Blog for Rural America

The Center for Rural Affairs, a private, non-profit organization, is working to strengthen small businesses, family farms and ranches, and rural communities. Permission to reprint items from this web log is hereby granted, on the condition that clear credit is given to the original source of the material. If the blog provides information for a story, please let us know by sending an email to johnc@cfra.org.

Tuesday, February 27, 2007

Packer Owned Livestock Depress Prices

The Organization for Competitive Markets said a new USDA report confirms that packer owned livestock, in conjunction with long term contracts, push cattle and hog prices lower than competitive prices. At a cost of $4.5 million in taxpayer money, the study added very little new information to the captive supply debate and suffered many fundamental problems.

“In 2002, meat packers and members of Congress opposed to pro-competition measures requested this study as a diversion from real legislative action during the last Farm Bill debate,” said Keith Mudd, OCM President. “The authors either had no experience in antitrust economics, or were previously on record supporting packers' opposition to fair markets. Despite these flaws, the inescapable conclusion was that captive supplies drive livestock prices lower.”

“Captive supplies” are cattle and hog supplies that are committed to a packer more than 14 days in advance of slaughter because a packer owns the livestock or has them under contract. The livestock are moved outside the open (cash) market process in which negotiations determine the prices which are then reported to the public. Most credible studies have found that captive supplies lower prices, and consumers do not benefit.

USDA commissioned this report on livestock marketing in 2003. In the process, USDA rejected calls to focus on how packers manipulate prices through captive supply practices. Nevertheless, the study could not avoid this finding:

“The use of [captive supplies] is associated with lower cash market prices... .”

“Some of the authors of this report have longstanding, documented political bias against pro-competition rules,” continued Mudd. “Stephen Koontz of Colorado State University ridiculed criticism of captive supplies’ price effects in a 2002 BEEF magazine article entitled ‘Captive Supply Witch Hunt’.”

Koontz successfully lobbied to be on the team conducting this USDA study, as shown in his written comments submitted to USDA during the time period the study was being designed. He wrote the USDA, in June 2003:

“I would like to communicate that I would like to be involved in the proposal review process and that I intend – with a group of other agricultural economists – to submit a proposal or be part of a larger proposal.” …

“Lastly, I have heard indirectly a number of very troublesome statements attributed to government personnel with respect to the integrity of Land Grant University economists – that we are unscientific and unethical.”

Another author of the recent USDA report is John Lawrence of Iowa State University, who operates an institute receiving funding from beef checkoff dollars controlled by the anti-market competition group, National Cattlemens Beef Association. Lawrence has a record of attempting to prevent legislation to improve livestock markets. On January 14, 2002, Lawrence and Koontz and other Land Grant academics released a political report attacking legislation introduced by Senator Tim Johnson (D. SD) that would have restricted some captive supplies.
They collaborated with Ted Schroeder of Kansas State University, an expert witness hired by Tyson in captive supply litigation.

“The authors' bias was further revealed in an interim report to USDA during this $4.5 million taxpayer funded project, in which they documented ‘industry consultations’ with only special interest groups who oppose pro-competition reform,” said Mudd. “Organizations that favor competition were shut out of the process. The scientific method is supposed to be a search for the truth, but these authors let their pre-conceived opinions drive their conclusions.”

The authors completely omitted reference to a February 2004 jury verdict finding Tyson used captive supplies to manipulate cattle prices. They could have sought actual cattle transaction information, and viewed sworn testimony from scores of depositions and weeks of trial. They chose to ignore that information.

“The USDA report chose to exclude longstanding economic analysis designed to discover price manipulation,” said Mudd. “The industrial organization subspecialty of economics uses analytical tools to determine price impacts from large company conduct. USDA chose to exclude industrial organization economists from the study. This report will have very little impact on the pro-competition debate.”

Agree? Disagree? Post a comment here or contact John Crabtree, johnc@cfra.org

Center for Rural Affairs
Values. Worth. Action.

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