Johnathan Hladik was on his phone, calling one butcher after another, desperate to find a slaughterhouse that had space for a few of the Berkshire hogs that he raises on his family farm in eastern Nebraska.
It was spring 2020, the start of the Covid-19 pandemic, and the coronavirus was rolling through the country’s massive slaughterhouses, where employees worked in crowded, indoor spaces at a time when protective gear like face masks was scarce. Thousands of workers fell ill, forcing processing plants to shut their doors for weeks at a time. Farmers and ranchers were left to compete for limited space at smaller plants, often called “meat lockers,” that stayed open.
“All these hogs flooded all of the local lockers,” Hladik said. “I had a list of maybe 18 to 20 lockers that I called before I found one to take some hogs.”
By that point, his pigs were up to 40 pounds overweight, eroding the quality of the meat. For many farmers who raise livestock, the consequences of the backlog were worse: Millions of chickens, pigs and other animals were euthanized — gassed, shot, even aborted — and buried in the ground.
Covid-19 was a shock up and down America’s supply chain for meat, from farmers and ranchers who couldn’t find buyers for their livestock and lost revenue and animals, to grocery shoppers who encountered steep meat prices, item limits and empty shelves.
But it wasn’t the first or only such shock. Just a handful of giant companies process the vast majority of America’s beef, pork and poultry. Take the beef sector: Four companies process about 85 percent of all the cattle fed and slaughtered for boxed beef, namely muscle cuts like ribs and steaks.
That means that when one or more large meatpacking site is forced to shut down, it has ripple effects across the entire country, interrupting supplies and often raising prices. Just in the last three years, the meat supply chain has also been disrupted by a fire at a major Tyson Foods plant in Kansas and a ransomware attack that shut down JBS plants that process a fifth of the U.S. beef supply.
The meatpacking industry is highly concentrated — and vulnerable
PERCENT OF MEATPACKING AND PROCESSING SECTORS CONTROLLED BY TOP FOUR COMPANIES
Large, centralized processing plants offer efficiencies of scale that have helped keep meat relatively cheap for American families for decades. Moreover, concentration in meat processing isn’t exactly new. Industry groups say the four-firm concentration of meatpackers has barely changed in 25 years, and that profit margins for cattle producers and beef processors have swung up and down over that period.
Still, the pandemic has forced a reckoning, inside and outside the industry. Even in Nebraska, the country’s top cattle producer and a stronghold of the meatpacking industry, the state government is experimenting with ways to expand and diversify the meat supply system, such as helping smaller, local plants play a bigger role in the market or making it easier for farmers to sell their meat directly to consumers. The goal is to create more capacity to process livestock outside of the biggest slaughterhouses — building a more flexible and resilient network before the next crisis.
“We need more local and regional processing,” Democratic Rep. Cindy Axne said in July during an appearance at a local butcher shop in her western Iowa district. “We hear it over and over and over again.”
But that’s much easier said than done. Smaller plants face enormous challenges securing access to financing, complying with strict food safety regulations and competing with more dominant players in the industry.
Meat processing is controlled primarily by the Federal Meat Inspection Act, which requires any meat sold for public consumption to come from an animal slaughtered at a facility with an Agriculture Department inspector on hand. The law dates back more than a century — it was originally enacted after Upton Sinclair’s groundbreaking 1906 expose on the meatpacking industry, "The Jungle," which exposed the harsh and unsanitary working conditions inside the slaughterhouses of the time.
In effect, the law limits farmers’ access to thousands of small processors that aren’t USDA-inspected, known as “custom-exempt” plants because they’re exempt from continuous federal inspections (though they still must adhere to safety and sanitary standards).
The federal inspection regime funnels producers toward larger plants that are fewer and farther between in rural America. That can lead to severe bottlenecks — like when Hladik was desperately dialing up meat lockers at the start of the pandemic.
“What I realized is that the lockers that were hardest for me to get into were the lockers that had a USDA inspector on site,” he said. “That’s where all the backlog is.”
Custom-exempt shops can slaughter livestock and process meat for an animal owner’s personal use, but not for commercial or retail sale; products generally have to be marked “Not for Sale.”
