[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]






        REVIEW OF THE MARKET STRUCTURE OF THE LIVESTOCK INDUSTRY

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

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 17, 2007

                               __________

                           Serial No. 110-10


          Printed for the use of the Committee on Agriculture
                       www.agriculture.house.gov





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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania             BOB GOODLATTE, Virginia
    Vice Chairman                        Ranking Minority Member
BOB ETHERIDGE, North Carolina        TERRY EVERETT,Alabama
LEONARD L. BOSWELL, Iowa             FRANK D. LUCAS, Oklahoma
JOE BACA, California                 JERRY MORAN, Kansas
DENNIS A. CARDOZA, California        ROBIN HAYES, North Carolina
DAVID SCOTT, Georgia                 TIMOTHY V. JOHNSON, Illinois
JIM MARSHALL, Georgia                SAM GRAVES, Missouri
STEPHANIE HERSETH, South Dakota      JO BONNER, Alabama
HENRY CUELLAR, Texas                 MIKE ROGERS, Alabama
JIM COSTA, California                STEVE KING, Iowa
JOHN T. SALAZAR, Colorado            MARILYN N. MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              RANDY NEUGEBAUER, Texas
NANCY E. BOYDA, Kansas               CHARLES W. BOUSTANY, Jr., 
ZACHARY T. SPACE, Ohio               Louisiana
TIMOTHY J. WALZ, Minnesota           JOHN R. ``Randy'' KUHL, Jr., New 
KIRSTEN E. GILLIBRAND, New York      York
STEVE KAGEN, Wisconsin               VIRGINIA FOXX, North Carolina
EARL POMEROY, North Dakota           K. MICHAEL CONAWAY, Texas
LINCOLN DAVIS, Tennessee             JEFF FORTENBERRY, Nebraska
JOHN BARROW, Georgia                 JEAN SCHMIDT, Ohio
NICK LAMPSON, Texas                  ADRIAN SMITH, Nebraska
JOE DONNELLEY, Indiana               KEVIN McCARTHY, California
TIM MAHONEY, Florida                 TIM WALBERG, Michigan

                           Professional Staff
                        Rob Larew, Chief of Staff
                     Andrew W. Baker, Chief Counsel
            William E. O'Conner, Jr., Minority Staff Director

        .........................................................

                               __________

             Subcommittee on Livestock, Dairy, and Poultry

                   LEONARD L. BOSWELL, Iowa, Chairman

KIRSTEN E. GILLIBRAND, New York      ROBIN HAYES, North Carolina
TIM HOLDEN, Pennsylvania                 Ranking Minority Member
JOE BACA, California                 MIKE ROGERS, Alabama
DENNIS A. CARDOZA, California        STEVE KING, Iowa
NICK LAMPSON, Texas                  VIRGINIA FOXX, North Carolina
JOE DONNELLY, Indiana                K. MICHAEL CONAWAY, Texas
JIM COSTA, California                JEAN SCHMIDT, Ohio
TIM MAHONEY, Florida                 ADRIAN SMITH, Nebraska
                                     TIM WALBERG, Michigan

              Chandler Goule, Subcommittee Staff Director

        .........................................................

                                  (ii)





























                            C O N T E N T S

                              ----------                              
                                                                   Page
Boswell, Hon. Leonard L., a Representative in Congress from the 
  State of Iowa, opening statement...............................     1
    Prepared statement...........................................    48
Hayes, Hon. Robin, a Representative in Congress from the State of 
  North Carolina, opening statement..............................     3
    Prepared statement...........................................    51
Walz, Hon. Timothy J., a Representative in Congress from the 
  State of Minnesota, prepared statement.........................    53
Peterson, Hon. Collin C., a Representative in Congress from the 
  State of Minnesota, prepared statement.........................    55

                               Witnesses

Link, Administrator James E., Grain Inspection, Packers and 
  Stockyards Administration, United States Department of 
  Agriculture, Washington, D.C...................................     4
    Prepared statement...........................................    59
Muth, Ms. Mary, Program Director for Food and Agricultural Policy 
  Research, RTI International, Research Triangle Park, North 
  Carolina.......................................................     6
    Prepared statement...........................................    67
Doby, Ms. Kay, Poultry Grower, on behalf of Campaign for Contract 
  Agriculture Reform, Cameron, North Carolina....................    14
    Prepared statement...........................................    76
Crabtree, Mr. John, Development and Outreach Officer, Center for 
  Rural Affairs, Lyons, Nebraska.................................    16
    Prepared statement...........................................    91
Buis, Mr. Tom, President, National Farmers Union, Washington, 
  D.C............................................................    17
    Prepared statement...........................................    95
Stallman, Mr. Bob, President, American Farm Bureau Federation, 
  Washington, D.C................................................    19
    Prepared statement...........................................   115
Taylor, Mr. Robert, Alfa Eminent Scholar, Auburn University, 
  Auburn, Alabama................................................    21
    Prepared statement...........................................   119
Philippi, Ms. Joy, Pork Producer, on behalf of National Pork 
  Producers Council, Bruning, Nebraska...........................    33
    Prepared statement...........................................   129
Roenigk, Mr. William P., Senior Vice President, National Chicken 
  Council, Washington, D.C.......................................    35
    Prepared statement...........................................   139
Queen, Mr. John, President, National Cattleman's Beef 
  Association, Waynesville, North Carolina.......................    36
    Prepared statement...........................................   144
Boyle, Mr. J. Patrick, President and CEO, American Meat 
  Institute, Washington, D.C.....................................    38
    Prepared statement...........................................   152

                           Submitted Material

Sents, Mr. Allan, Director, United States Cattlemen's 
  Association, Immediate Past President, Kansas Cattlemen's 
  Association....................................................   165
Stevenson, Mr. Randy, Director, Ranchers-Cattlemen Action Legal 
  Fund (R-CALF USA), United Stockgrowers of America, Wheatland, 
  Wyoming........................................................   168
National Association of State Deparments of Agriculture, 
  Washington, D.C................................................   191
Buis, Mr. Tom, President, National Farmers Union, Washington, 
  D.C............................................................   195
Muth, Ms. Mary, Program Director for Food and Agricultural Policy 
  Research, RTI International, Research Triangle Park, North 
  Carolina.......................................................   197
Boyle, Mr. J. Patrick, President and CEO, American Meat 
  Institute, Washington, D.C.............. Contained in Committee Files






























 
    HEARING TO REVIEW THE MARKET STRUCTURE OF THE LIVESTOCK INDUSTRY

                              ----------                              


                        TUESDAY, APRIL 17, 2007

                  House of Representatives,
      Subcommittee on Livestock, Dairy, and Poultry
                                   Committee on Agriculture
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 11:00 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Leonard 
Boswell [Chairman of the Subcommittee] presiding.
    Members present: Representatives Boswell, Gillibrand, 
Kagen, Baca, Costa, Hayes, Rogers, King, Smith, and Walberg.
    Staff present: Chandler Goule, Scott Kuschmider, John 
Riley, Sharon Rusnak, Debbie Smith, Kristin Sosanie, John 
Goldberg, Alise Kowalski, Pam Miller, Pete Thomson, and Jamie 
Weyer.

STATEMENT OF HON. LEONARD BOSWELL, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF IOWA

    Mr. Boswell. We will call the meeting to order, and we 
thank you for coming and the interest and the presence here 
today. We appreciate you joining us, Mr. Hayes and myself. I 
would like to give a special thanks to our witnesses for the 
preparation you have made and for testifying before us today to 
offer insight into the market structure of the livestock 
industry. I appreciate this opportunity to hear what the 
current issues facing the market structure of the livestock 
industry are and how those issues are affecting producers 
across our country. The overarching issues that I hope this 
hearing does not forget is that we, as the agricultural 
community, must ensure that we have a safe and plentiful food 
supply. We need assurances that producers can make a living, 
while the processors and packers have enough product available 
to provide consumers in the United States with a reliable and 
safe food supply.
    With land prices at record numbers, the livestock industry 
is one of the last sectors of the agricultural industry that 
young, first-time farmers are able to get involved in. We need 
to ensure that there is adequate market access for those 
producers to make a living. The livestock industry has been 
extremely beneficial to rural development. I see this all over 
my home State of Iowa. We must ensure that the livestock 
industry stays strong and continues to contribute to rural 
communities.
    Over the last 20 years, the livestock industry has become 
more and more consolidated. A prime example is in the poultry 
industry. This concentration in the livestock industry raises 
many concerns on what the future may hold for independent 
producers. Unfortunately, this is not a cut-and-dry issue. 
There are many factors that contribute to the structure of the 
livestock market, and today I hope this hearing will address 
many of those. We will hear testimony today that the packing 
industry not only influences the livestock market, but 
dominates it with over 80 percent of beef, 60 percent of swine 
and almost 60 percent of the poultry markets, dominated by four 
packers. After reading through the testimony submitted today, 
many argue that there is adequate competition in the livestock 
industry. But when 60 to 80 percent of the respective livestock 
industries are dominated by four packers, when is this 
concentration cause for concern? Now or when it hits 90 
percent?
    Independent livestock producers often contend that the lack 
of buyers of their livestock and the use of captive supplies 
for packers has a negative impact on the price they ultimately 
receive for their animals. Because packers can utilize their 
own animals for daily slaughter needs, they purchase fewer 
animals on the spot market. Some contend the reported price for 
livestock does not accurately reflect prices paid to the 
producers. A concern I hear over and over again from producers 
in my district is that large packers can control market prices 
using the packer ownership. Let us say a packer owns tens of 
thousands of heads of cattle. That packer buys on the open 
market for four days, but when the prices get too high, they go 
and slaughter the cattle that they own, thus depressing market 
prices. How is this not manipulation in the open market? And 
how do we as an industry regulate this?
    We also looked at study done by USDA to review the issue. 
RTI International was contracted to study the market structure 
of the livestock industry and recently published their 
Livestock and Meat Marketing Study. I am interested to hear 
what RTI has to say and was very interested in the results of 
the study. I also look forward to hearing what our producer 
panels have to say. I understand this is a difficult issue to 
discuss, especially when the industry is extremely 
concentrated, but I appreciate your willingness to share your 
story and your candor.
    After reading through the testimony for this hearing, two 
issues grabbed my attention, animal identification and country 
of origin labeling. There are various opinions out there about 
both of those topics and some discussion has centered on 
merging the two together. This is a new approach in attempting 
to address these issues and we welcome discussion on this 
issue. One thing that many of the witnesses focused on in their 
written testimony was alternative marketing arrangements (AMA), 
such as forward contracts, making alliances between packer 
ownership. I have concern if these AMAs actually help the 
market or suppress the market price. I welcome conversation 
about these issues and their problems and concerns of, or lack 
thereof, regarding these issues.
    As we started this farm bill discussion, there has been 
much talk if there will be a competition title in the farm 
bill. I welcome the opportunity to further that discussion with 
varying opinions. Thank you again for joining us here today. At 
this time, I would like to turn it over to my friend and 
colleague, Mr. Hayes, from North Carolina, for opening remarks 
he would like to make.

  STATEMENT OF HON. ROBIN HAYES, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF NORTH CAROLINA

    Mr. Hayes. Thank you very much, Mr. Chairman. We are 
friends and it is a pleasure to work and serve with you, 
particularly on behalf of agriculture and the livestock segment 
that we are looking at this morning. Chairman Boswell has 
called today's hearing to discuss the structure of the 
livestock and poultry industry. We will hear from the US 
Department of Agriculture's Grain Inspection, Packers and 
Stockyards Administration, GIPSA, whose role is to regulate and 
maintain fair competition among the livestock industry. Also 
joining USDA is RTI International, based in Research Triangle 
Park, North Carolina, who conducted an extensive study on 
livestock and meat marketing. Our other two panels consist of 
producer groups and various associations interested in the 
economics of the livestock sector, who will share their 
perspective on these issues.
    Let me start off by assuring all of those present, and 
listening today, that I support the full and rigorous 
enforcement of all laws intended to ensure a fair, orderly and 
transparent livestock market function. While we may differ 
about the future shape of policy in the area of market 
structure, I know of no disagreement about the fundamental need 
for strict enforcement of the authority under the Packers and 
Stockyard Act.
    After resisting the temptation in the last farm bill to 
further insert the Federal government into the structure of 
livestock markets, Congress made a commitment in the conference 
report to look into this matter further. For this reason, in 
June of 2003, I took this subcommittee to Grand Island, 
Nebraska to examine this topic. While most of the testimony 
that day centered on the specific idea of banning packer-owned 
livestock, discussions ranged across virtually all the ideas 
regarding industry structure and we had a very informative 
hearing. For me, the most important impression from that 
hearing was a wide divergence of views held by the witnesses. 
We had testimony from both producers and packers from Nebraska 
and my home State of North Carolina, and while all witnesses 
shared a common desire for a profitable livestock production 
sector, with an orderly market operation, there was virtually 
no consensus along any lines about whether the proposed changes 
would improve conditions or harm those they were intended to 
help. In 2003, Congress has recently appropriated $4.5 million 
in funding to produce GIPSA's Livestock and Meat Marketing 
Study, which was just published on February the 16th by RTI 
International. We did not have the benefit of this report at 
our hearing in Nebraska and I look forward to today's testimony 
on the study's findings.
    Mr. Chairman, as you and other members of the committee, 
the industry structure issues invoke passion and long-held 
beliefs from livestock producers across the country. What 
producers in the 8th District of North Carolina want, and what 
producers in the 3rd District of Iowa want, can be two 
completely different things. I personally believe the 
complexity and intricate details of marketing and competition 
issues deserve more than one hearing before any decisions are 
made. I do not believe these issues should be considered as 
part of any farm bill discussion, as the laws governing the 
industry structure are completely separate from that of the 
farm bill and should be kept that way. These issues should be 
considered in their form and given the proper attention they 
deserve. And I appreciate all of the witnesses for here today 
to discuss this important issue and I appreciate the chairman 
calling the hearing.
    Mr. Boswell. Thank you, Mr. Hayes. And I would request 
that, I see we have Mr. Smith here, any statements you want to 
be included for the record? We will proceed on to get on to our 
testimony. So thank you very much. I would now turn to the 
panel. I would like to remind our witnesses that you have five 
minutes for your oral testimony, and due to the number of 
witnesses and other time constraints, it will be important that 
we try to stay within those guidelines. I think we have--down 
there ready to take care of the timing, so we don't have to 
worry about that, and then we want to get to our questions. So 
we would like to welcome our first panel to the table. 
Administrator James Link, Grain Inspection, Packers and 
Stockyards Administration, the Department of Agriculture, along 
with Ms. Mary Muth, Program Director for Food and Agricultural 
Policy Research, RTI International, Research Triangle Park, 
North Carolina. Administrator Link, we would be happy to hear 
what you have got to share with us. Thank you for being here, 
just hit your button there.

