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RSS By: Steve Cornett, Beef Today

Read the latest blog from Steve Cornett.

“Poorer” Meat? Say What?

Nov 01, 2010

The Associated Press stirred up the industry’s GIPSA skunk fight* last week, and the story underscored how much “too” complex the issue is for reporters...and, alas, for policy makers. That’s one reason I’d feel much better if the final decision on this intra-industry squabble were being decided by an Administration that didn’t seem to regard beef and cattle production as a dietary and environmental problem rather than an important business.

Anyhow, the story that got it started was: AP IMPACT: Beef industry woes may mean poorer meat.

There was much ado about who said what, but the paragraphs that most caught my attention were;

Without a competitive market, experts say, cattle producers could lose the motivation to raise high-quality meat. Some of them might cut corners on medicine, feed and veterinary care.

"Food animal husbandry requires substantial expenditures," said Peter Carstensen, a law professor at the University of Wisconsin and former Department of Justice antitrust attorney. "If you're not going to be compensated for that, your incentive as a farmer to produce the quality just isn't there."

It was enough to tempt me to call Mr. Carstensen to see how in the world he could, if he knew anything about the current state of contracts in the U.S., say such a thing. I’d not heard that argument before. I can’t imagine how anybody could think that systems designed to reward higher standards of production would lead to such self-defeating corner-cutting. We chatted for a while, closing our conversation with the professor saying, “I have a student coming in. I can see I’m not going to convince you.” He hadn’t, but he had some good points, and I’d like to talk with him some more. For one thing, he is tuned into the beef market. And he has done a lot of academic—academic—research on the market. He’s read all the studies I’ve read and cites the parts with which he agrees.  I get the impression he has maybe talked to more of the losers than the winners.

And he’s obviously smarter than me. Still, his quality argument is based on the Pickett case, in which the plaintiffs argued packers treated them unfairly by not offering them contracts. The packers argued they got better cattle, and the plaintiffs produced evidence that the quality grade of the cattle they bought on contract was no higher than that bought in the open market.

One problem here is that when you talk about “quality” in beef, your meat professionals hear one thing and your consumers—as well as AP reporters, law professors and Alabama juries—hear another. I believe we’ve argued before about how badly we need to get the word “quality” out of quality grades. “Quality” in new boots or cars is something everybody wants more of. But not everybody wants more marbling in their beef. And it is so easy to think a “lower quality grade” means less safe or less predictable or, well, “lower quality.”  It looks, in reading the story, that several industry folks had the opportunity to steer the reporter away from assuming that industry concentration was a threat to animal health and beef safety, but opted not to. Other priorities, I suppose.

I’m presuming that’s how the headline came up with that “poorer meat” adjective. I have no idea where they came up with the idea that developing systems to allow more coordination and demand more producer responsibility might lead to less veterinary care. I tried to reach the AP reporters to ask, but ran into a dead end somewhere in the 212 area code.

Anyhow, suffice it to say that the story struck me as being incompletely sourced and one-sided. It was what those of us who spend more time on these issues know to be based on the Obama Administration’s view that concentration in the meat business needs to be corralled. It was one of those stories we reporters like to do where we interview three or four homeowners who are being foreclosed on, ignoring the millions who aren’t, and strum the heart strings of the reader.

Or interview a few successful producers and ignore the guys who’ve gone out of business. We all do it.

I’m still waiting—wanting, I might even say--to be convinced that packer contracts are bad for the cattle industry in the real world. I can see where they’re taking us. Better producers—the guys able to deliver on promises—are doing better than the rest of us. If this is all a game of Texas Hold ‘Em, the better and luckier players keep gathering more chips and facing fewer—and better—competitors.

And don’t we all know that in Hold ‘Em, there is only one eventual winner?

To Mr. Carstensen’s credit, he didn’t cite the fact that many farmers have gone out of business as PROOF! Contracts are bad. He seemed to be arguing that contracts would be fine if they were just offered to everybody on an equal footing. Like, I suppose, an exchange wherein Tyson posts its grid and anybody who wants to meet that can deliver cattle, on some sort of a bid basis, I suppose. I have no big problem with that, and I doubt the packers would mind being thrown into that briar patch.

Beef’s problem is not going to be fixed by administrative edict. Beef’s problem, alas, is not that beef is too cheap. That’s MY problem as a producer. But if beef were cheaper, we’d sell more of it. And if these rules should succeed in making beef more expensive, which is what the proponents seem to expect, we’ll sell less of it. That’s a pretty simple equation. And if we sell less beef, we need fewer cattle and if we need fewer cattle we need fewer cattle producers.

Beef’s big problem isn’t the way the pie is divided. (That, again, is MY problem.) It is the size of the pie. It keeps shrinking, as a portion of GDP and the food dollar. It has been shrinking since the 1970s.

The biggest problem we’ve got is the trade issue, forced on us partly by that damnable BSE thing. Part of the reason is marketing and PR—that health thing. But the bigger reason is beef’s weakness in competing with poultry.

And a big part of the poultry challenge is their business structure. That structure has allowed them to reduce costs and optimize innovation at a much faster clip than what we’ve seen in the beef business. It grants processors considerable control over producers, and reporters have little trouble finding “former” growers willing to complain. But the chicken business is much larger—poultry’s pie is larger—because of it.

Beef has to compete in that world. Mr. Carstensen knows that. As we talked I gathered that his complaint is less with contracting than with concentration of packers. He is of the opinion that there is too little competition. When I ask if contracts aren’t a way that packers can back up their branding promises, he suggests that would be so if there was competitive pressure to produce a quality product. But he doesn’t think there is.

His voice perks up when Wal-Mart’s name comes into the conversation. He is quick to the point of the price pressure on suppliers. He says it needs to be looked at.

For purposes of this post, I am agnostic on that. As a consumer, I like low prices all the time. As a beef supplier, I like higher prices. Monopoly law has always been aimed at protecting consumers. Maybe we should look at ways to protect producers, to force prices higher rather than lower. I’m not sure how that will work in a global marketplace, but I’m sure not against looking.

But the point is that’s the world we live in. If the Obama folks want to change that world—break up Wal-Mart—for instance, that’s one argument. If they want to impose their “fairness first” policy on poultry—force those processors to buy birds in some open bid process—I’m fine with that. Savoring the idea, in fact. Beef was the king of meats back before the chicken moguls figured out the deal they do now.

But, to simply adopt new rules aimed only—only—at policing the size of beef’s pie slices strikes me as folly.

*My dog likes to fight skunks. Three so far this fall. She kills them and fetches them to the front door. They’re dead and she stinks. Nobody wins in a skunk fight.

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