[Senate Hearing 107-919]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-919

                      PACKERS AND STOCKYARD ISSUES

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION


                               __________

                             JULY 16, 2002

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov


                                 ______

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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            RICHARD G. LUGAR, Indiana
KENT CONRAD, North Dakota            JESSE HELMS, North Carolina
THOMAS A. DASCHLE, South Dakota      THAD COCHRAN, Mississippi
MAX BAUCUS, Montana                  MITCH McCONNELL, Kentucky
BLANCHE L. LINCOLN, Arkansas         PAT ROBERTS, Kansas
ZELL MILLER, Georgia                 PETER G. FITZGERALD, Illinois
DEBBIE A. STABENOW, Michigan         CRAIG THOMAS, Wyoming
BEN NELSON, Nebraska                 WAYNE ALLARD, Colorado
MARK DAYTON, Minnesota               TIM HUTCHINSON, Arkansas
PAUL DAVID WELLSTONE, Minnesota      MICHEAL D. CRAPO, Idaho

              Mark Halverson, Staff Director/Chief Counsel

            David L. Johnson, Chief Counsel for the Minority

                      Robert E. Sturm, Chief Clerk

              Keith Luse, Staff Director for the Minority

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Packers and Stockyard Issues.....................................    01

                              ----------                              

                         Tuesday, July 16, 2002
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee 
  on Agriculture, Nutrition, and Forestry........................    01
Lugar, Hon. Richard G., a U.S. Senator from Indiana, Ranking 
  Member, Committee on Agriculture, Nutrition, and Forestry......    02
Craig, Hon. Larry, a U.S. Senator from Idaho.....................    10
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............    05
Daschle, Hon. Tom, a U.S. Senator from South Dakota..............    15
Johnson, Hon. Tim, a U.S. Senator from South Dakota..............    06
Nelson, Hon. Ben, a U.S. Senator from Nebraska...................    04
Thomas, Hon. Craig, a U.S. Senator from Wyoming..................    04
Wellstone, Hon. Paul, a U.S. Senator from Minnesota..............    03
                              ----------                              

                               WITNESSES

Hawks, Bill, Under Secretary for Marketing and Regulatory 
  Affairs, United States Department of Agriculture, accompanied 
  by Donna Reifschneider, GIPSA Administrator....................    12

                                Panel I

Appel, Steve, Vice President, American Farm Bureau, Endicott, 
  Washington.....................................................    32
Bierman, Tim, President, Iowa Pork Producers Association, 
  Larrabee, Iowa.................................................    27
Boyle, J. Patrick, President, American Meat Institute, 
  Washington, DC.................................................    33
Jungclaus, Nolan, Hog Farmer, Lake Lillian, Minnesota............    29
Stumo, Michael, General Counsel, Organization for Competitive 
  Markets, 
  Lincoln, Nebraska..............................................    24

                                Panel II

Butler, John, President and CEO, Ranchers Renaissance, Englewood, 

  Colorado.......................................................    51
Davis, Eric, National Cattlemen's Beef Association President-
  Elect, Bruneau, Idaho..........................................    50
Jackson, Paul, National Farmers Union, Oklahoma City, Oklahoma...    47
Schumacher, Herman, R-CALF USA, Herreid, South Dakota............    44
Taylor, Robert, Professor, Auburn University, Auburn, Alabama....    43
                              ----------                              

                                APPENDIX

Prepared Statements:
    Appel, Steve.................................................   100
    Bierman, Timothy.............................................    90
    Boyle, J. Patrick............................................   105
    Butler, John S...............................................   168
    Davis, Eric..................................................   146
    Drought Meeting, July 3, 2002, Senator Tom Daschle and 
      Senator Tim Johnson (retained in the Committee files)......
    Hawks, Bill..................................................    73
    Jungclaus, Nolan.............................................    97
    Lincoln, Hon. Blanche........................................    71
    Jackson, Paul................................................   139
    Johnson, Hon. Tim............................................    64
    Roberts, Hon. Pat............................................    60
    Stumo, Micheal...............................................    78
    Taylor, C. Robert............................................   110
    Schumacher, Herman...........................................   125
Document(s) Submitted for the Record:
    Baucus, Hon. Max.............................................   174
    Crapo, Hon. Mike.............................................   175
    Iowa Farm Bureau Federation..................................   200
    Johnson, Hon. Tim............................................   178
    Sparks Companies, Inc. (retained in the Committee files).....
    Wellstone, Hon. Paul.........................................   177
    WORC, statement of Shane Kolb................................   187
    WORC, statement of Skip Waters...............................   196



 
                     PACKERS AND STOCKYARDS ISSUES

                              ----------                              


                         TUESDAY, JULY 16, 2002

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:07 a.m., in 
room SD-562, Dirksen Senate Office Building, Hon. Tom Harkin, 
[Chairman of the Committee], presiding.
    Present or Submitting a Statement: Senators Harkin, Conrad, 
Daschle, Lincoln, Nelson, Dayton, Wellstone, Lugar, Roberts, 
and Thomas.

    STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, 
              CHAIRMAN, COMMITTEE ON AGRICULTURE, 
                    NUTRITION, AND FORESTRY

    The Chairman. The Committee on Agriculture, Nutrition, and 
Forestry will come to order.
    This committee has previously given a good deal of 
attention to economic concentration and the competitiveness of 
livestock markets. We debated the issues and took some action 
in the new Farm bill, but today we will further examine packer 
ownership of livestock and the USDA enforcement of the Packers 
and Stockyards Act because we still have a long way to go in 
restoring fairness, openness, and confidence in these markets.
    Because of widespread consolidation and vertical 
integration, packers are in a much stronger position to exert 
economic power to manipulate livestock and meat supplies in 
markets. Producers and consumers alike have a critical stake in 
this trend. The news has been filled lately with reports of how 
market manipulation and unfair practices have damaged 
consumers, market participants, and our overall economy. That 
is just as true for livestock and meat markets as it is for 
energy and stock markets. Simply put, a ban on packer ownership 
of livestock would limit the ability of packers to dominate and 
manipulate markets by locking up supplies.
    We tried to do this in the Farm bill. We passed it in the 
Senate, first by a vote of 51 and then by a vote of 53. When we 
got to conference, the House refused to accept it, and the 
administration refused to take a position on the issue. 
Clearly, if the ban on packer ownership is ever to be enacted, 
greater understanding and support for it will be essential. In 
today's hearing, we will hear from farmers, ranchers, and 
others in the livestock and meat industry. I hope today we will 
get a clear statement of the administration's position on this 
issue.
    Obviously, it is still a controversial topic. For those who 
oppose the ban and predict negative consequences if it is 
adopted, I would simply point to the record in my own State of 
Iowa. Iowa law has prohibited packers from owning livestock for 
over 20 years, and we are still the number-one producer of hogs 
in the Nation, with a strong independent hog farming sector and 
more hog packing plants than any other State.
    Also, given the structural changes in the livestock and 
meat industry, effective enforcement of the Packers and 
Stockyards Act is more crucial now than at any time in history. 
We are going to be examining that also today in our hearings.
    Again, I look forward to today's testimony, to working with 
producers, my colleagues, and the USDA to address these 
critically important issues in the livestock industry.
    With that, I would recognize our distinguished ranking 
member, Senator Lugar.

    STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR FROM 
             INDIANA, RANKING MEMBER, COMMITTEE ON 
              AGRICULTURE, NUTRITION AND FORESTRY

    Senator Lugar. Thank you very much, Mr. Chairman. As you 
pointed out, today's hearing provides the Agriculture Committee 
another opportunity to once again visit issues surrounding 
competition and concentration in American agriculture. Through 
hearings and legislative achievements, such as mandatory price 
reporting, this committee has worked in a bipartisan way in 
recent years to ensure that farmers and consumers benefit from 
increased transparency and accountability on the part of our 
Nation's agribusiness sector would be realized.
    During the Clinton administration, Chairman Harkin and I 
introduced legislation to establish the position of special 
counsel for agriculture in the Justice Department to assist in 
oversight of merger and acquisition activity related to 
agricultural business. Shortly after introduction of our 
legislation, Attorney General Reno proceeded to establish the 
position and appointed Douglas Ross as the special assistant, 
who continues to serve in that capacity and is presently 
involved in several merger investigations related to 
agriculture.
    During the Farm bill debate, there was extensive dialog on 
a proposed ban on packer ownership of livestock, which we will 
review again today. Many agricultural business officials 
contend a packer ownership ban would negatively impact their 
ability to profitably meet consumer demands that are 
increasingly diverse and of higher value. Concerned with the 
increasing consolidation of the livestock industry, many 
farmers and ranchers believe implementing a packer ownership 
ban will serve to lessen the pace of concentration.
    While today's hearing will also provide opportunity to 
review the work of the Grain Inspection Packers and Stockyards 
Administration, GIPSA, it is very important the committee 
understand the role of GIPSA compared to that of the Department 
of Justice, as well as the Federal Trade Commission, on matters 
related to mergers and competition issues in agriculture.
    I look forward to the testimony of our panels of 
distinguished witnesses, and I thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lugar.
    Senator Wellstone.

STATEMENT OF HON. PAUL WELLSTONE, A U.S. SENATOR FROM MINNESOTA

    Senator Wellstone. Thank you, Mr. Chairman. I have a full 
statement of the record. I know we want to move along.
    The Chairman. Without objection.
    Senator Wellstone. Let me thank Nolan Jungclaus, who is 
here today from Minnesota. He is a grain and livestock farmer 
from Lake Lillian, central Minnesota. Raises 450 acres of crops 
and also has a small farrow-to-finish hog operation, which 
raises over 600 head per year of antibiotic-free pork.
    He is a board member of Prairie Farmers Cooperative, which 
I visited, a locally owned and operated hog processing 
facility. I want to welcome Nolan. I want to thank Farmers 
Union and Land Stewardship Project for all their support.
    It is interesting, Mr. Chairman, the Farm Bureau as well, 
all coming in. What I find at every meeting I am at in greater 
Minnesota in farm country is there is a tremendous amount of 
support for this legislation. I would thank Senator Johnson for 
his very important leadership. It has, for me, been a labor of 
love doing this with Senator Johnson and Senator Grassley from 
Iowa as well. Of course, the chairman, Senator Harkin, has 
absolutely taken the lead on it.
    I asked Nolan whether I could summarize his testimony. He 
does it with a lot of eloquence in terms of what the impact is 
on communities when your independent producers are driven out, 
muscled out. I will let him speak to that. All I would say is I 
think what he is saying today and what our independent 
producers, livestock producers are saying in Minnesota and 
around the country is, ``We want a level playing field.'' I 
mean, ``We want a fair shake. We are tired of these packers 
practicing their own form of supply management and basically 
muscling us out.'' They buy when the prices are low, and they 
sell when the prices are low. Everybody has figured out what 
they are doing.
    I will tell you, if you look at the meat processing 
industry alone, the four top processing firms for beef, pork, 
and chickens control between 55 percent and 87 percent of the 
U.S. market. Now, back when I was a student taking economics 
classes--101 or 001 or 010, or whatever they were called--I 
learned that that is at best oligopoly, at worst monopoly. We 
have almost a cartel situation.
    This passed the Senate. I am sorry it was taken out of 
conference committee. I know you fought very hard for it, Mr. 
Chairman. I will tell you something, the pressure is building, 
and we are not giving up. This hearing is extremely important, 
and we are going to pass this legislation.
    I thank you for the hearing.
    The Chairman. Thank you, Senator Wellstone.
    Senator Craig.

  STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM WYOMING

    Senator Craig. Thank you, Mr. Chairman.
    I, too, appreciate the opportunity for us to have this 
hearing. This was hotly debated during the Farm bill, of 
course. I was one of the sponsors and was pleased to get it 
through here, so I appreciate your commitment to continue to 
look at it.
    In my opinion, a ban on packer ownership would make 
tremendous strides increasing market competition, and that is 
basically what we are for. I don't know that we know the magic 
answer. I believe additional regulations here are necessary. 
The Packers and Stockyards Act does not clearly define and 
address this issue. Usually, I am one who does not want to 
interfere in the business and have additional government 
regulations. In the case of these markets, I believe the 
competitive market has nearly disappeared.
    We need to move forward, and I will just cut my comments 
short. We do find, of course, that we have control, 80 percent 
of it, just by a few operators here. Producers are price takers 
in the marketplace. Captive supply is a growing problem. We see 
an increasing difference between the price to producers and the 
price to consumers. There needs to be something done about 
this.
    I look forward to the committee today, and we will keep 
forward on this issue.
    The Chairman. Thank you very much, Senator Thomas. I know 
how hard you have worked on this issue also, back in the 
committee and on the floor. I appreciate that very much.
    Senator Nelson.

     STATEMENT OF BEN NELSON, A U.S. SENATOR FROM NEBRASKA

    Senator Nelson. Thank you, Mr. Chairman. I want to thank 
all the witnesses for coming to discuss this proposed ban on 
meat packer ownership and to say also that I wish this was the 
only challenge that was facing the cattlemen in Nebraska and 
many other States today, where we are experiencing severe 
drought conditions. When you combine the concerns about 
competitive and open markets versus captive supply, together 
with droughts and the stark reality of beginning to reduce the 
herds by selling off your stock, it is not a strong commitment 
toward livelihood in our State.
    As we all follow what has been happening, there is a major 
concern about price manipulation, whether it is manipulation 
intentional or just because of the size of the captive supply. 
Faced with the prospect of having to sell the herds, farmers 
are angry today that the playing field just simply isn't level. 
That is their concern. Given the tough times, they feel that it 
is all the more important that something be done to institute 
equity in the markets so that the field is leveled out.
    Finding ways to secure these kinds of markets has to be our 
goal here today. Securing fair markets also means securing 
sustainable markets and understanding how changes to them may 
actually depress prices and hurt the global competitiveness of 
the U.S. beef and pork industry. Therefore, we must proceed 
very carefully, keeping in mind both issues of fairness and 
market stability as we seek to address the needs of our animal 
producers.
    It is my hope, Mr. Chairman, and, too, it is my pleasure to 
join together in welcoming our colleagues, Senators Craig and 
Johnson, and hope that they will be able to help enlighten us 
as we pursue this very important project of finding a way to 
balance and open markets with some supply to stabilize the 
market and stabilize the industry.
    Thank you very much.
    The Chairman. Thank you very much, Senator Nelson.
    Senator Conrad.
    Senator Lugar. Mr. Chairman, I ask that a statement by 
Senator Roberts be made a part of the record.
    The Chairman. Without objection, it will be made part of 
the record.
    [The prepared statement of Senator Roberts can be found in 
the appendix on page 60.]
    The Chairman. Senator Conrad.

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA

    Senator Conrad. Thank you, Mr. Chairman. First of all, I 
want to thank the chairman for holding this hearing today, and 
I want to thank him for his advocacy throughout the battle on 
the Farm bill.
    The Senator from Iowa was absolutely steadfast, both in the 
consideration of the Farm bill in the committee and passage on 
the floor of the Senate and in the deliberations of the 
conference committee. I know because I was there. I just want 
to thank the chairman for the strength of his commitment and 
the persuasive, I thought, nature of the presentations made 
throughout the conference committee.
    We faced a very difficult circumstance, where the House was 
under markedly different orders from what had been the 
instruction of our Senate colleagues with respect to a 
position. One of the key reasons for that difference was the 
position of Senator Johnson. Senator Johnson, who has made this 
a key issue and a key consideration, both in the committee and 
on the floor, urged us at every turn to try to prevail in the 
conference committee.
    I would say to Senator Johnson I regret we were not able to 
be more successful. We did make some significant strides with 
respect to other issues that were important to our producers, 
but we were not able to prevail on this one because the House 
conferees were absolutely dead set against it.
    Everywhere I go in my State, farmers and ranchers are 
saying to me, ``Look, something has to be done.'' We now have 
an indication from University of Missouri economist Dr. Glenn 
Grimes that 83 percent of hogs were committed to packers 
through ownership or contract arrangements--83 percent. We now 
know that concentration in the beef processing part of the 
industry has 81 percent of the beef slaughter being accounted 
for by just four firms.
    In 1980, by comparison, the level was just 36 percent. What 
is happening here is very rapid concentration. I do not fault 
those companies that are concentrated. I fault the lack of 
reaction by Congress and the administration because there are 
real-world implications as a result of this concentration. It 
seems to me we have to respond. I believe the legislative 
proposal before us is one way to do that. It is not the only 
way, but it is one way, and it is a step that we should take.
    I again want to thank the chairman. I want to thank 
colleagues who have been active in this fight, especially 
Senator Johnson and Senator Craig.
    The Chairman. I thank the Senator from North Dakota, and I 
just reciprocate by saying that I remember that day in 
conference. We debated this issue a half a day. The Senator 
from North Dakota and I sat there and debated the House on this 
issue of packer concentration. It was about 3 hours or more 
that we debated it. We voted it on our side, and we had the 
votes. We sent it to the House side. Under the rules of 
conference, only the House can ask for a vote on the House 
side, and they never asked for a vote. They refused to take a 
vote on it. The administration refused to take a position on 
it. We asked them repeatedly, and they would not take a 
position on it. That is just what happened. I thank the Senator 
from North Dakota for hanging in there during that long debate, 
and I think any casual observer would have to conclude that the 
debate was won on the merits. Something happened on the House 
side, and they wouldn't take a vote on it.
    With that, we thank the two Senators for being here, and I 
would recognize them. Obviously, your statements will be made a 
part of the record in their entirety, and I would ask you to 
summarize them, please, and first to recognize the Honorable 
Tim Johnson, Senator from South Dakota.

