STATEMENT OF SENATOR RICHARD G. LUGAR

CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

Good morning. Today we will examine economic concentration in agriculture and agribusiness with an emphasis on changes in the pork industry and other areas of livestock farming, as well as Cargill's proposed acquisition of Continental's grain merchandising business. This is an important subject that interests everyone involved in agriculture, particularly farmers.

Some are concerned that agribusiness consolidation is diminishing competition for farmers' products at a time when prospects for farm income have already been adversely affected by low commodity prices. Those fearing the worst point to Agriculture Department statistics citing declines in farmers' share of the retail food dollar. Others, however, contend that, despite consolidation, agribusiness remains highly competitive. They argue that the farm to retail margin is driven mainly by the rising cost of processing, packaging, and distributing food. The higher margin, they argue, also reflects the higher quality and greater convenience of food being demanded by consumers.

Whatever the cause, it is clear that farmers need to reach upward in the processing and distribution chain to realize a greater share of the consumer food dollar. This can be done in a number of ways, one of which is through increased use of strategic alliances formed through farmer-owned cooperatives. Farmland Industries' U.S. Premium Beef is an example of such an approach.

Last November, the Nation's two largest grain exporters, Cargill, Inc. and Continental Grain Company, announced a tentative agreement in which Cargill will acquire Continental's worldwide grain merchandising business. The proposed transaction is subject to regulatory approval for compliance with federal antitrust laws. That review is underway at the Department of Justice. If the transaction is ultimately approved, Cargill will become the buyer of 10 to 15 percent of U.S. grain production and the seller of one-third or more of U.S. grain exports.

We focus today on the proposed Cargill Continental transaction because it is the most recent and visible example of the trend towards agribusiness consolidation. This is a large transaction with potentially significant implications for farmers and others involved in the production, processing, storage, and merchandising of grain. A review by this Committee is important and necessary. The Agriculture Committee, however, does not have a formal role in the Justice Department's regulatory approval process.

There is also concern about changes to the structure of farming itself. Most recently, attention has focused on changes in livestock farming, particularly in the pork industry. Pork production is rapidly moving away from the traditional structure that featured a large number of small hog producers towards a relatively small number of large producers who account for the bulk of production. These large producers also have a different relationship with processing firms than was the case in the past. Many are closely coordinated with such firms through marketing or production contracts. Some vertically integrated pork processors are engaged in hog production themselves.

U.S. pork exports reached 1.2 billion pounds in 1998, up over 280 percent in only five years. Despite that success, there are many concerns. We have already lost and are in the process of losing more small hog producers. Some are concerned about whether increased vertical integration and contracting will reduce the ability of spot hog prices to accurately reflect market conditions. Finally, there are widespread concerns about the environmental effects of animal waste from large hog confinement operations.

While structural issues are important, pork producers in Indiana and other states have been primarily concerned about price. Last fall, hog prices fell to levels that had not been seen in 30 years. I wrote to President Clinton and his cabinet to encourage the purchase of pork products by federal agencies that conduct large food acquisitions, such as the Departments of Agriculture, Defense, Veterans Affairs, and the Bureau of Prisons. I have also called upon the Canadian government to help resolve the labor dispute at a hog slaughter facility in Ontario. Increases in live hog imports from Canada worsened what was already a severe bottleneck at U.S. slaughter facilities. In recent weeks, we have had some price recovery but, for many producers, prices must improve further just to get back to breakeven. I continue to be in contact with Secretary Glickman to explore ways in which the pork industry can recover from the lowest prices in a generation.

A major key to the pork industry's future rests on the ability to expand exports. The current unprofitable hog prices make additional exports critically important. On the first day of the 106^th Congress, I introduced legislation that would increase market access for U.S. agricultural commodities, livestock, and value-added products. The Senate Agriculture Committee will continue to search for effective ways to assist pork producers during this critical time.

We hope that our witnesses today will speak to some of the questions that I have raised. Senator Dorgan is also with us today to offer his perspective. But first, let me turn to Senator Harkin for his opening statement.