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Concentration Concerns Hidden Behind Cattleman's Rights

Econ101

Well-known member
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
 

Sandhusker

Well-known member
Hmmm, NCBA and AMI on the same side of the table..... who would of imagined that?

Queen doesn't understand that producers are at a disadvantage when they sign an open-ended contract with an entity that has the power to manipulate inputs. Maybe he's not smart enough to figure that out. I hope NCBA members understand this and explain it to their leaders - like it will do any good...
 

PORKER

Well-known member
The Huge Get Bigger

The conditions faced by the Bethel dairy farmer prevail through most of the United States. Like most of the orange juice it produces, the U.S. food system is highly concentrated. The latest study [PDF] from University of Missouri researchers Mary Hendrickson and William Heffernan -- who track market consolidation among food companies -- provides stark evidence.

By 2005, just four companies (Tyson, Cargill, Swift & Co., and National Beef Packing) were slaughtering 83.5 percent of cows. That number has inched up from 81 percent in 2000. In hogs and chicken, the big are getting bigger even faster. In 2001, the top four companies (Smithfield, Tyson, Swift & Co., and Cargill) killed 59 percent of hogs. By 2005, that number had risen to 64 percent. For chickens, just two companies -- Tyson and Pilgrim's Pride -- kill 47 percent of birds. The top four companies control 58.5 percent of the market, up from 50 percent in 2000.

As these few companies engulf market share, they gain increasing power to dictate terms to growers. In meat processing, the companies wield a second weapon: captive herds. Smithfield, for example, is not only the nation's dominant hog processor. In addition to slaughtering 27 million hogs per year, the behemoth also raises 1.2 million hogs of its own -- more than any other operation by a factor of three. It also controls a huge portion of the hogs it slaughters indirectly, through contracts with large-scale growers.


A captive audience.
Photo: USGS.govPork giants Tyson and Cargill also keep large captive herds, and buy most of the rest of the hogs they slaughter under contract. They use their market might to squeeze prices, giving small, independent growers two options. They can get bigger, in hopes of making up in volume what they're losing in price; or they can shut down. The result has been a nearly wholesale obliteration of small hog farms, and an explosion in the size and geographical concentration of operations.

Iowa, the nation's leading hog-producing state, tells the story. The state's pork producer's association informs us that the total number of hog farms plunged from more than 59,000 in 1978 to around 10,000 in 2002, an 83 percent drop. Over the same time span, the total number of hogs raised per year jumped from 19.9 million to 26.7 million. That means the average number of pigs per farm soared from 250 to more than 1,500. And production, which had been broadly distributed across the state, shifted to just a few counties. North Carolina, the nation's No. 2 hog state, shows similar trends.

Conventional vegetable farmers, too, face tightly consolidated markets. Power to influence vegetable prices rests with a few large middlemen selling to huge buyers like supermarkets and fast-food chains. Just five companies, led by Wal-Mart, control nearly half of U.S. supermarket sales. Because of the regionally fragmented nature of the industry, that number understates the situation. In any given region, three or four supermarket chains typically dominate sales, with Wal-Mart typically taking the No. 2 or No. 3 spot. Nationwide, Wal-Mart rang up nearly $100 billion in grocery sales last year, up 48.6 percent since 2004. That's more sales than its two closest rivals, Kroger and Albertson's, combined.

If you're a farmer with, say, 100 acres of tomatoes in Florida, you take the price the big buyers are offering, or watch your crop wither as buyers look south to Mexico for a willing seller.


The Not-So-Free Market

How did a few corporations gain such dominance over food production and retailing? One response is: people want cheap food, and the market gave it to them. If low cost is the main goal of food production, consolidation makes sense. Big operations gain economies of scale. You can't argue with the results -- the U.S. has the world's cheapest food as a percentage of income.

But that reasoning is naïve. Agricultural markets don't operate freely; they're manipulated as a matter of course. The government subsidizes corn and soybean production, allowing farmers to sell at prices that don't even offset production costs. And taking animals off of pasture and confining them in cages -- the dominant production mode for our meat, dairy, and eggs -- only works if there's a cascade of cheap corn and soybeans to feed them.

Moreover, as feedlot and slaughterhouse interests gained economic might, they also began to wield extraordinary political leverage. Local and state governments have been notoriously lax in forcing feedlot operations to clean up their considerable environmental messes. Authorities have also historically looked away from the industry's brazen violations of labor code. The ability to abuse the environment and labor with near impunity acts as a de facto subsidy, allowing industry giants to keep costs down as they gobble market share.

After 50 years of such trends, merely ending feed-crop subsidies and forcing agribusiness giants to clean up their messes won't rebuild more benign food-production networks. Throughout most of the nation, local-food infrastructure has withered away, and the few remaining small farmers aren't making enough spare cash to make the necessary investments.
 

Econ101

Well-known member
There are reasons for this concentration of our meats industry. Concentration in the meats is a direct result of the courts being unwilling to enforce the law against rich white collar criminals. It is also as a result of Congress being unable to have effective oversight of the industry. When you see these things happening, it isn't always a result of the much heralded "efficiency", it is as much about our system not being able to carry out justice to those who wield great power.


It is a real deficiency in our democracy. The courts should be ashamed. Congress should be ashamed. The administration should be ashamed.

Unfortunately, they have all decided the rule of politics and power should win over the rule of law and justice.

It is a national disgrace.

If we can't solve these basic problems of our democracy, how can we force a country on the other side of the world to adopt our idealized "democracy". If you can't practice it at home, don't try to teach it to others. You will never be successful.
 
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