   STATEMENT OF JAMES E. LINK, GRAIN INSPECTION, PACKERS AND 
    STOCKYARDS ADMINISTRATION, UNITED STATES DEPARTMENT OF 
                          AGRICULTURE

    Mr. Link. Mr. Chairman and members of the subcommittee, 
good morning. My testimony will provide an overview of trends 
in the critical components of the US livestock market and 
changes that GIPSA has made. Although I am relatively new to 
Washington, DC and the US Department of Agriculture, I am 
certainly no stranger to the agriculture industry. Growing up 
on a farm and devoting my entire professional career to 
agriculture has given me a rich and diverse background from 
which I speak to you today. Shortly after my arrival at GIPSA, 
I was briefed on an ongoing audit from the Office of the 
Inspector General. In response to that audit, over the past 
year we have worked extensively to enhance GIPSA's ability to 
regulate livestock marketing and procurement practices. Now I 
would like to discuss the current market trends that we are 
monitoring.
    In the beef cattle, the four largest steer and heifer 
slaughter firms have accounted for 82 percent of the total 
annual slaughter in the year of 2006. In pork, the four largest 
slaughter firms account for about 64 percent of the total 
slaughter. Sheep and poultry are relatively constant at 70 
percent and 53 percent, respectively. Let me share with you the 
current marketing tools used in the livestock industry. 
Producers and packers use multiple marketing methods to market 
the livestock for slaughter, but the methods commonly fall 
within two categories: cash sales or spot market, and committed 
procurement or alternative marketing arrangements, which 
include the variations of formula pricing, forward contracts 
and packer ownership.
    In 2006, the four largest firms that slaughter fed cattle 
purchased 70 percent of their supply on the cash market and 30 
percent through alternative marketing arrangements. In the same 
time period, approximately 10 percent of hogs were sold on the 
spot market, 20 percent was packer owned and 70 percent were 
through forward contracts and alternative marketing 
arrangements. In the poultry industry, the spot market is 
virtually nonexistent. Now that you have had a brief summary of 
the livestock industry, I want to give you an overview of the 
improvements we have made to better ensure farmers and ranchers 
are protected.
    We have taken positive steps to change and improve our 
organization. At headquarters, we have eliminated a complete 
layer of management in the Packers and Stockyard Program by 
dissolving the Regional Operations Division and having our 
regional managers report directly to our deputy administrator. 
We established a unit called Management Shared Services to 
eliminate duplication and improve our efficiency. In the past 
year, we have undertaken a top-to-bottom review of all of our 
regulations and policies. As a result, several regulatory work 
plans affecting the livestock and poultry industries have been 
developed for public comment. We have also issued over 40 
internal directives and policies, which provide instructions 
and guidance to our employees. We are sending all of our 
investigators to the Federal Law Enforcement Training Center 
for basic investigative and interviewing training. We have made 
this course available to several attorneys from the Office of 
the General Counsel. We are also working on additional training 
activities with the Department of Justice to be conducted later 
this year.
    We have developed a new business plan and we have laid out 
four primary goals and 33 strategic activities with related 
measurable outcomes to evaluate the results. An example of our 
business plan includes inspecting scales and carcass evaluation 
devices in all packing plants that kill over 1,000 head of 
livestock per year. In April of this year, we implemented the 
new standard operating procedures nationwide. Investigations 
are our top priority. For example, in the year 2005, there were 
37 cases referred to the Office of General Counsel. In 2006, we 
referred 75 cases and in the first six months of this year, we 
have referred 53 cases. As our efficiency is improved, I expect 
the case numbers to continue to increase.
    There are significant cases that we are working on 
currently. Five open investigations are on manipulation of cash 
prices and we are working with the Department of Justice on one 
of the investigations. There are two open investigations 
involving allegations from cattle sellers using formula or non-
cash market arrangements that were not paid properly. We have 
three open investigations focusing on allegations of unfair and 
discriminatory behavior. We will continue to adjust our 
regulatory efforts to more efficiently and effectively monitor 
the regulated industries as the industry changes.
    I am proud to serve as the administrator for GIPSA in a 
time where not only the industry, but also the organization, is 
being evaluated, assessed and improved. It is exciting to be 
part of these such fundamental changes. With the continued work 
and efforts of individuals within GIPSA, we will look forward 
to improving and becoming even better. Mr. Chairman, thank you 
again for the opportunity to appear before you today, and I 
will be happy to answer any questions that the members might 
have.
    Mr. Boswell. Thank you for your introduction and comments. 
Before it comes to questions, we would first like to hear from 
Ms. Muth.

     STATEMENT OF MARY MUTH, PROGRAM DIRECTOR FOR FOOD AND 
        AGRICULTURAL POLICY RESEARCH, RTI INTERNATIONAL

    Ms. Muth. Good morning, Chairman Boswell and members of the 
subcommittee. My name is Mary Muth and I am Director of the 
Food and Agricultural Policy Research Program at RTI 
International, an independent, not-for-profit research 
organization in North Carolina. I was the project manager for 
the congressionally-funded GIPSA Livestock and Meat Marketing 
Study that was completed earlier this year. I am an 
agricultural economist and have a Ph.D. in economics from North 
Carolina State University. I have been conducting analyses of 
the livestock and meat industries for almost 15 years. In 
addition, my husband's family owns a cow/calf operation in 
western Kentucky. I am pleased to be here and thank you for the 
opportunity to provide an overview of the findings of the 
Livestock and Meat Marketing Study.
    The study was conducted from July 2004 through January 2007 
by a team of researchers at RTI International, Iowa State, 
North Carolina State, Montana State and Colorado State 
Universities and the Wharton School. The study addresses the 
economic effects that alternative marketing arrangements have 
on the livestock and meat industries. As you know, the cash for 
spot market includes auctions, direct trade and use of dealers 
and brokers. In contrast, alternative marketing arrangements 
include all other marketing methods, such as marketing 
agreements, marketing and production contracts, packer 
ownership and forward contracts.
    In the final report for the study, we analyzed the extent 
of use and price differences of marketing arrangements and the 
effects of using alternative marketing arrangements on cash 
market prices, the costs and benefits of various marketing 
arrangements, particularly as they relate to product quality, 
cost of production and risk, and finally, the implications of 
using marketing arrangements on livestock producers, meat 
packers and meat consumers. We used state-of-the-art economic 
modeling and statistical analysis methods to address the 
requirements of the study, using industry survey data, 
transactions data and profit and loss statements from packers, 
industry interviews and publicly-reported USDA data, including 
mandatory price reporting data.
    In general, the study found that use of alternative 
marketing arrangements provides benefits, not only to meat 
packers, but also to livestock producers and meat consumers. 
Therefore, restricting their use would have negative economic 
consequences on most segments of the industry. However, the 
cash market serves an important role in the industry, 
particularly for smaller producers and packers. Next, I would 
like to give a broad overview of the specific results of the 
study.
    First, regarding the volumes and prices of livestock under 
different types of marketing arrangements. Based on the data 
available for the study, we estimate that alternative marketing 
arrangements represent 38 percent of the volume for fed cattle, 
89 percent for finished hogs and 44 percent for fed lambs sold 
to packers. Furthermore, we estimate that packer ownership 
volumes represent less than five percent of fed cattle and fed 
lamb volumes, and 20 to 30 percent for finished hogs. Based on 
the industry surveys and interviews we conducted, we expect the 
use of alternative marketing arrangements in the beef and pork 
industries to remain similar to past use but to increase 
somewhat in the lamb industry.
    In the beef industry, prices for fed cattle are similar for 
direct trade and marketing agreements, higher for the small 
percentage of auction barn cattle and lower for the small 
percentage of forward contract cattle. We found that a 
reduction in the volume of spot market transactions, assuming 
that volume is shifted into alternative marketing arrangements, 
results in an extremely small decrease in the spot market 
price. In the pork industry, prices for finished hogs are 
higher for marketing contracts and lower for packer-owned hogs, 
relative to the cash market, and we found that there would be a 
relatively large effect of further increases in the use of 
alternative marketing arrangements on cash market prices for 
hogs.
    Second, regarding the costs and benefits of alternative 
marketing arrangements related to cost of production in the 
beef industry, procurement of cattle through alternative 
marketing arrangements is associated with lower production 
costs per head than through cash markets, but this result does 
not hold for all packing plants in the data set. In the pork 
industry, procurement of hogs through alternative marketing 
arrangements is associated with a small decrease in production 
costs at the packer level. Related to quality of beef and pork 
in the beef industry, we found that cattle sold through 
marketing agreements were higher quality and had less variation 
in quality than cattle sold through direct trade. Similarly in 
the pork industry, we found that hogs sold through marketing 
contracts were higher quality than hogs sold through direct 
trade. Related to market access and price risk across all 
species, we found that alternative marketing arrangements offer 
some guaranteed market access for both livestock producers and 
meat packers. And furthermore, the alternative marketing 
arrangements generally reduce price or income risk for cattle 
and hog producers.
    Third and finally, regarding implications of the use 
alternative marketing arrangements, we conduct simulations of 
various hypothetical scenarios in which alternative marketing 
arrangements were restricted. Across all species, the results 
for economic modeling simulations indicate losses to livestock 
producers, meat packers and consumers due to losses in 
efficiencies in the market. These losses in efficiencies 
translate into higher prices for consumers purchasing meat, and 
lower prices for producers selling livestock.
    Mr. Chairman, I would like to enter into the record Volume 
I of the report for the Livestock and Meat Marketing Study. 
This volume contains the executive summary and the overview for 
the study. Thank you. I would be happy to answer any questions.
    Mr. Boswell. Thank you for your testimony and your 
submitted testimony that we received. With no objections, we 
will enter it into the record. We will turn to our questions 
now for a little bit. I will start off addressing you, Mr. 
Link. Stated in your written testimony, you mentioned that 
marketing agreements account for 24 percent of the total 
procurement in 2006 by the four largest steer and heifer 
slaughter firms. Do you know the number or percent of grid 
cattle and Canadian cattle imported by packers?
    Mr. Link. No, sir, I do not have a breakdown of that. I can 
get that information for you and return it, but I don't have a 
breakdown. We lumped all of the alternative marketing 
arrangements into the one percentage figure and I don't have a 
breakdown of it.
    Mr. Boswell. Okay. Do you have any comments you would want 
to make about it? Although, we will be happy to receive any 
further information. Do you have any comments you want to make 
on that issue?
    Mr. Link. Well, it would be pretty dangerous for me to 
speculate on it. I would assume that the larger volume would be 
the livestock that are sold on some type of a formula basis, 
but I would hate to venture a figure on to that.
    Mr. Boswell. We will look forward to get that information. 
You recognized the enforcement of the Packers and Stockyards 
Administration. In your testimony, you briefly mention having 
complaints from producers. What is currently going on to 
address these things. Where are you at in that process?
    Mr. Link. We have what we refer to as a rapid response team 
that is available. Any time a producer calls in with a specific 
complaint, we initiate a rapid response to that complaint to 
look into it to see if it is valid and whether it warrants a 
follow-up investigation.
    Mr. Boswell. So you are satisfied with how it is working 
out, or do you have any----
    Mr. Link. As we develop more confidence in our producers, 
we will probably have more complaints. Now, we have a 24-hour 
hotline plus all of our regional field offices that operate on 
normal hours and I am a little bit surprised that we don't have 
more complaints come in directly to us that we can respond to.
    Mr. Boswell. Okay. Thank you. I may come back to you in a 
minute, but I would like to direct a question or two to Ms. 
Muth. Thank you for your testimony. In my opening statement, I 
mentioned a reoccurring concern I hear from producers, not only 
in my State, but across the country. Large packers can control 
market prices using packer ownership. Let us say a packer owns 
tens of thousands of heads of cattle. The packer buys on the 
open market for three days, but when prices go too high, they 
go out and slaughter their own, the cattle that they own, which 
of course would depress market prices. Is this not manipulation 
of the open market? Is it in your opinion?
    Ms. Muth. Well, based on what we looked at for our study, 
we conducted statistical analyses to look at what the effects 
are of use of alternative marketing arrangements on cash market 
prices, and what we found in the beef industry is that the 
packer ownership actually represents a fairly small percentage 
of the volume of cattle that are purchased and that the effects 
of that packer ownership is actually relatively small, in a 
statistical sense, in the cash market.
    Mr. Boswell. What percentage would that be?
    Ms. Muth. Based on the data that we have for the study, 
approximately a 10-percent increase, additional increase, in 
the use of alternative marketing arrangements would depress 
cash market prices by about 0.1 percent.
    Mr. Boswell. Okay. I am just kind of hip shooting here, but 
on your methodology, how you went out to get that data, is that 
available for us to look at?
    Ms. Muth. The data that we collected for the study was 
collected under CIPC, which means that it is protected data, 
that it can only be used for statistical purposes. And so we 
have followed very strict data security protocols in using that 
data.
    Mr. Boswell. What percentage do you think of all the market 
data out there did you actually look at then?
    Ms. Muth. For the beef cattle industry, our estimate is 
that the data represents probably around 90 percent of the 
volume of transactions that occurred over the 2 1/2 year 
period. For hogs, the data that we looked at represented about 
75 percent of the volume of the transactions.
    Mr. Boswell. I may come back to that. Well, I think I will 
stop here and defer to Mr. Hayes, then I will come back. Mr. 
Hayes.
    Mr. Hayes. Mr. Link, in your statement, you suggest that 
larger packers have lower operating income due to them paying a 
higher average price for livestock. With the buying power they 
have, why would these packers pay more for livestock?
    Mr. Link. Well, basically, it gets down to being able to 
better utilize their facilities. You have a set fixed cost on 
any kind of a processing plant and the more they can run that 
at its optimum operational standpoint, the less their 
production cost is going to be overall and so they are able to 
pay more for the livestock to make sure that they stay up at 
that optimum level of production.
    Mr. Hayes. Ms. Muth, as I understand your study, you 
generally assert that alternative marketing arrangements, on 
balance, benefit the livestock sector. What I want to clear up 
is this. Do these benefits go solely to those who participate 
in arrangements, or do others in the production sector benefit 
as well?
    Ms. Muth. Well, based on the analysis that we conducted, we 
were looking at the aggregate effects of the use of these 
alternative marketing arrangements, and because packers can 
realize efficiencies in using alternative marketing 
arrangements, that can benefit producers that also do not 
participate, because it helps the functioning of the packing 
plant itself.
    Mr. Hayes. So it is across the board. How does one 
reconcile the often-heard assertion that packers manipulate the 
market with the fact that cattle and hog prices move up and 
down?
    Ms. Muth. I am sorry. Could you repeat that?
    Mr. Hayes. Often you hear the assertion that packers are 
manipulating the market. The fact that cattle and hog prices 
move up and down, how do you reconcile----
    Ms. Muth. Right. For the analyses that we conducted, we 
were looking at the relationships in the data. We did not look 
at the intent. There isn't a way for us to analyze what the 
intention of people are when they are making their buying and 
selling decisions. We assume that they are operating in an 
economically efficient manner for their operations, whether 
they are producers or packers. And so in terms of manipulation 
and saying whether particular individuals were doing things to 
manipulate the market, that goes beyond what we looked at in 
our study, which focuses on the statistical and economic 
relationships in the data.
    Mr. Hayes. Thank you, Mr. Chairman. I have no further 
questions for this panel.
    Mr. Boswell. Okay, thank you. The chair at this time would 
recognize the gentleman from Nebraska, Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman. When I meet with 
representatives from the livestock production sector, 
specifically producers, we ask about the status of the 
regulatory process to implement the reauthorization of 
mandatory price reporting. Mr. Link, could you update the 
subcommittee on that subject?
    Mr. Link. I can just give you a ballpark update, because 
that is really through the Agricultural Marketing Service. It 
is in the process of going through the steps that it has to be 
for reauthorization and I can't tell you exactly where they are 
in it. I would assume that, you know, it is in the channel, but 
I couldn't give you a date as to when that will be completed.
    Mr. Smith. Okay, thank you. Let me see what hasn't been 
covered already. I think that is good for now. Thank you.
    Mr. Boswell. Thank you. The chair would recognize the 
gentleman from Wisconsin, Mr. Kagen.
    Mr. Kagen. Thank you. It is nice to be here in this 
wonderful new room. Administrator Link, we are all familiar 
with the decision in Pickett v. Tyson, which the jury ruled 
that the packer was guilty of price manipulation and assessed a 
fine of $1.2 billion. Even though it has been tossed out, how 
has GIPSA responded to the price manipulation and prevented it 
from occurring in the future?
    Mr. Link. Well, as I mentioned earlier, we are monitoring 
the market basically on a daily basis. We are utilizing 
Agricultural Marketing Service price reporting data. We are 
also monitoring the different prices that are available in 
different regions and we look for any anomaly that may appear 
from there. And of course, if there is any kind of complaint 
that comes in, we instantly respond to that. But we are really 
basing it by looking at economic analyses of the information 
that we receive to see if there is any anomalies that would 
warrant an investigation into it.
    Mr. Kagen. So with the Pickett v. Tyson case being the only 
antitrust case in the past 80 years, being that I am from Green 
Bay Packerland and Packerland had a great deal to do with the 
naming of our football team, how can our packers and our 
producers have confidence that your bill will ensure a fair 
marketplace for them? One case in 80 years?
    Mr. Link. Well, sir, that wasn't a case that GIPSA brought 
forth. That was a private individual case against a packer and 
we really weren't involved in it.
    Mr. Kagen. So you are monitoring the situation?
    Mr. Link. Yes, sir.
    Mr. Kagen. Do you feel that mandatory arbitration is an 
equal arrangement for both the packer and the producer?
    Mr. Link. I am not familiar with that, sir. I can't give 
you an intelligent answer.
    Mr. Kagen. All right, we can get back on that.
    Mr. Link. Yes.
    Mr. Kagen. Thank you very much, Mr. Chairman.
    Mr. Boswell. Thank you. The chair would recognize Mr. 
Walberg from Minnesota.
    Mr. Walberg. Thank you, Mr. Chairman. I hail from Michigan 
and I don't want to----
    Mr. Boswell. Oh, excuse me.
    Mr. Walberg. --put an aspiration on Minnesota because of 
me.
    Mr. Boswell. I stand corrected and we welcome the gentleman 
from Michigan.
    Mr. Walberg. Being a freshman, I expect those mistakes 
occasionally, so no problem at all. Let me ask, Dr. Muth, a 
two-point question. What impact has consumer demand had on the 
usage of alternative marketing agreements? And secondly, what 
potential impacts would the consumer face if alternative 
marketing agreements were limited?
    Ms. Muth. I guess, related to your second question, based 
on the simulations that we conducted from our models, if 
alternative marketing arrangements were restricted, consumers 
would actually be faced with higher meat prices and probably 
also reduced quality of meat products, that there would be much 
more variability in the quality of products. And I am sorry, 
what was your first question again?
    Mr. Walberg. What impact has consumer demand had on the 
usage of alternative marketing agreements?
    Ms. Muth. Okay. In terms of the effect of consumer demand 
on use of alternative marketing arrangements, it is our 
understanding, based on looking at the relationships in the 
data, that in order to supply sufficient quality of livestock 
to meet consumer demand, that packers use alternative marketing 
arrangements to ensure that they can supply the quality that 
consumers would like to buy in their grocery store.
    Mr. Walberg. Okay. So you say it is better for the consumer 
all along the process?
    Ms. Muth. Right, consumers do benefit. And when we 
conducted simulations of our economic models, where you put a 
hypothetical restriction on the use of alternative marketing 
arrangements, we did find that consumers would lose under those 
scenarios.
    Mr. Walberg. Okay, okay. Again, customers frequently want 
to buy meat that has a certain characteristic, such as grade or 
antibiotic free or organically produced.
    Ms. Muth. Right.
    Mr. Walberg. Packers frequently use marketing agreements to 
draw out the appropriate product from the producers. If these 
methods are curtailed, how would a packer ensure that they have 
a supply of cattle that meets their customers' specifications?
    Ms. Muth. I guess, based on what we looked at for our 
study, it would be much more difficult for packers to ensure 
that they could go out into the cash market and buy the animals 
of the specified quality that they need to meet those 
requirements, if they could not have an agreement with the 
producer that specifies those as requirements.
    Mr. Walberg. So you contend that it leaves it up in the 
air, that it is debatable whether there would be those 
specialty opportunities for consumers, then?
    Ms. Muth. Yes, it is my understanding, from what we looked 
at in the study, that it would reduce those opportunities for 
the packer.
    Mr. Walberg. Okay. Okay, thank you. Mr. Link, based on your 
experience and knowledge of this industry, what would be the 
economic costs or benefits to cattle producers if Congress were 
to prohibit packer ownership?
    Mr. Link. Well, I will speak from the cattle industry more 
than the pork because I am more familiar with that. With the 
small percentage that packers actually own in the cattle 
industry, I think it would be very insignificant. I think it 
would be more harmful if the alternative marketing arrangements 
were eliminated, because it would get more of a variability of 
quality of livestock on to the market.
    Mr. Walberg. Now that, again, is just based upon the 
limited activity at present in the cattle industry, but you 
can't use a crystal ball to infer what would be if it moved in 
the future to more aggressive action with packers being 
involved. I mean, it would just----
    Mr. Link. Well, it would be a tremendous business 
psychology change for most of them, because it would take a 
tremendous capital investment that they currently are not 
involved with to get to extend out very much into the actual 
raw material purchasing and ownership of them, and that would 
take a significant capital investment. You would have to ask 
the packers whether they are willing to make that type of an 
investment or not.
    Mr. Walberg. Okay, okay. Thank you.
    Mr. Boswell. Thank you, Mr. Walberg. And I think that 
completes our first round. We will take you in a moment. I 
don't want to be disrespectful to the second panel, but just a 
couple things. Mr. Link, has the Department of Justice supplied 
enough staff to take care of the cases that you have referred 
to them? What is your status there?
    Mr. Link. Well, sir, most of our cases go through the 
Office of General Counsel. There are a few cases that get 
forwarded up to the Department of Justice and then they 
obviously have enough for our demand, because we don't have 
that many that go before the Department of Justice. Most of our 
active cases are handled by the Office of General Counsel.
    Mr. Boswell. So you are getting all of the support from the 
DOJ, then?
    Mr. Link. Currently, yes, sir.
    Mr. Boswell. Ms. Muth, maybe give us an estimate or an 
evaluation, if you could, of the use and value of mandatory 
price reporting. Who gains the most?
    Ms. Muth. Well, I am not certain if I can respond to 
exactly who gains the most, but I can tell you that mandatory 
price reporting is pretty crucial for the industry, that it 
increases the transparency of prices. A lot of the data that we 
looked at, formula prices, under lots of different types of 
marketing arrangements, including both cash marketing 
arrangements and alternative marketing arrangements, depend on 
mandatory price reporting as the base for the formula. So 
mandatory price reporting is crucial for the functioning of the 
market.
    Mr. Boswell. So you evaluated that it is very important. 
And your final question is, you found that putting restrictions 
on alternative marketing arrangements of beef would affect the 
producer, packer and consumer negatively. But in pork, it would 
only affect the producer and the consumer, but it would cause a 
slight increase in economic surplus for the pork packer. Why is 
there such a difference and why would the packers see a slight 
increase?
    Ms. Muth. Right. Well, one of the things you have to 
consider when you are looking at the pork industry is that the 
volume of alternative marketing arrangements is already 
extremely high. It is 89 percent. So when you look at further 
increases beyond that point, the packer is already realizing 
the benefits that they would receive from using alternative 
marketing arrangements. So in the simulations that we 
conducted, if you restrict alternative marketing arrangements 
in the pork industry, the packers will gain in the short run, 
but in the long run, we actually don't really see any advantage 
to them one way or another. And that is looking at comparing it 
from current levels. And so it is important to consider that 
the structure of the market is very different for the pork 
industry versus the beef industry and that is why you see 
differences in those results.
    Mr. Boswell. All right, thank you. We touched on this 
earlier, but where would someone go to review the data and 
statistical information used by the RTI study?
    Ms. Muth. The data that we have will be turned over to 
GIPSA by the end of May. The data is currently kept in a secure 
room. It is encrypted data, data sets. We will be giving them 
to GIPSA and at that point, then it is their determination of 
how that data will be used.
    Mr. Boswell. Mr. Hayes, do you have any further questions?
    Mr. Hayes. No, sir.
    Mr. Boswell. Any other members of the committee have any 
other questions? Yes, Mr. Walberg.
    Mr. Walberg. Thank you, Mr. Chairman. I would like to ask 
Dr. Muth a final question here. As I am sure you know, 
individual producers have different production practices and 
market goals with respect to the animals they raise. Your 
testimony talks about the price differences across marketing 
arrangements. In your view, do these slight price differences 
occur because of the given marketing arrangement itself, or 
does it reflect the nature of the livestock that finds its way 
to a particular marketing arrangement?
    Ms. Muth. I think, in general, it does reflect differences 
in the quality of the animals that are coming through different 
types of marketing arrangements, but you do still see, even 
after you make the adjustments for differences in quality, that 
there are still slight differences, that prices for animals 
that are purchased through marketing contracts in the hog 
industry are through marketing agreements, and the beef 
industry has slightly higher prices than cash market prices.
    Mr. Walberg. Okay, okay. Thank you.
    Mr. Boswell. Thank you. Well, thanks to Mr. Link and Ms. 
Muth. Am I pronouncing it correctly?
    Ms. Muth. Yes.
    Mr. Boswell. Thank you. Thank you for coming and sharing 
with us. There is a chance you will hear some more from us, so 
we will be in contact with you and we appreciate your 
presentation here today. We would like to excuse you at this 
moment and we ask the second panel to take their place. We are 
sorry for the delay. I thank you very much for your patience. 
We appreciate your presence with us today and so we will just 
take your testimonies and we will probably start with Kay and 
start right down the line and hear what you have to say. Then 
we will have some questions for you. So Ms. Doby, you have the 
floor.

