[Senate Hearing 110-125]
[From the U.S. Government Publishing Office]
S. Hrg. 110-125
ECONOMIC CHALLENGES AND
OPPORTUNITIES FACING AMERICAN
AGRICULTURAL PRODUCERS TODAY
=======================================================================
HEARING
before the
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 18, 2007
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
Available via the World Wide Web: http://www.agriculture.senate.gov
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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
TOM HARKIN, Iowa, Chairman
PATRICK J. LEAHY, Vermont SAXBY CHAMBLISS, Georgia
KENT CONRAD, North Dakota RICHARD G. LUGAR, Indiana
MAX BAUCUS, Montana THAD COCHRAN, Mississippi
BLANCHE L. LINCOLN, Arkansas MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska LINDSEY GRAHAM, South Carolina
KEN SALAZAR, Colorado NORM COLEMAN, Minnesota
SHERROD BROWN, Ohio MICHEAL D. CRAPO, Idaho
ROBERT P. CASEY, Jr., Pennsylvania JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota CHARLES E. GRASSLEY, Iowa
Mark Halverson, Majority Staff Director
Robert E. Sturm, Chief Clerk
Martha Scott Poindexter, Minority Staff Director
Vernie Hubert, Minority General Counsel
(ii)
C O N T E N T S
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Page
Hearing(s):
Economic Challenges and Opportunities Facing American
Agricultural Producers Today................................... 1
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Wednesday, April 18, 2007
STATEMENTS PRESENTED BY SENATORS
Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee
on Agriculture, Nutrition, and Forestry........................ 1
Chambliss, Hon. Saxby, a U.S. Senator from Georgia............... 2
Panel I
Carstensen, Peter C., Professor of Law, University of Wisconsin
Law School, Madison, Wisconsin................................. 4
Hamilton, Scott, Poultry Grower, Phil Campbell, Alabama.......... 12
Hayes, Lynn A., Farmers' Legal Action Group (FLAG), Inc., St.
Paul, Minnesota................................................ 6
Muth, Mary K., Director, Food and Agricultural Policy Research
Program, RTI International, Research Triangle Park, North
Carolina....................................................... 8
Schmidt, Tim, Pork Producer, Hawarden, Iowa...................... 10
Panel II
Johnson, Burdell, President, American Sheep Industry Association,
Tuttle, North Dakota........................................... 38
Nelson, Eric, Ranchers-Cattlemen Action Legal Fund, United
Stockgrowers of America (R-Calf USA), Moville, Iowa............ 30
Philippi, Joy, National Pork Producers Council, Bruning, Nebraska 34
Queen, John M., President, National Cattlemen's Beef Association,
Waynesville, North Carolina.................................... 32
Roenigk, William P., Senior Vice President, National Chicken
Council, Washington, DC........................................ 39
Truex, Ron, United Egg Producers, Warsaw, Indiana................ 36
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APPENDIX
Prepared Statements:
Grassley, Hon. Charles....................................... 50
Roberts, Hon. Pat............................................ 52
Carstensen, Peter C.......................................... 53
Hamilton, Scott.............................................. 64
Hayes, Lynn A................................................ 79
Johnson, Burdell............................................. 102
Muth, Mary K................................................. 107
Nelson, Eric................................................. 116
Philippi, Joy................................................ 137
Queen, John M................................................ 157
Roenigk, William P........................................... 170
Schmidt, Tim................................................. 177
Truex, Ron................................................... 179
Document(s) Submitted for the Record:
National Association of State Departments of Agriculture (NASDA),
prepared statement............................................. 186
Question(s) and Answer(s):
Grassley, Hon. Charles:
Written questions for Peter C. Carstensen.................... 192
Harkin, Hon. Tom:
Written questions for Mary Muth.............................. 194
Roberts, Hon. Pat:
Written questions for Mary Muth.............................. 196
Carstensen, Peter C.:
Written response to questions from Hon. Charles Grassley..... 197
Muth, Mary K.:
Written response to questions from Hon. Tom Harkin........... 199
Written response to questions from Hon. Pat Roberts.......... 202
Written response to questions from Hon. Charles Grassley..... 205
Nelson, Eric:
Written response to questions from members................... 206
ECONOMIC CHALLENGES AND
OPPORTUNITIES FACING AMERICAN
AGRICULTURAL PRODUCERS TODAY
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Wednesday, April 18, 2007
U.S. Senate,
Committee on Agriculture,
Nutrition, and Forestry,
Washington, DC
The Committee met, pursuant to notice, at 9:30 a.m., in
room SD-106, Dirksen Senate Office Building, Hon. Tom Harkin,
Chairman of the Committee, presiding.
