Testimony of Bruce Bass

Vice President Cattle Procurement

IBP, inc.

Senate Committee on Agriculture, Nutrition and Forestry

Wednesday, May 26, 1999

Thank you Mr. Chairman and members of the committee for the opportunity to present this testimony. My name is Bruce Bass. I am Vice President of Cattle Procurement for IBP. Our company operates ten fed beef plants and six pork plants in the United States. Most of them are located in the Midwest.

I am here today on behalf of IBP to speak in favor of a national mandatory price reporting system that includes language pre-empting the implementation of state legislation.

IBP's very existence is dependent upon the livestock industry. We don't own feedlots in the United States and rely entirely on livestock producers to provide the raw materials to keep our plants running. We need a thriving, successful livestock industry to stay in business. While producers and packers represent different segments of the meat production system, we know that both must cooperatively work together for the entire system to succeed.

That is why we have been meeting with livestock industry leaders to iron out an expanded livestock reporting system. IBP already reports virtually all of our cash livestock purchases and a majority of our boxed beef prices. We realize some producers distrust the voluntary reporting system and want more data in order to make better informed marketing decisions.

. While packers and most livestock producers have long had reservations about any kind of mandatory government initiative, it has become apparent that some type of regulated price reporting system will be implemented. Such a system will only be meaningful if all segments of the business are involved in its creation. We have participated in numerous discussions with leaders of the cattle and hog industry, and hope that the outcome of this dialogue will be federal legislation that effectively pre-empts laws that have been passed or are being considered at the state level.

Patchwork of State Legislation

Though we support enhanced producer access to market information, one of the main reasons we support this proposal is it will be implemented as a comprehensive federal program, as opposed to diverse types of state legislation. A national system avoids the confusion and disruption that will be caused by the patchwork of requirements being passed by lawmakers in numerous states. Of greater concern though is that some of this legislation at the state level goes far beyond price reporting and instead purports to dictate how livestock should be bought or sold, significantly restricting the free market system. These measures will hurt the beef and pork industry, especially the livestock producer. For example, some states have passed or are considering laws that attempt to prevent producers from forward contracting their livestock, and by some measure controlling or limiting the natural ebb and flow of prices as they respond to natural market forces. Yet, many lenders require livestock producers to use forward contracts as a means of risk management in order to qualify for loans.

This legislation stifles efforts by producers and processors to develop new, more innovative ways of marketing their livestock. While the vast majority of IBP's cattle purchases are made on a daily cash market basis, some are purchased through marketing agreements or forward contracts. All were initiated by cattle producers, because they wanted a more efficient method of selling their cattle. We believe livestock producers should be entitled to continue doing business in a way that best suits their own operations. We strongly feel any mandatory price reporting legislation must address broader preemption of individual state attempts to restrict producer-packer interaction. The legislative proposal drafted by National Pork Producers Council

effectively addresses this concern.

No Silver Bullet

There is no doubt, mandatory price reporting will give livestock producers access to a greater volume of information. However, it will not be the silver bullet that magically improves livestock prices. Anyone claiming that, is misleading the public. Price is only one piece of information among many that help livestock producers make decisions when to sell. As the market has historically shown, fundamental supply and demand factors determine price, not whether prices are reported voluntarily or involuntarily. Consider these facts:

* Livestock prices move inverse to production. As production increases, prices decline. When production declines, prices advance. As you can clearly see from exhibits N & O, the average yearly price is easy to predict if you know what production will be.

* Only in the past 4 years has the U.S. been a net exporter of pork. Production peaked during 1998. Historically there have been only 31 weeks when hog slaughter exceeded two million head (Exhibit Q). Fourteen of them occurred in 1998 and 12 were in the last quarter of that year, overwhelming both domestic and international pork distribution channels and leading to extremely low hog prices.

Focus on Demand Needed

No one will argue that the livestock industry has always been and probably always will be cyclical. The supply peaks of these cycles always bring lower prices and lower prices always bring calls for some type of intervention. Reduced demand for red meat has increased producers' frustration during these times of record supply.

IBP is making the transition from a meat company to a food company. We are in the initial stages of developing our own brand for red meat. We are also spending millions of dollars to improve food safety.

Our company is aggressively researching ways to create more convenient, consumer friendly products, not only to prevent this erosion of market share, but to actually increase demand.

We encourage livestock producers, as well as the Department of Agriculture, to join us in focusing on the most pressing issue facing our industry today: demand. As you can see from Exhibits E, H, I and J , the demand curve for red meat has declined for approximately 20 years. This has had a significant impact on the prices of livestock. If the trend for beef demand alone continues, its share of total meat production will be no more than 26% by the year 2005. Beef will have lost 50% of its market share over a span of three decades (Exhibit M).

Mr. Chairman, thanks again for the opportunity to present this information. I once again urge this committee to support legislation creating a national mandatory price reporting system that includes language pre-empting the implementation of state legislation.

I am ready to answer any questions you might have.