[Senate Hearing 109-456]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-456
 
       A REVIEW OF THE USDA MANDATORY LIVESTOCK REPORTING PROGRAM

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                               __________

                             JUNE 22, 2005

                               __________

                       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



                   SAXBY CHAMBLISS, Georgia, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa

            Martha Scott Poindexter, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

              Steven Meeks, Majority Legislative Director

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing(s):

A Review of the USDA Mandatory Livestock Reporting Program.......    01

                              ----------                              

                        Wednesday June 22, 2005
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............    01
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............    03
Grassley, Hon. Charles, a U.S. Senator from Iowa.................    02
Nelson, Hon. Ben, a U.S. Senator from Nebraska...................    05
Salazar, Hon. Ken, a U.S. Senator from Colorado..................    06
Stabenow, Hon. Debbie, a U.S. Senator from Michigan..............    05
                              ----------                              

                               WITNESSES
                                Panel I

Clayton, Kenneth C., Acting Administrator, Agricultural Marketing 
  Service, United States Department of Agriculture, Washington, 
  DC.............................................................    06

                                Panel II

Boyle, J. Patrick, President and Chief Executive Officer, 
  American Meat Institute, Washington, DC........................    15
Caspers, Jon, Pleasant Valley Pork Corporation, Swaledale, Iowa, 
  and Past President, National Pork Producers Council............    13
Hommes, Harold, Bureau Chief, Iowa Department of Agriculture and 
  Land Stewardship, Windsor Heights, Iowa........................    17
Robb, James G., Director, Livestock Marketing Information Center, 
  Lakewood, Colorado.............................................    18
                              ----------                              

                                APPENDIX

Prepared Statements:
    Stabenow, Hon. Debbie........................................    28
    Boyle, J. Patrick............................................    40
    Caspers, Jon.................................................    34
    Clayton, Kenneth C...........................................    29
    Hommes, Harold...............................................    42
    Robb, James G................................................    45
Document(s) Submitted for the Record:
    Cachran, Hon. Thad...........................................    52
    Leter from Paul R. Frishknecht (American Sheep Industry 
      Association)...............................................    53
    Letter from the National Livestock Producer Organization.....    65
    Letter from the National Pork Producers Council (NPPC).......    57
    Testimony of the National Barley Growers Association (NBGA)..    67
Questions and Answers Submitted for the Record:
    Harkin, Hon. Tom.............................................    70
    Grassley, Hon. Charles.......................................    72



       A REVIEW OF THE USDA MANDATORY LIVESTOCK REPORTING PROGRAM

                              ----------                              


                        WEDNESDAY, JUNE 22, 2005

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:35 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Saxby 
Chambliss, [Chairman of the Committee], presiding.
    Present or submitting a statement: Senators Chambliss, 
Grassley, Harkin, Stabenow, Nelson, and Salazar.

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    The Chairman. We will move to a hearing on the livestock 
mandatory price reporting law that expires on September 30th of 
this year, and our first panel will consist of Dr. Kenneth 
Clayton, Acting Administrator, United States Department of 
Agriculture, Agricultural Marketing Service, here in 
Washington.
    You have drawn a crowd here, Dr. Clayton. I am sure they 
are coming to hear you and not Senator Grassley.
    [Pause.]
    The Chairman. I welcome you all this morning to our hearing 
on the Livestock Mandatory Reporting Act. I appreciate our 
witness making the effort to be here to provide information and 
testimony, and I want to thank the folks that are listening 
today as well.
    The issue of transparency in livestock markets is a subject 
of concern to all of us who care about U.S. agriculture. The 
sale of livestock and related products accounts for more than 
50 percent of the total farm gate receipts to U.S. agriculture 
producers nationwide. Obviously, the vitality of this sector of 
our agricultural economy is critical not only to the health of 
rural America, but also to our Nation as a whole. In addition, 
the export of high-value livestock products contributes 
significantly to the total balance of trade for the United 
States.
    In the 1980's through the 1990's, the structure of U.S. 
livestock markets began to change, and non-cash methods of sale 
increased. Some in the U.S. livestock industry claimed that the 
existing USDA voluntary livestock price reporting system was 
inadequate. In response, Congress enacted the Livestock 
Mandatory Reporting Act, which established a Mandatory 
Livestock Reporting Program. The Livestock Price Reporting 
Program has now been in place for almost 6 years. The statute 
was scheduled to sunset in 2004. Last year, we extended the 
program until September 30, 2005, in order to allow us to 
carefully consider reauthorization.
    The committee must now decide whether the Act should be 
reauthorized and, if so, with what changes. I look forward to 
receiving the testimony from this excellent group of witnesses, 
and I am certain that the information we receive will help us 
in our decisionmaking process.
    Senator Harkin, of course, is not here at the present time, 
but certainly he will be allowed to make any statement he 
wishes to make at such time as he gets here.
    Would anybody else care to make an opening statement of any 
sort? Senator Grassley.

  STATEMENT OF HON. CHARLES GRASSLEY, A U.S. SENATOR FROM IOWA

    Senator Grassley. Thank you, Mr. Chairman, for holding this 
hearing, and I particularly want to welcome two Iowans who are 
testifying--Harold Hommes and Jon Caspers.
    We are here today in large part with the legislation to be 
reauthorized because way back in 1999, Iowa livestock producers 
urged Congress to pass the Livestock Mandatory Reporting Act, 
the idea to help improve market transparency and giving 
producers the maximum information so that they know they are 
getting a fair price for their product.
    Since mandatory price reporting was implemented by the U.S. 
Department of Agriculture in 2001, I have heard from producers 
across Iowa who question the integrity and the accountability 
of reported prices under this legislation. While there is a 
lack of believability regarding the information generated by 
the mandatory price reporting, nearly all producers across Iowa 
feel strongly that the information would be valuable if the 
program had more credibility and improved transparency.
    Thanks to producer comments and dissatisfaction with the 
current program, Senator Harkin and I offered to initiated a 
Government Accountability Office examination of the Mandatory 
Price Reporting Program. I then conditioned my support of any 
multi-year extension or revision of the mandatory price 
reporting on the GAO study results. Unfortunately, there is a 
growing pressure from packers and packer lackies to act before 
the General Accounting Office report is completed.
    Under the auspices of consensus, a number of groups serving 
packer interests are pushing agendas contrary to the interests 
of Iowa's pork producers and cattlemen. The Iowa livestock 
community believes any congressional action before receipt and 
reserve of the Government Accountability Office's report would 
be premature and would be ill-informed. The goal of 
reauthorizing should be to improve the existing legislation to 
the best of our ability. If the non-partisan GAO is not allowed 
to complete its work before the law is reauthorized, Congress 
will be neglecting the opportunity to review and reflect upon 
an exhaustive study.
    So let me be clear. Livestock producers in Iowa do not 
think it is prudent to move forward without substantive review 
and potential improvement of this current program. Only those 
entities that fear transparency should be fighting for a 5-year 
extension with no consideration of the GAO pending conclusion.
    So I thank you again for holding this meeting, Mr. 
Chairman, and if I could, to you, Mr. Chairman, as you look in 
the weeks ahead that you are considering reauthorization of 
this, besides what I said, I would just make a comment off the 
cuff to you personally, Mr. Chairman, and also to Senator 
Harkin because he is leading the minority on this committee. We 
worked to get this bill passed in the first place, and I know, 
Mr. Chairman, you, just as a Senator, besides being chairman, 
often find various departments of Government maybe not 
following congressional intent on legislation that we pass. 
That is an institutional problem in our system of Government 
over a long period of time. But with this particular piece of 
legislation, I do not think I have seen legislation that we 
have worked so hard to get passed that I have seen end up doing 
less than the previous law did, and we were trying to improve 
upon the previous law. I have never seen a conspiracy between 
the food chain beyond the farmer and the bureaucracy at the 
USDA than the way the regulations gutted the intent of this 
legislation that we passed.
    So upon reviewing this and reauthorizing it, and as a 
Senator, I know somebody that wants the bureaucracy to follow 
what Congress's intent is, that we make sure that the next 
piece of legislation we pass, that the regulations do not gut 
it and even go beyond gutting it, doing contrary to what we 
did, to the point where there is a feeling among our producers 
in Iowa and southern Illinois that that market reporting 
information is even less valuable today than it was prior to 
1999.
    So that is what I would ask the chairman, to consider that 
history as we reauthorize this legislation.
    The Chairman. As the Senator knows, I have great respect 
for his opinion on many subjects, agriculture being certainly 
one of those at the top. And coming from the area of the 
country that you do where livestock is such a critical product, 
know that this chairman values your opinion and your input on 
this topic very highly. And when you are upset about what is 
going on relative to this issue, let me assure you the chairman 
is also upset about it.
    I think we all share that frustration of working hard to 
get good legislation passed, and then all of a sudden the 
bureaucracy does inject itself and put regulations in place 
that change the initial intent of the legislation. So thank you 
for those comments.
    Senator Harkin?

