A Letter to Congress on the Need for Restoration of Competition & Fairness to Livestock/Poultry Markets

Dear Chairman Cochran, Senator Harkin, Chairman Goodlatte and Representative Stenholm:

As you embark on the process of crafting agricultural legislation for the 108th Congress, we strongly urge you to place the issues of agricultural competition and market concentration at the top of your list of priorities.

The importance of increasing market competition and fairness for America's farmers and ranchers became clear and compelling during last year's farm bill debate. While the conferees did not act on most of the substantive provisions, the leadership of both the House and Senate committees pledged to hold hearings with a view towards action. The Senate Committee on Agriculture, Forestry and Nutrition held a hearing on July 16, 2002. The Senate Committee on the Judiciary held a similar hearing on August 23, 2002. The House Committee on Agriculture issued a questionnaire in August to organizations seeking written comments by September 20, 2002. Thus, the time for considering specific legislation is here.

Policy makers often state policy goals of maintaining a diverse, farm-and-ranch-based production sector and providing consumers with a nutritious, affordable food supply. Industry concentration-both vertical and horizontal-is circumventing these goals by driving farm-gate prices down below competitive levels and consumer prices above competitive levels.

USDA data show that meat packers have achieved increasing profit margins in the last 10 years while both producers and consumers have been harmed as a result of packers' increased market power. For example, since 1994 the farm-to-wholesale spread in beef has increased by over 50% and in pork by over 43%. In poultry, processing companies have increased their net margin (wholesale price minus production and processing costs) by 193% since 1990. (These data do not include value added products and are adjusted for inflation). If meat packers were becoming more efficient, these spreads would narrow. This is not the case. The cause of the increased spreads is market power.

Dominant meat packers have achieved much of this market power through captive supplies in the past decade. Captive supplies include hogs and cattle committed to a packer before they are ready for slaughter. These include packer-owned and contracted livestock. Meat packers have the motive and ability to strategically schedule captive livestock for slaughter with the purpose or effect of drastically depressing the open market price. When the open market price is depressed, packers save large amounts of money on both open market procurement and contracted livestock where the contracts are formulated from the open market price. Livestock producers not only receive lower prices, but have trouble even finding a market.

Contracts also are used to cause non-price harm to producers of hogs and poultry. Contracts are drafted by the packers and offered to farmers on a take-it-or-leave-it basis. Typically, poultry growers have already secured loans and built buildings prior to being allowed to see the contract. Farmers are faced with either signing the contracts or declaring bankruptcy for lack of a contract. The contracts increasingly take rights from farmers, and shift risk from the companies to the farmers.

To remedy many of these problems, the following legislation should be enacted:

1. Prohibition on packer owned livestock: During the 107th Congress, packer ownership legislation (S. 142) was introduced in the Senate by Senator Johnson, and cosponsored by Senators Grassley, Harkin, Wellstone, Thomas and Dorgan. In the House, the legislation (H.R. 3810) was introduced by Rep. Nussle, and cosponsored by Representatives Thune, Pickering, and Bereuter. As drafted, the packer ownership bill only affected dominant firms and excluded contracts. Robert Peterson, former CEO of IBP, has admitted in the past that packer-owned livestock has a "significant impact" on the market. Packers inherently prefer their own livestock over those of other market players. Undue preferences are prohibited by the P&S Act. Packers are strategically scheduling cattle to manipulate the market in their favor and so as to pay less to producers.

2. Producer Protection Act: The Producer Protection Act is designed to set basic minimum standards for contract fairness in agriculture. It addresses the worst abuses contained in processor-drafted boilerplate contracts including: (1) Clear disclosure of producer risks; (2) Prohibition on confidentiality clauses; (3) Prohibition on binding arbitration in contracts of adhesion; (4) Recapture of capital investment (contracts that require a significant capital investment by the producer cannot be capriciously canceled without compensation); and (5) Ban unfair trade practices including "tournament" or "ranking system" payment. During the 107th Congress, Senators Feingold and Grassley introduced arbitration legislation (S. 2943) and Senator Daschle introduced a bill to address all these recommendations (S.20).

