Testimony
on behalf of the
NATIONAL CATTLEMEN'S BEEF ASSOCIATION
in regard to
Mandatory Price and Volume Reporting
submitted to
Senate Committee on Agriculture, Nutrition and Forestry
The Honorable Richard G. Lugar, Chairman
submitted by
George Swan
President
National Cattlemen's Beef Association
May 26, 1999
____________________________________________________________________________
Initiated in 1898, the National Cattlemen's Beef Association is the marketing organization and trade association for America's one million cattle farmers and ranchers. With offices in Denver, Chicago and Washington D.C., NCBA is a consumer-focused, producer-directed organization representing the largest segment of the nation's food and fiber industry.
Statement by George Swan, President, NCBA
Senate Committee on Agriculture, Nutrition and Forestry
Hearing on Mandatory Price and Volume Reporting
May 26, 1999
Thank you Chairman Lugar, Senator Harkin and Members of the Committee for holding this hearing to discuss mandatory reporting for price and volume reporting in the meat industry. NCBA commends your leadership and continuing efforts to examine the mandatory price reporting issues and concerns of interest to cattlemen and women, and for working with us to find ways to improve our ability to more effectively market U.S. beef. I am George Swan, President of the National Cattlemen's Beef Association. I am a fourth generation rancher on the House Creek Ranch, Rogerson, Idaho.
NCBA encourages open and honest discussion of all issues facing the cattle industry, such as is being provided by today's hearing. Such debate is vital to the democratic policy development process -- both within NCBA and to the nation at large. NCBA has long supported mandatory reporting for export sales and shipments and for boxed beef sales prices and volumes, and during our Convention in February, our members approved expanding our policy to include mandatory reporting of procurement prices and terms of trade for slaughter cattle.
This hearing is a continuation of an ongoing process that caught fire during the appropriations process last year. NCBA is grateful for initiatives by Senators Daschle, Burns, Kerrey, Grassley and others to get this issue on the legislative agenda. The attention focused on this issue last year and earlier this year by senators, as well as the challenge issued by your counterparts on the House Agriculture Committee served as a catalyst for producers and the major packers to sit down together and develop a proposal on livestock market reporting. These actions helped break an ongoing stalemate between producers and packers that has restricted information flow throughout the beef marketing system and prevented price reporting from evolving to reflect changes in the way cattle are marketed.
The first meeting between NCBA leadership and packer representatives took place March 22 in Washington, D.C. The group has communicated weekly by teleconference since the initial meeting. In addition, weekly meetings at the staff level have taken place between the teleconferences and in all, approximately 20 meetings and teleconferences have occurred since our initial meeting took place. In addition to NCBA leadership and representatives from the packing companies, these meetings have included representatives from USDA, private market reporting services and many of our affiliate state cattlemen's associations. The meetings have been very educational for all parties -- I believe both sides have learned from these discussions and gained a better understanding of what we are seeking and how to best achieve those goals without harming producers. The final recommendations are provided as an attachment to this testimony and consensus legislation was delivered to all members of the Senate and House Agriculture Committees earlier this week.
While these discussions have largely been between NCBA and our packing industry partners, we also have been working within a producer coalition that includes the American Farm Bureau Federation, the American Sheep Industry Association and the National Farmers Union to achieve our mutual goals. Discussions and updates have also been held with our coalition partners and with House and Senate staff, including the House and Senate Agriculture Committees.
Just as important, consensus agreement has been achieved regarding live cattle, boxed beef and export reporting. Earlier this week, we delivered draft legislative language to Members of the Senate and House Agriculture Committees, as well as to Members not on either Committee who have shown strong interest in and support for this issue.
A Changing Industry:
Price and volume reporting are only a piece of a larger debate over wide-ranging changes that are sweeping the livestock sector and agriculture in general. There is a broad range of opinions among beef producers about the effects of international trade agreements, packer concentration and improvements in price discovery and market reporting on the beef industry.
The structural changes taking place in the beef industry have coincided with international economic crises, changes in supply, declining demand and weather-influenced volatility in feed grain and forage prices. How these factors are inter-related is the basis for heated debates, emotional arguments and general consternation by some individuals within the beef industry. Some producers have embraced new marketing techniques for their own advantage, while others believe structural changes are, at least in part, the cause of recent price declines.