There are exceptions — under the law, for instance, customers can buy an entire cow beforehand, or a half or quarter at a minimum, and then it can be slaughtered at a custom-exempt facility. But for many customers, that’s too costly and too much meat to easily store, compared to the ease of buying specific cuts or ground meats of their choosing in a supermarket.
Nebraska, seeking ways to avert another supply disaster, has taken the unusual step of helping farmers sell cuts of meat straight to individual buyers. The state law, modeled after a similar system in neighboring Wyoming, lets customers share ownership of an animal before it goes to slaughter. They can sign a contract and pre-pay for only the specific portions they want. It means farmers can take their livestock to custom-exempt processors and have the meat picked up afterward by customers.
It’s complicated, but potentially a critical avenue for livestock producers seeking an alternative to conventional marketing channels dominated by bigger meatpackers.
Under this system, Hladik can take his livestock a few miles down the road to the local custom-exempt processor instead of trucking them to a bigger, federally inspected site much farther away. That’s exactly what he did last month with a steer from his farm, split between 10 buyers who chose from several tiers of cuts, ranging from T-bones and New York strips (the “premium” tier) to ground beef and stew meat. It was the state’s very first sale under the new system, which Hladik, who is also policy director for the Center for Rural Affairs, helped to enact in Nebraska.
To be sure, the idea of animal sharing is novel and unproven. It requires more effort by both farmers and consumers and will take time to catch on. Some food safety advocates express concerns about expanding the role of custom-exempt processing. And there’s also a possibility that federal regulators will try to squash the idea, if it’s viewed as an attempt to skirt stringent USDA inspection rules.
But if successful, at least on the margins, it could shift meat sales away from the centralized meatpacking chain that’s more vulnerable to disruption.
After all, most meat processors are small plants, and most small plants are custom exempt. Nearly 60 percent of all meat plants in the U.S. have fewer than 20 employees, according to an academic report last year from members of the Agricultural & Applied Economics Association. “These small plants are often custom-exempt and serve a truly local market,” the group wrote.
To assist these state efforts, there’s a large bipartisan bloc in Congress that wants to peel back federal restrictions on the sale of meat products from custom-exempt plants. Reps. Chellie Pingree (D-Maine) and Thomas Massie (R-Ky.), backed by dozens of House members and senators, reintroduced legislation in June that would allow states to permit distribution of custom-slaughtered meat to consumers, restaurants, grocery stores and other markets.
“The pandemic exposed serious problems in our supply chain,” Pingree said at the time. “Congress must act to make it easier for local farms to compete with these big meat companies and make locally raised livestock processing more widely available.”
The House and Senate Agriculture Committees have already held hearings on proposals to increase competition and transparency in livestock markets, with lawmakers in both parties noting that the farmers they represent are still struggling to break even on their cattle while beef processing companies rake in large profits.
At the same time, the Biden administration is increasingly taking aim at concentration in meat processing; White House officials recently accused giant meatpackers of “pandemic profiteering,” and Agriculture Secretary Tom Vilsack is promoting a suite of regulations to step up USDA’s enforcement of antitrust laws governing the industry.
The North American Meat Institute, which represents meat processors, said the White House’s criticism was “inflammatory” and that a nagging labor shortage is largely to blame for the processing crunch that’s affecting meat prices.
The group is also pushing back on the idea that the current system is especially unsteady in the event of a disruption. In a recent letter to USDA officials, NAMI Chief Operating Officer Mark Dopp argued that the meat industry actually “fared reasonably well in extraordinary circumstances.”
For proponents of expanding smaller-scale meatpacking, slaughter inspection rules aren’t the only hurdle. The federal government and many farm states are also trying to make sure small and mid-sized plants have the right equipment to take on a bigger share of the market, including by steering coronavirus relief dollars toward grants and loans for small processors to scale up their facilities.
If they succeed, there might be more operations that look like the one owned by Greg Gunthorp, a pork and poultry grower and plant operator in northeastern Indiana.
Gunthorp’s small plant is something of a rarity: It’s located on his farm and is also USDA-inspected for both red meat and poultry slaughter. “I believe we’re one of only three in the country,” he said.
But his whole operation has just 11 employees. During the pandemic, Gunthorp used grant money from Indiana to buy new equipment for processing, packaging and refrigeration, including machinery that lets him produce larger amounts of ground meat.
