The beef-buying policies of a few large supermarket chains keep retail meat prices artificially high while driving down the prices paid to cattlemen for their livestock, according to an analysis presented here to a state legislative investigating committee.
University of California economist James H. Cothern said that a detailed study of beef marketing practices showed that consumer prices are 6 to 10 cents higher than they would be in an "open market," while the prices paid to livestock producers were 4 to 6 cents lower than they would be in such a market.
The analyis was praised by State Sen. John Garamendi, chairman of a subcommittee that has spent several months investigating food-pricing policies in California, the nation's leading agriculture state.
"Traditional economic notions of supply and demand no longer govern the price of beef in California," Garamendi said. "Instead, there is frightenning evidence that a few large corportration are able to totally dominate the market and set the price."
Cothern's analysis focused on the policies of Safeway, the nation's locading supermarket chain, but it also discussed those of A&P, Kroger, Lucky and Winn-Dixie. He said his analyis of the price effects of supermarket policies included a study of several Eastern cities, including Washington, and that his figures would be "roughly applicable" in Washington.
Safeway disputed Cothern's analysis and Garamendi's conclusions. Safeway is the dominant chain in the West, where it is the leading supermarket in 15 states. It has 2,438 stores nationally, including 500 in California and 130 in the Washington metropolictan area.
Because of the continuing drought, the sitution for cattle producers is percarious throughtout the West. The cattle industry is California's leading agricultural money-maker, with 5 million cattle on 15,000 ranchers face economic extinction unless the drought eases and wholesale beef prices increase.
Cothern said that the prices large firms are willing to pay for beef are heavily influenced by the Daily Market and News Service, known in the industry as a pricing guide. By buying certain deliveries likely to be sampled by the yellow sheet at a very low price - a practice known as "low-balling" - beef buyers can establish a low wholesale price for cattle, Cothern said.
Safeway denies using the yellow sheet to determine the price offer it will accept. The firm maintains that wholesale beef prices are low because of overproduction.
Robert Minch, a former meatpacker, told the committee earlier that Safeway's buying of choice beef set the market for other chains on the West Coast. Minch said that packers would call Safeway each Wednesday and offer to supply cattle the following week at a price they thought the supermarket would accept.
Minch said that Safeway's buying impact was so great "that the trend would be set and the world would be out before nightfall, not only to every packer, but to every feedlot." The other chains usually would following day, he said.
Safeway and other chains declined repeated invitations to testify before Garamendi's subcommittee. A Safeway official said the reason was that the company faces class-action lawsuits alleging that it has conspired to keep wholsale prices down and retail prices up. The plaintiffs might gain information from the testimony that they could use in court, the official said.
But W.S. Mitchell, president of Safeway, said through a spokesman that his company purchased only 2 to 3 per cent of the beef sold in markets nationally and was unable to control wholesale prices.
"it is Safeway policy to purchase beef at the prices quoted by packers without negotiating for lower prices," Mitchell said.
Garamendi said that the pattern his subcommittee has found in beef prices extends to other commodities. A study completed several months ago contended that supermarkets maintained artificially high prices on fresh fruit that had no relation to wholesale prices.
At a time that supermarkets were buying peaches for five cents a pound, Garamendi said, they were selling them for 50 cents a pound, 10 times what they paid.