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

    Senator Harkin. Thank you, Mr. Chairman. I just want to 
concur in the comments of Senator Grassley, not only here, but 
if you want to see how the bureaucracy has screwed up what we 
did here in terms of legislation, you look at this and you also 
look at the Conservation Security Program, what they have done 
to that over the last 3 years. Hopefully we will get into that 
some other time.
    Mr. Chairman, when we passed this bill, it was to provide 
more transparency and more competition in the marketplace. We 
implemented it in 2001. We had some growing pains. But I would 
say right now it is an integral part of setting prices paid for 
livestock in the United States, both under contracts and in the 
open bid system.
    As we know, the current authority is set to expire 
September 30th. That is why I commend you, Mr. Chairman, for 
having this hearing and starting the process to review this 
important law.
    I think it is generally agreed that mandatory price 
reporting--MPR, as we call it--is meeting its mandated goal and 
it should continue. The real question is what can be done to 
make the program more transparent and identify areas that will 
strengthen the existing law.
    I have heard from many of my livestock producers who want 
the program to continue, but they have grave concerns that 
there needs to be better oversight and external review of the 
program, improved reporting times for the morning and afternoon 
reports, inclusion of wholesale pork cuts, and an ability for 
producers to verify that their own livestock were accurately 
reported in the system.
    I have also heard concerns that there is insufficient 
coordination at USDA among the specific branches responsible 
for enforcement and compliance activities, which may cause 
price reports to be less accurate than they should be. The lack 
of strong oversight in enforcement at USDA complicates 
Congress' ability to determine whether the problems are due to 
limitations of the law itself or simply the administration.
    So in order to get as many facts as possible for purposes 
of reauthorizing this law, last year both Senator Grassley and 
I requested a Government Accountability Office, GAO, 
investigation to examine issues related to compliance and 
enforcement activities. Currently, GAO is reviewing the 
timeliness of required reports filed by packers, given that 
late filed reports will alter the true prices paid. GAO is 
evaluating USDA's authority to require accurate reporting of 
premiums and discounts by packers. They are also evaluating the 
specific branches responsible for compliance and enforcement at 
USDA to see if they are actually talking to each other and 
sharing information.
    These are just a few of the issues GAO is examining right 
now that may need to be resolved legislatively. The GAO report 
will provide answers that will be very useful for long-term 
reauthorization of mandatory price reporting. Unfortunately, we 
find ourselves with a timing issue since the law will expire in 
September and the GAO report will not be finished until 
December.
    It would be unfortunate for Congress to provide a long-term 
reauthorization without critical analysis and the facts needed 
from the GAO audit that reflect the issues that need to be 
resolved legislatively right now, and preliminary information 
suggests that is the case.
    As the committee moves forward with reauthorization of the 
Livestock Mandatory Price Reporting Act, I look forward to 
working with you, Mr. Chairman, and members of the committee to 
find a suitable solution in regard to the timeframe of 
extending, changing, and perhaps modifying the existing law.
    Thank you, Mr. Chairman.
    The Chairman. Does anybody else have any opening comment 
they wish to make? Senator Stabenow?

STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Thank you, Mr. Chairman. I would like 
first just to submit opening remarks into the record.
    The Chairman. Certainly, without objection.
    [The prepared statement of Senator Stabenow can be found in 
the appendix on page 28.]
    Senator Stabenow. And I just wanted to indicate that I 
support the comments of Senator Harkin and Senator Grassley. I 
think the fact that the GAO is expected to complete a report on 
this very important program by the end of the year and make 
recommendations would say to us that it would make sense for us 
to have an opportunity to look at that report and any 
recommendations or changes before we would extend for another 5 
years this program. So I hope that we will take that into 
consideration as we are working toward the extension of the 
program.
    I would also just indicate that we have had a number of 
things that have come up in relationship to implementing laws 
and implementing parts of the farm bill. We still have not seen 
specialty crop provisions that deal with commodity purchases 
that I authored fully implemented. We could go through a number 
of things where the bureaucracy has not implemented what we put 
into the farm bill and agreed on in a bipartisan basis. And so 
I hope that we will take what time is necessary in order to 
have the opportunity to see the GAO report and move forward 
together on how we choose to proceed with the program.
    Thank you.
    The Chairman. Thank you.
    Senator Nelson?

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

    Senator Nelson. Thank you, Mr. Chairman. I just wanted to 
make one comment because having dealt with bureaucracy as a 
Governor and now seeing it back here from the legislative side, 
it is disconcerting to try to get something through as law only 
to have the intention, the purpose, and the effect of it 
totally frustrated by the bureaucratic approach of if they do 
not agree with it, they will change it. And that is not their 
focus.
    The challenge we have is trying to work with--and I hope 
Dr. Clayton and others will take the message to USDA, and I am 
sure the Secretary is fully aware of it as well, and that is, 
we cannot be dealing with what I call ``weebees''--``We be here 
when you come, we be here when you go''--and will want to do 
the things the way they want it done rather than the way that 
law establishes the requirements. And so I hope that that 
message will be taken back not simply on this. I have been as 
frustrated about this as anybody has. I join with Senators 
Harkin and Grassley in the comments. But I would say it would 
be true of other instances as well. It is not the role of the 
bureaucracy to improve or write law, but to implement law, 
whether they agree with it or not.
    And so I would just add my comments to what I think are 
some fairly stern comments about not having to put on the 
legislation a clause at the end saying, ``And we mean it.''
    Thank you, Mr. Chairman.
    The Chairman. Senator Salazar?

  STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM COLORADO

    Senator Salazar. Chairman Chambliss, I will submit my 
statement for the record, and I just want to say a couple of 
quick things.
    First, Mr. Robb, who is here from Colorado, I very much 
welcome you here to our Nation's capital and look forward to 
your testimony later on in the panel.
    Second, I associate myself with the comments from both 
Senator Grassley and Senator Harkin and my colleagues with 
respect to the concerns relating to moving fast forward without 
the benefit of having the results of the GAO investigation 
before us.
    The Chairman. Thank you.
    We welcome again Dr. Kenneth Clayton, who is the Acting 
Administrator for USDA's Agricultural Marketing Service. Dr. 
Clayton holds a Ph.D. in agricultural economics from Purdue 
University and has served American agriculture in a number of 
Government positions, most recently as the Associate 
Administrator for Marketing Programs for the USDA Agricultural 
Marketing Service and as Acting Administrator.
    Dr. Clayton, we are pleased to have you here today. I will 
have to tell you that we have a vote that we are expecting any 
minute on the Feinstein amendment, for Senators' information, 
so we probably are going to have to interrupt your testimony at 
some point in time. But we welcome you. We look forward to your 
comments.

    STATEMENT OF KENNETH C. CLAYTON, ACTING ADMINISTRATOR, 
  AGRICULTURAL MARKETING SERVICE, UNITED STATES DEPARTMENT OF 
                 AGRICULTURE, WASHINGTON, D.C.

