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RSS By: Steve Cornett, Beef Today

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Let Me Clarify: Study GIPSA

Oct 07, 2010

Let me apologize for being unclear in an earlier post to Bill Bullard and his friends in the Obama Administration for writing in an unclear manner. Bullard, in a response, accuses me of disserving the industry by saying “it’s not packers who benefit” from value based marketing.  He replies,

"You can’t possibly expect your readers to be so naïve as to believe your claim that packers are not among the people who benefit from value based marketing. Even National Beef Packing Company, which is primarily owned by U.S. Premium Beef, attributes its significantly increased net income in part to an “increase in the average sales prices per head of approximately 14.8% during this reporting period,” meaning that it is receiving more revenues from the beef derived from each animal. It is fundamentally wrong to assert that value based marketing does not benefit the entire beef supply chain, from cattle producers to packers to retailers (consumers also benefit from the availability of high-quality beef). That is why other packers, including those not owned by producers, also have instituted value based marketing programs.”

Well, duh. I concede the point gladly. Of course packers and retailers benefit from value based marketing. I suppose he has failed to notice through the years that I—and about everybody else outside his clique—have been saying that over and over. I’m glad somebody on the Administration side has finally seen fit to acknowledge as much.

There is, however, disagreement on how the rule would impact the market. 

The R-CALF lobby  joins the Administration in arguing that packers will continue their value-based marketing programs, despite the fact that some of the packers have said they won’t assume the liability. A lot of people, including a lot of producers who know those packers far better than Mr. Bullard, his followers or the consumerist outfits he hangs with, don’t think they’re bluffing.

They don’t think packers will be willing to give up their trade secrets and open themselves to more lawsuits just to keep those programs going.

But they may be wrong, of course. There’s a good way to deal with that disagreement. Let a third party look at the facts.  Which, it so happens, is exactly what those 115 representatives who wrote USDA the letter this week are asking for.

“Such a broad rule that extends so far beyond Congress’ direction in the Farm Bill and that would precipitate major changes in livestock and poultry marketing requires a vigorous economic analysis. The analysis contained in the proposed rule fails to demonstrate the need for the rule, assess the impact of its implementation on the marketplace, or establish how the implementation of the rule would address the demonstrated need.” 

I am not as sure as others what the GIPSA rule would do. Looks like some good and some bad to me. It makes a lot of sense to get GAO or somebody without a rooster in the fight to study the thing.

One would presume that Bill will agree with that.  But, in the past, credible, third-party studies have not been kind to his political agenda. Which explains the latest R-CALF news release, filed in protest of the Congressial letter asking—let’s emphasize—for a simple a cost-benefit anaylysis before proceding with the proposed rules.

Mainstream agriculture “has infiltrated Congress so deeply that even the President’s own political party is refusing to carry out the President’s campaign promise to restore competition to agricultural markets for U.S. family farmers and ranchers and rural main-street businesses,” R-CALF frets. Once again, we hear that cattle producers are going out of business. And that, argues R-Calf is all the proof you need that packers must be punished.

Once again, we hear that cattle producers are going out of business. And that, argues R-CALF is all the proof you need that packers must be punished.

We’ll leave it to R-CALF to worry about the political problems facing the “President’s own.” But this GIPSA rule isn’t just about Obama. It’s about this industry facing a very important crossroads. We’ve talked earlier about the many reasons besides producers go out of business. This sort of decision deserves more than simplistic bumper-sticker hate  tactics.

Study the thing. Let’s get an idea what lies at the end of each of these crossroads.

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COMMENTS (1 Comments)

Bill Bullard - Billings, MT
Hello Steve,
For the benefit of your readers you may also want to concede the point that not only do packers benefit from value-based marketing, but also, from procuring cattle at prices below true value, which explains why cattle producers and packers have inherently different economic interests in cattle procurement transactions. Expanding on last week’s example, National Beef Packing Co. claimed its cost-of-sales increased due in part to a 14.2% increase in live cattle prices. Thus, increased cattle prices increase packers’ costs and reduce their profits, while simultaneously increasing producer profits.
Now, if I were a seller of lumber, and a lumber yard told me it would no longer pay a higher price for my higher quality lumber, I’d go find another lumber yard to sell to. This is the beauty of a competitive market – competition prevents buyers (e.g., packers) from exploiting sellers (e.g., cattle producers). You say some packers will decide to abandon their mutually beneficial value-based marketing programs if the GIPSA rule is finalized. So what? Just go find another packer that will participate. But wait a minute. That’s the problem isn’t it? The packing industry is so concentrated that if two or more of them get together and collude to not pay the true value for cattle, producers will be left with no viable alternatives. Look’s like we’ve already waited too long for the GIPSA rule and a further delay caused by additional studies will only compound the serious lack of competition that is so prevalent today.

3:51 PM Oct 11th
 

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