Meat Market: Would Antitrust Rule Save Small Ranches or Sell Them Short?

Hoping to stop more small ranches from failing, the Obama administration has proposed a new antitrust rule. But ranchers are divided about whether it will help or hurt them. Hundreds of impassioned ranchers from around the country clashed at a workshop Friday over a proposed federal rule that aims to preserve competition in a livestock industry dominated by a handful of corporate giants.

Attorney General Eric Holder and Agriculture Secretary Tom Vilsack opened the daylong workshop at Colorado State University, one of five the administration set this year to hear about competition in agriculture.

Since the workshops began, the Obama administration has proposed a new antitrust measure for meat companies that reflects a willingness by the USDA to shift the balance of power between farmers and processors.

Vilsack said he is "deeply concerned" about consolidation's impact on rural America if the number of processors, feedlots and producers keeps shrinking.

"At that point, consumers will suffer as well," Vilsack said.

More Lawsuits and Bargaining

Part of the proposed rule would make it easier for farmers to sue under the Depression-era Packers and Stockyards Act by saying they don't need to prove industrywide anticompetitive behavior to file suit.

Other provisions are aimed at keeping markets fair and competitive for livestock producers dealing with meatpacking giants that, ranchers say, have increased their bargaining power over them through consolidation.

Since 1980, the number of hog farms has dropped from 660,000 to 71,000, according to the Department of Agriculture. The number of cattle farms has fallen from 1.6 million to 950,000. While hog farmers got 50% of the retail value of a hog in 1980, their share was 24.5% in 2009, the USDA says.

Per-capita incomes in rural areas largely lag behind those in more urban areas, and the average age of ranchers is rising, Vilsack said.

"Producers are worried whether there is a future for them and their children in farming," he said.

Land of the Giants

Meanwhile, U.S. meatpacking giants like Cargill, Tyson Foods (TSN) and National Beef, and Brazil's JBS SA, have been growing.

Cattlemen, though, heatedly disagree on whether the rule would help or hurt them.

In the past few decades, processors have consolidated and many operations are signing contracts to sell their livestock to certain buyers rather than through the cash market.

The National Cattlemen's Beef Association says the contracts, known as alternative marketing agreements, allow ranchers to manage risk. Plus, they can earn lucrative premiums for high-quality cattle, even if they have to accept steep discounts for inferior beef.

Mark Dopp, general counsel for the American Meat Institute, a trade association for processors, said eight federal appellate courts have rejected lawsuits, alleging the arrangements afford undue preferences under the existing law.

Will Contracts Lower Prices?

Other ranchers represented by Montana-based R-Calf USA contend the contracts thin the spot markets, which help determine prices for those contracts, thereby depressing prices for everyone.

The USDA says the proposed rule finally offers a clearer legal definition of what practices are considered unfair, discriminatory or deceptive. It would prevent packer-to-packer sales, which could potentially tip packers off to what prices competitors offer, and it would require packers to make sample contracts available online so markets are more transparent. Buyers would have to keep records justifying any differential pricing to producers.

The National Cattlemen's Beef Association and the National Pork Producers Council say the rule could lead to unintended consequences, including more lawsuits, damage to producers who process some of their own meat and the public release of information that should be a confidential part of business contracts.

Newell, S.D., rancher Jeff Smeenk, 39, has contracts that pay him as much as $200 more per head if he delivers high-quality carcasses. He fears packers might get fed up with paperwork needed to justify the deals under the proposed rule and decide to pay the same price for all beef, regardless of quality.

"Please, for the sake of my children, who represent the fifth generation on our operation, do not fence in their future by severely limiting their options for profitability," Smeenk said. R-Calf USA CEO Bill Bullard, though, supported the rule in comments streamed to four rooms filled with a total of around 1,500 workshop attendees, some of whom hooted and clapped loudly in agreement.

Bullard said cattle prices in the cash market are too low to cover production costs, discouraging young people from raising animals for a living.

"It's no longer a question of if a problem exists," Bullard said later, as ranchers headed home. "The question today is will the administration fix the problem causing the exodus from rural America."


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stankoskii

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August 28 2010 at 10:26 AM Report abuse +1 rate up rate down Reply