    Mr. Clayton. Mr. Chairman, members of the committee, thank 
you very much. I certainly appreciate the invitation to appear 
before you this morning to discuss the Livestock Mandatory 
Reporting Act. I will be fairly brief in my opening remarks. 
Hopefully that will coincide with the schedule you have 
identified.
    As you know, USDA launched the Livestock Mandatory Price 
Reporting Program on April 2, 2001. Under this program, USDA's 
Agricultural Marketing Service receives and manages some 
500,000 data elements each day from packers and does so under 
very tight time constraints. These data are reported by USDA in 
over 100 daily, weekly, or monthly reports that cover market 
transactions for fed cattle, swine, lamb, lamb meats, and beef. 
Currently, there are 116 packers and importers that are 
required to report. All reporting packers are subject to 
regular and ongoing audits of their records.
    Clearly, the Livestock Mandatory Price Reporting Program 
has resulted in the release of additional information on 
pricing, purchasing, and supply and demand conditions for 
livestock and meat. We are now reporting 85 to 90 percent of 
the boxed beef market, 75 percent of the lamb meat market, 75 
to 80 percent of the steer and heifer cattle market, 60 percent 
of the lamb market, and 95 percent of the hog market.
    With over 4 years of experience with the Livestock 
Mandatory Price Reporting Program, USDA, the participating 
packers, and the users of data provided through this program 
have been provided an opportunity to gauge the strengths and 
the weaknesses of the reporting system. For our part, USDA has 
modified and added reports to provide information in a manner 
that is most helpful to those who use it. We have had a chance 
to learn how to manage a system of electronic data transfer 
that has moved literally hundreds of millions of data elements. 
We have learned how to screen and process some 500,000 data 
elements each day moving them into report formats for release 
within a single hour of receipt.
    Through our experience in implementing this program, USDA 
has identified several areas in which program improvements and 
enhancements could be made. For example, providing more 
flexibility in packer and USDA reporting times could be 
considered as it might allow program reports to better reflect 
changing market conditions. Also, certain statutory definitions 
do not delineate as clearly as they might the data to be 
reported. In other instances, data are required to be submitted 
by packers even though they could be easily calculated from 
other data already being provided.
    We are also aware that industry groups have been 
considering possible changes to the Livestock Mandatory Price 
Reporting Program. Reportedly, a variety of changes have been 
considered, including: modifying the timing for data 
submissions and the issuance of reports to reduce reporting 
burdens and allow reports to better reflect market conditions; 
separately reporting sows from other swine as well as cows and 
bulls from steers and heifers; and expanding coverage to 
include transactions involving pork products.
    The President's fiscal year 2005 budget includes funding 
for the Livestock Mandatory Price Reporting Program, and, of 
course, as you have noted, the program is authorized through 
this current fiscal year. USDA is currently developing a 
legislative proposal that would extend the Act through fiscal 
year 2007 and in doing so address some of the concerns and 
changes that could enhance the effectiveness of the program.
    During this 2-year extension, USDA plans to conduct an in-
depth analysis to evaluate whether mandatory price reporting 
has addressed the original purposes set forth in the Act. This 
analysis will provide a basis for USDA recommending any future 
reauthorizations of the Act.
    Mr. Chairman, in conclusion, it is USDA's objective to 
provide timely, accurate, and unbiased market information to 
buyers and sellers of agricultural products, for livestock and 
meat as well as the many other agricultural products that we 
cover. Such information benefits our farmers and ranchers as 
well as other participants in the marketplace. Implementation 
of the Livestock Mandatory Reporting Act clearly has resulted 
in the release of more information which, in turn, has 
contributed to greater transparency in the marketplace.
    Mr. Chairman, thank you again for the opportunity to appear 
before you today. We look forward to working with the committee 
and interested industry and producers in the reauthorization 
process. I will be happy to answer any questions that you or 
other members of the committee might have for me.
    The Chairman. Thank you very much, and I am going to yield 
my initial questioning time to Senator Grassley for questions 
hopefully before we go vote.
    Senator Grassley. Thank you, Mr. Chairman.
    Dr. Clayton, there could be a few packers who have tried to 
skirt the law. So out of fairness to those firms doing it 
right, does a report exist to document the violations reported 
by the Agricultural Marketing Service audit and compliance 
personnel, say like in the recent 2-year period of time or any 
period of time you might want to suggest?
    Mr. Clayton. Senator, let me answer it this way: The data 
do exist. They do not exist in a report form per se. I can 
certainly address in very brief fashion, if you would like, 
some of those results here this morning even.
    Senator Grassley. Maybe just a short--well, the fact that 
they exist is good enough, and I will follow up with you on 
that point later on.
    Mr. Clayton. Certainly.
    Senator Grassley. How many firms and how many fines have 
been levied against packers? And if a violation is found, what 
happens in terms of follow-up to correct the behavior of the 
violating packing company?
    Mr. Clayton. There is, in fact, a very regimented process 
when so-called non-compliances are identified through the audit 
process. There is a very structured timetable in terms of 
follow-up with the packer where we may have found a non-
compliance. There is an expectation that corrections will be 
made within particular periods of time.
    Over the course of the program, we have, in fact, issued 18 
warning letters to participating packers notifying them that if 
corrections were not made immediately, there would be legal 
action to follow. And in two instances, we, in fact, have 
assessed civil penalties against two packers for $10,000, which 
were held in abeyance provided that no further violations were 
committed within a 1-year period of time.
    Senator Grassley. OK. Are you aware of the 1,150 missing 
cattle reported to us from Nebraska? Did the Department 
investigate the incident? And what did the Department discover? 
And then, last, if a farmer has a concern as to how his or her 
livestock were reported, could they get confirmation that the 
livestock they sold was reported correctly by the packer?
    Mr. Clayton. Senator, if I might, let me start with the 
second one. I think I can answer that one more quickly.
    We do, in fact, welcome inquiry by producers, ranchers who 
have sold cattle and might have some concern about whether or 
not that transaction was picked up in our reports. We have 
fielded those questions since the beginning of the program. We 
continue to do that. We, in fact, encourage that, within some 
reason, as an adjunct to our compliance program. The ``within 
reason'' part, obviously it takes people, it takes time to 
research those inquiries. At some point they become 
overburdening, but as a general statement, we do welcome those 
kinds of questions, and we do very much try to respond to them.
    As to the Nebraska issue, I am very much aware of the 
concern that was raised. We did, in fact, investigate that. The 
cattle in question, in fact, were included in our reports. They 
were properly reported on the front end at the time that the 
transaction was negotiated. I think part of the problem there 
was that the producer, in fact, had negotiated a transaction 
with a packer, but under the definitions of the statute, that 
particular arrangement was a forward contract, not a 
``negotiated transaction.''
    I think understandably the producer looked to our 
negotiated price reports and was concerned that his transaction 
was not there. In fact, it was not because it should not have 
been. It was a forward contract. It was properly reported to us 
by the packer. We further researched it and found the lots of 
cattle in question showed up at the point of slaughter. We 
could trace them through the reports. There was a small 
reporting problem as to the way those cattle were reported to 
us at the closure of the transaction in that they were reported 
on a dressed basis rather than a live basis. They should have 
been reported live because that is the way the transaction was 
originally set up.
    But I think importantly, none of that transaction fitted 
into the negotiated price data that we provide, which I believe 
is probably the more important benchmark that folks use in 
developing contractual relationships.
    Senator Grassley. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Gentlemen, the vote has been called. It 
started at 11:02. I think perhaps we ought to go vote and come 
straight back.
    [Recess.]
    Senator Grassley. Mr. Chairman, I used my 5 minutes, but 
could I just have 60 seconds to discuss something with you as 
well as Mr. Clayton, Dr. Clayton.
    The Chairman. Certainly.
    Senator Grassley. I asked this question, if a farmer has a 
concern as to how his or her livestock were reported, could 
they get confirmation that the livestock they sold was reported 
correctly to the packer. Now, I do not have any reason to doubt 
that Dr. Clayton gave us the answer that he believes is the 
right answer, but let me read from an e-mail that was between a 
Brittany Dreier located for the Market News Service there in 
St. Joe, Missouri, to one of the next witnesses, Harold Hommes. 
It says, about this can we get this information, it says, 
``Under the law''--and I am not going to read the whole thing 
here, but, ``Under the law I am not allowed to tell anyone 
whether those cattle showed up or not''--meaning the 1,150 
missing cattle that I was talking about. ``This is confidential 
information that is protected by law. I could track them down 
to make sure that they did show up, but I would not be allowed 
to tell you about it. However, if the details of the 
transaction were fully disclosed, I could at least walk through 
the reporting process and where the cattle that were purchased, 
that purchase type would show up.''