There is a perception among some in the beef industry that regulatory action is warranted. Packers and Stockyards Administration data show that the four largest packers slaughter approximately 80 percent of all steers and heifers marketed and the percentage has not changed appreciably during the 1990s. NCBA policy supports close monitoring of mergers and acquisitions and enforcement of antitrust laws and regulations. Close evaluation of price movements and sector margins are also requested to assure that price changes are the result of market signals and not the exercise of market power or illegal pricing activities.
At the same time, the industry must remain pragmatic. Change in the beef industry, as in the rest of the economy, is a reality. The global market is a reality and has necessitated changes by companies to maintain competitiveness in the international marketplace. Contrast beef industry conditions to the much-publicized anti-trust case involving Microsoft where one company controls approximately 90 percent of the global computer software market and one can see why regulatory enforcement agencies are often perplexed by the ongoing concern in the beef industry.
New Marketing Systems:
In addition to increasing concentration, there has been a trend toward alignment between packers and feeders through contracts, marketing agreements and custom feeding of packer-owned cattle. NCBA policy is specific regarding these emerging business relationships.
· NCBA will not recommend the limitation of any method of marketing fed cattle.
· NCBA supports a free market system.
· No action is to be taken to alter or halt current trends toward private business arrangements among operators in the various sectors of the beef industry.
· NCBA is to encourage producers -- individually and through cooperative efforts -- to take advantage of opportunities to increase profits through new marketing strategies, coordination, risk management and retained ownership.
A number of producers are finding innovative ways to compete in the changing beef industry including gaining a greater share of the marketing dollar. For example, U.S. Premium Beef, Ltd. is a closed beef marketing cooperative formed on July 1, 1996, and based in Kansas City. On December 1, 1997, U.S. Premium Beef, consisting of more than 600 cattle producers in 26 states, bought an ownership interest in Farmland's National Beef Packing Company.
U.S. Premium Beef members and shareholders are long-term professional cattlemen who came together to address the concerns of the beef industry in a proactive way by developing a bold new marketing strategy. No longer are these producers' energies consumed by concerns about market structure. Their efforts revolve around producing a better beef product that is marketed through their own beef company. As owners, these cattlemen receive rewards from a value-based pricing system, individual carcass data and earnings from the company at year-end. We commend both the Agricultural Committee and your House colleagues for including provisions in the 1996 farm bill that helped facilitate this initiative.
NCBA and the beef industry must ensure that legislative and regulatory policies continue to encourage these types of solutions and do not limit a producer's ability to gain a greater share of the marketing dollar. Much of the discussion and debate among participants in the meetings we have had, consistent with the directive from Chairman Combest and Mr. Stenholm, has been about how to foster new marketing systems. Participants in the process have been very concerned about the "law of unintended consequences" as we worked to develop a process that would increase information flow and market transparency without unintentionally placing new and innovative marketing systems at a competitive disadvantage.
While the beef industry continues to debate concentration and marketing system issues, there is widespread agreement that efficient markets require greater market transparency that is achieved by the availability of accurate and timely information -- especially in situations with many sellers and few buyers. Information availability helps ensure that competitive market forces exist. Fewer buyers cannot have undue leverage when market information is widely available to more dispersed sellers. As shown in the attached proposal, NCBA continues to aggressively pursue action to improve price reporting for cattle, boxed beef, imports and exports.
Beef Industry Price Reporting Proposal
Cattle Reporting:
· Legislative language will provide for complete mandatory reporting of prices and terms of trade for all cattle purchased for slaughter.
· Cattle market reports are to reflect cattle purchased in the domestic and in the export market.
· Prices, volumes and terms of trade for all cattle purchased in the negotiated cash or "spot" market will be reported twice daily by packers to USDA.
· Separate volume reports will be developed for cattle purchased on a formula or grid, for cattle purchased on contract and for cattle owned by a packer in a company-owned or commercial feedlot.
· The volume, basis level, and delivery month will be reported weekly for all cattle purchased on "basis contracts" and prices for cattle purchased on a formula or grid will be reported during the week that the seller receives payment.
Beef Reporting:
· Packers will be required to report the negotiated price and volume for each lot of boxes sold by cut for all grade and trim specifications and meat sold on branded programs.
· A study will be commissioned by NCBA to analyze the effectiveness of the existing price reporting system in reflecting beef trade as it currently occurs -- and to develop recommendations to further move the industry towards a value-based reporting system.
· AMS will develop retail price reports based on sales volume and prices using national retail scanner data collected by national retail scanner databases.
