Alert - Iowa Legislation Requires Hog Purchases From Independent Producers

Bill Requiring Hog Purchases From Independent Producers Passes Iowa Senate
Radio Iowa - Wednesday, March 21, 2007
By Stella Shaffer, Radio Iowa

...editor's note, I am posting this because this crucial legislation is stuck in the Iowa House Agriculture Committe. In order for farmers, independent producers and contract growers alike, to be treated fairly in the livestock marketplace, there must be an open (spot or cash) market with real competition where multiple buyers bid for hogs and, thereby, establish a competitive price. Livestock market competition is important to farmers, yes, but also to the rural communities in which they live. Competitive markets would also help forestall the environmental, economic and social catastrophe that awaits us as a result of consolidation and industrialization of hog production. Please contact your state Representative's and urge them to support SF 504, the 25% spot market bill (see below for additional contact information).

Meatpackers will have to purchase more of their hogs from independent family farmers under legislation approved by the Iowa Senate on Tuesday afternoon. Big meatpackers now buy many of their hogs on contract from farmers, and lock in the price without a sale at auction. The bill requires them to purchase at least 25-percent of their hogs from independent farmers.

Senator Jack Kibbie, a Democrat from Emmetsburg, urged the Senate to pass the bill. "I would ask the senate to think again about casting a vote for the small independent pork producers of this state, the ones that keep our fairs alive, our 4-H and our future farmers."

Kibbie said the market for independent hog producers has almost disappeared. He describes signs at packers' unloading docks that say "contract hogs only." Kibbie says we must provide a market for the independent producer. Supporters argued consumers would get a better price on meat if fewer hogs were produced on contract for the big packing companies.

Critics said you can't turn back the clock on Iowa agriculture. The drive to curtail packer ownership of livestock on the farm stems in part from the discovery that so few animals are sold at public auction these days that the open-market price is hard to determine. This bill puts into effect an agreement Iowa Attorney General Tom Miller worked out with meatpackers Smithfield, Cargill, and Hormel -- and extends the agreement to Tyson Foods as well.

...editor's note, the House switchboard number is 515-281-3221 and members of the agriculture committee are listed below, along with members of the subcommittee where the 25% spot market bill is being held up.

Dolores Mertz (D, District 8), Chair and subcommittee chair
John Whitaker (D, District 90), Vice Chair and subcommittee member
Jack Drake (R, District 57), Ranking Member
Mark Davitt (D, District 74)
Betty De Boef (R, District 76)
Cecil Dolecheck (R, District 96)
Marcella Frevert (D, District 7)
Elesha Gayman (D, District 84)
Sandy Greiner (R, District 89), subcommittee member
Dan Huseman (R, District 53)
Mark Kuhn (D, District 14)
Helen Miller (D, District 49)
Steven Olson (R, District 83)
Dawn Pettengill (D, District 39)
Henry Rayhons (R, District 11)
Mike Reasoner (D, District 95)
Nathan Reichert (D, District 80), subcommittee member
Doug Struyk (R, District 99) , subcommittee member
Kurt Swaim (D, District 94)
Andrew Wenthe (D, District 18)
Gary Worthan (R, District 52)

Industrial Livestock and Low Feed Prices

Industrial Livestock Companies Gains from Low Feed Prices

by Timothy A. Wise and Elanor Starmer, Tufts University - Tim.Wise@tufts.edu

With rising demand for corn-based ethanol, representatives of many of the nation’s leading meat companies have expressed concern over the rising price of animal feed, which has increased significantly with the price increases for its two principal components, corn and soybeans. Feed prices have indeed increased significantly. As feed costs generally account for more than half of operating costs for industrial operations, higher prices can have an important impact on the bottom line for these companies.

So too can low prices. Any discussion of today’s high prices should take into account the extent to which these same firms have benefited from many years of feed that was priced well below what it cost to produce. In the nine years that followed the passage of the 1996 Farm Bill, 1997 - 2005, corn was priced 23% below average production costs, while soybean prices were 15%
below farmers’ costs. As a result, feed prices were an estimated 21% below production costs for poultry and 26% below costs for the hog industry.

