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RSS By: Steve Cornett, Beef Today

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Big Packers Face Obamanomics

May 20, 2009

By Steve Cornett
 

If you think packers are too big and powerful, you probably will like USDA's new beef sheriff. J. Dudley Butler is an anti-corporate activist and a trial lawyer and just what the folks we used to call "outsiders" were hoping for with the Obama administration.

For instance, when the folks at R-CALF approved the resolution below, few outside the organization noticed. The chances of getting such a program pushed from the Bush Administration were just about equal to the odds of finding a high Choice Longhorn cow.

“Resolved: R-CALF USA adopt policy and aggressively pursue legislation that allows formula pricing contracts for slaughter cattle that only have a base price on the contract at the time of signing the contract. These contracts shall be available to any independent cattle producer.”

But then came November, and we asked for change. We’ve talked earlier about the possibilities of Obama’s “transitional administration” radically altering the environment of cattle production.

One of the ways that landscape could be altered would be by a new approach to anti-trust legislation. Few basic industries are as top-heavy as beef packing, and few have stirred as many enemies. So, as you consider the chances of “transformational change” in cattle markets, consider that new head of anti-trust enforcement—the folks who decide when to swing the government against big business—has promised to “reinvigorate” the Sherman Anti-Trust Act and broaden it to consider the way vertical integration serves as a barrier to entry.

In other words, the way supplier contracts might impact competition. Christine Varney, widely regarded as Obama's trust-buster to-be, seem to be talking more about technology companies, and cows ain't technogloy. But the theory probably holds.

Now factor in a new head cattle market cop who is an activist trial lawyer with a practice devoted largely to agricultural contracts. Fowl contracts, to be specific.

Because that’s exactly what the resume of J. Dudley Butler, the new head of the Grain Inspection, Packers and Stockyards Administration indicates he is. He was, recalls Fred Stokes, former president and current executive vice president of the Organization for Competitive Markets, among those at the OCM’s first meeting back in 1997.

In fact, Stokes and others credit Butler with a key role in getting Congress to do away with involuntary arbitration contracts in the poultry industry. Disgruntled growers had long complained about those contracts, arguing “integrators” use them to protect themselves from jury trials when the abuse the growers. (Trial lawyers didn’t like that “no trial” stuff much, either.)

This is going to be interesting. Butler is not a guy who, by reputation at least, seems to have little patience with mainstream agricultural business practices. Before his company Web site was taken down, his list of “agricultural links” included neither the National Cattlemen’s Beef Association nor the American Farm Bureau. OCM was there. As was R-CALF and a host of “sustainable” and “family” farm organizations.

It’s been years since most us paid much attention to GIPSA. The agency mostly tells rogue cattle buyers and broke auctions they must close barn doors after horses are out. And promise not to leave the doors open again.

It’s been years since the agency policy had much impact on the way we do business.

But overlay Mr. Butler’s politics onto the personality of a trial lawyer, and there may be reason Mr. Butler’s colleagues on the left side are so enthusiastic about his new job.

Randy Stevenson, current president and another founding member of OCM,says he expects to see Butler bring the “interests of producers” back into the picture. Stevenson says the Bushies at GIPSA were just there to protect packers from the Packers and Stockyards law.

He says it will take time for Butler to swing GIPSA’s bow, but he says Butler has the instincts to do it. Just how much change he can bring is Stevenson’s question.

Jess Peterson, executive vice president of the U.S. Cattlemen’s Association (another outfit not on the Butler Law Firm list of links) says he worked with Butler on several legislative efforts and says, “He is certainly on the side of the producer.”

Peterson predicts “a much more aggressive” approach to the P&S law in the years ahead.

I’d be surprised if that isn’t so. My concern is that Mr. Butler use all his new power to attack causes rather than symptoms. My concern with the approach of OCM and their fellows on that side of the argument is that they want to approach beef consolidation as if it were occurring in a vacuum. 

It’s not. The business model that developed in the poultry industry has put a price limit on protein at the same time it allows marketers to adjust production and producers to consumer demand.

At the same time, beef must move into a highly concentrated retail environment., an environment so non-competitive on the buying side that grocery chains typically charge marketers for the right to have them sell their stuff. 

There may be only four really important beef packers, but they aren’t getting rich selling beef. You might argue that they don’t pay as much as they could for cattle, but I’d bet you’ll agree they probably sell the stuff for all they can get. And their margins have been nothing to brag about the last few years.

If you think that 50 “independent” packers selling to those same few big markets would do better—pay more because they get more—I’ve got a pot load of high Choice Longhorns to sell you.

So, anyhow, there is my hope for this new situation. My concern is that we not further tie beef producers’ hands with a bunch of regulations treating symptoms.

Lawyer Butler seems to know something about the processor-grower relationship in the poultry business. If he wants to “save the little man,” I hope he’ll turn his attention there first. And I hope Ms.Varney, if she must, will consider the buyer power of those giant food chains before she starts telling us what kind of contracts we can write on the low end of this food chain.

I’m not a big fan of big business. I think they get as mired in bureaucracy and top-think as government. Still, I’m not sure concentration in the packing business is as much a problem as the OCM bunch thinks.

But I’m convinced that the worst possible scenario for the next few years is for the government to allow poultry to continue to operate their highly efficient business model while keeping beef in the strait jacket system that got us here.

If they insist on protecting every hobby farmer out there, they’ll turn us all into hobby farmers.

Click here to read rebuttals from R-CALF and OCM.

Steve Cornett is editor emeritus at Beef Today. You can reach him via e-mail at scornett@farmjournal.com.
 

This column is part of the Beef Today Cattle Drive e-newsletter, which is delivered to subscribers biweekly and includes beef industry analysis, market information as well as the latest beef headline news. Click here to subscribe.


 

 

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