ISSUES BEFORE US
The American consumer has access to
and enjoys the safest, most abundant, and most
affordable meat supply in the world. That
bounty exists because of a variety of
technological and scientific advances.
But the market works in the meat and livestock
industry also because buyers and sellers of
livestock are not encumbered by artificial
limits placed on their collective ability to
enter into business transactions.
Some protectionist livestock
and farm groups are seeking a number of
restrictions on how livestock are procured by
meat packers. Some people yearn for days
when livestock were only sold through auction
barns or other market sales, rather then
through contracts and marketing agreements,
which have become a normal part of American
business inside and outside of
agriculture. Despite the absence of any
supporting evidence, these advocates apparently
believe that turning back the clock 50 years
will result in higher livestock prices for
producers. Many of these same groups
complain about the policies of U.S. trading
partners but seek to block imported meat and
livestock products that have become an integral
part of the way the North American meat
industry operates.
Provided below
is a reply to several of the policies currently
being supported by those who seemingly wish to
turn back the clock to 1960 for the American
meat industry.
Topics
- Prohibitions on Contracts/Marketing Agreement
- Spot Market Mandates
- Banning Packers' Ability to Own Livestock
- Mandatory
Country-of-Origin Labeling
Issue: Legislation has been introduced that would restrict the ability of producers and packers to enter into agreements by which the producer would sell his or her livestock to the packer. This legislation would restrict the use of successful marketing arrangements, including formula-price contracts, which have proven beneficial for both producers and packers.
Position: We oppose
any legislative effort to ban or restrict the
use of marketing arrangements and
contracts. These marketing arrangements
have economically benefited producers and
packers, while helping retailers provide their
customers with a variety of abundant and high
quality meat products at affordable prices.
The market is competitive.
Packers
and producers are increasingly entering into
marketing arrangements that involve the packer
agreeing to assume some portion of the risk
associated with livestock production in
exchange for the producer agreeing to raise the
animal to meet certain quality characteristics
and to deliver that animal to the packer.
Many critics confuse and use
interchangeably the terms “packer-owned” and
“captive supplies.” According to 2006
USDA data, beef packers directly own 6.9
percent of the cattle they process, a number
that has been stable and largely
inconsequential.
In the case of cattle,
again according to USDA’s definition, “captive
supplies” include packer-owned animals, animals
under forward marketing agreements, and animals
under marketing agreements outside the 14-day
window. According to 2007 USDA data,
total captive supplies account for about 44
percent of the cattle trade.
Correspondingly, about 56 percent of cattle
trade in the spot market.
In the
case of hogs, less than 10 percent are traded
on the cash market, with somewhere in excess of
90 percent of hogs obtained by packers through
committed procurement arrangements with
producers. These procurement agreements
include forward contracts, marketing
agreements, long-term supply commitments, risk
management agreements, and shared risk
agreements.
Most existing
marketing contracts would become
illegal.
The
legislation that has been introduced suggests
that formula-price contracts are
anti-competitive. However, no economic research
on legal proceedings has ever found this
assertion to be true. Formula price
arrangements exist to facilitate the transfer
of animals from seller to buyer without
requiring negotiation of each
transaction. This practice reduces costs
on both sides, thereby enhancing
profitability. Formula prices based on
broad markets in terms of geography and time
are very difficult to manipulate, leaving
formula-priced hogs priced accurately relative
to the negotiated market on the day of the
transaction.
The legislation introduced
attempts to place tight restrictions on future
delivery of cattle and hogs following the date
of the contract, while also limiting the number
of cattle or hogs covered by a single
contract. Such restrictions would impose
new costs on cattle and hog producers by
increasing the paperwork burden attendant to
marketing their livestock. In addition,
because of additional risk, such legislation
also would restrict the ability of some
producers to gain access to credit and would
increase the cost to other producers that would
still for
credit.
Let the competitive marketplace
work.
Legislation that would
ban the use of successful marketing
arrangements and contracts, all under the
banner of eliminating “captive supplies,” would
significantly disrupt the marketplace. In
essence, such a ban would amount to Congress
telling producers how they have to sell their
livestock and packers how they have to purchase
livestock and the benefits that such marketing
arrangements provide to everyone throughout the
food chain--consumers, producers, and packers.
