Competitive issues, polarizing views
October 14, 2010
Will the rule proposed by the US Dept. of Agriculture’s Grain Inspection, Packers and Stockyards Administration result in more or less competition in the meat industry? Last month, a New York Times editorial supported the rule as an effort by the Obama Administration to bring back competition in an industry where four processors – JBS, Tyson, National Beef Packing and Cargill – control 80 percent of the business in the fedcattle slaughter and processing industry.
For years, there were arguments between processors and cattle producers over steps taken by larger meat packers to lower competition in the industry. Some producers have seen procurement contracts and similar arrangements as more beneficial to meat processors than them. Four years ago, this led to a hearing in the U.S. Supreme Court after some cattle producers had won a $1.25 billion lawsuit against Tyson Fresh Meats for using these procurement arrangements to knock down fed-cattle prices in the market.
But for a long time, most producers felt they were on the outside looking in when dealing with the big processors. Now they may get some relief, with the publishing of proposed rulemaking by the USDA’s GIPSA making changes in the Packers and Stockyards Act. The new rules were proposed as a result of the 2008 Farm Bill, which requires the federal agency to fix specific problems in the livestock and poultry industries.
The Packers and Stockyards Act has existed since 1921 to promote fair competition, payment protection and guard against fraudulent and deceptive trade practices in the livestock and poultry markets. Advocates say the new rulemaking would help producers by creating a more balanced and transparent marketplace and protect producers from retaliation and coercion from big processors.
For example, a producer should be able to speak freely against wrongful treatment by a processor without threat of losing their contract. Smaller producers could compete against larger ones, rulemaking advocates say, and producers making large capital investments in animal agriculture would be protected from further debt.
USDA says the new rules are needed due to increasing consolidation and vertical integration in the livestock and poultry-processing industries. According to the rule, “This level of concentration and vertical integration increases the possibility packers, live poultry dealers and swine contractors may engage in unfair practices undermining a producer’s ability to compete freely in the marketplace.”
Due to consolidation and concentration, USDA adds, there are fewer buyers with whom producers can conduct business. The rule also provides for the Secretary to consider whether terms are offered to producers or growers who can meet the same contract requirements as larger producers, when deciding whether an undue or unreasonable preference has taken place. Although processors will not be required to do business with smaller producers, big processors and large producers think the proposed GIPSA rule will hurt meat and poultry processors, as well as producers.
“We are confident that USDA – Department of Justice Workshops will show what dozens of analyses by the government and universities have concluded repeatedly – that the U.S. meat and poultry industry is dynamic and competitive and livestock and poultry procurement practices, including marketing agreements and forward contracts, are legitimate,” said Mark Dopp, American Meat Institute senior vice president of regulatory affairs and general council.
AMI says a long list of groups have asked to withdraw the proposed GIPSA rule, while proponents represent “a minority view.” Dopp notes attempts to prove these agreements and contracts afford undue preferences have been rejected by eight appellate courts.
The National Pork Producers Council says the rule “will have a chilling effect on innovation and flexibility and violations will include practices that don’t diminish competition.” The National Cattlemen’s Beef Association says the rule’s effect in opening cattle markets to trial lawyers is not in the best interest of the marketplace or of producer profitability. And the National Chicken Council says the regulation was drafted to satisfy a small number of activist growers, and will not enhance the business of the great majority of broiler producers who are satisfied with the current system.
Implementing the rule is being pushed by the Ranchers-Cattlemen Action Legal Fund/United Stockgrowers of the USA and other smaller groups, rivals to large groups of producers like NCBA. Comments are being accepted by USDA until Nov. 22.
At the same time, the Mandatory Price Reporting Act of 2010, reauthorizing mandatory price reporting programs run by USDA, has become law. The law requires livestock sales information to be reported and published publicly on a timely basis.Bernard Shire is M&P’s Washington correspondent, contributing editor and feature writer based in Lancaster, Pa. He also works as a food safety consultant and writer for Shire & Associates LLC.