    So, you know, we have an e-mail saying that this is 
confidential information and the cattle producers cannot get 
this information. And Dr. Clayton is telling us that it is 
allowed. So I assume Dr. Clayton, higher up in the bureaucracy, 
is reporting the accuracy of the law, and so I would expect 
farmers to be able to get this information in the future, or 
else if Dr. Clayton has to stand corrected, then he would stand 
corrected. But I believe him in his testimony.
    The Chairman. Dr. Clayton, do you have any comment on that?
    Mr. Clayton. Mr. Chairman, if I could just briefly. The 
statute is very specific in terms of disclosure of any 
information that USDA receives under this program to the extent 
that criminal penalties apply to any of our staff who divulge 
any of that information that is provided to us.
    The way that we approach this issue is that if an 
individual producer who has entered into a transaction 
involving sale of cattle, hogs, what have you, wants to 
approach us about a transaction in which he or she was 
involved, if they can demonstrate to us that they are who they 
purport to be, and if they can give us something to go on in 
terms of a sales invoice or something of that sort, we will 
work with that individual producer to determine whether or not 
a particular transaction is reflected.
    Can we talk to third parties about whether individual 
transactions are there or not? Our read of the law would be 
that it restricts us from doing that.
    Senator Grassley. Thank you.
    The Chairman. Senator Harkin?
    Senator Harkin. Thanks, Mr. Chairman.
    Dr. Clayton, the livestock mandatory price reporting law 
and the final rules states that livestock are to be reported at 
the packing plant before the application of any premiums or 
discounts.
    Now, I have heard concerns from a lot of producers that the 
base price paid by packers is not always being reported as just 
delivered to the plant. Again, this may not sound that 
important to many people, but this issue can have profound 
negative effects on the livestock marketplace.
    For example, if a packer pays, say, $71 a hundredweight for 
hogs but reports to USDA that it bought them for $68 a 
hundredweight, by splitting off the $3 for a premium, it 
ultimately depresses the prices paid for all other producers in 
the marketplace, both for contracts and open market. USDA 
should have the authority to stop, refuse to report, or correct 
questionable manipulation of premiums and discounts that affect 
the true base price paid by packers.
    My question is: To what extent is USDA aware of this 
problem? And what has USDA done within its authority to stop, 
correct, or refuse to report questionable base prices paid to 
producers?
    Mr. Clayton. Thank you, Senator. That is an area where we 
have had to go through a learning process with those required 
to report. As you are aware, there are premiums that may apply 
for a variety of reasons. A portion of them relate to the value 
of the carcass itself, and it would seem to us that the statute 
makes clear that those are to be separately identified. Where 
some arguable ambiguity arose at the outset is what happens in 
terms of things like transportation costs and should that sort 
of thing be included or not included in the price which is 
reported.
    Our view----
    Senator Harkin. Excuse me. May I interrupt you there? What 
transportation costs?
    Mr. Clayton. Well, you may have a load of hogs that are 
purchased in California and delivered to the Midwest for 
slaughter. What is the price of those hogs delivered? I mean, 
you need a common denominator, I guess is the point, and I 
think the expectation is that that price will be reported on a 
delivered basis, which would mean price as they would arrive in 
the Midwest.
    There was some confusion, particularly early on, as to what 
you did with that transportation cost. We have issued guidance 
and have at every turn, when we have become aware of it, 
emphasized that the price reported should include that 
transportation. We force people to add that in so that you are 
comparing apples to apples when you are talking about a 
delivered price.
    And certainly, Senator, if I could add, if there are 
continuing concerns that are being expressed, we certainly 
would appreciate those being brought to our attention, as that 
is something that we have tried to be vigilant on and would 
certainly like to continue to be so.
    Senator Harkin. Correct me if I am wrong. Am I interpreting 
your statement as saying that the only aspect of this that you 
are aware of is just the transportation costs, I mean in terms 
of deductions for premiums and things like that being reported? 
You don't have any evidence or any knowledge of any of this 
taking place outside of the transportation issue?
    Mr. Clayton. I used transportation as an example, and 
certainly there may be other premiums aside from the carcass 
merit itself. Our position has been that all non-carcass 
premiums should be reflected in that delivered price. The 
carcass merit premiums are reported separately as the statute 
would suggest.
    Senator Harkin. Are you suggesting that there is too much 
vagueness in the definition of a non-carcass merit premium in 
the law? Are you suggesting that? I am asking this just to find 
out whether or not this is one area that we really have to 
pay--attention to, and if we have to make some changes in the 
law on that?
    Mr. Clayton. Senator, if I could, I think arguably there is 
a bit of vagueness. We certainly have applied our authority in 
carrying out that law to try to ensure that all of those non-
carcass premiums do get reflected in the price. Certainly any 
additional guidance from the Congress would be helpful.
    Senator Harkin. Well, and likewise, if your Department has 
any suggestions on how we might tighten this up to make it work 
better--I am sure I speak for all of us--we would be open to 
take a look at what you might suggest for us.
    Mr. Clayton. Certainly we would be happy to work with you 
on that.
    Senator Harkin. Thank you, Dr. Clayton.
    Thank you, Mr. Chairman.
    The Chairman. Let me ask a question or enter into a dialog 
with my colleagues here before I ask a question. Senator 
Grassley, Senator Harkin, you all have requested this GAO 
study. Obviously you have some real concerns about the way the 
law is being implemented today. My understanding is that you 
all would like to see us extend this law maybe for another 6 
months or so until we get that study back before we make any 
final decision. Is that correct?
    Senator Grassley. The answer is we do not want to write a 
permanent extension of the law for 5 or 6 years until we have 
it.
    Senator Harkin. That is right.
    The Chairman. And is there the potential to correct 
problems that you folks want addressed by regulation as opposed 
to rewriting the law?
    Senator Harkin. I do not know the answer to that question. 
That is why I was asking Dr. Clayton about this. This is one 
aspect that I just happened to focus on, the premiums and 
discounts.
    Now, we have put that in the law, but somehow maybe--I have 
heard that maybe it is a little too vague, but maybe they can 
handle it on regulations. I do not know. Again, this is part of 
that GAO study that is coming back. That will help us decide 
whether or not we need to do something legally in the law or 
whether it is just regulation. I cannot answer that question.
    The Chairman. OK. Dr. Clayton, my question to you is: What 
effect will a 6-month, a 9-month extension, whatever we think 
is appropriate, of the current law have at USDA?
    Mr. Clayton. As long as the authority is in place, we will 
certainly keep the program running. We clearly would be 
concerned were there to be any lapses in that authority 
because, clearly, that is disruptive to us in trying to run the 
program. It is disruptive to those who have to report. 
Certainly in the final analysis, you know, more certainty is 
preferred to less in terms of the underlying authority for this 
program, as any other, I suppose.
    The Chairman. So your position primarily is that you need a 
law, a continuing law in place for whatever period of time the 
committee may agree to.
    Mr. Clayton. That would be true, yes.
    Senator Harkin. That is what happened last year, is what 
you are talking about, that 2-month or 3-month lapse.
    Mr. Chairman, that happened last year because of our 
appropriations process. Since this 1-year extension expires on 
September 30th, we would have to do something prior to that, 
hopefully, so that we do not have that 2- or 3-month lapse. I 
do not know when our appropriations bills will get done. We 
have to look for some way of doing this so that it is in place 
before September 30th.
    The Chairman. Is any appropriation involved in the 
implementation of this?
    Senator Grassley. Well, I assumed that we did it on the 
appropriations bill just as a matter of convenience.
    Senator Harkin. That is right, yes, but then it got held 
up. I mean, it would get done in time. That was all.
    The Chairman. OK.
    [Pause.]
    Senator Harkin. They hot-lined it and got it through 
separately.
    The Chairman. OK.
    Senator Harkin. Mr. Chairman, I would assume--I was just 
informed by my staff--I had forgotten all the details of how 
that went through, but it was to go on appropriations, but 
appropriations got held up, so they hot-lined it and got it 
through as a separate bill. And I assume that since they hot-
lined it last year and it got through OK, I assume it would be 
all right this year. We might do the same thing this year.
    The Chairman. OK. Well, that is an issue we need to stay 
plugged in--as soon as we get back from the July break, we need 
to make a decision on this. OK, great.
    Dr. Clayton, thank you very much.
    Mr. Clayton. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Clayton can be found in the 
appendix on page 29.]
    The Chairman. Our second panel is comprised of four 
individuals, and if you all will please come forward. Mr. Jon 
Caspers, Pleasant Valley Pork Corporation, Swaledale, Iowa; Mr. 
J. Patrick Boyle, our friend from the American Meat Institute 
here in Washington; Mr. Harold Hommes, Bureau of Marketing 
Chief, Iowa Department of Agriculture and Land Stewardship, 
Windsor Heights, Iowa; Mr. James Robb, Director, Livestock 
Marketing Information Center, Lakewood, Colorado.
    Gentlemen, to all of you, welcome to the committee this 
morning. We appreciate your coming to share your testimony with 
us. Mr. Caspers, we are going to start with you, and, 
gentlemen, we will go right down the line relative to your 
testimony.

