Some protectionist livestock and farm groups have sought a number of new restrictions on how livestock are procured by meat packers. Many yearn for days when livestock were sold in auction barns rather then through contracts and marketing agreements, which are a normal part of American business inside and outside of agriculture. Even absent any supporting evidence, they believe that this will result in higher livestock prices for producers.

These same groups seek to block imported meat and livestock products that are part of the way the North American meat industry operates.
           
The market works. And it has delivered the safest, most abundant and most affordable meat supply in the world. These protectionists need to stop living in the past and instead be part of American agriculture's efforts to feed our nation and the world.            
Below are the misguided policies they advocate and information about why these mandates will only harm American agriculture and consumers.

Topics

• Mandatory Country-of-Origin Labeling
  
• Prohibitions on Contracts/Marketing Agreement
  
• Spot Market Mandates
  
• Banning Packers' Ability to Own Livestocks
  
• (Un)Fairness Mandates
  
• Special Prosecutor

Mandatory County of Origin Labeling

• Issue:  Legislation in the 2002 Farm Bill mandates labels on some meat products that would declare where an animal was born, where it was raised and where it was slaughtered. Only some meat products (not poultry products) are covered and only those sold at retail. Still, government cost estimates show this law will cost billions to implement and the Office of Management and Budget says it is one of the most expensive regulatory proposal it has ever reviewed.   Implementation has been delayed twice and is now scheduled for September 30, 2008.  

• Position:  We support repeal of the mandatory country of origin labeling statute passed as part of the 2002 Farm Bill and replacement of it with workable, economically viable labeling options that are based upon consumer demand. This hugely expensive law duplicates existing import labeling requirements, aims to restrict the import of certain products and will disrupt the cooperative efforts among members of the North American meat industry to compete globally.

Mandatory country of origin labeling in the 2002 Farm Bill is an unnecessary add-on to existing import labeling requirements.

• The United States has had mandatory country of origin labeling for years in the form of import labeling required on all finished products imported into the U.S. from other countries.
• Advocates of this legislative mandate have no basis for their 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.

The real purpose of this labeling scheme is not to convey meaningful information. The labels are like bricks in a wall between the U.S. and other livestock and meat producing nations.

• If the language in the 2002 Farm Bill truly were about a consumer right to know, why do consumers have the right to know all this detail about red meat (but not poultry) about fresh meat (but not processed), about peanuts (but not walnuts or pecans) and about foods sold at retail (but not restaurants)?  A close look at the commodities covered by this legislative language reveals that this is a politically charged law not one to benefit consumers.
• Mandatory country of origin labeling as written in the 2002 Farm Bill 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 in the U.S. only.
• Those who do procure from other nations will face the increased costs associated with complying with the laws burden some requirements. Either way, consumers will pay more.
• Once country-of-origin labeling takes effect, trading partners are expected to file complaints under NAFTA and the WTO. Any labeling program put in place should comply with our nation's obligations under the WTO and NAFTA not invite unnecessary trade disruptions for U.S. meat exports.

Consumers have not expressed a demand for these extensive and costly labels.

• For years, the International Food Information Council has tracked the public’s desire for additional food labeling and found that that a vast majority are satisfied with the information currently provided. In the June/July 2006 survey, 82 percent of consumers could not think of any information “not currently included on food labels” that they would like to see added. Of those that would like additional information, most identified nutrition information and ingredients as their top choices. No consumer mentioned country of origin labeling. This finding has been consistent since the question was first asked in 2001.
• Many other studies also show that price, quality and freshness are the key drivers – not labeling of any kind.

