Posted: Thursday, November 18, 2010 11:00 AM
By SAM CARNEY
For the Capital Press
In June, USDA's Grain Inspection, Packers and Stockyards Administration unveiled a proposed rule making major changes in how livestock are bought and sold. GIPSA says the changes will improve competition in livestock markets. In fact, the changes will be a disaster for producers. Here are 11 reasons to oppose the rule.
It will dictate contract terms for producers. The rule requires packers to keep written records justifying differences in prices paid to producers. This will make it extremely difficult to negotiate premiums. For example, without a written cost analysis a packer will be unable to pay a premium if livestock need to be delivered on a holiday, which would typically require paying employees overtime. It would be equally difficult to negotiate a lower price for livestock of lesser quality.
It will lower producer prices and stifle innovation. Rather than justifying different prices for different producers, packers are likely to pay one price -- almost certainly the lowest -- to all producers, regardless of the quality of the livestock. This will have a chilling effect on competition and innovation. No longer will the most efficient or innovative producers be rewarded.
It will prevent producers who own a piece of a packing plant from selling hogs to another plant. In an effort to prevent "price signaling," the rule prohibits a packer from purchasing livestock from another packer. This ignores USDA's daily publishing of prices for packer-sold pigs. It's difficult to send under-the-table price signals when price data are published daily.
It's a solution in search of a problem. The rule assumes that livestock markets are not functioning properly. Current markets operate well for producers, packers and consumers. USDA's own, peer-reviewed research confirms this. Neither a 1996 study on concentration in meat packing nor a 2007 livestock and meat marketing study found evidence of undue buyer or seller power. Some say a thinly traded cash market for hogs is problematic. But a thin market doesn't mean a poorly functioning market. What it says is that most producers prefer to contract with packers rather than sell hogs on the cash market. Yet a major effect of the rule will be to discourage contracts and force more producers into the cash market.
It's a gross bureaucratic overreach. GIPSA says the rule fulfills a mandate under the 2008 Farm Bill. In fact, it goes way beyond that. It adopts through regulation what a minority of producers couldn't achieve through legislation. Several provisions were either specifically rejected by Congress or are counter to court rulings.
It will raise consumer prices and reduce choices. The increased discretion GIPSA has under the rule will increase regulatory burdens on packers and trigger years of lawsuits. This will drive up packer costs, leading to higher retail prices and fewer choices for consumers.
It will require massive record keeping. Under the rule, marketing contracts must be submitted to GIPSA for posting on its website. That will require massive record keeping and lets GIPSA decide what constitutes confidential business information.
It will be a bonanza for trial lawyers. An expanded definition of what constitutes a violation under the Packers & Stockyards Act means those challenging an act of a packer no longer must prove diminished competition. This will turn ordinary contract violations into P&S Act cases. The ultimate beneficiaries will be trial lawyers.
It will create a powerful incentive for packers to raise their own animals. Packers won't take the rule's new regulatory requirements and legal uncertainty lying down. They are likely to respond by raising more of their own animals. That will increase vertical integration.
It will make it harder for producers to get financing, eliminating rural jobs and concentrating power among packers. With fewer packer contracts available, producers will be forced into the cash market. Without contracts, producers will find it difficult to get financing. Some will simply not survive. That will eliminate rural jobs and concentrate even more power among packers.
It was proposed without a serious effort to determine its economic impact. GIPSA's economic analysis was a few sentences sprinkled throughout the rule. That fueled speculation that GIPSA catered from the start to a few dissatisfied producers and didn't care about the impact on others. But two industry studies found substantial economic impacts. One concluded the rule would cost 104,000 jobs, including 21,000 producer jobs, and that it would increase retail meat prices more than 3 percent. The second found the rule would eliminate 22,800 jobs and reduce the gross domestic product more than $1.5 billion annually.
Sam Carney, a hog farmer from Adair, Iowa, is president of the National Pork Producers Council.