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

An economist calls America’s beef industry a “miracle.” An antitrust scholar calls it “broken.” Maybe they’re both right?

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• 2:21Speaker 00

  Okay, 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.

• 2:33Speaker 01

  The industry is land intensive. We use a lot of land.

• 2:37Speaker 00

  Did you guess AI data centers? Great guess, but it 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.

• 2:54Speaker 02

  We have really strong demand, 40-year high in demand.

• 2:59Speaker 00

  Did you guess gasoline? That's another great guess, but also, eh, wrong. Here's one more clue. This should get you the right answer. It's about the labor force in this industry.

• 3:11Speaker 02

  We still have 35 employees whose job title is cowboy.

• 3:15Speaker 00

  Okay, so now do you know which industry I'm talking about?

• 3:20Speaker 01

  I mean, we're a beef-eating nation.

• 3:23Speaker 00

  That's right. The industry I am 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 US 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.

• 3:54Speaker 01

  You know, if cows had litters, this would be a whole different conversation.

• 3:57Speaker 00

  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.

• 4:19Speaker 03

  This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

• 4:35Speaker 00

  We 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. But 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.

• 5:20Speaker 01

  We talk about beef demand. How is beef demand? But it's really not one thing. It's thousands of different things.

• 5:26Speaker 00

  That is Daryl Peale.

• 5:28Speaker 01

  I am a professor in the Department of Agricultural Economics at Oklahoma State University.

• 5:33Speaker 00

  Peale 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."

• 5:57Speaker 01

  There is just so much lack of information, I guess, about the beef industry is the best way to say it.

• 6:02Speaker 00

  So here's something you said not long ago that just shocked me. You said, "I've maintained for many years that the US 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?

• 6:21Speaker 01

  You know, when you think about all the things that it takes to make an iPhone, there's a lot of different components, and there's a lot of engineering and manufacturing and so on. But at the end of the thing, you've got one product. So marketing iPhones is pretty easy. Most manufactured products are assembly products. So we take a bunch of inputs and we have one final product.

• 6:42Speaker 00

  This is disassembly, I guess, right?

• 6:43Speaker 01

  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 muscles in those animals. And potentially, every one of those muscles is a different product.

• 6:57Speaker 00

  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.

• 7:05Speaker 01

  The 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.

• 7:25Speaker 00

  After?

• 7:25Speaker 01

  The middle meats, the tender loin 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. If 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.

• 8:07Speaker 01

  And 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 and...

• 8:29Speaker 00

  No, you're kidding.

• 8:30Speaker 01

  You know, the crumbles from 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. All 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. And, you know, how does it work?

• 9:17Speaker 00

  I am sorry to interrupt Daryl Peale'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?" Okay, back now to my conversation with Daryl Peale.

• 9:53Speaker 00

  Let'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.

• 10:10Speaker 01

  I think so.

• 10:11Speaker 00

  And I would posit that very few people think about what it is, other than some version of chopped up cow.

• 10:17Speaker 01

  I think that's probably right. Yeah.

• 10:19Speaker 00

  It's a little bit more complicated than that, though, isn't it?

• 10:21Speaker 01

  Well, there's a lot of pieces to it because, no pun intended, I guess. Ground beef has become a very staple product in the US. It's so versatile. And historically, it's been very economical. My best estimate is that about 47% to 48% of the total amount of beef that we eat on average in the US is in the form of ground beef.

• 10:42Speaker 00

  Okay, so what's in it?

• 10:44Speaker 01

  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% lean. It can be 70, 30. Now, we don't necessarily see that a lot anymore. That 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% in terms of the lean to fat portion. And so it just depends on the particular market and the individual preference.

• 11:19Speaker 00

  Okay, so if it's 85% 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? And 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?

• 11:41Speaker 01

  So about 85% 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% lean, 50% fat. We 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% of beef production is our cowcows and bulls.

• 12:20Speaker 00

  What's a cowcow?

• 12:21Speaker 01

  A cowcow 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. She'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% lean, mix it with one pound of the 50% lean, that'll give you an 85% combination about as cheaply as you can make it.

• 13:06Speaker 00

  Got it.

• 13:06Speaker 01

  So that's one way to do it. Now, there's about a million other ways to make ground beef, right? All 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.

• 13:18Speaker 00

  So when I look at ground beef prices, in May of 2026, consumers paid on average a little over $7 a pound for ground beef. That's up around 50% from five years earlier. That's outpacing the general inflation rate, is what I'm reading here. So talk to me about that.

• 13:35Speaker 01

  The beef industry in the US is inherently cyclical in nature. It tends to have about 10-year cycles of inventory change. Now, there's a bunch of reasons behind that. And normally, it's a self-correcting cycle economically. So there'll 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.

