AFF Sentinel Vol.4#43

Cattle Can Find It in the Dark When Humans Can't

It would appear there is a hole in the fence of the current Farm Bill language regarding cattle ownership that certain Senators pretend isn't there. But like cattle homing in on a hole in the fence in the dark, lawyers would home in on omissions and implications to destroy the agreements and contracts upon which alliances in the livestock industry are built.

AFF has been getting questions on the current Farm Bill language and upcoming action.

The confusion is understandable. There has been introduced a long list of Senate bills having nothing to do with the traditional commodity and conservation Farm Bill. AFF has discussed some of these bills already. The language from one of these bills has already been inserted into the Farm Bill. Parts of other bills could be amended in during floor debate.

What's in right now? The Livestock Title X contains Section 10207 (pp. 1230-1232) - prohibitions on packers owning, feeding or controlling livestock. Plain enough is the prohibition on packers owning cattle directly. Not so plain is the definition and implications regarding "controlling."

The bill prohibits "an arrangement that gives the packer operational, managerial or supervisory control over the livestock ... to such an extent that the producer is no longer materially participating in the management of the operation with respect to the production of the livestock ..."

Proponents of contracting bans have contended that any livestock contracted for more than 14 days are so-called "captive" supply of the packer involved, that the packer just may as well own the cattle for marketing purposes, by their definition of "control." Others point out that packers may indicate they prefer cattle that have been managed certain ways regarding genetics, growth promotants, nutrition and animal health. Do those specifications imply "control?" Without specifics, a lawyer might be able to make the case either way.

We contend the whole notion of "captive" supply for cattle is bogus. For one, cattlemen freely enter into long-term contracts, agreements or alliances. Nobody forces them. As evidence, note that over 60 percent of the slaughter cattle are sold cash direct or at auction. Second, holding the other end of a contract does not give packers ownership. If you doubt that, have a steer in a contracted pen die. You will find out the packer doesn't "own" that steer.

The hole in the fence is in the next clause, which exempts, "an arrangement entered into within 14 days ... before slaughter ... by a packer, a person acting through the packer, or a person who directly or indirectly controls, or is controlled by or under common control with, the packer ..." The obvious implication is that contracts over 14 days are not exempt.

So the long-term agreements between cattlemen in alliances and packers could either be held illegal under regulations USDA might write to carry out the law or attorneys could seize on this implication and file lawsuits against virtually all alliances. Also, note that the broad exemption language appears to cover key people in an alliance production chain. If someone with the alliance and a packer decide jointly when the cattle are ready, could they be construed as having "common control" of the cattle?

The next language in the bill exempts cooperative plants if they are majority owned by cattlemen. The notable impact here is that National Beef, the number four packer, is not a cooperative but is majority owned by cattlemen. Our reading of the bill means U.S. Premium Beef (USPB) would have to sell its interests in National within 180 days in order to comply, because its members couldn't simultaneously own a packer and own cattle.

Other packing plants owned by cattlemen would not be able to buy or build a second plant or processing facility in order to better compete with large packers, grow market share or become more stable financially.

Our current information is that Senate leadership may agree to allow 20 amendments each from the Democratic and Republican camps in the Farm Bill debate, which could begin the week of Dec. 10.

The livestock ownership restrictions currently in the Farm Bill are indirect, insidious and covert attacks on the most innovative cattlemen themselves, disguised as attacks on packers. Evaluate which parties would really be damaged the most by these measures, and we believe they are cattlemen and consumers - not packers.

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