Speer: Settling the Score with “Big Cattle”
Most readers, by now, have seen the news: the Senate Ag Committee recently advanced two bills, including the Cattle Price Discovery and Transparency Act of 2022. Senator Grassley proclaimed his, “…years-long beef with Big Cattle is one step closer to being settled.” All this leaves us with lots of questions.
First, why has the Committee ignored the findings derived from The U.S. Beef Supply Chain: Issues and Challenges? The report is the most current and comprehensive analysis available. I mentioned in a previous column, the report stems from, “collaboration of seventeen ag economists representing twelve land grant institutions.” They’re experienced and accomplished; thus, I also noted the necessity to, “recognize the authors truly are professional experts, they possess meaningful commitment to their discipline, and operate with judicious objectivity. Accordingly, we acknowledge the findings make sense in the real world (regardless of whether we like them or not).”
With respect to fed cattle pricing, it’s useful to highlight some of the report’s key findings (emphasis mine):
- “Innovation via AMAs originated with cattle feeders who were attempting to capture value associated with improved quality.”
- “Reliance on formula pricing significantly reduced transaction costs associated with negotiation and induced predictability in the supply chain.” (For more on these issues see Business First, Market Second.)
- “…price discovery in fed cattle markets is still robust despite the fact that less than 30% of the transactions are negotiated (or cash).”
- “While some argue that imposing mandatory minimums on negotiated (or cash) transactions would improve price discovery in the fed cattle markets – accruing benefits to the cow/calf producer in the process – authors in this book argue it could have the opposite effect, potentially imposing huge costs that are passed down to cattle producers in the form of lower prices.” (In other words, pursuit of “Big Cattle” – capital B, capital C – whatever that means - will likely prove punitive to cattle producers – small C, small P.)
Second, most of this industry tussle really centers around packer margins; did anyone draw the Senators’ attention to last week’s number? Or more significant, highlight the steady, predictable, longer-run trend (see graph below) that’s occurring despite government intervention? The policy is really meant to normalize margins on behalf of producers. However, not surprisingly, that’s occurring without government intrusion. Not to mention, “…little or no accurate information is conveyed by [farmer share] statistics. Consequently, these data should not be used for policy purposes” (Brester et al. 2010).
Third, how did we ever get to this precipice? The land grant coalition answers it best: “…economic research confirms that the benefits to cattle producers due to economies of scale largely offset costs associated with any market power exerted by packers.” But they also explain that’s, “…not necessarily a popular position.” That’s a fitting description; settling the score with “Big Cattle” seems to be more about feeling than fact.
Last, and most important, what about unintended consequences? Dr. Vincent Geloso, senior fellow at the American Institute for Economic Research, notes the importance of understanding the history of misguided government policy (The Ripples of Government Intervention): “…when someone says, ‘what could go wrong’ after proposing a policy intervention, the reply should be ‘a lot that we will only comprehend many years from now.’”
Therein lies the crux of the matter. Policy intervention is never a one-time event (especially when founded on a shaky premise); it feeds on itself – some leads to more and so on. So, be careful what you ask for; you can’t put the genie back in the bottle.