Present: Senators Harkin, Lincoln, Salazar, Casey,
Klobuchar, Chambliss, Thune, and Grassley.
STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA,
CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
Chairman Harkin. The hearing will come to order, as soon as
I turn on my microphone, and we welcome you to one of our
smaller hearing rooms that we have here in the Capitol. We have
a number of votes coming up, but we will start and we will see
how far we can get, and we will have to take some breaks and go
vote and come back. But that is life around this place.
Over the last several months, we have heard from a wide
range of interested stakeholders to gain their input for
writing the next farm bill. Today we will focus on hearing from
representatives of the livestock, poultry, and egg industries.
Animal agriculture is very important to the United States.
The Economic Research Service estimates the value of U.S.
livestock and poultry production in 2007 will be about $125.7
billion. The new farm bill can help play a role in expanding
this. The farm bill will be critically important for expanding
access to conservation programs, developing much needed
research on distillers' dry grains for animal feed, for animal
diseases, promoting market access, cellulosic ethanol, and
ensuring fair and competitive markets.
As with any farm bill, there will be many different
perspectives on all these issues, and I look forward to
listening and learning from the witnesses here today.
In the past 15 years, the animal industry has become more
consolidated and vertically integrated. Basic open fairness and
competition in markets have become a big issue. Today, in some
regions of the country, there are only a handful of buyers of
livestock left, and they frequently do not buy off of the open
market. For some producers, they have only one buyer left, and
this is a huge change from the time when I was young.
This sets up an overly tilted marketing system where
producers have difficulty getting bids for the livestock or are
forced into some take-it-or-leave-it contracts with unfair
terms. These producers have nowhere else to go to market their
livestock or poultry, and for those producers that speak out
against unfair practices or complain, they face retaliation.
They stop getting bids on the open market, or they can lose
their contracts.
Producers of marketing livestock and poultry in
consolidated markets are becoming less inclined to speak out
about what they see going on in the marketplace. Producers fear
that if they speak out, they will face retaliation, so I
especially want to thank the witnesses today for providing
testimony before the Committee.
Congress worked to provide fairness in the marketplace
before, and it can do so again. In 1921, Congress passed the
Packers and Stockyards Act to keep markets fair. The Department
of Agriculture has this important authority to enforce the act.
But just last year, a report by USDA's Inspector General--a
report I commissioned--found widespread inaction, efforts to
block investigations of unfair and anticompetitive conduct, and
even efforts to cook the books to give the appearance of actual
enforcement by the Grain Inspection, Packers, and Stockyards
Administration at the Department of Agriculture.
So basic fairness and transparency in the marketplace
should be guaranteed in Federal law. If we are going to have a
market-based system, if we are going to have true competition,
then you have to have transparency.
That is why I introduced the Competitive and Fair
Agricultural Markets Act--to improve USDA's enforcement of the
Packers and Stockyards Act and to strengthen the Agriculture
Fair Practices Act. That is why I have also worked to improve
the Livestock Mandatory Reporting Act, along with other
important market reforms.
So, again, I look forward to hearing from today's witnesses
and working with you all on crafting a forward-looking farm
bill that enhances and protects a market-based system.
With that, I would yield to my colleague and our Ranking
Member, Senator Chambliss.
STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA
Senator Chambliss. Well, thank you very much, Mr. Chairman,
and I thank you for holding this hearing, and I certainly
welcome all of our witnesses here today and look forward to
hearing your testimony on the importance of livestock in the
2007 farm bill.
Today's hearing will allow key stakeholders in the
livestock industry to detail their priorities on the upcoming
farm bill. Last year, I had the honor of chairing eight farm
bill field hearings across the Nation to gather information
from farmers and ranchers regarding their farm bill concerns
and priorities. I consider this an important part of an open
and balanced legislative process. The information obtained
during those field hearings and the testimony provided in
hearings such as this one today will serve the entire Committee
well as we begin our farm bill deliberations.
The hearing today pays particular attention to an issue
that is not new to this Committee or to the farm bill process:
competition in livestock markets. This issue has been a
constant topic since my arrival in Congress in 1994. Everyone
who is concerned with agriculture understands the need for
cattle, pork, poultry, and other producers to have every fair
option at their disposal to market and sell their animals. I,
like all of the members of this Committee, understand the
importance of enforcing the Packers and Stockyard Act and other
important antitrust laws that ensure an open and competitive
marketplace.
