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Solutions We Need for Real Problems PDF Print E-mail
Written by Steve Dittmer   
Friday, 01 June 2007
AFF Sentinel Vol.4#17

There are two beef industry lists today. On one list: issues we should be settling "in- house" or that are phantoms. The second list: battles we expect to fight (outside activists) and challenges of fact and marketing we need to minimize or eliminate.

Recently, we've talked about the first list: groups calling for heavy-handed government interference on phantom issues or things that don't need fixing.

Also on the first list: radical groups claiming the recent GIPSA study flawed because the economists were "those" land grant university livestock analysts who favor free-market approaches.

GIPSA Administrator Jim Link testified to a House committee that the majority of researchers were "business school economists" (six of nine) to get a more objective view. Five were from the Wharton School of the University of Pennsylvania.

Frustrated that the facts contradict their beliefs, the radicals have also contended information is lacking. They're sure someone is hiding the "smoking gun," that the price reporting or packer business data is incomplete.

But Link testified that the GIPSA study was based on lots of information packers are required to submit to P&S.

"We heard from all the packers and all their lawyers. There was resistance at first that we were asking for proprietary data." But P&S has subpoena power if needed and, in at least one case, used it and a packer went to jail. "We will enforce the regulations," Link said.

Link told Congress that examining packers' financial data revealed larger packers have lower operating income, despite lower operating expenses, because they pay a "higher average price for livestock" than smaller packers.

Living in the Past
In opposing national animal identification, Tom Buis of National Farmers Union made a very revealing comment.

"We live in a competitive, global market where price determines market share," Buis said.

Buis' contention that price is the only thing that determines market share betrays an outdated, commodity mindset. He ignored the quality and predictability factor. Cattlemen have proven that alternative marketing agreements (AMAs) deliver higher quality to consumers and premiums to cattlemen.

Does the cattle industry have problems with market convenience and geography? Yes. These are second list problems we should be addressing. Abundant corn and water in certain parts of the country attract more cattle feeders. Packers follow the cattle. Larger packing plants have lower per- head operating costs. Economies of scale are economic fact, not something the packers invented. Bigger packers have more money left over to buy cattle.

These factors added to increased plant costs, like environmental compliance and labor difficulties, increase the likelihood of fewer packing plants in the future. The lengthening of border closures by R-CALF's lawsuits further reduced the number of packers. The tremendous cost of implementation of mCOOL would likely further reduce plant numbers.

The industry needs to be addressing these problems of geography - distance from plants - for feeders and supplying cow-calf operators. Cattlemen need ways to keep plants open, to reduce operating costs and to research ways to reduce stress and shrink for cattle coming from distant feedyards. The last thing cattlemen should be doing is begging Congress to increase packers' costs to drive more plants out of business. Or take moneymaking marketing tools away from cattlemen.

One way to get packers interested in smaller pens in a distant feedyard is through alliances or other AMAs. Taking away those marketing options would hurt smaller operators more than bigger feeders. Buis and Crabtree* claim that AMAs are just tools that big packers and big feedyards use to manipulate the market.

Yet alliances disagree, explaining all sizes of cattlemen use them. One popular alliance has an estimated 150 feedlot members who marketed fewer than 500 head last year. Another several dozen marketed 500-2,000 head. Some 100 cow-calf operators marketed fewer than 500 head. "It is truly utilized more by the small producer," an alliance principal said.

Another alliance has both large and small cow-calf members, with smaller operators marketing as few as 100 head and a significant percentage under 1,600 head annually. Crucially, this alliance noted their premium to cash exceeded $15 per head in 2006.

If legislation the radicals propose passed, smaller, independent producers would lose a key tool in competing with larger operators. Congress would create a government- controlled and supported, non-profit, spiritual vocation where the cattle business used to be.

*John Crabtree, Center for Rural Affairs

Last Updated ( Monday, 16 July 2007 )
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