STATEMENT OF HON. TIM JOHNSON, A U.S. SENATOR FROM SOUTH DAKOTA

    Senator Johnson. Well, thank you Mr. Chairman. Thank you, 
members of the Senate Ag Committee, for conducting today's 
hearing on packer and stockyards issues, including my 
legislation to ban packer ownership of livestock. I want to 
thank you for the extraordinary effort that the conference 
committee members made during the Farm bill debate on behalf of 
this.
    We were not successful, as the chairman has noted. Thanks 
to your effort and the effort of my colleague, Senator Daschle, 
we were able to hold on to a version of my country of origin 
labeling. Senator Wellstone played a key role in that as well, 
of course, and the Senate Ag Committee. We will be watching the 
implementation of that as time goes on.
    The objective of what is commonly referred to as the 
Johnson amendment is to restore choice and market access to 
livestock markets. I believe that America's free enterprise 
system only works if we have more competition and not less. 
This bill strengthens the Packers and Stockyards Act, which is 
an 80-year-old law, by prohibiting meat packers from owning 
livestock for more than 14 days prior to slaughter. Packers are 
already prohibited from owning sale barns and auction markets. 
There is nothing unprecedented about restrictions on what the 
packers may own or may not own in order to create a competitive 
environment for livestock production.
    My bill exempts producer-owned co-ops from the ban, in 
addition to packing plants that kill less than 2 percent of the 
national annual slaughter of beef cattle, which is 724,000 
head; hogs, which would be 1.9 million head; or sheep at 
69,200.
    A ban on packer ownership of livestock will not drive 
packers out of business. Most of their earnings are generated 
from branded products and companies marketing directly to 
consumers. However, packer ownership of livestock could drive 
independent producers out of business. Under current market 
conditions, producers are at the mercy of these large 
corporations. As you know, the Organization for Competitive 
Markets, the American Farm Bureau Federation, the National 
Farmers Union, R-CALF USA, and every single farm organization 
in my State of South Dakota supports legislation to ban packer 
ownership.
    Additionally, over 120 cattle feeders in Texas, Nebraska, 
Colorado, Kansas, New Mexico, and Oklahoma wrote the Farm bill 
conference seeking support for the Johnson amendment. Thanks to 
your leadership, Chairman Harkin, we were able to pass the 
packer ban twice during consideration of the Farm bill in the 
Senate. Unfortunately, it was killed, as you noted, by House 
conferees while the Farm bill was pending in conference 
committee.
    During Senate debate of the Farm bill, I was disappointed 
that some were fooled, I believe, by influential packers who 
made claims that our amendment did not clarify whether forward 
contracts could be used as a marketing tool. Forward contracts 
have never been prohibited by this legislation. There are some 
who would prefer that it did. We chose a very narrow 
restriction on packer ownership, and there has never been a 
prohibition in our legislation to forward contracting.
    However, when packers needed to rationalize their 
opposition, some twisted the truth, claiming that our 
legislation would prohibit all forward contracting. As a result 
of these scare tactics, an effort was made to dilute the 
amendment into a study. I worked with Chairman Harkin, Senator 
Grassley, and others to offer language in February to clarify 
without question that forward contracts were permitted under 
our amendment. On a vote of 53-46, our packer ownership ban 
remained in the Senate Farm bill.
    Once in conference, Chairman Harkin and I developed a 
number of compromise alternatives to the packer ban for the 
House to consider. First, we discussed allowing packers up to 4 
years to divest of their livestock, rather than the 18 months. 
That offer was rejected. Second, we discussed a creative 
approach to require packers to procure up to 25 percent of 
their daily slaughter needs from the cash market. This was 
Chairman Harkin's idea and something being floated now by 
Senator Grassley. When we asked the House if they would 
consider this approach, they flatly rejected that as well.
    Finally, we even suggested grandfathering existing packer 
ownership levels and making our legislation prospective rather 
than retroactive. Like a broken record, the House negotiators 
again rejected that compromise offer. Despite these and other 
options that we proposed as compromises, House members of the 
Farm bill conference committee completely eliminated our packer 
ban provision from the final Farm bill by refusing even to vote 
on the issue. Evidently, they were under heavy pressure. I 
don't doubt that.
    I want to encourage the committee to listen intently to Mr. 
Herman Schumacher of Herreid, South Dakota, who is representing 
R-CALF at today's hearing on a later panel. He agrees with me 
that if competition is not restored to cattle and hog markets, 
livestock producers in the U.S. will become low-wage employees 
on their own land, working for packing firms, bearing all the 
economic risk but none of the potential gain of raising 
livestock.
    Simply put, Herman's testimony underscores the fact that 
cattle and hog producers do not want to become like the poultry 
industry. According to USDA, packer concentration has increased 
45 percent in the last 20 years. During this time, the packing 
industry has aligned with the food and retailing conglomerates 
to acquire profits at triple the rate of inflation. As a 
result, we have a meat food industry which is doing well at the 
expense of our farmers and ranchers.
    Consider the state of the U.S. cattle and beef market 
today. One, retail beef prices are at all-time highs, so 
retailers are making money. Two, demand for beef remains very 
strong. Consumers want to eat beef. Third, U.S. cattle herd 
size has fallen to its lowest level in 40 years. Supply and 
demand economics would suggest that that ought to be good news 
for cattle prices. Fourth, live cattle prices are abnormally 
low, with cattle producers sometimes losing as much as $250 per 
head for cattle from just a year ago.
    These factors spell disaster for free enterprise markets, 
competition, and the fate of independent livestock producers, 
particularly, as Senator Nelson has noted, if you add the 
problems of drought and the stress that that is causing on top 
of all the other competitive issues. The end consequence is 
catastrophic.
    Four experts who are independent and have not received any 
financial support from major meat packing firms conducted an 
analysis that supports my packer ban legislation: John Connor 
of Purdue, Peter Carstensen of the Wisconsin School of Law, 
Roger McEowen of Kansas State, and Neil Harl of Iowa State. 
Their report indicates that hog and cattle markets have three 
buyers at best and one at worst in any geographic area. If a 
packing plant shuts down or a packer pulls out of the market 
for other reasons, prices collapse.
    In 2001, 83 percent of hogs were committed to packers by 
ownership or contract arrangements. That leaves only 17 percent 
of hogs in the cash market, according to their analysis. In 
January, USDA revealed that 32 percent of the annual cattle 
slaughter was committed to packers through ownership or 
contract arrangements. Twenty-five percent of that captive 
supply number, 8 percent of the annual slaughter, was packer 
owned. Twenty-five percent of that amount packer owned.
    Without a ban of packer ownership, these percentages will 
simply increase while competition will disappear altogether. 
USDA has failed to hire the attorneys to lead investigations on 
competition cases despite the fact that Congress appropriated 
increased money for this purpose just last year. Even when USDA 
has believed that certain packer practices are illegal, their 
litigators have not won a major competition case for two 
decades. This means the current competition law is antiquated 
and insufficient to deal with modern-day market problems.
    In closing, let me just note that on July 3rd, Senator 
Daschle and I met with more than 700 producers in three South 
Dakota communities to discuss both the drought and inequities 
in livestock markets. We asked court reporters to transcribe 
their discussion at our three meetings, and, Mr. Chairman, I 
would like to submit their testimony from the court report 
record for the Senate committee record today.
    The Chairman. Without objection, we will receive that.
    Senator Johnson. Some ranchers in South Dakota have had 
complete dispersions of their cattle herds, others losing up to 
$250 per head. While in Fort Pierre, I was handed a list four 
pages long of livestock producers who now have sold off every 
animal they own. They are out. One rancher experienced $100,000 
loss from a year ago for selling his calves prematurely. No 
individual or business can survive under these unfair 
circumstances.
    A ban on packer ownership could help restore competition, 
access, and bargaining power to cattle markets for these 
ranchers. The issue goes to the very heart of what agriculture 
will look like in the future. Is it going to be controlled by a 
handful of powerful firms where farmers and ranchers are, in 
fact, de facto low-wage employees, bearing all the risk but 
none of the gain in the market, with no ability to leverage a 
decent price for their animals? Or will it be a future with a 
strong patchwork of independent family farmers and ranchers 
managing their own operations, contributing to rural 
communities that are diverse and economically strong?
    I suggest Congress and USDA take the following two actions 
to forestall the trend of major meat packers taking over 
production of livestock in the U.S.:
    One, pass this legislation to ban packer ownership of 
livestock. This time, we need to move the legislation through 
the House of Representatives as well.
    Two, hold a joint hearing of the Senate Judiciary and Ag 
Committees to further examine the roles the Departments of 
Justice and Agriculture can do together to play in preventing 
meat packer mergers that lead to anti-competitive behavior.
    I want to thank you, Mr. Chairman and members of this 
panel, for your leadership and for holding this very timely and 
critically urgent hearing today. Thank you.
    The Chairman. Senator Johnson, thank you very much for your 
testimony and thank you for your outstanding leadership on this 
issue. Safe to say that you have been the point person on this 
for a long time, and I appreciate your leadership on that.
    [The prepared statement of Senator Johnson can be found in 
the appendix on page 64.]
    The Chairman. Our colleague from Idaho, Senator Craig. 
Again, your statement will be a part of the record. Please 
proceed as you so desire.

    STATEMENT OF HON. LARRY CRAIG, A U.S. SENATOR FROM IDAHO

    Senator Craig. Thank you very much, Mr. Chairman. I will 
not stay to the text of my full statement, but thank you for 
adding it to the record.
    Senator Johnson and I have partnered on a variety of issues 
over the years from country of origin labeling to, at one 
point, the issue of ban of packer ownership. I departed from 
that company on the floor of the Senate and chose to oppose it 
because I did believe, and I do believe, that the legislation 
that was before us at that time created as many problems as it 
might provide solutions.
    I must tell you today, Mr. Chairman, I do believe, as all 
of you have stated and believe, that we have a concentration in 
the cattle market and the livestock market today that is 
damaging producers at an unprecedented rate, and it must be 
resolved. I am not quite sure that all of us have the solution 
to that resolution yet. I would suggest we seek it and we seek 
it in a responsible and bipartisan way and, in so doing, 
sustain a livestock cattle industry that is key to most of our 
States and our States' agricultural economies.
    I grew up in the cattle business. My dad and I took lots of 
cattle to the local sale ring. It doesn't exist anymore. We had 
buyers who came to our ranch to buy our feeder cattle. They 
don't come anymore, largely because the cash market is 
nonexistent today. There is no true indicator in the 
marketplace as to what the value of the product is worth at the 
producer or at the farm gate level.
    Why has that happened? In large part, the concentration 
that Senator Johnson spoke to and that all of you have spoken 
to is a product of large packers putting together small numbers 
of cattle to control a market environment. When I say ``small 
numbers of cattle,'' we think of the large cattle ranches of 
the West and of the Dakotas. They are, in reality, a minority 
of production in this country, and we know that.
    Eighty percent of the livestock cattle in this country are 
produced in herds of 40 head or less. Now, you and I both know 
that you don't make money on 40 head. What are you doing? You 
are hobby farming. You have a job somewhere else. You love the 
ranching environment. You like wearing boots and Levi's and 
riding a horse because it may have been part of your background 
or your culture before, but you can't make a living at it. You 
raise a few cattle.
    Astute cattle buyers have concentrated that 80 percent. 
They own it through their packer relationships, or the packers 
themselves own it. In so doing so, in my opinion, larger 
producers they have simply written off. They don't need to go 
after their cattle today because they control the pricing of 
the system. When you control 80 percent of the market and if 
you look at what has happened to the cash market over the last 
decade, it in large part has disappeared. What is the value of 
an animal?
    Well, it is in the eye, in this case, not of the producer, 
but the taker. That is part of our problem, and I think we have 
to address that. At the same time, I don't believe that you, by 
action of legislation, demand a total recapitalization of a 
market and an industry environment overnight. It has to come 
with other efforts to create flexibility in the marketplace and 
flexibility in the competition as it relates to packing.
    You are still going to get concentration, simply because of 
the character of world markets today, whether it be in packing 
or whether it be large livestock operations, large feeding 
operations, and all of those kinds of things. We have seen it 
in our State. Small ranchers tend to get smaller or go out of 
business. Large ranchers would like to get larger, but now they 
are going out of business simply because the profitability is 
nonexistent. Senator Johnson has put it very clearly.
    At a time when producers ought to be making money, at a 
time when the cycle of the industry ought to be on the side of 
the producer, it simply is not. I believe that if a thorough 
investigation were held today, there is evidence that prices 
have been controlled and, in fact, in my opinion, manipulated 
by large packers. They can do so simply by the character of the 
volume of livestock they own or control, and they also do so 
knowing that they don't have to worry about the 20 percent that 
have historically and still today represent the larger 
producers in the overall makeup of the cattle industry.
    We have seen the vertical integration of hogs and poultry. 
In many instances, it has worked, and it has worked somewhat 
successfully. That has been an effort. There has been an effort 
to try that in the livestock or the cattle industry. I don't 
think it will work. I don't think it will work in a way that 
some large producers or some large packers believe it would.
    At the same time, I would also suggest that we look at a 
variety of other instruments, and some of those have been 
proposed, Mr. Chairman. That is to create loans and a variety 
of other kinds of things and tax credits for those that might 
want to create new niche markets and new packing entities, and 
to do so and identify with certain producers that would like to 
produce a certain type of cattle under certain conditions to 
create unique markets. Those kinds of things do create 
flexibility in the marketplace that does not exist.
    The large packers, while at the same time they may create 
labeling in the marketplace, usually don't create terribly 
unique products for that market. They are interested in volume 
and in supplying that market in the character in which they 
supply it.
    I am not suggesting you tear down what we have. I don't 
think that would be an appropriate thing to do. I do believe 
that we have a problem that demands that it be fixed and that 
we have to be a part of that. Simply by entering the 
marketplace and determining how the market will flow is not 
necessarily a solution.
    My father and I almost lost our business once because 
government entered the marketplace and determined it would try 
to shape the pricing mechanisms of the market. That does not 
work. To create true competition in the market, and if we can 
cautiously and carefully do that, may work.
    I was one that did propose a study, and I meant it 
sincerely. I know that the character of Congress, as you do, is 
when you can't find an answer to a problem, you study it for a 
while. Some say this had been studied. If you really brought 
all of the forces together today in the crisis that we are 
involved in, with the large packing industry that we have 
today, knowing that if we fail to find the right answers the 
Congress might act unilaterally, that probably solutions would 
be found for this market and for the producer and the packer 
themselves.
    I am one who believes that this is a problem that cries out 
for a solution because I, like all of us, watch in our States 
very viable producers who have survived time and time again the 
economic crisis of the livestock industry today in true 
jeopardy. I have held a variety of meetings across my State and 
listened, and there is anger and frustration because they watch 
their equities disappear at a time when there should be some 
margin of profit. They see the very large profits of the 
packing industry and know that it is not translating 
effectively because of the character of the market that has 
been created.
    I hope that we can find a solution. I am not going to 
suggest that the 14-day approach is the way to do it or to 
require that a certain percentage of livestock be bought in the 
market. I do know that one of the factors that has to be out 
there in the end is the re-establishment of a cash market and 
competitiveness in that market, or we will continue to drive 
from the industry the larger producer. The small herd producer 
will be, by the very character of what they do, victims of the 
packer, and of course, they will find their livelihood 
somewhere else as they continue to hobby ranch for simply the 
lifestyle of it.
    Thank you very much.
    The Chairman. Senator Craig, thank you very much for a very 
well-reasoned and straightforward statement on this. I Look 
forward to working with you, as well as Senator Johnson, to try 
to find those answers and exactly which way we ought to be 
going. I know you all have busy schedules, and we thank you for 
being here. Unless somebody has some real questions for the 
Senators, thank you very much for being here, Larry and Tim.
    The Chairman. Next, we will call our first panel, Mr. 
William Hawks, Under Secretary for Marketing and Regulatory 
Affairs, the U.S. Department of Agriculture, accompanied by 
Donna Reifschneider, the Grain Inspection and Packers and 
Stockyards Act Administrator.
    Again, Mr. Hawks and Ms. Reifschneider--I guess, Mr. Hawks, 
you will be testifying. Your statement will be made a part of 
the record in its entirety. If you could, within 5 minutes, 
summarize your testimony for us, and I would certainly 
appreciate that.

         STATEMENT OF BILL HAWKS, UNDER SECRETARY FOR 
 MARKETING AND REGULATORY AFFAIRS, UNITED STATES DEPARTMENT OF 
                          AGRICULTURE,

        ACCOMPANIED BY DONNA REIFSCHNEIDER, GIPSA 
            ADMINISTRATOR
    Mr. Hawks. Thank you, Mr. Chairman, members of the 
committee. It is certainly a pleasure to be here with you 
today. I am Bill Hawks, and I am currently serving as Under 
Secretary for Marketing and Regulatory Programs at the United 
States Department of Agriculture.
    Much more than that, before coming here a little over a 
year ago, I was a farmer until I had to divest my interest in 
my farming operation to serve in this capacity. I have grown 
corn, wheat, soybeans. I have had cattle. I grew up on a dairy 
farm. I certainly understand the issues that we are dealing 
with here today.
    As you know, GIPSA is divided into two parts: the Federal 
Grain Inspection Service and the Packers and Stockyards 
Programs. The Federal Grain Inspection Service establishes 
Federal grain standards and oversees the official inspection of 
U.S. grain. Packers and Stockyards Programs administers the 
Packers and Stockyards Act of 1921, which prohibits unfair, 
deceptive, and fraudulent practices in the industry. I am 
committed to ensuring that producers are promptly paid and that 
livestock marketing firms, meat packers, poultry integrators, 
and meat distributors face appropriate consequences if they 
engage in unfair market behavior.
    Packers and Stockyards Programs monitors the livestock, 
meat packing, and poultry industries estimated by the 
Department of Commerce to have an annual wholesale value of 
$125 billion in 2001. Packers and Stockyards Programs' work in 
the regulated industries resulted in the recovery or the return 
of about $20 million to producers and to regulated industries. 
The staff is as committed as I am to enforcing the Packers and 
Stockyards Act and is up to meeting the challenges of the 
rapidly changing livestock, meat packing, and poultry 
industries.
    Last fiscal year alone, Packers and Stockyards Programs 
conducted 1,619 investigations in our three areas of regulatory 
responsibility--financial protection, trade practices, and 
competition. That same year, Packers and Stockyards Programs 
conducted 715 investigations to ensure financial integrity of 
the livestock marketing and meat packing industries.
    These investigations include alleged failure to pay for 
livestock or poultry, failure to pay when due for livestock or 
poultry, operating while insolvent, failure of market agencies 
to properly maintain custodial accounts, and the enforcement of 
the Packers Trust Provision of the Packers and Stockyards Act.
    In the area of trade practices, Packers and Stockyards 
Programs help assure, among other things, that firms adhere to 
the terms of poultry production contracts; buy and sell on the 
basis of accurate weight; not misrepresent weights, animal or 
carcass quality, or prices; have sufficient bond to cover 
purchases of livestock and poultry; and not discriminate 
against or give undue preference to certain sellers or buyers.
    While there are many examples of investigations into the 
competition area, in the interest of time, I will share a 
recent event which most of you are familiar with. The phrase 
that I always like to use is ``working together works.'' This 
involves the rumor of foot and mouth disease at a Kansas 
livestock barn. There, when there were allegations made that 
this was done to manipulate the market the Grain Inspection 
Packers and Stockyards Administration, in conjunction with CFTC 
quickly, did an investigation, and found there was no evidence 
of violation of the Packers and Stockyards Act.
    Over the past 5 years, we have taken dramatic steps to 
improve our ability to handle competition cases. We have 
followed the recommendations of the Office of the Inspector 
General within the U.S. Department of Agriculture and the 
General Accounting Office to improve our ability to investigate 
suspected violations of the Packers and Stockyards Act.
    Additionally, GIPSA completed an extensive restructuring in 
1999. Packers and Stockyards Programs have been working to 
recruit, and train new economists and legal specialists, and 
develop new operating procedures. We have shifted the focus of 
our employee skill set and are moving away from our traditional 
investigations. We are working more closely with the Office of 
General Counsel, and we are developing work plans for every 
competition investigation.
    While these changes may not be readily apparent, they will 
make a significant difference in our efficiency and our 
effectiveness. We have undergone a dramatic internal shift in 
how we look at and deal with the industry. We are trying to 
make the industry much more aware of the requirements of the 
Packers and Stockyards Act, and to achieve more open 
communication with the industry.
    While we have been repositioning Packers and Stockyards 
Programs to more efficiently enforce the Packers and Stockyards 
Act, the Act itself has not undergone any significant review in 
many years. Some of the intended beneficiaries of the Packers 
and Stockyards Programs, including some feeders, producers, and 
ranchers, have expressed their belief that current market 
consolidation and new marketing methods facilitate violations 
of the Packers and Stockyards Act.
    Earlier this year, we published our report on the issue of 
captive supply in the cattle industry. That report clarified 
GIPSA's definition of the term ``captive supply'' and compared 
GIPSA's captive supply statistics to statistics published by 
other organizations. The report also compared 1999 procurement 
transaction data of the top four beef packers to the summary 
captive supply data that the packers submitted to GIPSA.
    In addition to the findings of our captive supply study, a 
significant number of economic studies have been conducted on 
the short-term effect of captive supply. While some of these 
studies have shown correlations between the level of captive 
supply and spot market prices, they have not shown that captive 
supply causes lower prices or that captive supply would be any 
violation of the Packers and Stockyards Act.
    We know that a wide range of alternative marketing 
arrangements is emerging and that arrangements have been 
adopted because the participants believe they are beneficial.
    At this time, it is difficult to make important public 
policy decisions about these arrangements in the absence of 
sound analysis of the use of these and their implications, 
given the lack of----
    The Chairman. Mr. Hawks. Mr. Hawks, could you summarize, 
please?
    Mr. Hawks. OK. I will. What we would like to do at this 
particular time is to evaluate these arrangements, do a study 
to look at exactly what is transpiring in the markets, and to 
be able to provide you, this Congress and this committee, with 
adequate information to make those determinations.
    Thank you, and I would be happy to respond to questions, as 
well as Administrator Reifschneider.
    The Chairman. Thank you very much, Mr. Hawks.
    We are honored to have been joined by a distinguished 
member of the Agriculture Committee and, of course, the 
distinguished majority leader of the U.S. Senate, who has also 
been on the forefront of this fight to try to get some common-
sense solutions to getting an open market out there for our 
livestock producers.
    We welcome him to the committee and turn it over to him for 
any statements he might have, Senator Tom Daschle of South 
Dakota.

