Saturday, October 2, 2010

Livestock farmers uneasy

Agriculture Secretary Tom Vilsack says farming -- especially livestock farming -- is one of the few bright spots in the U.S. economy. So why aren't Indiana pork producers smiling?

Perhaps it has something to do with the disastrous rules Vilsack's department has proposed for our industry. The draft regulations, unveiled in June, are a major bureaucratic overreach that will dictate contract terms, limit farmers' ability to sell their animals, make it harder to get financing and eliminate jobs.

The Agriculture Department argues the draft regulations are needed to open livestock markets. In fact, they will do just the opposite. They will reduce competition and encourage meatpackers to raise their own animals rather than relying on producers like me.

And it's not just producers who will suffer. Because the rules will stifle innovation and encourage packer-owned livestock, everyone may soon be seeing higher prices and fewer choices in the meat case.

The new rules will make it nearly impossible to negotiate premiums for higher-quality livestock without justifying the increases with a written cost analysis. That will be devastating for my farm. In the end, all my hogs could end up bringing the same price, regardless of their quality. That turns competition on its head.

The draft rules also greatly expand what constitutes a violation of the 89-year-old Packers and Stockyards Act. Under the new definition, it no longer matters whether an action actually harms competition in a market. Almost any practice shown to be "unfair" can be a problem. That will turn routine contract disputes into federal P&A Act cases, clogging the courts with issues that don't belong there. It also creates another powerful incentive for packers to own their own livestock.

Still, some of these changes might make sense if the current system was flawed or problematic. But, as a recent Agriculture Department hearing made clear, the majority of livestock producers are happy with how their markets operate, especially since the recession bottomed out and prices turned up.

But the Agriculture Department listened instead to a small group of dissatisfied farmers who oppose the proliferation of contracts between meatpackers and producers to supply livestock at a set price for a specified period. These producers would rather expand the cash market, where livestock are bought and sold daily for constantly changing prices.

Most producers want multiple options for selling their animals. Contracts offer a guaranteed income over time. In fact, today most agricultural bankers want producers to have that guarantee before they'll lend to them.

Forcing more farmers into the cash market -- as the USDA regulations do -- would be a disaster for many producers. Not only can the risks be greater, but cash market prices can fluctuate wildly.

The Agriculture Department says its new rules simply fulfill a mandate under the 2008 farm bill. In truth, they go well beyond what the bill required.

USDA needs to go back to the drawing boa and come up with something more in line with what it was asked to do. Otherwise, all the good economic news in the world won't ease livestock producers concerns about the future. indystar

1 comment:

  1. The new rules were put out and this allegation surfaced by meat packers. It was summarily dismissed as false by GIPSA. There is nothing in the rules that disallows for incentives---but those incentives have to be incentives related to the quality and not market price manipulation.

    If the new rules make it too hard for current meat packers to offer incentives for quality based on the product, then we need new meat packers.

    It is amazing to see the disinformation that has been put out by those currently controlling the industry and NOT paying based on the product but on other factors. It has been the substitution by packers of their own profitability for market efficiency. Market efficiency needs the prices to be a direct function of the quality of the product, not the profitability of the packers.

    I hope we can get rid of the current packers who are so full of fear that they would actually lie about the New Rules to rally support for their current system that allows them to cheat producers.