“We were hand-portioning and hand-linking all that stuff manually before. Now we have a machine to do it, so we have no disadvantage not to sell ground products now,” he said. “There’s lots of plants across the state that are the same way, that can slaughter and process more animals now … because of the equipment they got because of this grant.”
During the pandemic, small processors were able to quickly shift their operations and keep churning out meat when many of the big slaughterhouses shut down, Gunthorp said. For example, his plant pivoted from selling wholesale products, primarily for restaurants, to selling retail-ready packages for at-home eating.
“Little plants by their very nature are extremely resilient and have more opportunities to be flexible,” he said. “You can’t put thousands of people in the same building at the beginning of a pandemic and figure out how to do that safely. You can do that with a small number of people in little plants. I know lots of little plants that, at the flip of a switch, doubled their production.”
There’s also a focus in Washington and state capitals on providing small processors more access to federal inspectors, who have been in high demand and short supply well before the pandemic hit. USDA is aiming to spend $100 million to reimburse the smallest plants for the cost of overtime inspection fees during the pandemic.
And government grants will go a long way toward defraying the steep costs that small plants face in order to meet the demands of USDA’s inspection program. The department rolled out a separate $55 million grant round in June specifically for processing plants seeking to become certified under the federal program — an initiative that could lead to a broader pool of USDA-inspected plants in the near future.
State and federal support could be crucial not only for helping existing plants to scale up but also to grow the number of meatpacking plants. The processing industry is “characterized by large capital investment that prevents new firms from entering, at least in the short term,” USDA economists wrote in a working paper in March.
The cost of complying with regulations is also extremely high for small plants on a per-animal basis, said Rebecca Thistlethwaite, director of the Niche Meat Processor Assistance Network, an Oregon-based group that provides research and technical support to small processors and producers.
“You don’t have as many animals or as much volume to spread that across,” she said. Steep labor costs and a shortage of workers are also major headwinds for processors of all sizes.
In addition to direct financial support, many states are setting up their own meat inspection programs as an alternative to federal inspections. State-run programs require the same food safety standards as USDA, but they can offer more hands-on help for processors seeking to comply with complex and costly regulations, Thistlethwaite said.
“Missouri, for example, during the pandemic hired a bunch of new inspectors and helped get a bunch of small [butcher] shops into the state inspection program, so that they could have more inspected meat options for farmers there,” she said. “They can just be a little more nimble.”
There’s even a burgeoning cooperative interstate shipment program, first approved by Congress in 2008, that allows certain state-inspected meat to be sold across state lines. South Dakota in June became the ninth state approved by USDA to join the program.
“If we’re going to strengthen our nation’s food system and prevent supply chain bottlenecks before they occur, then we must continue to provide smaller meat processing establishments the opportunity to build their local and regional marketplaces,” Sandra Eskin, USDA’s deputy undersecretary for food safety, said at the time.
Not everyone agrees that government efforts to add meatpacking capacity are a good thing. At a House Agriculture Committee hearing in late July, several experts argued that the beef market was already adjusting to the gap between processing capacity and cattle supply on its own, and that adding too much slaughterhouse capacity at this point would ultimately backfire.
“My fear, to be honest, is [that] we may wake up three years from now and have a bunch of processors that can’t affordably operate,” said Jayson Lusk, head of Purdue University’s agricultural economics department. “Are we going to see a series of bankruptcies or reductions in plant sizes?”
But for now, there’s no sign of slowing down for many of the small processors that saw an influx of business during the pandemic. One of those plants is Oakland Meat Processing — the custom-exempt butcher where Hladik, the Nebraska farmer, took his first steer under the herd-sharing system. The mostly family-run facility has been running at maximum capacity since the start of the pandemic, said Anna Zeleny, an operator at the plant.
“We didn’t get shut down,” she said. “We were there when the packing house wasn’t there, when you weren’t able to buy your meat at [the supermarket], when they limited you to two pieces.”
Zeleny said the state’s efforts to unlock new processing options beyond the bigger, USDA-inspected sites is a big step for farmers and ranchers to earn more money for their livestock and for consumers to have more reliable access to high-quality, local meats. For her team at the processing plant, it could mean even more demand for their services; the business already has plans to build a new facility.
“We want to be able to reach more people,” Zeleny said. “We’re trying to keep everything way more local than it has been.”