For more information, go to http://www.countryoforiginlabel.org/

Prohibitions on Contracts/Marketing Agreements

• Issue:  Legislation has been introduced to place restrictions on captive supplies of livestock. 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 benefitted producers and packers, while helping retailers provide their customers with a variety of abundant and high quality meat 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 the livestock in exchange for the producer agreeing to raise the animal to meet certain quality characteristics, and to deliver those animals to the packer.
• Many critics confuse the terms “packer-owned” and “captive supplies”. According to a February 2002 Purdue University analysis, beef packers directly own only 5 to 7 percent of their supply--a number that has been stable and largely inconsequential.
• In the case of cattle, captive supplies include packer-owned animals, animals under forward marketing agreements, and animals under marketing agreements outside the 14-day window. Total captive supplies account for about 30% of the cattle trade. Correspondingly, about 70% of cattle trade in the spot market.
• In the case of pork, about 10% of hogs are traded in the spot market. Of the remaining 90%, 25-30% are considered “packer-owned”. The remainder would be animals produced through one of any number of forms of marketing agreements. These agreements include long-term supply commitments, risk management agreements, and shared risk agreements.

Most existing marketing contracts would become illegal.            

• The legislation suggests that formula-price contracts are anti-competitive. However, no economic research on legal proceedings has ever found this to be true. Formula prices exist to facilitate the transfer of animals from seller to buyer without requiring negotiation of each transaction. This reduces costs on both sides thus 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 bill 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 place significant new burdens on cattle and hog producers, particularly those full-time producers who would face a tremendous growth in the time spent marketing their livestock each year.

Let the competitive marketplace work.

• Legislation attempting to ban the use of successful marketing arrangements and contracts, all under the banner of addressing captive supplies, would create enormous disruption in the marketplace. The beneficiaries of these marketing arrangements include everyone throughout the food chain--consumers, producers, and packers.
• The net result of such legislation would be unintended consequences which reduce the profitability of producers and greatly restrict their ability to gain access to credit.

Spot Market Mandates

• Issue:  Legislative efforts to set minimum percentages for spot market livestock purchases are unworkable. While proposals vary in their details, they would require 25 percent of cattle or pigs be purchased 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 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 they need at a known price. This benefits livestock producers and meat packers.   Legislation mandating that a percent of livestock purchases occur on the spot market is unnecessary interference in the marketplace that will limit a producer’s ability to manage his risk and a packers’ ability to procure the kind of livestock the company needs.    

Producer choice must be protected.

• Producers choose a variety of approaches to selling their livestock. Many choose contracts with meat companies as a steady source of income and an asset against which they can secure credit to improve and grow their businesses.
• Approximately 70 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 short period of time.
• There would be days that a producer may be prohibited from delivering all his animals on a give day because that particular plant was beyond 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 would probably need to be in the range of 60-65 percent of capacity because of the need for a cushion to ensure 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 almost no 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 has what they need to prepare their menus.
• This 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 integrated.

Small and niche producers stand to suffer more.

• This proposal disproportionately affects the smaller producer. Because of the need to limit hog contracts 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 – like organic or natural -- with particular products would see their investments and innovations negatively impacted.

Banning Packers’ Ability to Own Livestock

• Issue:   Some meat packers raise and own a portion of their own livestock to manage their supply flow. Many packers contract for a certain type of livestock delivered on a certain day in the future. Legislation now before Congress would force a meat packer who owns livestock to choose to be a packer or choose to be a producer. If the company chooses to be a packer, the company must 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 ban meat packers’ ability to own or contract for livestock because it is an unnecessary interference in the marketplace and stands to reverse the progress in meat production that 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.
• We spend less of our disposable income on meat and poultry than any other nation in the world, and yet we have choices and quality that many nations only dream about.
• We support market place principles that allow the U.S. meat and poultry industry to respond to their customer and consumer demands.

Brands are built on consistency.

• Increasingly, U.S. meat and poultry has shifted away from a commodity marketing approach and toward branding. Brands are built on consistency and require consistent raw materials. A branded orange juice that is sweet one week and sour the next won’t attract repeat business. The same goes for 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, whether these livestock are fed in a particular way, raised organic or have a certain quality profile.  
• Packers also may contract for livestock to ensure they have a steady and manageable livestock supply that keeps their plants operating at full capacity.
• Company-owned cattle and hogs are a safety net, enabling them to guarantee to the retailer that they will have the same volume and quality product every day. Without this guaranteed supply, 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.