We estimate cumulative savings to the broiler chicken industry from below-cost feed in those years to be $11.25 billion, while industrial hog operations saved an estimated $8.5 billion. As we show below - http://www.ase.tufts.edu/gdae/Pubs/rp/CompanyFeedSvgsFeb07.pdf - the leading firms gained a great deal during those years from U.S. agricultural policies that helped lower the prices for many agricultural commodities...

--- editor's note... this excerpt is from a short paper from Tufts University's Global Development And Environment Institute... you can view the entire paper at the links above or under the title of this post

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

Center for Rural Affairs
Values. Worth. Action.

COOL Issues Heating Up Once Again

COOL Issues Heating Up Once Again

exerpted from an article by Troy Marshall in Beef Magazine

The political wrangling for the new farm bill is starting to hit high gear. One hint is the debate over country-of-origin labeling (COOL) in which both sides are pulling out the heavy artillery.

The Food Marketing Institute (FMI), in characterizing the food industry's experience with mandatory COOL for seafood, said this week that the measure hadn't increased U.S. seafood sales but had cost the supermarket industry 10 times more than what USDA had estimated.

Meanwhile, Ranchers - Cattlemen Action Legal Fund (R-CALF), the Western Organization of Resource Councils (WORC) and consumer activist groups leveraged the latest news from Canada on BSE incidence to press for full implementation of COOL by next fall.

Practically every producer in the country agrees with COOL in theory; they like the idea of designating the country of origin at the supermarket level. But they become divided on philosophical lines when the discussion becomes voluntary vs. mandatory.

I've always believed the market functions best without government intervention. If consumers wanted it, and were willing to pay for it, food providers would already be doing it. Others believe that, regardless of the fact that consumers won't pay for it and the implementation cost is high, it still should be done. There's no question COOL will cost the industry from a profit standpoint, but a great number of producers are willing to accept the loss as a matter of principle.

It's too confusing to even try to figure out the logic of how those who support mandatory COOL are against mandatory ID. After all, ID is a prerequisite to COOL. They tout COOL as a food-safety issue, while rejecting the system that would actually protect herd health and consumer safety -- individual animal ID.

ID and COOL are similar in that the economic incentives vs. the cost to implement them simply aren't there. As a result, neither will happen without government intervention, so the economic arguments are pointless.

Rather, the debate on COOL and ID should be focused on how much disconnect there really is between the programs' goals and their ability to deliver on them. The current COOL law is a terrible law; it exempts our major competitors and doesn't apply to more than 50% of the beef market, besides violating trade laws. Implementation of COOL as currently written would be a major fiasco.

But that doesn't have to be the case. If the majority of producers want a COOL program, then let's work on getting a workable program, instead of forcing one that's destined to fail.

Relative to national ID, a voluntary program may be the stated position of the various cattlemen groups, but it's obvious that "voluntary with 100% participation" is simply another way to say "mandatory". Voluntary national ID can't meet the stated goals of the program.

It's time to lay the cards on the table, make the case for why it's in the best interest of the industry to have a traceback system, and gain consensus for a mandatory program. Either that, or accept that the industry will be unprepared in the event of a foot-and-mouth disease (FMD) outbreak.

Where national ID and COOL are concerned, there's no mistaking who's at fault for these programs' not being implemented. It's the proponents, not the opponents.

Cattlemen are supportive of the concept of COOL; they understand they have to protect their herds and the consumer from the threats we face with animal disease, etc. They're looking for viable ways to achieve those goals, and voluntary ID and the current COOL law simply fall well short of the target.

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

Center for Rural Affairs
Values. Worth. Action.

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.

Battle in Congress Over Packing Contracts

Battle set in Congress over packing contracts

Such deals reduce prices paid to farmers, a new study reports

By PHILIP BRASHER REGISTER WASHINGTON BUREAU

Washington, D.C. - When Iowa hog producer Max Schmidt signed a three-year contract with a big meatpacker he knew he was taking a risk that he might not make as much money as he could selling pigs the old-fashioned way - on the spot market.

