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Unfair? PDF Print E-mail
Written by Steve Dittmer   
Monday, 26 October 2009
AFF Sentinel Vol.6#31
Recently, we shared J. Dudley Butler's intentions, as GIPSA administrator, for new regulations further restricting livestock producers under the P & S Act.

Butler outlined what he didn't like and results he wanted but wasn't specific. He promised to clarify to his satisfaction Section 202, parts (a) and (b). These sections prohibit "unfair, unjustly discriminatory" practices or "undue or unreasonable preference or advantage" to any person or geographic locality.

Certain activist groups and politicians have attempted to use those words to ban contracts between packers, cattlemen or alliances, claiming contracting gave those sellers "undue" advantage in marketing. Legislation to prohibit contracts longer than 7 or 14 days has been proposed several times, twice been in Farm Bills and only dropped in Conference.

Our guess is that at the time of the law's passage, "unjust" or "undue" was meant to outlaw certain preferential arrangements between commission houses and packers in the old central markets. For decades, cattlemen weren't permitted to sell livestock direct in the central markets. Producers had to consign livestock to one of the commission companies, which sold the livestock, deducted commissions, etc. There was an element of mystery in that process.

That's not even close to producers and packers today negotiating directly to sell/buy livestock of a certain grade, weight, nutrition plane and genetics. But certain livestock producers view contract selling from only one direction. They feel if Producer A knows he has a market lined up for a certain number of animals, he is somehow being "unfair" to Producer B. Of course, Producer A has taken on the substantial responsibility to raise or purchase, manage and feed the contracted animals. No one is prohibiting Producer B from committing to a similar contract. But perhaps he does not want to handle the level of management, planning and responsibility necessary to fulfill a contract. Why does that make Producer A's marketing move "unfair?"

It's not even that Producer B can't sell his livestock without contracting. He can. Probably both Producer A & B sell livestock on the cash market. It's not like nearly all cattle, for example, sell under some contract arrangement and a producer can't sell on a cash market. The majority of cattle sell on the cash market. Pig finishers, who can be in and out in weeks, mainly contract pigs and limit marketing risk.

So what's unfair? Producers having the option to market as they wish and as best fits their operation is fair, not unfair. Is the packers having some portion of their supply contracted unfair to other producers? Market prices are determined by both long- and short-term factors, including available supplies. Any producer or packer has a good idea of cattle numbers. Shorter term, numerous sources of information, both free and fee- supported, provide producers with more supply and market price information than ever in history. There's no total darkness here.

Paying similar prices for similar livestock - adding in the past performance of the same producer's livestock -- is a good way to keep producer- customers coming back. It's also a good way for packers to produce consistent products, in order to keep their customers coming back, renewing the need for packers to buy from producers.

So what's unfair? Unfair to reward someone for committing many months out to supply a company with something it needs? Certain groups continue to hold that such contracts - common as dirt in other industries, governing supply lines that literally stretch around the globe for raw materials or components months or years in advance - are unfair and should be illegal. Yet substantial branded lines - which make money for producers, packers, retailers and foodservice by producing products consumers want to buy - are the continual target of the "there out to be a law!" folks. Is it unfair to pay for value? If one producer is willing to put in the extra work to supply livestock under a contract, should he be prohibited because some producer doesn't want to put in the extra time and effort? What's fair about that?

Key question: what is unfair to the ultimate consumer? Is outlawing any practice designed to provide a steady supply of high quality, consistent product conducive to consumer interests? Certainly not!

It's not fair - or perhaps an oversimplification -- to say a producer who doesn't want to contract is lazy or myopic. Such commitments mightn't fit his operation's size, timing, labor or management situation. It doesn't mean contracting is any more fair or unfair, ethical or unethical than selling livestock on the cash market.


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