Import/Export Reporting:
NCBA has long supported improving timeliness of export and import information. Generally, USDA and the Commerce Department have provided accurate and reasonably timely information regarding cattle and beef imports. USDA/APHIS provides live cattle import numbers every other week from Canada and weekly from Mexico. The Commerce/Customs Department issues its (import) Quota Threshold Status report on a weekly basis. Under the proposal all import reporting shall be consistent with export reporting.
While Commerce Department data regarding beef exports is generally accepted as accurate, it is nearly 90 days old when issued. USDA has a much more timely system in place for reporting most agricultural commodities. Congress mandated export sales reporting for most of the major grains and oilseeds during the mid-1970s to ensure that all parties involved in the production and export of U.S. grain have access to up-to-date export information. The system has since been expanded to include hides, but not meat. More than two years ago, USDA published an advanced notice of rule-making requesting public comments on a proposal to require mandatory reporting of export sales of meat and meat products. The final rule still has not been published.
· USDA will be mandated to publish the final regulation providing for mandatory reporting of meat sales and shipments into the export market through the Foreign Agriculture Service Export Sales Reporting program. NCBA and others who developed this proposal believe that this rule is long past due. USDA should immediately adopt and implement export sales reporting for meat.
· USDA shall be mandated to develop a centralized on-line system for issuing and reporting export certificates for all meat and meat products comparable to the system currently operational in Canada. Such a system shall be in place and operational within 12 months of the enactment of this legislation.
As stated at the outset, the process of developing the beef industry price reporting proposal has been interesting and educational. Over the past month, NCBA has appreciated the high degree of cooperation from the packers and other industry participants as we wrestled with this important issue. We are prepared to work with you and your staff to keep this process moving forward, and, again, certainly appreciate the leadership the Committee has shown in addressing the tough issue of market transparency.
Thank you for the opportunity to present this information.
ATTACHMENT: Price Reporting Agreement -- Summary Points
May 24, 1999
Live Cattle Reporting
1) All of the following live cattle reports will be segregated into prices and volumes of cattle purchased in the domestic market and imported cattle purchased in foreign markets.
2) Corporate offices, or officially designated representatives, of all Federally Inspected cattle processing plants shall report to USDA Market News Service all spot (cash) market purchases of cattle purchased live or on a dressed weight basis turned in since their last report to USDA. USDA will contact packers no less than twice per day, once in the morning, and once in the afternoon, and report this information to the public three times per day.
a) Reports of spot market purchases may be aggregated, but only for each price level at which cattle are purchased. Each price level reported must include a range of estimated live weights, estimated percent Choice or better and any premiums or discounts associated with weight, grade and yield or grid and/or formula purchases.
3) Reports shall designate whether such livestock are comprised of fed steers, fed heifers, Holsteins, cows, bulls or other bovine for slaughter. USDA is instructed to continue publishing regional and/or state reports as appropriate under USDA aggregation guidelines consistent with the current reporting framework.
4) All Federally Inspected processors must report for the "National Carcass Premiums and Discounts for Slaughter Steers and Heifers" report.
5) All Federally Inspected processors purchasing cattle on a non-spot formula or grid basis must report to USDA by Friday of each week the range and weighted-average premiums and discounts, weighted average prices, volume and terms of trade paid during the prior week. In addition this report will include the range of prices and the weighted-average in-the-beef price paid for all cattle purchased on a non-spot formula or grid for all cattle purchased during the prior week.
6) All Federally Inspected processors must report to USDA on Friday of each week the volume of all non-spot shipments. The report will include separate volumes for contract, formula, and packer-owned cattle slaughtered during the current week (Monday through Saturday). USDA will collect the information every Friday morning, create a national aggregate, and publish the aggregate report on the same Friday.
7) Corporate offices, or officially designated representatives, of all Federally Inspected cattle processing plants will report weekly to USDA the volume, basis level, and delivery month for all cattle purchased on "basis contracts" agreed to that week. This information will be aggregated by USDA and reported in the weekly "Forward Contract Slaughter Cattle Summary Report".
8) This legislation preempts state legislation implementing mandatory livestock price reporting programs.
9) This legislation is subject to a 3-year reauthorization.
10) No federal user fees will be assessed for market reporting.
11) Price reporting studies authorized in the 1999 Omnibus Appropriations legislation will be repealed.
Marketing Policy:
It shall be considered a violation of the law for any Corporate office to intentionally delay reporting of any type of fed cattle purchase, or for any buyer or seller to request non-reporting or miss-reporting of the sale as a condition of trade.
