“If there’s any part of our value
system we need to rebuild in this country, it’s personal
responsibility,” says John Kasich, a former Congressman, who is
now a bestselling author, motivational speaker and Fox News
commentator.
The son of blue-collar parents—the
grandson of immigrants—Kasich shared his message at the recent
annual meeting of the National Cattlemen’s Beef Association (NCBA).
He focused on virtues most cattle producers are old friends
with: humility, honesty, integrity and teamwork.
“To me, the issue we face in this
country is between the people who embrace these values even when
times get tough and those who will sell them out in a
heartbeat,” said Kasich.
Hitched to a similar wagon, do you believe in free speech just
as long as you agree with what you’re hearing? Do you believe in
freedom, just as long as there’s someone there to bail you out
of a jam? Do you believe in free trade and competition, only so
long as you have a competitive advantage?
Such illogic, sincere as it may be,
seems to be growing in the cattle business.
Meaning What You Say
Consider mandatory Country of Origin Labeling (COOL) which
became law in the current Farm Bill. Proponents argue that it
will increase the competitive advantage for native beef, that
U.S. consumers will prefer it and be willing to pay more for it
than beef born and raised in other countries, or beef derived
from a mixture of domestic and international beef. Some even
take the broad and wrong inferential leap of suggesting such
labeling enhances safety for U.S. consumers.
Deb White, Associate General Counsel
for the Food Marketing Institute told folks at the NCBA Joint
International Markets Committee that their experience with COOL
and seafood—the law has already been in force—is that costs have
been 10 times more than USDA predicted. In return there has been
no additional revenue, no benefit to retailers or to consumers.
COOL for beef and other meats is currently scheduled to take
effect March 16. USDA estimates first-year costs at $2.5
billion.
The final COOL rule was submitted to
the Federal Register just before the Obama Administration moved
into the White House. The COOL rule and others in the Register
were withdrawn for review by the new Administration. No one
knows what the final rule will be, only that it is law, and if
anything, the new administration is likely to make the
regulation more restrictive than the rule that was submitted.
The market has no such luxury for
uncertainty.
Talk to Mexican cattle producers who
ship calves to the U.S. and they’ll tell you that four-weight
calves are being discounted as much as $60 per head at the
border. The folks buying them aren’t looking to line their
pockets; they’re trying to protect themselves, expecting these
same cattle will be severely discounted by feedlots, who expect
them to be discounted by packers, who will have lots more cost
in sorting and labeling these cattle. Handling them will require
devoting entire kill shifts or plants to non-native cattle.
Unsurprisingly, Mexican producers have filed suit with the World
Trade Organization. U.S. producers would likely do the same if
the tables were turned.
Just let those Mexicans go soak
their heads; they need our beef a lot more than we need their
cattle. That’s how some on this side of the border view it.
Trade runs both ways, though.
“CattleFax estimates that, at the very least, it will cost
cattle producers $50 to $60 per head if we lose the NAFTA export
markets,” says Erin Daley, U.S. Meat Export Federation (USMEF)
Economist. “In addition to the large volume of variety meats
that we export to Mexico, rounds are a very popular item in that
market. Rounds also make up a large portion of our exports to
eastern Canada. It would be very hard to absorb these products
into the domestic market.”
Daley was speaking as part of a COOL
panel discussion in the Livestock Marketing Council at the NCBA
annual meeting. She said Mexico and Canada combined to account
for about $2 billion in U.S. beef export purchases last year –
about 60% of the worldwide 2008 total. So any disruption in
trade could have serious consequences for U.S. cattle producers.
Plus, Daley points out the U.S. processing industry will have
even more excess capacity if live cattle imports from Canada and
Mexico continue to decline. This drags down the industry’s level
of efficiency, making it more difficult for U.S. beef to compete
in global markets with exports from countries such as Australia
and Brazil.
Keep in mind, this would come at a
time when the lowest cattle inventory since the 1950’s is
already supporting prices.
The January 1 total for all cattle
stands at 94.49 million head, which is 1.6% less than a year
ago. “The real kicker was the downward revision of the 2008
inventory count by another 628,000 head, which actually puts the
current report at 2.2 percent less cattle than previously
thought,” say analysts with the Agricultural Marketing Service.
“This is the smallest number of cattle reported in the United
States in 50 years, when there were 127 million fewer people
living within our borders.”
“USDA estimated the U.S. beef
cowherd at 31.67 million head, 2.4 percent smaller than a year
ago, while the dairy cowherd at 9.33 million head was up about
one percent,” say analysts with the Livestock Marketing
Information Center (LMIC).
On a percentage basis, the only
states with at least 50,000 beef cows reporting an increase in
beef cows are: Arizona (+3%), Hawaii (+2%); Louisiana (+1%);
North Carolina (+3%); Ohio (+3%).
“Given higher feedstuff prices in
2008 and the placement of calves at heavier weights, the
estimated number of cattle outside of feedlots was expected to
be larger than last year. As of January 1, the calculated
available supply of feeder cattle outside feedlots was 27.6
million head, up about 261,000 head (+1%) from last year,” say
the folks at LMIC.
Safety at all Costs
The mindset supporting COOL represents the same kind of
protectionist myopia that suggests cattle would be worth more if
packers were forbidden to enter into marketing agreements with
producers who find advantage in doing so. It’s the same logic
that supposes the industry would be stronger with debt-ridden
packing businesses than allowing someone else to buy them with
cash money. Paint it how you like, but that’s the crux of
whether or not JBS-Swift is allowed by the justice department to
acquire National Beef.
Let those packers go jump in a lake;
what did they ever do for me, always trying to buy cattle as
cheaply as they can? Aside from the fact packers are THE
customer of all fed cattle, thank goodness the industry is as
consolidated today as it is. Even with the baggage it brings, a
less consolidated industry with less efficiency would mean that
all cattle today were worth less.
Of course, this type of thinking
seems to go part and parcel with a society more willing to
believe that government is the solution to the nation’s economic
woes. Own the banks, the auto industry, the health care system,
whatever you want, too many seem to be saying to the government,
just as long as my personal economic pain is limited, or best of
all, prevented.
One View of Capitalism
Milton Friedman, the Nobel Prize winning economist who
championed capitalism and argued against government economic
controls was asked by a popular talk show host some years back:
“When you see around the globe the mal-distribution of wealth,
the desperate plight of millions of people in undeveloped
countries, when you see so few haves and so many have-nots, when
you see the greed and the concentration of power, did you ever
have a moment of doubt about capitalism?”
Whether you call it greed or
self-interest, Friedman pointed out that in all societies,
people pursue their separate self-interests.
“The great achievements of
civilization have not come from government bureaus,” said
Friedman. “Einstein did not construct his Theory under order
from a bureaucrat. Henry Ford didn’t revolutionize the
automobile industry that way.
“In the only cases in which the
masses have escaped from the kind of grinding poverty you’re
talking about, the only cases in recorded history, are where
they have had capitalism and largely free trade. If you want to
know where the masses are worst off, it’s exactly in the kinds
of societies that depart from that.
“So, the record of history is
absolutely crystal clear, that there is no alternative way so
far discovered of improving the lot of the ordinary people that
can hold a candle to the productive activities unleashed by a
free enterprise system.”
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