  STATEMENT OF JON CASPERS, PLEASANT VALLEY PORK CORPORATION, 
 SWALEDALE, IOWA, AND PAST PRESIDENT, NATIONAL PORK PRODUCERS 
                            COUNCIL

    Mr. Caspers. Good morning, Mr. Chairman, Mr. Ranking 
Member, and members of the committee. I am Jon Caspers, a past 
President of the National Pork Producers Council and a pork 
producer from Swaledale, Iowa. I operate a nursery-to-finish 
operation, marketing approximately 18,000 hogs per year.
    Thank you, Mr. Chairman, for scheduling this hearing to 
review the Mandatory Livestock Price Reporting Program. I ask 
that my complete written statement be submitted for the record.
    I am here this morning representing the views of the 
National Pork Producers Council and our members nationwide. 
NPPC appreciates the opportunity to discuss the reauthorization 
of the MPR.
    Following tremendous structural changes and severe 
financial crises in both the pork and beef industries in the 
mid- and late 1990's, many producers believed that the prices 
reported under the old voluntary system were not representative 
of the true market price for animals. Producers were looking 
for a more transparent and accurate price discovery mechanism. 
At congressional direction, producers and packers hammered out 
species-specific consensus MPR programs for hogs, cattle, and 
sheep. The end result was the Livestock Mandatory Reporting 
Act, or LMRA, or what we now refer to as the Mandatory Price 
Reporting Program, which was included in the fiscal year 2000 
agricultural appropriations bill.
    Livestock producers believe that a properly functioning 
price reporting system should be a mirror to the marketplace. 
Such a system would not affect the market, but would clearly 
and without distortion reflect market conditions. The MPR 
program has provided good and accurate information largely due 
to the breadth of its coverage on the vast majority of over 100 
million hogs, 35 million cattle, and 3 million sheep and lambs 
slaughtered each year in the U.S.
    Producers value the amount and breadth of the information 
generated by the system. We know more today about the number 
and prices of animals sold under various price arrangements 
than ever before. We also know more about the physical 
characteristics such as weights, grade, and leanness of animals 
than ever before. This information was not available under the 
previous voluntary reporting system.
    We believe that it is imperative that Congress reauthorize 
the LMRA for a 5-year period well before its September 30, 
2005, expiration date.
    Last fall, NPPC, along with the American Farm Bureau 
Federation, the National Cattlemen's Beef Association, and 
American Sheep Industry Association, submitted joint requests 
to the Senate and House Ag Committees to extend MPR provisions 
for a period of 1 year. The request was made so that each group 
could consider recommendations for reauthorization.
    As you recall, the extension of the Act was caught up in 
last-minute business in both the House and Senate right before 
adjournment, and it expired on October 22, 2004.
    Producers were extremely concerned about the expiration and 
the potential loss of market information. Most pork packers 
continued to provide the data required by the Act; however, 
they had no legal obligation to do so. Congress should not put 
producers and packers in such a position again, especially when 
Congress has a clear consensus request for action and ample 
time to act.
    Since late last year, NPPC and these other groups, at the 
request of the House Agriculture Committee, have worked to 
reach a consensus to support a 5-year reauthorization. On May 
6th of this year, they sent a joint letter to the House 
Agriculture Committee chairman and ranking member requesting 
speedy action on the reauthorization of MPR, including three 
pork industry consensus enhancements supported by NPPC and pork 
packers. The three consensus enhancements are: No. 1, a new 
section to increase cull sow and boar coverage to over 80 
percent of all sow and boar packing capacity; No. 2, moving 
reporting and publication times for prior-day slaughter data to 
later in the day in order to enhance accuracy; and, third, 
reporting the daily distributions of net prices within narrow 
portions of the price range that will provide additional detail 
to the market and more fully characterize price distributions.
    In summary, the LMRA generates better information than we 
have ever had before about prices, quantities, and practices in 
livestock markets. This data supports decisions that are being 
made today and will affect livestock markets for years to come. 
Uncertainty about the nature and availability of market 
information in the future makes these decisions more difficult 
and more risky. We must have a stable business environment and 
foreknowledge of the type of market information available to 
producers. Therefore, we believe it is imperative for Congress 
to reauthorize the Act for hogs, cattle, and sheep for 5 years 
before September 30, 2005, and to include the three pork 
industry consensus enhancements outlined in my testimony.
    Thank you, Mr. Chairman and members of the committee, for 
your time and attention.
    [The prepared statement of Mr. Caspers can be found in the 
appendix on page 34.]
    The Chairman. Thank you.
    Mr. Boyle, always good to see you.

 STATEMENT OF J. PATRICK BOYLE, PRESIDENT AND CHIEF EXECUTIVE 
        OFFICER, AMERICAN MEAT INSTITUTE, WASHINGTON, DC

    Mr. Boyle. Thank you very much, Mr. Chairman. Always a 
pleasure to be here. I appreciate the opportunity to testify 
before this committee representing the American Meat Institute. 
We have submitted a statement for the record, and I would ask, 
Mr. Chairman, that it be included.
    The Chairman. Without objection.
    Mr. Boyle. Also, as an aside, before I begin a summary of 
my remarks, I would like to thank you, Mr. Chairman, for your 
continued involvement and engagement in trying to restore trade 
of U.S. beef exports relating to our BSE crisis. I appreciate 
your continuing conversations with the Secretary earlier today 
and your ongoing efforts to try to get us back into those 
important export markets, so thank you.
    AMI members include 250 of the Nation's meat and poultry 
food manufacturing companies. Collectively, they produce 95 
percent of the beef, pork, veal, and lamb food products in the 
United States, and three-quarters of the turkey processed here 
in our country.
    The meat-packing industry is heavily regulated and 
intensely scrutinized by the Federal Government with respect to 
competitive practices within the industry and with respect to 
our relations with livestock producers.
    Long before the Livestock Mandatory Reporting Act became 
law, AMI opposed this unfunded mandate due to the added costs 
borne at the packing and processing level, costs that would 
generate negligible new information, most of which was already 
available through voluntary price reporting programs. 
Currently, AMS has hundreds of different commodity reporting 
programs ranging from 390 fruit and vegetable reports, 37 
cotton reports, 51 dairy reports, 94 poultry reports, 31 
tobacco reports, all of them voluntary and the vast majority of 
them submitted on a daily basis.
    Meat and livestock are the only reporting programs that are 
mandatory. The viability and reliability of these voluntary 
commodity reporting programs, let alone the high volume of 
cattle and hog contracts traded on the Chicago Merc each day, 
are a compelling illustration that mandatory livestock 
reporting is an unnecessary Federal mandate.
    I observed, Mr. Chairman, firsthand the scope and 
effectiveness of the price discovery mechanism through these 
voluntary market news programs during my 3-year tenure as the 
Administrator of the Agricultural Marketing Service in the late 
1980's.
    For that reason, I concur with some of the comments made 
earlier today by Senator Grassley, his comments to the effect 
that in some instances the mandatory generated information has 
actually been less helpful to producers than the information 
previously available to them through a voluntary program. AMI's 
view prior to the passage of the law comports with the comments 
and observations of Senator Grassley. Mandatory reporting was 
not likely to provide producers with more useful and helpful 
information; rather, it would just impose additional costs on 
packers and processors.
    I do, however, Mr. Chairman, wish to differ with some of 
the other comments made here today regarding the implementation 
of the statute at the Department of Agriculture.
    The statute passed by Congress more than 5 years ago was 
highly prescriptive, giving USDA very little implementation 
discretion. In fact, the statute is an 80-page law. That is a 
lot of statutory provisions to convert a long-standing 
voluntary program simply into a mandatory program.
    For example, on page 59 of this statute, there is a 
reference to mandatory reporting for live cattle. That 
provision sets forth specifically the number of reports each 
day a packer must submit per plant; that would be two; the time 
of day that the packing plant must submit the report each day; 
that would be no later than 10 a.m. Central time and no later 
than 2 p.m. Central time; and the prices for cattle that must 
be reported. They need to include the type of the purchase, the 
quantity of the cattle, the quantity of the cattle purchased on 
a dressed weight basis, on a live weight basis, a range of the 
estimated live weights of the cattle purchased, an estimate of 
the percentage of the cattle purchased that were of a quality 
grade of choice or better, and any premiums or discounts 
associated with weight, grade, or yield, or premiums and 
discounts associated with any type of purchase, which I think 
was the focus of Senator Harkin's area of questioning just a 
few moments ago.
    This is a fairly detailed and prescriptive statute, and 
that is one of the reasons that complying with it and 
implementing it has cost the packers and processors a fair 
amount of money to develop the appropriate reporting systems.
    Although AMI has always opposed this mandate, our 
organization worked, I believe, constructively and 
cooperatively with the Department of Agriculture and our member 
companies to help implement and continue to comply with the 
law. For example, last year, when the law expired for about a 
month or so, AMI recommended strongly to all of its member 
companies that they continue to report, and to the best of my 
knowledge, they continued to report voluntarily during that 4-
week suspension of the mandatory statute.
    Despite our long-standing opposition to the mandate, we do 
have political antennas at the American Meat Institute. We 
acknowledge the political reality of support to reauthorize 
this statute for an additional 5 years. We have been working 
with our membership as well as with livestock producers to 
develop consensus legislation to reauthorize the Act.
    As Mr. Caspers stated, AMI is one of the groups that has 
participated in that discussion, has developed support for 
consensus language, and we would encourage the Congress to act 
before the current statute expires to reauthorize this mandate 
for 5 more years.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Boyle can be found in the 
appendix on page 40.]
    The Chairman. Mr. Hommes.