 STATEMENT OF KAY DOBY, POULTRY GROWER, ON BEHALF OF CAMPAIGN 
             FOR CONTRACT AGRICULTURE REFORM, RAFI

    Ms. Doby. Chairman Boswell, Ranking Member Hayes, Members 
of the subcommittee, my name is Kay Doby and I am a poultry 
grower from North Carolina, Cameron. Thank you for this 
opportunity to present this testimony.
    The structure of US agriculture is rapidly changing and the 
focus of the farm bill should be broadened to keep pace with 
that change. Unfortunately, farmers are rapidly losing their 
independence, as one-sided contractual arrangements between 
farmers and vertical integrators became more common. For 
example, a potential grower must take out a loan of over 
$200,000 per poultry house to have houses built to the 
company's specifications, but the grower is the one that 
borrows the money to build them. When a grower goes into the 
debt to this extent, they must often put their farm up as 
collateral for the loan. Poultry growers sign the first 
contract thinking that it is good for the length of the loan, 
until one day a new one is presented that must be signed before 
the next flock is delivered. This contract can have a mandatory 
arbitration clause added. Also, the length of the contract can 
go from years to a flock-to-flock contract, which means no 
guarantee beyond one week flock. Talk about job security.
    As a grower, you get the message very quickly. With your 
livelihood on the line and the future of your business 
controlled completely by the company, it is not a surprise that 
growers are reluctant to speak out about their circumstances. 
Plain and simple, they fear retaliation. Growers are ranked 
against each other for their pay. Basically, this means who can 
grow the heaviest bird on the least amount of feed. This is 
called your feed conversion. The company controls all the 
inputs that determine your success in adding weight to the 
bird, the quality of the chickens and the feed and the length 
of time you keep your birds before they go to processing. The 
difference in being at the top of the ranking versus the bottom 
of the ranking for one flock is thousands of dollars. It puts 
growers in a position not to want to rock the boat, because the 
company can directly influence where you fall in this ranking. 
The grower works for the day that he will have the loan paid 
off, but the grower will never get to that day because the 
company wants new or upgraded equipment in the houses or they 
will cut you off. So the grower has two choices, go back even 
deeper in debt or just sell your farm and salvage what you can. 
Growers must upgrade or companies threaten to not bring them 
any more birds.
    Poultry houses are single-use structures and currently 
there is nothing else that can generate the revenue to equal 
poultry growing. You are completely at the company's demands. I 
personally know growers that have been cut off. Others have 
given in and borrowed the money to do the upgrades and are 
struggling under the additional debt to the point of 
bankruptcy. The small additional pay that the companies offer 
you to convert these houses does not even pay for the interest 
on the loans.
    A question often asked is, if returns are so low, why are 
people lined up to become contract producers? Well, there are 
few other job opportunities in the areas where poultry 
operations are located. Information presented to potential 
producers by some integrators is deceptive, in that not all 
costs are shown or they are underestimated. Many potential 
producers feel that they can be above average and they will 
never be below that, because they don't understand how little 
control they have over their ranking. The growers don't want 
anything that they are not entitled to, but they want things to 
be fair. I have a few suggestions in that regard.
    1) The Packers and Stockyards Act needs to be updated to 
give USDA Grain Inspection, Packers and Stockyards Agency full 
authority, like in the red meat sector, to crack down on 
unfair, deceptive trade practices. Their authority is very 
limited to poultry and excludes any authority to provide 
protections for breeder hen and pullet growers.
    2) Pass legislation to prohibit certain abusive contract 
clauses. Arbitration should be voluntary for both parties, not 
something forced on growers by the company. Companies should be 
required to bargain in good faith with grower associations 
instead of dealing with growers individually. This could be 
done at the national level by changing the Agricultural Fair 
Practice Act to require good-faith bargaining in contract 
negotiations.
    If large agribusinesses are allowed to control the terms of 
these take-it-or-leave-it contracts, companies will continue to 
shift the poultry model into other parts of agriculture, as we 
have already seen in many other commodities, like hogs, 
tobacco, identity-preserved grains and peanuts. In January of 
this year, over 200 organizations wrote to the House 
Agriculture Committee to support eight legislative initiatives 
to help restore competition to agriculture markets, to benefit 
of producers and consumers alike. A copy of that is attached to 
my written testimony.
    It is my hope that the committee will see fit to include a 
broad competition title in its version of the 2007 Farm Bill. I 
would like to thank you for your time and willingness to listen 
to what is going on with today's poultry growers. The contract 
producer has been transferred into a mere servant of a 
corporation or, as some have said, contract producers are serfs 
with a mortgage. Thank you.
    Mr. Boswell. I appreciate your testimony. Mr. Crabtree, you 
have five minutes.

 STATEMENT OF JOHN CRABTREE, DEVELOPMENT AND OUTREACH OFFICER, 
                    CENTER FOR RURAL AFFAIRS

    Mr. Crabtree. Mr. Chairman, Ranking Member Hayes and 
members of the committee, my name is John Crabtree. I represent 
the Center for Rural Affairs in Lyons, Nebraska. Beginning in 
1996, I led our work on livestock market structure and I just 
want to thank you for holding this hearing on these really 
important issues.
    As a livestock sector has become increasingly concentrated 
and integrated, packers and processors increasingly control 
production at all stages. In many rural places where livestock 
are raised, there are only a few or even just one packer or 
processor for a given livestock species. At the same time, 
there has been a dramatic increase in the use of production 
marketing contracts to further diminish the bargaining power of 
farmers and ranchers. Currently over 80 percent of hogs, for 
example, are either owned outright by packers or tightly 
controlled through various contracting devices, and many 
farmers and ranchers face price discrimination and severely 
limited market access as a result.
    The USDA has demonstrated nearly complete inability to 
enforce the Packers and Stockyards Act and other livestock 
market competition laws. The audit of the Packers and 
Stockyards Administration performed by USDA's Office of the 
Inspector General that was released in February 2006, revealed 
that the Packers and Stockyards Administration has utterly 
failed to enforce the law, the very law that gives the agency a 
reason to exist. Over 1800 so-called investigations were 
documented between 1999 and 2005, and according to the 
Inspector General's audit, 1739 of those so-called 
investigations could not be traced to a specific complaint, 
producer or packer. That is why Congress should act to define 
the rules of livestock market competition and provide clear 
direction for USDA's enforcement. Congress should not let 
another farm bill go by without making changes in the Packers 
and Stockyards Act and the Agricultural Fair Practices Act that 
are necessary to breathe some life and competition back into 
livestock markets.
    Specifically, a couple provisions we would recommend. The 
Packers and Stockyards Act should be amended to prohibit packer 
ownership of livestock more than seven days prior to slaughter; 
to prohibit the use of production contracts that do not fix 
base prices with adjustments or quality, grade or other factors 
outside of packer control at the point of sale; and to require 
the Secretary to write regulations defining the statutory term 
on reasonable preference or advantage, to ensure that small and 
midsized farmers and ranchers are not forced to accepted 
volume-based price discrimination.
    Likewise, the Agricultural Fair Practices Act should be 
amended to make it unlawful for any firm to refuse to deal with 
a producer for belonging to a producers association or 
cooperative, prohibit the use of binding mandatory arbitration 
clauses, and expand prohibition on confidentiality clauses to 
cover all agricultural marketing and production contracts, not 
just those in livestock and poultry. And finally, an amendment 
to the Ag Fair Practices Act that requires a contract to 
include clear disclosure of producer risks.
    Just to highlight a couple of these provisions, major meat 
packers use packer-owned livestock as a major tool for exerting 
market power over farmers and ranchers. This practices fosters 
concentration in industrialized livestock production, and 
packer-owned livestock artificially lowers farm gate prices to 
farmers and ranchers while consumer food prices continue to 
rise, as demonstrated repeatedly by USDA land grant and 
nonprofit research analysis, most recently the GIPSA livestock 
and meat marketing or RTI study. And despite their support for 
vertical integration, the researchers that conducted that 
report concluded that the use of captive supplies is associated 
with lower cash market prices.
    The packers and processors claim that vertical integration 
increases production efficiency, but it is simply not true. 
Small and midsized farms and ranches have demonstrated, time 
and again, they can match or beat the costs of production of 
the packers industrial facilities. Prohibiting packer ownership 
dramatically reduces the ability of packers to manipulate 
livestock markets and helps secure increased market access for 
small and midsized family farms and ranches. Access is often 
severely limited today by the levels of vertical integration, 
particularly in hog production.
    In the end, it comes down to this: in a nation where 
packers and processors own and control all of the livestock, 
what need is there of farmers and ranchers? And what hope do we 
have for revitalizing family farming and ranching in rural 
communities if we have no hope of revitalizing family farm and 
ranch livestock production? What hope if we cannot breathe some 
life and competition back into the livestock markets? My father 
always told me to say what you mean and mean what you say. If 
we hope to create a farm bill that can be held up as a solution 
to some of the challenges that family farmers face, then we 
should all support a Federal ban on packer ownership of 
livestock and a comprehensive competition title in this Farm 
Bill. In other words, we should mean what we say. Thank you.
    Mr. Boswell. Thank you, Mr. Crabtree. We would like now to 
give five minutes to Mr. Buis of the National Farmers Union.

