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GIPSA debate heats up with economic study

A USDA rule intended to put teeth in the 89-year-old
Packers and Stockyards Act was debated at dueling press conferences held in
Kansas City, Missouri, Wednesday as the National Association of Farm
Broadcasters began its annual convention there.

November 22 is the deadline for farmers, ranchers and
others in the industry to comment on what’s become known as “the GIPSA rule,”
after the USDA agency that would enforce it, the Grain Inspection, Packers and
Stockyards Administration. The first draft, released last June, would require
Packers to keep records of contracts with producers to make available to
regulators. And it would ban giving preferential prices for large volume alone
but would allow continued use of marketing grids that pay premiums for higher
quality and cutout.

Wednesday, the National Pork Producers Council and
National Cattlemen’s Beef Association released a study by  Informa Economics showing that the
uncertainty from the new rule and higher costs for packers to implement it
would result in widespread economic costs over the next few years.

Including indirect effects, it would result in 22,800
lost jobs, a drop of $1.5 billion in the nation’s annual gross domestic product
(GDP) and lost federal, state and local tax revenue of $359 million.

“I think the Informa study shows we’re talking real money
here,” said Bill Donald, a Montana rancher who is president-elect of the NCBA.
Donald said that when he first heard about the GIPSA rule, “I was open minded
and maybe a little naively optimistic.”

But Donald and other members of the two producer groups
argue that the rule is too vague and worry that uncertainty by packers over its
enforcement and costs will lead them to abandon the use of contracts now
widespread in the industry, resulting in lower prices to producers. The Informa
study was conducted for the National Meat Association in cooperation with NCBA,
NPPC and the National Turkey Federation.

Rob Murphy, Senior Vice President of Informa Economics,
said the study started with interviews at all levels of the meat industry, from
retailer to producer and was based on a survey of processor estimates of the
cost of complying with the GIPSA rule. Then the numbers were run through an
input-output model of the U.S. economy.

Murphy said some of the effects wouldn’t be immediate and
might take three to four years to work through the economy.

When a reporter told Murphy that the rule doesn’t
prohibit buying on contract, he replied, “you are technically correct that
there is nothing in the rule that would prohibit contracting.”

But, Murphy said, packers are so afraid of their
potential liability from litigation that they are likely to offer fewer
contracts to producers.  Other
effects from the rule might be offering only a daily price for hogs, not
morning and afternoon prices. And in the cattle industry, packers may move away
from live pricing to buying on carcass weight, because it’s easier to show that
the price was tied to quality.

“So many of these outcomes are detrimental to the smaller
producer,” he said.

Elsewhere in the same hotel, the Westin Crown Center,
groups that represent smaller producers strongly disagreed about the GIPSA
rule.

“We really view it as a farmer and rancher bill of
rights,” said Roger Johnson, president of the National Farmers Union.

Johnson said that the new rule really does little more
than return enforcement of the Packers and Stockyards Act to where it was
before 2005, when an appeals court ruled that a jury award to cattle feeders
for alleged unfair pricing was invalid. Several court rulings now require
farmers and ranchers to prove that packer buying practices are anticompetitive,
a requirement of antitrust laws but not, according to USDA, a requirement of
the Packers and Stockyards Act.

Johnson said that the idea that enforcing fairness in the
marketplace would hurt the economy “is laughable on its face.”

Due to declining market power of farmers and ranchers,
beef producers today get 42 cents of the retail dollar, compared to 62 cents 30
years ago, Johnson said. Pork producers are getting an even smaller share, 24
cents versus 50 cents in 1980.

He cited another measure, return on equity, as more
evidence of an unfair marketplace. Food retailers have a return of 21%, he
said. Packers have a return of 17%, while all cattle farms have had a return of
about 2% over the last 13 years..

David Domina, an attorney who is general counsel for the
Organization for Competitive Markets, said the Packers and Stockyards Act has
not been vigorously enforced by either USDA or the Department of Justice.

“These rules will reinvigorate. They will not reinvent
anything about the law,” he said.

Bill Bullard, CEO of R-CALF-USA, said that packers already
buy only 6% of cattle in branded programs through marketing arrangements and
that most of the high quality cattle in those programs is purchased in the cash
market.

Recording contracts for regulators would not violate any
producer’s privacy because the contracts won’t be disclosed, the pro-GIPSA rule
group said.

Bullard doubts that contracting options based on quality
will be changed when the GIPSA rule takes effect.

“We firmly believe the meat packers are using this simply
as a threat,” he said.

 

 

 

 

 

 

 

 

 

 

 

 

 

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