How about this familiar scene from American action movies? Punches flying, the hero is mano a mano with the bad guy. Just as the hero gains the upper hand, a well-intentioned buddy grabs a lamp and tries to help him out but ends up braining him instead.
While Hollywood might label this scenario something like “Act III, scene 14,” the beef industry should call it “Farm Bill 2002, Johnson amendment.”
As you're reading this, U.S. House and Senate conferees are likely still wrangling out a decision on whether to include the so-called Johnson amendment in the final farm bill. The Johnson amendment is a measure in the Senate version of the farm bill that would ban the owning, feeding or controlling of hogs and cattle (less than 14 days from slaughter) by packers with more than 2% market share.
Proponents say such practices — by virtue of outright ownership of fed cattle or via production contracts and marketing agreements — depress overall producer market prices for livestock. This happens because packers with a portion of their raw materials already tied up in their pipeline don't bid as aggressively on the open market, they contend.
Most economists, however, say that studies show a very small negative association between captive supplies and producer prices, and the big gains proponents expect are very unlikely. Plus, they add, enacting such a measure would place the U.S. hog and cattle industries at a serious competitive disadvantage to foreign counterparts and the U.S. poultry industry, which would be unaffected by the Johnson amendment.
I'm no economist, but I tend to believe that free markets work best when left alone.
Remember the 1986 Dairy Termination Program that was supposed to dig U.S. taxpayers out of a $6-billion annual hole for surplus milk payments? Most economists warned it wouldn't work, but a tremendous groundswell of support for the idea convinced legislators to pass it.
The result was that U.S. beef producers suffered one of the worst market wrecks ever when culls saturated the beef market. And, as economists had predicted, the program failed to solve the dairy industry's over-production problem.
I relate this story as an example of the havoc that well-intentioned, but ill-conceived, legislative fixes can create.
So, 16 years later, the government is “back to help us.” This time, the Johnson amendment intends to reconstitute the beef industry as it was before the days of captive supply. As you might recall, that was a time when beef demand was at its peak, and two-parent families supported by a single wage earner, with a stay-at-home mom who loved to cook elaborate meals, was the norm.
That “Leave It To Beaver” world no longer exists. And, the beef industry has already paid a high price learning that lesson once.
For two decades, while consumers were increasingly clamoring for tasty, convenient, quick and easy-to-prepare beef products, the beef industry continued to churn out traditional beef products in traditional forms. Beef demand went into a 20-year freefall while the poultry industry addressed consumer desires and dramatically reversed its fortunes.
Over the past three years, the beef industry seemingly had learned the same lessons. Inter-sector cooperation allowed the industry to shift from a low-cost, commodity beef model to one of quality-controlled, convenient products. The beef demand slide leveled out and turned up.
A basic tenet of economics is that healthy markets are those that provide what consumers want. Consumers have made it clear that they want convenient, consistent, quality beef products at affordable prices. History has shown that a traditional commodity beef model can't meet those demands.
Now, after this dramatic progress and billions of dollars spent by producers and packers in building a system that communicates and rewards value, the Johnson amendment comes along. Risking the industry's recent progress on an emotional hunch unsupported by economic study is a bad way to do business and a lousy way to make law.
Does anyone else see a lamp coming toward the industry's head?