    STATEMENT OF TOM BUIS, PRESIDENT, NATIONAL FARMERS UNION

    Mr. Buis. Thank you, Chairman Boswell and Ranking Member 
Hayes and members of the subcommittee. It is great to have the 
opportunity to be here today. The National Farmers Union 
represents family farmers, ranchers and family fishermen around 
the country, with a mission of protecting and enhancing the 
economic wellbeing and quality of life for rural America.
    First, I would recommend, as you move into the new farm 
bill, to keep the focus on creating a structure to help farmers 
and ranchers receive a profit from the marketplace. It is the 
key component that is often missing. Farm bills tend to focus 
on the symptoms and not on the cause. The two most promising 
economic opportunities in rural America that I hear about as I 
travel the country are the production of renewable energy and 
the second related to the food industry and that is the 
increasing consumer demand for source-verified, direct-from-
the-farm fresh foods. The latter is something that I hope this 
subcommittee will address as we debate the future structure of 
our livestock industry.
    Yesterday, the National Farmers Union released our updated 
concentration tables for the top four firms in each sector. 
This report continues to show an increase of consolidation in 
most agriculture sectors. The top four beef packers dominate 
almost 84 percent of the market. The four pork packers control 
66 percent of hog processing. The top four poultry companies, 
roughly 60 percent of the broiler industry. However, ethanol 
production is the only agriculture sector in which 
concentration has steadily decreased. Ten years ago, the top 
four companies owned 73 percent of the ethanol market. Today, 
the top four companies control 31 1/2 percent of the ethanol 
produced. Farmer-owned ethanol plants account for the single 
largest production of ethanol, 39 percent. That has been driven 
by public policy, Federal policy. So for those who say 
concentration is inevitable, we might as well get used to it, 
everyone is going to get bigger, the market is more 
concentrated, I think the renewable energy experience that we 
have had in the country is clearly a win for rural America and 
clearly shows that we can make a difference.
    And if we also look at the farmers' share of the food 
dollar, and I think I distributed both a chart on that and one 
on the concentration levels of the livestock industry going up 
and the ethanol industry coming down that you can look at, but 
if we look at that farmers' share of the food dollar in each of 
these concentrated sectors, it clearly shows farmers are 
getting less of the food dollar in the concentrated markets, 
and more of the total amount spent on food and feed and fiber 
in the ethanol and renewable energy sector. Competition is 
clearly the key to profitability for farmers and for rural 
communities. Those profits are retained in those communities, 
they are invested in those communities and it creates a tax 
base and jobs, as well as it is the only communities in rural 
America where you really see the storefronts, the boards coming 
off the storefronts instead of going back up. So we need to 
replicate this policy in the livestock industry.
    This study that we have been funding since 1999, 
unfortunately, will probably be our last, because the data and 
the information from the companies involved is getting more 
difficult to obtain. However, this information is important for 
policymakers to know. It just shouldn't be retained with 
private groups that do studies, it shouldn't be retained 
outside of the policymaking arena, and we would urge that this 
Congress, in the farm bill, direct USDA and the Department of 
Justice to start obtaining this information so you can make 
good policy decisions to ensure fair and open markets.
    Second, we recommend that the farm bill include a new title 
to help restore competition. A noncompetitive marketplace is 
just another way of saying farmers and ranchers are not being 
paid a fair price. Many cite the free market as a basis for not 
taking action. Yet I ask, how can you have a free market when 
there is little or no competition? How can we rely upon a free 
market without recognizing when it needs fixing? We believe the 
competition title should include most of the same items that 
Mr. Crabtree just mentioned, but a couple others. I think we 
have to immediately implement mandatory country of origin 
labeling. We are opposed to merging country of origin labeling 
with Animal ID, because I think Animal ID, certainly in the 
countryside, farmers and ranchers aren't there yet. It is very 
controversial, it is very confusing and it is very expensive. 
There is a lot of fear. That is going to take quite some time 
to ever fix.
    We also believe that the Mandatory Price Reporting Act 
should be reformed, and the enforcement and the oversight 
suggested by the GAO should be implemented. And we feel that 
you should end the ban on interstate shipment of meat to 
increase competition in the economic marketing and trade 
opportunities for rural America. And finally, I think the one 
other thing in the competition that I would add to what Tom 
mentioned is to prohibit forward contracting of dairy products, 
within the Federal Milk Marketing Order system.
    In summary, Mr. Chairman, I would again urge you to keep 
the focus of the new farm bill on profitability for producers. 
As we have seen with ethanol, competition leads to 
profitability on the farm and economic opportunities in our 
rural communities. Thank you, Mr. Chairman.
    Mr. Boswell. Thank you, Mr. Buis. We would now like to 
recognize Mr. Stallman from the Farm Bureau.

  STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                           FEDERATION

    Mr. Stallman. Mr. Chairman and Ranking Member Hayes and 
members of the committee, thank you. We appreciate the 
opportunity to provide comments on the changing market 
structure of the livestock industry. Our organization 
represents over six million member families with many cow/calf 
operators, hog farmers, sheep and goat producers and poultry 
growers. I, myself, am a rice and cattle producer from Texas.
    Increasing producer competitiveness and access to a 
transparent marketplace is vital to sustaining domestic 
production agriculture for farmers and ranchers. The landscape 
has changed for both crop and livestock producers in recent 
decades, both in purchasing inputs and in marketing finished 
livestock, grain and fiber. I won't reiterate the concentration 
figures that Administration Link provided, because ours are the 
same numbers from USDA, but it does point out that the degree 
of concentration that exists, particularly in the livestock 
sector.
    The story is really the same with input providers and I 
will give you two quick examples. The three largest soybean 
processors control more that 70 percent of the US market in 
2003. The four largest ag chemical companies had 62 percent of 
the total world market share, based on 2004 data. The Grain 
Inspection, Packers and Stockyards Administration's recently 
released Livestock and Meat Marketing Study revealed 
significant information specific about the use of alternative 
marketing arrangements in the beef and pork processing sectors. 
During late 2002 through 2005, the use of AMAs were estimated 
to cover 38 percent of fed cattle volume, 44 percent of the fed 
lamb volume, and 89 percent of the finished hog market. Packer 
ownership accounted for only five percent of fed cattle and 
lamb volume, but between 20 and 30 percent of fed pork volume.
    It is also important to recognize that, while AMAs are 
voluntary, we question whether they are truly voluntary in 
every region of the country, for every packer or for every 
species. Our producers often strongly remind us that one cannot 
just look at concentration in the aggregate for the entire 
country. A region-by-region review of AMAs would likely yield 
some different results.
    AFBF supports the following changes to enhance competition 
of the current livestock marketplace: we support enhancing 
USDA's oversight of the Packers and Stockyards Act. GIPSA 
investigations need to include more legal expertise within USDA 
to enhance anticompetitive analysis on mergers. USDA, in 
conjunction with the Department of Justice, should closely 
investigate all mergers, ownership changes, or other trends in 
the meat packing industry, for actions that limit the 
availability of a competitive market for livestock producers. 
We would also support establishing an office of special counsel 
for competition at USDA. We support amending the Packers and 
Stockyards Act to grant USDA jurisdiction and enforcement over 
the marketing of poultry, meat and eggs, as already exists for 
livestock. This includes breeder hen and pullet operations so 
they are treated the same as broiler operations. We support 
efforts to provide contract protections to ensure that the 
production contract clearly spells out what is required of the 
producer. In addition, we support prohibiting confidentiality 
clauses in contracts so that producers are free to share the 
contract with family members or an outside advisor, like a 
lawyer or a lender. We support legislation to prohibit 
mandatory arbitration clauses in contracts. Farmers and 
ranchers should be able to choose between arbitration, 
mediation or a civil trial in disputes. We support establishing 
GIPSA as the lead authority over livestock contracts.
    I want to note that we appreciate the work by the House Ag 
Committee to reauthorize mandatory price reporting last fall. 
This program has worked well for our producers in providing 
increased price and market information. There are additional 
issues that are indirectly related to competition and the 
changing market structure. Farm Bureau has long supported 
allowing meat and poultry inspected under State programs, which 
are equal to Federal inspection and approved by USDA, to move 
in interstate commerce. All other products, such as milk, dairy 
products, fruit, vegetables, fish, shellfish and canned 
projects, which are inspected under State jurisdiction, are 
allowed to be marketed freely throughout the United States. 
Movement of these products across State lines will increase 
marketing opportunities and provide more of a competitive 
marketplace for our farmers and ranchers.
    Farm Bureau supports voluntary country of origin labeling. 
The cost associated with implementing a mandatory program, 
especially for meat products, would create a competitive 
disadvantage for our producers. We also support the 
establishment and implementation of a voluntary national Animal 
ID system capable of providing support for animal disease 
control and eradication. Any program put into place must 
adequately address the cost, confidentiality and liability 
concerns of our producers.
    Thank you for the opportunity to discuss our views on these 
issues and I look forward to answering questions.
    Mr. Boswell. Thank you, Mr. Stallman. We would like to 
recognize Dr. Taylor from Auburn. Mr. Taylor.

