Speak Your Piece: From the Heart and Hip

It used to be that farm communities in Missouri and Iowa were vibrant. That was back when farmers received a fair price for their products. The lack of a true market for farm goods is strangling rural America, according to Missouri hog farmer Jim Foster.

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(Editor’s Note: Jim Foster was the first farmer picked to speak at a workshop held by the federal Department of Justice in its investigation of antitrust violations in the agriculture business. Foster is a Missouri hog farmer. This is his testimony, given in Ankeny, Iowa, March 12. To read other testimony submitted to the DOJ on competition in the ag sector, go here. To see video from a meeting held the day before protesting business concentration in ag, go here.)

Thank you, Secretary Vilsack, Attorney General Holder, Assist. Attorney General Anti-Trust Christine Varney for inviting me speak about my concerns regarding the hog industry in America at this historic event.

I am convinced, Mr. Secretary, that this is not a dog and pony show and that you are serious and I appreciate that.  

I won’t bore you with the history of my 55 years of non-stop work in the hog business, but I will get to the message.  I plan to speak from the heart and shoot from the hip about the serious trend we are in.

My concern is not for me but for my kids and grandkids.  Making sure they can pursue the American Dream as my wife and I have.  Believe me, hog production is real close to the poultry model whereby you participate by invitation only!

As I drove up here yesterday I remembered back as to what I saw traveling that same highway in the early 1960s going to Austin, Minnesota, to show hogs.  I saw homebuilt hog shelters on lots of the rolling hills of Missouri and southern Iowa with sows having new litters.  I saw barns across Iowa with concrete pads out front and 50 to 100 calves on feed.  I saw veterinarians at work with their catch chute, feed trucks delivering feed, implement dealers delivering a new manure spreader or feed grinder.  I saw real economic growth all over north Missouri and southern Iowa.  

Fast-forward to today and I see weeds growing through the cracks in concrete lots where cattle and hogs were fed.  I see silos torn down or empty for years.  Remains of those portable hog houses are seen stacked, rotting in a back field.  Very little human activity in what was once a thriving economic model can be seen.  

What happened? Perhaps we were taken in by those pushing the theories of the Chicago School of economics. We were told that the biggest, toughest, boar at the trough deserved to be the last one standing.  No matter who got rooted out or even gashed, or killed economically by his tusks, he deserved to win because he would be the most efficient and that efficiency would be passed on to the consumer.  

Daily Yonder
Jim Foster, addressing a meeting of the Organization for Competitive Markets in St. Louis, Missouri, August 2009.

That Chicago School is hogwash!  The recent economic, global meltdown is the most vivid, costly disaster caused entirely by that thinking.  “Too big to let fail” became the buzz word.  Will the biggest of our packers and food retailers finally reach that level?  If so, our food security is really at risk.  What is the true, real cost of so called cheap food?  I’m glad to read in the Illinois Agri-News that a leading proponent of that Chicago economic theory, a civil court judge, has done a 180 degree turn around after watching our biggest banks fail.  

I’m here today to tell you our current price-discovery system for finished cattle and hogs is absolutely broken. Not cracked or weakened—BROKEN!

Ninety percent of all market-ready hogs are on the packer’s doorsteps with little competitive bidding!  They are hogs owned and raised by him or promised months in advance, unpriced, with the promise to the producer he will receive a certain dollar figure above the corn belt average the day of delivery.  This is the way most of the huge packers operate, thus leaving 10% of their kill, sometimes even less that they have to bid competitively.  That 10% (or less) then establishes that Corn Belt price on which the other 90% are based.

That 90% packer-owned captive supply really gives the packer assurance he won’t have to be an aggressive bidder.  With all the big packers doing this, price discovery is destroyed.  

In reality, with 90% of his kill already in his possession he is actually buying from himself.  Would a city administrator who owns a paving business be allowed to contract his own company to do 90% of the city’s streets? Absolutely not. This would be unfair advantage or preferential treatment.  He’d be history!

Let’s read Section 202 Part B of the Packers & Stockyards Act:  “It shall be unlawful for any packer with respect to livestock, meats, meat products, or livestock products to give any undue or unreasonable preference or advantage to any particular person or locality in any respect whatsoever, or subject any particular person or locality to any unreasonable prejudice or disadvantage in any respect whatsoever.”

