November 19, 2010

US meat monopoly rule may cost jobs, hurt economy

An USDA's plan to increase competition in the meat processing industry will cost the economy 22,800 jobs and as much as US$1.56 billion in lost value, according to researcher Informa Economics.

The impact on gross domestic product would be biggest in the beef industry, with a loss of US$837 million and job reductions occurring mostly in cattle production, Memphis, Tennessee-based Informa said. Pork industry losses would be US$335 million, and poultry would lose US$341 million, the researcher said.

The USDA is seeking to limit the market power of processors in an industry where the top four meat companies control about 80% of output. A new department regulation proposed in June will prohibit meatpackers from selling livestock to each other and require them to justify their choice of one farmer supplier over another.

"Beef will suffer the most in terms of demand destruction as packers pull back on their use of alternative marketing agreements," Rob Murphy, a senior vice president at Informa, said. The economic impact may take two to three years and will be felt for a decade or more, he added.

Under the proposal, the industry would contract with the beef industry dropping by 0.6%, or 494,000 head, and the pork industry shrinking by 1.25 million head, or 1.9%. The poultry industry would decrease by 0.6% or 55.2 million birds, the report said.

"The rule will add to the costs of buying and selling hogs, increase the risk of litigation and lead to more vertical integration in the pork industry. All of which means lost jobs, higher meat prices for the consumers, and lower prices to producers," Doug Wolf, the president-elect of the National Pork Producers Council.

Meatpackers also will be required to document different pricing when they pay premiums for higher-quality livestock, Informa said. That "cost burden" may be passed to consumers and producers, or discourage processors from bidding on higher grades, eroding beef quality.

Some livestock producers say they support the change.

"The proposed GIPSA rule represents the first meaningful effort made by any administration for the past several decades to prevent monopolistic conduct by the packers and ensure the producers have unrestricted access to a fully competitive market," said Bill Bullard, the chief executive officer of R-CALF USA, a producer group.

USDA data show that the number of cattle and hog farms has declined by 55% since 1980. The US has about 950,000 cattle operations and 71,000 hog farms. High feed costs and the recession have accelerated declines.

In January, the US cattle herd numbered 93.7 million animals, the fewest since 1959, according to the USDA. The hog- breeding herd totaled a record low of 5.76 million at the end of the first quarter.

The cattle industry is in "a state of crisis" because of the shrinking number of producers, the smaller cattle herd and the inability of feedlots to keep up with rising consumption. The new rule will help increase competitiveness and take away monopolistic power from packers, Bullard said.