   STATEMENT OF ROBERT TAYLOR, ALFA EMINENT SCHOLAR, AUBURN 
                           UNIVERSITY

    Mr. Taylor. Thank you, Mr. Chairman and members of the 
committee. I am an agricultural economist at Auburn University 
and today I am going to restrict my remarks to fed cattle 
marketing alternatives.
    I would like to identify four options for marketing: Option 
one, AMAs, as they have been used and structured in the past 10 
or 15 years; Option two, cash on the hoof, the old way of doing 
business; Option three, require that all transactions be on a 
cash basis and moreover, that there be a negotiated quality 
grid; Option four, prohibit AMAs tied to a cash market or to 
the futures market, but do not prohibit all AMAs.
    The RTI study only compared Option one and two. They 
compared eliminated AMAs to basically cash on the hoof, the old 
way of doing business. To me, this is an inappropriate 
comparison and it would be better to look eliminated AMAs, or 
certain features of AMAs, as they are now done to Option three 
or Option four. In the RTI study, ``beef quality is expected to 
decline and decrease primary demand with AMA elimination.'' 
This assumption totally ignores significant cash transactions 
that occur now with a quality grid. In fact, precisely the same 
quality incentives can be achieved in the cash market if the 
packers so choose. What is the net effect of eliminating AMAs? 
Assuming they were replaced by cash transactions, with a 
negotiated base price and a negotiated grid, all I can identify 
is 40 cents per head. That is .04 percent, not four percent, 
.04 percent of the value of a fed steer, not the four percent 
to 16 percent negative effects identified in the RTI study.
    Option four, let me emphasize again. Don't prohibit AMAs 
all together, just prohibit tying a base contract price to 
either the cash market or to the futures market. Such ties 
distort buyer incentives in concentrated markets. If we had a 
very large number of buyers, there wouldn't be a problem with a 
contract tied to cash or to futures. But with concentrated 
buyers, there is a problem. Theoretically in economics, this 
leads to inefficiency. I repeat, aggregate inefficiency, 
because these types of arrangements worsen the market power 
effects of size. Economists agree on the need to eliminate 
contract features that distort buyer incentives, such as the 
marketing agreements tied to the cash market. Economists made 
debate endlessly on whether the past effect has been big or 
small, significant or insignificant, but they are in agreement 
that such arrangements have the potential to distort markets 
and therefore should be prohibited. In my opinion, Option four 
would not destroy the cattle and beef industry, as suggested by 
the RTI comparison. Combine Option four with pursuit of new 
innovative ways of trading cattle, I think this option would 
actually strengthen the industry and also eliminated the more 
contentious features of AMAs. Thank you.
    Mr. Boswell. Thank you, Dr. Taylor. I appreciate all of 
your testimonies. We will move to our questions now and I will 
start off with directing a question to Ms. Doby. In your 
testimony, you mention that oftentimes your original contracts 
are rewritten before they run out and when they do rewrite 
them, they add a mandatory arbitration clause. Are there 
currently any protections for the producers for that not to 
happen?
    Ms. Doby. No, sir, that happened in my contract. I did not 
have arbitration when I started in the poultry business and it 
changed. They brought the contract out. I had thousands of 
dollars left on a loan. So to sign that contract to continue 
getting birds, the arbitration was in there. The only thing in 
that contract that says you get a two-week notice for 
cancellation, but that is the only thing. They have nothing 
else.
    Mr. Boswell. I was going to follow up by asking you about 
how it works with your poultry production, but I think you just 
told us it doesn't. It puts a lot of stress on your operation.
    Ms. Doby. Yes, sir, it certainly does.
    Mr. Boswell. Okay. Well, thank you very much. Mr. Buis, 
attached to your testimony, you attached some charts regarding 
the concentration of agriculture markets. Can you walk through 
how those numbers were formulated? And also, can you talk about 
some of the trends that have been seen in the concentration of 
the industry?
    Mr. Buis. Yes. Thank you, Mr. Chairman. Since 1999, we have 
been contracted this study and I think it was the first of its 
kind done back in 1999 by Dr. William Heffernan and Dr. Mary 
Hendrickson at the University of Missouri. We do so because 
oftentimes we would get these anecdotal comments about how big 
or who is controlling what and really to sort of set the plate 
for how much competition really exists in the marketplace, and 
that was a continuation of those numbers.
    The second part is that trends clearly are going up in all 
sectors of agriculture on concentration and I think the 
complete CR-4 tables that we put in there are charts, I think, 
pork, beef, broilers and ethanol, but that trend is throughout 
the industry. As Mr. Stallman mentioned, it is in the grain 
industry, the soybean processing industry, it is elsewhere, 
except ethanol. That is the one exception. And two years ago 
when we did this study, the ethanol number had dropped down to 
40 percent and now it is down to 31 percent and it is all a 
result, I think, of public policy, encouraging producers to get 
together to own these plants. The local ownership is really key 
because the profits stay there. They are retained in those 
communities, reinvest it in those communities, and I think it 
is just a perfect example that concentration is not inevitable 
and that competition leads to a fair, profitable price on 
farming. Ask any corn farmer today what is driving the increase 
in corn production or corn prices and that has been the 
increase in domestic demand, new domestic demand for corn and 
that has been into ethanol. It is owned by local people. I 
think it is a good thing, Mr. Chairman.
    Mr. Boswell. Thank you. Maybe a moment later we can talk a 
little bit about it. I have been very elated about the fact 
that farmers have been able to participate and cooperate 
together and start up the ethanol plants, but I know of a case 
or two already where they are being bought out by, as they 
refer to it, big money.
    Mr. Buis. Yes.
    Mr. Boswell. And it is distressing and I don't know what we 
can do about that, because I would hope that we might respond. 
I know, in my life, my father and my grandfather, we have 
always lamented about not being part of the value-added and I 
would guess that you and Mr. Stallman and all of us, we have 
been there and here is one place where we can be part of the 
value-added all the way up, if you will, and I just have a 
concern that it may get away from the people, our farmers or 
producers, and I don't want that to happen.
    Mr. Stallman, I think you know distinguished Professor Neil 
Harl. You have heard of him before. But a fundamental concern 
that he termed ``towering concentration on the input side and 
towering concentration on the output or product side in the 
agricultural sector, with producers in between, in perfect or 
nearly perfect competition. The result is vulnerability of 
producers as buyers, with regional dominance exercised their 
market power to reduce the price paid to the producers 
indifferent between selling to the local buyer, with regional 
dominance for shipping to the next available competitive 
outlet. Thus, producers become almost captive suppliers or 
their regionally dominant purchaser of products.'' What would 
you say about that? Would you say that assertion is correct? 
Why or why not? Would you comment on that? You come from a lot 
background experience, as Mr. Harl did, so what would you say 
to that?
    Mr. Stallman. Well, I do have a lot of background and 
experience, Mr. Chairman, but I do not have a degree in 
economics. I would observe that, you know, when you look at 
what is happening, not with just the agriculture industry, but 
with all industries, you have concentration and consolidation 
occurring. That, in and of itself, is not necessarily bad. The 
question is, do you still have competition? And there again, 
that is where our proposals focus for agriculture specifically, 
on greater oversight of mergers and acquisitions, particularly 
within USDA and in conjunction with the Department of Justice. 
Now, farmers are their own worst enemies. You know, you talk 
about the middle where the producers are. I have told many 
farmers who are complaining about the market structure, well, 
all you have to do is get together and you have all the market 
power you want. The problem is producers are reluctant to get 
together and that is an inherent nature, I guess. Maybe it is 
in the genetic pool for farmers and ranchers, that we want to 
be independent. We don't want to work with somebody else to 
accomplish a greater goal. And if we have any challenge or 
struggle as agriculture producers, it is that we are 
independent and we don't want to come together into the kind of 
structures that we could come together in to gain that market 
power which we do not have, given the concentration that is 
occurring on the input side and the processing side, currently.
    Mr. Boswell. Thank you. I violated my own rule here by the 
time, so I am going to stop now, but Dr. Taylor, I will get 
back to you in a little bit. At this time, I would like to 
recognize my colleague, Mr. Hayes.
    Mr. Hayes. Thank you, Mr. Chairman. Dr. Taylor, you stated 
a number of times in your prepared testimony that economists 
generally agree about one point or another. In other areas, you 
criticized the work of the RTI report and the investigations 
and studies conducted by USDA regulators and market experts. Do 
you believe there is anything like a consensus among 
economists, livestock interest groups, or market experts, about 
whether or how Congress should intervene in the livestock 
market structure?
    Mr. Taylor. Two ways to answer that question. One is 
empirical, based on the studies and whether the effect is big 
or small, significant or not. A second way is theoretical. 
Economists do generally agree that with concentrated markets, 
tying AMAs to a cash price distort buyer incentives and should 
be prohibited. In my written testimony, I have cited several 
livestock economists who have gone on the record with a similar 
statement, going back to the mid 1990s.
    Mr. Hayes. But in answer to the simpler question, is there 
a broad consensus either among the economists or the producers? 
I think I heard you say no.
    Mr. Taylor. There is a broad consensus among economists 
that tying AMAs to a cash price has the potential to distort 
the market and should be prohibited.
    Mr. Hayes. Okay. So I think I heard you say this time there 
is some consensus among economists, but you haven't spoken to 
the livestock community. Is there consensus there, in your 
opinion? If you don't want to get into that, that is fine. All 
right, let me back up to Mr. Stallman. Does the American Farm 
Bureau Federation support legislative efforts to prohibit 
packer ownership for beef, pork and lamb?
    Mr. Stallman. No, sir, we do not. We have had that policy 
discussion and have come down on the side of not supporting 
that prohibition.
    Mr. Hayes. Okay. One of the alternatives to a complete ban 
on packer ownership has been discussed, and perhaps 
compromised, is a requirement that packers purchase 25 percent 
of their daily slaughter from the cash market. What is the Farm 
Bureau's position on that?
    Mr. Stallman. I do not think we have a specific policy 
position on that. We talked about the benefits of having more 
the cash, more product purchased in the cash market to help 
support that market.
    Mr. Hayes. Okay. All right. Mr. Buis, as I understand the 
National Farmers Union position, you support mandatory country 
of origin labeling and oppose mandatory Animal ID unless the 
government pays the entire cost. Can you reconcile how imposing 
the cost of mandatory COOL on livestock is acceptable to your 
members, but imposing the cost of mandatory Animal ID is not?
    Mr. Buis. Well, we support mandatory country of origin 
labeling and we feel that the shift in consumer preference, 
which if you even used USDA's more exaggerated cost, which we 
they had to revise when they first came out with the rule, it 
was around $4 billion, to implement COOL. If you had a one 
percent shift, and their OMB analysis said this, one percent 
shift in consumer preference towards US products, it would more 
than offset that $4 billion, so I think the market could absorb 
it. As far as mandatory animal ID, this was suggested and 
encouraged by the Secretary of Homeland Security, worried about 
terrorists distorting our food production or risking our food 
production, and if you are going to impose that cost on the two 
percent of society that produces the food to benefit the other 
98 percent, I think it is a government cost. I do not think----
    Mr. Hayes. Okay. Let me stop you. I have just got 30 
seconds left. I don't necessarily agree with you. Ms. Doby, in 
your testimony, you talk about the poultry companies, that 
there is a large waiting list of farmers who are interested in 
adding their grow-out capacity and the question that comes to 
that, if the current system were not favorable, would the 
waiting list exist year after year and decade after decade?
    Ms. Doby. Well, I am not sure there is a long waiting list, 
but I have heard people to say there is a waiting list of 
people to build poultry houses and that is one of the things 
that I pointed out. A lot of people don't understand the 
business when they are getting into it. They may be somebody 
that is up north and they come down and buy some land and they 
want to be a farmer. Sometimes they think, okay, all I have got 
to do is do these chicken houses and they don't understand that 
I have got to buy a tractor with a front-end loader. I have got 
to have a spreader truck. I have got to have the land to put 
the litter on. They don't understand all of these things until 
they get so far deep in debt that, I have got to get out of 
this somehow or another.
    Mr. Hayes. Thank you, ma'am. Is that the doctors or lawyers 
that do that? Excuse me. I couldn't resist, Mr. Chairman. I 
yield back.
    Mr. Boswell. You are forgiven.
    Mr. Hayes. I will be back in just a minute.
    Mr. Boswell. The chair recognizes the gentleman from 
Wisconsin, Mr. Kagen.
    Mr. Kagen. Thank you, Mr. Chairman. And since you brought 
up the reference to doctors, being one myself, I have to say 
this session has been a bit distressing to hear the reference 
to the AMA that way, Dr. Taylor. Do you want to get rid of the 
AMA? That is a different committee. You are in the wrong place. 
Well, I am not a farmer but I know how to listen and it seems 
to me that there is a tremendous amount of concentration and 
vertical integration in the agriculture business, and I guess 
the question has to do with how can we in Congress, in the 2007 
Farm Bill, reduce vertical integration without increasing costs 
to consumers for the price of food? And I will throw that 
straightway to Mr. Buis.
    Mr. Buis. Thank you, Congressman. I think you can take a 
number of positive steps. One is the competition title to 
address some of these structural barriers to having fair, open, 
competitive markets. But the other thing, sort of on the 
positive front, that I think this committee could really serve 
a huge role in helping rural America is the consumer demand for 
fresh, source-verified, direct, natural organic products 
straight from farmers. It has a long way in improving the 
income of farmers and ranchers, because their then allowed to 
price their product based on quality, not walk in there on a 
wounded knew to a concentrated market and say, what will you 
give me for this commodity? And I think addressing some of 
those structural barriers to distribution and marketing, that 
it is not reinventing the wheel, it is kind of going back to 
the way food used to be distributed before we insisted on 
everything looking the same, tasting the same, costing the same 
and lasting for a lifetime on the shelf. But consumers are 
willing to pay for that freshness and that quality and I think 
that is a home run waiting to happen.
    Mr. Kagen. Along those same lines, I am very interested in 
your opinion about a meat packer locally in the State of 
Wisconsin being allowed to ship his or her product across the 
State line. Don't you think it is time that if a local producer 
could put together some salami and bologna that meets Federal 
standards, is State inspected, shouldn't that small company be 
allowed to transport something across the State line?
    Mr. Buis. Absolutely. We have supported that for a number 
of years. I think it increases competition with the big 
concentrated markets that currently control it. And you know, 
the products are safe. They are inspected under the same 
standards. It is just this sort of carved-out market and some 
are refusing to want to compete with those people and I think 
it would be a great thing.
    Mr. Kagen. Since your microphone is on, you mentioned that 
your organization is opposed to forward contracting, but isn't 
that a way for a local farmer to guarantee a steady stream of 
revenue, that he has some security, he is going to get paid 
some money to pay for his cost of living?
    Mr. Buis. We are opposed to adding forward contracting for 
dairy and part of the reason is some of the experiences in the 
past and allowing those markets to become further concentrated, 
and I think rather than just piecemealing in this dairy 
provision or that dairy provision, we need to take a total 
holistic look at all of dairy and how we can help this hard-
working people receive a profit from the marketplace.
    Mr. Kagen. Thank you very much. Now about mandatory 
arbitration, a few moments ago, maybe a half-hour ago, the 
Administrator really failed to give me an adequate answer about 
the concept of mandatory arbitration. Would anybody at the 
panel like to comment about those clauses and contracts?
    Mr. Buis. Congressman, I would just say that mandatory 
arbitration, I am originally from Indiana. That is where I grew 
up and on basketball, we always wanted the home court 
advantage, and a mandatory arbitration clause is like giving 
the company a home court advantage because they write the 
arbitration clauses and stick them in there. I don't see how 
that benefits producers at all.
    Mr. Kagen. Thank you very much and I yield back my time. 
Thank you, Chairman.
    Mr. Boswell. Thanks, Mr. Kagen. The chair would now 
recognize the gentleman from Nebraska, Mr. Smith. He stepped 
out. Let us see who we got in the next order here. It would be 
Mr. Walberg from Michigan.
    Mr. Walberg. Thank you, Mr. Chairman. Mr. Crabtree, in your 
testimony, I read a statement here that says the Packers and 
Stockyards Administration has become anything but an enforcer 
of competition in livestock markets. Later, you state that USDA 
has proven, again, that they lack the wherewithal, courage and 
political will to effectively enforce the Packers and 
Stockyards Act, and they certainly cannot be trusted to use the 
considerable authority vested in the Packers and Stockyards. 
With these two statements, you yet recommend expanding their 
statutory authority. If you believe this agency cannot perform 
its mission, then why do you want them to have more 
responsibility?
    Mr. Crabtree. Thank you for the question. Actually, I would 
argue that what we recommended is that we help them define 
their statutory authority. The Packers and Stockyards Act 
provides the agency a rather expansive authority, which they 
have not used, and this is not a current thing. I mean, we have 
seen studies, USDA studies that go back to the red meat study 
in the early 1990s, the National Commission on Small Farms, two 
GAO studies, the recent Inspector General's audit, which have 
all said that the Packers and Stockyards Administration is not 
fully utilizing their authority. So what we have suggested is 
to help them define and clarify and to have a little better 
record in the courts, where they have not done well, and that 
is certainly not their fault, either. Very specifically, 
clarifying what is meant, the statutory language, by undue 
preference is, I think, crucial. Packers use unjustified 
preferential deals. To really gain a lot of economic power, 
they give sweetheart deals to very large producers and it gives 
them a lot of market power over small and midsized family farms 
and ranches. What we have suggested here is that those 
preferential pricing structures should be based only on real 
differences in product value or actual and quantifiable 
differences in transaction costs and not just based on a volume 
premium. So I think what my testimony is to you and my 
suggestion to the committee is that let us help them do their 
job better by clarifying and defining the statutory authority 
that they have and help the Administrator move forward in 
better enforcing the Act.
    Mr. Walberg. Okay. Thank you for clarifying. Mr. Taylor, it 
is all well and good to assert that Congress could legislate 
solutions to the problems you cite. Specifically, how would 
Congress dictate the law in three different ways, one, an index 
that is superior to cash prices for use in alternative 
marketing arrangements, or two, the provision of perfect market 
knowledge for buyers and sellers, and three, a mechanism for 
managing the duration of the market's open trading window?
    Mr. Taylor. Well, I am not sure if this should be done 
through legislation or under Packers and Stockyards Act, 
through regulatory action. But to me, it would be to simply 
prohibit tying any AMA to a cash market or to the futures 
market. On the second point, there are 2 broad sources of 
market power and one of those is based on size alone. There is 
no--that 81 percent concentration is too much and 79 is okay. A 
second broad category of market power deals with deception, 
asymmetric information and market failure. The asymmetric or 
one-sided information is the second point and MPR, mandatory 
price reporting, has, in my opinion, partially leveled up the 
information that both sides have. But under the 70/30 rule, 
large transactions are not required to be reported. It is large 
transactions that move market cash or future and in cattle 
markets, it is akin to insider trading not being reported, and 
insider trading must be reported for stock market transactions 
and the legislation there might be a model to apply to cattle 
markets.
    Mr. Walberg. Thank you. I see my time has ended.
    Mr. Boswell. Thank you. The chair would recognize the 
gentleman from California.
    Mr. Costa. Thank you very much, Mr. Chairman. To Mr. Buis. 
In your testimony, you spoke of public support for COOL, for 
the country of origin labeling efforts and this has been 
something that I think is much discussed about in the 
agriculture community and obviously there are different schools 
of thought on this. The opponents have noted that there 
currently is not restriction on labeling food products and 
there is therefore no need for the USDA to implement the 
legislation that was passed, so I would like to get your 
response on that, please.
    Mr. Buis. Well, if you just look at who has the market 
controlled and concentrated, and then if you look at what kind 
of products come into the country and who is bringing them in 
and the benefits that are derived by bringing these products 
into the country and putting the USDA inspection sticker and a 
USDA grade stamp on it so that the consumer assumes it is a US 
product, it is more like following the money. They are probably 
not going to do it because they are not going to make the 
revenues they could off of bringing in less expensive product, 
and duping the consumer into believing that it is a US product.
    Mr. Costa. The grocers have often argued that it is time 
consuming and costly. My experience has been that these kind of 
things, the costs have a way of being passed on. Some of us 
have visited Europe and other places where labeling is not only 
required but it is a value-added because consumers want to 
know. Your reaction?
    Mr. Buis. It doesn't need to be that way. I mean, 
obviously, in my opinion, the Department of Agriculture wanted 
to do everything they could to make this as ugly a program and 
distasteful as possible when they rolled out the rule.
    Mr. Costa. Do you think they succeeded?
    Mr. Buis. And they succeeded. But we can work out the 
problems with the retailers, and the State of Florida has a 
good program. The sky didn't fall there. Forty-eight other 
developed countries have labeling.
    Mr. Costa. Do you think there should be an exception for 
hamburger?
    Mr. Buis. Pardon me?
    Mr. Costa. Do you think there should be an exception for 
hamburger? They have talked about blending meats.
    Mr. Buis. There should not be an exception.
    Mr. Costa. There should not be any exception?
    Mr. Buis. No.
    Mr. Costa. Okay. Mr. Stallman, you have heard the response 
by the gentleman sitting next to you. You take on the mandatory 
efforts. I think it is a significant part of the marketing 
issues. I thought I understood, and maybe I was incorrect, you 
had indicated that it should be voluntary? I would like you to 
elaborate. I mean, it just seems to me, and we have had 
experiences in California, that if it is voluntary, you have no 
program, per se, outside of those who are maybe using it as a 
marketing tool for higher-end products for niche consumers. And 
please elaborate.
    Mr. Stallman. This is one of the most debated issues we 
have had internally, probably throughout the history of the 
organization.
    Mr. Costa. I expect you have heard a lot about it within 
your house of delegates and so forth.
    Mr. Stallman. But our producers come back to determining 
our position based on does it provide more income back to the 
producer. There are three criteria and all three have to be met 
before that can happen with a mandatory country of origin 
labeling program. The first criteria is, is that a consumer, 
for an equal-quality product, has to be willing to pay more 
just because of the label that is on it. The second criteria 
that has to be met is that that extra price paid for by the 
consumer has to be greater than the cost of implementation. 
Now, we can argue about what those costs are, but there will be 
some cost. Then the third thing that has to happen, if there is 
a net return from the difference between what the consumer is 
willing to pay and the cost of implementation, then that has to 
get all the way back to the producer. So all three of those 
criteria have to be met.
    Mr. Costa. Before my time runs out, where do the grocers 
mix in all of this?
    Mr. Stallman. Well, they would be in the position of having 
to work at implementation, but not just the grocers, the whole 
chain.
    Mr. Costa. Obviously. Clearly. You don't think the costs 
ultimately get passed on to the consumer?
    Mr. Stallman. In my experience, the cost will ultimately be 
pushed down to the producer, one way or the other.
    Mr. Costa. Up and down?
    Mr. Stallman. Probably down more than up.
    Mr. Costa. I don't think the grocers will absorb those 
costs.
    Mr. Stallman. No, I don't think they will, either.
    Mr. Costa. My time has run out. Thank you very much, Mr. 
Chairman.
    Mr. Boswell. Thank you. The chair now recognizes Mr. Rogers 
from Alabama.
    Mr. Rogers. Thank you, Mr. Chairman. I want to start with 
Mr. Buis. You made a reference a little while ago that an 
arbitration clause would give one party a home field advantage 
or a home court advantage. Tell me how.
    Mr. Buis. Often, they are written into the contracts and if 
the person offering the contract writes the arbitration clause, 
obviously, they have the advantage. I call it the home court 
advantage. But if the clause is being written by the person you 
are signing the contract with----
    Mr. Rogers. By clause you mean the requirement that a 
dispute has to be resolved by arbitration?
    Mr. Buis. The dispute has to be resolved and what the 
parameters of that resolution can entail. When you take away 
the person's right to seek legal recourse, then I think you are 
putting all your faith in that company.
    Mr. Rogers. Well, as a plaintiff's attorney in my former 
life, it has been my experience, and my colleagues would 
probably consider this heresy, but it has been a pretty 
equitable means of dispute resolution and usually results in 
lower litigation expenses and more timely dispute resolution, 
and I have yet to see an arbitration clause that outlined the 
rules in favor of one party or the other. But in any event, Ms. 
Doby, I have a got large poultry production in my congressional 
district. I am from Alabama and it is big in my State and in my 
district and I am curious. You talked about subtle retaliation 
methods that the company might impose on growers. Tell me more 
about that. What do you mean?
    Ms. Doby. Well, if a grower speaks out and in some 
instances just like with GIPSA, with the hotline, when you call 
that hotline, it will say, automatically, you don't have to 
leave your name. Well, if there has not been passed down that 
there is retaliation somewhere or a threat of it or the thought 
of it, why do they even suggest you don't have to leave your 
name? And it is because--and some growers have called me and 
they have said, I even went to speak to my representative about 
this to see what he would say and left this paper. And then my 
service person came out and said, what do you mean? You went 
and complained to your representative about this and so on and 
so forth? They are in shock. I went to speak to someone about 
my problem and then the company says, why do you do this?
    Mr. Rogers. Yes.
    Ms. Doby. And they hold that retaliation. They can hold you 
out of birds, which, personally, I have had that done to me. 
The service person made the mistake of telling me. I said, why 
am I being held out of birds? If you are held out of birds, you 
are not making any income. It is just like you being sick from 
your job.
    Mr. Rogers. Yes.
    Ms. Doby. You are not getting any money out of it and you 
still have your loan payment. The bank is still saying, okay, I 
don't care if you were out of birds a month. This loan payment 
is due. Well, that person with the company said, yes, that is 
probably why you are being held out, because you won't have 
your houses upgraded or something. And I said, isn't that an 
unfair trade practice? She said, it might be, but that is the 
way it is. That is retaliation.
    Mr. Rogers. Okay. Also, you said earlier today, you said 
that if growers aren't able to continue to make a profit, that 
this poultry production is going to go elsewhere. Where else 
did you mean? You said elsewhere in the agricultural sector. I 
didn't understand what you were talking about. Assuming growers 
like you ultimately say, enough. I am not signing that contract 
with that arbitration clause in it, or whatever provision that 
you don't like. Where would that growing capacity gravitate to, 
in your view?
    Ms. Doby. Do you mean the companies would go somewhere 
else?
    Mr. Rogers. What you do. No, no, no. Assuming growers like 
you just stopped all over the country and just said, we are not 
doing this anymore, what would happen? Who would start growing?
    Ms. Doby. I don't know, but I don't think that will ever 
happen because people are so far deep in debt. You got your 
farm that belonged to your grand dad.
    Mr. Rogers. Well, you made the reference earlier, that if 
we can't work this out and we can't renew these contracts and 
be profitable, this production is going to go elsewhere in the 
agricultural sector, and I didn't know where else you were 
talking about it would go.
    Ms. Doby. I am not exactly sure.
    Mr. Rogers. But also Mr. Hayes made the point earlier about 
waiting lists. I do have some of those folks that are on a 
waiting list, but I will tell you who mostly is on the waiting 
list, are other growers, people who are already in the sector 
who are wanting to get more chicken houses authorized and the 
companies won't let them. Now, if they are so bad, and they 
have been in the business for years, why do they want more 
houses?
    Ms. Doby. Well, one thing the company will--they will tell 
you and most companies, it used to you could build, two houses. 
Well, they are saying now, we don't offer a contract to anyone 
unless you build four or more houses, because they are not cash 
flowing.
    Mr. Rogers. Right.
    Ms. Doby. And that is one reason I think growers, they 
have, maybe two houses and they build more houses so that the 
cash flow will be better. If I can put in----
    Mr. Rogers. But my point is I have got growers who may have 
4 or 6 houses and they are wanting to get 8 or 10 and the 
companies won't let them.
    Ms. Doby. Yes.
    Mr. Rogers. So it just seems to me incongruent with what 
you are talking about, to say that only naive folks who don't 
know what they are doing get into this business, when I have 
got established successful farmers who are willing to expand 
their operations and they are aggravated because the companies 
won't let them have or authorize them to have additional 
houses.
    Ms. Doby. Well, not necessarily, but I think if you also 
talk to those growers, I feel like they would agree with these 
things that I have brought out.
    Mr. Rogers. Several things you said I have heard from them. 
I agree.
    Ms. Doby. Yes. They would like to have those. I am not 
saying----
    Mr. Rogers. But I have never heard anybody talk about 
organizing the chicken growers in my district. I have never 
heard about that. I am sorry, Mr. Chairman.
    Mr. Boswell. Thank you. Well, it is the first round. I 
guess there is not too many of us left, so we may do another 
little round here very shortly. But Mr. Taylor, I noticed in 
your testimony, your footnotes, you made a reference to 
Peterson.
    Mr. Taylor. Yes, sir.
    Mr. Boswell. Does that reference the late Bob Peterson of 
IBP?
    Mr. Taylor. Yes.
    Mr. Boswell. Can you explain the quotation in more detail?
    Mr. Taylor. There are transcripts available of three talks 
he gave to Kansas cattlemen, one in 1988, before IBP got 
involved in captive supply, and then two in 1994, after IBP did 
some AMA arrangements. And he basically outlined how AMAs gave 
the buyer leverage in the marketplace and went on to say, do 
you think this will have an impact on the cash price? And he 
said you bet.
    Mr. Boswell. It kind of follows the money.
    Mr. Taylor. Yes.
    Mr. Boswell. Okay. I was curious about what you meant by 
that, so thank you for elaborating on that. I guess you were 
making a point that is clear. I think you said in the RTI 
report, you said it contains fundamental flaws because the 
study ignores about 20 percent of cash transactions, ignores 
about 20 percent cash transaction that occur with a negotiated 
grid. So first, do you agree with this statement, and if so, 
can you elaborate on what it means and how it would affect the 
RTI's data?
    Mr. Taylor. MPR has several categories for reporting cash 
transactions. One of those is on a negotiated grid, and in the 
last year or so, that has fluctuated some but been on the order 
of 10 to 20 percent. In looking through the RTI study, I did 
not see where they had recognized those cash transactions with 
a negotiated grid; that they lumped all cash together.
    Mr. Boswell. Thank you. Mr. Walberg, do you have any other 
questions?
    Mr. Walberg. I do, Mr. Chairman. A couple more if I could. 
I am aware of arguments that packers have disproportionate 
market power and therefore they are able to manipulate prices, 
though I am not aware of any study or investigations that have 
ever shown that to occur. Perhaps maybe some of our witnesses 
could provide the subcommittee with that information. But Mr. 
Stallman, I guess my question is, what prevents producers from 
banding together in cooperative arrangements and agreements to 
exert market power over packers?
    Mr. Stallman. Nothing. It is a matter of will and desire. 
You know, the laws regarding cooperative structures were put in 
place to help assist the producers to do that and there have 
been examples of producers successfully getting together in 
cooperative structures and they have more market power. But 
there are stories that were not quite so successful and there 
is a reluctance of producers to do what it takes to put their 
producing power together to get more market power, but there is 
nothing to prevent them from doing it.
    Mr. Walberg. It is their choice and it is a struggle. They 
can join it or let it go.
    Mr. Stallman. That is correct.
    Mr. Walberg. Okay, thank you. Mr. Taylor, you stated that 
there has been a lack of innovative effort by the USDA to 
identify new ways of doing business that are economically 
efficient.
    Mr. Taylor. Yes.
    Mr. Walberg. Fair to both sides of the transaction and do 
not distort buyer or seller incentives and would result in beef 
with the quality attributes that the consumers desire. Let me 
ask you, are you suggesting that the government is responsible 
for how livestock in this country should be bought and sold?
    Mr. Taylor. No.
    Mr. Walberg. That is what it sounds like.
    Mr. Taylor. The point I want to make is, over the years, 
there has been a bipolar debate, AMAs versus the cash market.
    Mr. Walberg. Don't get back into medicine with me or 
anything.
    Mr. Taylor. Okay.
    Mr. Walberg. The doctor has left.
    Mr. Taylor. And what I am suggesting is that we need to 
think of innovative ways of handling these transactions that do 
not have objectionable features like being tied to a cash 
market. And there are some electronic possibilities, I think, 
that have not been investigated, but if we get into full 
electronic marketing, there could be antitrust issues. So I am 
just suggesting that all of us need to give more thought to 
innovation rather than sticking with this bipolar debate.
    Mr. Walberg. Well, I am not sure it is a bipolar debate. 
Philosophically, there is some significance to those that would 
say that the government is expanding their power and taking 
control, what it sounds like, I don't know if there is a 
mechanism without expanding it if you are going to walk away 
from the market. So well, we will agree to disagree at this 
point, but thank you.
    Mr. Boswell. I see no further questions. I want to thank 
the panel for your spending the time with us today. We 
appreciate it very much and we will look forward to talking to 
you in the future. Thank you very much. We will take a short 
moment here and let the third panel take their position. Well, 
I thank the panel for arriving. I see that Ms. Philippi, that 
you are back and it is good to see you again, my neighbor to 
the west. And we appreciate the time of day it is, so we will 
get right to business and thank you for your patience, being 
willing to come and share with us. As you see, these are 
discussion points on a lot of people's minds, so I think it is 
good that we talk about it. So that is what we are trying to do 
and listen carefully and that is what this is, a listening 
session for us. So I would like to welcome the third panel, all 
of you, and we will get right down to business and we will 
start of with Ms. Philippi. Help me pronounce. I want you to 
pronounce your name, Joy.
    Ms. Philippi. Philippi.
    Mr. Boswell. Philippi. I got it. Philippi. Okay. So we will 
start off with you for five minutes and we are happy to have 
you here.

