Congress examines industry concentration issues
John Robinson, WLJ Editor
Western Livestock Journal
April 23, 2007
Both houses of Congress last week began the examination of consolidation and concentration in the livestock industry. The hearings quickly generated a firestorm of controversy among competing interests in the business. In testimony before the House Agriculture Subcommittee on Livestock, Dairy, and Poultry on Market Structure of the Livestock Industry, National Cattlemen’s Beef Association (NCBA) President and North Carolina cattle producer John Queen told subcommittee members that livestock markets shouldn’t be restricted by Congressional mandate.
“When it comes to market structure and competition issues, NCBA’s position is simple—we ask that the government not tell us how we can or cannot market our cattle,” Queen said.
Queen pointed to the recently released Grain Inspection, Packers and Stockyards Administration (GIPSA) Livestock and Meat Marketing study which concluded that alternative marketing arrangements (AMAs) such as forward contracts, production contracts, packer ownership or custom feeding have provided benefits to some producers without harming the competitiveness of the marketplace.
“The report states that the leading reasons ranchers participate in AMAs are the ability to buy or sell higher quality cattle, improve supply chain management, and obtain better prices,” says Queen. “The study concludes that restrictions on AMAs would cause a decrease in the supply of cattle, quality of beef, and feeder cattle prices.”
Not surprisingly, groups such as R-CALF United Stock Growers of America and National Farmer’s Union (NFU) took the opposite stance, claiming that market concentration has hurt competition in the industry.
R-CALF Region VII Director Eric Nelson told the committee that producers’ success in winning back competition depends on Congress.
“Due to the radical changes that occurred within the structure of the U.S. cattle market—including the unprecedented consolidation of the meat packing industry and the introduction and increased use of non-traditional contracting and marketing methods—the U.S. cattle market is producing results that are inconsistent with a competitive market,” Nelson said.
“Consumers are now paying nearly twice the value for fresh cuts of beef than what the cattle producer receives for each animal sold to a meat packer,” he explained. “The price the consumer is now paying for fresh cuts of beef has more than doubled since 1990 and while the cattle producers’ price increased by only $89 per carcass by 2006, the price the consumer paid for beef had increased $580 per carcass during the same period.
“The enlarged gap between the farm-gate price and retail price suggests that the meatpacking and retailing sectors have become less efficient at processing and/or selling beef, or they have acquired sufficient buying power to leverage down the price of cattle—or both,” Nelson noted.
NFU President Tom Buis pointed to the group’s recently completed study, which was conducted by Mary Hendrickson and William Heffernan of the University of Missouri, which Buis said determined there has been increased concentration in every agricultural industry except ethanol production.
“This study supports what we have long known,” Buis said. “In the absence of public policy intervention, consolidated and non-competitive markets flourish, while independent family farmers disappear. Congress must take action to restore competition in the marketplace. The 2007 Farm Bill is the perfect opportunity to make that happen.”
The NFU study documents that the top four beef packers dominate 83.5 percent of the market, four pork packers control 66 percent of that market, and the top four poultry companies process 58.5 percent of the broilers in the U.S. Tyson Foods is listed in the top four of each of these categories. The retailing industry has been gradually increasing its degree of concentration, with the top five companies controlling 48 percent of U.S. food retailing, compared to 24 percent a decade ago.
American Farm Bureau Federation President Bob Stallman had similar comments for the subcommittee.
“Consolidation and concentration within the agricultural sector could have adverse economic impacts on U.S. farmers and ranchers,” said Stallman. “It is important that markets be accessible to all producers and that they offer competitive prices.”
Stallman cited trends that illustrate this, including the share of steer and heifer slaughter for the four largest beef packers increasing from 36 percent to 80 percent from 1980 to 2004 and the share of hog slaughter for the four largest packers increasing from 32 percent to 64 percent from 1985 to 2004.
Stallman urged the subcommittee to consider enhancing the Agriculture Department’s oversight of the Packers and Stockyards Act through the establishment of an Office of Special Counsel for Competition with a designated agricultural counsel.
“USDA, in conjunction with the Department of Justice, should closely investigate all mergers, ownership changes or other trends in the meat packing industry for actions that limit the availability of a competitive market for livestock producers,” Stallman said.
