Report From Fort Collins: Beef, the Law and Rural Communities

David Domina and Robert Taylor review the complex, contentious state of the livestock business, and DY follows federal hearings on livestock rules in Ft. Collins, CO.

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There are a number of ways to follow what’s happening in Fort Collins today. AgWired has has rigged up a live feed (something DOJ and USDA were unable to do). Find it right here. You can also follow twitter posts from Chris Clayton of DTN, AgriBlogger, Jamie Folsom, and Ron Hays.

And below I’ll add some notes during the day as we collect information here at DY Central:

The final panel of the day is the most interesting. These guys know what they are talking about and they aren’t mincing words. Representatives of the packers are saying that concentration of business has really not changed in the last 15 years and that all the talk about concentration “is a bit of a red herring.”

Those on the other side (particularly attorney David Domina) are saying concentration matters a lot. Especially where people live. In some regional markets, they say, there is only one buyer. “All cattle selling is local,” Domina said, and the current market often provides only one buyer — and as a result, no competition on price. Very good session. 4:30 pm CDT

The afternoon panel is losing focus. There’s talk about expanding markets, the estate tax, old jokes about the need to marry a rich woman. What does any of this have to do with competitive markets? There was discussion earlier about the need for reform of the entire food chain, from the retailer (ie, Wal-Mart) to the rancher. But this session didn’t provide much new — to me at least.

Jamie Folsom tells us that R-CALF is reporting that 1,800 people are attending the session. There are four overflow rooms. 3:45 pm CDT

Just finished over an hour of public testimony. Lots of opinions.

A South Dakota livestock owner said, “If we don’t have a market, nothing else matters.” A North Carolina hog producer says that her contracts are “fair and equitable” and that she doesn’t “want my private business publicized on a USDA website.” (The GIPSA rules call for “sample” contracts to be made public.) A Nebraska rancher wanted enforcement of country of origin labeling. Another gentleman said that if terrorists wanted to ruin the livestock industry, they would implement the GIPSA rules. So we were all over the map. Public testimony now. An eastern hog producer is telling the panel that the proposed GIPSA rules would limit his abilities to compete — that buyers ought to have the opportunity to pay different producers different prices based on service and quality. He’s referring to a proposed rule that would require packers to justify different prices paid to different producers. 2:45 pm CDT

The UFCW representative was followed by Bill Bullard of R-CALF. Bullard contended that the packers are trying to gain full control over the beef market, just as they have done with chicken and pork. Bullard contends that one strategy of the packers is to create “market access risk.” That is, packers create uncertainty as to whether producers can sell their cattle when they want to. That market access risk forces farmers and ranchers to sign contracts, to get rid of the risk.

(The conflict between Bullard’s view of the world and the hog producer’s is a major one.) 2:10 pm CDT

A member of the United Food and Commercial Workers Union made an anti-Wal-Mart pitch. “Wal-Mart is driving the change in the food dollar” that’s hurting ranchers, small feed lot owners and workers, he said. “They take too much and give us too little,” he went on. “You’ve got to do something about Wal-Mart. If you don’t, the other changes won’t mean much.” Very tepid applause. 1:55 pm CDT

AgWired notes that the United Food and Commercial Workers Union is passing out a sheet titled “Ending Walmart’s Rural Stranglehold.” The union has been supporting the more populist portions of the livestock business. The UFCW represents workers in meatpacking plants. A union official will be on the program this afternoon. Lots of union members at this hearing. 1:30 pm CDT

Chris Petersen, the Iowa hog producer, said contract growers are paid a 6 cent a pound premium over independent producers selling the same quality meat. Petersen says this amounts to $56,000 for a typical producer, which he says was “equal to an off farm job.” “We don’t need a whole slice of pie.” Petersen said. “We just need fairness and equality.” 12:30 pm CDT

I think it was Haynes from Wyoming who said there was a jump in cattle prices in the spring. “The only reason for that, Mr. Secretary, is that you scheduled this hearing,” he said. HUGE roar. 12:15 pm CDT

How many people are at the hearing. One news story said 2,000. A more accurate account from our Yonder correspondent on the ground finds that it’s closer to 1,500 — 1,100 in the main room and then more in an overflow room. Pretty big crowd. 12:10 pm CDT

Again, if you want live access to the hearing, go to AgWired, here. They are doing a great job. Noon CDT

Dr. Taylor Haynes, a Wyoming rancher, says the market lacks family-sized feed lots. Gets a huge applause. The point he’s making is that there is a whole series of consolidations, all of them affecting rural communities and businesses — from the consolidation of retail, to the consolidation of meat producers, to consolidation of feedlots. They are all connected, Haynes says. Much applause. Noon CDT

We’ve moved into a panel of producers and the language is getting clearer — as are the issues. (These folks say what they have to say and that’s it, a welcome relief.) A South Dakota rancher just said he has two buyers for his cows. The crowd gave a hearty cheer for Chris Petersen, an Iowa hog producer, who talked about the 1970s when he had packers calling him for hogs. And he brought down the house when he said that the one thing the market needed was a regulation that would “ban the packers from owning livestock.” (11:50 am CDT)

Okay, enough with the pols. They are talking about broadband and delivering platitudes about staying on the farm. Somebody now is telling us that it’s a “great big country.” The good thing is that people really see this issue as being related to the future of rural communities. The bad thing is that elected officials have a tough time shutting the pie hole. Okay, now breaking. (10:55 am)

