Red Meat Competition

The Obama administration is out to shake things up in agriculture. The series of joint Department of Justice (DOJ)/USDA workshops being held around the country are about "our nation’s founding ideals of fairness and equal opportunity," Attorney General Eric Holder told an overflow crowd at the livestock issues forum in Fort Collins, Colo., in late August.

"I want you all to know that the Justice Department is committed to fulfilling its responsibility to take appropriate enforcement action when a merger or other activity threatens to erode competition," Holder said. The department’s refusal to allow the merger of two of the country’s four largest meatpackers last year "was only a small step," added Holder, who led the workshop along with Secretary of Agri-culture Tom Vilsack and other government officials.

Upwards of 1,300 people jammed into a room at Colorado State University and spilled into overflow rooms to hear a debate on hog and cattle industry concentration. The program involved panel discussions and question-and-answer sessions, with remarks from the crowd limited to two-minute "open mike" comments allotted by drawing.

There was a clear division in the room. Consolidation has been brisk in both industries, and there is no shortage of winners and losers anxious to share their experiences.

The Fort Collins meeting was the fourth of five the administration is hosting to inform its position on competition and regulatory issues in agriculture. Earlier sessions debated concentration in the seed, dairy and poultry industries (Click here for coverage from previous workshops).
   
Players on Deck. The livestock industry has seen marked changes in marketing systems in recent years and watched a lot of producers go out of business. The hog and cattle industries each have a large, historically powerful producer organization—the National Pork Producers Council (NPPC) and the National Cattlemen’s Beef Association (NCBA), respectively—that declares itself devoted to open markets.

Both industries also have smaller opposition groups convinced that the big packing companies are using their access to gain market power and increase their share of the meat dollar. They blame that for the rapid consolidation among producers—by one group’s estimates, more than 90% of the nation’s hog producers have been forced out of business since 1980, and more than 40% of cattle operations have disappeared.

The rift is most visible—and perhaps visceral—in the cattle business, where a segment of outspoken people who bill themselves as "independent cattle producers" have spent years fighting "captive supplies" and concentration.

There are two primary organizations devoted to that goal. R-CALF USA, formed in 1998 to stop the importation of cattle and beef from Canada, and the Organization for Competitive Markets (OCM) have been the most active in pushing competition issues into the limelight. J. Dudley Butler, who was appointed by Vilsack to head the Grain Inspectors, Packers and Stockyards Administration (GIPSA), is a former member of R-CALF and a founder of OCM.

"Ultimately, our conversation is about much more than simply last year’s trends or this year’s challenges," Holder told the Fort Collins crowd. "It is about your livelihoods, your families, this region’s economy, and our centuries-old American way of life. It is about our nation."

From the outside, the hearings seem to be designed to gather grassroots input to tackle market concentration issues in agriculture in an effort to rejuvenate and repopulate rural America.

Secretary Vilsack and DOJ representatives indicated they see resolving market competition in agriculture as one way to reverse the downward trend in rural populations. Vilsack also spoke about broadband and rural development. But he, Holder and Assistant Attorney General Christine Varney made it clear they consider enforcement of antitrust laws and aggressive regulation a way to help rural America "recover."

"None of us believes that antitrust enforcement is the solution to every problem" in rural America, Holder said. "But it is a solution, and it is part of our larger, government-wide commitment to championing pro-consumer principles that promote competition in agriculture."

One more meeting, to be held in December in Washington, D.C., will center on the farm-retail price spread. This workshop will look at the discrepancies between the prices received by farmers and the prices paid by consumers.

New GIPSA Rule Meets with Controversy

USDA’s proposed rule to amend the Packers and Stockyards Act was the buzz at the recent government workshop on livestock competition. The rule would place new restrictions on the way packers purchase cattle and hogs and help reverse the trend toward "captive supplies." Such a move would force more cattle back into the open cash market and increase competition between buyers.

Supporters like R-CALF president Bill Bullard spoke at the workshop about how packers use captive supplies to increase market risk. As more producers sign into contracts, the cash markets become thinner and more easily manipulated, he said. Bruce Cobb, head of Consolidated Beef Producers (CBP), is convinced the level of captive supplies and contracted cattle is interfering with his members’ ability to market cattle. CBP is a cooperative that markets more than a million cattle per year, mostly in the cash market. Cobb said that in many weeks, one or more of the major packers is "out of the market" because of their contracted cattle. That puts selling pressure on feeders, and packers seek out the feeder in "the weakest position" to establish prices.

Opponents of the new rule, however, said it will only hurt livestock producers and consumers. The National Cattlemen’s Beef Association (NCBA)claims the rule’s requirement to report and justify contractual purchases could result in packers becoming "risk averse" and stopping marketing agreements with producers. "Without marketing agreements, all cattle could be valued on the average, regardless of quality, resulting in a generic product," according to Colin Woodall, NCBA vice president of government affairs. "History has proven that generic products do not meet consumer demand. Without consumer demand, prices to producers fall."

Top Producer, October 2010