Retail Beef Price Spreads, Not Wholesale, Have Grown the Most

The Biden administration recently published a plan to deal with the growing cost of beef driven by a monopoly in the beef processing industry. Currently four companies—Cargill, Tyson Foods, JBS, and National Beef Packing—control over 85 percent of the processing market.

In the last two years, the wholesale-farm spread—the average price difference between beef sold by farmers as cattle and that sold by wholesalers—increased substantially during the pandemic. According to the Biden administration press release, ranchers now get only 39 cents from every dollar spent on beef, down from 60 cents of every dollar 50 years ago.

But while the recent wholesale spread increase is significant, it was a temporary spike during the pandemic. It’s the wholesale-retail spread—the difference in price paid by wholesalers and that paid by retailers like grocery stores, i.e. the gross retail profit—that has grown the most over the last 50 years according to U.S. Department of Agriculture data (USDA).

Currently, the retail spread is regularly three times larger than the wholesale farm spread. That is, grocery stores are taking a much larger portion of costs, not beef processors, wholesalers, and meatpackers.

Retail spread went from 22 percent of total retail price in the 1970s to about 45 percent today. Compare that to wholesaler spreads, which started in the low teens and have stayed below 15 percent since (not including the pandemic).

Farm net price—essentially the average profit of cattle in terms of cents per pound of retail beef—as a percentage of retail price declined from 62 percent in the 70s to 39 percent today.

At a time in the 70s, prices at the farm, wholesale, and retail level were relatively in line. Retail prices were about 1.5 times higher than farm prices and tended to move in-sync with farm prices.

Since then, prices overall have increased with inflation, some more than others. As all prices increased during the heavy inflation of the late seventies, retail prices increased at a much higher rate than farm and wholesale rates. A similar trend happened in the mid-2000s.

When farm prices declined in the late nineties, wholesale prices also declined. But retail prices stayed the same. As a result, retail beef prices are now 2.5 times higher than farm prices.

As the Biden administration pointed the finger at beef processors, Senator Elizabeth Warren (D-Mass) targeted supermarket chains like Krogers and Publix for price hikes. But while retail prices have spiked recently, the recent pandemic price spike may be the first time that increased prices aren’t driven by retail profits.