  STATEMENT OF HON. THOMAS DASCHLE, A U.S. SENATOR FROM SOUTH 
                             DAKOTA

    Senator Daschle. Well, Mr. Chairman, thank you very much 
for holding this hearing and for your extraordinary leadership 
on this issue. All during the debate on the Farm bill, no one 
was more stalwart and more vocal and more effective in talking 
about the need for more competition than our chairman. I 
publicly again want to acknowledge his leadership and support 
for our efforts and that of my colleague from South Dakota, 
Senator Johnson.
    Senator Johnson and I toured the State and were home for 
the entire Fourth of July recess, wherein we held a series of 
meetings all over the State with farmers and ranchers to talk 
about their current circumstances. I thought they were some of 
the most effective meetings and interesting meetings we have 
had in a long time. They were certainly well attended. Hundreds 
and hundreds of ranchers and farmers came from all over to 
express themselves. Basically, their message was pretty simple.
    They said that they are facing a double whammy of drought 
and increasing concentration in the meat packing industry. That 
double whammy has led to an extraordinarily significant, a 
precipitous drop in their prices.
    It is bad enough that many ranchers across the State are 
being forced to sell all of their livestock because there is a 
refusal to provide the much-needed emergency disaster 
assistance. We have been working now for over 150 days. To 
date, the administration has opposed providing disaster 
assistance.
    It is even worse that they are being forced to sell their 
herds into an anti-competitive marketplace because there has 
been a refusal to pass these much-needed reforms. Herman 
Schumacher, who I know is going to be testifying shortly, is 
here on behalf of R-CALF, and he and his colleagues can attest 
to the circumstances that these producers are facing today. I 
thank him for coming for this important hearing.
    He and many of us have fought these battles together for 
several years. In fact, 5 years ago last month, it was in June 
1997, Herman testified before this committee on the very same 
issues--the function of the livestock marketplace and the 
sustained low prices that were occurring even at that time. 
Then, he said that we needed to do three things: we needed to 
have mandatory price reporting; we needed country of origin 
labeling, and we needed improved enforcement of the efforts at 
USDA.
    Well, we have now passed mandatory price reporting, and we 
have just passed the country of origin labeling, even though we 
still need to do a lot more.
    Senator Johnson and I recently wrote to Secretary Veneman, 
asking her to investigate these large fluctuations in recent 
months in price. Her response was that she felt the Grain 
Inspection Packers and Stockyards Administration, GIPSA, had 
found no evidence that any unlawful behavior led to the 
livestock price fluctuations.
    Well, producers know that they are being taken advantage 
of, and they want steps to ensure that competitive marketplaces 
can be restored. Many of the activities that we hear about are 
just not right. They may not be illegal technically, but they 
are not right. They are not right in large measure because our 
producers have little recourse when they are forced to sell 
their livestock.
    How many times have all of us on this committee heard about 
the buyer who comes in and tells a producer you have 5 minutes, 
you have 15 minutes, you maybe have 20 minutes at the most to 
decide this week whether you are going to sell all of your 
livestock or not. If you don't take what I am offering, you are 
going to have to wait several more weeks or you may never get 
the chance again.
    That is exactly the kind of environment that we have to 
address. There is no competition. When you have that 
monopolistic pressure, there is nothing that protects the 
producer. We have to change the laws to ensure that our 
producers have the legal right to address these problems.
    Our goals should be very simple. Ensure fair competition in 
the marketplace. Producers ought to have more than 5 minutes to 
decide whether to sell their herds. Ensure market access for 
big and small producers. Ensure a chance to compete based on 
quality, and ensure timely action is taken in cases of anti-
competitive behavior.
    It is unfortunate, in my view, that the House and the 
administration have so far continually opposed all efforts to 
enact a ban on packer ownership. We passed it in the Senate. 
The Senate conferees voted to keep it in the final bill. The 
House conferees refused to vote on it and have said that it 
couldn't be in the final bill, and that is where we are today.
    We have to ensure that farmers and ranchers have access to 
markets and real opportunities to compete. Herman Schumacher 
can tell you this, if he tells us anything, that we can't wait 
another 5 years for the Congress, for the Government to get 
that message.
    Again, Mr. Chairman, I just commend you for holding this 
hearing. Of all the issues we are facing in agriculture, I 
don't know of one that is more important than this. Were it not 
for your leadership, we wouldn't be here today. I applaud you 
and I thank you for all that you have done.
    The Chairman. Thank you very much, Leader. Thank you for 
your leadership in this area.
    I would just say that with all that is happening in the 
marketplace today, we are seeing manipulations by companies 
inflating stock and kiting and all kinds of things going on, I 
think we can't forget about this part of our economy either and 
what is happening with the packers out there that are 
manipulating and driving these prices around.
    Mr. Hawks, I just have one question. Basically, you said, 
in your testimony, you preferred more study before we consider 
a ban on packer ownership. For the past 10 years, especially 
during the past year on the Farm bill process, we have seen 
voluminous studies on this subject. There is a lot of 
information there.
    I want to make it very clear: Is it the administration's 
position that the administration is opposed to a ban on packer 
ownership as it is presently drafted?
    Mr. Hawks. Mr. Chairman, the administration has not taken 
an official position on the ban on packer ownership or on your 
bill.
    The Chairman. Do you suppose I could ever get the 
administration to ever take a position, Mr. Hawks?
    Mr. Hawks. You probably should. You probably could get the 
administration----
    The Chairman. Well, when? I mean, we have been through the 
Farm bill debate. I asked for a position then on this, and I 
still can't get the administration to say one way or the other. 
Is it the administration's position that we just ought to have 
more studies?
    Mr. Hawks. Mr. Chairman, it is my personal belief that we 
do need additional study. It is my personal belief that we have 
had a lot of study, there is no question about it, in this 
area. It is also my personal belief, not the administration's 
belief, that in some of these studies the outcome was 
determined before the study was started.
    Being a farmer myself, I think that we need to look at 
situations and try to determine the cause and relationship, not 
determine how we want the outcome to be and then head in that 
direction.
    The Chairman. Well, the studies that we have had from 
independent sources--Senator Johnson mentioned those in his 
testimony, one from Iowa State and others that were not funded 
in any way by the livestock industry--all came to the 
conclusion that there was price manipulation, that there were 
practices that were anti-competitive because of the four large 
packers that control, I think, about 80 percent of the market 
out there. Those studies are there. We have that in front of 
us.
    Let me ask the question perhaps a different way, Mr. Hawks. 
If the Congress were to pass a ban on packer ownership as it is 
now drafted, which is a ban on the ownership of livestock 
within 14 days of slaughter, if the Congress were to pass that, 
would the administration sign that?
    Mr. Hawks. I cannot answer that, Mr. Chairman, because, as 
an administration, we have not taken an official position on 
that.
    The Chairman. One last question, Mr. Hawks. Your testimony 
indicates you believe that GIPSA has been successful in its 
mission to protect farmers from anti-competitive conduct. You 
mentioned that GIPSA had looked at 715 investigations in fiscal 
year 2001?
    Mr. Hawks. Yes, sir.
    Ms. Reifschneider. Actually, 1,600.
    Mr. Hawks. Actually, 1,619. There were 715 financial 
protection investigations, 877 trade practice investigations, 
and 27 competitive investigations in 2001.
    The Chairman. Well, that is interesting because the USDA 
report concerning implementing of the Packers and Stockyards 
Act states that you have not filed one case in this area in the 
past year and a half. You mean, out of all of these, there 
wasn't one case you could file? Not one?
    Mr. Hawks. I will let Administrator Reifschneider answer.
    Ms. Reifschneider. If I could speak to that, actually, you 
are talking just in the competition area.
    The Chairman. Yes.
    Ms. Reifschneider. In that area, we have had 27 
investigations. As those investigations have come forward, some 
of those have been settled informally. That is to the benefit 
of the industry as it works in a shorter process, works to get 
the problem solved. We have had successes in that, and we do 
have ongoing competition investigations right now.
    The Chairman. Not one case has been filed in the 
competition area in the past year and a half. Is that right?
    Ms. Reifschneider. Yes. You are correct with that.
    The Chairman. Thank you very much.
    Senator Lugar. I have no questions.
    The Chairman. Senator Lugar, no questions. I am trying to 
remember who came in first, Senator Thomas or Senator Nelson? I 
am not certain.
    Senator Thomas. Senator Nelson.
    The Chairman. Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman.
    The Chairman. OK, that is right.
    Senator Nelson. One question to Secretary Hawks. While we 
don't have a study that you feel is as informative as a study 
that you are proposing would be, let me ask you this. Not do 
you know, but do you believe that there is price manipulation, 
either because of the size of the concentration or because of 
outright practices that might involve manipulation?
    Mr. Hawks. Like I said, I am a farmer. I was a farmer 
until----
    Senator Nelson. That is why I asked do you believe in your 
own experience.
    Mr. Hawks. I was a farmer until I had to divest my 
interests. I don't think you have ever seen a farmer that took 
a load of grain to the elevator or a cotton grader that looked 
at his cotton or a cotton buyer that you dealt with or anything 
else that didn't think that the person at the other end of the 
chain was manipulating prices. Having said that, certainly 
there are some disturbing things going on in this industry, and 
I----
    Senator Nelson. Do they distort the price? Not only are 
they disturbing, but do they distort the price?
    Mr. Hawks. They are disturbing because they appear to be 
distorting the price. As I said, there is clearly concern on my 
individual part. There is clearly concern for the producers out 
there, and we need to look at this and try to find ways to 
address the problems.
    Senator Nelson. Now, is it possible for us to move forward 
with something rather than waiting until we have another study? 
That is the concern. Congress does have a tendency to study 
things. I don't know if you could say study them to death 
because things continue to have life around here. They don't 
seem to die.
    The continuous study, ongoing studies may be important, but 
in the interim, don't you believe we ought to do something, 
take some action to get some redress for farmers and ranchers 
today?
    Mr. Hawks. Senator, I do think that we need to, as I said, 
continue to look at this situation. What I would hate to see 
happen is for us to have something that caused an unintended 
consequence. I would be very careful in the approach that I 
took. Like I said, it is very clear that there are some 
concerns here. There are concerns about prices. There are 
concerns about concentration, no question about that. I would 
be very careful that we didn't have some unintended 
consequences.
    Senator Nelson. I agree with you in terms of unintended 
consequences because that is why I said I think not only price 
stability, but market stability is important. The difficulty 
that we have is that if we take the level of care that you are 
suggesting, it is not going to matter much to those that sold 
all their herd, those that are experiencing the difficulties 
and the valleys--not peaks but the valleys of low prices and 
end up on the short end of the economic chain.
    We are faced with making some decisions right now. Caution 
will be exercised in this effort, but I don't--and I hope you 
are not suggesting that we wait.
    Mr. Hawks. Senator, I would just encourage you to take all 
appropriate cautions in whatever action----
    Senator Nelson. You are not suggesting that we wait?
    Mr. Hawks. That I would caution you to take all cautions in 
your approach.
    Senator Nelson. I hear you. Thank you, Mr. Hawks. That is 
fair.
    The Chairman. Senator Thomas.
    Senator Thomas. Thank you, Mr. Secretary, for being here. I 
got the feeling that Packers and Stockyards, in your view, is 
basically to see that producers are paid promptly.
    Mr. Hawks. Well, we actually----
    Senator Thomas. That really isn't the only issue you have 
before you, is it?
    Mr. Hawks. No, sir. No, sir. Not at all. Actually, I will 
let Administrator Reifschneider respond to that one.
    Ms. Reifschneider. Actually, we work very hard in all three 
areas. We work in the financial protection area. That is one 
most people are familiar with. We make sure that producers are 
getting paid. In trade practices, we again, make sure that 
producers are being treated fairly with their contracts in the 
poultry area. We look at contracts continuously in that area. 
Then, in the competition area, which is newest area that we are 
addressing and our biggest focus. We do work in all those three 
areas, and we work in those every day.
    Senator Thomas. With all the response that you have from 
producers over the years, are you comfortable that there is 
competition?
    Ms. Reifschneider. We look at the act and have to follow 
the Packers and Stockyards Act. We have to look at individual 
cases as they are brought forward to see if they have merit 
under the Act and then move forward on specific cases. We look 
at the industry as a whole when our work raises red flags. We 
have to look specifically----
    Senator Thomas. What is your conclusion when they raise the 
red flags and you have looked at it?
    Ms. Reifschneider. Well, we have had those 27 competitive 
investigations. Some of those have proved that there is no lack 
of competition. I can cite one, and that is the foot and mouth 
disease rumor that happened in Kansas in March. You know, there 
was concern that the market was being manipulated. We went, and 
we investigated immediately and we talked to all people that 
were in the markets that day to get firsthand knowledge. We did 
an investigation, and it was proven that----
    Senator Thomas. That is quite a different thing than what 
we are talking about here, don't you think, the foot and mouth 
proposition?
    Ms. Reifschneider. Well, they were looking into whether 
there was undue market manipulation, and that is a competition 
area.
    Senator Thomas. You indicate in your statement here that 
the packers--four firms met 9 percent of their procurement 
costs through packer-owned cattle and 29 percent through 
captive supply arrangements. Those numbers are quite different 
than you hear from everyone else, aren't they?
    Ms. Reifschneider. There are different definitions for 
captive supply out there. Our definition is livestock 
controlled 14 days or more prior to slaughter. Others use 7 
days; different packers actually have used different days. Now 
we are talking to the packers to make sure that we are on 
target to have the same reports come forward. Our preliminary 
reports for year 2000 show captive supplies will be about 38 
percent, packer-owned 9 percent, marketing agreements 27 
percent, and forward contracts 2 percent.
    Senator Thomas. What is the total of that? If those are 
controlled, what is the total?
    Ms. Reifschneider. The total would be 38 percent.
    Senator Thomas. No, you had those others added as well.
    Ms. Reifschneider. No, those are parts of the 38 percent.
    Senator Thomas. Thirty-eight percent?
    Ms. Reifschneider. Yes.
    Senator Thomas. Don't you feel a little uncomfortable if 
that is your view from your department relative to what most 
everyone in the industry is saying?
    Ms. Reifschneider. In terms of? I am sorry, sir.
    Senator Thomas. In terms of the amount of control packers 
have over cattle.
    Ms. Reifschneider. Well, those are a lot of marketing 
agreements, and people go into marketing agreements for a 
variety of reasons.
    Senator Thomas. I am not getting an answer, I don't 
believe. I guess what I am saying to you is it seems to me that 
it is curious that an agency that is designed to be Packers and 
Stockyards fairness in marketing has no more feeling about what 
is going on than you all seem to. I am surprised.
    Ms. Reifschneider. Yes, sir. Well, certainly, sir. I am a 
producer myself. I am a pork producer from Illinois. I have 
been in a variety of marketing agreements, and I have been in 
spot agreements. I do feel like I do have a knowledge of the 
industry.
    The people that work for Packers and Stockyards are in the 
markets every day. They are talking to producers. They are 
talking to market agencies. They are looking at packers. I do 
feel that they do have a knowledge of what is happening as it 
relates to the Packers and Stockyards Act.
    Senator Thomas. I just am a little afraid your definition 
of market control is different than most people's.
    Thank you very much.
    The Chairman. Thank you, Senator Thomas.
    Senator Wellstone.
    Senator Wellstone. You know, Mr. Chairman, you want to move 
it along, and I was down on the floor and I am coming back. I 
won't ask questions. Just one, to both, just the Secretary and 
the Administrator, just one heartfelt comment.
    First of all, I associate myself with the questioning of 
Senator Thomas. I really believe this study that you are 
talking about, I view this as not a step forward, but a great 
leap sideways. I really do. I mean, I think that is what it is 
about.
    I mean, time is not neutral. Frankly, we are losing all 
kinds of independent producers. The notion of a study, I think 
in farm country there is a considerable amount of skepticism, 
and most people view it like as a great leap sideways. That is 
what it is, no more than that. I disagree with you, but I thank 
you for being here.
    The Chairman. Thank you, Senator Wellstone.
    Senator Lincoln, I will give you extra time if you want to 
make an opening statement also, and then----
    Senator Lincoln. No, sir. I can just submit my opening 
statement for the record.
    [The prepared statement of Senator Lincoln can be found in 
the appendix on page 71.]
    Senator Lincoln. I do have some questions, if I may?
    The Chairman. Yes. Absolutely.
    Senator Lincoln. OK, thank you, sir. First, I would like to 
thank the chairman, both for the incredible job that he did 
with the Farm bill. I want to echo what our majority leader 
mentioned that certainly with your kind of diligence and the 
patience and perseverance that you showed us with the Farm 
bill, I appreciate very much your leadership in that area.
    Once again, here we are. We find ourselves back continuing 
a discussion that we began very much in earnest last fall 
during the creation of that Farm bill. I appreciate very much 
your leadership, Mr. Chairman, in so many of these issues.
    I want to thank the witnesses for being here. 
Unfortunately, I was detained in the Finance Committee and 
missed our distinguished colleague Senator Johnson, and all of 
the work that he has done in this area, I very much appreciate. 
I am sorry that I missed his testimony.
    Mr. Hawks, I am glad to have a familiar accent around here. 
That is good. You hail from just across the river, I believe, 
from me in Mississippi. If you could just elaborate perhaps for 
us on some of the structural changes that we have seen in the 
livestock or poultry industries in this past decade, and to 
what extent these changes have been driven by consumer demand 
or retail purchasing habits perhaps?
    Mr. Hawks. Yes, ma'am. Senator, I really appreciate being 
able to listen to someone that I can understand as well.
    [Laughter.]
    Senator Lincoln. Absolutely.
    Mr. Hawks. There have been a lot of changes that have taken 
place, as you have alluded to. A lot of these have been driven, 
we think, by consumer demands, a specific product, whether it 
is a low-fat product or there are certain products that the 
consumer is demanding. That is one of the things that is 
driving some of the changes that we see.
    That is the reason that I personally believe that we need a 
study to look from the farm gate to the consumer to try to look 
at those relationships, try to understand why a producer is 
entering into a specific contract.
    You know, it may be that his banker is telling him that he 
has got to move into that contract, that there may be strictly 
the consumer-driven demands. We need to understand the 
relationships between the producers, the feeders, the packers, 
the retailers, and try to draw from that and then evaluate that 
from a more holistic approach. I can't sit here and tell you 
why it has gone that way, but I think there are some unanswered 
questions there.
    Obviously, one of them is consumer demand, a desire to 
deliver a specific product at a specific time in a certain 
manner is just obviously one of those answers.
    Senator Lincoln. Is there some other industry, I mean, how 
these changes have compared and changes in other industries? 
Maybe there is something there that you all have seen in 
previous studies or something are they greater? Are they more 
significant than, say, other food retail markets as some that 
you have alluded to or some of the other industry areas?
    Mr. Hawks. There are a lot of changes in a lot of 
industries. There has been a lot of consolidation. As you well 
know, I think there is a little company called Wal-Mart from 
your home State, and we have seen changes there. I must say to 
you, to see some of those little small towns where you and I 
both come from and see Wal-Mart close up those stores it is a 
little disturbing to us, just like it is a little disturbing 
when we see what has transpired in the cattle and pork and 
poultry industry as well.
    In business in general, we can look and see the types of 
things that have changed. You have seen a greater 
concentration. I am an economist by training. You know, you 
have certain economies of scale that you have to reach. There 
are a lot of reasons. I don't think that this industry has any 
more significant changes than a lot of other industries across 
our economy.
    Having said that, I do think it would be beneficial to have 
someone outside of agriculture to actually look at these 
issues. You know, there has been a lot of discussion about 
maybe having a business school take a look at what is going on 
here, rather than the traditional approach that we have been 
taking. You can see a lot of similarities.
    Senator Lincoln. Well, before my time runs out, just one 
last thing. When we talk about these changes in different 
industry areas, and particularly in this industry area, have we 
seen in the export markets, what sorts of changes have we 
experienced in the export markets of meat and poultry 
industries that are relevant?
    Mr. Hawks. We have seen a lot of increase in export markets 
for meat and poultry. As a matter of fact, there has been a 
tremendous increase in meat and poultry trade with Mexico. Of 
course, we also have responsibility for APHIS, and we are 
responsible for the sanitary and phytosanitary trade issues 
there. We are constantly dealing with those issues. We are 
seeing a tremendous increase in our exports. I saw some just 
astounding numbers on the export of pork when I was out in 
Denver for the Pork Forum, and Donna probably could answer 
those questions much better than I.
    We have seen a tremendous increase in exports. We are 
exporting grain through our meat.
    Senator Lincoln. That is right. Well, you sound like a row 
cropper, so I think that is why we also understand----
    [Laughter.]
    Mr. Hawks. I grew up on a dairy farm, and I had beef 
cattle, too. I have experience in all of it.
    Senator Lincoln. OK. Right. Thank you, Mr. Chairman. I 
appreciate it.
    The Chairman. Thank you, Senator Lincoln.
    Just one followup, Mr. Hawks. I just heard you mention that 
perhaps we ought to have someone outside of agriculture take a 
look at this. You mentioned, for example, a business school. 
When you say ``take a look at it,'' do you mean take a look at 
what is happening in the livestock industry overall?
    Mr. Hawks. Yes, sir.
    The Chairman. Well, again, I repeat for emphasis sake, that 
we had four individuals: John Connor, Professor of Agricultural 
Economics at Purdue; Peter Carstensen, Young-Bascom Professor 
of Law at the University of Wisconsin School of Law, and 
Associate Professor of Agricultural Economics at Wisconsin 
School of Law; then we had Roger McEowen, who is Associate 
Professor of Ag Economics at Kansas State University; and then, 
we had Neil Harl, who is the Charles Curtiss Distinguished 
Professor in Agriculture and Professor of Economics at Iowa 
State University. Those four are not in agriculture.
    Mr. Hawks. They are all agricultural economists.
    The Chairman. That is true, but they are not paid by the 
livestock industry. They have no connections with the livestock 
industry. They are independent thinkers. Have you read their 
report?
    Mr. Hawks. No, sir.
    The Chairman. You have not?
    Mr. Hawks. No, sir. I have not read their report.
    The Chairman. Well, Mr. Hawks, could I just ask you to 
please read it?
    Mr. Hawks. Yes, sir. If you would be----
    The Chairman. Would you do it?
    Mr. Hawks. Yes, sir.
    The Chairman. Would you read it over?
    Mr. Hawks. Yes, sir. If you would----
    The Chairman. Because it came out----
    Mr. Hawks. I would certainly read it.
    The Chairman. Well, this report came out, I think--when? 
Was it earlier this year, or when? About mid-March, I am told 
it came out, and I would like you to take a look at this. It is 
``The Ban on Packer Ownership and Feeding of Livestock: Legal 
and Economic Implications.''
    Here are four people not in the business, not paid by 
packers or meat processors or anybody else, independent 
thinkers, from four different universities that are taking a 
look at it. I just recommend it and ask that you read it. You 
said that you would, and I would appreciate that. Maybe in 
writing, you could respond.
    I would ask you to read it and maybe you could respond in 
writing to your views on this after you read it.
    Mr. Hawks. Yes, sir. I would be happy to do that. As I have 
just been informed that this study, the reason that I have not 
read that study was the study that we were talking about doing 
was much broader in scope. As I was saying, this was one of 
these very narrow scope studies. I will certainly read it and 
respond to you.
    The Chairman. We would be willing to take any suggestions 
you have on--again, I must be honest for the record. I don't 
believe we need another study. We have been studying this for 
10 years. If you have a recommendation for a study that is more 
encompassing in scope, I would be more than willing to take a 
look at it and consider it and see if maybe the committee might 
want to move in that direction.
    Mr. Hawks. I would certainly appreciate that, and I will be 
forwarding that to you.
    The Chairman. I appreciate that. Thank you very much, Mr. 
Hawks, Ms. Reifschneider. Thank you very much.
    [The prepared statement of Mr. Hawks can be found in the 
appendix on page 73.]
    The Chairman. We will move to our second panel now. That 
would be Mr. Michael Stumo, Mr. Tim Bierman, Mr. Nolan 
Jungclaus--I hope I got that right--Mr. Steve Appel, Mr. J. 
Patrick Boyle. That is it.
    Again, as we said to the other panel, your statements will 
be made a part of the record. If you could summarize it in 5 
minutes, I would certainly appreciate that so we could get to 
some questions. I will just go in the order in which I called 
everybody.
    I am informed that it is not ``Stumbo,'' it is Stumo. OK? 
Mr. Michael Stumo, general counsel for the Organization for 
Competitive Markets out of Lincoln, Nebraska.
    Again, Mr. Stumo, as I said, all of your statements will be 
made a part of the record in their entirety. If you could 
summarize for us your main points, we would be most 
appreciative. Mr. Stumo.

