Bullard: Free vs. competitive markets

For our U.S. cattle and sheep industries, do you want free markets or competitive markets? That’s not a trick question as there’s presently significant political tension between these two goals.

Let’s explain: the father of capitalism, Adam Smith, said that while an individual pursues his or her financial self-interest, the broader economy benefits from such efforts. But he cautioned there must be guardrails to prevent the formation of monopolies and the exercise of anticompetitive behavior.

Then along came the Chicago School economist Milton Freidman who argued against guardrails, stating that free markets without government intervention will best allocate available resources. He essentially said markets are self-correcting.

Freidman’s theory layered on Smith’s capitalism theory — minus the guardrails — has prevailed for the past several decades. This is why there’s been no meaningful enforcement of antitrust laws or the Packers and Stockyards Act in the livestock sector for well over 40 years.

And it is that lack of enforcement that explains why we’ve lost over 50% of our nation’s cattle producers and over 60% of our nation’s sheep producers, as well as the loss of tens of millions of cattle and sheep from our breeding herds.

Our cattle and sheep industries have been in a chronic state of decline for decades with cattle and sheep prices too low to sustain viable livestock operations around the country.

Another measurement indicating that the free market without guardrails wasn’t working as predicted was the cattle producers’ share of the consumer’s beef dollar, which had fallen from about 63 cents in 1980 to only 37 cents in 2021.

But then something changed and livestock prices, particularly cattle prices, rebounded and struck off in a skyward direction reaching all-time highs. And for the past three years those higher prices have persisted.

In addition, the free market’s allocation of the consumer’s beef dollar changed, too. From its low allocation of only 37 cents to producers in 2021, it rebounded to 54 cents to producers last year and may be even higher in 2026.

It could be argued that Freidman was right, that the market without guardrails did self-correct and the decades of market dysfunction have now been reversed.

But wait a minute — the market appears functional today because it has been shocked by the fewest cattle producers in history and the smallest cattle inventory in over seven decades.

In other words, our industry shrank to such a small size in the face of incredible product demand that the latent forces of competition finally broke free from the oppressive buying power exerted by dominant meatpackers.

Another way to say this is that the cattle producers who are now receiving the highest nominal prices for their cattle are enjoying these high prices because over half their fellow cattle producers were purged from their industry and with them nearly 10 million of their mother cows, resulting in an extremely imbalanced supply and demand relationship.

Today’s seemingly favorable outcome to our industry’s pursuit of free markets without guardrails, which is just now returning favorable cattle prices, has hollowed out and weakened rural communities, and it threatens national security because the industry is now incapable of meeting America’s appetite for beef, resulting in a growing dependency on imports.

So, back to the original question: Do you want free markets or competitive markets?

Congress faced this question long ago and it embraced Smith’s capitalism with a guardrails approach. That’s why Congress passed the Sherman and Clayton Antitrust Acts, the Federal Trade Commission and Commodity Exchange Acts, and the Packers and Stockyards Act, all before WWII as these were the very guardrails needed to ensure that individuals would have free markets unencumbered by dominant market participants that would otherwise engage in antitrust and other unfair market practices.

But after the war the dominant meatpackers and other global corporations convinced Congress, the courts and each of the past administrations to refrain from any meaningful enforcement of the many market guardrails that Congress had previously enacted.

These corporations rallied behind Freidman’s hands-off approach to free markets and they’ve prevailed for decades. And that’s why today’s domestic cattle and sheep industries are so small as to be almost unrecognizable to our forefathers of only a generation or two ago.

If we wish to rebuild our diminished cattle and sheep industries, then we must reinstate the guardrails needed to rebalance the market power disparity between independent livestock producers and the highly concentrated, global meatpackers that control their markets.

Here at R-CALF USA, we want competitive markets that are free from antitrust and other anticompetitive practices. To achieve this, we need our antitrust laws and the Packers and Stockyards Act rigorously enforced.