3. Transparency/minimum open market bill: Senators Grassley and Feingold sponsored a bill (S. 2867) that would stop the deterioration of the open market through guaranteeing a minimum open market volume, thereby making price discovery and transparency far more reliable. It will end the ability of the packers to pull out of the market for days or weeks at a time while the price crashes.

4. Create a market for livestock contracts: Senator Mike Enzi's "Captive Supply Reform Act" (S. 2021), as introduced last year, requires a firm base price on contracts and would transform market-harming contracts into an actual market. If contracted captive supplies were traded openly and publicly in an auction-like setting, competitive forces would be utilized in a manner less subject to undue market power.

5. Clarify the meaning of "undue preferences" in the Packers & Stockyards Act: In January 1998 the National Commission on Small Farms called for legislation clarifying the authority of GIPSA to take action against preferential pricing by packers. Congress should pass legislation that clarifies that preferential pricing paying different prices to different producers for livestock is justified only for real differences in product value or actual and quantifiable differences in acquisition and transaction costs.

6. Close the poultry loopholes in the Packers & Stockyards (P&S) Act: Representatives Kaptur and Emerson (H.R.231) and Senator Grassley (S. 1076) introduced legislation during the 107th Congress to give USDA the authority to bring administrative actions against poultry dealers. The P&S Act oddly omits such a provision while allowing USDA to act against livestock dealers. In addition, it should be clarified that USDA's authority over poultry applies not only to broiler operations, but to growers raising pullets or breeder hens, as well. These loopholes should be closed.

7. Bargaining rights for contract farmers: Representative Kaptur (H.R. 230) and Senator Daschle (S. 20) introduced legislation to close loopholes in the Agricultural Fair Practices Act of 1967 (AFPA) and to require processors to bargain in good faith with producer organizations. The AFPA was enacted to ensure that livestock and poultry producers could join associations and market their products collectively without fear of retribution by processors. Unfortunately, these goals have not been attained due to loopholes in that Act. Retaliation by processors is commonplace in some sectors. This legislation should be passed to promote bargaining rights and prevent processor retaliation.

We are encouraged by the introduction of the livestock and poultry arbitration bill (S.91) and the prohibition against packer ownership of livestock (S.27) in the Senate on the first day of the 108th Congress. It is our hope and expectation that legislation addressing the remaining matters referenced above will soon be re-introduced in the new Congress. We urge their prompt and full consideration by your Committees and other Committees of jurisdiction.

Our country's farmers and ranchers are asking for nothing more than a fair market and a competitive share of the $900 billion dollars that consumers insert into the food and agriculture economy annually. Market reforms remain a key ingredient for rural revitalization and meaningful consumer choice. Competition and fairness legislation such as that outlined above are key to achieving the goal of promoting an economically healthy and diverse livestock and poultry production sector and providing consumers with healthy, affordable food. Thank you.

National Organizations
Agricultural Missions
American Agriculture Movement, Inc.
American Corn Growers Association
Campaign for Contract Agriculture Reform
Campaign for Family Farms and the Environment
Campus Greens
Center for Food Safety
Center for Rural Affairs
Consortium for Sustainable Agriculture Research and Education (CSARE)
Consumer Federation of America
Defenders of Wildlife
Farm Aid
Family Farm Defenders
FoodRoutes Network
Global Exchange
GRACE Public Fund
Henry A. Wallace Center for Agricultural and Environmental Policy at Winrock International
Humane Society of the United States
Institute for Agriculture and Trade Policy
Institute for Rural America
Land Stewardship Project
Livestock Marketing Association
National Campaign for Sustainable Agriculture
National Catholic Rural Life Conference
National Contract Poultry Growers Association
National Environmental Trust
National Family Farm Coalition
National Farmers Organization
National Farmers Union
Organic Consumers Association
Organization for Competitive Markets
Oxfam America
R-CALF United Stockgrowers of America
Rural Advancement Foundation International, U.S.A.
Rural Coalition/Coalition Rural
Sustainable Agriculture Coalition
United Methodist Church, General Board of Church and Society