          STATEMENT OF MICHAEL STUMO, GENERAL COUNSEL,
         ORGANIZATION FOR COMPETITIVE MARKETS, LINCOLN,
                            NEBRASKA

    Mr. Stumo. Thank you, Mr. Chairman. Thank you, members of 
the committee for holding this hearing.
    OCM, the Organization for Competitive Markets, is a 
membership/think-tank group. Our members are farmers, ranchers, 
academics, policymakers, and ag business leaders. We focus on 
agricultural antitrust issues only.
    I would like to talk today initially about the role of 
government in the marketplace, which is, in our view, and I 
think as proven by the antitrust precedent and the competition 
precedent in this country, to create and maintain the 
infrastructure for the most companies and people to engage in 
commerce.
    I would ask you to consider the metaphor of the Internet or 
the U.S. highway system, which are infrastructures also that 
facilitate commerce. They are not commerce in and of 
themselves, but they facilitate commerce. They are 
characterized by inexpensive access, equitable rules for 
participation, and they have lots of on and off ramps. GE, 
General Electric, uses this infrastructure for commerce, and so 
does my mother.
    It may be efficient for a few dominant firms to cordon off 
a large section, 50 percent or 90 percent, of the 
infrastructure--the Internet or the U.S. highway system--but 
only for internal efficiency of those companies. If others are 
excluded from using that large swath of these systems, we 
forego a tremendous amount of commerce by those other potential 
commercial participants.
    Now, as we are looking at promoting proper market 
operation, I think we need to focus on what the goals are and 
where it has worked. For example, in the stock markets, the SEC 
has focused for a few years on the principles of fairness, 
access, transparency, and then, in this case, competition.
    Fairness is participating on equal terms. If I buy stock or 
Warren Buffet buys stock, we buy stock at the same price. We 
have the same public information available. He may analyze it 
better, but we have the same price of stock. He doesn't get 
bulk rates on IBM stock. We get the same price.
    We have access. We have equal access. I can buy and sell 
anytime, though I am a small player. There is transparency 
because we don't have GE disclosing company information to the 
chosen few. It is disclosed to everyone. If they disclose to 
the chosen few, it is a violation of the law. Should it be in 
agriculture?
    Now, the efficiency defense, also this consumer demand 
defense--but the efficiency defense, how does one look at it? 
At what point does efficiency overcome these fairness, access, 
transparency, and competition principles? There is a series of 
questions that should be asked.
    A, is it real? Is the efficiency real? I think a lot of 
times what has been claimed as an efficiency is not real here.
    B, is it directly related to the practice that is at issue?
    C, is there no other alternative to achieving that 
efficiency other than the practice at issue?
    Last, if it passes those tests, is that efficiency gain or 
those efficiency gains likely to be passed to the consumer, 
given the industry structure? Otherwise, it is just an intra-
firm issue, not a public policy issue.
    Then, once the efficiency claims have passed those tests, 
to the extent they have, whatever is left then can be balanced 
against a competitive positive effect of the rules that we are 
talking about. We need to look, just as we are looking in 
accounting and in the stock market system, we need to look at 
the incentives.
    We argue about past harm. We have for 10 years with 
studies. The incentive system is what we need to look at, the 
motive or opportunity to act and strategically for your own 
advantage and against the public interest.
    Captive supplies, in our view, we need to look at them 
through that lens of incentive. Captive supplies violate the 
market-facilitating principles that I just outlined, in our 
view, because they result in market closure, or cordoning off 
the highways, the on and off ramps; market unfairness--in this 
case, Buffet gets great deals on GE stock and I don't; and 
gaming the system.
    The market closure we have already talked about a bit 
because we have 16 percent, 17 percent or so open market hogs 
claimed by the Grimes and Plain study of March 2001.
    Now, what does that really mean? Are those actually 
negotiated and bid? No. It just means they are not under 
contract and they are not packer owned. Some are relationships. 
Some just have to go to a packer. What is setting the price out 
here? The Iowa-southern Minnesota market is setting the price. 
Anywhere else, the open market hogs are just following.
    We have 3 percent to 5 percent of the hogs, in my view, 
setting the price for the entire country for the open market 
and for the formula hogs. We have very large, dominant firms 
interacting. They are repeat players every day in a market that 
is very thin.
    Now, market unfairness. We have people that have access 
problems. We are not even talking about bid problems now. We 
are talking about differentiations in access because we have 
the market so closed down that you get access by permission 
only. That is it.
    If you want to be a beginning farmer, the corporate 
executives give you permission, then you can play. If they 
don't, you don't. It is not a matter of getting financing, 
getting loans, that thing. We are closing down. It is by 
invitation only.
    Now, gaming the system. Where have we seen this recently? 
Of course, Enron, Dynegy, gaming the system in California 
energy trading markets. They use these trading strategies 
called Death Star, Fat Boy, Get Shorty. What does that mean? 
They are fictitious transactions or agreements that create 
false gluts or false shortages. The price reacts, and they 
trade into the situation that they created. Is it in captive 
supplies.
    The Chairman. Sum up here pretty soon.
    Mr. Stumo. OK. They can create false shortages or gluts. In 
this case, they pull out of the market. The price drops. They 
pull out of the market with scheduling. The price drops, and 
then they go and jump into the market at that time.
    Now, key issues. Bob Peterson said in 1988 to the Kansas 
Livestock Association, as we are debating this. He is the 
former CEO of IBP. ``Do you think packer feeding and forward 
contracts has any impact on the price of the cash market? You 
bet. We believe a significant impact.''
    Wayne Purcells said in 2000, ``Whether buyers attempt to 
manipulate the cash market to which the contract price is tied 
is somewhat immaterial because the incentive to do so is 
present and is undeniable.'' There is really agreement here.
    Last, on USDA, their enforcement. We really need to focus 
on rulemaking. Justice has guidelines on how they view mergers 
and antitrust scenarios. We have no regulations defining 
unfairness, defining as deceptive practices, defining undue 
preferences in GIPSA. There are no guidelines defining these 
competition terms, so the investigators are relegated to an ``I 
know it when I see it'' approach. Thus, that has to be changed.
    Thank you.
    [The prepared statement of Mr. Stumo can be found in the 
appendix on page 78.]
    The Chairman. Thank you, Mr. Stumo.
    Now we turn to Mr. Tim Bierman, president of the Iowa Pork 
Producers Association from Larrabee, Iowa. Good to see you 
again, Tim. Welcome.

   STATEMENT OF TIM BIERMAN, PRESIDENT, IOWA PORK PRODUCERS 
                  ASSOCIATION, LARRABEE, IOWA

    Mr. Bierman. Good morning, Mr. Chairman. My name is Tim 
Bierman. I am a pork producer from Larrabee, Iowa. I am the 
president of the Iowa Pork Producers Association. I like to 
joke that in my spare time, I am the owner/operator of a hog 
farm that markets over 10,000 a year. I also farm nearly 500 
acres of corn and soybeans. I appreciate this opportunity to 
present our views today.
    The Iowa Pork Producers Association is the oldest and the 
largest pork producer group in the country. IPPA represents 
well over 6,500 producers on issues ranging from international 
trade missions, pseudorabies eradication, ag policy, and 
environmental regulations. Our industry provides over 86,000 
jobs in the State and contributing nearly $3 billion in payroll 
income to our State's residents. If you look at our total 
economic impact in the State of Iowa, our producers affect 
nearly $12 billion in the State.
    We represent many different types of operations from the 
small operators to the large multi-family operations. Iowa is 
the largest pork-producing State, producing more than a quarter 
of the U.S. production alone. Iowa has held that distinction 
since 1890. We are one of the few States with a ban on packer 
ownership of livestock. Let us take a moment to reflect on that 
point, Mr. Chairman.
    Iowa has had a ban on packer ownership since 1975, and we 
are still the largest pork-producing State in the Nation. We 
have more packers than any other State, with a ban on packer 
ownership. In Iowa, we still have some packer competition for 
hogs and the highest prices in the country.
    However, Mr. Chairman, I must admit not everyone is pleased 
with Iowa's approach. I am sure the committee is aware that 
Smithfield Foods from Virginia has filed in Federal district 
court against the State to challenge Iowa's ban of packer 
ownership.
    In any event, the Iowa Legislature has amended the ban on 
packer ownership during two of the last three legislative 
sessions, and the legislature has voted unanimously both times 
affirming Republicans' and Democrats' faith in the law. In 
addition to our organization, others supporting the legislative 
change were the Iowa Farm Bureau and Iowa Farmers Union.
    Just for some perspective, we polled our members recently 
on the ban on packer ownership. Ninety-two percent are 
supportive today, and that is an increase from 88 percent from 
the year before. We are the only livestock organization, to my 
knowledge, which has formally polled their membership on this 
issue. In fact, we have also heard from a number of Iowa 
packers who say they don't want to own livestock.
    A Federal ban on packer ownership of livestock is needed 
because all hog farmers need more competitive markets. This 
hearing couldn't have come at a better time. Producers are 
worried sick about a return to the Depression era prices this 
fall similar to those experienced in 1998 and 1999. Economists 
are predicting some pretty low prices this fall, and those low 
projections are contingent on all plants maintaining maximum 
capacity.
    Nonetheless, I have been deeply concerned with some of the 
debate that occurred as Congress discussed a ban on packer 
ownership during the Farm bill debate. I believe the Senate 
showed leadership in the face of packers threatening plant 
closures, which, by the way, Mr. Chairman, I believe was in 
very poor taste.
    I am also disappointed that the special interest groups, 
saying they are producer-driven groups but align themselves 
with packers, scuttled the legislation in conference. I believe 
it was at the expense of the typical producers like me.
    We appreciate your leadership, Mr. Chairman, but wish that 
many of your conference colleagues shared your views. We 
realize that there can be regional differences of opinion. 
Despite these regional differences, our producers convinced 
their fellow farmers from across the country to change our 
national organization's position on packer ownership from 
against to neutral as the official policy of the National Pork 
Producers Council.
    You have to understand the internal dynamics of the 
organization to realize that this is a major departure from its 
past views on this matter. Why did the delegates to the 
National Pork Producers Council change their views? Again, 
because farmers demanded the change. Not the packers, but the 
farmers. A ban on packer ownership of livestock should not be a 
game of political football. It is what the independent farmers 
want.
    These are several reasons we should support a ban on packer 
ownership of hogs. The obvious reason is that vertical 
integration controls both supply and demand for live hogs. 
Furthermore, vertically integrated companies can shift profits 
and losses from between slaughtering operations and the live 
hog operation, which typical farmers can't do.
    Finally, vertical integration makes price discovery for 
animals almost impossible because animals are not sold, they 
are internally transferred. I have attached an outline of an 
Iowa packer feeding law to my written testimony, but I will 
briefly review what it does and does not regulate.
    The Iowa law forbids packers from owning, controlling, 
contracting for production of hogs, and from financing a hog 
operation. Marketing contracts are specifically exempted. This 
year, the law changed to allow for limited exemptions for new 
qualified processors. The law limits their size and allows 
farmers to become equity holders, but only up to 10 percent for 
each farmer. The entity must be 60 percent owned by farmers, 
and they must agree to 25 percent of their daily slaughter to 
be nonshareholders by negotiated sales.
    This approach was also discussed in the October 1999 NPPC 
press release, which stated, ``More negotiated sales would help 
ensure prices reported for the spot market to reflect current 
value of hogs.''
    We urge this committee to give producers the opportunity 
for success. Concerning enforcement of the Packers and 
Stockyards Act, a difficult task continues for USDA's Grain 
Inspection and Packers and Stockyards Administration. 
Implementing Federal mandatory price reporting law is a step in 
the right direction, but continued market oversight is now 
crucial.
    In addition, there has been some procedural changes within 
mandatory price reporting that are disturbing pork producers. 
One change is USDA has accepted all negotiated bids for 
calculating the simple average of market hog prices. 
Previously, USDA would exclude extreme bids from extremely 
small lots, for example. While on the surface including every 
bid appears to be consistent with the intent of the law, this 
policy has been encouraged what is commonly called ``bottom 
feeding.''
    However, one of the best tools of mandatory price reporting 
is the weighted average prices paid. This takes into account 
the prices paid and the volume of various prices. If USDA 
cannot determine how to throw out extreme prices for the simple 
average, they could mandate a weighted average price be used in 
certain formula contracts.
    The Chairman. Tim, could I ask you to sum up?
    Mr. Bierman. In closing, IPPA is committed to a fair, 
transparent, and competitive marketplace. Our producer members 
constantly remind us of our duty.
    Mr. Chairman, thank you for holding this important hearing 
and for giving me the opportunity to address the committee. 
Thank you.
    [The prepared statement of Mr. Bierman can be found in the 
appendix on page 90.]
    The Chairman. Tim, thank you very much.
    Senator Wellstone. Mr. Chairman. Mr., Chairman, I mean, 
that was exceptional testimony, especially coming from Iowa.
    [Laughter.]
    The Chairman. That is always standard for someone from Iowa 
to have exceptional testimony, I say to my friend from 
Minnesota.
    Now we go to Mr. Nolan--I want to make sure that I have 
this pronounced right, Jungclaus?
    Mr. Jungclaus. Jungclaus. Yes, like a Y.
    The Chairman. Jungclaus, from Lake Lillian, Minnesota.

