When Theodore Roosevelt became U.S. President in September 1901 upon the assassination of William McKinley, he stunned his fellow Republicans by launching a sustained attack on the corporate monopolies that dominated American business at that time. One target was meat packing, where four firms held more than 55% of the market.

A century later, the issue is still unsettled. Although government pressure in the early decades of the century led to a breakup of packer concentration, the reforms didn't last. While the Big Four held just 28% of the beef market in 1975, they now control more than 80%.

This dominance has spurred federal investigations over the last decade and prompted renewed charges by feeders and cattlemen that packer concentration is lowering the price for fed cattle.

"The price today has nothing to do with supply and demand," says Mike Callicrate, Callicrate Feedyard, St. Francis, KS. "It's simply a price that packers can mentally induce us to accept ... Our problem is greedy corporate packers."

"You can make a six-foot stack of investigations," counters Jens Knutson, chief economist for the American Meat Institute, a packer trade association. "Nobody has ever come up with anything."

The truth, however, may lie somewhere between those polar positions. Government investigations and the work of leading ag economists suggest packer concentration does, at times, impact prices paid for fed cattle. But some studies, which contradict standard economic theory about the market power of monopolies, suggest that packer concentration may actually push prices upward.

Examining The Issue Overall, the issue of packer concentration is immensely complex. Perhaps the best way to see what has happened is to examine some major factors impacting the meat packing business.

First, there's the resurgence of big packers. Under government pressure, big packers had divested their holdings in stockyards, railroads, cold storage warehouses and the retail meat business. They had also given up substantial market share. By 1975, the Big Four held just 28% of the beef market, or about half of what they held in the early 1900s.

In the last 25 years, however, the Big Four have tripled their share of the slaughter market, control three-fourths of the boxed beef business and gained new leverage through the use of captive supplies of fed cattle. Captive supplies include feeder cattle owned outright, and cattle purchased under certain special marketing arrangements.

In the early 1980s, virtually the only form of captive supplies were packer-fed cattle in packer-owned feedlots. These made up about 4% of the steer and heifer slaughter market. Captive supplies now account for more than 20% of the market in some states.

Captive supplies have been controversial in part because they may be pushing cash prices downward. A 1998 report by the National Commission on Small Farms found captive supplies "can infringe on the competitiveness of the open cash market, particularly in regional and local markets where contract usage is high."

The report quotes an official of the Nebraska Cattlemen's Feedlot Council as saying captive supplies "allow some packers to become no more than hit or miss players in the cash market ... They do not have to aggressively compete for their remaining slaughter needs and therefore end up paying less for cash market purchases."

The other major factor is how cattle markets work. Economic theory holds that market concentration could allow packers to pay less for fed cattle. But the actual workings of the market are much more complex. For example, one controversial new theory concludes packer concentration actually raises the prices packers pay for fed cattle.

One proponent is Azzeddine Azzam, a University of Nebraska economist. He doesn't dispute that concentration results in lowered competition, which can mean fed cattle prices are lower than packers would pay in a more competitive market.

But he argues that big packers with large, efficient plants can slaughter and process beef for less than if they operated smaller, less efficient plants. The cost savings, Azzam says, allows them to pay more for fed cattle. It more than offsets the impact of a less competitive market.

Big Packers Are More Efficient There is no doubt big packers are more efficient. A 1990 Congressional inquiry found major packers had substantially lower costs than their smaller rivals. For instance, the largest plant held an $18/head edge in slaughter costs over the smallest plants and a $10/head edge in boxed beef fabrication costs.

The same Congressional inquiry showed that cattle markets - and the level of packer competition - are tied to the complex interaction of consumer demand, plant capacity and available beef supplies.

For instance, the inquiry found some evidence that packer concentration resulted in lower fed cattle prices in the 1970s, but not in the 1980s. The investigation found that packer investments in big new plants in the 1980s led to excess packing capacity. As a result, the packers "had to compete more vigorously with one another in purchasing cattle, and this competition led to upward pressure on prices."

Still, the report offered an ominous outlook. "If cattle supplies expand by several million head, as they have in the past, without a corresponding increase in consumer demand and processing capacity, the few controlling beef packers will have less of an incentive to compete aggressively for available cattle. Prices may then decrease more than if a greater number of firms had purchased the cattle."

The combination of high concentration and poor prices has ignited new pressures to investigate the industry. But government reports show these investigations have been hamstrung at every turn. Investigations have suffered from a lack of trained personnel and data, and repeated instances in which investigators followed the wrong trail.

P&S Bears The Brunt Some of the harshest criticism has been aimed at the Packers and Stockyards Administration (P&S) which is charged with ongoing enforcement of the packing industry. For instance, the National Commission on Small Farms said P&S failed to develop economic and legal expertise to keep pace with emerging issues in the industry.