STATEMENT OF JOY PHILIPPI, PORK PRODUCER, ON BEHALF OF NATIONAL 
                     PORK PRODUCERS COUNCIL

    Ms. Philippi. Okay, thank you. Chairman Boswell and Ranking 
Member Hayes and members of the subcommittee, I am Joy 
Philippi, a pork producer and row crop farmer from Bruning, 
Nebraska, and I am the immediate Past President of the National 
Pork Producers Council. NPPC is an association of 43 State pork 
producer organizations and represents the interests of 
America's 67,000 pork producers.
    The US pork industry has enjoyed unparalleled prosperity 
over the past three years. Average farrow-to-finish producers 
completed their 35th consecutive profitable month in December 
and made an average profit of $22.17 over that time period. New 
data indicates that the industry will remain profitable through 
March of this year, despite of near record feed costs. It is 
against this backdrop of financial success that we offer our 
views on market structure.
    First, we would ask, is legislation that would limit 
producers market access options a solution in search of a 
problem? There is no doubt that the structures of the US pork 
industry and the pork and hog markets have changed over the 
past 10 years. We urge Congress to focus, not on structural 
issues, but on the more important market efficiency measures of 
conduct and performance as you deliberate the wisdom of 
government intervention. Congress has invested significant 
taxpayer resources in researching the current livestock 
markets. Much of that research, including the $4.5 million 
GIPSA Livestock and Meat Marketing Study, is relatively new. We 
have had little time to consider what it tells us, so we urge 
Congress to move slowly, as USDA and the industry digest and 
consider those findings.
    We also would like to know the status of GIPSA's report to 
the 2005 audit conducted by USDA's Office of Inspector General. 
We believe GIPSA Administrator James Link has made substantial 
changes in the way GIPSA performs its duties. However, we do 
believe Congress should know specifically what has been done 
and how that is going to change GIPSA's future efforts to 
enforce the Packers and Stockyards Act. The Federal government 
sought to approve livestock price reporting and enhanced the 
transparency of the markets by implementing the Livestock 
Mandatory Reporting Act. We believe that system has made 
markets more transparent and that refinements enacted in 2006, 
including new swine reporting enhancements, will further that 
cause. Let us work to make the system better before we proceed 
with other actions.
    The focus of most debates regarding the competition has 
been in the number and market shares of various participants. 
The key is whether sufficient competitive pressure exists to 
make packers and producers behave in a way that approaches 
competitive norms and yields competitive prices and quantities. 
This can only be measured by looking at actual transactions to 
determine how firms act and what the results of those actions 
are. The new GIPSA study did just that. Instead of looking at 
changes in ownership and market shares, it examined 
transactions and looked at conduct and performance. We now need 
to step back and consider the methods and results of that 
research, perhaps even ask and answer, there is no question on 
the results.
    Now there are always unintended consequences to virtually 
all public policies and part of the art of public policymaking 
is balancing the costs and the benefits of any proposal. In the 
areas for competition and industry structure, there are a 
number of pending proposals that will have an adverse effect on 
the pork producers and will give little benefit to anyone. As 
an example, consider the idea of requiring packers to buy at 
least 25 percent of their hogs on the spot market or through 
negotiated sales. The new GIPSA study found that such 
requirements would make producers and consumers worse off and 
would not leave packers better off. Additionally, the practical 
implications of such a requirement are challenging, to say the 
very least. Would the 25 percent be measured daily, weekly? 
Would producers be required to sell 25 percent of their hogs 
through negotiated trades to provide the 25 percent that 
packers are required to buy through negotiated trades? If not 
and since only 11 percent of all hogs are sold through 
negotiated trades now, which producers would have their 
contracts terminated to force their hogs into the negotiated 
trades? And what happens when those contracts are terminated? 
Would the financing that was contingent on those contracts be 
withdrawn by risk-adverse lenders?
    Pork producers face many challenges today and those include 
the rising corn prices driven by ethanol production, impending 
mandatory country of origin labeling costs, the specter of 
animal rights-driven legislation dictating on-farm production 
practices, and increasingly stringent and costly environmental 
regulations that are almost universally better handled by large 
operations. I urge you not to add to these challenges by 
limiting the options we have available to market our hogs. 
Punitive actions against packers do not necessarily benefit 
pork producers in the long run, unless the packers are clearly 
in the wrong and we have not seen any evidence of this, and 
Congress must proceed with caution, weighing the costs and 
benefits of such important public policy.
     We thank you for the opportunity to be here today to 
represent the Nation's pork producers, and I will be glad to 
answer questions at the appropriate time.
    Mr. Boswell. Thank you. Mr. Roenigk.