Spot Market
Mandates
Issue:
Legislative efforts to set minimum percentages
for spot market livestock purchases are
unworkable. Although proposals vary in
their details, typically such proposals would
require that 25 percent of cattle or pigs be
purchased on the spot market either daily or
over a period of
weeks.
Position:
We support a producer's right to choose legal
means of selling livestock, whether these sales
occur in the spot market or through a variety
of available marketing agreements or forward
contracts with meat packing companies.
Like so many modern, efficient U.S. industries,
the livestock and meat industries rely on a
variety of contract arrangements to ensure a
steady flow of the livestock needed. This
certainty benefits livestock producers, as well
as meat packers. Legislation
mandating that a specified percent of livestock
purchases occur on the spot market is an
unnecessary interference in the marketplace
that will limit a producer's ability to manage
his risk and a packer’s ability to procure the
kind of livestock the company needs and when
the company need it.
Producer choice must be
protected.
Producers choose a
variety of approaches to selling their
livestock. Many choose contracts with meat
packing companies as a steady source of income
and an asset against which they can secure
credit to improve and grow their businesses.
According to USDA, approximately 56
percent of cattle and 10 percent of pigs are
currently traded on the spot market.
Legislation has been introduced that
would mandate that beef and pork programs
purchase a minimum of 25 percent of their
capacity in the spot market over a fixed period
of time, e.g., daily, weekly, 10 days, etc.
.
Imposing such a restriction could
result in days that a producer may be
prohibited from delivering all his animals sold
under a contract or other marketing agreement
on a given day because that particular plant
needed to satisfy its 25 percent spot market
requirement.
Companies would likely
have to limit their ability to offer contracts
and risk management services to
producers. This limitation likely would
be in the range of 60-65 percent of plant
capacity to ensure a cushion so that that
during a given period the supply variability
would not push the processor over the 75
percent limit.
The meat
industry should have the same procurement
options as other
industries.
Other industries
like auto manufacturing, for example, work
almost entirely on contracts and procure very
few inputs in spot market transactions.
Forcing a certain percentage of
producers to sell their livestock on the spot
market is like telling restaurants that they
must buy 25 percent of their food at the local
farmer's market and hope the market on that day
has what they need to prepare what they offer
on their menus.
This concept is simply
contrary to the free enterprise principles on
which American business is built.
Some
plants entire business models would be illegal
because they are currently entirely vertically
integrated.
Small and niche
producers stand to suffer
more.
This proposal would
disproportionately affect a smaller producer.
Because of the need to limit hog contracts, for
example, to no more than 65 percent of total
capacity, processors would most likely choose
to work with the largest, most efficient
producers, limiting their exposure to risk by
dealing with the unpredictability of so many
smaller operations.
Producers and
processors who have aligned to serve particular
markets, such as organic or natural, with
particular products would see their investments
and innovations negatively
affected.
Banning Packers’
Ability to Own
Livestock
Issue:
Some meat packers raise and own some of the
livestock they process to help them manage
their input supply flow. In addition,
many packers contract for a certain type of
livestock to be delivered on a certain day in
the future. Legislation now before
Congress would prohibit a packer from owning
livestock, forcing the meat packer who owns
livestock to choose between being a packer or a
livestock producer. Should the company
choose to be a packer, the company would have
to divest its livestock holdings. The
legislation also would prohibit the standard
business practice of contracting for raw
materials, which in the case of the meat
industry is
livestock.
Position:
We oppose legislative efforts to prohibit meat
packers from owning or contracting for
livestock because it is an unnecessary
interference in the marketplace and would
reverse the progress in meat production, which
has created a meat supply that is among the
safest, most abundant and most affordable
anywhere in the world.
The
market works.
The U.S. meat
and poultry industry is the envy of the world
because it has responded successfully to
changing consumer demand in the U.S. and in
export markets.
Americans spend less of
their disposable income on meat and poultry
products than any other nation in the world,
and yet they have choices and quality that
people in most nations only dream about.
We support free market principles that
allow the U.S. meat and poultry industry to
respond to its customer and consumer
demands.
Brands are built on
consistency.
