Pork Crisis Response

It's a Throwback Thursday (#tbt)! This essay is from the Center's archives. It ran in the Center for Rural Affairs newsletter in January 1999, and John is plugging away for an even better rural America.

In recent weeks hog prices have fallen to levels not seen for over 30 years. Taking inflation into account, the value of hogs has not been lower since the Great Depression. Left unchecked, the current crisis in the hog markets will undoubtedly destroy much of what remains of family farm hog production and bring untold devastation to rural America.

As policy-makers, farmers, farm organizations and many concerned citizens grapple with the challenge of how to avert the most dire consequences of this catastrophe, there is an undeniable temptation to focus only on alleviating the pain, anguish, and despair that many farmers feel as they watch their very livelihoods jeopardized by the greed of a handful of corporations. There is no doubt that many family farmers will be forced out of pork production in the very near future. If federal or state governments can create ways to target some type of direct assistance to these same producers for the sake of economic survival we can greatly reduce the loss of producers, but nothing will prevent these times from taking a horrific toll.

As we move forward with efforts to respond to the unfolding crisis we must not lose sight of the fundamental problems in agriculture, and in particular livestock production, that brought us to this point. For far too long, far too many policy-makers at USDA and in Congress have sat idly by while the production, processing, and selling of food has been concentrated in the hands of a few very large, very wealthy, very powerful corporations.

The large meatpackers have continued, without challenge, to acquire smaller packers, often just to shut down the plant and eliminate competition. The same packers continue to feed more and more of their own hogs and rapidly increase their captive supplies through contracts and other non-negotiated sales, leaving smaller producers with a market that lacks even the semblance of competition. In the end, the inevitable outcome has come home to roost, an excess of hogs and family farmers being told they can get $25 (or less) for a 250 pound animal, take it or leave it.

USDA has done virtually nothing to restore competition to livestock markets. The 1996 Packers and Stockyards Administration investigation of hog procurement in the western corn belt was a lesson in meekness. Secretary Glickman has paid lipservice to mandatory price reporting in livestock markets but has ignored his own authority to implement such a price reporting system. 

We must embark on a broad effort to pick up the pieces of family farm pork production and build for the future. If we are to avoid this kind of debacle in the years to come we must do more than save farmers during this crisis; we must change the direction of pork production, reduce risk for family farmers, restore competition in the market, both by challenging anti-competitive behaviors of the packers and by creating new markets that better serve family farmers.

Competition

First, Secretary Glickman must stand up and send a resounding message to the meat industry that livestock markets must be competitive. The clearest message he could send would be to lift the veil of secrecy in hog markets by implementing mandatory price reporting. This will not change the fact that there are too many hogs out there right now, but if the business of buying hogs was brought into the light of day for all to see we could begin the process of restoring competition. If producers, regulators, and the public all have a clear view of what goes on in the markets, it will be much more difficult for the packers to give anyone an unfair advantage.

Once haven taken that first step, we must immediately set out on a path to reduce other anti-competitive forces in the hog market by limiting captive supplies and prohibiting packers and principals in packing companies from owning, operating, managing, or financing custom livestock facilities. Finally, we must develop contract standards to ensure that these and other risk-management tools do not violate the Packers and Stockyards Act.

A New Safety Net

While USDA has recently begun pilot crop insurance programs to cover more crops, insurance is still primarily intended for major commodities and provides no coverage for livestock. This bias toward certain commodities acts as a barrier to and penalizes crop rotation and diversified farming operations. New insurance products should be developed and implemented immediately to cover all crops and enterprises for diversified farms, including those with livestock. Crop rotation and diversification reduce risk; risk reduction and risk management, of course, are and should continue to be primary goals of any crop insurance system.

Any expanded revenue insurance program should be limited to $250,000 of coverage. That amount is the definition of “small farm” used by National Commission on Small Farms, and includes about 94 percent of U.S. farms and ranches. Therefore, nearly all U.S. farms and ranches, and all small operations, would have total coverage. Limiting these programs to small farms and ranches avoids fostering concentration by subsidizing risk for large producers. This is particularly true if livestock is included in the program. We should adamantly oppose an open-ended program that subsidizes the risk of, for example, large industrial hog operations. However, the inclusion of livestock is crucial to many small farmers and ranchers. USDA data show that for the smallest operators, livestock comprises a larger share of income than do crops;  for the “middle-income” operators, crops and livestock provide nearly equal amounts of income. Providing coverage for integrated crop and livestock operations is crucial in order to protect small farmers and ranchers and is a step in the prevention of  further livestock industry consolidation.

Create New Markets

In the long term, as long as the level of concentration in packing, processing, and selling pork goes unchecked, we should expect problems in restoring competition in the markets. Therefore we must create new markets that provide the products that consumers desire, while serving the farmers and ranchers working to raise high quality food and fiber.

Consumer interest in high quality products produced with social and environmental responsibility has been soaring in the past several years. A significant and growing number of people want to use their purchasing power to vote for socially and environmentally responsible production methods.

Tapping these markets will help to revitalize rural communities. Marketing opportunities are particularly promising for crops and livestock produced by owner-operated farms practicing environmental stewardship. Farmers and ranchers will need to work together to tap these new opportunities. Alliances of many people together can provide a consistent supply of high quality products throughout the year, and fill all the roles needed for coordinating processing, accounting, promoting products, and completing a myriad of other tasks.

USDA and Congress have voiced their desire to help family farms and ranches. In order to make good on those promises they must seek ways to return more of the consumer dollar to the farmers that produce the food in the first place. One of the best ways to start is to use federal marketing programs, federal rural development funds, and other funds to foster the creation of new markets that will serve family farmers.

Out of Chaos, Opportunity

When discussing agricultural policies these days it seems appropriate to say that our policy-makers “can’t see the forest for the trees.”  To make matters worse, with the current crisis in pork production it seems as if the forest is on fire. It is precisely at a time like this when we must be concerned and compassionate but steadfast in our support for our vision of rural America. We must demand leadership from Washington, from our states, and perhaps most importantly, from ourselves.