    STATEMENT OF WILLIAM P. ROENIGK, SENIOR VICE PRESIDENT, 
                    NATIONAL CHICKEN COUNCIL

    Mr. Roenigk. Thank you and good afternoon, Chairman 
Boswell. We appreciate the opportunity to participate in this 
important hearing regarding the issue of market structure for 
the livestock and poultry industry. On behalf of the National 
Chicken Council, I appreciate your invitation to provide 
comments on the market structure of the US chicken industry. My 
name is Bill Roenigk and I am Senior Vice President of the 
National Chicken Council. Companies that produce and process 
more than 95 percent of the young meat chicken broilers in the 
United States are members of the National Chicken Council. I am 
pleased to have the opportunity to share with you information 
about the market structure of the US chicken industry.
    More than a half a century ago, as farmers moved more and 
more away from dual-purpose chickens, those were chickens that 
produced both eggs and meat, and move more and more towards 
specialized breeds, those that laid eggs and those that were 
better at producing meat, a new industry and a new market 
structure began to emerge in poultry farming. These farmers 
sought greater stability and predictability in their incomes 
and return on their investments. With access to only limited 
capital, it was very important to lessen market risk by sharing 
those risks with others in the production process.
    Although the vertical integration happened several 
different ways, the primary way it happened was with feed mills 
who provided the feed to the farmers growing the broilers, and 
they learned the best way to get paid for the feed they had in 
those chickens was to work with the grower and a processing 
plant to make sure that when the birds reached market weight, 
that they had a place to be processed. Because a chicken grows 
so quickly, the economics of feeding broilers requires prompt 
movement to market when they reach market weight, and a broiler 
grower is at a very distinct disadvantage if the processing 
plant is at capacity or the wholesale market for dressed 
chicken is depressed. By coordinating growing and processing 
and marketing, the surge in gaps in live production could be 
minimized. The chicken industry, as it began to use vertical 
integration to coordinate production, processing and marketing 
50 years ago, was participating in a concept called just in 
time. At the time, we didn't know it was called just in time. 
The Japanese carmakers later labeled that and took credit for 
it. We invented it or at least we think we did, but we forgot 
to label it, so we don't get credit for it.
    Contracts with growers offer many important benefits. These 
benefits and advantages include substantially reduced market 
risk, quicker and a more thorough understanding of production 
requirements, better access to capital, more reliable and 
predictable income flows to labor, management and investment, 
and better opportunity to leverage success to expand or 
diversify farm operations.
    Family farms who contract with chicken companies have 
benefited in good measure over the past six decades. More than 
25,000 family farms currently contract with companies to raise 
broilers and can do so more confidently because, to a very 
large degree, they are insulated from the risks of the chicken 
marketplace. Contract growers are basically guaranteed a fixed 
payment with a bonus for above-average performance. University 
studies have found that returns to growers and companies are 
very comparable.
    As was mentioned earlier, companies, not every company, but 
most companies, have a list of farmers who would like to begin 
to grow chickens. They also have a list of growers who are 
currently growing chickens and would like to add additional 
housing capacity to their operations. And as was asked before, 
if this is not a good system, why has it existed for more than 
50 years and why do we have these waiting lists? Vertical 
integration has stood the test of time very well.
    As I noted in my statement, the consumption has gone up to 
where chicken is the most consumed meat in the United States, 
and the cost to consumers has come down dramatically. It takes 
only four minutes for the average worker to be able to earn 
enough wages to buy a pound of chicken. Consumption of chicken 
has doubled from more than 30 years ago. And until the ethanol 
issue came, I would predict that we were going to continue to 
increase that consumption, but that remains to be seen.
    Chairman Boswell, the National Chicken Council appreciates 
the opportunity to share the broiler industry's story with you. 
As you begin to deliberate the various issues involving the 
upcoming farm bill, I respectfully suggest that trying to 
improve the market structure for the chicken industry should 
not be a high priority for the subcommittee nor for Congress. 
The National Chicken Council does not see the need for new or 
additional laws nor USDA regulations that would involve 
government further in the grower/company business relationship. 
Nonetheless, if you have concerns or questions about the 
chicken industry, with respect to this issue, the National 
Chicken Council would very much appreciate the opportunity to 
work with you to appropriately and adequately address those 
issues or concerns. Thank you.
    Mr. Boswell. Fair enough. Mr. Queen, please.

 STATEMENT OF JOHN QUEEN, PRESIDENT, NATIONAL CATTLEMEN'S BEEF 
                          ASSOCIATION

    Mr. Queen. Mr. Chairman, my name is John Queen and I am a 
fourth-generation cattle producer and livestock market operator 
from Waynesville, North Carolina. I am President of the 
National Cattlemen's Beef Association and I am pleased to be 
with you to discuss our policy on market structure issues, 
policy which was brought forward by, debated by and voted on by 
our rancher members. This is grassroots policy where one 
member/one vote has always been the standard.
    When it comes to market structure and competition issues, 
NCBA's position is simple: we ask that the government not tell 
us how we can or cannot market our cattle. The way we market 
our cattle has changed significantly over the years and it has 
come from the recognition within our industry that we are not 
just cattle producers, but beef producers and must be 
responsive to the consumers' demands. This consumer focus has 
led to many innovative marketing programs that have improved 
the quality of beef, given the consumer, what they are asking 
for, and allowed ranchers to get paid for the value that they 
add to their animal.
    In addition to being responsive to our consumers, 
participation in these marketing arrangements provides a 
rancher with several tools that help improve their operations 
and herd management. The ability to manage price risk is one of 
the most valuable of these tools. Taking advantage of marketing 
arrangements, such as forward contracting, allows producers to 
make a price that allows them to be profitable. If the price 
doesn't fit their needs, they can walk away and find another 
buyer. Being a price maker rather than a price taker, puts 
ranchers in control of their business. Many ranchers who 
participate in these programs get information back from the 
feedlots, telling them how their cattle performed. Information 
also comes back from the packer, in the form of yield and 
quality grades. This information is critical in managing our 
herds and focusing on the trades which produce the highest 
quality animals.
    The benefits of AMAs were recently supported by the results 
of the GIPSA Livestock and Meat Marketing Study conducted by 
RTI. This 3 1/2 year study was funded by 4 1/2 million taxpayer 
dollars and was billed as the definitive answer on these 
issues. The study supports what many ranchers across our 
country have known all along: a market-driven system works. The 
overwhelming conclusion of this study is that, overall, 
alternative marketing arrangements help all sectors of the 
industry, not just those that participate.
    The report states that the leading reasons ranchers 
participate in AMAs are the ability to buy and sell higher 
quality cattle, improve supply chain management and obtain 
better prices. When talking about improved supply management, 
we have to once again go back to the consumer. The consumer 
does not come into their local Safeway looking for ranchers 
reserve beef only on Tuesdays. The consumer demands the 
convenience of picking up a package of ranchers reserve beef 
any day of the week. To meet that demand, the retailer and 
packer need a steady and constant supply of cattle that meet 
the qualifications of the store-branded program. If the packer 
is limited in its ability to source those cattle, the branded 
programs go away. The consumer chooses other products and cow/
calf producers get less money.
    So far, I have only talked about AMAs, but approximately 62 
percent of cattle marketing is done through the cash or spot 
market. Spot markets such as auction barns are critically 
important to the US cattle industry. Ranchers who market this 
way cite several reasons for their choice. One reason is 
independence. Flexibility is also important to these producers. 
Selling on a spot market give ranchers the opportunity to 
participate in market rallies. We must remember, however, that 
this only gives them the opportunity to catch the rally. Timing 
the market is always a difficult task and adds to your price 
risk.
     Even with traditional means of marketing, we have seen 
innovations that have been market driven. One of these 
innovations is video livestock auctions. With this method, 
ranchers can auction their animals by video and reach customers 
all across the country. The results of these innovations are 
telling. Demand for beef has grown over 20 percent since 1998. 
Consumers spent a record $71 billion on beef in 2006 and 
consumer confidence in our product is at 91 percent, greater 
than it was before the 2003 BSE case in Washington State.
    The study concludes that restrictions on AMAs would cause a 
decrease in the supply of cattle, quality of beef and feeder 
cattle prices. These results would set our industry back and 
place the burden on the individual cow/calf producer. In a time 
where we continue to see an increase in feed costs due to 
competition with ethanol for corn, as well as an increase in 
fuel costs, the last thing we need to do is to add more burdens 
to our ranchers. Keep in mind that, for every agreement made by 
a packer, there is an individual rancher on the other side of 
that transaction who had decided that that agreement is in 
their best interest and they should be allowed to conduct that 
business privately, just like any other industry. Restrictions 
or bans on AMAs will eliminate or significantly reduce these 
programs and hamper the progress we made in keeping ranching a 
viable industry. In the end, we must have a government that 
works to help our industry, not one that limits or removes 
choices for cattlemen in the marketing of their cattle. Thank 
you.
    Mr. Boswell. Thank you very much. Mr. Boyle.

