Congress Must Act to Define Fair Livestock Market Competition
In many rural places where livestock are raised there are only a few, or even just one, packer or processor for a given livestock species. Currently, over 80 percent of hogs are either owned outright by packers or tightly controlled through various contracting devices. Many farmers and ranchers face price discrimination and severely limited market access as a result.
The audit of the Packers and Stockyards Administration performed by U.S. Department of Agriculture’s Office of the Inspector General and released in February 2006 revealed that the agency has utterly failed to enforce the very law that gives it a reason to exist.
Senior officials at Packers and Stockyards blocked investigations from being referred to USDA lawyers or the Justice Department and created an illusion of enforcement activity. Over 1,800 so-called investigations were documented between 1999 and 2005. But 1,739 of those investigations could not be traced to a specific complaint, producer, or packer.
Repeated calls for competition reforms from family farmers, ranchers, and their organizations as well as the National Commission on Small Farms, General Accounting Office, and Office of the Inspector General have fallen on deaf ears at USDA.
That is why Congress must act to define the rules of livestock market competition and provide clear direction for USDA’s enforcement. Congress should not let another farm bill go by without making changes in the Packers and Stockyards Act and Agricultural Fair Practices Act that are necessary to foster competition in livestock markets.
Changes to Packers and Stockyards Act
The Packers and Stockyards Act should be amended to:
>> Prohibit packer ownership of livestock more than seven days prior to slaughter.
>> Prohibit use of production contracts that do not fix base prices, with adjustments for quality, grade, or other factors outside of packer control, at the point of sale.
>> Require the Secretary to write regulations defining the statutory term “unreasonable preference or advantage.”
>> Establish that producers need not prove anti-competitive injury to an entire sector in cases involving unfair or deceptive practices which have harmed them individually.
Changes to Agricultural Fair Practices Act
The Agricultural Fair Practices Act should be amended to:
>> Make it unlawful for any firm to refuse to deal with a producer for joining or organizing an association of producers or a cooperative.
>> Prohibit the use of binding mandatory arbitration clauses in livestock and poultry contracts.
>> Expand the prohibition on confidentiality clauses to cover all agricultural marketing and production contracts, not just those for livestock and poultry.
>> Require that contracts include clear disclosure of producer risks.
Although this list is not exhaustive, two of the recommended livestock market reforms stand out. These structural reforms may garner the sternest opposition in the debate over competition policy in this farm bill; but they are also the most crucial.
Prohibiting Packer Ownership of Livestock
Major packers such as Smithfield, Cargill, and Tyson use packer-owned livestock as a tool for exerting market power over farmers and ranchers. This practice fosters concentrated, industrial livestock production, and the environmental nightmares that accompany it.
Packers claim that vertical integration increases efficiency. That is a lie. Small and midsized farms and ranches have demonstrated, time and again, that they can match or beat the cost of production in the packers’ industrial facilities.
Packers use vertical integration and captive supplies to manipulate livestock markets, depressing cattle and hog prices across the board by killing their own when prices are high and turning to independent producers as residual suppliers when prices are low – to the detriment of farmers and ranchers as well as the rural economy and the environment.
Clarification of “Undue Preference”
Packers commonly make unjustified, “sweetheart” deals that provide unfair economic advantages to large-volume livestock producers over small and midsized family farms and ranches. Courts have been unwilling to enforce current undue preference standards. Additional legislative language is needed in the Packers and Stockyards Act to strengthen the law and clarify that preferential pricing structures are justified only for real differences in product value or actual and quantifiable differences in acquisition and transaction costs.
In the end, it comes down to this. In a nation where packers and processors own and control all of the livestock, what need is there of farmers and ranchers? And what hope have we for revitalizing family farming, ranching, and rural communities if we have no hope of revitalizing family farm and ranch livestock production? What hope, if we cannot breathe life and competition back into our livestock markets?
Contact: John Crabtree, johnc@cfra.org or 402.687.2103 x 1010 for more information on competition issues in livestock markets.
The audit of the Packers and Stockyards Administration performed by U.S. Department of Agriculture’s Office of the Inspector General and released in February 2006 revealed that the agency has utterly failed to enforce the very law that gives it a reason to exist.
Senior officials at Packers and Stockyards blocked investigations from being referred to USDA lawyers or the Justice Department and created an illusion of enforcement activity. Over 1,800 so-called investigations were documented between 1999 and 2005. But 1,739 of those investigations could not be traced to a specific complaint, producer, or packer.
Repeated calls for competition reforms from family farmers, ranchers, and their organizations as well as the National Commission on Small Farms, General Accounting Office, and Office of the Inspector General have fallen on deaf ears at USDA.
That is why Congress must act to define the rules of livestock market competition and provide clear direction for USDA’s enforcement. Congress should not let another farm bill go by without making changes in the Packers and Stockyards Act and Agricultural Fair Practices Act that are necessary to foster competition in livestock markets.
Changes to Packers and Stockyards Act
The Packers and Stockyards Act should be amended to:
>> Prohibit packer ownership of livestock more than seven days prior to slaughter.
>> Prohibit use of production contracts that do not fix base prices, with adjustments for quality, grade, or other factors outside of packer control, at the point of sale.
>> Require the Secretary to write regulations defining the statutory term “unreasonable preference or advantage.”
>> Establish that producers need not prove anti-competitive injury to an entire sector in cases involving unfair or deceptive practices which have harmed them individually.
Changes to Agricultural Fair Practices Act
The Agricultural Fair Practices Act should be amended to:
>> Make it unlawful for any firm to refuse to deal with a producer for joining or organizing an association of producers or a cooperative.
>> Prohibit the use of binding mandatory arbitration clauses in livestock and poultry contracts.
>> Expand the prohibition on confidentiality clauses to cover all agricultural marketing and production contracts, not just those for livestock and poultry.
>> Require that contracts include clear disclosure of producer risks.
Although this list is not exhaustive, two of the recommended livestock market reforms stand out. These structural reforms may garner the sternest opposition in the debate over competition policy in this farm bill; but they are also the most crucial.
Prohibiting Packer Ownership of Livestock
Major packers such as Smithfield, Cargill, and Tyson use packer-owned livestock as a tool for exerting market power over farmers and ranchers. This practice fosters concentrated, industrial livestock production, and the environmental nightmares that accompany it.
Packers claim that vertical integration increases efficiency. That is a lie. Small and midsized farms and ranches have demonstrated, time and again, that they can match or beat the cost of production in the packers’ industrial facilities.
Packers use vertical integration and captive supplies to manipulate livestock markets, depressing cattle and hog prices across the board by killing their own when prices are high and turning to independent producers as residual suppliers when prices are low – to the detriment of farmers and ranchers as well as the rural economy and the environment.
Clarification of “Undue Preference”
Packers commonly make unjustified, “sweetheart” deals that provide unfair economic advantages to large-volume livestock producers over small and midsized family farms and ranches. Courts have been unwilling to enforce current undue preference standards. Additional legislative language is needed in the Packers and Stockyards Act to strengthen the law and clarify that preferential pricing structures are justified only for real differences in product value or actual and quantifiable differences in acquisition and transaction costs.
In the end, it comes down to this. In a nation where packers and processors own and control all of the livestock, what need is there of farmers and ranchers? And what hope have we for revitalizing family farming, ranching, and rural communities if we have no hope of revitalizing family farm and ranch livestock production? What hope, if we cannot breathe life and competition back into our livestock markets?
Contact: John Crabtree, johnc@cfra.org or 402.687.2103 x 1010 for more information on competition issues in livestock markets.
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