Associated Wholesalers Grocers CEO David Smith detailed the struggles his company has faced as it competes against bigger players on pricing and product access in front of the full Senate Judiciary Committee during a July 28 hearing on food supply-chain issues.
Speaking on behalf of the National Grocers Association, Smith said that while AWG’s cooperative structure allows it to aggregate resources and purchasing power to establish economies of scale and buy products in bulk—helping it keep prices in check for its stores and their customers—"we pale in comparison to our dominant chain rivals."
"Even though our volume is substantial, and [we] have the same efficiencies as our largest competitors, we don't really compete on a level playing field," he said. "The top five retailers dominate over 65% of the marketplace. These dominant grocery retailers, we call power buyers, use their size and their positions as gatekeepers to the American consumer to dictate terms and conditions to suppliers. This ranges from more favorable pricing, more favorable packaging and access to exclusive products that we can't get. Their size and market power alone enables them to secure advantages for themselves and harm the smaller players in the food retail marketplace."
The COVID-19 pandemic, Smith said, has exacerbated the problem—one that NGA has been calling upon Congress to act on since the beginning of this year as the group demands the modernization and enforcement of antitrust laws to support competition in the grocery sector.
"Everyday Americans who rely on community grocers have not been able to access the products they need to feed their families as the largest retailers demand priority to high-demand products like cleaning supplies, paper products and shelf-stable items," Smith said.
Much of the hearing focused on competition matters within the meat supply chain—an issue Sen. Chuck Grassley (R-Iowa), who requested the hearing, said he has been concerned about for a long time, and “now many other senators are also hearing concerns from their constituents.”
"Family farmers who feed cattle are the lifeline of rural communities across Iowa, and they're currently on life support," he said. "For more than two decades, I've expressed strong reservations about consolidation and concerns about competition in agriculture. … Today only four packers—JBS, Tyson, Cargill and National Beef—control more than 80% of the cattle market. These companies hold a tremendous amount of market power. Independent cattle producers in Iowa and across the country deserve a free and fair market."
Again, the pandemic put a spotlight on these issues as consumers struggled to find meat products in-stock, and when they did, were sometimes faced with higher-than-normal pricing.
"The COVID 19 pandemic painfully exposed some of the inherent risks to our food supply chain, resulting from high levels of industry consolidation," Sen. Amy Klobuchar (D-Minn.) said during the hearing. "As the spread of the virus forced closures of major meat packing facilities, for example, livestock producers were left with no willing buyers for their livestock. And due to consolidation in the meat processing industry, there weren't really alternatives. The result for consumers was inflated retail prices for beef and pork products and, in some areas, empty meat cases."
Smith, of Kansas City, Kan.-based AWG, explained how retail consolidation has helped create what he called a "meat-packing conundrum."
"Consolidation at retail causes consolidation upstream in the supply chain and meat packing, as a stark example," he said. "Supply buyers respond to retail consolidation by consolidating rapidly themselves in hopes that getting bigger will allow them to gain leverage against that retail domination. We see consolidation everywhere from the protein market to consumer packaged goods and even private-label manufacturers. … The results are predictable: Farmers and ranchers struggle to get fair prices as fewer firms compete for the product. Consolidated supply chains are more vulnerable to disruption as we saw with the meat during the pandemic."
Speaking on behalf of the Iowa Cattleman's Association, based in Dunlap, Iowa, Dunlap Livestock Auction owner Jon Schaben outlined the concerns of independent cattle produces across the nation, including lack of cash trade, limited price discovery and an "imbalance and leverage between those who raise cattle and those who process it."
"The greatest fear of independent cattle producers is to lose their livelihoods for the sake of meat-packing efficiency," he said. "In example, vertical integration—we've witnessed vertical integration firsthand with the swine and poultry industries, so we know what that path is like. The combination of limited competition, capital supply and formula contracting has not only suppressed live cattle prices but has placed a tremendous financial burden on the shoulders of cattle producers."
Schaben called for a "transparent competitive marketplace" to strengthen the beef supply chain—an ask echoed by Smith when Klobuchar asked him about solutions for the grocery issues he raised.
"It's transparency and fairness and an equal opportunity. That’s all that we're asking for," he said.