    STATEMENT OF NOLAN JUNGCLAUS, HOG FARMER, LAKE LILLIAN, 
                           MINNESOTA

    Mr. Jungclaus. That is right. I would, too, like to thank 
you, Chairman, for holding this hearing. My name is Nolan 
Jungclaus, and I am a grain and livestock producer from Lake 
Lillian. I raise 450 acres of crops, 80 of which will be 
certified organic this year. We also have a very small farrow-
to-finish hog enterprise in which we raise up to 600 head of 
antibiotic-free pork.
    This has not always been the case. In 1994, our farming 
operation made a major transition as a conventional corn and 
soybean grain farm, typical in our area, to a more diversified 
and sustainable farming business. Through the introduction of 
livestock enterprise and the diversification of cropping 
systems, we have been able to improve farm efficiency and 
profit despite the currently depressed farm economy.
    My affiliation with Minnesota Farmers Union, the Land 
Stewardship Project, and the Minnesota Sustainable Agriculture 
Program has helped our family recognize the very positive 
social, economic, and environmental impacts that our farming 
operation has on our local community.
    I have changed from just a commodity farmer, who likely 
would have become another statistic in the declining rural 
economy, to a board member of Prairie Farmers Cooperative, an 
innovative $5.8 million hog processing plant in Dawson, 
Minnesota. The co-op is owned by 82 local family farmers and 
can process approximately 65,000 hogs annually, thus allowing 
us to stay on the land, capture more market value, and reinvest 
some of that value back into our communities.
    Since the transition of our farm in 1994, I have witnessed 
ever-increasing vertical integration in the livestock 
industry--a concentration of economic power and wealth 
spearheaded by packers who own and feed their own livestock. 
This shift in the economic balance from the rural sector to the 
corporate headquarters of the very large and monopolized 
packing industry is sucking the lifeblood out of our rural 
communities.
    The six major packers owned 1.2 million sows in 2001. Based 
on my knowledge and experience of raising hogs, that results in 
more than 30.4 million packer-owned market hogs per year, which 
means six packers slaughter about 120,000 of their own hogs 
every day. The number of sows owned by packers has tripled 
since 1996. These six pork packers own 432,000 sows.
    I don't believe it is coincidental that hog farmers' share 
of the pork retail dollar has plummeted from 42.5 cents in 1996 
to just 30 cents in 2001, a drop of 29 percent. That money is 
taken out of my pockets, money that is not circulating in my 
community. It is hurting us severely.
    Currently, only 17 percent of the hogs are sold on the open 
market. The rest are either packer owned or under long-term 
contracts that are neither public nor open to bid and are 
routinely offered to only the largest operations.
    The corporate greed we are reading about daily in our news 
has many faces. Stealing, whether it is through creative 
accounting or manipulating markets, is an unethical practice 
that is undermining our Nation and our national security.
    Packer ownership and captive supplies means minimal demand 
for our hogs. We get a lower price because packers are filling 
demand with their own hogs. We can participate in the market 
only after the packer-owned hogs and those they have on long-
term secret contracts have been used.
    They then offer a so-called price, a price below market 
value that, in effect, steals our hogs. This is not the 
workings of a competitive market. It is a racket that is 
killing the roots of our society and undermining the fabric of 
free access to opportunity for farmers and all Americans in the 
rural sector. It leaves us with a very bad taste in our mouths 
about corporate greed and the unwillingness of our government 
to do anything about it.
    The Senate had originally done the right thing by passing 
the packer ban. I know that industry lobbyists are working 
overtime in DC to kill the packer ban. I now hear that some 
people say that we need a study. Out here in the rest of 
America, we see that for what it is--a corporate-generated 
stall tactic. A study will do nothing for family farmers, while 
allowing the packers the opportunity to control the rest of the 
hog industry and an increasing share of the beef industry.
    I don't need a study to tell me the effects concentration 
has on Lowell Petterson, who owns and operates our local 
hardware store, the man who fixes our church's boiler and never 
sends us a bill. I don't need a study to see the impact that 
consolidation has on Bob Hall, who owns our local grocery and 
is forced to live on ever-tighter margins as packers and large 
retailers work together to eliminate competition.
    I don't need a study to show me that hardships our local 
businesses face directly impacts our church's offering and the 
tax base that supports our schools and hospitals.
    It is time to take action and pass the packer ban on 
ownership of livestock. It is time for our elected 
representatives to take responsibility to ensure that democracy 
works for the greater good of all Americans.
    The path we are on is leading us in the wrong direction. 
Packer ownership of livestock leads to unfair competition, to 
bad market economics, and to a vertically integrated system in 
which producers become serfs to corporations. Let us get back 
to the basics, like our congressional leaders did in the 1920's 
when they passed the Packers and Stockyards Act.
    The act worked until our leaders lost the political will to 
enforce it. I urge Congress to revive the will, to strengthen 
and enforce the Packers and Stockyards Act. Additionally, 
Congress should pass legislation that requires marketing 
contracts to be bid on an open and public market. Secret deals 
between packers and the largest producers create many problems, 
including the pervasive sense of unfairness and the opportunity 
for corruption.
    Legislation has been introduced by Senator Enzi that would 
require marketing contracts to be traded in open public 
markets, such as an electronic market in which all buyers and 
sellers could have access. We have the technology and the 
funding provided in the Rural Development Title of the recently 
passed farm bill to make this happen. This legislation would 
establish an open marketing system and allow farmers to compete 
and ultimately profit in livestock production.
    Mr. Chairman, I urge Congress to uphold the principles that 
made this Nation great. Passage of the packer ban on ownership 
of livestock, enforcing and strengthening the Packers and 
Stockyards Act, and Senator Enzi's legislation addressing 
captive supply will restore competition to farmers and 
reinforce the pillars of our democracy.
    Mr. Chairman, I would like to thank you for this 
opportunity to testify today, and I would be very glad to 
answer any questions you might have for me later.
    [The prepared statement of Mr. Jungclaus can be found in 
the appendix on page 97.]
    The Chairman. Mr. Jungclaus, thank you very much for your 
testimony.
    Now we turn to Mr. Steve Appel, vice president, American 
Farm Bureau Federation, from Endicott, Washington. Welcome, Mr. 
Appel.

STATEMENT OF STEVE APPEL, VICE PRESIDENT, AMERICAN FARM BUREAU, 
                      ENDICOTT, WASHINGTON

    Mr. Appel. Thank you, Mr. Chairman. My name is Steve Appel. 
I am vice president of the American Farm Bureau Federation and 
also president of the Washington State Farm Bureau. Actually, I 
like to claim Dusty, Washington, Mr. Chairman, rather than 
Endicott. It is a thriving community of approximately 20 
people.
    The Chairman. Wow. I thought I came from a small town.
    Mr. Appel. Real rural America.
    The Chairman. Yes.
    Mr. Appel. I appreciate the opportunity to present 
testimony today on behalf of the AFBF. Increased concentration 
in agricultural markets has frustrated many farmers and 
ranchers because producers believe that an increased 
concentration results in less market competition. Less market 
competition means less price transparency and can often result 
in lower prices.
    AFBF believes that prohibiting packer ownership of 
livestock would reduce concentration and allow the independent 
producer more access to the competitive marketplace. Allowing 
packers to stay out of the cash market for extended periods of 
time reduces farm gate demand. The result is reduced market 
access for small and medium producers.
    In recent years, many livestock producers have engaged in 
various marketing arrangements with packers to assist in 
profitability, consistency in product, guaranteed marketing of 
product. Such arrangements provide a premium for the producer 
and a certain delivery date for the packer.
    Farm Bureau supports the ability of producers to forward 
contract, participate in grid and formula pricing and other 
risk management tools, but we believe that allowing packers to 
own livestock reduces competition in the marketplace. We worked 
diligently with staff members during the Farm bill debate to 
clarify the issue of control and supported the language 
included in the Senate-passed Farm bill that would have allowed 
risk management tools for livestock producers.
    There are many questions and concerns regarding the 
prohibition of packer ownership. Those opposed question the 
ability of the packers and retailers to continue the excellent 
and diverse product development and marketing of livestock 
products that has resulted in increased demand, both 
domestically and internationally. Since there is such a strong 
demand for these products, we believe their development will 
continue regardless of whether there is a prohibition on packer 
ownership of livestock.
    Another argument against the prohibition of packer 
ownership is that the poultry industry would have a further 
competitive advantage over pork and beef industries if packer 
ownership were prohibited. Poultry and beef are two completely 
different types of protein. If there is currently a competitive 
advantage for poultry, we believe that it is mostly attributed 
to product development and case-ready meat that can be easily 
prepared.
    There are also concerns about the availability of carcass 
data currently available and used to further improve production 
management. Improved carcass data is assisting producers to 
meet the livestock specifications needed by the packers. The 
availability of that information should not diminish as a 
result of prohibition of packer ownership.
    Many buyers and sellers characterize a truly competitive 
market. Concentration in agriculture is increasing. When the 
number of buyers is reduced, downward pressure on price may 
result. As marketplace volume decreases, the market is far more 
susceptible to intentional or unintentional actions taken by 
the dominant buyers.
    If a plant shut downs or a packer pulls out of the market 
for other reasons, prices suffer. There is increasing concern 
among producers that some packing plants may shut down, and 
reduced slaughter capacity typically means lower prices for 
producers.
    The Packers and Stockyards Act was enacted to deal with 
problems associated with concentration. Its regulations 
prohibit sale barns and auction markets from vertically 
integrating. Specifically, stockyards may not own or control 
buying stations, packing plants, or livestock feeding 
operations. The rationale is that such ownership or control 
creates conflicts of interest, access problems for other 
producers, and opportunities for self-dealing, which distorts 
the market.
    The procurement of cattle and hogs has changed dramatically 
since the Packers and Stockyards Act was passed 80 years ago. 
At that time, cattle were primarily sold at auction markets to 
the packers. Today, most cattle are sold directly off the 
feedlot to the packing plant.
    Farm Bureau believes that because the meat packers are 
similarly situated to the stockyards as a market creator and 
market forum, the same rules in PSA should apply to them. In 
fact, more concentration exists today among the packing 
industry than existed at the time that PSA was originally 
passed.
    The prohibition of packer ownership of livestock is a 
passionate and controversial issue. Such a ban will not solve 
all of the issues of livestock concentration and cyclical price 
fluctuations for producers. However, it may assist independent 
producers in securing a competitive marketplace and a 
transparent price discovery system.
    There are many questions to be asked regarding livestock 
concentration and how to achieve a fair, competitive 
marketplace for all segments of the industry from producer to 
retailer.
    We appreciate the hearing today and the opportunity to 
discuss this important issue with the committee. Thank you.
    [The prepared statement of Mr. Appel can be found in the 
appendix on page 100.]
    The Chairman. Thank you very much, Mr. Appel, for a fine 
statement.
    Now, we turn to Mr. J. Patrick Boyle, president of the 
American Meat Institute here in Washington, DC Mr. Boyle, 
welcome.