Increasingly, the
U.S. meat and poultry industry has shifted away
from a commodity marketing approach and toward
branding. Brands are built on
consistency, which requires a consistent supply
of raw materials. A branded orange juice
that is sweet one week and sour the next won't
attract repeat business. The same
principles apply to branded meat products.
Packers choose to own some or all of
their livestock to ensure a steady, adequate
supply of the type of livestock they need for
their product mix, e.g., whether the livestock
are fed in a particular way, raised as organic,
or have other unique quality
profiles.
Packers also may
contract for livestock to ensure they have a
steady and manageable livestock supply that
keeps their plants operating at the desired
capacity.
Company-owned cattle and hogs
are a safety net, enabling the plant to
guarantee to a retailer that it will have the
same volume and quality product every
day. Without this supply certainty,
processors and producers will see their brands
at risk.
A ban on packer
ownership and marketing agreements will
increase volatility in market and risk to
producers and packers.
A ban on packer ownership of livestock
would be detrimental:
- The only way that consumers can be assured the availability of specific, popular products (“Angus Certified, Natural, Grass-fed) is if packers are able to secure a certain percentage of cattle that are able to meet those specifications well in advance of the cattle being ready for slaughter.
- “Value added marketing” ─ such as branded products ─ has significantly raised the value of beef. In order for these products to be at the stores consistently, packers need to be able to secure the cattle in advance through packer ownership.
- Producers would be forced into volatile market conditions and lose the benefits of risk sharing. Contracts also are assets to livestock producers and give them access to credit to help grow and improve their operations. Prohibiting this important practice is like turning the clock back on progress.
- A major success for the U.S. meat industry, particularly for pork, has been the growth of exports. Many exports are tailored for specific export tastes and market demands. This legislation would hinder continued export growth by limiting this essential coordination between producers and packers.
Legislation unfairly targets red meat industry.
Artificial restrictions and limitations focused solely on the red meat sector of the food economy distort and disrupt market signals and would put meat products at a competitive disadvantage with other sources of protein.
Notably, the poultry sector, which is essentially 100 percent vertically integrated, would be unaffected.
American business has been built on the hard work and team work in an unrestricted market.
Telling a member of the agriculture industry that he can raise animals or process them but not both is inconsistent with free market principles.
It's like telling a Vermont dairy farmer that he cannot make cheese or a California grape grower that he may not make wine.
Mandatory County of Origin Labeling (COOL)
Issue: Legislation mandating Country of Origin Labeling (COOL) was enacted as a part of the 2002 Farm Bill and was amended substantially in the 2008 Farm Bill. The law went into effect on September 30, 2008, and the final rule implementing the law became effective March 16, 2009. COOL mandates that country of origin information, through signs, labels, etc., is required regarding certain fresh meat products, such as steaks, ground beef, and pork chops, as well as certain fresh chicken products that are sold in retail stores. Meat and chicken products sold in restaurants, as well as processed products, are exempt from the law.
Position: We remain concerned that mandatory COOL will present significant logistical and legal problems. We believe this law is unnecessary and will have a negative impact on the entire supply chain for a number of reasons, including:
Claims that consumers want or are willing to
pay more for information on product labels
about where animals were born, where they were
raised, and where they were slaughtered so far
have not proven accurate.
Mandatory
country of origin labeling is a multi-billion
dollar anti-import law aimed at making it so
difficult to label meat and livestock sourced
from outside the U.S. that American meat
companies will source livestock and meat only
from U.S. sources.
Those who procure
animals originating in other nations such as
Canada face the increased costs associated with
complying with the law’s burdensome
requirements.
Mandatory COOL is
seen by our major trading partners as an
impediment to trade and they have filed a
complaint with the World Trade Organization
(WTO). Labeling programs implemented by
the U.S. should comply with our nation's
obligations under the WTO and NAFTA and not
invite unnecessary trade disruptions for U.S.
meat exports.
In January 2010, AMI
filed comments in response to a December 4,
2009, Federal Register notice. AMI told
the Office of the U.S. Trade Representative
that mandatory country-of-origin labeling
violates the United States’ international trade
obligations for many reasons and that the U.S.
must honor these obligations.
To
read the comments, click here:
http://www.meatami.com/ht/a/GetDocumentAction/i/56354.
For
more information, go to http://www.countryoforiginlabel.org/
