Imports of Canadian cattle, attitudes toward regulation spur groups
By TIM HEARDEN
The American beef industry is divided.
The world of cowboys, auction yards and feedlots is trying to do business against a backdrop of mistrust and anger. Three national organizations that represent the industry -- the National Cattlemen's Beef Association; the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America; and the U.S. Cattlemen's Association -- have stark philosophical differences.
One group accuses the other of fraud and violations of law. The other counters by questioning the first group's patriotism.
For Kevin Borror, a rancher in Tehama, Calif., the political wrangling gets to be too much.
"I get so tired of politics on any level, and the older I get the worse I get as far as just ignoring it," said Borror, co-owner of Tehama Angus Ranch. "I know that's probably not the proper thing to do or the responsible thing to do, but I just get too upset about it. It's just not my thing."
But while their squabbles may appear petty, the three groups are fighting over weighty issues that could determine the future of the industry's profitability.
Among those is the assertion by R-CALF -- and to a lesser extent the USCA -- that an overconcentration of meat packers is depressing prices that are paid to ranchers for their cattle. Four meat-packing companies -- Tyson Foods, JBS, Cargill and National Beef -- together slaughter about 80 percent of U.S. beef.
The groups' complaints have found the ear of the federal government, which is believed to be investigating whether the handful of large meat packers is illegally or unfairly driving down cattle prices.
The Justice and Agriculture departments are holding a series of antitrust hearings on competition in agriculture. The beef industry has been eagerly awaiting the next workshop, which will be held Aug. 27 in Fort Collins, Colo., and deal specifically with livestock.
R-CALF has pledged to bring 25,000 ranchers to the meeting.
"We have gone so long without proper enforcement of antitrust laws and without proper enforcement of the Packers and Stockyards Act," R-CALF CEO Bill Bullard said. "We now have conditions and practices that have been institutionalized in the marketplace that are viewed as normal even though these conditions and practices are anti-competitive and detrimental to the interests of cattle producers."
The workshop comes as a federal agency has proposed sweeping restrictions on the marketing of livestock and poultry, including barring packers from acquiring livestock from other packers and setting up an arbitration process to handle disputes between packers and producers.
According to federal mandatory reporting data, the nearly 1.16 million head of packer-owned cattle that were slaughtered in 2009 was about 5.1 percent of all the fed cattle that were harvested and marketed, said Kevin Good, senior market analyst for Cattle Fax, a market research and analysis service for the beef industry.
This year, the percentage has been running consistently at about 5 percent, Good said.
The industry's battle lines were drawn shortly after the National Cattlemen's Beef Association was formed in 1996 through a merger of the National Live Stock and Meat Board and the National Cattlemen's Association.
With around 30,000 members, NCBA is the nation's largest cattle industry organization. It is also the largest contractor for Beef Checkoff projects, having received $35.8 million of the $41.5 million in available funds in 2009. In addition, NCBA's advocacy arm employs a team of lobbyists in Washington, D.C.
About 10 years ago, some ranchers became disillusioned with what they saw as NCBA's indifference to an infusion of Canadian cattle that was undercutting domestic prices.
Thus, R-CALF was born with a vision of bringing more fairness to the American producer. Now the 8,000-member group has maintained a decidedly protectionist tack, pushing hard for country-of-origin labeling and being one of the few ag organizations to oppose the pending trade deals with South Korea, Colombia and Panama.
Domestically, Bullard said packing plants are operating with a "highly successful model" under which they control who has timely access to the market and then use forward or formula contracting to artificially control the prices of livestock.
The packers have continued to use the cash market as the basis for setting prices, he said. As large volumes of livestock have shifted to forward contracts, the depleted cash markets have "established a price that was lower than what a competitive market would dictate," Bullard said.
So if beef prices go up, the packers -- but not the producers -- see the larger profits, R-CALF asserts.
"We are an unhealthy industry," he said. "We've lost competition ... and the cause is primarily the result of unrestrained market power by meat packers."
Colin Woodall, the NCBA's vice president of government affairs, counters by citing a USDA livestock and meat marketing study commissioned by Congress in the 2002 Farm Bill.
Completed in 2007, the $4.5 million study by the Grain Inspection, Packers and Stockyards Administration concluded that forward contracts and other "alternative marketing arrangements" benefit both packers and producers through management of costs and risk and assurance of quality.