• 14:04Speaker 00

  And what's it driven by? I'm guessing it's not driven by consumer demand. I would think that's less elastic, yeah?

• 14:10Speaker 01

  Yeah, no, it's not a demand-driven thing. It tends to come from the supply side. It 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.

• 14:51Speaker 00

  And if prices are low, then the incentive to have bigger herds, I assume, diminishes, yes?

• 14:56Speaker 01

  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. If 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

• 15:39Speaker 01

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

• 15:59Speaker 00

  So how deep is this hole?

• 16:01Speaker 01

  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.

• 16:19Speaker 00

  And therefore, Darryl Peel tells us.

• 16:21Speaker 01

  We've seen record beef imports the last couple of years, trying to offset that.

• 16:27Speaker 02

  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.

• 16:37Speaker 00

  That is Robert Hodgson, the CEO of King Ranch in South Texas.

• 16:42Speaker 02

  It's because we're not making enough beef in the United States to satisfy the demand we have.

• 16:46Speaker 00

  King Ranch sits on 825,000 acres. It is the largest working ranch in the US. 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.

• 17:00Speaker 04

  I wouldn't do anything else. We couldn't get our jobs done without Ford trucks.

• 17:06Speaker 00

  But even with trucks like that and ranches like that, the US is increasingly reliant on imported beef. Over 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 US production keep up with US demand? Robert Hodgson has some thoughts.

• 17:40Speaker 02

  I would say most participants in the beef value chain are only involved in one part of the value chain. We're involved in really four parts of that value chain. We have about a 1,500-head purebred Sanogre trutus herd on the ranch. And their job is to be elite genetics, make the best bulls and replacement heifers possible. We are also a commercial cowcalf 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. As we think about DNA in cattle today, this is an area that

• 18:23Speaker 02

  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 day-old 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.

• 18:54Speaker 00

  Prime, choice, and select are some of the beef grades established by the USDA, the US Department of Agriculture. The heavily marbled steak you pay a lot for at a restaurant, that's prime.

• 19:05Speaker 02

  You go to a restaurant today, you'll still hear longtime 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.

• 19:25Speaker 00

  When 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.

• 19:36Speaker 02

  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. And, 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.

• 20:19Speaker 02

  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.

• 20:30Speaker 00

  And who are those big four beef packers? Here again is the economist Daryl Peale.

• 20:36Speaker 01

  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. And 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,

• 21:18Speaker 01

  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.

• 21:38Speaker 00

  So the winner there is ultimately the consumer and the loser is the rancher?

• 21:43Speaker 01

  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.

• 22:06Speaker 00

  It is true that the big beef packers are losing money these days, some in the hundreds of millions of dollars. With demand for ground beef especially so high, how can that be?

• 22:17Speaker 05

  The most important thing for your listeners to know about the skyrocketing cost of ground beef right now is it encapsulates all this brokenness.

• 22:24Speaker 00

  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.

• 22:47Speaker 00

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• 25:20Speaker 00

  As of July, there were 28.5 million beef cows in the US, 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 Peale 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 Hodgins, the CEO of King Ranch.

• 25:48Speaker 02

  We talk about the cattle industry going through cycles where we build the cow herd in the country, profits go down and 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. We are at a point in the cycle where we've got high demand and we're bringing

• 26:30Speaker 02

  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.

• 26:39Speaker 00

  So biology is a factor, as is drought. The USDA rates more than half of US pasture and rangeland as either poor or very poor. But critics of the beef industry see other problems.

• 26:52Speaker 05

  Normally at moments like this, when the profits are good, you breed more cows. You grow the herd. You're not seeing that right now.

• 26:59Speaker 00

  That is Austin Frehrik.

• 27:01Speaker 05

  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.

• 27:08Speaker 00

  Frehrik 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.

• 27:26Speaker 05

  I 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, Lina Khan.

• 27:34Speaker 00

  Lina Khan would go on to chair the Federal Trade Commission, where she pursued an aggressive antitrust agenda. We interviewed Khan last year, episode 625. It was called "The Biden Policy That Trump Hasn't Touched."

• 27:47Speaker 05

  So I got coffee with her and she kind of explained this whole antitrust sister to me. And I was like, oh, this is kind of explaining to me what happened in Iowa.

• 27:54Speaker 00

  When he says what happened in Iowa, Frehrik is talking about the economic fallout from years of consolidation in the agriculture industry.

• 28:03Speaker 05

  It 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 two decades, it's all kind of fallen apart.

• 28:13Speaker 00

  Frehrik thinks this collapse is rooted in how the agricultural system has been changing, including and especially the beef system.

• 28:21Speaker 05

  One of the biggest fights the last few decades in cattle has been over the label "Made in America."

• 28:26Speaker 00

  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 Frehrik sees other flaws in the industry.

• 28:45Speaker 05

  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. So JBS, 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. JBS 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.

