August 31, 2010

Fourth DOJ–USDA Workshop Focuses on Livestock Industry, Producer Concerns

An estimated 1,500 people gathered in Fort Collins, Colorado, on August 27, 2010, for the fourth in a series of five workshops focusing on agriculture and competition issues jointly hosted by the Department of Justice and the Department of Agriculture.

With a crowd larger than any of the previous workshops, the day provided spirited debate regarding issues affecting the livestock industry and the ability of cattle and hog producers to earn sustainable returns in the contemporary marketplace.

As they have at previous workshops, Agriculture Secretary Tom Vilsack and U.S. Attorney General Eric Holder kicked off the event. Vilsack's statement that they were there to ensure producers were "getting a fair shake" was the first of many comments that received cheers from the crowd.

Market Concentration and Production Issues Intersect With "Founding Ideals"

Citing market-share data that shows approximately 80 percent of the beef market is controlled by four packers, Vilsack emphasized that concentration within both beef and pork markets has increased dramatically since the 1980s. Holder told the crowd that DOJ officials were there to listen and to learn. He stated that the issues addressed at the workshop were about more than just livestock production, but about preserving the founding ideals of the republic.

Much of the day was spent commenting upon the rules proposed in June by the Grain, Inspection, Packers and Stockyards Administration (GIPSA) to implement the 2008 Farm Bill's directive for rulemaking under the 1921 Packers and Stockyards Act. According to GIPSA officials, all public comments offered during the day will be incorporated into the record on the proposed rules.

Officials Indicate Support for Extending GIPSA Rules Comment Period

Following the opening remarks, Vilsack and Holder were joined by a number of elected officials, including Colorado Governor Bill Ritter, Colorado Congresswoman Betsy Markey, Colorado Attorney General John Suthers, and Montana Attorney General Steve Bullock. Although each official emphasized the importance of ranchers and farmers to the economies of the states they serve, their comments were measured. Several pointed to combined state and federal efforts in 2008 during the Bush administration to block the proposed JBS–National Beef merger as an example of effective antitrust enforcement.

The panel appeared to call for moderation in connection with the proposed GIPSA rules, with the consensus being that extending the comment period into November was beneficial. Concerns were expressed that the final rule needed to ensure that opportunities for value-added marketing, direct-to-consumer marketing, and premium payments to producers not be jeopardized.

Producers Express Divergent Views on Producer-Packer Relations

Holder, joined by Assistant Attorney General Christine Varney, told the crowd that DOJ's role was not that of an agricultural regulator. Instead, DOJ's role is to enforce the currently existing antitrust laws and to be an advocate for competition. Antitrust laws are not a "cure-all" for the problems facing the livestock industry, but in conjunction with other laws and regulations can be an additional tool. Holder also indicated that fairness, not size was the key concern.

The morning continued with a panel of livestock producers. Representing various segments of the cattle, hog and sheep industry, the panelists had widely different views on a number of issues, including the proposed GIPSA regulations.

Concerns were expressed about the increase in concentration in meat packing and retail grocery sales generally, but there was no sustained call for regulation of private contracts between packers and producers. A Wyoming cattle producer received the loudest cheers of the day when he called for a ban on the ability of packers to own their own cattle. By contrast, strong support was voiced by other producers for continued access to the price premiums they were able to obtain through quality differentiation and direct marketing.

One panelist, a cattle producer who operates a six-family, producer-owned packing facility in Colorado, was strenuously opposed to GIPSA's proposed packer-to-packer sales ban. This concern was raised at other times from both hog and cattle producers involved in the production of premium products. Based on precedents in other areas of farm regulation, USDA make take this concern into account and consider exempting smaller operations from the proposed packer-to-packer sales ban.

DOJ officials also called on producers to continue to report problems even after a merger is completed, because "it helps us do a better job next time and may even lead to further action." This reinforces the recent DOJ–FTC trend toward scrutinizing completed mergers and mergers that did not go through the Hart-Scott-Rodino Act filing process.

Concerns Include Market Power of Large Retailers, Proposed Industry Rules, and Rural Economies

The afternoon panels, made up of industry representatives, producers and academics, continued to highlight the varying opinions held within the livestock industry, particularly on the effect of packer concentration and the proposed GIPSA rules. One afternoon panelist, a UFCW union organizer, argued that the producers' focus on packers was misplaced because the real reason producers were receiving lower prices for their products was the market power of large grocery retailers such as Wal-Mart.

This argument was supported by statistics showing that percentages of the food dollar going to both producers and packers had declined, while the percentage going to retailers has risen to displace them. Other panelists agreed that concentration in the retail sector, price margins, access to export markets, and domestic meat demand were issues that needed to addressed, in addition to producers' concerns regarding the packer–producer relationship.

Some producers also expressed concern that USDA and DOJ were potentially "lumping together" the various livestock sectors, even though the dynamics in the cattle industry were very different from those in the poultry market. Unease was expressed that the USDA would attempt to set rules for the livestock industry as a whole that would not appropriately recognize the unique issues facing poultry, hog, and cattle producers.

Factors impacting the rural and small-town economy and the ability to attract younger farmers and ranchers into the livestock industries were discussed throughout the day. For example, the estate tax, access to broadband Internet, cost of environmental regulations, and ability of economic development programs to support the vibrancy of rural communities were all raised throughout the day. While all were concerned about growing concentration among meat packers and the GIPSA rules, there was division about how important this competition issue really was relative to other issues.

Diverse Views Represented in Livestock Producer Community

In addition to panel discussions, opportunity was provided for members of the audience to make public comments about the proposed GIPSA rules that would be incorporated into the administrative record for consideration by the USDA. In contrast to other workshops, where producers generally spoke with one voice, the public comment period demonstrated that a wide variety of opinions exist within the cattle and hog producer community about the wisdom of the proposed rules. Producers who believed that they have been harmed by increased packer concentration voiced support for the GIPSA rules, while producers who have succeeded in selling value-enhanced or premium products opposed the rules because they believed they would limit their ability to receive higher prices for their products.

The public officials' comments at this hearing largely tracked comments at the earlier workshops. More unique were the comments by many of the producer panelists about the importance of preserving their flexibility to work with packers to identify and exploit niche marketing and premium pricing opportunities—and opposition to antitrust or other regulatory barriers to such market-based actions.

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