    STATEMENT OF J. PATRICK BOYLE, PRESIDENT, AMERICAN MEAT 
                   INSTITUTE, WASHINGTON, DC

    Mr. Boyle. Thank you very much, Mr. Chairman, Senator 
Lugar, members of the committee. I appreciate the opportunity 
to be invited to testify here today before the committee. As 
you may suspect, we have a somewhat different perspective on 
the marketplace, and I am happy to have the chance to share it 
with the members of this committee.
    The business practices of AMI's 250 member companies are 
governed not only by the Sherman Act, the Clayton Act, the 
Robinson-Patman Act, and the Uniform Commercial Code, but also 
by the Packers and Stockyards Act, a statute unique to our 
industry that clearly prohibits meat packers from engaging in 
unfair or deceptive business practices that disadvantage their 
livestock suppliers.
    Yet, ironically, we are here today, as we have been here 
many times before, not just in recent years, but in recent 
decades, to discuss whether meat packers should receive yet 
additional scrutiny, enforcement, or business restrictions in 
order to protect and benefit livestock producers.
    I must say, Mr. Chairman, these topics just never seem to 
go away. They were around when AMI was founded in 1906, and 
they have persisted now for nearly 100 years.
    Could it be, as some suggest, that our laws are inadequate? 
Or is our enforcement poor? Or maybe we haven't done a good job 
identifying evolving competitive factors and coming up with 
meaningful understandings of today's marketing realities.
    I believe the latter is the closest to the truth. In that 
regard, I commend those such as Senator Craig and Secretary 
Hawks, who have recommended a thoughtful, reasoned approach of 
studying the meat and poultry marketplace and the evolving 
corporate business models amongst producers and packers and 
then identifing potential areas for improvement.
    AMI members have one common objective: to produce products 
that consumers desire. It is the consumer who determines the 
type and value of our products, which, in turn, determines the 
type and value of our raw materials. In order to create the 
foods people want to buy, AMI members have done many things, 
including increasing their coordination with livestock 
producers so that the raw materials comport with consumer 
demand for finished products.
    This increased coordination has led to increased vertical 
integration or vertical cooperation through contracts, which 
has sometimes included complete or partial ownership of some of 
each packer's livestock supply.
    While the trend has caused some concerns in various parts 
of the country, as evidenced by some of the comments here 
today, the trend has also resulted in increased coordination 
between producers and packers that have generated a number of 
benefits.
    For example, it has allowed the industry to offer to 
consumers leaner beef and pork products. Second, it has allowed 
the development of value-added, often branded meat products, 
which consumers increasingly desire. Third, it has improved 
risk management and financial options for producers.
    I want to focus upon that one benefit that I mentioned at 
the end, the improved risk management and financial options for 
producers. The volatility inherent to farming and ranching has 
been reduced for many livestock producers through the increased 
use of contracted sales with meat packers and other creative 
risk management plans. In fact, many lending institutions 
throughout rural America require such contracts as a condition 
of making a loan to a livestock producer.
    The benefits to farmers were perhaps most vivid during the 
very difficult fourth quarter of 1998, when the spot market 
price for hogs crashed. They dropped to as low as $9 a 
hundredweight. Those farmers with risk management contracts had 
locked in much higher prices from their packers for their hogs, 
generally in the $35 per hundredweight range, and were 
protected because of the contracts.
    AMI strongly opposes efforts that would make it illegal for 
meat manufacturers to do what the rest of the global business 
community is doing, which is to form relationships with 
suppliers of raw materials in order to produce consistent 
quality, value-priced products that consumers desire. In our 
view, the proposed ban on packer ownership, control, or feeding 
of livestock would do just that.
    Further, we are opposed to any effort to restrict meat 
packers who comply with existing antitrust and fair business 
practice laws from sourcing their raw materials from livestock 
producers in any way the parties deem mutually beneficial.
    Over the last three decades, Americans have benefited from 
increasing meat industry efficiency that has made meat more 
affordable, abundant, convenient, and varied. Each year, 
consumers spend less of their disposable income on meat and 
poultry products. Today, that number stands at 1.9 percent of 
their disposable income, compared to 4.1 percent 30 years ago 
in 1970.
    There have been a number of comments here today, Mr. 
Chairman, about livestock prices, producer losses, meat packer 
profitability, and I would like to submit for the record two 
charts which summarize the past 13 years of pricing within the 
beef and pork sector. These charts are based upon USDA data.
    This first one shows the spread between farm prices for 
hogs, which is the green line at the bottom; wholesale pork 
prices that the packers receive, which is the red line just 
above the bottom line. Then the top line is the retail value of 
pork in the marketplace.
    You will see that, despite some of the concerns and 
statements made here today, the amount of money that livestock 
producers make for their hogs, in this case, tracks almost in 
tandem up and down with the wholesale prices the packers are 
receiving for the pork in the wholesale market.
    The Chairman. I am sorry, Mr. Boyle. I am sorry. I had an 
urgent call that just came through. Explain that, the top line 
is the retail?
    Mr. Boyle. Yes, the top line is the retail value of pork in 
the grocery market.
    The Chairman. Going back, what is the beginning year there?
    Mr. Boyle. It is 1989.
    The Chairman. OK.
    Mr. Boyle. It trends through January of 2002. Then, the red 
line is what the packers are receiving in the wholesale 
marketplace for their pork, fresh pork. The green line is what 
hog producers are receiving from the packers for their market 
hogs as we buy them in the marketplace.
    The important point here is that, despite the comments that 
producers aren't making money and that packers are making 
enormous profits, if you look at the USDA data over a prolonged 
period of time, you will see that when livestock prices go up, 
the wholesale price the packer receives goes up accordingly. 
When livestock prices go down, the amount of money the packers 
receive goes down accordingly.
    I would just show you very briefly the same trend line over 
the same period of time also based upon USDA data for cattle, 
wholesale beef, and beef in the retail marketplace. You will 
see that, in many instances, the amount of money that the 
packers are paying for the live cattle actually exceeds on a 
per-pound basis the price we are receiving in the wholesale 
market for boxed beef.
    The point of these two charts is that there is not undue 
profiteering occurring at the expense of producers. In fact, 
the returns to producers track through the last 13 years the 
returns to packers. This return has been constant, even though 
for the last 10 years in the beef sector, the concentration 
rate of the top four has remained virtually unchanged. In the 
pork sector, the concentration rate for the four largest pork 
packers has actually gone from below 40 percent to upwards of 
55 percent.
    Despite increasing concentration, the amount of money that 
goes to producers and packers has remained constant and in 
tandem throughout that period of time.
    Mr. Chairman, I appreciate again the opportunity to be with 
you today and look forward to answering any questions that you 
and your fellow committee members may have.
    [The prepared statement of Mr. Boyle can be found in the 
appendix on page 105.]
    The Chairman. Thank you very much, Mr. Boyle. I don't have 
those charts. Were they in your testimony?
    Mr. Boyle. No, I apologize for that, Mr. Chairman. They 
were not. They were on my desk chair this morning, and I 
thought they might be of interest to the committee. I am happy 
to submit them for the record.
    The Chairman. If you could get those for me on 8.5-by-11 or 
something like that, I would appreciate it.
    Mr. Boyle. I would be happy to do so.
    The Chairman. Thank you.
    The Chairman. Mr. Stumo, Mr. Bierman, Mr. Jungclaus, Mr. 
Appel, you are all producers. Again, I think you have heard 
from Mr. Boyle, who has said that basically it has remained 
constant, if I can just interpret that, that the wholesale-
retail price spread. Was that what you were saying, Mr. Boyle?
    Mr. Boyle. The price to livestock producers for cattle and 
hogs has moved up and down in tandem with the amount of money 
that packers have received for beef and pork in the marketplace 
over the last 13 years. In fact, if I put a chart together over 
the last 30 years, the trend line would remain constant.
    The Chairman. I have another chart here, which I could give 
to you, but it is the farm to wholesale price spread for pork. 
In 1993, it was $29. Farm to wholesale price spread for pork in 
1993 was $29. In 2001, it was $43. That is about a 50-percent 
increase in 10 years.
    Mr. Boyle. I don't have this information in exactly that 
manner, but I wouldn't necessarily agree with that. The spread 
here, if you look from the farm, which is the green line, to 
the retail has actually increased over that period of time. The 
spread from livestock prices to retail prices has increased.
    The Chairman. Where is your wholesale price line?
    Mr. Boyle. This is the wholesale price line, and it has 
remained virtually unchanged in terms of a margin between 
livestock prices and wholesale prices. This is what the packers 
receive.
    When the price is up in the wholesale beef or pork price, 
the livestock prices that the packers are paying for hogs and 
cattle tracks up accordingly. When our wholesale prices that 
the packers are receiving in the marketplace down, 
correspondingly almost in tandem over the last 13 years, the 
prices that we are able to pay for hogs and cattle down.
    The Chairman. The farm to wholesale price spread for beef 
in 1992 was $25. In 2001, it was $37, another 50-percent 
increase. Now, again, we are going to have to correlate our 
different figures here. That tells me that something is 
happening in the marketplace where you are getting a big farm 
to wholesale price spread on this. We are going to have to have 
some more look at why these figures seem to be different, I 
don't know.
    Mr. Boyle. Well, I would be happy to take a look at the 
figures upon which you are relying, and I am more than happy to 
provide for the committee the ARS data that we have used to put 
these charts together, Mr. Chairman.
    The Chairman. I appreciate it. Just my general question 
again for the panelists who are here is what is your own 
personal experience in the competitive marketplace, both for 
hogs or for cattle? Since You have been in the business, I 
think, for at least 10 years, I mean, what have you seen 
happening out there? Just in your own words, what are you 
looking at out there? You hear basically it hasn't changed a 
bit.
    Mr. Bierman. Mr. Chairman, if I may address that?
    The Chairman. Sure. Sure.
    Mr. Bierman. Well, 5 years ago, it was much easier to get 
different bids from packers for hogs. Nowadays, last week, I 
was talking to a producer from Sioux Center, and he feels that 
he has only one choice left to place, to sell his hogs because 
the other packers are not responding to him when he is asking 
for a bid.
    In the last 5 years, things have changed dramatically. If 
we don't do something soon, it--I mean, he will not have a 
choice. He will either have to align himself with a packer or 
get out of business.
    Mr. Stumo. Mr. Chairman, we are not even getting bids. I 
don't produce hogs. I did buy hogs 10 years ago, or in 1989. I 
was a buyer. I have six pigs right now. One of our board 
members who has 200 sows and I, well, I asked him, ``How many 
bids do you get?'' You know, you are in Iowa. You have more 
packers than anywhere else, despite this awful packer ban that 
should drive them elsewhere. ``How many bids do you get?''
    He says, ``Bids? We don't get bids. We get slots. They tell 
me you can come in on this day, and I get one packer that will 
give me slots, and we will tell you the price when you get 
here.'' Then, whatever price that they unilaterally give when 
he gets there, that is reflected in the open market.
    I would also state on this farm to wholesale point that you 
were discussing with Mr. Boyle, obviously, the farm price and 
the wholesale price track each other as they go up and down. As 
they are tracking, their spreads are increasing over time. 
Thus, your data is really consistent. It is USDA data.
    The spread, it is hard to see it on that graph because it 
is such a wide graph, and it is more focused visually for 
tracking parallels. The spread has increased 50 percent farm to 
wholesale in beef and pork in the last 10 years. That is true.
    The Chairman. My time is up. Senator Lugar.
    Senator Lugar. Mr. Chairman, clearly, there are different 
intensities of feeling about this problem in different States. 
In visiting with pork producers in Indiana, our president 
preferred not to testify today because of a division among pork 
producers not only on the bill we are talking about, but on the 
general marketing situations.
    That has generally been true of cow producers in our State. 
There clearly is confusion as to where the best interest to the 
producer lies and what kind of arrangements would make a 
difference.
    Now, we had testimony before our committee in the last 
couple of years suggesting that through co-ops producers might 
band together to have larger numbers and thus greater 
bargaining power. That is one of the things that has evolved, 
unfortunately, in America is fewer stockyards and fewer places 
where people are likely to have bids.
    My grandfather and my father were involved in the 
Indianapolis stockyards. One sold cows, the other sold hogs. 
This was their livelihood and our livelihood. That yard is no 
longer exists. There is an Eli Lilly plant over that situation. 
We have been trying to create stockyards in various parts of 
the State so there might be other bidders.
    The question, I suppose, is a broader one, and that is how 
is the buying and selling in livestock to be organized in 
America, or how do we encourage some outlets that are different 
from the situation we now have, which clearly is more 
concentrated?
    I don't know that there is a good answer to that. As I have 
said, the co-op idea was an original one. The other idea that 
usually comes from this testimony is that everybody wishes 
there were more bids, there were more stockyards, there were 
more outlets. Indeed, we all do. Exactly who in America is 
going to produce these?
    The ban on ownership is an interesting idea and maybe has 
some effect at the margin, but I suspect is not an answer to 
how competition occurs. I appreciate the testimony. I have 
listened carefully to this hearing, as I have to each of 
several in the last 10 years of time.
    As I recall, hardly a year has passed without one of these 
hearings and sometimes two. My guess is that essentially we are 
seeing still more concentration as has occurred in other 
protein areas has been noted, despite the fact that we are 
still searching for the competitive model. I just simply 
appreciate the witnesses offering, once again, timely testimony 
as to where the market is.
    Mr. Jungclaus. Mr. Lugar, I would like to address that just 
briefly.
    Senator Lugar. Yes, sir.
    Mr. Jungclaus. You know, you indicated a definite situation 
out there, where we have buying stations that are on the 
countryside that are just disappearing. In the case of if we 
develop a more competitive market, where are we going to put 
these buying stations? They are just not there. Well, they are 
still there. It is just that they are not being used in many 
cases.
    It is important to note that I think if we look at opening 
our markets and making them fair and competitive--if we had an 
electronic market where all the contracts offered to producers 
out there, where every producer could bid on that market--the 
buying stations will take care of themselves.
    When there is a need, the need gets filled. I mean, that 
would be a tremendous economic opportunity. Right away, you see 
increase in rural economy expansion by hiring these people to 
run these buying stations and different things like that. You 
can see how this packer ban on livestock and opening up these 
markets can really fuel the rural economy. That is just one 
very small example of that.
    Senator Lugar. Yes, well, I would really like to explore 
more the electronic idea. There is merit in that. It implies, 
however, that there are competitors, that there are people 
wanting to come into this business to bid, or people who are 
prepared at least to have a more open bidding situation as 
opposed to contractual arrangements with producers, and 
producers who are prepared to have the electronic thing as 
opposed to a deal that they have come into with a packer or 
with stockyards.
    As I just observed, in my State, a lot of people have 
contracts, and they like that idea. They are perfectly 
satisfied. They listen to a hearing like this and say, ``Well, 
that is too bad you folks don't have the kinds of contracts we 
have. As a matter of fact, we are doing well.''
    I just get back to the fact that there has to be some 
rationalization for why more competition occurs, more 
competitors, why do people want to get into this business? It 
does not appear to have been a promising business for people to 
invest money into, and I would guess this is one reason why 
there has been some contraction of competitors.
    Mr. Jungclaus. Well, some of the problem is that these 
contracts aren't offered to every producer. I mean, that is a 
big issue. I mean, there is a lot of contracts out there that 
are offered to just the biggest producers. A lot of times, 
those contracts have basically gag orders in them, saying the 
details of those contracts can't be released. Is that a 
competitive open market? I don't think so.
    Mr. Boyle. Senator Lugar, I would suggest that packers did 
not withdraw over a period of time, more so on the hog side 
than on the cattle side, from auction markets, from fear of 
competitive bidding or an attempt to pay lower prices through 
contracts.
    They actually withdrew from those auction markets because 
they needed the ability to control the quality and the type of 
hogs that they were buying because we were moving toward 
branded product, value-added product, more consistent, more 
uniform product, and we could not meet the demands of our 
customers, the demands of the marketplace buying random hogs 
that were not necessarily uniform through an open market.
    We reverted or evolved to contractual arrangements. It 
wasn't anything anti-competitive or a fear of paying higher 
prices. I would also suggest that these contracts are mutually 
executed, and the hog producers who are in contracts, covering 
about eight out of 10 hogs today that make their way to market, 
are there because they have made a business decision that they 
can make more money through a contract than they were able to 
make on the open auction system.
    There is nothing evil or nefarious. It is just the way the 
competitive nature of the industry has evolved and the demands 
that our customers are placing upon us to supply certain kinds 
of products.
    Mr. Stumo. Mr. Chairman.
    The Chairman. Yes, I am going to turn to Senator Dayton 
now.
    Senator Dayton. Thank you, Mr. Chairman. Senator Wellstone, 
my colleague from Minnesota, had to go to another hearing, so 
he asked me to ask a question on both of our behalf. The 
intelligent questions are from me, and if there are any 
unintelligent questions, those are Senator Wellstone's.
    [Laughter.]
    Senator Dayton. Mr. Boyle, I appreciate you being here and 
having a different view. That is common, and it is a 
complicated subject. Obviously, different people in different 
sectors of the industry have different perspectives. I don't 
disagree with what you just said. In fact, I would agree that 
if we have a truly competitive market, where we have 
competitive buyers, people can then enter into willing 
contracts showing interest.
    The concerns comes when there are not the options available 
through concentration in the industry. Individual producers 
don't have those other alternatives. Then, it doesn't become an 
equal relationship. If I go back to those charts that you 
presented there, and those were useful, and also reference your 
testimony in terms of the percent of the income that Americans 
are paying for their meat. That is certainly one important 
perspective, and one that all of us need to be aware of.
    The flip side of that coin then is, though, what are the 
prices that producers are getting for their products? I am 
concerned and I think this committee has been prompted in part 
by especially in the hog markets just the devastating decline 
in prices. You know, in 1975, according to USDA, hogs were $46 
per hundred pounds. Then, they got as high as $51, $52 in 1996 
and 1997. Then, as others have noted, they just plummeted down 
to average $34 in 1998, $30 in 1999. Last year, at least in 
Minnesota, they were $45.80, and in June of this year, they 
were down to $35.90.
    That kind of fluctuation and going in the wrong direction 
is what is really driving our concern about the concentration 
and to what extent that does affect these plummeting prices. 
Now cattle have been more stable over time. Also, if I look at 
your charts, I see that in the cattle industry, it seems that a 
higher percentage of the value is going to the producer rather 
than the rest of the way down the line. Whereas the hogs, I am 
struck by both the amount of the overall price that is going to 
people other than the producer or the packer.
    I believe I came to the same conclusion you did, Mr. Stumo, 
that it looked to me like in the last few years that the margin 
has improved for the packer. I wanted to ask you about the 
fluctuation in prices over these last few years because you 
cited, and I would have thought, too, that one advantage of a 
contractual arrangement would be less price fluctuation for the 
producer. It seems on that chart that there has been more 
fluctuation in the last 5 years than there were in the previous 
8 years.
    Mr. Boyle. Those are some excellent observations and a very 
good question, Senator Dayton. One of the primary reasons that 
the packers and producers, particularly on the hog side, have 
moved rapidly over the last 5 years toward either vertical 
integration, where the packer actually owns the hogs, or the 
more common model where the packer contracts with the producer 
for the hogs has been because of the volatility in the spot 
market.
    There are other reasons as well, but that is one of the 
reasons. Many producers, in order to get the loans that they 
need to finance their operations during the grow-out of the 
animal, will require some contractual arrangement with the 
packer.
    From my packers' perspective, this volatility makes it very 
difficult for us to manage our business as well. We don't have 
the ability to pass the volatile price changes onto our retail 
customers because they want a constant price, whether they are 
in grocery stores or restaurants. It is difficult for us to 
pass that volatility on.
    At a time when, like 1996, when hog prices per 
hundredweight actually exceeded cattle prices per 
hundredweight, that is a huge amount of loss that we were 
having to sustain. At that point in time, two or three pork 
packing houses actually were forced out of the market because 
they couldn't sustain the losses that they were incurring.
    Conversely, 2 years later, prices went from above $60 a 
hundredweight to below $10 a hundredweight. It was that 
dramatic fluctuation, where the packers were losing money in 
1996 and the producers were hemorrhaging money in 1998, that 
brought them both together, under pressure from lenders, in 
order to have contracts that are based on spot markets that pay 
a little bit more than spot markets but also insulate producers 
from the extreme low prices and packers from the extreme high 
prices.
    The producer base survived basically intact during that 
terrible fourth quarter of 1998. Many producers were forced out 
of business, but the production base itself remained basically 
intact. One of the reasons is that while the spot market 
volatility continues and, at that point, was paying $8 a 
hundredweight, producers were actually making break-even or 
more under the risk management/risk sharing contracts that they 
had with their packers.
    Senator Dayton. Thank you. We are constrained, both of us, 
by the time here. I am sorry I can't pursue that with you. May 
I have one more question, Mr. Chairman? Thank you very much.
    Mr. Jungclaus, I appreciate your being here on behalf of 
Minnesota. Other than the fact that your high school team 
defeated my son's team in a critical game last year, we have a 
lot in common. No, thank you for your excellent testimony and 
representing Minnesota so well on this panel.
    I wanted to ask you in terms of your own--getting away from 
antibiotics, and creating a sense, I assume, a different 
product in the marketplace. Has that affected your price, 
improved the price that you receive or reduced the 
fluctuations?
    Mr. Jungclaus. It does improve the price I receive as far 
as when I sell animals directly to consumers. When I sell that 
product to Hormel or Smithfield or whoever, I don't get a 
benefit from that.
    Senator Dayton. OK, thank you. One question then just for 
any of the four of you, and I would ask you to be brief because 
we are out of time. In terms of this antibiotics and the use 
thereof, it seems that is one of the trends in the industry is 
increased use of antibiotics. Now we are talking about 
irradiation of meat. Do you see those as correlated with the 
pricing and the concentration, or is that a separate 
phenomenon?
    Mr. Jungclaus. It is very related. I mean, obviously, if 
you have 20,000 pigs in one building and you have a disease 
outbreak, you are in big trouble. When you are looking at 
operations that are very large, if you were to go antibiotic 
free, it would almost be like a death sentence for all those 
hogs and for that operation.
    In a situation like that, they basically need antibiotics 
in that system or it would be devastating to them. That is 
where the small producer has a lot more versatility and can 
allow the consumer a lot more versatility.
    You know, Mr. Boyle indicated that this whole process of 
vertical integration is driven by the consumer. I find that 
interesting because one of the biggest increases in consumer 
demand is for the antibiotic-free pork and organic pork and 
those kind of products. Yet, that is not the product that the 
large packer is putting out. It is the product that comes from 
small packing houses that is really increasing in demand. I 
found that as an interesting statement.
    I mean, really, when we are looking at this vertical 
integration, we are looking at losing a lot of small producers 
that have the types of products that consumers want today. It 
would be a very convenient excuse to say that consumer wants 
this kind of cardboard pork products that tend to come out of 
the large packing houses, in my concern, anyway. Because that 
is not what the consumer wants.
    The consumer wants taste and aroma and those kind of things 
that make eating food an experience? That is just not what I 
see the industry putting out right now.
    Senator Dayton. Thank you, Mr. Jungclaus. I am sorry I have 
to leave to go back and meet with a group of Minnesotans. I 
apologize. Thank you all for excellent testimony.
    The Chairman. OK, thank you very much to this panel. We 
thank you for being here. We thank you for your testimony.
    The Chairman. Now we call our second panel: Dr. Robert 
Taylor, professor at Auburn University in Alabama; Mr. Herman 
Schumacher, R-CALF USA, from Herreid, South Dakota; Mr. Paul 
Jackson, National Farmers Union, Oklahoma City, Oklahoma; Mr. 
Eric Davis, the National Cattlemen's Beef Association 
president-elect, from Bruneau, Idaho; and Mr. John Butler, CEO 
of Ranchers Renaissance, Englewood, Colorado.
    We welcome you all here again, and your statements will be 
made a part of the record in their entirety. We would ask again 
if you would summarize in 5 minutes. We would start, of course, 
first with Dr. Robert Taylor, professor at Auburn University in 
Auburn, Alabama. Dr. Taylor.