• 29:17Speaker 00

  What Freyrick here is calling exploitation is what most people just call marketing. Like 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 Hodgson from King Ranch.

• 29:38Speaker 02

  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. You look at the growth of Waigoo 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.

• 30:13Speaker 00

  But Austin Freyrick has a different view. Remember, he's an antitrust scholar. He doesn't see what Daryl Peale calls the miracle of the beef industry. He sees an industry that is over-concentrated, too few firms with too much leverage, especially at the Packer level.

• 30:30Speaker 05

  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.

• 30:42Speaker 00

  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 Freyrick mentioned. Still, this spring, Todd Blanch, 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 Blanch made an appeal to people inside the beef industry.

• 31:14Speaker 07

  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% of the money that we recover. Whether 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.

• 31:41Speaker 00

  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 Peale reminded us, yes, you have. You heard it during the Biden administration, but also going back more than a century.

• 31:58Speaker 04

  You 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.

• 32:08Speaker 00

  That is Roger Horowitz.

• 32:10Speaker 04

  I guess you could describe me as a food historian.

• 32:13Speaker 00

  A couple 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. So how did America become, as Daryl Peale called it, a beef-eating nation? Here is where Roger Horowitz likes to start the story.

• 32:34Speaker 04

  1865, New York City, you could walk down and see the animal that you wanted killed. And 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, you hang them, hanging beef it's called, from a rail car. Car gets to New York City, and the meat is eventually brought to what was called a branch house, a building in Lower Manhattan, and what used to be called, is still called, the Meat Packing 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

• 33:17Speaker 04

  to buy. And you had some competition on price because you had not just Armour, you had Swift, you had Cudahy, you had Morris, who were in that network there.

• 33:25Speaker 00

  This 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.

• 33:35Speaker 04

  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 others. There's a huge race for that because they want to build a system.

• 34:00Speaker 00

  So they are doing what we call today, vertical integration.

• 34:03Speaker 04

  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. And any sort of business economist 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 refrigerated rail cars that they own. They've got all these branch houses that they own. And so if you're a firm, you want

• 34:47Speaker 04

  to amortize that investment. So what they start doing is going into other products that they can sell through the same refrigerated network there.

• 34:55Speaker 00

  Makes sense.

• 34:56Speaker 04

  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. They 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.

• 35:12Speaker 00

  So there's a lot of consolidation. There's a lot of what sounds like market power. What happens then? Does someone, either activists, the government, get involved in saying, our prices are being driven up by this consolidation?

• 35:25Speaker 04

  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. The 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 Veder, 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 have 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.

• 36:09Speaker 00

  Was this illegal at the time or no?

• 36:12Speaker 04

  After the Sherman Antitrust Act, it becomes illegal. And they are very embarrassed when the investigation reveals this. The big blow is 1919 Federal Trade Commission investigates, and they get Mr. Veder's black book, which records over a period of years, this exact process of carving up the marketplace, and they're dead.

• 36:37Speaker 00

  He didn't keep two sets of books, like most people would do in that case?

• 36:40Speaker 04

  No, it was very genteel.

• 36:41Speaker 00

  And what happens to the firms? Do some of them collapse? Do they get sold off?

• 36:46Speaker 04

  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. So 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 and 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

• 37:28Speaker 04

  more efficient, but you can prevent them from dominating the whole industry by allowing other firms to compete with them for the dollars.

• 37:36Speaker 00

  And what do you think of that argument? Does that hold up?

• 37:38Speaker 04

  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 and creating the grounds for new consolidation of the meatpacking industry, which really takes place in the 70s and the 80s.

• 37:58Speaker 00

  By 1977, the four largest beef packers handled only around 25% of the American market. But that didn't last. During the 1980s and early 90s, a wave of mergers and plant closures left those four firms with 70% 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% 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 meatpacking industry. The antitrust scholar Austin Frerick doesn't love this comparison.

• 38:43Speaker 05

  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.

• 38:50Speaker 00

  Frerick argues that we have not learned the right lessons from the past.

• 38:54Speaker 05

  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 local system. So that's actually where a lot of that Glass-Steagall structural separation comes from.

• 39:08Speaker 00

  Glass-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.

• 39:38Speaker 05

  After we did these structural separations, we really saw that industry really stabilize. People 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 a 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.

• 40:05Speaker 00

  Austin Frerick'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. In 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. This is Freakonomics Radio. We will be right back.

• 40:57Speaker 00

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• 43:41Speaker 00

  As we have been hearing, high beef prices are the result of a complex industry where it's hard to jack up supply to meet demand, in large part because your product is an animal that takes time to mature. The economist Daryl Peale has seen this cycle before, and he thinks the market will eventually correct itself.

