Remember that bumper sticker from the mid 1970s, when agricultural economics became so disastrous that there were farmers crashing tractors into the local bank in protest? It said: “Don't cuss the farmer with your mouth full.”
For those who believe in free markets, it may be time to roll out a new one along the lines of: “Don't talk competition with your hand out.”
“Outlawing packer ownership of livestock would make sure the forces of the marketplace would work for the benefit of the farmer just as much as it does for the slaughterhouse. You could even say that packer ownership of livestock frustrates and compromises the marketplace so the farmer doesn't get a fair price,” said Sen. Chuck Grassley (R-IA) in January.
Here we go again. Grassley is pushing what he terms a competitiveness agenda for agriculture in the upcoming farm bill. As part of that, he wants legislation to prohibit packer ownership of cattle ahead of slaughter.
Research favors competition
Never mind that numerous studies have consistently agreed that concentration and vertical integration in the beef business — and the marketing agreements spawned by them — have actually allowed prices to remain higher over time than they would have with less concentration. Never mind that such agreements offer producers more opportunities to retrieve more dollars from the product of their labor. Never mind that the system Grassley decries enabled calf prices to climb to historic highs.
The most recent study was completed in February. The $4.5-million “GIPSA Livestock and Meat Marketing Study” was conducted by RTI International at the behest of the industry, including the National Cattlemen's Beef Association (NCBA).
“During debate of the 2002 farm bill, concerns from producers about packer concentration led NCBA members to ask Congress to study the livestock and meat marketing complex,” explains John Queen, NCBA president. “In 2003, Congress authorized $4.5 million to conduct an independent study of the livestock- and meat-marketing complex and provide… a definitive answer on this issue.”
In sum, the study's cattle portion concludes that if alternative marketing agreements (AMAs) — basically anything besides spot market cash transactions, including packer-owned fed cattle and forward contracting — were reduced or eliminated, feeder-cattle producers, feedlots and packers would all make less money, while the consumer would pay more for a product of less quality.
“The cost savings and quality improvements associated with the use of AMAs outweigh the effect of potential oligopsony market power,” says the report. “In model simulations, even if the complete elimination of AMAs would eliminate market power that might currently exist, the net effect would be reductions in prices, quantities, and producer and consumer surplus in almost all sectors of the industry because of additional processing costs and reductions in beef quality. Collectively, this suggests that reducing the use of AMAs would result in economic losses for beef consumers and for the beef industry.” Read the report at www.gipsa.usda.gov.
What the study doesn't mention, though the logic is implicit in a market where producers would be remanded to “the good old days” of average marketing, is that there would be no incentive to do better.
Dollars drive the game
According to Cattle-Fax, high-return producers made $120-$150/cow more than low-return producers from 1980 to 2000; they made $65/cow more than average-return producers.
I'll bet those folks on the top end are anxious to have their opportunity for economic success limited by folks who talk competition while demanding that someone help them compete. Folks on the bottom end would be just as sad because there would be no hope for anything better.
By definition, competition means one guy is going to try to beat another; that there will be winners and losers. Limit or do away with it, and everyone will lose, as this basic freedom becomes a commodity. Maintain it, and everyone has the right to try to win.
Of course, Grassley also wrote President Bush the same month to say he'd: “…oppose any proposals that would negatively impact the growth of renewable fuels, including the tax incentive or lifting the tariff on imported ethanol.”
The tax incentive is 51¢/gal.; the tariff is 54¢/gal. The net devaluation of the cattle industry due to artificially high corn prices supported by these subsidies is only now coming into sight.
Apparently competition is only desirable when you can make up the rules as you go. At least folks of that ilk are consistent in their illogic, no matter how myopic.