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Front Gate: A Value-Added Checkoff

July 29, 2008
By: Steve Cornett, Beef Today Editor Emeritus

The Cattlemen's Beef Board (CBB) has asked for suggestions to improve the checkoff program. Here's mine: A VAC: Value-Added Checkoff.

Like the value-added tax so popular in Europe. Similar to how soybean and pork checkoff programs work here. Like we talked about the first time around.

A VAC plan is fairer, easier to collect and to police than the current program. Now we collect $1 per head every time an animal trades, which might be three or four times.

The current system is not fair. If a dairy farmer sells a bull calf for $5, he is supposed to pay the checkoff $1. That's 20% of the value of the whole darn calf. If a purebred breeder sells a fine Angus bull for $10,000, he is supposed to pay the checkoff $1. So, 0.01%. If he sells a million dollars worth of such bulls his contribution to the checkoff is $100. At the same time, a 25,000 head capacity feedlot pays $25,000 on every turn of cattle.

The dairy farmer, who probably doesn't care if beef demand is good or not, was asked to pay 20% of his gross sale, while the purebred breeder, whose business depends on beef demand, pays next to nothing. The feeder, trying to squeeze $10 or $15 a head out of his high volume, kicks in as much as dozens of purebred breeders.

One way I've seen suggested to make the system fairer would be to base the checkoff on the weight of the animal. That's better, but basing off the value is best. Choose your own VAC level, but for purposes of clear discussion, let's say that we set the checkoff at 1% of sales value.

Brass tacks. In that case, a calf producer would owe $1 on a $100 calf. It would be collected only once, at harvest, then packers would pay it. Until harvest, I'd have buyers deduct the checkoff from the sale price—say $260 on a $26,000 load of calves—and hold it until the calf sells.

No longer must our recalcitrant friends in the livestock auction barns process the checkoff payment. They just pay the seller 99% and charge the buyer 99% of the sale price. That's pretty easy.

If I'm a feeder buying your calf for $800, I really just pay you 99% of $800, deducting your $8 checkoff. Then, when I sell the calf for $1200 as a fed steer, the packer deducts $12. But my actual bill is just on the value I've added, so $4. It doesn't matter how many times the animal sells.

When the fed steer finally sells for $1,200, the packer deducts the $12, and sends it to the CBB. The Beef Board then remits half of that to each state based on cow populations, perhaps adjusted a bit for cattle on feed in each state. That's pretty easy to collect.

Right now, there is—by rumor mind you, nothing I can prove—some "slippage." Where perhaps I buy a steer from you direct, deduct your dollar and then forget to send it in.

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FEATURED IN: Beef Today - Summer 2008
RELATED TOPICS: Beef, Calves, Cattle, Taxes

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