Concerned parties debate proposed G.I.P.S.A. rule
August 30, 2010
by Meat&Poultry Staff
WASHINGTON – Mark Dopp, American Meat Institute senior vice president of regulatory affairs and general counsel, addressed competition issues and a new rule proposed by the Grain Inspection, Packers and Stockyards Administration (G.I.P.S.A.) during the Aug. 27 U.S. Department of Agriculture-Department of Justice Competition Workshop. The panel also included five livestock producers, an auction owner and an attorney.
Moderator James MacDonald of the U.S.D.A.’s Economic Research Service quizzed panelists about the extent to which economies of scale matter in the meat industry.
“Economies of scale matter very much in this business,” Dopp said. “A plant that kills 1.7 million head annually is 5% more efficient than a plant that kills 1.3 million head and 12% more efficient than a plant that kills 950,000 head. It’s not surprising that companies started looking for ways to become more efficient.”
Dopp added he objected to continuing references to an “increasing” concentration ratio, saying that the four-firm concentration ratio in the fed cattle slaughter business has been at the same level since 1995. “The idea there is increasing concentration in the fed-cattle industry is a red herring,” he said. “Since 1995, that number hasn’t moved much at all.”
Attorney David Domina suggested that somehow large beef plants were less safe, Dopp replied, “I take issue with your food-safety comments. When E. coli was declared to be an adulterant, the incidence rate coming out of plants was 1% and now it is .1%. To suggest that the packers aren’t doing a good job with E. coli O157 is just not true.”
James Herring, president and chief executive officer of Friona Industries, responded to arguments by producers complaining about the fairness of premiums paid by some packers to some producers.
“I’m not embarrassed to say that I’m chasing a premium every single day,” he said. “I’ve heard a lot of commotion today about vertically aligned production systems. Don’t let anyone ever tell you that livestock are the same because they are wrong.”
Mr. Herring said there are $400 variances in any pen of cattle traded on the commodity market. “All we are trying to do is mine those differences,” he said.
Beef demand has everything to do with the pricing and value of cattle, said William Rishel of Rishel Angus in Platte, Neb. He further noted that between 1980 and 1998 beef demand was cut in half.
“This year, the Certified Angus Beef [C.A.B.] program will sell 785 million lbs. of product,” he added. “Everyone has experienced some value from that program. There is consumer demand that pulled that product through the system. It hits the target for what is salable.”
Domina argued for greater transparency in pricing and argued for a return to auctions. “Why won’t the packers establish the price in a visible market? Why is it always reported strictly as history?” he asked.
“One of the reasons is willing buyer, willing seller, in a private transaction,” Dopp said. “This is not the government’s role,” he continued, referencing A.M.I.’s objection to the proposed G.I.P.S.A. rule’s requirement that contract terms be disclosed.
“It would be nice to have U.S.D.A. provide some referees for the cattle market,” said Robert Mack, a cattle producer and feeder from South Dakota.
Dopp replied, “Seems to me that the referees are there. In G.I.P.S.A.’s annual report, there is an extensive discussion about the agency’s elaborate price analysis program. They analyze virtually every transaction on a weekly basis and they take actions when anomalies are observed. I would suggest that the referees are there and they are doing their job. They have not found anything.”
During the panel, Dopp objected to the fact that the G.I.P.S.A.-proposed rule contradicts numerous rulings from eight appellate courts. “The most recent ruling was on May 10,” he added. “The quote was ‘the tide has become the tidal wave.’ You may not agree with it, but let’s have that debate not through some bureaucratic fiat but rather in the halls of Congress where it belongs.”
Earlier in the day, a number of producers alleged cattle prices increased because U.S.D.A. was holding the workshops and that these are a deliberate attempt by packers to make the markets look better.
Mark Lauritsen of the United Food and Commercial Workers argued that industry structure hurts union employees, during a panel on trends in the livestock industry. He quoted a joke made earlier in the day by Agriculture Secretary Tom Vilsack, who said that putting packers and producers in a room is like a firing squad that stands in a circle.
“When you stand in that circle, you put U.F.C.W. members smack dab in the middle,” Lauritsen said.
During the open microphone period, attendees whose lottery tickets were selected lined up to convey their opinions about competition and the G.I.P.S.A. rule in particular. They included:
- A North Carolina pork producer who contracts with packers, who said, "I take strong exception to the notion that the government needs to come in and check on my private-business contract."
- One cattle producer said: "I’m not about to apologize for getting a premium for a product that is superior to others."
- Mark Smith from the Kansas Livestock Association said, "We are asking that U.S.D.A. do a serious economic analysis of all that can happen with these rules."
- A cattle feeder from the Texas Panhandle, with an interest in a small packing plant, said: "As I understand the rule, at the point that I become defined as a packer, I’ll have to send 80,000 cattle to our packing plant displacing 80,000 cows. Small and large producers are going to be damaged. I sell cattle to packers. I’m not limited in what I do. I have a choice. I choose to do that. It’s good for my business. What I see going on here is a government attempt to interject themselves in free markets by telling me when and how I can merchandise my cattle." He called the proposed G.I.P.S.A. rule, "An opportunity for trial lawyers. It’s going to really interfere with our business."
- Paul Engler, founder and chairman of Cactus Feeders, likened the G.I.P.S.A. rule to a plan conceived by terrorists to destroy the industry.