 STATEMENT OF J. PATRICK BOYLE, PRESIDENT & CEO, AMERICAN MEAT 
                           INSTITUTE

    Mr. Boyle. Good afternoon, Chairman Boswell, Ranking Member 
Hayes and Congressman Kagen. Thank you very much for the 
opportunity to represent the American Meat Institute here 
today. AMI represents 250 of the Nation's meat and poultry food 
manufacturers. Collectively, they produce 90 percent of the 
beef, pork, lamb, veal, and 75 percent of the turkey processed 
in the United States. These companies operate, compete, 
sometimes struggle but mostly thrive in one of the toughest, 
most competitive and certainly amongst the most scrutinized 
sectors of our economy.
    Members AMI have concerns about legislative efforts to 
apply State-directed controls on an industry that competes 
intensely with each other and for a greater share of the 
consumers' food dollar from other segments of agriculture which 
would be free from such controls. Specifically, these concerns 
relate to proposals that would, first, prohibit the ownership 
of livestock by a packer and unduly regulate investment; 
second, prohibit or restrict contracting and livestock 
marketing arrangements upon which producers and packers freely 
agree and routinely utilize; and three, mandate an arbitrary 
cash or spot market purchase requirement. If enacted, these 
proposals would involuntarily expose producers and packers to 
the volatility of the cash markets, expose packers to the 
inconsistencies of raw materials, and subject consumers to 
fewer product choices at higher prices.
    We believe the strength of the livestock marketing system 
in the United States is in the flexibility it provides to 
producers, packers, processors and retailers, in responding to 
market signals. Meat and poultry consumers continue to benefit 
from a wide array of value-added products at very reasonable 
prices. The amount of discretionary income that American 
consumers spend on food has fallen to a historic low of just 
four percent, of which meat and poultry products account for 
less than two percent of our disposal income each year. We 
believe that most appropriate government role in today's 
livestock marketing system is to enforce the numerous existing 
laws and regulations that ensure a fair and nondiscriminatory 
business practices amongst producers and packers, while 
allowing producers the freedom of choice on how best to market 
their livestock.
    Two recently released studies agree with AMI's assessment 
of the competitive and rational nature of the livestock and 
meat markets, as well as the resulting benefits to American 
consumers. The first panel earlier today reported on the 
investigation and enforcement activities of GIPSA's and RTI's 
Livestock and Meat Marketing Study. I would like to emphasize 
two findings. First, the report found that contractual 
marketing arrangements between livestock producers and meat 
packers have numerous mutual benefits. They increase the 
economic efficiency of the cattle, hog and lamb markets, and 
these economic benefits are distributed forward to consumers, 
as well as shared between producers and packers. And secondly, 
the study concluded that restrictions on the use of these 
contractual arrangements, such as the legislative proposals 
that I have previously discussed and which AMI opposes, would 
have negative economic effects on livestock producers, meat 
packers and American consumers.
    A second multi-year congressional-mandated report from the 
bipartisan Antitrust Modernization Commission was submitted to 
the Justice Department earlier this month. It concludes that 
``the government should not displace free-market competition, 
absent extensive, careful analysis and strong evidence that a 
market failure requires the regulation of prices, costs and the 
entry in place of competition.'' Clearly, the extensive, 
careful analysis of the 4-year, $4 1/2 million RTI study 
documents that we have nothing approaching market failure in 
the livestock sector of our agriculture economy. The RTI study 
is only the most recent in a long line of similar studies over 
nearly the past 20 years that have reached the same conclusions 
about the legality and vibrancy of our Nation's livestock 
marketing system. Many of these studies were either mandated by 
Congress or initiated by Federal regulatory agencies with 
oversight responsibility for the livestock and meat packing 
sectors. Others were funded by universities, and by private 
entities, to assess the health and competitiveness of this 
industry. And they have, every one them, all 34, without 
exception, reached the same conclusions as the most recent RTI 
study; that the livestock and meat packing market is 
competitive and that current oversight and enforcement are 
effective.
    Congressman Hayes, you asked the last panel whether 
anything approaching an economic consensus exists on that 
conclusion. I would suggest that these 34 studies, representing 
nearly two decades of regulatory oversight and academic 
analysis, comes pretty darn close to representing that 
consensus about the health and vibrancy of this sector. I thank 
you for the time today. I ask that these be submitted for the 
record, and I look forward to your comments and observations 
and questions.
    Mr. Boswell. The additional materials will be incorporated 
in the record, and thank you for that and we will start our 
question time now and I will just start off with Ms. Philippi. 
In the testimony today, you heard that somewhere between 60 and 
80 percent of the hogs are either owned outright by packers or 
are tightly controlled by various contracts. At what point does 
packer control become an issue?
    Ms. Philippi. Well, to this point, we haven't seen that has 
been proven yet, what that level is going to be and we do 
believe that we need to continually look at that. And if you 
would like to have even more in-depth numbers, we could be able 
to probably look for those.
    Mr. Boswell. I will appreciate that, but is there some 
point where you become alarmed?
    Ms. Philippi. We haven't been at this point.
    Mr. Boswell. So where would it cause the yellow flag to go 
up in your mind?
    Ms. Philippi. Well, in my mind, I don't have any problems 
with the packers owning hogs.
    Mr. Boswell. Okay. So if they have 90 percent of the hogs, 
there is no problem with you?
    Ms. Philippi. It is not with me personally, but we will get 
you information, if we can get that to you.
    Mr. Boswell. All right. Thank you very much. Just to move 
along here, Mr. Roenigk, in Ms. Doby's testimony today, we 
heard of multi-year contracts being redrawn before the contract 
runs out and the terms are changed. We also heard about 
mandatory arbitration clauses being added to the contracts. You 
state in your written testimony that a measure of successful 
relationship between companies and contract growers is that the 
majority of the companies have a waiting list for growers who 
are requesting to add to existing grow-out housing, and I think 
you make the connection that, since this is the case, it must 
be a good relationship. Could it not also be the case that the 
industry is so integrated that this is the only option 
available for the poultry producers?
    Mr. Rogers. Permit me to----
    Mr. Boswell. I will give you a minute.
    Mr. Rogers. To phrase the question, the question is, is 
there a better way to operate contracts with growers?
    Mr. Boswell. Well, is there any other option for the 
producer?
    Mr. Roenigk. Given the current market forces, both in terms 
of inputs and in the consumer demand, I don't know of one, Mr. 
Chairman.
    Mr. Boswell. That is my point there. Okay. Well, that is a 
concern that I hear people talking to me once in a while. Mr. 
Queen, if I could, what would be the result of prohibiting 
packer ownership for livestock for more than a couple weeks?
    Mr. Queen. I am sorry, I didn't hear you.
    Mr. Boswell. What would be the result of prohibiting packer 
ownership for livestock for more than 7 to 14 days before 
slaughter?
    Mr. Queen. Because I think a lot of the value-added markets 
that we have, have to go through a chain of events and that 
packer is one of those links in that chain, going from the 
producer to the feeder to the packer to the retailer to the 
consumer, and if we don't let him fulfill that continuously, 
then we are going to lose that added value that we have in our 
commodities.
    Mr. Boswell. Continuing that, could it be said that if a 
producer wanted to take advantage of high future prices, they 
could sell a CME contract? And could it also be said that if a 
processor wanted to take advantage of low prices and a short 
supply, could he not buy on the CME? Isn't that why live animal 
contract trading was started in the 1970s?
    Mr. Queen. Yes, sir.
    Mr. Boswell. So what are your comments? Why did you say 
yes?
    Mr. Queen. Well, certainly the producer has that 
opportunity to sell that contract to protect himself in that 
risk, if he has monetary means of doing so. The producers in 
America today are so small, the average herd size is just 38, 
so very few producers in America have the ability to hedge 
those contracts the way the market was set up.
    Mr. Boswell. In your testimony, you emphasize that the 
National Cattlemen's Association wishes the government to stay 
out of cattle marketing issues. A little later in your 
comments, you say how much you rely on Federal regulations to 
keep the playing field level for producers. Would everyone be 
better off if there were no AMAs or packer ownership and let 
contracts on the Chicago Mercantile Exchange manage the risk?
    Mr. Queen. No, sir, I don't think so. I think we are trying 
to take away the American way, what our country was founded on, 
and that being the ability of every producer in this country to 
choose his own business model, that being the ability to sell 
his commodity to whom he wants to sell it to, when he wants to 
sell and for what price he wants to sell and to be delivered 
what day he wants to do that. That is the American way. That is 
what our country was founded on and I think we are trying to 
take that away from the livestock producers in America.
    Mr. Boswell. Okay, I am going to stop now and come back to 
you in a little bit, Mr. Boyle. I would like to recognize Mr. 
Hayes.
    Mr. Hayes. Thank you, Mr. Chairman. Mr. Roenigk, one of the 
legislative proposals we heard discussed today is the 
prohibition of mandatory arbitration clauses in poultry 
production contracts. Could you take a a minute to outline the 
use of these clauses and why your industry opposes the proposal 
to eliminate them?
    Mr. Roenigk. Well, mandatory arbitration is in many 
clauses. I don't think it is in all the clauses. But 
differences arise in any business relationship, contractual 
relationship. You need an efficient and timely way to resolve 
their differences. Mandatory arbitration does that. If someone 
can propose a better mechanism, I think we would be willing to 
consider it, but we are not aware of one. And the arbitration 
system, as I understand it, does not give someone a home field 
advantage or a home court advantage. You choose arbitrators who 
are fair and just to hear both sides and make a decision. To 
me, that sounds somewhat fair.
    Mr. Hayes. Okay. Joy, the poultry contract grower on the 
previous panel made three specific legislative recommendations: 
prohibit mandatory arbitration, expand coverage under Packers 
and Stockyards Act over production contracts, and authorize 
collective bargaining power for contract growers. What is your 
thinking on each of these three?
    Mr. Roenigk. As my statement----
    Mr. Hayes. Joy Philippi.
    Mr. Roenigk. I am sorry.
    Mr. Hayes. I was asking Joy.
    Ms. Philippi. Those are three areas that we discussed. We 
also believe that the regulation of a contract like that 
doesn't need to be mandated. We believe that there are some 
agreements that can be made that producers can enter into. They 
can review them to know if they are good for their business 
model. I am a contract producer, so I was walking that right 
through my head as well, and we just don't believe that there 
is any need to have any further regulation on those things.
    Mr. Hayes. Mr. Roenigk, do you want to comment on that?
    Mr. Roenigk. As my statement indicated, we believe, for 
further government intervention, whether it is congressional or 
USDA, it probably is not needed at this time. We think the 
system works well. Companies have grower relations committees 
where they meet periodically with growers. The State poultry 
associations include both growers and companies in there. There 
are a lot of opportunities to work out the differences and I 
think we should try and make that system work better before we 
have more government intervention.
    Mr. Hayes. Okay, I am going to come back with another 
question. Mr. Boyle, talk about GIPSA's enforcement activities. 
Are they doing enough, not enough? Are we balanced here?
    Mr. Boyle. Well, my impression from the Administrator's 
update on steps that he has taken since he arrived to run that 
agency, suggests that it is a revamped, reorganized agency with 
a lot of investigations underway in the last few years. At AMI, 
we have been always supportive of a strong and effective GIPSA, 
as well as strong enforcement of our antitrust laws. I will 
point out for the record that, unlike all other segments of 
American business who have the pleasure of interacting on 
occasion with the antitrust division of the Department of 
Justice and the Federal Trade Commission, in the meat packing 
sector, we also have the opportunity to interact with the 
Packers and Stockyards, a unique agency with oversight of 
competitive practices and fair trading practices in the meat 
packing sector. So it is an additional layer of antitrust 
enforcement and review. We have always been supportive of it. 
We interact with them when necessary and I believe that the 
Administrator gave a fairly positive update of changes he has 
implemented since he arrived.
    Mr. Hayes. Back to Mr. Roenigk for a minute. Interestingly, 
I was at the opening of a new poultry plant last week and this 
is based on rejuvenating older, smaller poultry houses, 
contracting with those folks for a different way of raising, 
air-chilled rather than--so there are a lot of organic, free 
range. A lot of different alternative markets are springing up. 
So I think, even though the integrators have a big impact on 
the market, there are a lot of alternatives that are being used 
out there. Mr. Chairman, time is running out here. With Mr. 
Queen, we will ask about animal ID on the next round.
    Mr. Boswell. Thank you, Mr. Hayes. The chair recognizes my 
colleague from Iowa, Mr. King.
    Mr. King. Thank you, Mr. Chairman, and I want to thank the 
witnesses that are here. I am listening to this testimony and 
reading through it at the same time and I looked back on Joy 
Philippi. In your testimony, you mention a number of challenges 
facing the livestock industry, high feed prices, mandatory 
COOL, animal rights initiatives, and keep this list for me, 
because I am going to ask you a prioritized question. So high 
feed prices and mandatory COOL, environmental regulation. What 
else do I have? Let us see, packer ownership, lack of a 
livestock ID program. And out of those--no, I will go down 
through the list again. I have got them in order. High feed 
prices, mandatory COOL, animal rights initiatives, 
environmental regulation, packer ownership, and then I added 
the livestock ID, lacking a livestock ID program. Out of those, 
what would you say would be the greatest risk to the livestock 
industry? And if you would like to prioritize them, if you can 
do that on the spot, that would be wonderful.
    Ms. Philippi. That is pretty hard to do without reflecting 
my personal opinion as well. But we have treated the issues of 
the corn availability and corn price, the issue of mandatory 
country of origin labeling. All of those first that we 
identified, we were trying to address in an equal fashion, 
because we believe they are all going to have a cost effect, 
costs that our producers are going to have to somehow recover 
in the marketplace. But when we get to the issue of the way 
that--asking us to change our production practices, those costs 
are still very much unknown. So you know, we look at those 
things equally and that is why we hope that we don't have to 
have regulation on the way we do our business today.
    Mr. King. If I could then, you want us to fix them all at 
once.
    Ms. Philippi. That would be wonderful. And we will help 
you.
    Mr. King. And I appreciate that. Given the track record of 
Congress, though, we may want to be focusing on some 
priorities. I am going to ask Mr. Roenigk. Would you like to 
take a stab at that, please?
    Mr. Roenigk. Yes, thank you very much. And if I could just 
maybe add a couple, I think the Number one priority, and I 
don't know if they would change market structure, I think it 
would create greater concentration, and that is that we have to 
have a super-abundant corn crop, not just this year and not 
just next year, but until we get this breakthrough in yields, 
because the only way you get more corn right now is more acres. 
I am agreeing with the corn geneticists, some day we will get 
that breakthrough, but we have got to have more acres, we have 
got to have more corn and we have got to satisfy that. If we 
have a hiccup in our corn crop, I am sure there will be more 
than one hearing of this subcommittee about the impact of that. 
So that is Number one, not just this year, but I think for the 
next few years. I will try to stay in my one minute. But if you 
look at my graph on Page four, from 1970 to 1975, broiler 
production was flat. I hope I am wrong, but that is what I see 
for the next five years, flat, and I hope it is not down. We 
talk about contract growers and their opportunities. The way to 
get more opportunities is to keep that trend up and not flat. 
So I hope I am wrong, but that is my concern.
    Number two, the likelihood of avian influenza, commercially 
a high pathogenic, avian influenza breaking out in the 
commercial flocks in this country is very, very small. USDA and 
the other agencies have done a beautiful job of putting up the 
biosecurity firewall, safeguards and so on and we have to keep 
that up. But if it was to happen, I suggest that, not just the 
companies, but the growers would not be thinking about whether 
mandatory arbitration was the most important thing in their 
life. They would be saying, how can I save my livelihood and my 
farm? If the system shuts down, we can't. The consumer 
confidence is a problem both in this country and other 
countries. We have already seen it. A truck drives through West 
Virginia with its doors shut. It can't ship to Japan because it 
went through West Virginia and because they had an outbreak. 
The turkeys were in the ground before the headlines were in the 
newspaper, but Japan cuts West Virginia off.
    The third thing I would say is that there is an increasing 
likelihood of poultry inputs coming into this country from 
countries who can undercut our prices, and these are from 
countries who have--at least one country has been in the news 
recently, not about human food, but some other type of food.
    Mr. King. Thank you. If you don't mind, please, I would 
like to move over to Mr. Queen. I am running out of time. But 
your priorities on the greatest risks to the livestock 
industry? Yes, I read through most of them. High feed prices, 
mandatory COOL, animal rights activist initiatives, 
environmental regulation, packer ownership, lack of a livestock 
ID program. What puts the livestock industry at the greatest 
risk, Mr. Queen?
    Mr. Queen. Well, I think that the greatest risk, as we have 
talked here, is doing away with their ability to market their 
cattle as they see fit, taking away that right from the citizen 
of America, the rancher.
    Mr. King. Thank you. And I am running out of time, so I 
will have to pass on Mr. Boyle and I will yield back the 
balance of my time then Mr. Chairman.
    Mr. Boswell. We have been joined by Mr. Baca. The chair 
recognizes Mr. Baca from California.
    Mr. Baca. Thank you very much, Mr. Chairman, and thank you 
very much for having this hearing. Let me ask this question to 
Mr. William R. Just like with the pork producers, you have seen 
some prosperous times recently. You say that the conditions 
currently placed are the ones that the market itself has 
indicated and decided work best. Is anyone being left out?
    Mr. Roenigk. I am not sure I understand that question. Are 
you asking, as vertical integration of the industry moves 
forward, have any parts of the farmers been left out?
    Mr. Baca. Left out.
    Mr. Roenigk. I don't think so and in fact, as was mentioned 
by Congressman Hayes, we have a very dynamic industry and 
business and we are seeing the smaller producers produce the 
organic, free-range, exotic breeds, being able to go to live 
bird markets. So yes, there are large companies, but there is 
also this growing specialty market and in that sense, I don't 
think they are left out. In fact, I think, in today's market, 
they have much greater opportunity than ever before.
    Mr. Baca. Okay. Then to John Queen. The marketing agreement 
and contracts you described in your testimony have clearly 
provided great benefit to many producers and consumers, but 
what about those that don't participate in contracts? Are 
producers who do not have the same advantages, are they being 
left behind or not?
    Mr. Queen. No, sir, every producer has the same ability or 
the same chance to enter into these alternative marketing 
arrangements, and we have proven that in the southeast. We have 
very small producers there and the opportunity for those 
producers to come together whith their cattle--market them 
through an alternative marketing program to a feed lot or a 
packer, that certainly has been a great advantage to us there 
in the southeast.
    Mr. Baca. And how are we reaching out to them to make sure 
that they are not left out?
    Mr. Queen. Well----
    Mr. Boswell. Mr. Baca, would you yield?
    Mr. Queen. --it is just common knowledge that they have 
the----
    Mr. Baca. I yield to the Chairman----
    Mr. Boswell. So you are saying that a cooperative system or 
some kind of way that these small producers are banding 
together to provide a market that would interest an AMA-type 
operation?
    Mr. Queen. Yes, sir. I run a video sale. We had 39 semi 
loads of cattle, and we could go today, that we sold there in 
western North Carolina. Those cattle, if you will look at the 
different opportunities from each individual load on there and 
how they were either age and source verified or----
    Mr. Boswell. Okay, I understand what you are saying and I 
appreciate that. So give me some, if you can remember it, 
because I won't expect you have, but what size operators come 
together, bringing drafts of----
    Mr. Queen. They can come from 10 head to 10,000 head. It 
makes no difference to commingle those calves to create those 
trailer-load lots, and each one of those trailer-load lots has 
a different----
    Mr. Boswell. It almost sounds like an NFO operation. I am 
not being facetious. It does kind of sound like it.
    Mr. Queen. No, sir. But in the past, in the south, we have 
had a terrible reputation for our cattle down there, so the 
producers are coming together to create better opportunities 
for the cattle in the south, and we are the largest cattle----
    Mr. Boswell. I won't take up any more time and I might want 
to pursue this, to visit with you some on that. I appreciate 
you saying that. I yield back to you, Mr. Baca.
    Mr. Baca. I think he has completed the answer and I think 
we still need to do a little bit more of the outreach to make 
sure that no one is left behind. So I think that was part of 
your additional question, too.
    Mr. Boswell. It is but I am giving you back your time.
    Mr. Baca. Yes, okay. No further questions. Thank you. I 
yield back the balance of my time.
    Mr. Boswell. Well, thank you. Mr. Hayes.
    Mr. Hayes. Mr. Queen, you have been extremely active and 
helpful, along with many others, on the voluntary animal ID 
situation. We have got the consent and agreement of USDA to do 
this, but had a little trouble winnowing down the requirements 
for them to certify. Just give us a quick update. That is still 
the way to go?
    Mr. Queen. Yes, sir. We are strictly for a voluntary 
market-driven, cost-efficient animal ID system in America 
today. And it will work and it shows that through the 
alternative marketing agreements that we have, how that does 
add value. So it is ongoing and we have a lot of producers 
today.
    Mr. Hayes. Thank you, Mr. Chairman. That is my question.
    Mr. Boswell. Thank you, Mr. Hayes. Mr. Boyle, based on 
conversation with Mr. Queen, do you agree that the small 
operators out there across the country got that opportunity? It 
sounded like they are very organized in that part, but what 
about some of the other places?
    Mr. Boyle. That is true throughout the Nation, not only for 
small producers, but for the midsize and smaller packers that 
we represent. The arrangements that you have with one's 
livestock suppliers are not the size of the operation.
    Mr. Boswell. Let us just say a small producer in the State 
of Nebraska, Missouri, Iowa or Minnesota got a 100 to 200 cow 
herd that they feed out. Can they take advantage? Will there be 
a market for them?
    Mr. Boyle. Absolutely. If they want to market their 
livestock in partnership with a feeder and a packer, 
absolutely. That is available to them.
    Mr. Boswell. So you think there is an adequate market?
    Mr. Boyle. I do. And you have seen it grow dramatically on 
the hog side in the last five or six years. And there are 
fundamental marketplace reasons for the growth in those 
marketing arrangements on the hog side. The red meat retail 
case has become revolutionized in the last five or six years.
    Mr. Boswell. Well, I hear a lot of different producers say 
that they just don't have access. Is it because they don't know 
how to get the access, these small operations that are 
scattered across parts of the country? Mr. Queen has talked 
about their solution. But do they have access, the person that 
is sitting out there in Missouri that wants to run a 100 to 200 
head cow herd and find a market?
    Mr. Boyle. Sure. The economics and the marketplace 
rationale are different amongst various species. Ninety percent 
of the hogs, as RTI has indicated in its report, and it is not 
a surprising conclusion, are marketed through some sort of 
marketing arrangement or a vertically integrated company on the 
hog production import processing side. That leaves a very small 
percentage of producers outside of that option, but I suspect 
they remain outside of that option through their own business 
decisions.
    Mr. Boswell. Would it surprise you that I have farmers come 
up to me pretty regularly and say there are days I cannot find 
a market?
    Mr. Boyle. Well, there may be days when they go to market 
and in their particular geographic region, there may not be a 
broad-based market to acquire their cattle. But aside from that 
observation from producers that you have in your district, Mr. 
Chairman, that perception has been studied in great detail, in 
terms of whether or not there is anything nefarious about it, 
anticompetitive about it, conspiratorial about it, and under 
each of those investigations, the regulators have come away 
saying it is the normal functioning of a vibrant and 
competitive marketplace.
    Mr. Boswell. Okay. Well, Mr. Hayes, if you are finished, I 
think I might as well speak, too. We do want to close by 
thanking you for your coming today and giving us your time, 
your willingness to testify, your frankness, and I think we 
have gained some knowledge today on both sides of the issue and 
it was good for us to have this time together, so I appreciate 
it. With that, we will adjourn. Under the rules of the 
committee, the record of today's hearing will remain open for 
10 days to receive additional material and supplementary 
written responses from witnesses to any questions posed by 
members of the panel. The hearing of the Subcommittee on 
Livestock, Dairy and Poultry is adjourned.
    [Whereupon, at 1:30 p.m., the Subcommittee was adjourned.]

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