U.S. Cattle Producers Need Competition Title in 2007 Farm Bill
There has been a lot of coverage of commodity, conservation and disaster payments, but many U.S. cattle producers believe the core problem facing the cattle industry today is that the overall framework, which defines how our cattle industry operates, is no longer adequate to ensure a balanced and properly functioning competitive marketplace. A competition title in the 2007 Farm Bill could correct this.

The present industry framework – comprised of the statutes, regulations and policies that govern contracts, market competition, and trade – has evolved under the considerable influence of the nation’s largest meatpackers, and without sufficient counterbalance from producers. As a result, the balance of power within the present industry framework is tilted in favor of the multinational meatpackers, resulting in a pricing advantage for them and an erosion of competition in the markets for livestock producers.

An estimated 800,000 independent cattle producers depend on open, competitive markets for their income, and they are being harmed by this imbalance. To survive in this industry, U.S. producers must have open, competitive markets when it’s time to market their livestock.

The National Cattlemen’s Beef Association (NCBA) – which represents packers, feeders tied to packers, and producers – says U.S. markets are fine the way they are. However, R-CALF United Stockgrowers of America – which exclusively represents producers – is working to carry out membership-established policy to correct the anti-competitive practices being allowed within the industry today.

R-CALF USA members are working with Congress to include competition reforms in the 2007 Farm Bill. NCBA is opposed to each of these reforms, yet claims to represent producers. These reforms include:

1) The immediate implementation of mandatory country-of-origin labeling, or COOL (S. 404 and H.R. 357). U.S. cattle producers cannot effectively compete in a marketplace that does not distinguish imported beef from U.S.A. beef. U.S. consumers have no other way of choosing between beef produced under U.S. standards and beef produced under foreign standards. The Chinese-based melamine and catfish problems prove the production standards of differing countries do indeed impact food safety.

2) Passage of the Competition and Fair Agricultural Markets Act of 2007 (S. 622 and H.R. 2135) will strengthen and ensure the proper enforcement of the Packers and Stockyards Act (PSA) by establishing an Office of Special Counsel to investigate and prosecute PSA violations.

3) The Captive Supply Reform Act (S. 1017 and H.R. 2213) requires forward contracts for fed cattle to include a firm base price and be offered in an open and public manner. The unintended consequence of the current forward contracts that do not contain a firm base price, such as certain formula-priced contracts, is that packers can simultaneously control the base price of both contracted and non-contracted cattle. They can control the price of contracted cattle by avoiding the cash market, resulting in diminished competition and lower prices during the week the base price is to be established, which is the week previous to the actual delivery of the cattle. They also can control the overall cash market by increasing the slaughter of non-priced formula cattle during weeks when the cash market is attempting to rally. This proposed legislation would resolve the problem of unequal access to market-price information for contract cattle when packers don’t report prices, leaving producers at a disadvantage.

4) Passage of the proposed legislation on the limitation on packer ownership of cattle (S.305) also is key. The price paid for all classes of commercial cattle sold by the estimated 800,000 U.S. cattle producers is ultimately tied to the price the nation’s four largest packers pay for the approximate 83 percent of the slaughter-ready cattle they control through captive supplies (ownership or contracts). The profitability of the U.S. producer is dependent on robust competition occurring at this final point where cattle are sold for slaughter. The practice of packers owning cattle and feeding cattle is anti-competitive because it reduces the volume of cattle sold on the cash market, increases price manipulation and lessens competition for all classes of cattle.

The stakes are worth billions. When packers are allowed to use anti-competitive practices to reduce slaughter-ready cattle by only 3.5 cents per pound (about $42 per head), the result is a direct, annual transfer of over $1 billion in profits from U.S. beef cattle producers directly to the four largest U.S. meatpackers. For example, in February 2006, all four major meatpackers withdrew from the open market in the Southern Plains for about two weeks. As a result of the packers shunning the open market, average prices for fed cattle fell 4.7 cents per pound (a loss of over $56 per head) during the month of February as compared to January.

U.S. cattle producers aren’t seeking handouts in the 2007 Farm Bill. We believe large subsidy payments reflect a food system that encourages production to achieve cheap commodity prices that mainly benefit the buyers of these commodities, not the producers. We only expect proper regulation of livestock markets to ensure competition and a level playing field for all.

-- R-CALF USA Region I Director Margene Eiguren

R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) is a national, non-profit organization dedicated to ensuring the continued profitability and viability of the U.S. cattle industry. R-CALF USA represents thousands of U.S. cattle producers on trade and marketing issues. Members are located across 47 states and are primarily cow/calf operators, cattle backgrounders, and/or feedlot owners. R-CALF USA has more than 60 affiliate organizations and various main-street businesses are associate members. For more information, visit www.r-calfusa.com or, call 406-252-2516.