"P&S has been traditionally and competently geared toward the regulation of day-to-day livestock transactions ... Market concentration occurred more rapidly than P&S's ability to adjust." (P&S is now beefing up its staff to correct this shortfall.)

And a Congressional inquiry found that P&S consistently analyzed data on a national basis, even though meat packing markets are by nature regional due to the high cost of transporting cattle from feedyards to packinghouses. In other words, P&S looked in the wrong place. As a result, the inquiry found that P&S "may be understating the potential risk for anti-competitive practices associated with concentration."

The current accusations by cattlemen come as the market is flooded with beef, pork and chicken. The oversupply has forced prices down and caused economic havoc among feeders and ranchers. To these operators every penny per pound is vital, and any perceived anti-competitive actions by packers seems all the more important.

These operators want action now. But if history is a guide, the issue won't be settled soon. Instead, the federal government likely will continue to study the issue. And no one will be happy.

"The packers have become too big," says Kansas feeder Mike Callicrate. "They simply exert too much power in the marketplace."

The American Meat Institute's Jens Knutson counters that investigators have turned over "every rock and come up with nothing ... I don't know how you put some of these questions to bed."

"It's not an easy issue to resolve," says Oklahoma State economist Clem Ward. Ward has spent years studying the packing industry.

"The packers get tired of us looking at it because we haven't found the smoking gun," Ward adds. "And cattlemen think we're biased for the same reason - that we haven't found the smoking gun. Maybe we haven't found it because it isn't there. Or maybe we haven't found it because we're not looking in the right place."

It hardly matters which industry you look at, the trend is towards bigger and bigger companies and fewer and fewer players. As a result, the corporate landscape is filling up with industrial giants, reversing years of government-led efforts to break up monopolies and create more competition in industries ranging from meat packing to oil.

"Concentration exists in every aspect of the U.S. economy," says feedlot consultant Bill Helming. "Beef packing and processing, and the cattle feeding industry are very concentrated. The poultry industry is very concentrated. The auto industry is concentrated. The banks are becoming more concentrated every day. It's all driven by economics.

"The notion that four or five beef packers control in excess of 80 percent of beef slaughter and fabrication - I don't see any negatives. I probably see more positives. Those who are left are, relatively speaking, better capitalized. They're relatively efficient and they do a relatively superior job of keeping their costs down and getting the job done in a cost effective manner.

"If there were 10 beef packer-processors as opposed to four and the capacity was the same, the net result on the price of fed cattle and the price of beef to the consumer might be unchanged. It might even be higher to the consumer because they would probably be less efficient with 10 operators than with four or five," says Helming. The net result, he adds, is that large efficient packers help keep costs down and thus help beef compete with pork or chicken.

Still, meat packers may someday find themselves the target of another government effort to break them up again. But if that does happen, the breakup may not last. "The Justice Department could break up the meat packers," says Clem Ward, professor of agricultural economics at Oklahoma State University. "But after a period of time, we'd see a move toward consolidation, maybe not to the same level, but in that direction."

Some feeders regard meat packers as a money-grubbing lot. But Wall Street takes a different view - meat packers aren't making enough. Here's what David C. Nelson, a securities analyst with Credit Suisse First Boston, said in testimony before the Senate Committee on Agriculture:

"I am not recommending IBP, ConAgra or Hormel at this time. Looking retrospectively, investments in this segment have generally underperformed the market. One primary role of the stock market is to allocate capital, and the capital markets are not attracted to this industry. In fact, IBP shares are down more than 40 percent from their peak in November 1995, while the overall market (Standard & Poor's 500) is up over 80 percent during this time period."

Nelson said IBP's operating margins in 1990-97 averaged 2%, while margins for the packaged food companies he follows averaged 12.5%.

"This committee and others have pondered whether there is excessive concentration in the meat packing industry and whether that has affected livestock prices. Such issues are beyond the direct purview of my analysis. However, I will note that the poor profitability generated by packers is not generally symptomatic of (monopolistic) pricing power," he said.

Is It Packers Or Demand? Is packer concentration to blame for the cattle industry's hard times? Or is it low demand for beef in a country that is awash in beef, pork and chicken the problem?

"I don't think concentration is the problem," says Lee Borck, president of Ward Feedyard Inc., Larned, KS. "We've been through this debate over concentration year after year instead of finding a new way to market cattle. We have a group of people who don't want to change and move forward, nor do they want anybody else to move forward either."

"For 18 years, the industry has lost demand, year after year after year," says Bill Helming, head of Bill Helming Associates, Olathe, KS. "You're selling less of something at a reduced price. That's the worst of all possible worlds.

"The fundamental problem is the drop in consumer demand. To fix it, you must address the predictability of the eating quality. And you must stress to consumers that a balanced diet of protein and carbohydrates is better for you than eating less red meat."