Boxed Beef Reporting
1) Packers will be required to report to AMS negotiated price and volume by lot of boxes sold by cut for USDA Choice or better, USDA Select and no-roll product and for all trim specifications. AMS will be mandated to issue reports twice daily, as is currently the case.
2) Boxed beef buyers are required to confirm sales if contacted by AMS
3) A study will be commissioned by NCBA to analyze the effectiveness of the existing price reporting system in reflecting beef trade as it actually occurs and to develop recommendations for improvements to the existing system to move the industry towards a value-based reporting system. Note: this item will be moved to a sidebar agreement between NCBA and the packers and will not be included in legislative language.
4) AMS is directed to utilize national retail scanner data collected by Information Resources Inc., (IRI) or other national retail scanner databases to develop retail price reports based on sales volume and prices.
Export/Import Reporting
1) USDA shall immediately publish the pending regulation to add meat (beef, pork -- chicken if possible) to the list of commodities subject to FAS Export Sales Reporting requirements. This regulation is provided for under discretionary authority granted to the Secretary -- 20.4, (c) -- to add "any other agricultural commodity the Secretary may designate" subject to export sales reporting. See Part 20, Section 602 of the Agricultural Act of 1978 as added by the Food, Agriculture, Conservation and Trade Act of 1990.
With respect to beef such export reports would be subject to the following provisions:
a) Mandatory weekly reports by packers of U.S. origin sales, optional origin sales and exports for the exporter's own account subject to and consistent with provisions, penalties and definitions contained in Section 602, 20.1-20.12.
b) FAS reports are volume only for each country of destination, if known. Volume reports will be in metric tons rounded to the nearest half-metric ton.
c) Two classes of product will be reported: 1. All beef (including fresh, frozen and cooked beef but excluding further processed products containing beef as an ingredient, for example, stews and frozen meals) and 2. Beef variety meats.
d) Sales and shipments of both product classes as provided in Part 20, Section 602 for a marketing year of January 1 through December 31.
e) Maintain funding at $250,000 for streamlined electronic reporting systems for export sales reporting.
2) USDA shall be mandated to develop a centralized on-line system for issuing and reporting export certificates for all meat and meat products comparable to the system currently operational in Canada. Such a system shall be in place and operational within 12 months of the enactment of this legislation.
3) Import reporting shall be consistent with export reporting.
Enforcement:
1) The Secretary is instructed to review existing authorization for enforcement and confirm that USDA has the necessary existing authorization to enforce these new regulations.
2) All Federally Inspected processors shall be subject to provisions of this proposal. However, the Secretary is granted discretionary authority to exempt packing plants with a daily average slaughter of 100 cattle or less (25,000 average annual slaughter for a 5-day week and 50 weeks of operation).
EXAMPLE OF INFORMATION REPORTED FOR NON-SPOT FORMULA CATTLE
Example of Information Flows as Proposed
1) May 3, 1999 - USDA publishes the National Carcass Premiums and Discounts for Slaughter Steers and Heifers report that includes the range and simple average of premiums and discounts that all Federally Inspected packers intend to pay during the week of May 3 through May 8, 1999.
2) May 3-May 7, 1999 -- USDA contacts all Federally Inspected packers twice daily and packers report all cattle purchased on a negotiated cash basis whether on a live-weight basis or on a dressed weight basis. All cattle purchased on a formula or grid with a negotiated base price are reported at this time. Each price level reported includes a range of estimated live weights, estimated percent Choice or better and any premiums or discounts associated with weight, grade and yield or grid and/or formula purchases.
3) May 7, 1999 -- USDA reports the volume, basis level, and delivery month for all cattle purchased on "basis contracts" agreed to by all Federally Inspected packers during the week.
4) May 7, 1999 -- USDA reports the total volume of non-spot shipments during the week of May 3 through May 8 by all Federally Inspected packers. The report includes separate volumes for contract, formula, and packer-owned cattle slaughtered during the current week (Monday through Saturday).
5) May 14, 1999 -- USDA reports the range and weighted-average premiums and discounts, range and weighted-average prices, volume and terms of trade actually paid for cattle that were shipped during the week of May 3 through May 8. This report reflects the number of cattle purchased on a formula and/or grid as reported for the week on May 7 and is comparable to packers' intent to pay as reported in the May 3 National Carcass Premiums and Discounts for Slaughter Steers and Heifers report.