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GIPSA rule threatens more than cattle, beef prices

Author: Kristy

Final rulemaking by USDA on the 2010 Grain Inspection, Packers and Stockyards Act jeopardizes cattle prices and the ability of beef to compete with pork and poultry for the consumer protein dollar.

Wes Ishmael | Dec 28, 2016

Enjoy the potential of receiving more money for cattle with more value while you can. USDA’s decision to move forward with publishing final rulemaking on the 2010 Grain Inspection, Packers and Stockyards Act (GIPSA) could force packers to pay the same price for all cattle. That would narrow or remove any spread in prices offered by cattle feeders. So, every cow-calf producer would receive the same price for calves, regardless of value.

 “It allows USDA to broaden the scope of what they can do to enforce the marketplace. It basically lets USDA determine what is fair in cattle marketing,” says Colin Woodall, senior vice president of government affairs for the National Cattlemen’s Beef Association (NCBA).

“Given the broad and vague nature of USDA’s approach, it provides a field day for trial attorneys,” Woodall explains. “What we have confirmed in talking with our attorneys and other partners in the supply chain is that anybody who thinks the price they’re getting for cattle is unfair could sue packers, processors and others in the supply chain because the GIPSA rule gives them standing.”

 In other words, no one has to prove injury in order to start spending someone else’s money in legal fees.

 “The packers and processors have told us they cannot absorb that kind of liability,” Woodall says. “As such, we will probably lose our Alternative Marketing Arrangements (AMAs) and our value-added marketing programs that have been decades in the making.”

 Whether or not that is the intent of the GIPSA rule, that’s what the language enables. At best, it’s like the flawed Waters of the United States rule, which would allow the government to regulate mud puddles on private property, no matter the intent. That’s a key reason why NCBA and other livestock trade organizations opposed the GIPSA rule from the outset.

AMAs add value and reduce cost

 You probably remember a boisterous discussion a few years back regarding AMAs, which include forward contracting and formulas that reward and discount cattle based on specific performance thresholds. Neither contributes directly to spot cash price discovery.

 The mainstream cattle industry fully endorses AMA use; upwards of 80% of fed cattle have traded away from the cash market in recent years.

 A vocal minority continues to rage against such arrangements, though, ignoring the net, broad-based benefits documented by credible scientific research. Basically, it seems to irk them that some producers have figured out ways to get higher prices for their cattle.

 Caterwauling from the minority resulted in the congressionally mandated GIPSA Livestock and Meat Marketing Study in 2007.

 Among the AMA benefits for cattle markets cited by the study are reduced cost, improved product quality and enhanced risk management.

 “Buyers and sellers of livestock and meat may have a number of different economic incentives associated with using alternative or cash marketing arrangements or the cash market,” according to the report.

 “Buyers of livestock and meat may choose to use specific marketing arrangements because they reduce the cost of procurement, improve the quality of animals and products purchased, aid in risk management, and generate efficiencies in procurement and marketing. Likewise, sellers of livestock and meat may choose to use specific marketing arrangements because they facilitate market access, reduce the cost of selling, increase the price received, and reduce risk.”

 If AMAs are restricted, according to the study, consumer beef demand decreases with declining beef quality, while slaughter and processing costs increase.

 “The cost savings and quality improvements associated with the use of AMAs outweigh the effect of potential oligopsony market power that AMAs may provide packers,” according to the report.

 “In the model simulations, even if the complete elimination of AMAs would eliminate market power that might currently exist, the net effect would be reductions in prices, quantities, and producer and consumer surplus in almost all sectors of the industry because of additional processing costs and reductions in beef quality. Collectively, this suggests that reducing the use of AMAs would result in economic losses for beef consumers and the beef industry.”

 Getting rid of all AMAs would result in billions of lost dollars across the beef industry, according to the study’s empirical analysis.

 More recently, the Price Discovery Research Project (PDRP) conducted by Stephen Koontz, agricultural economist at Colorado State University, found that even as cash markets thin, both cattle feeders and beef packers find too much value in AMAs to return to more spot cash marketing .

 Benefits cited in the PDPR study include lower transaction costs, improved inventory and supply chain management, as well as the ability of cattle feeders and packers to aim cattle toward markets that yield the most value

GIPSA rule makes all cattle average

 If preventing packers from differentiating—rewarding and discounting—cattle based on value sounds socialistic at its core, that’s because it is. It flies in the face of everything that democracy and capitalism embody. Everybody gets the same price, no matter the difference in product value, no matter the difference in abilities and dedication of individual producers to develop a product more valuable to the consumer.

 It’s akin to the industry raising the proverbial white flag and saying, “This is it. This is as competitive as we will ever be relative to pork, fish and chicken.”

 USDA made some cosmetic changes in the final GIPSA rule, but nothing that addresses the chief concerns of cattle producers.

 “As we have consistently stated, if adopted, this rulemaking will drastically limit the way our producers can market cattle and open the floodgates to baseless litigation,” emphasizes Tracy Brunner, NCBA president. “In a time of down cattle markets, the last thing USDA needs to do is limit opportunity. The fact of the matter is, we don’t trust the government to meddle in the marketplace.

 “USDA is going well beyond their statutory limitations, limiting marketing options for a product that America is demanding. If USDA was interested in real solutions rather than increased government regulations, they wouldn’t have rushed these rules out the door at the very close of the Administration’s term, bypassing any input from industry.”

 The GIPSA rule is scheduled to go into effect 60 days after publication in the Federal Register, whicdh occurred Dec. 20. So comments can be submitted through Feb. 21, 2017. The Act also includes two proposed rules to address undue preference and the poultry grower ranking system.

 Barring swift and early action by the Trump administration to stop the regulation, Woodall says NCBA and other partners in the supply chain are exploring legal remedies.

 Allowed to move forward, such a rule also sets a dangerous regulatory precedent. What’s next, Uncle Sam gets to decide what speech is legal?

 Today, if someone wants to sue under libel or slander law, they must prove, among other things: what was written or said is false; injury because of what was written or said; intentional malice on the part of the one writing or saying it. That means you have to listen to blasphemous idiots, but it also means you get to express both your opinion and the truth.

 

 

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