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January 14, 2003 The Honorable Thad Cochran
The Honorable Tom Harkin The Honorable Bob Goodlatte
The Honorable Charles Stenholm Dear Chairman Cochran, Senator Harkin, Chairman
Goodlatte and Representative Stenholm: As you embark on the process of crafting
agricultural legislation for the 108th Congress, we strongly urge
you to place the issues of agricultural competition and market concentration
at the top of your list of priorities. The importance of increasing market competition and
fairness for Policy makers often state policy goals of
maintaining a diverse, farm-and-ranch-based production sector and providing
consumers with a nutritious, affordable food supply.
Industry concentration - both vertical and horizontal - is circumventing these goals by driving farm-gate
prices down below competitive levels and consumer prices above competitive
levels. USDA data show that meat packers have achieved increasing profit margins in the last 10 years while both producers and consumers have been harmed as a result of packers' increased market power. For example, since 1994 the farm-to-wholesale spread in beef has increased by over 50%, and in pork by over 43%. In poultry, processing companies have increased their net margin (wholesale price minus production and processing costs) by 193% since 1990. (These data do not include value added products and are adjusted for inflation). If meat packers were becoming more efficient, these spreads would narrow. This is not the case. The cause of the increased spreads is market power. Dominant meat packers have achieved much of this
market power through captive supplies in the past decade.
Captive supplies include hogs and cattle committed to a packer before
they are ready for slaughter. These
include packer-owned and contracted livestock.
Meat packers have the motive and ability to strategically schedule
captive livestock for slaughter with the purpose or effect of drastically
depressing the open market price. When
the open market price is depressed, packers save large amounts of money on
both open market procurement and contracted livestock where the contracts are
formulated from the open market price. Livestock
producers not only receive lower prices, but have trouble even finding a
market. Contracts also are used to cause non-price harm to
producers of hogs and poultry. Contracts
are drafted by the packers and offered to farmers on a take-it-or-leave-it
basis. Typically, poultry growers
have already secured loans and built buildings prior to being allowed to see
the contract. Farmers are faced
with either signing the contracts or declaring bankruptcy for lack of a
contract. The contracts
increasingly take rights from farmers, and shift risk from the companies to
the farmers. To remedy many of these problems, the following
legislation should be enacted: 1.
Prohibition
on packer owned livestock: During the 107th Congress, packer
ownership legislation (S. 142) was introduced in the Senate by Senator
Johnson, and cosponsored by Senators Grassley, Harkin, Wellstone, Thomas and
Dorgan. In the House, the
legislation (H.R. 3810) was introduced by Rep. Nussle, and cosponsored by
Represenatatives Thune, Pickering, and Bereuter.
As drafted, the packer ownership bill only affected dominant firms and
excluded contracts. Robert
Peterson, former CEO of IBP, has admitted in the past that packer-owned
livestock has a "significant impact"
on the market. Packers inherently
prefer their own livestock over those of other market players.
Undue preferences are prohibited by the P&S Act.
Packers are strategically scheduling cattle to manipulate the market in
their favor and so as to pay less to producers. 2.
Producer
Protection Act: The Producer
Protection Act is designed to set basic minimum standards for contract
fairness in agriculture. It
addresses the worst abuses contained in processor-drafted boilerplate
contracts including: (1) Clear disclosure of producer risks; (2) Prohibition
on confidentiality clauses; (3) Prohibition on binding arbitration in
contracts of adhesion; (4) Recapture of capital investment (contracts that
require a significant capital investment by the producer cannot be
capriciously canceled without compensation); and (5) Ban unfair trade
practices including "tournament" or "ranking system"
payment. During the 107th
Congress, Senators Feingold and Grassley introduced arbitration legislation
(S. 2943) and Senator Daschle introduced a bill to address all these
recommendations (S.20). 3.
Transparency/minimum
open market bill: Senators
Grassley and Feingold sponsored a bill (S. 2867) that would stop the
deterioration of the open market through guaranteeing a minimum open market
volume, thereby making price discovery and transparency far more reliable.
It will end the ability of the packers to pull out of the market for
days or weeks at a time while the price crashes. 4.
Create
a market for livestock contracts: Senator
Mike Enzi's "Captive Supply Reform Act"
(S. 2021), as introduced last year, requires a firm base price on contracts
and would transform market-harming contracts into an actual market.
If contracted captive supplies were traded openly and publicly in an
auction-like setting, competitive forces would be utilized in a manner less
subject to undue market power. 5.
Clarify
the meaning of "undue preferences"
in the Packers & Stockyards Act: In
January 1998 the National Commission on Small Farms called for legislation
clarifying the authority of GIPSA to take action against preferential pricing
by packers. Congress should pass legislation that clarifies that
preferential pricing paying different prices to different producers for
livestock is justified only for real differences in product value or actual
and quantifiable differences in acquisition and transaction costs. 6.
Close
the poultry loopholes in the Packers & Stockyards (P&S) Act:
Representatives Kaptur and Emerson (H.R.231) and Senator Grassley (S.
1076) introduced legislation during the 107th Congress to give USDA
the authority to bring administrative actions against poultry dealers.
The P&S Act oddly omits such a provision while allowing USDA to act
against livestock dealers. In addition, it should be clarified that USDA's authority over poultry applies not only to
broiler operations, but to growers raising pullets or breeder hens, as well.
These loopholes should be closed. 7.
Bargaining
rights for contract farmers: Representative
Kaptur (H.R. 230) and Senator Daschle (S. 20) introduced legislation to close
loopholes in the Agricultural Fair Practices Act of 1967 (AFPA) and to require
processors to bargain in good faith with producer organizations.
The AFPA was enacted to ensure that livestock and poultry producers
could join associations and market their products collectively without fear of
retribution by processors. Unfortunately,
these goals have not been attained due to loopholes in that Act.
Retaliation by processors is commonplace in some sectors.
This legislation should be passed to promote bargaining rights and
prevent processor retaliation.
We are encouraged by the introduction of the
livestock and poultry arbitration bill (S.91) and the prohibition against
packer ownership of livestock (S.27) in the Senate on the first day of the 108th
Congress. It is our hope and
expectation that legislation addressing the remaining matters referenced above
will soon be re-introduced in the new Congress.
We urge their prompt and full consideration by your Committees and
other Committees of jurisdiction. Our country's farmers and ranchers are asking for nothing more
than a fair market and a competitive share of the $900 billion dollars that
consumers insert into the food and agriculture economy annually.
Market reforms remain a key ingredient for rural revitalization and
meaningful consumer choice. Competition
and fairness legislation such as that outlined above are key to achieving the
goal of promoting an economically healthy and diverse livestock and poultry
production sector and providing consumers with healthy, affordable food.
Thank you. National Organizations Regional and Statewide Organizations Organizations within States |
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This page was last updated on Monday, October 27, 2008. |