• Approximately 5-7 percent of beef cattle and 30-35 percent of pigs are owned by packers. If a ban were put in place, significant numbers of cattle and even greater numbers of pigs would flood the market and reduce livestock prices.
• Packers would be forced to divest themselves of either packing or animal assets and this would lead to an artificial flooding of the market with animal protein or severe reductions in U.S. packing capacity.
• 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 will put meat products at a competitive disadvantage with other sources of protein as market signals will be distorted and disrupted.
• Notably, the poultry sector – which is nearly 100 percent vertically integrated – will 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 un-American.
• It’s like telling a Vermont dairy farmer that he cannot make cheese or a California grape grower that he may not make wine.   

(Un)Fairness Mandates

• Issue: Provisions in H.R. 2401, H.R. 2135,  and S.622 would amend the unfair practices section of the Packers and Stockyards Act (PSA) and the “reasonable person” amendment to the Agricultural Fair Practices Act (AFPA). With regards to an agricultural commodity, the legislation would allow a court to determine an agricultural practice, act, or device to be unfair if a “reasonable person” would consider it to be unfair whether or not the practice is unlawful.

• Position: We oppose this legislation which creates confusion, wipes out 80 years of precedent, and exposes a multitude of commodities other than meat to substantial new litigation. In essence, basic antitrust blueprints target injury to competition, which was recently affirmed unanimously by the Supreme Court 9-0 in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber when the Court held that a plaintiff had to establish competitive injury rather than simply assert unfairness.

The fairness provision ignores case law.

• The courts’ consideration of whether a reasonable person would deem an act or practice unfair is inconsistent with established competition law standards of what constitutes an unfair practice.
• The provision is incredibly broad, does not set clear standards, and abandons the concepts of judicial precedent.
• Current GIPSA law is very clear in its prohibitions of anti-competitive behaviors. Its focus is on the concepts of “deceptive practice,” discrimination,” and anti-trust. ”  These terms carry clear legal significance that enable courts to establish and maintain uniform case law, yielding consistent legal findings across the court system.
•  The legislation shifts the GIPSA law from this basis, to one whose foundation is “fairness. ”   While “fairness” is included in the current statute, findings must also relate to the very tangible terms listed above.

The determination of “fairness” by a reasonable person will lead to inconsistent
legal findings.

• The concept of "unfairness" is intangible, meaning that it may be construed to only what a single jury decides in any single given circumstance. What is fair to one jury may be unfair to another jury, thus producers and packers who have entered into contract agreements would have no way of knowing if their agreement would be considered unfair.
• Having nothing to base the fairness of their contracts on, packers and producers will be limited in their ability to enter into agreements that have proven to be essential in minimizing producer risk and promoting top quality products for consumers. Fear and uncertainty over the variability of various courts’ determinations of fairness will discourage producers and packers from entering the very agreements that have been beneficial to all parties, and have served to provide quality products that the consumer-driven market demands.

Special Prosecutor

• Issue:  A proposed amendment to the Packers & Stockyards Act would create a new office within the U.S. Department of Agriculture called the Office of Special Counsel for Competition Matters. This office would be charged with prosecuting anti-competitive practices in the meat packing industry.

• Position:  We oppose this amendment because it is duplicative of other similar offices and simply creates more bureaucracy – not more competition.

• This amendment would create an office that duplicates what is now being done in three other places:  within USDA’s Grain Inspection and Packers & Stockyards Administration, at the Department of Justice and at the Federal Trade Commission.
• If one or more of these agencies are not doing their job in a satisfactory manner, that problem should be addressed, but creating more bureaucracy does not enhance competition.
• Such an office is unnecessary because dozens of reports have affirmed that the U.S. meat packing industry is dynamic and competitive.
• Protectionists who advocate for the creation of this office are doing so because they don’t like the answers they’ve been getting from the studies that have been done:  the meat industry IS competitive.
• Indeed, their call for another layer of bureaucracy is like a child whose mother, father and grandfather all have said “No. ”  Now they want to ask a new family member in hopes they’ll get a different answer.