• 44:02Speaker 01

  I'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. There's no big holes here. There's no big place where you can go and say, we got to pull all this excess out of the market someplace. At the end of the day, everybody works for a living. For most of history, relevant history, anyway, the US has been the biggest beef-producing

• 44:47Speaker 01

  country in the world.

• 44:48Speaker 00

  We're not anymore, you're saying?

• 44:50Speaker 01

  The last two years, Brazil has actually passed the US as the biggest beef-producing country in the world.

• 44:57Speaker 00

  How and why? Was that a strategy to become number one? Or did it evolve organically? What were the factors that went into that?

• 45:03Speaker 01

  The industry in Brazil's 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, I guess. It's a path they've been on for probably 20 years, and they just finally reached the point where they passed us.

• 45:25Speaker 00

  Austin Frerick, the antitrust researcher, highlights a different piece of the Brazilian success story.

• 45:32Speaker 05

  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.

• 45:45Speaker 00

  JBS is the biggest of the big four meatpackers in the US. It'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 Frerick again.

• 46:15Speaker 05

  They became a monopolist through bribery. I'm not talking, you know, campaign contributions. They pled guilty to bribing politicians.

• 46:22Speaker 00

  In 2017, the Batista's holding company admitted to paying bribes to nearly 1,900 Brazilian politicians, and they paid a record $3.2 billion fine. Three years later, the firm pled guilty in a US 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. Three 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.

• 47:07Speaker 00

  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. Here's Austin Frerick.

• 47:26Speaker 05

  You shouldn't be allowed to keep a dominant market position through bribery, yet they have.

• 47:31Speaker 00

  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.

• 47:50Speaker 05

  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. McDonald's even filed lawsuits against the packers a few years ago for price gouging.

• 48:00Speaker 00

  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. JBS paid more than $50 million. Neither company admitted wrongdoing.

• 48:32Speaker 01

  Are these guys absolutely shining stars? I'm not going to say that.

• 48:36Speaker 00

  That again is The Economist Daryl Peale.

• 48:38Speaker 01

  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. So 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

• 49:22Speaker 01

  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 the 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.

• 49:41Speaker 00

  This September, the Justice Department expanded its beef investigation into eight retailers, including Costco and Walmart.

• 49:50Speaker 05

  Walmart has its own slaughterhouse now in Wichita, and partly, it's in response to JBS.

• 49:54Speaker 00

  That again is Austin Frerick.

• 49:56Speaker 05

  Walmart, it doesn't want to fully own the beef industry, but it wants a cost insight because it wants to know when it's negotiating with these packers, you know, what are the actual cost structures here?

• 50:05Speaker 02

  The retailer by and large works on a margin.

• 50:10Speaker 00

  And that again is Robert Hodgins, the CEO of King Ranch in South Texas.

• 50:15Speaker 02

  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, well, those dollars, you know, when you've doubled the price of beef over the last 20 years, the absolute dollars are a lot bigger.

• 50:52Speaker 00

  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. But 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

• 51:35Speaker 00

  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. Austin Frerick still sees a lot of problems in the beef industry, but he also sees promise.

• 51:57Speaker 05

  I actually think the best piece of meat legislation ever introduced in U.S. Congress just happened recently. It kind of got lost because 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. I mean, Iowa has this rule in the books. We don't enforce it, called the packer ban. I would do that nationwide. I don't think a corporation should own an animal.

• 52:28Speaker 00

  But there is a problem. Robert Hodgins of King Ranch says it's gotten a lot harder to own animals if you are not a corporation.

• 52:37Speaker 02

  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% 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. The 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, you know, maybe there's some, you know, AI opportunities and picking genetics and doing those things, you know, at King Ranch, we

• 53:21Speaker 02

  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 every day. This is not a business that we think drones are going to replace or AI is going to replace tomorrow. I 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 got a few cows. Do the kids want to come home and mess with those 20 or 30 cows? No.

• 54:02Speaker 00

  Over the past several years, the U.S. has lost more than 100,000 beef cattle farms and ranches, roughly 15% of the total. Most of them are small producers.

• 54:13Speaker 02

  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?

• 54:37Speaker 00

  In August, the Department of Agriculture announced a package to help rebuild the U.S. cattle herd. It 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 Hodgins, Austin Frerick, Daryl Peale, and Roger Horowitz, and thanks especially to you for listening. If you have something to say about this episode or anything, our email is [email protected]. Coming up next time on the show, plainly,

• 55:22Speaker 00

  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. That'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

• 56:05Speaker 00

  and show notes. This episode was produced by Mandy Goranstein. 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. Our theme song is Mr. Fortune by The Hitchhikers, and our composer is Luis Guerra. Daryl, like Daryl, but with an E, right?

• 56:33Speaker 01

  Yeah, it's all Es, Rs, and Ls. So people will go, DA, how do you spell that? I go, well, you're already wrong.

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