Monday, September 1, 2014

New Livestock Rules Could Change Balance of Power

06/21/2010

Daily Yonder The USDA said that one reason for a new set of rules aimed at shifting power away from large packers was to stem the decline of independent livestock producers.

The Obama Administration issued rules late last week that could bring the most significant reforms to the livestock industry in nearly 100 years.

The proposed rules would provide poultry growers with new protections in their relations with large companies. They would make it easier for livestock raisers to sue the industry giants that control the nation’s meat markets. The rules, proposed by the U.S. Department of Agriculture, would also help level the playing field for small livestock raisers who have been squeezed out of business in the last few years.

The rules announced by Ag Secretary Tom Vilsack amount to the “most aggressive, significant livestock market reform to come out of Washington, perhaps since the passage of the Packers and Stockyards Act (of 1921) itself,” according to John Crabtree of the Center for Rural Affairs. 

The rules will be published Tuesday by the USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) and could be altered before they are adopted formally in the fall. The USDA’s official release on the rules can be found here

The USDA’s attention to market fairness and competition in the livestock industry comes in response to decades of agitation among producers and a rapid decline of independent livestock raisers.

The USDA reports that there were over 666,000 hog farms in 1980 but only 71,000 today. In 1980, there were over 1.6 million cattle farms and ranches, but only 950,000 today.

Meanwhile, farmers are receiving an increasingly smaller portion of the dollar American consumers spend for meat. Hog producers received 50% of the retail price of pork in 1980, but get only 24.5% today. The share of the retail dollars going to beef producers has dropped from 62% in 1980 to 42.5% today. (See charts below.)

Poultry growers receive 34 cents a bird, according to the USDA, while the processing company earns $3.23. 

Farmers groups have long contended that the decline in independent producers is a direct result of anti-competitive practices by the handful of meat producers that dominate the industry. Congress, in the 2008 Farm Bill, directed USDA to consider new rules that would address these concerns. The Daily Yonder The new rules bear the mark of J. Dudley Butler, the new administrator of the Grain Inspection, Packers and Stockyards Administration. Butler has been an outspoken supporter of independent livestock raisers.

"I think it's fair to say that what we're proposing is aggressive," Secretary of Agriculture Tom Vilsack said in an interview with The Associated Press. "The reality is, the Packers and Stockyards Act has not kept pace with the marketplace ... Our job is to make sure the playing field is level for producers."

More significantly for rural America, the USDA’s actions show that the agency sees market consolidation and unfair competition as a major impediment to surviving in the business of agriculture.

“As this market has become more consolidated and vertically integrated for efficiency’s sake it lends itself to unfair practices and practices that are not particularly transparent,” Vilsack told the New York Times. 

The goal, he said, is to promote “a fair and more transparent relationship between the folks on the farm and the businesses that are packing and processing what’s raised on the farm.”

The rules address persistent complaints coming out of rural communities. For example, almost all chickens are raised under contract to large companies. (There is no market for independently produced chicken.) Chicken producers are often required by the companies to make large investments without any guarantee that contracts will be extended beyond the current crop of birds. [error processing image tag] The Daily Yonder Farmers have been receiving a diminishing share of the consumer dollar spent on chicken, pork and beef.

“The integrator companies refuse to purchase birds from independent growers,” wrote economist C. Robert Taylor and attorney David Domina, in a report produced for the Organization for Competitive Markets.  “They break them. In poultry the choice is stark: Sign the handcuffing contract offered, or get out of the business through bankruptcy. Once one enters the life of a grower, the trap is closed: high capital costs and large debt to enter the business, no input on product price, no market in which to sell goods and no way out except bankruptcy if the integrator ‘dumps’ the grower.”

A USDA study in 2001 found that 84% of contract poultry growers were required to make investments in facilities or equipment.

The ruled that will be published Tuesday address a number of concerns of poultry raisers. They would require companies to give growers at least a 90-day notice before suspending chick deliveries. They also require companies to guarantee growers the opportunity to cover 80% of the costs of new investments required by the meat companies. Companies would be required to publish contracts it signs with growers. And the rules would prohibit meat companies from requiring growers to give up certain legal rights as the requirement for obtaining a contract. For instance, contracts now require growers to give up the right to a jury trial.

Independent hog raisers would be given protection from advantages routinely given to large producers. According to the Center for Rural Affairs’ John Crabtree, packers routinely pay up to 10 cents a pound more to the largest hog producers. 

"These sweetheart deals for large-volume producers have become commonplace, but no less a violation of the act," Crabtree told reporter Robert Pore of The Grand Island Independent. "Six cents per pound may not sound like much of a discount, but, for a family farmer with 150 sows in a farrow-to-finish operation, it amounts to receiving $56,000 less annually for hogs of the same quality, simply because he markets fewer hogs. In the end, that's what this rule needs to put an end to.” 

The proposed rules also make it easier for livestock producers to sue meat producers for damages under the Packers and Stockyards Act. Recent appeals court rulings have overturned jury verdicts awarding independent farmers millions of dollars for violations of the act.

 “As a result of these overturned jury decisions, the Packers and Stockyards Act was relegated a toothless tiger,” said Max Thornsberry of the cattlemen’s group R-CALF, adding, “U.S. cattle producers were left without any recourse from the highly concentrated meatpackers’ exercise of monopoly-type power, which enables them to capture profits that should be flowing to independent cattle producers.”   The Daily Yonder Meanwhile, fewer firms control a larger proportion of the business of agriculture.

Thornsberry said the “provisions in the proposed rule are monumental and represent a genuine effort to reverse the ongoing loss of competition that has ravaged Rural America for well over a decade.”

Not everyone was happy with the USDA’s proposals. The American Meat Institute’s Mark Dopp said the “USDA is attempting to turn the clock back on the livestock and meat marketing practices that have made the U.S. meat production system the envy of the world and that have delivered the most abundant and affordable meat products available to the American consumer.”

Dopp said the USDA’s proposed rules have been rejected by several federal appellate courts. He said the USDA is “engaging in a regulatory end-run and attempting to change the law through administrative fiat.”

The National Cattlemen’s Beef Association’s president, Steve Foglesong, said the more conservative organization of ranchers had “serious concerns with any efforts to increase government intrusion in the marketplace…. NCBA will fight to protect the use of contract and alternative marketing arrangements in the cattle industry to satisfy the demands of our consumers.”

Both AMI and the National Chicken Council, which represents poultry processors, intimated that they may seek to challenge the new rules in court.

The rules bear the mark of J. Dudley Butler, who became administrator of the Grain Inspection, Packers and Stockyards Administration just over a year ago. Butler, from Mississippi, is an attorney and farmer.

Butler’s official biography says the GIPSA administrator has consistently worked on both the state and national level to protect the rights of farmers and ranchers to ensure that family farms and rural America continue to prosper.” 

One independent cattle producer wrote, “I welcome this new sheriff to town.”

The new rules proposed by USDA are separate from the investigation by the federal Department of Justice into antitrust violations across the business of agriculture, from seed production to supermarkets. That inquiry is ongoing.