How could the packers who on a daily basis purchase approximately 90% of their kill from themselves not violate Section 202? NO WAY!

Market manipulation by packer-fed cattle was confirmed in 1994 when a large packer addressed the Kansas Livestock Association.  He told that packers use company-owned cattle to fill their needs when prices are up, thus staying out of the bidding, but buying others’ cattle when prices are low.

I remember back when I was a kid, some Sunday evenings about dusk five or six neighbors’ trucks with parking lights on would be waiting in line to pitch in and load my neighbor’s fat cattle to go caravan-style to the East St. Louis Stockyards.  The owner stayed overnight to watch his cattle sell. He had 15 or 20 commission firms from which to choose to represent his cattle or hogs to a vast number of packers, six or more major ones in St. Louis.  

Daily Yonder/Economic Research Service
Farmers are getting a diminishing portion of the amount spent by consumers on beef.

Packers couldn’t own cattle or hogs more than 14 days ahead so there was really no captive supply hanging over our heads.  We really had true price discovery. Our farms and communities thrived.

Then in approximately 1979 the agreement packers made in 1920 was thrown out. In the 1980s packers built massive pork complexes and feed yards for themselves and by the late 1980s farmers were exiting hog and cattle feeding in droves.  That has continued through this day. We still witness the shriveling up of our rural communities and economic base.  Since 1980 we’ve lost 91% of hog operations, 41% of all cattle operations, and 80% of our dairy farms.  Since 1996 we’ve lost 30,000 of our feedlots under 1,000 head capacity.  We are a net importer of beef!

Instead of identifying the real causes of rural decline and tackling them we constantly hear “phony” ideas of how we are to survive and prosper:  

1. Kill a pig, get it processed and sell it off the tailgate of your pickup at the farmers’ market. 

2. Promote agritourism, haul city folks around, let them feed the pigs and help milk the cow.

3. Offer bed and breakfast.  (I’m not poking fun at those who do these things; I applaud them. But lots of luck paying for a farm and paying your health insurance doing it.)

4. Pay more check-off dollars so we can promote more exports.  (Reality: Pork exports have gone through the roof for two years but hogs until recent weeks stayed in $30s low $40s. Hog producers only get 25 cents of the retail dollar for a year’s work.  Cattle producers only 42.7 cents for their two years’ work. Reality: Cattle prices reached all time high in 2003 when nearly all our exports stopped because of the mad cow incident.  Our cattle prices skyrocketed with nearly no exports because Canadian imports also stopped.

5. Promote Free Trade Agreements. Records show that the 20-year cumulative U.S. beef trade balance with our 17 trade agreement countries is a whopping negative $37.6 billion. This has proved anti-competitive to our domestic producers.

Recently Ron Plain, noted swine economist with University of Missouri who has studied trends for years, said we may need to return to the previous model of hog production, where hogs are raised on the farm that raised the corn and tended by the family on that farm.  The last two years put severe losses on those buying corn and labor. Only if we re-invent price discovery can that be a reality!

Another noted swine economist says tomorrow’s pork producer must:

1. BE BIG.

2. BE GOOD.

3. HAVE DEEP POCKETS.

There’s no way my grandkids can fulfill all three!  They probably can be real good!  This should allow them to compete. They should have market access with comparable prices. Size and deep pockets should have no bearing on their right to participate. Remember this America! 

Current hog and fat cattle market access is getting really limited.  No way should we be forced into the poultry grower model of contract growing by invitation only and by borrowing half a million dollars.  

I know our stockyards won’t reopen and everyone need not have chickens, pigs, and a milk cow on their farm, but I hope some creative ideas can come about to re-invent competitive markets so that my grandsons and daughters can sell their products at a profit.

I want to personally thank you, Mr. Secretary, for standing firm on Country of Origin Labeling (COOL).  I want to thank the Packers & Stockyards enforcers for the changes already made and those forthcoming. And I especially want to thank you, Christine Varney, Anti-Trust Enforcer, for your success, along with the 17 state attorneys general, in preventing JBS Brazil from purchasing National Beef.  I personally see the results close to home in that my friends in adjoining counties have three packers bidding on their cattle instead of two.  Three is not nearly enough, but it is a whole lot better than two.  Again, I thank you all for these already historic steps taken and look forward to improvements in the future.  

 

Topics: Ag and Trade
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