Meat Spread

From the nation's farms last week came good news for consumers but bad news for the Agriculture Department. Despite last year's droughts and heavy slaughter of cattle, the cattle population has risen instead of dropping as expected. The U.S. cattle total, said the Agriculture Department, is up to an estimated 97.5 million head, the seventh consecutive increase since 1949's 76.8 million.

The rise, forecasting further price drops for farmers, was caused largely by the Agriculture Department's price-support operations on other fronts. In the years 1953-55, some 29 million acres were taken out of wheat and cotton production under the crop quota program. But on 17 million acres farmers started growing feed grains. This and the large corn crops pushed down the price of feed, thus encouraged farmers to raise cattle faster than the demand called for. To add to the trouble, pig production, which normally does not move up with cattle production, also increased. As a result, the estimated farm value of cattle has now dropped down to $88 per head, v. $179 in 1952.

Who Pays? Caught in this predicament, Agriculture Secretary Ezra Taft Benson last week, as several times before, sought to pin some of the blame for low farm prices on the meat packing industry. Said he, at a San Francisco gathering of the Western States Meat Packers Association: "Last August the packing industry granted wage increases equal to roughly a $50 million annual boost. Who paid for the increase? The evidence is that most of it was paid by ranchers and farmers--who paid by taking lower prices for meat animals." As evidence. Benson cited Agriculture Department figures showing that in the fourth quarter of last year the average farm price of choice beef was 19% below the last quarter of 1954, but the retail price was down only 5%.

Benson believes that the widening spread between farm and retail prices is due not only to increased handling costs but to a bigger cut to the middlemen. From the first quarter of 1955 to the end of the year, the average price paid to farmers for choice beef cattle dropped $4.15 per 100 Ibs. But only $1.57 of this saving was passed on to consumers in the form of price cuts. The rest of the difference was soaked up by an increase in the shares of the middlemen; packers and wholesalers increased their take per pound by $1.08, while retailers took $1.50 additional.

Who Collects? Are middlemen increasing their profits at the expense of the farmers? They deny it, argue that increased costs for wages (up 16% in the packing industry from 1954 to 1955), trucking, etc. helped keep the price of beef up. Furthermore, the great increase in processing, e.g., for frozen and readycut meats, builds in costs that make retail prices react slower to wholesale price drops.

One measure of profits in the meat industry is that of the packers. Traditionally, it is a low profit industry, usually makes about 1-c- on every $1 of sales, much less than the figure for all manufacturing industries. Last year the average packer's profit on every $1 of sales was 0.85-c-, compared to food chains' profits of 0.99-c-. While this was more than double the profit of 1954, it was still well under the 1.6-c- made by the big four packers (Swift, Armour, Wilson, Cudahy) in their best year, 1947, when farmers also cashed in. For example, Swift & Co.. biggest U.S. packer, netted $23 million last year, compared to $19 million in 1954 and $34 million in 1947.

But the bare profit figures do not tell the whole story because the packer does not get his entire profit from meat sales. A large part of it comes from byproducts, e.g., hides and tallow. This permits the packer to live off a very low markup, or none at all, on the meat itself; e.g., in 1951, packers actually sold meat to wholesalers at less per pound than they had paid the farmers. Nevertheless. Swift still had a profit of $12 million. In short, the elimination of all the packers' profits on meat sales would have little effect on the farmer.

This file is automatically generated by a robot program, so reader's discretion is required.