U.S. Agriculture Secretary Tom Vilsack and Attorney General Eric Holder are concerned about the fairness of agricultural markets. Last week they hosted a session in Fort Collins, Colo., that focused on the livestock industry.
The USDA's Grain Inspection, Stockyards and Packers Administration has proposed sweeping rules that would regulate how packers conduct business. The Justice Department is conducting investigations into possible antitrust violations by agri-businesses.
Reports suggest that the more than 2,000 ranchers, feeders, retailers and other interested parties who attended were evenly divided into two camps -- one that favors wholesale changes in the industry, and another that cautions against radical change that will cause more harm than good.
There are some facts provided by the USDA on which most everyone agrees. The meaning of the facts, however, is the crux of the dispute between the two sides.
* The livestock packing business has consolidated over the last 20 years, with four or five companies accounting for 85 percent of the meat business nationwide. Most of the major packing plants are concentrated in the middle of the country, presenting access challenges for some livestock producers. To increase the efficiencies of their operations, packers have made wide use of forward contracting and have given preference to producers who provide animals that meet certain specifications. These arrangements tend to favor large producers.
* There are fewer people producing hogs, cattle and chickens than there were 30 years ago. According to the USDA, where in 1980 there were 660,000 pork producers, there are 71,000 today. Thirty years ago there were 1.6 million cattle producers, but only 950,000 today.
* Producers are getting less of the retail dollar than they did in 1980. Hog producers once received 50 percent of the retail value, compared to 24.5 percent in 2009. Cattle producers received 62 percent of the retail value of a steer, but only 42.5 percent in 2009.
There is a populist theory that holds that livestock packers have concentrated and become larger as part of a conspiracy to squeeze producers and amass ever greater profits at the expense of ranchers and feeders. This has pushed small producers out of business.
An opposing theory says that the packing industry became concentrated because regulatory, labor and transportation costs grew and profit margins shrank to the point where local and regional packers were no longer economical. Producers who can take advantage of the efficiencies of scale have benefited from consolidation, as have producers at the other end who have concentrated on establishing niche markets for premium products.
As with all things, we suspect the truth lies somewhere in the middle.
No one can argue against fairness. But we recognize that there is a certain subjective quality to fairness that is not often appreciated. Fair practices do not guarantee equal results.
We are always wary of unintended consequences, and advise the USDA to move with caution. We would also remind parties on both sides of the debate that regulations have practical limitations and always produce mixed results.
Regulation cannot guarantee an economic outcome. It cannot guarantee an individual producer his desired return. It cannot guarantee packing house workers a higher wage. It cannot guarantee a small-scale packer will find fortune or favor with retailers. It cannot guarantee consumers, who pay all the costs, will subsidize fairness and buy at higher prices.
Markets, even those weighed down with complex regulations, always find equilibrium. There will always be winners and losers. But if they came about their gain and their loss fairly, we will be satisfied.