He sure didn't. Schmidt, who kept meticulous records of what he was paid under the contract vs. what prices were on the spot market, calculates that he lost a full $1 million on the deal. "We left a pile of money there," he said.

To Schmidt, that's the way business works. But critics of the meatpacking industry said processors are unfairly driving down the prices paid to farmers by increasing their control of livestock supplies through contracting and outright ownership of the animals.

Iowa's senators - Democrat Tom Harkin, chairman of the Senate Agriculture Committee, and Republican Charles Grassley - will lead an effort in Congress this year to impose a series of marketing restrictions on packers, including a ban on their ownership of livestock supplies.

Other measures would allow producers to challenge contracts in court and require the U.S. Department of Agriculture to set up an office to investigate allegations of anti-competitive actions by processors and other agribusinesses.

A new study that was required by Congress says that meatpackers' use of contracts and ownership of livestock reduces the prices that producers are paid for livestock, including hogs...

Packers "put their thumb on the farmer and see the family farmer as an employee of theirs, kind of an indentured servant of theirs," Grassley said. "They want to control everything.

"In addition to the ban on packer ownership of livestock, the senators want to stop processors from imposing arbitration clauses on contract producers. Requiring arbitration prevents farmers from taking packers to court over contracts.

Grassley said the ban on packer ownership has a good chance of passing the Senate, as it did in 2002, but faces an uncertain future in the House. Meatpackers argue that the legislation could even outlaw contracts between processors and farms, a claim disputed by lawmakers and legal analysts at Iowa State University...

... Read the full article at...
http://desmoinesregister.com/apps/pbcs.dll/section?category=BUSINESS01

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

Center for Rural Affairs
Values. Worth. Action.

Harkin Bill Calls for Competition in Ag Markets

Senator Tom Harkin (D-IA) this week introduced legislation to correct deficiencies in USDA’s enforcement over agricultural markets and provide needed protections for producers involved in production contracts for agricultural commodities. The Competitive and Fair Agricultural Markets Act will be the basis for the development of a proposed competition title in the upcoming farm bill. Harkin is Chairman of the Senate Committee on Agriculture, Nutrition and Forestry.

“Producers need to have a fighting chance in an industry that is becoming far too consolidated and vertically integrated,” Harkin said. “I will propose and seek to include this legislation as part of a competition title in the farm bill.”

Last year, USDA’s Inspector General released a report commissioned by Harkin that detailed widespread inaction, the blocking of anti-competitive investigations, and efforts to cover up the lack of action by the Grain Inspection, Packers and Stockyards Administration (GIPSA). A hearing Harkin called to evaluate GIPSA’s enforcement dysfunctions also uncovered the lack of commitment towards preventing anti-competitive practices by USDA’s Office of General Counsel.

“If you take these facts together, it represents a complete lack of enforcement of the Packers and Stockyards Act passed by Congress in 1921, to protect producers from unfair, deceptive and anti-competitive practices in the marketplace,” Harkin said. “If we want to get serious about getting young people into agriculture, creating a fair and evenhanded marketplace is an obvious place to start.”

The Competitive and Fair Agricultural Markets Act would:

Reorganize USDA to streamline and improve enforcement of the Packers and Stockyards Act and Agricultural Fair Practices Act by establishing an Office of Special Counsel whose sole responsibility will be to investigate and prosecute violations on competition matters. The Special Counsel would be appointed by the President and confirmed by the Senate. This position will also serve as a liaison between the Department of Justice and Federal Trade Commission.

The legislation also amends the Packers and Stockyards Act:

Strengthens producer protections by making it easier for them to prove unfair actions by firms without additional burdens of having to prove adverse effects on competition across a region or sector and requires USDA to define the term "undue preference" - disallowing price premiums that are based solely on volume, or number of head, thereby discriminating agains smaller producers.

The bill also makes changes to the Agricultural Fair Practices Act...
...prohibiting unfair, unjustly discriminatory, anti-competitive or deceptive practices by a person that affects the marketing, receiving, purchasing, sale or contracting of crops... and provides needed contract protections to ensure that the production contract clearly spells out what is required of the producer... and prevents discrimination against producers belonging to an organization or cooperative...