Statement of Mr. Nolan Jungclaus
Before the Senate Agriculture, Nutrition and Forestry Committee
July 16, 2002

Mr. Chairman, thank you for holding this hearing concerning the ban on packer ownership of livestock and USDA enforcement of the Packers and Stockyards Act. My name is Nolan Jungclaus. I am a grain and livestock farmer from Lake Lillian located in central Minnesota. I raise 450 acres of crops, 80 of which will be certified organic this year, consisting of corn, soybeans, wheat, oats, alfalfa/sweet clover, sweet corn, and peas. We also have a small farrow-to-finish hog enterprise based after the Swedish deep straw production system in which we raise up to 600 head per year of antibiotic-free pork.

This has not always been the case. In 1994 our farming operation made a major transition as a corn and soybean grain farm that is typical in our area to a more diversified and sustainable farming business. Through the introduction of a livestock enterprise and the diversification of cropping systems, we have been able to improve farm efficiency and profit despite the currently depressed farm economy. My affiliation with Minnesota Farmers Union, the Land Stewardship Project, and the sustainable agricultural programs offered through the Minnesota Department of Agriculture has helped our family recognize the very positive social, economic, and environmental impacts that our farming operation has on our local community.

I have changed as just a commodity producer, who would otherwise be another statistic in the declining rural economy, to a board member of the Prairie Farmers Cooperative, to an innovative 5.8 million dollar hog processing plant in rural Dawson, Minnesota. The Co-op is owned by 82 local family farmers and processes approximately 65,000 hogs annually, thus allowing us to stay on the land, capture more market value, and reinvest some of that value back into our community. Our enterprise has spawned new growth and opportunity for our community. At full capacity the plant employs 65 people at good-paying jobs in Lac qui Parle County, a county that has been experiencing an exodus of farmers and rural residents as a result of the dire rural condition.

Since the transition of our farm in 1994, I have witnessed ever-increasing vertical integration in the livestock industry. A concentration of economic power and wealth spearheaded by packers who own and feed their livestock. This shift in the economic balance from the rural sector to the corporate headquarters of the very large and monopolized packing industry is sucking the lifeblood out of our rural communities.

My understanding based on articles I've read from Successful Farming magazine, is that the six major packers - Smithfield, Premium Standard Farms, Cargill, Tyson, Hormel, and Farmland - owned more than 1.2 million sows in 2001. Based on my knowledge and experience of raising hogs, that results in more than 30.4 million packer-owned market hogs per year. This means six packers on average slaughter about 120,000 of their own hogs every day. U.S. hog slaughter consisted of approximately 98 million head in 2001. One third of those are owned by six packers and that is only counting the hogs they raised farrow to finish.

The number of sows owned by packers has tripled since 1996 when, according to the same article, these six pork packers owned 442,000 sows. I don't believe it is coincidental that the hog farmer's share of the pork retail dollar has plummeted from 42 and a half cents in 1996 to 30 cents in 2001- a significant drop of 29%. That is money taken out of my pockets, money that is not circulating in my community, and it is hurting us severely.

According to a report by the University of Missouri, only 17% of hogs are sold in the open market - the rest are either packer-owned or under long-term contracts that are neither public nor open to bid and are routinely offered to only the largest operators. However, even that 17% is misleading because many hogs are sold where there is only one packer in the market. Some experts are saying that 3% of the hogs sold in Iowa and southern Minnesota are setting the price for everyone.

The corporate greed we are reading about daily in our news media has many faces. Stealing, whether it is through creative accounting or manipulating markets, is an unethical practice that is undermining our nation and our national security. As the cliché goes, you can dress a pig in pretty clothes, but it's still a pig.

Packer ownership and captive supplies means minimal demand for our hogs. We get a lower price because packers are filling demand with their own hogs. We can participate in the market only after packer-owned hogs and those they have on long-term secret contracts have been used. They then offer a "so-called" price - one below market value - that in effect steals our hogs. This is not the working of a competitive market. It's a racket that is killing the roots of our society and undermining the fabric of free access to opportunity for farmers and all Americans in the rural sector. It leaves us with a very bad taste in our mouths about corporate greed, and the unwillingness of our government to do anything about it. It teaches our young that individual enterprise and opportunity doesn't apply to those involved in agriculture and instead they better tow the line and become a cog in the system.

The Senate did the right thing in November, and then again in February by passing the packer ban. I know that the industry lobbyists are working overtime in DC to kill the packer ban. And now we hear some people say that what we really need is a study. In the rest of America, we see a "study" for what it is - a corporate-generated stall tactic. A study will do nothing for family farmers while allowing the packers the opportunity to control the rest of the hog industry and an increasing share of the beef industry until there is nothing left for the American farmer except raising the owner's livestock for them on contract.

I don't need a study to tell me the effects concentration has on Lowell Petterson who owns and operates the local hardware, plumbing and heating shop in Lake Lillian, the same man who fixes our church's boiler and never sends a bill. I don't need a study to see the impact that consolidation has on Bob Hall who owns our local gas and grocery store and is forced to live on ever tightening margins as packers and large retailers work together to eliminate competition. And I don't need a study to show me that the hardships our local businesses face directly impact our church offerings and the tax base that supports our schools and hospitals. It is time to take action and pass the ban on packer ownership of livestock.

We already have a very good example in this country of what happens to producers when packer ownership and contract production takes full control of a market - that is the poultry sector. Once contracts become widespread in local concentrated markets, farmers lose all autonomy over the production decisions on their farm. They lose any ability to negotiate the terms of their contract, and they lose the ability to speak out about their situation for fear of retaliation from the corporation that controls their livelihoods. This is exactly what's taking place in the poultry sector, and we need to take steps to ensure that hog producers don't go down that same road.

Our elected representatives must take responsibility to ensure that democracy works for the greater good of all Americans. The path we are on is leading us in the wrong direction. Packer ownership of livestock creates unfair competition, market manipulation, and a vertically integrated system in which producers become serfs to corporations. Let's get back to the basics, like our Congressional leaders did in the 1920's when they passed the Packers and Stockyards Act. The Act worked until our leaders lost the political will to enforce it. I urge Congress to revive the will to strengthen and enforce the Packers and Stockyards Act.

Additionally, Congress should pass legislation that requires marketing contracts to be bid on an open and public market. Secret deals between packers and the largest producers lead to many problems, including the pervasive sense of unfairness and the opportunity for corruption. Independent producers know that when they sell their hogs for 32 cents a pound, the huge operations with the sweetheart deals profit from inflated prices for their hogs of comparable quality. Legislation that has been introduced by Senator Enzi would require marketing contracts to be traded in open, public markets, such as an electronic market, in which all buyers and sellers could have access. We have the technology and funding provided in the Rural Development Title of the recently-passed farm bill to make this happen. This legislation would establish an open marketing system and allow farmers to compete and ultimately profit in livestock production. Senator Enzi's amendment preserves the benefits of forward contracts and marketing agreements, while eliminating unnecessary characteristics of current contracts that can cause price manipulation and price discrimination.

Mr. Chairman, I urge Congress to uphold the principles that made this nation great. Passage of the ban on packer ownership of livestock, enforcement and the strengthening of the Packers and Stockyards Act, and Senator Enzi's legislation addressing captive supply will help restore competition to farmers and reinforce the pillars of democracy.

Thank you for the opportunity to testify. I would be very glad to answer any questions the committee may have.