Testimony

on behalf of the

NATIONAL CATTLEMEN'S BEEF ASSOCIATION

in regard to

Packers and Stockyards Administration Oversight

submitted to

Senate Committee on Agriculture, Nutrition and Forestry

The Honorable Richard G. Lugar, Chairman

submitted by

Rita Sharma

Williamsport, Indiana

National Cattlemen's Beef Association

February 1, 2000

____________________________________________________________________________

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 Rita Sharma, Williamsport, Indiana

National Cattlemen's Beef Association

Senate Committee on Agriculture, Nutrition and Forestry

Hearing on Packers and Stockyard Administration Oversight

February 1, 2000

Thank you Chairman Lugar, Senator Harkin and Members of the Committee for holding this hearing to discuss Packers and Stockyard Administration (P&SA) oversight and other regulatory issues that concern the meat industry. NCBA commends your leadership and continuing efforts to examine the ongoing change and resulting 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 Rita Sharma, a seedstock producer from Williamsport, Indiana and a member of the National Cattlemen's Beef Association.

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. During the last session we worked with members and staff of this committee to improve availability of market information and enhanced competitiveness through market forces. The industry supported mandatory reporting of procurement prices and terms of trade for slaughter cattle and improved reporting of boxed beef prices, retail prices, imports and exports in a comprehensive price-reporting package. We thank you again for that initiative.

A Changing Industry:

This hearing is a continuation of an ongoing soul-searching process that is resulting from change in the livestock industry and concerns of livestock producers as they struggle to cope with change in a very competitive domestic and international marketplace. 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 volatility in international economies, changes in supply, a weak, but recently improving beef 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 price declines during the mid to late1990s.

A vocal beef industry minority perceives that increased regulatory action is warranted. P&SA data show that the four largest packers slaughter approximately 80 percent of all steers and heifers marketed, but this percentage has not changed appreciably since 1990. NCBA policy supports close monitoring of mergers and acquisitions and enforcement of antitrust laws and regulations. Close evaluation of price movements and margins are 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. P&SA has conducted several broad and focused investigations relative to industry structure and marketing practices, and has taken enforcement actions when necessary to address infractions. However, repeated anti-trust investigations by P&SA and the Justice department have not uncovered broad, industry-wide illegal activities. Part of the frustration in the country is that many marketing practices and industry concentration levels that are perceived to be illegal are not.

NCBA has long supported strong oversight and enforcement of existing anti-trust and market protection laws. NCBA's 1988 Beef Industry Concentration and Integration Task Force spent a year evaluating this issue in anticipation of ongoing industry restructuring. The GAO has conducted repeated studies going back to the 1980s including "Beef Industry Packer Market Concentration and Cattle Prices," December 1990 and P&SA Oversight of Livestock Market Competitiveness Needs to Be Enhanced," October 1991.

These and other studies coupled with industry input have resulted in P&SA restructuring and modifications in enforcement and investigative activities. 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. Efforts to inhibit or roll back change in the beef industry will only result in policy-imposed inefficiencies and lack of competitiveness for the US beef industry. This is especially true if other US meat industries and beef producers in other countries are allowed to restructure and modify marketing practices in response to changing realities of the marketplace.

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. There are several examples representing different approaches by groups of cattle producers, such as:

· U.S. Premium Beef, Ltd.

· Western Beef Alliance

· Ranchers' Renaissance

· Iowa Cattlemen/Excel joint venture

· Angus Alliance

· Five-State Beef Initiative

· Harris Ranch

· Nichols Farms Alliance

These are just a few of the innovative marketing available. There are many more, particularly in areas where producers are teaming with other segments of the industry to take advantage of national, regional and even niche market opportunities.

This growing number of innovators are long-term professional cattlemen who came together to address their desire for a growing, viable beef industry in a proactive way by developing bold new marketing strategies. 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.

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 thought-leaders in the industry has been about how to foster new marketing systems that meet consumer needs and increase beef demand. Participants in the deliberative process have been very concerned about the "law of unintended consequences" as we worked to develop processes 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. Consistent with legislation approved last year NCBA urges USDA to aggressively pursue implementation of mandatory price reporting for cattle, boxed beef, imports and exports.

Improving Market Conditions:

The beef industry is in many ways a bright spot among many depressed agricultural commodities. In part, this is because we have never relied on the government to "fix" industry conditions caused by market forces. Because of this, we are not making a difficult transition from government programs to reliance on private sector market forces. Cattlemen have always had the "freedom to farm" and the freedom to fail. With this historical backdrop it may be easier for the Committee to understand why there is a great deal of caution and reluctance throughout the mainstream beef industry to call for dramatic expansion of government intervention in the beef industry marketplace. We remain committed to strong oversight and enforcement of existing laws and regulations.

While we empathize with current low prices experienced by grain producers in the face of recent record production -- prices for calves and yearlings have increased and farmers and ranchers are recovering from the crisis of 1996. Prices for steer calves and feeder cattle are again higher than fed cattle prices. Increased fed cattle prices since March 1999 and cautious optimism have resulted in continued increases in prices for calves and feeder cattle.

Prices for all classes of cattle are significantly improved from the cyclical lows established during 1996, but still below the cyclical high prices of the early 1990s. During March and April 1996, the monthly average prices for steer calves averaged less than $60/cwt. and feeder cattle prices averaged less than $54/cwt. These prices were a major decline from prices experienced during the late 1980s and early 1990s and were directly related to cyclical increases in cattle numbers and record high grain prices.

Conditions have improved dramatically since the doldrums of the mid-1990s. Prices for steer calves averaged $102.60/cwt. during December 1999 -- the first time the monthly average has exceeded $100/cwt. since April 1994. Prices for steer calves have generally ranged above $90/cwt. since January 1999. Fed cattle prices averaged nearly $70/cwt. during November 1999 and are projected to improve to the low $70s/cwt. next spring as cattle numbers continue to decline. Higher cattle prices are primarily due to declining numbers of calves and feeder cattle, improving beef demand after a 20-year decline, improvements in Asian financial conditions resulting in improved by-product values and general improvement in export markets.

As stated at the outset, of this testimony NCBA and the beef industry support Justice Department and P&SA enforcement of the P&S Act as amended and anti-trust laws and regulations. We support timely and complete USDA implementation of mandatory price reporting legislation passed last session. We urge that USDA be involved in pre-merger evaluation of proposed packer mergers in coordination with evaluation by the Justice Department and support adequate funding for GIPSA and the Justice Department to accomplish their investigative functions.

NCBA supports a free market system and we trust in the ability, adaptability and innovating skills of the US cattleman to be able to prosper in a relatively unregulated domestic and international marketplace. We rely on federal regulators to ensure that the marketplace is free from anti-trust, collusion, price fixing and other illegal activities that damage the viability of the market and interfere with market signals, but also to keep the playing field level for cattle producers. If allowed to work the market will recover with a minimum of government intervention and cost of regulatory inefficiency. To remain competitive in a global market, this is absolutely a necessity.

We are prepared to work with you and your staff to provide additional information and direction. Again, we certainly appreciate the leadership the Committee has shown in addressing the tough issue of an evolving competitive industry structure and the appropriate role of government oversight.

Thank you for the opportunity to present this information.