Large beef packers and their allies are fighting to hold Congress at bay -- to prevent any meaningful reforms to the broken cattle market. This isn't a new fight as they've successfully held Congress at bay for decades. Throughout the 2000s they blocked legislation to ban packer ownership of livestock, require minimum purchases in the negotiated cash market, ban unpriced contracts known as formula contracts or alternative marketing arrangements; and seven years ago, they spurred the repeal of mandatory country of origin labeling.
In the 2010s, they successfully blocked the finalization of rules to implement the Packers and Stockyards Act -- the act passed in 1921 to protect independent livestock producers from unfair, deceptive, or unjustly discriminatory buying practices.
The large beef packers' political prowess is now legendary. They've ruled with iron fists over the cattle and beef industries for decades and ensured the legal and regulatory framework within which they operate continually furthers their self-interests.
But today's political landscape is very different than in the past, largely because Congress, the executive branch, and the public now realize that the self-interests of the largest beef packers has led to the exploitation of independent cattle producers on one side of the supply chain and consumers on the other. Beef shortages at the grocery store, super-inflated beef prices, and a cattle market unresponsive to historically favorable beef demand and beef exports reveal that exploitation. Where before evidence of market failure was regarded by some as equivocal, today the evidence is undoubtably definitive.
And yet, the beef packers and their allies continue to advance the same tired arguments they used to bring the cattle and beef industries to the brink of disaster as they're using now to keep it on its destructive course.
The beef packers' trade association argued to Congress that "free market supply and demand fundamentals are at work. Let them keep working." It contends beef prices are high because of exceptional beef demand and cattle prices are low because there's an oversupply of cattle -- more cattle to be slaughtered than there is packing capacity to slaughter them.
In chorus, their allied industry pundits are grabbing the microphones. Land grant universities, long the beneficiaries of beef packer endowments, are generating new studies using old data showing the cattle market is functioning superbly under the law of supply and demand; and are urging Congress to do nothing or risk some nondescript unintended consequence. Texas A&M University recently submitted a collection of such biased studies to Congress.
And then there's the ostensibly lone wolf cheerleaders, like commentator Nevil Speer who unabashedly tells policy makers to "leave well enough alone." Speer argues there is no confirmational data supporting legislation like the Grassley/Tester bill (S.949) that requires packers to purchase at least 50% of their cattle in the negotiated cash market. Instead, Speer claims an inverse relationship between increased cash volume purchases and cattle prices.
Senate Bill 949 is the beef packers' kryptonite. They fear it because it throws a barricade across the packers' road to vertical integration -- it impedes their goal of substituting competitive market forces with their own corporate control over the entire supply chain.
Let's unpack the status-quo gang's major arguments. If it's true that despite strong beef demand and increasing exports, cattle prices have nevertheless remained depressed for the past seven years because of insufficient packing capacity, then whose fault is that? Who owns the shuttered plants and plants that haven't been modernized for years? We allege in our class action antitrust lawsuit that the Big 4 packers conspired to depress cattle prices by agreeing to periodically reduce slaughter volumes to ensure the demand for cattle did not exceed the available supply.
And what of Speer's claim of no confirmational data and an inverse relationship between cash purchase volumes and cattle prices? Well, findings in the U.S. Department of Agriculture's report, "Investigation of Beef Packers' Use of Alternative Marketing Arrangements," reveal that when the cash market volume was only about 40%, the packers' use of alternative marketing arrangements already depressed fed cattle prices by as much as $33.28 per head.
If you're a cattle producer or a beef eater, then Congress needs to hear from you that you want them to take decisive action to fix the broken cattle market. If you remain silent, the status-quo gang is certain to win again. Tell Congress to restore competitive market forces in the cattle supply chain, which it can do by enacting the mandatory country of origin labeling bill, S.2716, and the force-the-packers-to-compete bill, S.949.
Categories: Illinois, Business, Livestock, Beef Cattle