Regional and Statewide Organizations
Alabama Contract Poultry Growers Association
American Agriculture Movement of Kansas
American Agriculture Movement of Oklahoma
American Agriculture Movement of South Dakota
American Agriculture Movement of Texas
Carolina Farm Stewardship Association
C.A.S.A. del Llano (Communities Approaching Sustainability with Agroecology) (TX)
Catholic Charities, Archdiocese of Louisville (KY)
Cattlemen's Legal Fund (KS)
Citizens Action Coalition of Indiana
Community Alliance With Family Farmers (CA)
Concerned Citizens of Central Ohio
Cooperative Development Services (WI)
Dakota Resource Council (ND)
Dakota Rural Action (SD)
Delmarva Poultry Justice Alliance (DE, MD, VA)
Eastern Kentucky Appropriate Technologies, Inc.
Georgia Organics
Georgia Poultry Justice Alliance
Idaho Rural Council
Illinois Stewardship Alliance
Illinois Sustainable Agriculture Society
Independent Cattlemen's Association of Texas, Inc.
Iowa Citizen Action Network
Iowa Citizens for Community Improvement
Just Community Food Systems of South Central Pennsylvania
Kansas Cattlemen's Association
Kansas Family Farmer Coalition
Kansas National Farmers Organization
Michigan Catholic Rural Life Coalition
Minnesota Project
Missouri Rural Crisis Center
Missouri Farmers Union
Missouri Stockgrowers Association
Montana Cattlemen's Association
Nebraska Farmers Union
Nebraska Women Involved in Farm Economics
New York Sustainable Agriculture Working Group
Nevada Live Stock Association
North Carolina Contract Poultry Growers Association
Northeast Organic Farming Association of New York
Northeast Organic Farming Association of Vermont
Northern Plains Resource Council
Ohio Environmental Council
Powder River Basin Resource Council (WY)
Rural Virginia, Inc.
South Dakota Stockgrowers Association
Southern Research and Development Corp (LA)
Southern Sustainable Agriculture Working Group
Sustainable Earth (IN)
Sustainable Food Center in (TX)
Virginia Association for Biological Farming
Western Nebraska Resources Council
Western Organization of Resource Councils
Western Sustainable Agriculture Working Group

Organizations within States
Appalachian Crafts (KY)
Catholic Charities, Archdiocese of Louisville (KY)
Center for Earth Spirituality and Rural Ministry (MN)
Coordinator of Rural Life Ministry, Office of Social Justice, Diocese of Gary, Indiana
EQUAL (NE)
Fall River & Big Valley Cattlemen's Association (CA)
Fulton County Citizens for Responsible Agriculture (OH)
Genesis Farm (NJ)
Gila Citizens for Sustainable Agriculture, Inc. (NM)
Grant County Stockgrowers Association (OR)
Grant County Cattlemen's Association (WA)
Heartland Center (IN)
Kansas City Food Circle
Karp Resources (NY)
Kirschenmann Family Farms
Lane County Food Coalition (OR)
Madera County Cattlemen (California)
Mankato Area Environmentalists (MN)
North Central Montana Stockgrowers
NorthEast Neighborhood Alliance/Greater Rochester Urban Bounty (NY)
Okanogan County Cattlemen's Association (WA)
Politics of Food Program (NY)
Perkins County Livestock Improvement Association (SD)
Powder River Basin Resource Council (WY)
Puget Consumers Co-op Farmland Fund (WA)
Sharing Help Awareness United Network (IA)
Social Concerns/Rural Life Office, Diocese of Jefferson City, Missouri
Social Concerns, Rural Life Department, Catholic Charities, Diocese of Sioux City, Iowa
Southeast Wyoming Cattlefeeders Association
Spokane County Cattlemen's Association (WA)
Stevens County Cattlemen's Association (WA)
Stewards of the Land (KS)
Sugar and Spice Community Club (NE)
Way Out West (ID)
Western Colorado Congress

Also read a related press release titled Coalition Calls for Restoration of Competition & Fairness to Livestock/Poultry Markets.