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June 21, 2010
USDA releases livestock rules to boost competition
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The USDA released new rules on Friday (June 18), proposing a host of reforms to help restore competitive markets and contract fairness to livestock and poultry markets.
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The proposals have been welcomed by the livestock industry, but are also heavily criticised. The new rules, directed by the 2008 Farm Bill, could reform such competitive detrimental practices as preferential pricing, expand producer rights to sue over unfair and deceptive practices and compel greater contract fairness for poultry producers, according to the National Sustainable Agriculture Coalition (NSAC).
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Under the proposed rules, NSAC said, independent family farmers who meet the same quality standards as mega feedlots must be paid the same price and those standards must be transparent and made publicly available.
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"These rules are crucial to restoring a level playing field for independent family farmers," said Martha Noble, senior policy associate with the NSAC. "Undue and unjustified price preferences for industrial scale factory farms have caused substantial harm to markets, small and mid-sized farmers, and rural communities."
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The American Farm Bureau Federation is also pleased with the proposed rules. "For too long producers have had to bear the financial hardship of being at the whim of production contractors, resulting in inequality in production practices, increasing losses and decreasing profitability. The Grain Inspection, Packers and Stockyards Administration (GIPSA) proposed rule would level the playing field," said Bob Stallman, president of the American Farm Bureau Federation.
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He said that Farm Bureau is "particularly supportive of the sections on capital investment, which would reduce requirements for new investments in modifications of farm buildings."
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"These continuous modifications keep producers in debt and minimise their ability to negotiate reasonable contracts," Stallman said. "Farm Bureau believes the contracting companies should justify the mandatory modification of facilities and this proposed rule would require for that justification."
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While Farm Bureau supports the new proposed rules, the National Cattlemen's Beef Association feels their another example of government intrusion into private business.
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"While we're still looking at the details of the proposal, in general, we have serious concerns with any efforts to increase government intrusion in the marketplace," said NCBA president Steve Fogleson. "Producers support free-market principles and we deserve the right to enter into private negotiations between willing buyers and sellers, just like other sectors of American business. NCBA will fight to protect the use of contract and alternative marketing arrangements in the cattle industry to satisfy the demands of our consumers."
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Fogleson said a number of studies have shown that the current regulations in place have been successful.
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John Crabtree of the Centre for Rural Affairs said that the rule may not be perfect, "but it is the most aggressive, significant livestock market reform to come out of Washington, perhaps since the passage of the Packers and Stockyards Act itself.
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"This rule will breathe some life, some competition back into our livestock markets," he said. "And we're going to work hard to keep improving it, and we're going to fight to ensure that the packers cannot weaken the rule."
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According to Crabtree, USDA has not effectively enforced the Packers and Stockyards Act (PSA) for decades.
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For example, packers routinely pay 5, 6 or even 10 cents per pound, even more in some cases, in purely volume-based premiums to the largest hog producers just because they are large.
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"These sweetheart deals for large-volume producers have become commonplace, but no less a violation of the act," said Crabtree. "Six cents per pound may not sound like much of a discount, but, for a family farmer with 150 sows in a farrow-to-finish operation, it amounts to receiving US$56,000 less annually for hogs of the same quality, simply because he markets fewer hogs. In the end, that's what this rule needs to put an end to. That's what we set out to accomplish with this rulemaking provision in the Farm Bill."
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The American Meat Institute said that the proposed rule's "attempts to change dramatically the way livestock are procured and marketed in the US meat industry is a 'regulatory end-run' around judicial rulings that would have a severe and detrimental impact on livestock producers and the meat industry."
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"If finalised, the rule could dismantle many business models for livestock marketing and procurement," said American Meat Institute (AMI) Senior Vice President of Regulatory Affairs and General Counsel Mark Dopp.
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For example, he said packers who own cattle feedlots would no longer be permitted to sell their livestock to other packers and would instead be forced to sell their cattle only to the packing division of the their company.
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"The same would apply to pork companies that raise pigs," he said. "Not only would this harm meat companies with livestock production divisions, it would harm other packers who have come to rely on them as a source for animals. USDA is attempting to turn the clock back on the livestock and meat marketing practices that have made the US meat production system the envy of the world and that have delivered the most abundant and affordable meat products available to the American consumer."
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R-CALF USA President/Region VI Director Max Thornsberry, D.V.M., called the proposed rule "a bold and absolutely essential step in ridding the US cattle market of anti-competitive practices."
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Thornsberry said the proposed rule not only establishes standards for identifying when meatpackers have unlawfully engaged in granting unreasonable preference or advantage to a select group of cattle sellers, but also, it clarifies that a violation of the PSA can be proven without the need to also provide proof of predatory intent or likelihood of competitive injury.
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He said the inability to enforce the PSA has contributed to the exodus of about 150,000 cattle operations since the mid-1990s, and that has, consequently, led to the hollowing out of rural communities all across America.
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"This proposed rule corrects the core problem that prevents US cattle farmers and ranchers from obtaining relief from the anti-competitive practices of the highly concentrated meatpackers and will help restore competition to our industry by providing a means to discipline anti-competitive behaviour," Thornsberry said.
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The draft administrative rule will be published Tuesday (June 22) in the Federal Register. A copy is available for download at the GIPSA website, and USDA will accept comments on the proposed rule for at least 60 days after Tuesday's publication.