 STATEMENT OF HAROLD HOMMES, BUREAU CHIEF, IOWA DEPARTMENT OF 
    AGRICULTURE AND LAND STEWARDSHIP, WINDSOR HEIGHTS, IOWA

    Mr. Hommes. Good morning, Mr. Chairman, Senator Harkin, and 
members of the committee. If I might, Mr. Chairman, I would 
also like to recognize my other Senator from Iowa, Senator 
Grassley.
    My name is Harold Hommes. I am the Marketing Bureau Chief 
at the Iowa Department of Agriculture and Land Stewardship. We 
sincerely appreciate your seeking our input into this important 
discussion.
    My responsibilities at the Department include the reporting 
of cash grain and livestock markets for the State of Iowa. We 
do this through a formal cooperative agreement with the Market 
News Branch of USDA Ag Marketing Service. The Livestock 
Mandatory Price Reporting Act of 1999, however, is a uniquely 
Federal responsibilities that we at the State level have no 
involvement.
    We believe that the Act has contributed significantly to 
better and more visibly market information for producers and 
may even be a contributing factor in the relatively less 
volatile market conditions that now exist for livestock 
producers.
    However, from our discussions with various producers and 
producer groups, we have come to believe that some changes to 
the Act are warranted.
    No. 1, if you would allow me to highlight our concerns, the 
inability to confirm that a trade is reported. One primary 
concern is the inability of an individual producer to confirm 
or verify that his or her livestock transaction was indeed 
reported and reported correctly to the AMS. During recent 
communications with the AMS staff at the St. Joseph office, I 
was informed that even if a producer were to share his or her 
actual settlement sheets with the AMS, they would not be able 
to confirm that the sale was reported and/or reported 
correctly. The personnel in that office explained to me that 
they and USDA counsel believe that they do not have the 
authority under the existing law to share that information, 
even with the producer who is part of the transaction. If that 
assessment is indeed correct, I believe we need to consider 
changes to the law.
    No. 2, transparency and enforcement appear to be lacking. 
Under the current framework, there are no provisions or 
requirements for public accountability of violations. The 
Livestock Mandatory Price Reporting Act does have provisions 
for enforcement and fines, but it appears that no one is 
actively engaged in enforcement of the law. One option would be 
to implement scheduled fines and make public specific 
violations. This would ensure impartial enforcement of the law 
and enhance compliance.
    We would suggest that an annual independent and out-of-
house audit be conducted and made public. At minimum, the audit 
should include the nature and number of findings and how they 
are resolved.
    No. 3, the inclusion of wholesale pork cuts. For the past 5 
years, we have remained concerned about the lack of inclusion 
of wholesale pork cuts in the existing law. Despite the 
inclusion of boxed lamb and boxed beef in the law, we still do 
not have mandatory reporting of pork cuts. We would ask your 
support to have pork primals, sub-primals, and case-ready pork 
public sector included in any new or updated version of the 
Mandatory Price Reporting Act. This should be included even in 
a 1-year reauthorization.
    No. 4, an ongoing investigation. As you are no doubt aware, 
there is now an ongoing Government Accounting Office 
investigation of the Mandatory Price Reporting Act. It is my 
understanding that a final report will be provided later this 
year. We would urge you to give the findings of that report due 
consideration. We are hopeful that their report may provide 
more insight into some of the concerns that we have raised here 
today.
    Some groups are now advocating a 5-year extension to the 
existing law. It is our recommendation, however, that the 
authorization be extended for only 1 year to ensure the 
valuable input of the GAO. It seems that moving forward without 
that input would be nothing short of a waste of taxpayer 
dollars.
    By waiting 1 year, we would all be in a much more informed 
position, and together we would likely be much more successful 
in framing an improved program.
    In conclusion, I would like to reiterate our ongoing 
support for the Livestock Mandatory Price Reporting Act of 
1999. Our primary concerns like with the issues surrounding 
transparency, enforcement, and the additional of wholesale pork 
cuts. Rather than extending the Act for a longer period of 
time, we urge patience. We are willing to wait another year in 
the hope that the GAO will provide additional guidance and 
recommendations.
    I am hopeful that the House Agriculture Committee will join 
you in seeking the valuable input of the GAO.
    Thank you again for this opportunity. I appreciate your 
time. I will yield.
    [The prepared statement of Mr. Hommes can be found in the 
appendix on page 42.]
    The Chairman. Thank you.
    Mr. Robb.

