Column of the Month
August 2010

Mark Smith
KLA President
Sharon Springs

Marketing rules require your input

     The stampede of issues coming out of Washington, D.C., seems to be growing and gaining speed. We’re in a war with our federal government regulators. This time around, it’s the USDA Grain Inspection, Packers & Stockyards Administration (GIPSA), which has regulatory oversight for the Packers & Stockyards Act (PSA).

     Back in June, GIPSA proposed dramatic changes in PSA. KLA and NCBA carefully analyzed this proposal. The full analysis is available on www.kla.org. It is very important all of us read and understand these proposed changes and how they would affect our individual marketing practices. The formal comment period on the proposal is open until November 22. Your comments on the changes are vital to the rulemaking process. If we don’t provide input, our side won’t be heard and today’s modern livestock marketing system will revert to the average pricing, purely commodity system of 30 years ago.

     Cattle and beef marketing have responded to consumer demand. As ranchers and feeders, we have invested in ways to develop and market premium quality, safe beef products. Our cattle programs, whether we’re selling calves direct, through an auction or out of a feedyard, are focused on earning premiums for the genetics and management used to produce a higher quality product. This production goes into branded beef programs in demand with consumers. It has been so successful, 65% of today’s fed cattle are marketed through these agreements.

     The proposed changes in PSA would impose several restrictions on packers that would take marketing options away from ranchers and feeders. Packers would be forced to justify to USDA any discount or premium paid. A buyer also would be required to make similar offers to all livestock producers. Any packer actions considered by USDA to be unfair or unjustly discriminatory would be grounds for litigation. KLA and NCBA research of such conditions suggests the risk of being sued likely will cause packers to withdraw marketing arrangements that allow cattle owners to capture premiums for quality genetics and specialized management. This effectively would restrict your and my freedom to market cattle as we see fit. It would limit our opportunities to earn more value for cattle.

     Further analysis shows these proposed rules on marketing arrangements and packer-to-packer sales likely would encourage vertical integration of our industry. Packers may choose to own livestock, which is less than 5% of the market today, rather than risk litigation.

     The Livestock and Meat Marketing Study conducted by GIPSA in 2007 proved reducing or eliminating the use of alternative marketing arrangements would negatively affect both producers and consumers to the tune of billions of dollars. How ironic in light of GIPSA’s proposed changes! The study showed if marketing arrangements were completely eliminated, 10-year cumulative losses would be $29.004 billion for feeder cattle producers, $21.813 billion for cattle feeders and $13.657 billion for consumers.

     Granted, USDA was directed through the 2008 Farm Bill to conduct rulemaking that "improves fairness in the marketing of livestock and poultry." KLA and NCBA members believe this proposal, however, far oversteps that authority. A bipartisan group of congressmen on the U.S. House Livestock, Dairy and Poultry Subcommittee agreed during a July 20 hearing.

     These rules would be detrimental to the industry and to our consumers. We have a responsibility to our families, businesses and industry to understand and comment on these sweeping changes. KLA staff will provide assistance if you need help submitting your comments.