Other industry groups were also quick to jump into the fray during the hearings. One of the most vocal opponents of attempts to limit concentration or the use of AMAs was American Meat Institute’s President J. Patrick Boyle, who also pointed to the GIPSA study to illustrate his stance.
Boyle said the key is not the level of concentration, but how it impacts the market.
“We believe the strength of the livestock marketing system in the U.S. is the flexibility it provides to producers, packers/processors and retailers in responding to market signals and offering an increasing variety of alternatives for the producer through to the consumer,” he said.
According to Boyle, producer options include: spot market transactions, production contracts, cooperatives, bargaining associations, marketing agreements, and other options that allow them to align themselves with consumer demands through contractual arrangements to manage risk and produce a desired product.
Boyle said that the recently completed four-year, $4.5 million analysis, “Livestock and Meat Marketing Study,”—conducted by USDA in cooperation with the Department of Justice, the Federal Trade Commission and the Commodity Futures Trading Commission—is the most comprehensive and far reaching study that has ever been conducted on livestock and meat marketing. The report found that contractual, marketing arrangements between livestock producers and meat packers increase the economic efficiency of the cattle, hog, and lamb markets and that these economic benefits are distributed to consumers, as well as to producers and packers. Conversely, the study concluded that restrictions on the use of these contractual arrangements, such as the legislative proposals previously discussed, would have negative economic effects on livestock producers, meat packers, and consumers.
“Attempts to limit packers’ and producers’ abilities to engage in contracts, marketing agreements, and strategic mergers reduce capacity to respond to consumers and pursue economic, social, and environmental goals in rural America,” he said.
While the outcome of the hearings is unclear, it appears that the current Democratic-controlled Congress could be more sympathetic to livestock producers who claim concentration is depressing their livelihood. The Senate Agriculture committee, controlled by Sens. Tom Harkin, D-IA, and Chuck Grassley, D-IA, held similar hearings last Wednesday. Interestingly, there was not a single packing company representative listed among those set to testify. That fact could provide an indication of the direction Congress will take when addressing matters of competition and concentration during the upcoming Farm Bill debate.
wlj.net
John Robinson, WLJ Editor
Western Livestock Journal
April 23, 2007
Both houses of Congress last week began the examination of consolidation and concentration in the livestock industry. The hearings quickly generated a firestorm of controversy among competing interests in the business. In testimony before the House Agriculture Subcommittee on Livestock, Dairy, and Poultry on Market Structure of the Livestock Industry, National Cattlemen’s Beef Association (NCBA) President and North Carolina cattle producer John Queen told subcommittee members that livestock markets shouldn’t be restricted by Congressional mandate.
“When it comes to market structure and competition issues, NCBA’s position is simple—we ask that the government not tell us how we can or cannot market our cattle,” Queen said.
Queen pointed to the recently released Grain Inspection, Packers and Stockyards Administration (GIPSA) Livestock and Meat Marketing study which concluded that alternative marketing arrangements (AMAs) such as forward contracts, production contracts, packer ownership or custom feeding have provided benefits to some producers without harming the competitiveness of the marketplace.
“The report states that the leading reasons ranchers participate in AMAs are the ability to buy or sell higher quality cattle, improve supply chain management, and obtain better prices,” says Queen. “The study concludes that restrictions on AMAs would cause a decrease in the supply of cattle, quality of beef, and feeder cattle prices.”
Not surprisingly, groups such as R-CALF United Stock Growers of America and National Farmer’s Union (NFU) took the opposite stance, claiming that market concentration has hurt competition in the industry.
R-CALF Region VII Director Eric Nelson told the committee that producers’ success in winning back competition depends on Congress.
“Due to the radical changes that occurred within the structure of the U.S. cattle market—including the unprecedented consolidation of the meat packing industry and the introduction and increased use of non-traditional contracting and marketing methods—the U.S. cattle market is producing results that are inconsistent with a competitive market,” Nelson said.
“Consumers are now paying nearly twice the value for fresh cuts of beef than what the cattle producer receives for each animal sold to a meat packer,” he explained. “The price the consumer is now paying for fresh cuts of beef has more than doubled since 1990 and while the cattle producers’ price increased by only $89 per carcass by 2006, the price the consumer paid for beef had increased $580 per carcass during the same period.
