STATEMENT OF
THE AMERICAN FARM BUREAU FEDERATION
TO THE
SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE
REGARDING
MEATPACKER OWNERSHIP OF LIVESTOCK
Presented By:
Steve Appel, Vice President
American Farm Bureau Federation and
President of Washington State Farm Bureau
July 16, 2002
Good morning. My name is Steve Appel and I am Vice President of the American Farm Bureau Federation and President of Washington State Farm Bureau. I am from Whitman County, Washington. I appreciate the opportunity to present testimony today on behalf of the American Farm Bureau Federation on packer ownership of livestock.
Increased concentration in agricultural markets has frustrated many farmers and ranchers because producers believe increased concentration results in less market competition. Less market competition means less price transparency and can often result in lower prices. At the packer level, the four largest firms' share of hog slaughter has reached 59 percent, compared with 40 percent in 1990. It is estimated that in 2001 over 80 percent of all hogs in the U.S. were marketed through some form of forward sales arrangement between the producers and packers. Approximately 25 percent of all market hogs in the U.S. were either partially or entirely owned by a packer.
In the cattle sector, the four largest beef packers account for 81 percent of all steers and heifers slaughtered today, compared with 36 percent in 1980. The USDA captive supply report released earlier this year found that 25 percent of the U.S. beef supply was captive supplies of the packers.
AFBF believes prohibiting packer ownership of livestock would reduce concentration and allow independent producer more access to a competitive marketplace and price discovery. Allowing packers to stay out of the cash market for extended periods of time reduces farm gate demand. The result is reduced market access for small and medium-sized producers.
In recent years many livestock producers have engaged in various marketing arrangements with packers to assist in profitability, consistency in product and guaranteed marketing of product. Such arrangements provide a premium for the producer and a certain delivery date for the packer. Farm Bureau supports the ability of producers to forward contract, participate in grid and formula pricing and other risk management tools, but believes that allowing packers to own livestock reduces competition in the marketplace. We worked diligently with staff members during the farm bill debate to clarify the issue of control and supported the language included in the Senate-passed farm bill which would have allowed risk management tools for livestock producers.
There are many questions and concerns regarding the prohibition of packer ownership. Those opposed question the ability of the packers and retailers to continue the excellent and diverse product development and marketing of livestock products that has resulted in increased demand both domestically and internationally. There is strong demand for case-ready and other products. Since there is such strong demand for these products, their development will continue regardless of whether the prohibition of packer ownership becomes law.
Another argument against the prohibition of packer ownership is that the poultry industry would have a further competitive advantage over the pork and beef industries if packer ownership would be prohibited. Poultry and beef are two completely different types of protein. If there is currently a competitive advantage for poultry, we believe it is mostly attributed to product development and case-ready meat that can be easily prepared. The beef industry is developing products that are easily prepared and working with the retail industry to meet the demand for a more diverse and user-friendly meat case at the grocery store.
There are also concerns about the present availability of carcass data currently available used to further improve production management. Improved carcass data is assisting producers to meet the livestock specifications needed by the packers. The availability of that information should not diminish as a result of a prohibition on packer ownership.
Many buyers and sellers characterize a truly competitive market. Concentration in agriculture is increasing. When the numbers of buyers is reduced, downward pressure on price may result. As marketplace volume decreases, the market is far more susceptible to intentional or unintentional actions taken by the dominant buyers. If a plant shuts down or a packer pulls out of the market for other reasons, prices suffer. There is increasing concern among producers, due to the downturn in the economy and companies filing for bankruptcy, that some packing plants may shut down. Reduced slaughter capacity typically means lower prices for producers.
The Packers and Stockyards Act (PSA) was enacted to deal with the problems associated with concentration. Its regulations prohibit sale barns or auction markets from vertically integrating. Specifically, stockyards may not own or control buying stations, packing plants or livestock feeding operations. The rationale is that such ownership or control creates conflicts of interest, access problems for other producers, and opportunities for self-dealing which distorts the market. The procurement of cattle and hogs has changed dramatically since the Packers and Stockyards Act was passed over 80 years ago. At that time, cattle were primarily sold at auction markets to the packers. Today, most cattle are sold directly off the feedlot to the packing plant. Farm Bureau believe that because the meatpackers are similarly situated to stockyards as a market creator and market forum, the same rules in the PSA should apply to them. In fact, more concentration exists today among the packing industry than existed at the time PSA was originally passed.
The prohibition of packer ownership of livestock is a passionate and controversial issue. Such a ban will not solve all of the issues of livestock concentration and cyclical price fluctuations for producers. However, it may assist independent producers in securing a competitive marketplace and a transparent price discovery system. There are many questions to be asked regarding livestock concentration and how to achieve a fair, competitive marketplace for all segments of the industry from producer to retailer. We appreciate the hearing today and the opportunity to discuss this important issue with the Committee.
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