Further, restrictions on these agreements "would have negative economic effects on livestock producers, meat packers, and consumers," the study found.
"The calls of gloom and doom because four packers control 85 percent of the packing capacity is overblown," Woodall said.
While R-CALF and NCBA battled it out, a third organization -- the U.S. Cattlemen's Association -- emerged in 2007. Largely made up of disaffected R-CALF members who'd grown weary of that group's litigation and fiery rhetoric, the USCA professes a middle-of-the-road approach, said Jess Peterson, the group's executive vice president.
The USCA shares concerns about a lack of competition in the industry, but also realizes that "when you sit down at the table, you need to be able to get a deal that gets you a win at the end of the day," Peterson said.
Despite the conciliatory tone, the three organizations' squabbles have reached a higher pitch in recent months. The USCA was one of several organizations that called for the Federation of State Beef Councils to cut ties with NCBA to avoid the appearance of lobbyists' influence on Beef Checkoff programs, which are supposed to be restricted to research and general promotion of beef.
And both R-CALF and USCA seized on a Cattlemen's Beef Board audit that discovered that some of NCBA's checkoff funds were misappropriated, with R-CALF issuing a press release charging that the nation's largest cattle group may be guilty of "fraud" and violations of federal law.
The amount of money that may have been misappropriated is still unknown pending a more detailed review, which could be concluded in about six weeks, beef board spokeswoman Melissa Slagle said.
In an interview, Woodall countered by criticizing R-CALF's Bullard for "talking about how bad the U.S. beef system is" during a recent trip to Australia. He dismissed as "garbage" any notion that NCBA is overly influenced by packers and feeders.
"The fact of the matter is the people that I talk to every day are producers, and the people who vote on our policies are producers," Woodall said. "I think folks need to understand that we're not going to apologize for the fact that we're working with the entire beef chain ... (but) the vast majority of our members are producers."
For their part, producers may be getting turned off by all the infighting. In a recent Cattlemen's Beef Board survey of what producers found most important, consumer confidence and the threats from anti-agriculture activists rated highly, said Lynn Heinze, the group's executive director of communications.
Industry politics, not so much, he said.
Jeff Fowle, a rancher in Etna, Calif., thinks there's something to the notion that packers are unfairly manipulating supply and price "despite what they want us to believe."
But he said each organization makes some valid points, and they ought to get together and find common ground.
"I grow tired of the 'us versus them' idea. We're all in this together," Fowle said. "Simply drawing lines in the sand, picking sides and coming to blows very rarely accomplishes anything.
"The sooner the packers realize there's a need for competition, the better," he said, "but at the same time ... I get the sense that (some ranchers) wouldn't mind doing away with the Big Four, and the bottom line is our infrastructure right now isn't set up to survive if the Big Four flat-out disappeared. It's not all one way and not all the other. The answer lies somewhere in the middle."
Hat Creek, Calif., rancher Henry Giacomini agrees -- to a point.
"Ranchers think packers have all the power in the world when prices are down, but they don't talk about it much when prices are high," he said. "No absolute argument makes sense to me."
Giacomini markets his own organic beef, and he recently looked into starting his own packing plant. He found that packers' margins are necessarily thin because of all the capital investments needed to meet massive regulatory requirements, he said. Getting financing for a new packing facility is virtually impossible, he said.
"The economics of the meat-packing industry got us where we are," Giacomini said. "Frankly, it is the function of commodity production. Commodity production is thin margins and volume.
"I don't think creating a law to split these guys up and make them less profitable is going to necessarily make room for anybody else," he said. "It's gotten this way. It hasn't been an accident, and it hasn't been a conspiracy."
One voice or many?
Borror, the Tehama rancher, said he'd like to see the beef industry speak with one voice. Problems arise when politics get in the way, causing a group of ranchers to "say, 'I'm going to take my toys and go to my own sandbox.'"
But the USCA's Peterson equates the political wrangling to "growing pains" that may be healthy for the industry in the long run.
"At the end of the day, it will make sure you go out to the countryside" and listen to ranchers' concerns, he said. "There are three groups right now competing for members."
National Cattlemen's Beef Association: http://beefusa.org/
R-CALF USA: http://www.r-calfusa.com/
U.S. Cattlemen's Association: http://www.uscattlemen.org/
2007 GIPSA Livestock and Meat Marketing Study: http://www.gipsa.usda.gov/GIPSA/webapp?area=home&subject=lmp&topic=ir-mms