   STATEMENT OF JAMES G. ROBB, DIRECTOR, LIVESTOCK MARKETING 
             INFORMATION CENTER, LAKEWOOD, COLORADO

    Mr. Robb. Mr. Chairman, members of the committee, I am very 
pleased to be here today to share insights from the members and 
staff of the Livestock Marketing Information Center on the USDA 
Mandatory Livestock Reporting Program. The Livestock Marketing 
Information Center is a cooperative effort of 24 land grand 
universities, six USDA agencies, and associate livestock 
industry organizations. We have been providing a continuous 
flow of market analysis and data for 50 years. Each cooperating 
institution has a designated professional who serves as a 
member of the Center. This effort allows reduction in 
duplication of effort while maintaining regional and local 
expertise on livestock markets.
    We feel it is a high priority that all aspects of mandatory 
price reporting legislation be continued. Further, that 
continuation should be for a multi-year timeframe, which will 
reduce market and market participant uncertainty, including 
those of USDA agencies.
    From a broad perspective, market transparency provides a 
foundation for efficient markets. Transparency occurs when 
relevant prices and transaction conditions throughout the 
marketing chain are readily available. Government available 
price reporting has proved successful because: access is 
ensured to all market participants; second, concerns about 
manipulating the data are minimized; and, third, it obviously 
greatly reduces the costs of individuals maintaining background 
information on market conditions. USDA has had major 
involvement in livestock price reporting since the 1940's. 
Until MPR was legislated for livestock in 1999, the system was 
based on voluntary price reporting, with collection, 
evaluation, and synthesis of data by professional USDA market 
reporters. Largely because of changes that were occurring in 
the slaughter hog and cattle marketing arrangements, including 
formulas and forward contracts not being captured with the 
traditional voluntary system, MPR was legislated.
    Today, the MPR system effectively provides timely and 
critical livestock market information on prices that do reflect 
the underlying supply and demand conditions in the marketplace. 
But early on, the system had several problems, and the 
evolution of the marketing reporting system has taken time. 
Problems included defining confidentiality, accuracy of 
reports, terminology used in those reports, and report release 
times. Each year, MPR data, though, has become more and more 
integrated into the livestock and meat markets. Small local 
cooperative producer groups that focus on organize and natural 
niche markets rely on MPR to set base prices for their 
slaughter animals. Also, large multinational companies use MPR 
to set their invoicing and automatic billing of many of their 
customers. So changing major aspects of the price reporting 
system is not only costly for USDA agencies, but also for the 
firms that must compile, report, and also distribute and 
synthesize that data into their marketing information systems.
    Compared to the prior voluntary price reporting system, MPR 
has greatly enhanced price discovery and has added to the depth 
and breadth of available market data and information. Accuracy 
of the price data for the livestock and meat industry has 
improved. The major tradeoffs have been in the area of 
timeliness of data, especially slaughter animal reports. But 
market participants and analysts raise fewer and fewer of those 
questions each year since MPR has been implemented, indicating 
that in many ways they have compensated for some of those 
changes.
    Overhaul of the system we do not think is necessary. In 
fact, that could be a detrimental step. But the livestock and 
product markets continue to evolve, and the price reporting 
system must also continue to evolve.
    Based on what we know today, improvements can be made, but 
we feel no major changes are required in MPR. The 
recommendations we would make here should be considered but not 
a necessary requirement for continuation on a multi-year basis 
of existing legislation. I will highlight three areas that 
consistently are brought up by our members and staff.
    First of all, this wholesale price reporting on pork cuts 
and pork items which is not included in the current 
legislation, the consensus is that that should be added to MPR.
    MPR has many dimensions, and one of those other dimensions 
has to do with retail price reporting. That is the secondary 
data system and does not require retailers to actually report 
data, and that has been a test pilot program done by Economic 
Research Service, which is now completed. We think that needs 
to be an ongoing effort. And if we could suggest one addition 
to that effort, it would be to include along with beef, lamb, 
poultry, pork, and other prices, dairy products with that 
system.
    Thank you very much.
    [The prepared statement of Mr. Robb can be found in the 
appendix on page 45.]
    The Chairman. Thank you.
    Senator Harkin.
    Senator Harkin. Jon Caspers, let me go over something with 
you here. I have got some reports here that I want to cover.
    I have heard concerns from producers about the timing of 
reports. Now, in the law we have the morning report and we have 
the afternoon report. It is very prescriptive. And then there 
is a comprehensive report, called the prior day's report. So 
there are three reports--morning, afternoon, prior-day report.
    Now, what has happened, since the reporting times are not 
equal for the morning and afternoon reports, many bids, I have 
found, are not being made until after the release of the 
afternoon report. So you have the afternoon report, then you 
get a lot of bids that come in. But bids made after the release 
of the afternoon report are not known until the next day with 
the release of the prior-day report.
    So I have heard of situations where buyers will wait to bid 
higher-priced hogs until late in the day to avoid reporting 
until the next day. So this causes higher-priced hogs to not be 
included in either the morning or afternoon reports.
    So it sets up an inherently tilted system for producers 
since most contracts are based on the morning report. By 
comparing the morning, the afternoon, and the prior-day 
reports, the morning report is almost always the lowest, and 
yet contracts are based on that. So I have here three reports 
from in June. Here is the morning report, base price, weighted 
average, $67.98. I have here the afternoon report, weighted 
average, $68.78. Then I have the prior day's report that came 
out, weighted average, $69.64. But the contract is based upon 
the morning report, which was $67.98. But the prior day's 
report said the weighted average was $69.64.
    So, again, I ask this again: Are you aware of the problems 
with the morning report? Will the National Pork Producers be 
making any recommendations about this and how we might get a 
better reporting system? I know we prescribed it in the law, 
but I am just wondering. This is not fair. This strikes me as 
inherently unfair.
    Mr. Caspers. Well, just to say, as producers, I think we 
have recognized that for a long time, and I suspect that the 
same conditions existed under the old voluntary program. There 
were producers that had suspicions of the same thing. And, in 
fact, under the old voluntary program, pigs that were sold 
after the publishing of the afternoon report never actually 
even had a home to be reported in. And so today, with the 
prior-day report that comes out early in the morning, it does 
capture all the trades that take place.
    I think Dr. Glen Grimes down in Missouri has studied that 
quite often, and his recommendation--and he has talked in 
public sessions and been published widely in the trade press--
has suggested that producers not base their contracts on the 
morning reports and, in fact, more and more as they recognize 
the differences, are trying to base their contract prices on 
reports that encompass the entire volume of hogs traded. And if 
you go and use the prior-day report that comes out early 
morning, then your contract prices would be based on the entire 
amount of hogs traded in that business day and is probably a 
much sounder basis in which to price your pigs under contract.
    Senator Harkin. Does anyone else have any views on this?
    Mr. Boyle. I would just concur with what Mr. Caspers said. 
From a packing perspective, we concur with his observations.
    Senator Harkin. So are you saying that contracts then 
should be shifted and based on the prior-day report?
    Mr. Boyle. No, but I think Mr. Caspers is correct in his 
observation that more producers are working with packers to 
base their contracts on the morning report of the prior-day 
activities.
    Senator Harkin. That is what they are doing now.
    Mr. Boyle. They are moving in that direction, yes.
    Senator Harkin. But I am saying that the morning report is 
inherently unfair.
    Mr. Boyle. No, the morning report of the prior day's total 
sale.
    Senator Harkin. Oh, I see, the prior-day report.
    Mr. Boyle. That would encompass the morning and the 
afternoon report.
    Senator Harkin. OK, the prior. Well, but how are we going 
to do this since contractors usually take it or leave it, 
either take the morning or not? I am asking do we need to do 
something legislatively. I mean, contracts are basically take 
it or leave it contracts.
    Mr. Boyle. I have a view of contracts from a packer's 
perspective, and I think it is the generally recognized view in 
contract law that contracts are the arrangements between two 
consenting parties. We have an increasing number of contracts, 
as you well know, Senator, with our pork producers as well as 
with cattle producers, that are designed to provide benefits to 
both parties under the terms of that contract.
    Mr. Caspers. If I could add also, Senator, we have tried to 
make our members and producers aware of some of the obstacles 
and recommend that they use the prior-day report. Certainly it 
is a better report to base that on, and those contracts have 
been available and a lot of packers have actually either moved 
away from the morning report to the afternoon report or the 
prior day. But we have been able to get those contracts put in 
place.
    Senator Harkin. So you are saying, you are telling me that 
from the producer's standpoint, there is nothing that we need 
to look at legislatively to deal with this problem?
    Mr. Caspers. Well, the difficulty is you are dealing with 
the marketplace, and if you change the times of reporting, the 
market just adjusts. And I think you have the same--buyer and 
the seller in the marketplace all have different goals.
    Senator Harkin. Right.
    Mr. Caspers. And so it is just the marketplace at work, and 
we have told producers for a long time they maybe ought not to 
use the morning price report because it is a very thin market, 
it is based on very few pigs. Certainly the buyers are 
reluctant to push the bids, and later in the day if they are 
short, you know, they start to bump prices. It is just the 
marketplace at work.
    But I think, again, it is an education process. We tried to 
convince our producers that they need to move to--if they are 
basing a contract on some kind of a published report, it needs 
to be based on the entire scope of pigs that are reported under 
the price system.
    Senator Harkin. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Senator Grassley.
    Senator Grassley. I would start out with Mr. Caspers. You 
know, because there are some differences of opinion between 
like some members of the Iowa--and I suppose other States as 