   STATEMENT ROBERT TAYLOR, PROFESSOR AT AUBURN UNIVERSITY, 
                        AUBURN, ALABAMA

    Mr. Taylor. Thank you, Mr. Chairman and members for the 
committee. I appreciate this opportunity to testify on 
important issues in the livestock industry.
    I will get right to the point. There have, indeed, been 
efficiency gains in the meat industry. There have been quality 
improvements. At the same time, there is compelling evidence 
that buyer power, technically called monopsony power, and 
seller power, called monopoly power, have been exerted in the 
markets for beef and pork.
    In my written testimony, I have several charts. All of 
those charts are corrected for inflation. That is the only way 
to do it. Most of them present USDA statistics corrected for 
inflation.
    The retail price for beef over the past 20 years has 
declined dramatically. Part of that is due to the inflation-
adjusted price of feed going down. In fact, about two-thirds of 
the decrease in the real retail price for beef is due to lower 
feed cost, not to efficiency gains in meat packing or 
production.
    The farm to wholesale spread measures gross revenue to meat 
packers. Adjusted for inflation, going back to the 1980's, it 
declined substantially. That is consistent with efficiency 
gains in a competitive market. In the mid 1990's, it started 
turning up, and it turned up dramatically and, in the last 6 or 
7 years, has increased about 50 percent for both beef and pork. 
That is a sign that buyer power is being exerted. There is no 
alternative plausible explanation for it, except market power 
being exerted.
    The wholesale to retail spread, which measures gross 
revenue to the meat retailers was fairly steady for that 20-
year period. About a year ago, it shot up dramatically to all-
time highs. The farm to retail spread declined during the 
1980's due to the efficiency gains in meat packing. Most of 
those efficiency gains have been lost due to exertion of buyer 
and seller power in beef markets. That has turned back up, and 
the farm to retail spread is almost as high as it was in 1980.
    Income for feeding cattle, adjusted for inflation, has had 
a strong downward trend for 20 years. In the 1980's, returns to 
finishing cattle in Kansas averaged about $40. For the last 10 
years, they have averaged a negative $15 based on market 
prices.
    Some cattle feeders are making money because they are more 
efficient, and some are making money because there are 
preferential deals out there, and they get a better deal than 
the independents. That is a hidden or overlooked conclusion in 
some of the GIPSA studies that have been mentioned.
    Independents are losing money, while some of those with the 
preferential deals are making money in cattle feeding. In 
Economics 101, when you offer a preferential deal to some, that 
increases aggregate supply, lowers cash price. Simple 
economics.
    The ban on packer ownership is not the only change needed 
to re-establish competition in the meat markets. There is the 
issue of preferential treatment that I just mentioned that is 
not fair. Bidding practices need to be changed. It was 
mentioned earlier about in the cattle industry, some feeders 
have only 5 minutes to accept or reject an offer, and that is 
the only one they will get for a week or more. That does not 
give them long enough to go out and solicit competitive bids.
    Having contracted supplies tied to a cash market price or 
to a futures market price is problematic. If a marketing 
agreement is tied to a cash market price in which the 
contractor is actively participating, that gives him a 
tremendous incentive to manipulate price. It is a multiplier 
incentive. They don't gain just on what they buy on the cash 
market. They gain on all of the contracted supplies. That 
incentive needs to be eliminated.
    We need true mandatory reporting. In economics jargon, 
there is a problem with asymmetric information, and that is 
what we have now. The packers and some of the large industry 
participants have more information than the independents and 
the smaller ones, and they can use that information to their 
advantage. Everybody needs the same set of information, and 
they need it in a timely way.
    Finally, partial vertical integration is problematic. 
Partial vertical integration, which is what we have in the beef 
and pork industries is problematic because packers may use it 
to transfer risk to the market. You get thinner markets and 
more variable markets, and we have certainly seen that in the 
hog industry.
    The issues and the industry are highly complex, and there 
is no simple solution. These are issues I think need to be 
addressed. If we need a study at all, it is a very careful one 
on electronic markets and whether we could use that to re-
establish competition.
    Thank you.
    [The prepared statement of Mr. Taylor can be found in the 
appendix on page 110.]
    Senator Lincoln [presiding]. Thank you, Dr. Taylor. As you 
all have noticed, there has been a change here. The chairman 
had to excuse himself. I am back and delighted to be.
    Mr. Schumacher, I think the majority leader gave you quite 
an introduction earlier that you will offer us great and valued 
information. We are all prepared to hear that testimony.

  STATEMENT OF HERMAN SCHUMACHER, R-CALF USA, HERREID, SOUTH 
                             DAKOTA

    Mr. Schumacher. Thank you, Senator Lincoln.
    Senator Lincoln. Thank you.
    Mr. Schumacher. Senator Lugar, this is the fifth time I 
have done this, testifying in front of the Senate Ag Committee, 
and also in 1996, I was on a commission on concentration in 
agriculture.
    I am here today representing the Cattlemen's Action Legal 
Fund. It is known as the United Stockgrowers of America, R-CALF 
USA. I am a director of R-CALF USA, and I represent the States 
of North Dakota, South Dakota, Nebraska.
    I am also a cow/calf producer, a feedlot operator, owner 
and operator of the Herreid Livestock Auction in Herreid, South 
Dakota. I am also an auctioneer. An auctioneer likes to talk a 
long time.
    [Laughter.]
    R-CALF's mission is limited to representing the U.S. live 
cattle industry in trade and marketing issues to ensure the 
continued profitability and viability of the U.S. cattle 
producers. In 1999, less than 3 years ago, R-CALF USA moved 
from a foundation to a national membership organization and is 
now the fastest-growing U.S. cattle association in America, 
with 1,100 new members since the first of the year.
    We now have a national membership of over 6,000 producers 
in 42 States. We also have 30 affiliated organizations, 
including 10 State-wide cattle associations, 18 county cattle 
associations, and two big general farm associations. Our 
association's rapid growth is a direct reflection of the 
growing concern among U.S. cattle producers for the chronic and 
severe problem associated with our cattle markets.
    I commend Chairman Harkin and the rest of the committee for 
holding this hearing today. As evidenced by the many individual 
and joint association letters received by this committee, 
cattle producers all across America greatly appreciate the 
Senate's earlier passage of Senator Johnson's packer ownership 
ban. Cattle producers also appreciate the chairman's leadership 
in working to include the Competition Title in the recent Farm 
bill.
    I am pleased to address the proposal to ban packer 
ownership of livestock and USDA enforcement of the Packers and 
Stockyards Act. Much has been said today about the market share 
beef has lost to competing meats. However, the most damaging 
lost market share cattle producers suffer today is the lost 
share of the consumers' beef dollar from the packer and 
retailer.
    According to the respected Doane's Ag Report on October 26, 
2001, the farm to retail spread has topped $1.90 a pound. If 
the spread were in line with normal, current retail prices 
would translate to live cattle prices in the mid 80's rather 
than in the very low 60's.
    Winter Feed Yards in Dodge City, Kansas, reported in 
December of 2001, as of November 30th of 2001, that retail beef 
prices were 9 percent above a year ago. Now remember, December 
2001 was after 9/11. Fed cattle prices--we got hurt by 9/11--
were 19 percent below 1 year ago.
    It is important to note that there are two functioning 
production models within the U.S. meat industry. The first 
model represents the U.S. poultry industry.
    As stated in the Sparks study commissioned by the National 
Cattlemen's Beef Association and the National Pork Producers 
Council, ``Over time, these independent poultry business, 
including independent feed mills, hatcheries, farms, and 
processors, were combined by integrators who reduced costs by 
coordinating the production of each stage. As a result, an 
industry once characterized by tens of thousands of small, 
specialized businesses became characterized by hundreds of 
vertically integrated firms.'' Through horizontal integration, 
however, the number today is around 50.
    It is highly questionable whether chicken producers have 
benefited from this level of integration. In the poultry 
production model, competitive market signals no longer reach 
the producer as the integrator dictates both the terms of 
production and the price for live birds. Having served on this 
commission in 1996 with a poultry producer, she said, ``They 
have the live birds. We get the dead ones.''
    The second model is represented by the U.S. cattle 
industry. Here, the production system is characterized by a 
million independent cattle feeders and cattle producers. When 
cattle markets function properly, consumer-driven supply/demand 
determines both the terms of production and price for cattle.
    Today, our cattle markets are not functioning properly. 
Instead, the economic power exerted by the highly concentrated 
beef processing industry upon the live cattle industry is 
becoming alarmingly similar to the poultry model I just 
described.
    Mr. Chairman and members of the committee, I am here to 
tell you that both sides of the packer ownership ban issue can 
draw upon economic studies to support their position. The beef 
industry, as indicated by the NCBA and NPPC's Sparks study is 
well under way to vertically integrate the feeding sector with 
the already integrated processing sector. If this is allowed to 
continue, the outcome will be just like the poultry model. Fed 
cattle prices will be determined not by competitive market 
signals, but rather by the integrators.
    Again, the Sparks study admits that this outcome when it 
states, ``Vertical integration often attracts investors because 
of the negative correlation between profit margins at the 
packing stage and the feeding stage.''
    The risks that feeding margins may become higher and packer 
margins lower are the very risks that the Sparks study says 
packers should control through captive supply. The study 
states, ``Thus, efforts to control risk are one of the most 
important drivers of increased vertical integration and 
coordination.''
    Attached to my testimony is a chart showing the 
relationship between retail beef prices and live cattle prices 
since 1979. This chart shows that until 1994, our industry had 
more confidence.
    The second issue is that the USDA enforce the Packers and 
Stockyards Act. GIPSA was referenced in the March 2002 GAO 
study indicating as far back as 1996--this is a GAO study just 
completed in March--GIPSA could not conclude that the cattle 
industry was competitive yet. GIPSA is the agency guarding 
against unfair anti-competitive practice.
    Importantly, consumers are equally harmed by inaction as 
they have not realized any economic savings from the 
significant lower prices for cattle. In the months of April and 
May of 2000, a record-breaking production year, choice retail 
beef was $3.07 per pound, and fed cattle were $72 dollars. 
During the same period this year, production is down 2 percent 
from 2000, choice retail prices are $3.30. Fed cattle are in 
the low 60's.
    I will tell you what, U.S. cattle producers--I will wrap 
this up as soon as I can.
    Senator Lincoln. You can wrap it up, but absolutely your 
entire testimony will be included.
    Mr. Schumacher. OK. U.S. cattle producers have become so 
frustrated with USDA's inaction that many are seeking relief 
from the judicial branch of government. I am a plaintiff in the 
pending class-action suit Picket v. IBP.
    I am also involved in the recent class-action lawsuit 
stemming from USDA's misreporting of boxed beef prices last 
April and May. While USDA was misreporting boxed beef prices, 
all four of the major packers kept bidding artificially low 
prices for live cattle. We believe the packers who were selling 
the boxed beef were fully aware, and if not their banker was, 
what USDA's mistake was. Yet they continued to underbid for 
cattle.
    As soon as the mistake was publicly announced, live cattle 
prices jumped $2 to $4. U.S. feeders, backgrounders, cow/calf 
producers all lost a ton of money selling into an artificially 
low market like that.
    Producers in South Dakota, Nebraska, and many other States 
are suffering from severe drought. My father weathered droughts 
in the Dakotas because we had a competitive market in which to 
recover a fair value for our market.
    The last severe drought we went through in our State was in 
1988. We called our cows. They brought $50 a hundred. Retail 
prices were $250 a hundred. In today's drought, we are selling 
cows, butcher cows at $35 a hundred. Retail price $331.
    In closing, I would just like to say that all of America, 
as well as myself, appreciates the very fast and appropriate 
action the Senate has taken on the very inappropriate and 
downright unlawful actions that some of our corporations in 
America have taken. You must all understand that cattlemen have 
been suffering the same kind of mistreatment by the meat 
processors for many years. Like the people of America who have 
been cheated out of their retirements and life savings, I want 
you to all know that the treatment by the meat packers today is 
no different.
    Our farmers and ranchers are losing their entire 
livelihoods. We are losing our schools, our business, as well 
as our churches all at the hands of the meat packer. Like we 
witnessed the corporate CEOs of WorldCom and Enron who walked 
away with millions of bonuses, the big four packers are doing 
the same. Just recently at an NCBA convention, President Bush 
stated and let me quote the president----
    Senator Lincoln. Mr. Schumacher, if you could wrap that up?
    Mr. Schumacher. --``I realize there is nobody more central 
to American experience than the cowboy. Cattle raising is not 
only a big part of the American past, I view it as an 
incredibly important part of the American future.''
    Well, Senators and President Bush, if the market structure 
does not change, the American cowboy will be of the past. Thank 
you for your consideration.
    [The prepared statement of Mr. Schumacher can be found in 
the appendix on page 125.]
    Senator Lincoln. Thank you, Mr. Schumacher.
    Mr. Jackson, we welcome your testimony.

  STATEMENT OF PAUL JACKSON, NATIONAL FARMERS UNION, OKLAHOMA 
                         CITY, OKLAHOMA

    Mr. Jackson. Thank you, Senator. Members of the committee, 
I am delighted to be here on behalf of Oklahoma Farmers Union 
and National Farmers Union. I am Paul Jackson, a fourth-
generation agriculture producer from south central Oklahoma. 
With me today is my wife, Kim, and our daughter Courtney.
    Senator Lincoln. Well, welcome to your family. We are 
always glad to have them.
    Mr. Jackson. I farm and ranch with my father and brother. 
Our operation includes 3,000 acres of mostly rented land, 200 
cow/calf pairs, and about 1,800 stockers per year that is 
purchased from local auction barns.
    I want to commend the committee, the chairman, for the 
recently enacted Farm bill. Particularly, I want to thank you 
for including the mandatory country of origin labeling. This is 
a big win for U.S. beef producers as well as consumers across 
this country.
    The Farm bill will help relieve symptoms of the economic 
distress in the countryside, but it cannot stop the 
hemorrhaging. The economic health and vitality of independent 
producers and rural communities depends on reviving competition 
and transparency in the marketplace. The ban on packer 
ownership of livestock is critical. The market influence of the 
packers is tremendous.
    Packer ownership and captive supplies allow packers to stay 
out of markets at strategic times to influence the prices paid 
for open market cattle. To this extent, packers prefer their 
company-owned supplies over that of independent producers. 
Those cattlemen have far less access to markets. The 2000 
cattle price crash essentially resulted in my working an entire 
year for nothing and adding debt. This is very frustrating 
when, at the same time, packers make record profits at our 
expense.
    The spring market slide has been linked to an array of 
issues, including the false report of the foot and mouth 
disease case and a British woman diagnosed with Creutzfeldt-
Jakob's disease. While these events may have contributed to 
market downward fluctuations, the slide began on February the 
19th. We received active bids from buyers on our farm through 
Monday, February the 18th, Presidents Day. The following day, 
the market opened down and proceeded to plunge. Little to no 
interest was given in purchasing cattle unless we gave them 
away.
    When inquiring about the lack of interest compared to that 
demonstrated by cattle bidders in the previous week, one bidder 
replied that buyers were staying out of the market because of 
the packer ban amendment pending in the Farm bill conference 
committee. We continued to hold our cattle, hoping for a price 
recovery, but costing us each day. After finally selling the 
cattle, I cleared my note for the purchase of the stocker 
cattle. However, I lost all other input costs related to my 
cattle operation, leaving me in the hole this year $50,000.
    After deducting the cattle costs, the interest, the 
additional feed cost, and vet supplies, the end result was $30 
per head, leaving us little to service the general operating 
debt. It was a far cry from the $100 average annual projection 
of return. There was and is a slaughter, but it does not 
involve cattle. It involves the equity and elimination of 
producers.
    I cannot provide you hard data there was concerted effort 
by packers to drive cattle prices down in order to eliminate 
the packer ban provision. The circumstances strongly suggest 
that this was more than an isolated market event. It is the 
evidence of the need for the very legislation the packers were 
trying to eliminate.
    Packers doubly triumphed. They defeated the packer ban 
provision, disadvantaging producers and consumers, and then 
scored gains on their ledger sheets by taking advantage of the 
lower cattle purchase cost without a corresponding reduction in 
retail prices.
    What action is needed? Passage of the ban on packer 
ownership of livestock. This legislation should be the top 
priority in helping to improve market performance, increase 
competition, and enhance market access and opportunity for 
livestock producers. No more studies are needed. Producers will 
not benefit from more economic or academic studies. Every day 
we wait, the situation becomes worse in the countryside. The 
time for studying is past. It is time for action.
    Congress must address the issue of captive supplies. We 
recommend legislation that places restrictions on the 
percentage of captive supply. A processor may have and require 
that firm bid pricing be established in forward contracts. We 
need passage of the Competition Title in its entirety. A key 
provision in the Competition Title creates within USDA an 
office of special counsel for competition.
    The special counsel should aggressively investigate anti-
competitive practices and market manipulation occurring in the 
ag sector. It should have the authority and the subpoena power 
to collect concentration-related information. It should be able 
to seek outside counsel when conducting complex competition 
litigation. The Justice Department already exercises this 
authority.
    Congress must modernize the Packers and Stockyards Act to 
work in today's cattle market to provide real protection to 
farmers, ranchers, and poultry growers. The legislation is over 
80 years old now, and we don't market the same way as we did 
back then. Congress must require USDA to modernize its data and 
models to accurately reflect today's beef industry.
    The recent GAO report that has been noted today identifies 
that USDA has not revised its models in over a decade, even 
though much of the data used predates the rapid rise in 
concentration.
    In closing, livestock producers, better than anyone, know 
how to produce a top-quality type cattle. They require open, 
transparent, and competitive markets to benefit from their 
production. I once heard a minister say that as long as there 
is life, there is hope. The hope is fading, and so is the very 
lifeblood of the family cattleman.
    My grandfather used to say that as long as you hold onto 
the cow and the old cow's tail, she would drag you through the 
tough times. Well, I am here to tell you today that that tail 
is a nub, and we are slipping fast.
    I want to say thank you to the committee, Senator Lincoln, 
Senator Lugar, and the chairman for holding this hearing today. 
Thank you.
    [The prepared statement of Mr. Jackson can be found in the 
appendix on page 139.]
    Senator Lincoln. Thank you, Mr. Jackson. As a neighbor to 
my west there in Oklahoma and myself coming from a seventh-
generation Arkansas farm family, I completely understand both 
your passion as well as your interest in this issue because it 
is not just for you, it is for your children and generations to 
follow. We appreciate you very much.
    Mr. Davis.

