“USDA is attempting to turn the clock back on the livestock and meat marketing practices that have made the U.S. meat production system the envy of the world and that have delivered the most abundant and affordable meat products available to the American consumer,” says Mark Dopp, American Meat Institute (AMI) senior vice president of regulatory affairs. “Courts have affirmed that our industry is dynamic and competitive and have rejected USDA’s arguments repeatedly. Now, in the face of repeated judicial rejection of their arguments, USDA is engaging in a regulatory end-run and attempting to change the law through administrative fiat. This is not an appropriate role for USDA to play and could potentially cause harm and enormous disruption.”
Dopp is referring to the recently proposed rule by USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) – reported in the June 22 BEEF Stocker Trends – which USDA says improves fairness in the marketing of livestock and poultry.
According to the National Meat Association (NMA), the sweeping new USDA proposal would upset the market and business relationships of small and independent packer-processors nationwide.
Among the many proposed changes, packers would be banned from selling livestock to other packers, producers would not have to prove competitive harm to make anticompetitive allegations and private contracts would be made public on GIPSA’s website as soon as 10 days after the terms had been settled.
NMA representatives say these restrictions and criteria could stifle normal business operations. They also point out these restrictions and criteria have been rejected by federal courts and are contrary to a free and open market.
Though the rules are aimed at packers, in effect, they also prohibit producers from freely entering into marketing agreements with customers, in this case the packer.
“Many of the proposed changes appear to be in response to unsubstantiated concerns, while ignoring the results of industry and congressionally mandated studies. Under the guise of balance and transparency, it will cause upheaval and confusion while increasing the costs to the entire market chain. It’s going to have the opposite impact of what is intended,” says NMA CEO Barry Carpenter.
For instance, according to the outline of regulations for the new rule, one of the regulations is entitled "Undue or unreasonable preferences or advantages; undue or unreasonable prejudice or disadvantages." The regulation reads: “Establishes criteria the USDA Secretary may consider in determining if an undue or unreasonable preference or advantage, or an undue or unreasonable prejudice or disadvantage has occurred under the Act. For example, it could be a violation of the Act for a packer or swine contractor to offer better price terms to producers who can provide larger volumes of livestock than to a group of producers who collectively can provide the same volume of livestock of equal quality and it cannot provide a legitimate justification for the disparity. Please note that this provision would not require packers to purchase livestock if their needs are already satisfied or impose a public utility duty to deal with all sellers.”
All the examples offered by USDA for marketing practices deemed to be unfair appear to come directly from producer comments made at various meetings. For instance, relative to the regulation cited above, USDA posed the question: What does it mean when a producer cannot find a market due to undue or unreasonable preferences in the marketplace? The answer comes from a producer at a GIPSA town hall meeting in 2008: “In one case, a Midwestern packer was offering a higher price to an individual producer who could deliver full truckloads of livestock. A group of producers approached the same packer and offered collectively to provide a full truckload of like livestock, but the packer refused to offer the same price terms to the group of producers.”
That’s it. There’s no mention of why; if true, the above might be the case, differences in transaction costs, or that buyers and sellers each are supposed to have the prerogative to trade with whomever they want, however they want.
“NMA has already called upon GIPSA to provide proof that the complaints the agency referenced in the proposal as the basis for change have any validity,” Carpenter says.
“While we’re still looking at the details of the proposal, in general, we have serious concerns with any efforts to increase government intrusion in the marketplace,” says Steve Foglesong, president of the National Cattlemen’s Beef Association (NCBA). “Cattle producers support free-market principles and we deserve the right to enter into private negotiations between willing buyers and sellers – just like other sectors of American business. NCBA will fight to protect the use of contract and alternative marketing arrangements in the cattle industry to satisfy the demands of our consumers.”
“Courts have affirmed that our industry is dynamic and competitive and have rejected USDA’s arguments repeatedly,” Dopp says. “Now, in the face of repeated judicial rejection of their arguments, USDA is engaging in a regulatory end-run and attempting to change the law through administrative fiat. This is not an appropriate role for USDA to play and could potentially cause harm and enormous disruption.”
Keep in mind, the proposed rule was issued before USDA and the U.S. Department of Justice completed their much-publicized Competition Workshops. The one for beef and cattle is scheduled for Aug. 27 in Fort Collins, CO.
“We rely on federal regulators to ensure that the marketplace is free from anti-trust, collusion, price fixing and other illegal activities that could damage the viability of the market and interfere with market signals. Multiple studies have shown that the current regulations in place have been successful in achieving these goals in the cattle market. NCBA has been a long-time leader in advocating for full enforcement of the Packers & Stockyards Act and tools, such as mandatory price reporting, that improve the efficiency and transparency of the marketplace,” Foglesong says. “At the end of the day, we’re not just cattle producers, we’re beef producers; and the success of our business relies on our ability to meet specific consumer demand at the local retail meat case, while at the same time get rewarded for the value we add to our cattle.”
For more info about competition in the meat industry, including a compilation of the studies and reviews that have been done during the last two decades, visit www.themarketworks.org/. For more info about the proposed GIPSA rule, see www.gipsa.usda.gov.