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Solutions from the Phantom Hunters: Part II PDF Print E-mail
Written by Steve Dittmer   
Friday, 25 May 2007
AFF Sentinel Vol.4#16

We've been covering the hunt for the phantom "manipulation" that supposedly runs the beef industry and "solutions."  Below: the last demands to Congress from John Crabtree, Center for Rural Affairs and Tom Buis, National Farmer's Union, allies of R-CALF and the Organization for Competitive Markets. 

Crabtree claimed "packer-owned livestock" - including any contract or AMA delivering cattle more than seven days from contract date - "artificially lowers farm gate prices," as "demonstrated repeatedly" by government and university research, including the recent GIPSA study.  We aren't aware of such conclusions in past studies, and his characterization of the GIPSA study is inaccurate.

Even the statistical association - not a cause and effect relationship-- is conditional and a slight difference at that.  The GIPSA study said if a ten point increase in plant capacity utilization is achieved through alternative marketing arrangements (AMA), regression analysis "suggests" a four-tenths of a cent per pound different in the cash price, i.e. 40 cents/cwt.  The study also said that if enough AMA cattle are available within a 21-day period to reduce cash cattle volume by ten percent, assuming the cattle all went into AMAs, that is associated with a 0.11 percent decrease in the cash market price, i.e. 0.0011 times, say, $90 cattle equals a dime/cwt.

Referring to packer ownership of cattle, Crabtree also called it "a lie" that "vertical integration" increases efficiency.

"Small and mid-sized farms and ranches have demonstrated time and again than they can match or beat the cost of production in the packers' industrial facilities."  While that is sometimes true, if smaller operators could regularly overcome economies of scale and capital resources, feedyards and ranches nationwide would be constantly trying to get smaller to achieve higher profits.  Then Crabtree wouldn't be complaining about larger operators and asking for preferential pricing for smaller pens.  He destroys his own case.

How were these demands that Congress do something received by the committee?  Sources tell us sympathy for the populist viewpoints was more obvious than in past Congresses.  Livestock Subcommittee Chairman Boswell certainly holds a friendlier attitude toward the radicals.  Post-hearing, he introduced a bill addressing "competition issues," H.R. 2135.  At first blush, this companion bill to Sen. Tom Harkin's S. 622, is a attorney welfare act, creating a USDA Special Counsel on competition matters on top of the current process.  Now, P&S takes violation cases to the Department of Justice for prosecution.  Buis also endorsed a Special Counsel.  So, with a whole federal bureaucracy having difficulty finding cases to prosecute, they want more layers of lawyers.

The bills would also remove certain requirements for producers to prove harm when suing a packer -- making it easier to win court cases.  Producers could collect legal expenses.  The bills would disallow business justifications for business practices.

This is fascinating, when examined in the light of explanations to this year's R-CALF convention by Doug Ross, Special Counsel for Agriculture, Department of Justice.

"Our area of authority is anti-trust," he said.  "When evidence warrants it, we will take action.  We know you're concerned about competition."

But everyone must realize that the "marketplace is going through extensive changes in products and relationships."  R-CALF's expressed concern about competitiveness underlines the importance of new innovations and new products, he said.

To have illegal activity, certain things must be proven under various antitrust laws.  Collusion could be one, which requires evidence that two or more firms got together and agreed not to compete, or to rig bids.  A second violation is monopolization, which is not necessarily the case just because there is only one firm in the market.  It must be shown the firm got to that market share by illegal means or maintained it with illegal means.  The third area is mergers and acquisitions that are likely to produce a non-competitive market.  Economists at Justice scrutinize such proposals to make sure competition would be maintained.

It is not enough to show high concentration levels in an industry.   In the Q&A session, someone angrily asked "how we allowed" the four major packers to achieve over 80 percent market share.  "Isn't that illegal?" he charged.  Ross repeated: the level of concentration is not a violation.

"We can't just say 80 percent is too much, " he said.  "We have to make a case.  If you see that they're doing collusive things, we need your evidence."

"To say captive supply has an impact on prices and markets is not enough under antitrust law.  We need specific violations."

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Last Updated ( Wednesday, 25 July 2007 )
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