“The enlarged gap between the farm-gate price and retail price suggests that the meatpacking and retailing sectors have become less efficient at processing and/or selling beef, or they have acquired sufficient buying power to leverage down the price of cattle—or both,” Nelson noted.
NFU President Tom Buis pointed to the group’s recently completed study, which was conducted by Mary Hendrickson and William Heffernan of the University of Missouri, which Buis said determined there has been increased concentration in every agricultural industry except ethanol production.
“This study supports what we have long known,” Buis said. “In the absence of public policy intervention, consolidated and non-competitive markets flourish, while independent family farmers disappear. Congress must take action to restore competition in the marketplace. The 2007 Farm Bill is the perfect opportunity to make that happen.”
The NFU study documents that the top four beef packers dominate 83.5 percent of the market, four pork packers control 66 percent of that market, and the top four poultry companies process 58.5 percent of the broilers in the U.S. Tyson Foods is listed in the top four of each of these categories. The retailing industry has been gradually increasing its degree of concentration, with the top five companies controlling 48 percent of U.S. food retailing, compared to 24 percent a decade ago.
American Farm Bureau Federation President Bob Stallman had similar comments for the subcommittee.
“Consolidation and concentration within the agricultural sector could have adverse economic impacts on U.S. farmers and ranchers,” said Stallman. “It is important that markets be accessible to all producers and that they offer competitive prices.”
Stallman cited trends that illustrate this, including the share of steer and heifer slaughter for the four largest beef packers increasing from 36 percent to 80 percent from 1980 to 2004 and the share of hog slaughter for the four largest packers increasing from 32 percent to 64 percent from 1985 to 2004.
Stallman urged the subcommittee to consider enhancing the Agriculture Department’s oversight of the Packers and Stockyards Act through the establishment of an Office of Special Counsel for Competition with a designated agricultural counsel.
“USDA, in conjunction with the Department of Justice, should closely investigate all mergers, ownership changes or other trends in the meat packing industry for actions that limit the availability of a competitive market for livestock producers,” Stallman said.
Other industry groups were also quick to jump into the fray during the hearings. One of the most vocal opponents of attempts to limit concentration or the use of AMAs was American Meat Institute’s President J. Patrick Boyle, who also pointed to the GIPSA study to illustrate his stance.
Boyle said the key is not the level of concentration, but how it impacts the market.
“We believe the strength of the livestock marketing system in the U.S. is the flexibility it provides to producers, packers/processors and retailers in responding to market signals and offering an increasing variety of alternatives for the producer through to the consumer,” he said.
According to Boyle, producer options include: spot market transactions, production contracts, cooperatives, bargaining associations, marketing agreements, and other options that allow them to align themselves with consumer demands through contractual arrangements to manage risk and produce a desired product.
Boyle said that the recently completed four-year, $4.5 million analysis, “Livestock and Meat Marketing Study,”—conducted by USDA in cooperation with the Department of Justice, the Federal Trade Commission and the Commodity Futures Trading Commission—is the most comprehensive and far reaching study that has ever been conducted on livestock and meat marketing. The report found that contractual, marketing arrangements between livestock producers and meat packers increase the economic efficiency of the cattle, hog, and lamb markets and that these economic benefits are distributed to consumers, as well as to producers and packers. Conversely, the study concluded that restrictions on the use of these contractual arrangements, such as the legislative proposals previously discussed, would have negative economic effects on livestock producers, meat packers, and consumers.
“Attempts to limit packers’ and producers’ abilities to engage in contracts, marketing agreements, and strategic mergers reduce capacity to respond to consumers and pursue economic, social, and environmental goals in rural America,” he said.
While the outcome of the hearings is unclear, it appears that the current Democratic-controlled Congress could be more sympathetic to livestock producers who claim concentration is depressing their livelihood. The Senate Agriculture committee, controlled by Sens. Tom Harkin, D-IA, and Chuck Grassley, D-IA, held similar hearings last Wednesday. Interestingly, there was not a single packing company representative listed among those set to testify. That fact could provide an indication of the direction Congress will take when addressing matters of competition and concentration during the upcoming Farm Bill debate.
wlj.net