Where’s the Beef This Time?

Those of us of a certain age, namely mine, remember the 1984 presidential election campaign. Ronald Reagan defeated Walter Mondale in a landslide, but Mondale arguably had the best slogan. It came from a Wendy’s commercial featuring a little old lady staring at an enormous bun containing a tiny burger and yelling, “Where’s the beef?” The ad went the equivalent of what was viral in the 1980s, and Mondale used the catchphrase in an attempt to dramatize the lack of substance in a Democratic opponent’s campaign proposals during the primary. While it produced a lot of laughs and helped him get the nomination, it obviously didn’t convince anyone in the general election, since Mondale won only his home state of Minnesota and the District of Columbia. This week’s column is also about beef because it is back in the news, this time as a genuine policy issue.

As with many things these days, beef prices are high. In the last year, they have increased between 9 and 14 percent, depending on the cut. At the low end, ground beef—the stuff of burgers—has gone up 9 percent. Roasts are up 13.5 percent. Looking back five years, beef prices are up 57 percent. Prices of most things have been going up thanks to inflation, but beef prices, like gasoline prices, have become a symbol of what is happening in the economy. People are angry and upset, and there is widespread agreement that inflation will be an issue in the midterm elections. Beef is once again a metaphor, although not the same one as in 1984.

How did we get to this point, and what can we do about it? The first question is easier than the second. While politicians of each party, as usual, blame the other, it appears in many ways to be the consequence of old-fashioned economics—the relationship between supply and demand. Supply has shrunk while demand has remained high. In a market economy, that means higher prices. Supply is down because of drought and higher operating costs, which are also the product of inflation. Drought throughout the West and Midwest has meant less grass, hay, and water, which has forced farmers and ranchers to sell their cattle earlier to save the cost of feeding them rather than saving them for breeding. (The extended drought is most likely the consequence of climate change, but that is a topic for another column.)

At the same time, farm operating costs have gone up. Diesel fuel, which powers most farm equipment, is at a record high. Fertilizer is more expensive, in part because of the Ukraine war and tariffs. Because there is less grass due to drought, farmers have to buy more processed feed, which is more expensive. High interest rates add to the problem, since farmers annually borrow at the beginning of the season and then repay the loans when they sell their crops or cattle. These are all factors that encourage farmers to sell their herds early—or, in the case of smaller farms, to go out of the cattle business entirely. In addition, raising calves to market weight takes at least 30 months, so rebuilding herds—the correct solution—is a long-term proposition. There are also trade-related factors. The arrival of the New World screwworm in the United States led, until recently, to an embargo on cattle entering from Mexico, and tariffs on imported beef also contributed to price increases.

Finally, and perhaps most controversial, is the role of meat-packing companies, which buy the cattle and then slaughter and market the products. The sector is dominated by four large companies—JBS, Tyson Foods, Cargill, and National Beef—which economists argue create an oligopoly that limits farmers’ leverage in selling their cattle, keeping prices they get for their cattle low while enabling the companies to maintain high prices to consumers. At the same time, the industry’s costs have gone up, including higher labor costs, driven in significant part by the administration’s immigration policies. The companies are currently subject to a federal antitrust investigation led by the Department of Justice, but no results have been announced.

In the “what do we do about it” category, recent administration actions have aroused controversy in the ranching community. Trump is trying to lower ground beef prices by increasing the import quota subject to lower tariffs contingent on a commitment to sell the product at a 25 percent discount. It is too soon to know whether that will work—experts are skeptical—but it has irritated ranchers who believe it will lead to lower cattle prices for them. In this case, I have a bit of sympathy for the president. Although his policies on tariffs and immigration have clearly made the problem worse, it has developed over a long period of time, and it will take a long period of time to solve it. Quick fixes are not going to do the job.

A creative set of proposals is the Department of Agriculture’s Ranchers First Initiative. It has several elements, but the two particularly interesting ones are an insurance program that would essentially pay farmers to keep heifers for later breeding by matching their slaughter price and a program to strengthen independent and midsize processors. These are designed to deal with the two biggest problems: shrinking herd size and concentration in the processing industry. This year’s election cycle may once again feature ads about beef, but instead of asking where it is, they’ll be asking why it costs so much.

William A. Reinsch is a senior adviser (non-resident) and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C. He can be reached at [email protected].