially during COVID, made it difficult to keep up with demand, leading to naturally - not illegally - higher costs for beef that don’t align with the rates seen for cattle.
Paul Savage, director of commodities forecasting for beef, pork, and poultry products at ArrowStream, made the case that in a cyclical market, companies in a supply chain can alternate between winning and losing.
“Right now, the [cattle] farmers are making money, it’s the packers that are barely making any money,” he said. “But when the packers were making money the farmers were barely breaking even. In three years it’s going to flip back and the packers will make money again and the farmers will fight to break even.”
Regardless of the underlying cause, this case is headed for court. Given the size of these brands - and the likely size of their legal budgets - this is likely to be quite a fight. We might even think about it as conducting their supply negotiations in court.
While it may bring desired monetary gains, solving this in the justice system is unlikely to bring the transparency and reforms that would be needed to make the U.S. beef market truly competitive.
