If the Farm Bill passed by the
Senate holds up—already passed by the House of Representatives;
it was headed to a joint conference committee at the end of
December—the high price of feed and energy won’t matter much
because there won’t be a lot of incentive for cattle producers
to continue assuming the risk of staying in business.
Though there are a number of
expensive and notable flaws in the Bill, the above assessment is
based upon acceptance of an amendment that will prohibit packers
from owning cattle more than 14 days ahead of slaughter, unless
you’re among the smallest packers.
Understand that the percentage of
cattle owned by packers is relatively paltry, about 5% or so.
It’s the ability of packers to continue participating in
alternative marketing arrangements, which support alliances,
branded beef programs and all of the rest that raises an even
larger issue.
In other words, depending on
interpretation, the amendment alters the type of relationships
packers can enter into in the name of boosting returns. While
these relationships benefit the packer, they also benefit the
supplier, otherwise neither party would participate. That
portion of the Farm Bill basically dictates who packers can do
business with and how.
Speaking to the proposed packer
ownership ban earlier in the senate debate, representatives from
the National Cattlemen’s Beef Association (NCBA) pointed out,
“The larger impact this could have on the cattle industry is
that it could ban all marketing alliances that we currently
participate in…Since most of these alliances are partnered with
a packer at some point in the process, this could be interpreted
as being covered by the ban. The alliances that we participate
in, as cattle producers, are led by us and are at the demand of
the consumer. We should be rewarded for creating a product that
our consumers want, not hindered by it.”
So, all bets are off on any arrangement that enables producers
to participate in value-added market opportunities that include
packer participation.
One thing often ignored in the
emotional rhetoric supporting mandatory but equal mediocrity is
that folks enjoying higher prices and richer returns via
value-based marketing arrangements also often assume more risk
than those comfortable with the commodity route. This Senate
amendment—like every other attempt to legislate markets through
the years—seeks to mandate the level of marketing risk producers
can assume, yet increases financial risk by limiting marketing
latitude. It’s a hallmark to illogic.
I’ve spent a veritable barrel of ink
over the past two decades or so, decrying attempts to legislate
the market, not because I’m a fan of packers, feedlots or anyone
else, but because I’m a died in the wool, unrepentant believer
in competition and capitalism. There’s too much empirical data
proving prices and markets are higher with the handful of
concentrated packers that exist today than if there were a bunch
more smaller ones. It has everything to do with cost efficiency
gained with size and the ability of these packers to supply
retailers and wholesalers who have themselves grown in size and
declined in number.
Yet, here we are again, on the
threshold of having government cap potential profit for some in
the name of presumably propping up a floor beneath others.
In responding to the Senate’s
passage of the bill, Chuck Connor, acting Agriculture Secretary,
explains:
“This legislation is fundamentally
flawed,” says Connor. “Unless the House and Senate can come
together and craft a measure that contains real reform, we are
no closer to a good farm bill than we were before passage…
“Farmers need a stable safety net
that helps in years they need it most. And farmers deserve a
farm bill that is free of budget smoke and mirrors and tax
increases. The measure passed by the Senate has $22 billion in
unfunded commitments and budget gimmicks, and includes $15
billion in new taxes- the first time a farm bill has relied on
tax increases since 1933.”
Perhaps as troubling as the fact
that the packer ownership ban has made it to this final hour in
legislation is the environment that make a Senator like Jon
Tester of Montana believe he can, in the final hours of debate,
put forth and get passage for another amendment which would
basically have said if you’re selling livestock or buying it you
can’t make value distinctions—all are equal. Fortunately, that
one was shot down to this point, but the vote was way closer
than common sense would suggest was possible.
“The number of packers actually
affected by legislation proposed to limit the use of marketing
arrangements in the livestock industry will vary depending on
the specific language of the bills. However, the large capacity
of individual plants in the industry relative to the size of
livestock production facilities means that even the most
narrowly defined legislation could affect a large number of
producers that sell livestock to these plants. Therefore, it is
important to understand the different economic incentives for
packers and producers to use different marketing arrangements
and the costs that may be imposed by limiting the types of
marketing arrangements that can be used.”
That’s the summary conclusion of
fact sheets written by researchers involved in the landmark
USDA-GIPSA study of alternative livestock marketing arrangements
released earlier this year. These fact sheets have since been
independently reviews by 12 member organizations of the
Livestock Marketing Information Center (LMIC).
The first four fact sheets dealing
with the economic aspects of alternative marketing arrangements
are now available through LMIC at
http://lmic.info/memberspublic/LMMA/LMMAframe.html.
Besides exploring the specific
impacts, researchers present a brief history of the legislation
presented since 2001 that would either prevent packer ownership
of livestock ahead of slaughter, pressure the use of forward
contracts or require packers to buy a certain percentage of
their supply in the spot market.
It should be required reading of
anyone who markets livestock. That’s especially true with the
Senate passage of the Farm Bill.
The debate is not about something as
simple as big versus small, or family-owned versus corporate, as
proponents of this type of legislated, socialized business
regulation typically enjoy trotting out in defense of their
argument. The question is more fundamental: Do you believe in
your right as a business owner to buy from whomever you choose
to. If the answer is affirmative, then logic cannot allow
imposing different standards on those whom you sell to.
Perhaps the root argument is even
more fundamental. Are you willing to accept the possibility of
losing for the opportunity to win? Apparently, the alternative
is accepting whatever the government says your time, labor,
expertise and risk are worth. |
