Testimony of
Michael V. Dunn, Under Secretary
Marketing and Regulatory Programs
Hearing on Agricultural Consolidation
Committee on Agriculture, Nutrition and Forestry
United States Senate
July 27, 1999
I am pleased to be here today to discuss the complex and important issues of concentration and vertical integration in American agriculture. The Department of Agriculture (USDA) is concerned about the current patterns of concentration and vertical integration in agriculture. These patterns of restructuring may alter the balance of market power between farmers and other sectors of the marketplace. We have a responsibility to ensure that markets are free and open, and that farmers are able to sell their products at a fair price. In meeting that challenge, USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) conducts several oversight activities and is taking steps to address the problems we are seeing in the marketplace.
GIPSA promotes a productive and competitive global marketplace for U.S. agricultural products by facilitating the marketing of livestock, poultry, meat, cereals, oilseeds, and related agricultural products, and by promoting fair and competitive trading practices for the overall benefit of consumers and American agriculture. GIPSA carries out this mission through two programs, the Federal Grain Inspection Service (FGIS) and the Packers and Stockyards Program (P&S).
FGIS provides the U.S. grain market with Federal quality standards and a uniform system to apply them. FGIS is a service-oriented organization established to provide impartial quality and quantity measurements to facilitate the marketing of U.S. grain.
FGIS operates under the authority of the United States Grain Standards Act (Grain Standards Act). The program establishes the official grading standards for grain, develops standard testing methodologies to measure grain quality and quantity, and provides for the impartial application of the grades and standards through the official grain inspection and weighing system, a unique network of Federal, State and private inspection agencies.
The Grain Standards Act provides for the mandatory inspection and weighing of all export grain and the voluntary inspection and weighing of grain moving in domestic commerce. GIPSA or delegated State employees are stationed at all major grain exporting ports and provide mandatory inspection and weighing services on a fee basis. Voluntary domestic services are provided on a fee basis by 15 State and 47 private agencies under GIPSA's supervision.
Packers and Stockyards Program enforces the Packers and Stockyards Act of 1921, as amended (P&S Act). The P&S Act covers packers, livestock dealers and market agencies who engage in interstate and foreign commerce in livestock, livestock products, poultry, and poultry products. The P&S Act makes it unlawful for a firm to engage in unfair, unjustly discriminatory or deceptive practices. Manipulation of prices, market allocation, and the restraint of commerce are violations of the Act.
P&S utilizes its statutory authority to investigate alleged violations of the Act and regulations, and prosecute violations, either directly through administrative actions or in the case of criminal violations, injunctive relief, violations of orders issued by the Secretary, and collection of civil penalties, in the District Courts through the Department of Justice. Investigation of mergers and acquisitions by firms subject to the Act resides with the Department of Justice and Federal Trade Commission.
P&S was restructured recently to improve its ability to monitor and investigate the increasingly complex and sophisticated financial transactions of the livestock industry. Eleven field offices were consolidated into 3 regional offices which were staffed with expanded economic and legal expertise.
USDA has undertaken a number of initiatives to investigate procurement practices, strengthen oversight, and provide more information to producers:
1. Rapid Response Teams -- USDA dispatched a rapid response team to South
Dakota on July 20, 1999, to respond to producers' concerns about and to ensure adherence to the P&S Act in light of a new State price reporting law enacted on July 1, 1999, that influenced the procurement practices of packers in the State.
2. Excel Complaint -- USDA has filed a formal complaint against Excel alleging that the firm violated the P&S Act by failing to disclose to producers a change in the calculation of lean percent for hogs purchased on a carcass merit basis, and that, as a result of this change in formula, Excel paid lower prices for hogs.
3. Farmland Complaint -- USDA filed a formal complaint against Farmland National Beef Packing Company, alleging that the company violated the P&S Act by changing its bidding practices at Callicrate Cattle Company Feedyard, St. Francis, Kansas, after an article critical of Farmland written by Callicrate Feedyard's sales manager was published in a livestock journal. The complaint further alleges that Farmland subjected Callicrate Feedyard to an undue or unreasonable prejudice or disadvantage.
4. IBP Complaint -- USDA brought a case against IBP, inc. alleging that the packer
violated the P&S Act by entering into a procurement agreement that guaranteed high prices to a select group of feedlots in Kansas without making the same terms available to others. USDA's Judicial Officer rejected the greater part of USDA's case, but entered an order requiring IBP, inc. to cease and desist from entering into agreements that contain a right of first refusal by which IBP may obtain livestock by matching the highest bid, rather than raising the bid to purchase livestock. IBP has appealed the Judicial Officer's cease and desist order restricting use of right of first refusal to the Circuit Court of Appeals. A hearing took place in St. Louis on April 22, 1999. A decision has not yet been issued.
5. Texas Fed-Cattle Investigation--P&S conducted a broad investigation of fed steer and heifer procurement in the Texas Panhandle. The investigation examined procurement areas, procurement methods, and pricing methods. The investigation is nearing completion, pending the results of a peer review.
6. Investigation of Hog Procurement Contracts--P&S is investigating the terms of hog procurement contracts to determine whether individual contracts violate the P&S Act.
7. Investigation of Hog Plant Closings--GIPSA has opened an investigation of plant closings by leading hog packers, which contributed to the inability of the industry to process all hogs last winter.
8. Hog Producer Meetings -- USDA hosted a series of public meetings across the
country between January and May of this year to discuss the recent hog procurement investigation and its potential implications for producers, changes in Market News reports, alternative marketing opportunities for hog producers, restructuring credit programs, and small hog operation payments.
In addition to these activities, the Secretary formed an Advisory Committee on Agricultural Concentration in 1996 and a National Commission on Small Farms in 1997. Recommendations from these bodies include stepped-up reporting of information on prices, exports and imports, more aggressive use of forward purchase arrangements and other market information by producers, and tougher enforcement of the Packers and Stockyards Act. USDA is implementing these changes.
In summary, GIPSA has an active program to facilitate the marketing of the U.S. grain industry, from producer to exporter, and to enforce the Packers and Stockyards Act. We are monitoring the rapid changes in both the grain and livestock industries and taking steps to respond to emerging needs to better serve producers and the agricultural community.
I appreciate the opportunity to discuss GIPSA's programs with the Committee and I will be happy to respond to your questions.