Our last issue had to do with Laurence Tribe - attorney for LMA & WORC - and his comments on the Supreme Court steps indicating alleged vegetarian leanings of some cattle producers, the markets' discomfort with the "beef" part of the cattle business and his personal and professional attitudes regarding obtaining legal rights for animals.  Before that, we had begun a multi-part series about the OCM.  We continue now with that series.

In Vol.1, #3 & 4, we began delving into OCM, an "agricultural anti-trust organization."  These attorneys and activists hope to use anti-trust laws to break up the packers and retailers, eliminate contracting, alliances and branded beef as tools for cattlemen and force everyone back to direct cash sales on day of delivery or auction markets.  Their focus on competitive, widespread markets leads to auction markets as the only available method left that they feel is competitive for selling cattle and beef.

Even counting R-CALF, KCA and others, OCM has not been able to find enough farmers and ranchers who agree with them on issues of concentration, anti-trust and marketing systems to make serious political impact.  So they have gone to consumer activist groups, anti-trust law firms and faith groups with limited ag knowledge but axes to grind, to try to generate some momentum.  And there is a huge network of liberal, social justice and activist philanthropic organizations out there willing and able to fund such movements.

What areas have OCM targeted?

OCM and its allies claim packer concentration has generated a "stranglehold" on the meat industry and yields tremendous profits at the expense of farmers and ranchers.  But the facts and figures in the industry do not support this viewpoint at all.

• Packers' profits from slaughter operations routinely run between two to four percent of sales.  People get hung up on a figure of $25 million or $50 million in profits.  They forget to consider that it took hundreds of millions of dollars in sales to get those profit figures.  At 3 percent of sales in profits, it takes $1 billion in sales to get a profit of $30 million.  That's a lot of beef sales.  By comparison, a $500,000 cattle operation with a three percent profit would net $15,000 for the year.
  
• Because beef is a highly perishable product, an entire system of processing, labor, refrigeration, selling and shipping must be always at the ready to process and move product.  This creates a huge capital cost of hundreds of millions of dollars for large plants that must be spread out over as many units (head) as possible   This alone creates a dependency on timely suppliers of product to keep the system running and service debt.
  
• If the packing business is so lucrative, why are there not dozens of companies trying to get into the slaughter business?  Why is it even Tyson tried to get out of its deal to buy IBP, perhaps deciding too late that the profit potential was not strong enough to justify its purchase?

There is lots of capital available in economies around the world looking for ways to make a good return.  Why is little or none of it being employed to start new packing plants?  Probably because producing a three percent return on a project requiring large amounts of capital, with narrow margins, in a business dependent on raw material that is perishable, of varying quality and quantity, with increasing food safety issues and liabilities, a high degree of government oversight and regulation, large environmental issues and difficult labor problems -- is not viewed as a get-rich-quick opportunity.

Next time: More OCM claims.

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