Colorado AG John Suthers says that most of the complaints he has received from cattle raisers “have revolved around consolidation.” That’s why, he said, Colorado intervened against the merger of JBS and National Beef. That merger, Suthers said, would have forced prices down for beef producers. (10:35 am CDT)

Best line of the day, so far, comes from Montana AG Steve Bullock, who says that maybe the GIPSA law needs a “new set of dentures.” (10:20 am CDT)

These meetings all begin with mind-numbing remarks from elected officials. Lots of thank yous, welcomes, stories about this and that. Oh, finally we’re now on to the issues. (10:20 am CDT)

DOJ antitrust attorney Christine Varney: “I don’t know what the answer is, but I sure know there is a problem.” (10:10 am CDT)

It’s interesting in his opening remarks, USDA Secreary Tom Vilsack ties the health of livestock markets directly to the health of rural communities as a whole. He really understands this as a general rural development issue, not just an arcane issue of antitrust law. (10 am, CDT)

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Editor’s Note: We’ll be covering the Department of Justice/Agriculture hearing on the livestock market in Fort Collins Friday as best we can. Jamie Folsom is at the event taking photos and “tweeting” for the Yonder and for NewWest.net. As new information comes in, we’ll post it, so keep checking Friday and over the weekend for new information. Below is an excerpt from a report Restoring Economic Health to Beef Markets by attorney David Domina and economist Robert Taylor.

By David Domina and Robert Taylor

Concentration in major markets for agricultural products is dramatic.

In beef, four firms control at least 83% of all beef slaughter in the United States. They buy cattle in settings displaying even more control, leaving the true cash market very thin, with little or no negotiation occurring between a handful of powerless sellers against fewer powerful buyers. Packers have “chickenized” swine production so pervasively that the cash market for hogs is only a razor-thin fraction from complete disappearance.

These anticompetitive markets deliver processed foods to consumers and retailers by using market power to demand higher prices; this causes price increases for consumers.

Meatpackers use market power against producers to keep them from receiving a fair share of the cost of food. The highly concentrated structure of the American food processing markets drives producer prices down dangerously, while increasing consumer costs unnecessarily and unfairly, and reducing consumer choices.

This same concentration drives producers from the farm and ranch, deprives businesses of essential customers in rural communities, and contributes to the ghoulish abandoned look of too many buildings in too many towns in too many places across rural America. Citizens and the national character ache for what has been, and is being, lost.

Monopsony power exists where too few consumers of raw goods control the market and can engage in the practice of “under-demanding” their full need, thereby creating an artificial impression and causing sellers of perishable goods to accept unfair lowered prices. Major ag markets are controlled by companies with monopsony power.  

Anticompetitive market power is wielded against beef producers in several ways. These include: capturing cattle and pork supplies long before slaughter; withdrawing from the market; bidding only on a controlled basis for only a few minutes a week for beef; and refusing to negotiate at all for pork.

AgriBlogger
The R-CALF forum Thursday night had a good crowd.

Further, packers appear to divide territories or feed yards, control delivery times, pay producers on carcass quality terms known only to the packer since the producer does not participate in the pricing-relating grading process, change specifications, impact commodities markets by their domination, bid to create an illusion of market interest but not to buy, and own cattle and feedyards directly.  

For pork producers, the choice is even more stark. Producers must contract hogs well in advance or risk not having an outlet for “ripe” perishable, ready-to-sell fed hogs.

The cash market for hogs is largely a figment of history. Its existence is too spotty now to be a real “market” for slaughter-weight swine. 

Livestock producers are thwarted by monopsony buyer market power produced by disparate information, opaque markets, and intensive market concentration.

There are simply too few firms engaged in beef or swine slaughter. The firms that exist do not engage in competitive bidding.

The structure of meat processing is the consequence of two things: failure by public officials to police the markets and demand competition by doing so; and judicial failure to respect undeniable and historical differences between the nation’s general antitrust laws and its particularized laws designed to assure competition among manufacturers of processed beef, pork, broilers and, though different, dairy products.

Consumers are poorly served by existing market structures. The spread between the price paid to producers and the cost paid by the consumer increases steadily as concentration increases in food processing and retailing.

The winners are in the middle—they are the monopsonists. The losers are producers and consumers.  

The monopsony problem is not new to American agricultural, but it is extremely acute early in the 21st century. A hundred years ago a similar problem led to enforcement of newly-enacted antitrust laws and the adoption of the Packers and Stockyards Act of 1921. The effort then was to rid the nation of the monopsony power gripping the agriculture markets.

That same monopsony power is at work again.

We believe the nation must focus on the basic purposes of antitrust laws, which are aimed at business concentration. Antitrust laws serve the fundamental purpose of ensuring freedom of business opportunity. They are not designed to prevent growth, or success. They are designed to prevent monopolies, monopsonies and abuse of market power.  

Abuse of market power against beef producers threatens our family farms and ranches, and forces concentration of lands, cattle, and beef production in fewer hands. Major firms in each of our top food sectors are so large that a failure by any one of them would have major ripple effect across the entire sector, and all of agriculture.  These risks make agricultural market structure, in concentrated hands, a risk to everyone.  

In the long run, the concentration and integration risk will continue to drive food prices up, bring an end to the nation’s affordable food policy and contribute to a rapidly deteriorating agricultural and rural economy. Corrective action is an urgent national need. 

 

 

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