STATEMENT OF ERIC DAVIS, NATIONAL CATTLEMEN'S BEEF ASSOCIATION 
                PRESIDENT-ELECT, BRUNEAU, IDAHO

    Mr. Davis. Thank you, Senator Lincoln. How do I refer to 
you right now, Madam Chairman or Senator Lincoln.
    Senator Lincoln. It doesn't matter.
    Mr. Davis. OK.
    Senator Lincoln. Senator Lincoln or Madam Chairman, either 
one is fine.
    Mr. Davis. OK, thank you. Thank you, Senator Lugar, and 
thank you to Chairman Harkin for holding this hearing.
    My name is Eric Davis. I am a cow/calf feeder, farmer, 
operator, president of a family corporation in Bruneau, Idaho. 
That is in the southwest corner of the State. I am here today 
representing as the president-elect and representing the 
National Cattlemen's Beef Association.
    You have heard a lot of testimony today, and I think it 
indicates that there is certainly great disparity of opinion 
within the beef industry and the total meat industry about what 
the best direction to go is. I will try to be very brief in my 
comments. I can't read my testimony in 5 minutes, so I will try 
to shorten it up and still hit the high points.
    One thing that hasn't been brought up and it has been 
alluded to a time or two, but there are some fundamentals that 
still play a role in this marketplace, and we can't forget 
them. We do have increased production in all sectors of the 
meat industry this year over last. Yes, we do have fewer 
cattle, and we have higher retail prices. Production is also 
expected to be a record high this year and has been bigger for 
the first half of the year than expected and than it was a year 
ago.
    We have to keep that in mind, too, that there are still 
some fundamentals functioning in this marketplace. At the same 
time, our membership recognizes that historic price 
relationships from farm to wholesale to retail have changed in 
the past few years. No matter what price model you use, you can 
see that there have been shifts in the fundamental 
relationships. We need to find out what has truly caused those.
    NCBA has historically preferred a market forces approach to 
government legislation and regulation, but we have not ever 
hesitated to initiate legislation or regulations to move the 
beef industry forward. For example, our predecessor 
organizations were part of who pushed for the Packers and 
Stockyards passage in 1921.
    We have been behind the implementation of HACCP on 
inspections. We supported mandatory price reporting. We support 
the Beef Promotion and Research Act. Those are just a few 
examples of where we recognize there is a partnership with 
government involved in our business as well.
    We also recognize that we have a responsibility as an 
industry organization to try to provide options to our members 
in ways to attain profitability in other than the more 
traditional way of the cash market. We currently have a think-
tank working. That may be a term that a lot of people don't 
like, but there are alternative indices for negotiating price 
and value that we are looking at now as a result of the 
mandatory price reporting law.
    AMS intends to come last month, and I hope it is very soon, 
with a composite Boxed Beef Cutout that could very well be used 
as a negotiating point on formulas and grids. If the industry 
accepts it as a firm number, I see that as being another place 
to actually negotiate the base value of those formulas and 
grids and not have to rely solely on the cash market. Not to 
replace the cash market, but to be an alternative to it for 
those it may work for.
    We need improved risk management tools, and we are working 
with CME on the current contracts, how to improve them. Also 
looking toward the future for the next generation contract that 
may be a better risk management tool than the ones we have 
today.
    We agree that we need to, as an industry and as a Congress, 
strengthen the packers and stockyards resolve to give them the 
tools they need to fully enforce those things they are charged 
with enforcing, as Mr. Hawks spoke about this morning.
    We support the formation of a dealer trust. We desperately 
want a uniform definition of captive supply between AMS and 
GIPSA, and we have a recommendation for what that would be. We 
support the implementation of the GAO and OIG recommendations, 
and we agree that the whole Packers and Stockyards Act probably 
needs some modernization, just as the previous speaker 
indicated.
    Long term, I know this isn't popular here today with all of 
the witnesses, but our membership says we do need a good study 
by an outside business school that looks at the total protein 
complex as well as the beef industry and how the fundamentals 
have changed and appear to be going to change in the near 
future, so that we can better position ourselves in the 
direction that we take.
    I am not suggesting that everything stop and be in a vacuum 
in the meantime because it won't. There are things happening 
that I have already alluded to that will help move this 
industry forward, maybe not as quickly as any of us would like, 
but I would beseech the committee that to move deliberately 
with careful consideration of the facts as best we can find 
them and to avoid those unforeseen consequences that we have 
seen before.
    We need to remember that beef doesn't have a price safety 
net. We can't afford to make a mistake, and I suspect, if 
anything, I have learned here today is that the ban on packer 
ownership is much more complex issue and not the simple answer 
that some would suspect that it is. I have to disagree with 
those who think that is the only answer. I ask you to be 
careful in your consideration.
    Thank you.
    [The prepared statement of Mr. Davis can be found in the 
appendix on page 146.]
    Senator Lincoln. Thank you, Mr. Davis. We appreciate your 
testimony.
    Mr. Butler, you will wrap up our testimony. Just to 
reassure all of you all, your entire statements will be 
included in the committee's record. I want to make sure you are 
aware of that.

     STATEMENT OF JOHN BUTLER, PRESIDENT AND CEO, RANCHERS 
                RENAISSANCE, ENGLEWOOD, COLORADO

    Mr. Butler. Thank you, Senator Lincoln. My name is John 
Butler, and I am president and CEO of a cattle marketing 
cooperative entitled Ranchers Renaissance. I represent beef 
producers who are involved in every segment of beef production, 
ranging from ranching, feed yard management, feed yard 
ownership, marketing, and marketing of branded beef. I also am 
a cattle producer myself.
    I am here today to briefly explain to you an initiative 
that was created by producers 6 years ago to address the 
fundamental problems associated with commodity beef marketing 
system. In 1997, a meeting initiated by a group of beef 
industry leaders was held to address key marketing problems 
facing the ranching community. They agreed that it would be 
necessary to have a common focus to effectively address 
concerns related to the flawed commodity pricing and marketing 
system. They agreed the focus should be driven by consumers and 
that the consumer would embrace a branded beef product that 
would deliver on a promise.
    It was also agreed that this consistent process would 
require a steady supply of predictable cattle to fill the 
products of a branded line. In addition, being fairly rewarded 
for producing value based on consumer demand was a priority. 
From this initial meeting, it was obvious that developing 
partnerships that cross over from one segment to the other in 
the beef-producing value chain would be the solution to pursue.
    The result of these discussions was Ranchers Renaissance. 
Ranchers Renaissance was conceived as a vertically coordinated 
cattle marketing cooperative. Our mission is to be a customer-
focused, high-quality, integrated beef production system with 
profits derived from increased efficiency and consistent value-
added finished products. Ranchers Renaissance is an example of 
how producers and packers can work together to regain precious 
market share and, most importantly, sustain long-term 
profitability.
    Removing any participant from this system dramatically and 
negatively affects those remaining. Ranchers Renaissance 
membership consists of ranches, feed yards, and a packer/
processor. Our cooperative was designed for large and small 
operators willing to adopt our vision. We have ranches located 
from Florida to Hawaii. Our feed yards are privately owned and 
range in size from 12,000 head one-time capacity to 45,000 head 
one-time capacity.
    After 5 years of working with these producers, I can assure 
you that they have at least two things in common: one, 
tremendously independent and, two, a passionate commitment to 
this vision. We have created a systems approach to beef 
production. The system we have implemented is a series of 
validated production and best management practices that result 
in a higher quality, more consistent product.
    The next step in our process was to merchandise our efforts 
to an end-user and to develop economic drivers to reward 
producers for creating value in a product that the consumer 
demands. We have done so and have now become a critical 
supplier to the brand known as Cattlemen's Collection, which is 
now being merchandised as the entire fresh meat case in over 
350 Kroger stores in the Atlanta market and in the Colorado 
market.
    In the last year, the consumer has changed buying behavior 
in these markets and actually purchased more beef products. In 
addition, the consumer is gaining brand recognition as well as 
brand loyalty. We are now in the process of expanding this 
program into additional regions throughout the country. It is 
important for you to appreciate that the ultimate value in our 
branded product is a result of synergy between segments.
    As an example, the ranchers add value by using the right 
genetics, best management practices, and produce a healthy calf 
to be nominated to the Ranchers Renaissance cooperative. The 
feed yard members add value by managing the cattle in a 
process-verified manner. Our packer/processor adds value by 
disassembling and fabricating these animals to ensure a timely 
delivery of beef products to our end-user as well as utilizing 
their expertise in marketing and merchandising our beef to meet 
the brand criteria is a very critical responsibility of our 
packer partner.
    Shared risk and reward. Traditionally, if a rancher manages 
an animal from start to finish, he assumes virtually all risk. 
Virtually everybody I have heard on the panel today would agree 
with that. In our opinion, we have created a financial model 
that actually shares risk between segments.
    Reward. The beef industry and, ultimately, the American 
consumer have suffered because the commodity cattle marketing 
system, a system that does not send clear economic signals 
relative to value, traditionally poor quality cattle are 
unfairly rewarded as they have been accounted for in the 
average. At the same time, higher quality cattle have not been 
adequately rewarded for the same reason. This commodity system 
has resulted in a very inconsistent product for the consumer.
    In fact, research indicates that one in four eating 
experiences of commodity beef is unacceptable for the consumer. 
Our system has been designed to recognize value, reward those 
responsible for the creation of this value, and provide the 
consumer an exceptional eating experience every time. The ban 
on packer ownership would create restrictions that would force 
us to dismantle what seems to be a very successful system.
    In summary, there are volumes of consumer research that 
indicate that beef demand has halted its decline and, in fact, 
has turned the corner, is on the way up. A significant portion 
of this increase in demand has been the result of successful 
implementation of a number of branded programs which are now 
bringing more value to the consumer and, ultimately, the 
producer.
    We have come a long way, and we have a long ways to go. I 
just caution this group and the committee as you look at 
potential restrictions that would change the way we are 
beginning to operate. You have heard from Eric Davis of the 
National Cattlemen's Beef Association. He mentioned the price 
discovery think-tank. We think that there are some very logical 
recommendations that are coming from this group. I wanted to 
ask the committee to give careful consideration to these 
recommendations.
    Thank you for the opportunity to participate in this 
hearing, and I would be happy to answer any questions at this 
time.
    [The prepared statement of Mr. Butler can be found in the 
appendix on page 168.]
    Senator Lincoln. Well, I would like to thank all of you 
gentlemen for your contribution today and your testimony. I am 
not only a Senator, but I also happen to be a farmer's 
daughter. I also happen to be a mother of two boys who like to 
eat beef and a husband who does as well. I am probably one of 
the few on this committee that does an awful lot of grocery 
shopping.
    [Laughter.]
    I don't know that a whole lot of my colleagues spend as 
much time in the grocery store as I do. I would like to just 
direct a couple of questions, if I may, to this panel based on 
some of that.
    The first being what interest do consumers have in the 
legislation such as the ban on packer ownership and the 
increased enforcement of the Packers and Stockyards Act? To 
what extent have the changes that we have seen in the beef 
market and the cattlemen's market have been driven by consumer 
demand? Anybody that might like to touch on either of those?
    Mr. Butler. I would be happy to take a shot at that.
    Senator Lincoln. Sure.
    Mr. Butler. I appreciate the question. Our little project 
was created out of demands coming from consumers. Consumers 
ultimately telling us that we, as a beef industry, are not 
supplying a product that meets the value equation.
    Essentially, I think that the industry, and I am not the 
only one, there is a number of these alliances that have 
started up to meet that and to answer that question. That if we 
can deliver a more consistent product on a more consistent 
basis, we will be answering the ultimate question of the 
consumer and regain back precious market share that we have 
lost.
    Mr. Davis. Likewise, Senator Lincoln, the long-range plan 
for the National Cattlemen's Beef Association has its eye on 
increasing demand by listening to the consumers express needs 
and desires and watching what happens in the marketplace. The 
problem we have today is that some of those fundamental 
relationships between the sectors have changed, and we need to 
know exactly what before we decide what the answer is to it.
    Mr. Schumacher. Senator Lincoln, the process of the way 
they buy cattle and every State is going to say they have the 
best cattle. I don't think we get many people to argue about 
the upper Midwest, where I am from, that we do have the best 
cattle. The problem is----
    Senator Lincoln. Now, I have a put a chime in there for 
the----
    Mr. Schumacher. For the Montanans. I am in Montana and the 
Dakotas.
    Senator Lincoln. Well, I am from Arkansas.
    Mr. Schumacher. Oh, OK. There we go.
    Senator Lincoln. We have the largest growing cattlemen's 
association out there.
    Mr. Schumacher. Yes. What we have there, Senator, is we 
have the buying of fat cattle today by the big three basically. 
It is simply they are bought on an average, you understand, in 
the cash. I trade about 30,000 cattle a year, fat cattle, to 
the packers.
    As far as consumer driven, I can agree with that that there 
are consumer-driven products out there, but not to the benefit 
of the producer, if the producer is selling them into this type 
of predatory market. If you understand me, Senator.
    Senator Lincoln. I do. I have to say that when I buy my 
beef, there are two places I go. One is a very small, privately 
owned butcher shop in the middle of nowhere in Arkansas, and I 
have no idea where he gets his beef because he won't tell me. 
The other is an extremely large wholesale grocery-type 
situation. That is where I have found the two most reliable 
products that I put in the freezer so I know what I have when I 
serve those three finicky men that I have at home.
    Mr. Schumacher. The label on it is, is it a branded 
product? It is a USDA prime, choice?
    Senator Lincoln. Well, it is USDA. It has to be, I am sure. 
Yes.
    Mr. Schumacher. Well, it is all----
    Senator Lincoln. I mean, I just know that those two people, 
those two places consistently carry the beef that I enjoy at 
home. Now, when I go other places, I am never quite sure. There 
are those two places.
    Mr. Schumacher. Now, just one more thing. You know, I sell, 
we sell about 160,000 cattle through our auction every year, 
and we have Caprock, which is a division of Cargill. We have 
ConAgra, which is Monfort, or I don't know what the connection 
is there no more. Monfort, or ConAgra sold part of the packing 
industry. They don't buy the top of the shelf of the cattle at 
our auction.
    Senator Lincoln. Well, anybody else have comments on that, 
the consumer perspective, either what interest does the 
consumer have or what impact do they have? I mean, that is----
    Mr. Jackson. Yes, Senator. It was kind of ironic that the 
very time that we were beginning to see these plunges, we were 
going to our meat market and talking to our meat manager. At 
the very time that we were seeing the market drop out of the 
bottom, he is telling us he has been notified of the latest 
price increase. There is no, I mean, there is no rhyme or 
reason or correlation there. The consumer, to me, benefits as 
much as the cow/calf guy out there.
    Somewhere along the line, I lost $70, and someone else got 
it this time. That is not to take away from the price that the 
cow/calf guy gets. On average, about $100 per head on the 
stocker operation is about what we shoot for. Some years, we 
will get more than that, depending on what we bought the cattle 
for.
    One thing I did want to just touch on just very quickly, 
one thing we have seen really change in the last year or so is 
those individual stocker producers out there that are going to 
livestock auction markets are now competing with the feeders, 
who, I suspect, has some interesting relationships with the 
packers.
    Now we are competing against someone who is willing to pay 
a little bit more of a premium, and that is very difficult as 
well out there.
    Senator Lincoln. Well, just the last thing that I would ask 
also, and I know that we have dealt with this in my other 
committee a good bit. What changes, if any, have we really seen 
in the export markets of meat and poultry industries? I mean, 
is there anything you would like to comment there in terms of 
our export industries?
    Mr. Davis. If I could?
    Senator Lincoln. Sure.
    Mr. Davis. Depending on what timeframe you are looking at, 
but over the last 20 years, we have had great growth in 
exports. Over the last 6 months, it has been a little tough. It 
looks like we are going to come out ahead of last year again 
right now. The BSE scare in Japan hurt that market 
tremendously.
    Senator Lincoln. Right.
    Mr. Davis. That is just looking at the beef portion of it. 
Of course, Mexico picked up, and it is now our biggest export 
market. One of the other things that has happened is the 
poultry problem with Russia.
    Senator Lincoln. Tell me about it.
    Mr. Davis. Yes, I am sure I don't need to tell you. The 
number is 45 million pounds a week that is not leaving the 
country. That certainly is competition to the product that we 
produce. I hope we can get that fixed soon.
    Senator Lincoln. Mr. Schumacher.
    Mr. Schumacher. Senator, yes, with all this extra poultry 
around, we have seen retail beef, we are seeing it higher than 
a year ago. With 2 percent less production than we had in 2000. 
If you go back to my statement, in the year 2000, $72 fat 
cattle. Today is $60 fat cattle. Our production is less today 
than it was in 2000.
    If you want to look at a picture right there. You 
understand what I am getting at? We are getting about $170 a 
head less today for a fat steer or heifer than we did in 2000, 
when domestic production as well as imports were 2 percent 
higher than they are today.
    Senator Lincoln. Right.
    Mr. Schumacher. Today we are selling at $60, and in essence 
retail is higher. The poultry argument just doesn't fetch 
because, I mean, competing meats, yes. Beef must be selling. It 
is bringing quite a price.
    Mr. Butler. I might just comment on that, a point of 
clarification. We are producing an average of 35 pounds more 
per head today. Even though there are fewer cattle, as Mr. 
Schumacher pointed out, it is actually more red meat. The 
absolute truth of the matter is there is more out there, and 
that is a tremendous impact when you are bringing more total 
pounds to the marketplace on a market price.
    Again, I am not trying to defend mine or any other, but 
when you can deliver on a promise consistently, there are more 
dollars to those that produce it. That is absolutely what we 
want to make sure is whatever restrictions are considered here, 
don't take that away. Don't take that freedom away from the 
cattle industry to have that opportunity to go build those 
systems to create their own value.
    Mr. Jackson. I would probably agree with that in terms of 
cattle being bigger out there, on the other hand, we continue 
to have a beef deficit in this country in imported beef. As we 
say back home, that dog won't hunt.
    Senator Lincoln. That is right.
    [Laughter.]
    Well, I want to thank all of you all for your input, and I 
think that this is certainly an issue that we did take up 
during the Farm bill, and we will continue to focus in on. If 
there is anything that is consistent among this table, it is 
that our producers here in this country are the most efficient 
and effective, and they have done an excellent job at that, and 
we want to continue to work with you so that we can maintain 
that.
    Thank you very much for being here today. The committee 
will be adjourned.
    [Whereupon, at 1:10 p.m., the committee was adjourned.]
      
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                             July 16, 2002



      
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