well, from the National Pork Producers Council position on this 
legislation, could you tell me approximately or how you 
determine at the national level to support an extension of this 
legislation the way you have as opposed to some of your other 
producers?
    Like, for instance, do you know how many pork producers 
groups support your recommendations of the National Pork 
Producers Council?
    Mr. Caspers. Well, I am not aware of a poll we have done of 
our State organizations. I believe you are correct with the 
Iowa organization and their opinion. I am probably not as 
familiar with Senate procedures as I could be, I guess, but it 
occurs to me that last fall, with the difficulties of getting 
the legislation reauthorized, we had a gap there where we had 
no legislation in place, and I think there is quite a risk to 
the marketplace that you could essentially have a collapse of 
the system, I guess, without that underlying legislation in 
place. And there are so many contracts our producers have today 
that it appears in my mind, I think, that a longer extension 
would just give more certain to the marketplace and we would 
have that underlying legislation in place. And if after this 
the GAO report, whenever that becomes available, if there are 
fundamental problems that are found or changes that ought to be 
made, certainly at that point there is nothing to prohibit USDA 
or Congress themselves from enacting those changes.
    Senator Grassley. Could I also ask you then, along that 
line, we have been talking in your case 5-year extensions; 
Senator Harkin and I have just been suggesting here an 
extension long enough to get the GAO report in for 
consideration. And my question would be: If some producers 
support a 5-year extension, wouldn't they also support a 
shorter extension, let's say 6 months or 1 year, to consider 
the findings of the GAO report?
    Mr. Caspers. Well, again, our suggestion is that you extend 
it for a long period of time and still be able to come back and 
take a look at the report and, if need be, you and/or USDA 
could act to correct any problems that are found under the 
investigation of the GAO.
    Senator Grassley. OK. And, Mr. Hommes, I am going to follow 
on to a question that Senator Harkin asked a couple other 
people, and just for your comment and consideration. Have you 
heard any complaints from producers regarding how formula price 
pigs are calculated?
    Mr. Hommes. Yes, I have, sir. We believe that in both cases 
it is a limitation that AMS has to live with, and I think the 
law itself requires a 14-day requirement for negotiated hogs. 
Anything beyond that is traded a number of ways. It could be 
traded as packer-owned. It could be traded as a forward 
contract, formula-priced hog. But the 14-day negotiated basis 
is clearly a concern in that if it were longer--and I noted 
that Mr. Robb's comment that there could be other provisions 
put in place. We think that moving to a 30-day or possibly a 
60-day, there are more cash-negotiated contracts that are 
certainly more than 2 weeks ago. And they should be treated as 
that.
    Unfortunately, the law now requires that they be put into 
another form, and it does somewhat tie AMS's hands, and I think 
there are certainly ways that that could be remedied. And, 
unfortunately, the cash trade is what they are settled off of 
so much, oftentimes a 3-day rolling average or a weighted 
average of what USDA publishes. So it is very important that 
that be accurate and that, you know, when we are looking now at 
only 10 percent of all the market hogs sold currently are 
reported that way under a cash-negotiated basis, if we can move 
from 14 to 30 days, we will probably have 20 percent of the 
hogs reported on a cash basis.
    So, yes, I think there are some things, but I recognize 
that AMS does have some limitations on how they are treated. 
But we need to have an open discussion on that. It is one of 
the issues that I would hope might be highlighted by the GAO.
    Senator Grassley. And my last question would be to Mr. 
Boyle. I am anxious to understand from your point of view the 
fact that your organization previously had opposed mandatory 
price reporting, so today you are before us supporting only a 
5-year extension. What changed your organization's position?
    Mr. Boyle. It is a stunning posture in which to find the 
American Meat Institute, isn't it, Senator? We actually for a 
number of reasons, which I articulate in my statement, opposed 
the mandate due to added cost without discernible benefits. I 
think some of your producers in Iowa have the same point of 
view, and you articulated that at the start of this hearing.
    But at the end of a 5-year statutory period with a 1-year 
extension that the Congress passed to keep the program in 
place, it seems inevitable, politically inevitable to us that 
the Congress is going to reauthorize the mandate, we would hope 
for another 5 years. The huge costs that are incurred by 
packers and processors, the largest costs incurred by packers 
and processors, are incurred at the implementation phase of a 
new regulatory obligation. Those costs have been incurred. We 
have ongoing maintenance costs going forward, but the big 
expenses are behind us. We are complying with the law. It is 
part of our way of doing business. We are supportive of 
reauthorizing the law.
    I will be perfectly candid with you, Senator. We would like 
a law that is reauthorized with minimal changes in the existing 
requirements, because new requirements, additional obligations 
raise the specter of once again additional implementation costs 
for the packers and processors. And if a bill of that sort 
would begin to emerge through the legislative process, my board 
might want to reconsider their support for reauthorization. But 
if it is the current bill with minimum changes, we are spending 
the money now to comply; we are happy to continue to do so 
under the current regulatory and statutory regimen.
    Senator Grassley. Thank you, Mr. Chairman.
    The Chairman. Gentlemen, it appears that the biggest 
disagreement among our witnesses is the time for which the 
current law ought to be reauthorized, and you have heard our 
colloquy here today among Senator Grassley, Senator Harkin, and 
myself relative to waiting for the GAO report to come back 
before we have a lengthy extension or reauthorization of 
current law.
    I would just like, for the sake of clarity and the record, 
for each of you to coment very quickly on what you think about 
the time line for reauthorization. Should it be for 5 years or 
do you have a problem with doing it for 6 months, a year, or 
whatever it takes to get the GAO study back and incorporate the 
ideas that may come out of that? Mr. Caspers?
    Mr. Caspers. Yes, Mr. Chairman, we have asked for a 5-year 
extension, and it is essentially just to put some certainty 
into the marketplace. If I as a producer have a contract where 
the price is based on a published report of USDA and all of a 
sudden the underlying legislation goes away, even whether it is 
just somewhat inadvertently because it gets tied up in last-
minute business at the end of the session, I think that 
represents quite a danger to our price structure and market 
reporting system and how we price pigs. And a lot of producers 
are rightly concerned about that. So that is why we have asked 
for the 5-year extension so that we do not have to face these 
annual reauthorizations, essentially.
    It would seem to me that, irregardless of whether it is 
extended for 1 year or 5, it really does not impact the ability 
to come back and change the law or the regulations if need be 
based on the GAO report. I think we are certainly supportive of 
that report. I think it needs to be analyzed carefully when it 
comes out, and if there are improvements or adjustments that 
need to be made, we would certainly be willing to take a look 
at those and offer any recommendations. But certainly it does 
not impinge Congress's ability to come back and change the law 
or USDA's ability to change rules and regulations, even if it 
is extended 5 years.
    The Chairman. Mr. Boyle?
    Mr. Boyle. Well, AMI agrees with NPPC and with NCBA, the 
American Sheep Industry Association, the Farm Bureau 
Federation. We have all worked together for the last 2 years to 
review existing law, critique the statutory language and the 
USDA regulations. We are comfortable with a reauthorization of 
5 years of the existing statute with some modest changes that 
we have agreed upon through those 2 years of discussions. And 
for the reasons that I articulated a moment ago to Senator 
Grassley's question, we have incurred the costs to implement 
this program. Right now it is a cost of doing business on a go-
forward basis. We are paying those costs. We are complying with 
the regulation. The program is here today. We are comfortable 
to see it here for another 5 years.
    The Chairman. Thank you.
    Mr. Hommes?
    Mr. Hommes. In my statement, I indicated that we were 
supporting--we are asking for a 1-year extension. Frankly, 
there is no magic timeframe. All we are asking for is that the 
wisdom and the counsel of the GAO be given proper 
consideration, and that everyone have time to look at that 
report, give it 60, 90 days. Once that occurs, we can have 
again a more open debate, all be more informed of what they are 
doing right, what may be going wrong. I think we can have this 
discussion and everyone can have their input. And at that point 
whether it is 1 or 5 years, we wouldn't have any problem.
    The Chairman. OK. Mr. Robb?
    Mr. Robb. In my formal testimony, Mr. Chairman, we wrote 
down 4 years, but we are really not tied to that number. We 
think multi-year is important, and that is really input from 
the 24 land grand universities livestock extension economists 
that deal with this every day. And so we are looking--we are 
recommending that you consider a multi-year timeframe. Thank 
you.
    The Chairman. OK. Well, I think, gentlemen, you can see by 
virtue of the fact of who is here asking questions where the 
interest primarily comes from relative to this issue. And 
certainly Senator Harkin and Senator Grassley, as the primary 
proponents of the original law, are going to have significant 
influence on the members of this committee as to what we do. 
And I do not know what we will do. I think we will all need to 
get our heads together in a short time to make that decision.
    But the one thing, I think, that all of you can take to the 
bank with you, as you say, Mr. Boyle, the political landscape 
is such that we are going to have this law. So whether we do it 
for 1 year with the idea of coming back with a 5-year extension 
or whether we do 5 years with the idea of modifying based upon 
the GAO report, I don't know. We will have to make that 
decision. But from a certainty standpoint, I think it is pretty 
certain that this law is going to be in place and we are going 
to have to deal with it.
    I really appreciate all of you being here. I appreciate 
your patience in allowing us to interrupt the process for a 
vote. And I thank you very much.
    We will leave the record open for 5 days for any additional 
questions or any additional statements that needed to be 
submitted by anyone.
    With that, this hearing is concluded.
    [Whereupon, at 12:20 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                             June 22, 2005



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             June 22, 2005



      
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                         QUESTIONS AND ANSWERS

                             June 22, 2005



      
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