Dodging a bullet

by Steve Kay
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It takes a lot of angry livestock producers to sway a federal agency. This, in a nutshell, is what has happened to the US Dept. of Agriculture’s attempt to impose new restrictions on the way livestock and poultry are marketed in the US.

USDA stunned the industry in June last year when its Grain Inspection, Packers and Stockyards Administration (GIPSA) unveiled a rule that threatened to upend 30 years of progress in the red-meat industry to equate cattle and hog prices with carcass quality. The proposed rule only came about because of loud and emotional cries from fringe groups for USDA to “rein in the big, bad packers.”

GIPSA Administrator Dudley Butler, who had previously helped chicken growers sue poultry processors, happily complied with their demands. His big mistake, though, was that he and two fellow authors wrote a rule that went way beyond what Congress, in the 2008 Farm Bill, had asked USDA to do. Congress wanted USDA to focus only on five poultry practices. Instead, the rule proposed all kinds of restrictions or conditions on livestock marketing practices and threatened to upend years of agreements between packers and livestock producers.

This made the vast majority of beef and pork producers so mad they began a ferocious battle to have the rule withdrawn or radically rewritten. Producers large and small spoke to the rule’s potential damage to their businesses and to the industry. They even persuaded an unprecedented bi-partisan coalition of members of Congress to criticize USDA. The result was that in early November, USDA said it had sent a much-watered-down, final rule and an interim final rule to the Office of Management and Budget (OMB) for review. On Nov. 17, the House and Senate passed a 2012 federal spending ‘minibus’ bill that included language blocking USDA from implementing controversial reforms to livestock and poultry marketing. The spending bill includes language prohibiting USDA from continuing or finalizing work on certain provisions of the proposed rule on livestock and poultry marketing and procurement that was proposed by the GIPSA in June 2010.

It’s not over
The battle, however, is not over. The livestock industry has dodged a bullet for now, as USDA left nearly all livestock provisions out of its final and interim final rules. It also says it is no longer pursuing several provisions contained in the proposed rule, including the section on packer-to-packer sales and packer buyers and the records retention section. However, it intends to re-propose three livestock provisions at some point, it says. These provisions are: elimination of the competitive injury requirement; unfair, unjustly discriminatory and deceptive practices; and undue or unreasonable preferences or advantages.

USDA says GIPSA needs more time to provide additional clarity on these provisions before modifying and re-proposing them. Observers say USDA appears particularly sensitive to the many comments GIPSA received about the risk of increased litigation between producers and packers as a result of the proposed rule. GIPSA will re-propose the provisions in one rule and seek additional comment. A new economic impact analysis will accompany the re-proposal, USDA says.

USDA notified industry groups Nov. 3 of its intention to publish a final rule and an interim final rule. It provided more details in a briefing the next day. Significantly, Anne MacMillan, senior advisor to Agriculture Secretary Tom Vilsack, held the briefing, and Butler, who co-wrote much of the proposed rule, was not present. USDA Chief Economist Joe Glauber also attended the meeting, along with other GIPSA and Office of General Counsel personnel, according to the National Meat Association (NMA).

The final rule contains poultry provisions required by the 2008 Farm Bill (the sections related to suspension of delivery of birds, additional capital investment criteria, breach of contract and arbitration), in addition to a section on swine and poultry sample contracts. The interim rule contains a modified version of the section on poultry tournament systems and will be open to additional public comment. The rule will not prohibit tournament systems, USDA says.

One of the ironies of USDA’s move is that it put the cost to the industry of its final rule at $70 million and approximately $25 million for its interim final rule. So, the two rules combined have a cost of less than $100 million, below the level which would have required a comprehensive economic analysis. USDA carried out such an analysis after demands from industry and members of Congress. But it would not have needed to do so had the proposed rule been as narrow as Congress intended.

Significantly, USDA says decisions about what to include in the final and interim rules and how to modify the contents were guided by the comments received and by the updated cost-benefit analysis. This suggests that USDA’s own comprehensive analysis of the proposed rule calculated a cost far in excess of $100 million. A study conducted by Informa Economics for NMA put the cost of the proposed rule at $1.643 billion. The beef industry alone would lose $880 million, according to the study.

USDA’s Glauber, in fact, told the briefing with industry representatives that USDA relied a lot on the Informa study to conduct its new economic impact analysis, as well as other studies submitted by the livestock and poultry industries and the RTI study conducted for GIPSA. Glauber reportedly said no one submitted comments on the proposed rule, which quantified the benefits that would result from a final rule. USDA did not attempt to quantify the benefits because of the difficulty in doing so. But the final rule would reflect USDA’s belief that the benefits will outweigh the costs, he said.

OMB has until mid-December to review USDA’s two rules, but USDA expects the review to be less than 45 days, NMA says. GIPSA intends to publish the two rules at the same time so that both have the same effective date. The two rules will become effective 60 days after publication in the Federal Register.

During this 60 days, GIPSA plans to hold workshops and webinars to assist the industry in complying with the new regulations, says USDA. GIPSA will also ask for additional comments on the interim final rule. Based on these comments, further modifications to the rule might be made, likely after the effective date, says USDA.

Opponents of the originally-proposed GIPSA rule cautiously welcomed USDA’s move, which gave the livestock industry one of its most successful lobbying efforts in decades. Supporters, not surprisingly, sharply criticized USDA. The Western Organization of Resource Councils said it was appalled that USDA has diluted the final fair livestock market rules so significantly. USDA and the Administration have let down independent farmers and ranchers, says WORC.

It is time for USDA to act in implementing the GIPSA rule, notably the section on competitive injury, said the National Farmers Union. The competitive injury definitions address the fundamental problems that have plagued the livestock and poultry industries, it said. Another fringe group even claimed that fed beef packers manipulated the live cattle market the day after news of USDA’s final rule came out. This claim appeared absurd. But it and other comments suggested the battle over the GIPSA rule is not yet over.

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