While I look forward to hearing from all of our witnesses
today, I am a little disappointed that certain segments of the
livestock industry are not included in this hearing. I am
hopeful that as we construct a farm bill that will affect the
entire livestock industry, we will include the input of all
stakeholders, including the producers who raise the animals;
the stockers, feeders, and background operations that feed
them; the processors and packers that break them down into
salable commodities; and the retailers that ultimately sell the
finished product. All of these segments are critical to a
competitive thriving livestock industry and marketplace.
I believe in a fair and open marketplace for livestock
market participants, and that is why I fought so hard last year
alongside Chairman Harkin to reauthorize the Livestock
Mandatory Price Reporting Act. That process demonstrated what
we can accomplish when we work together with all interested
stakeholders to arrive at consensus legislation that enjoys
broad-based support. It is not always the easiest approach, but
I believe it achieves the best results.
In fiscal year 2003, Congress specified that the Grain
Inspection, Packers, and Stockyards Administration of the U.S.
Department of Agriculture use $4.5 million to conduct a study
to address issues surrounding a ban on packer ownership. We are
fortunate to have with us today Ms. Mary Muth of the Research
Triangle Institute, the firm that conducted this
congressionally mandated study. In attempting to address
complex issues such as the proposed ban on packer ownership, it
is critical that Congress carefully consider all expert
analysis, such as the RTI study, before we determine whether
restrictions on the use of captive supplies are warranted.
In my part of the country, the livestock industry is
dominated by cow-calf operators who utilize auction markets and
alternative marketing arrangements to sell their animals. Many
Georgia cattlemen and pork producers utilize alternative
marketing arrangements to obtain higher prices for their
animals and to accommodate niche markets, such as certified
Angus beef. They also use these arrangements in an effort to
satisfy export markets and to ensure the production of the
higher-quality products that consumers demand. The proposed
elimination of these types of arrangements could have a
negative impact on my producers. Livestock and poultry
producers today must compete in an imbalanced international
marketplace that often rejects their product for unjustified
and unscientific reasons.
In addition, producers must compete for corn supplies with
ethanol facilities, further raising their cost of production
and making it more difficult for producers to be profitable. I
urge my colleagues to employ a cautious approach as we consider
legislative proposals that would potentially limit the options
of producers by banning these types of arrangements.
Finally, Georgia is the No. 1 producer of poultry in the
United States, producing over 1.3 billion in broilers and over
4.8 billion eggs in 2005, amounting to over $2.7 billion in
cash receipts. The poultry industry is obviously an integral
component of the Georgia agricultural sector, and I look
forward to hearing from our witnesses today who will discuss
the poultry and egg industries. It is important that growers
are treated fairly as they compete in the marketplace. It is
also equally important that we continue critical research in
areas such as avian influenza that will have tremendous
benefits for humans and animal health.
I again would like to thank everyone for attending this
hearing. I look forward to hearing the testimony from all of
our witnesses, and, Mr. Chairman, I once again thank you for
your cooperation and for calling this hearing today.
Chairman Harkin. Thank you very much, Senator Chambliss. I
again want to thank you, when you guided this Committee last
year, for having all those field hearings around the country.
They laid great groundwork for our farm bill and relieved me of
going around the country and having all those hearings this
year. So I really appreciate that.
Also, I just for the record want to say that our staff had
invited the American Association of Meat Processors to testify
at this hearing, and they were unable to come--or they did not
come up with a witness, but they were invited.
Now, I am going to recognize this panel, and we will just
go down the line here: Mr. Carstensen and Ms. Hayes, Dr. Muth,
Mr. Tim Schmidt, and Mr. Scott Hamilton. All of your statements
will be made a part of the record in their entirety. Because we
are confronting and facing some possible votes here soon this
morning that will cause us to be gone, I am really going to be
fairly strict on asking you to hold it to about 5 minutes, give
us the essence of what it is that you want us to know, and so
we can have more of an interchange with you.
I would recognize Peter Carstensen, Professor, University
of Wisconsin Law School, and he has worked a lot on the series
of issues involving the relationship of regulation to
competition. Professor Carstensen, we will start with you and
then just work down the line. Welcome to the Committee.
STATEMENT OF PETER C. CARSTENSEN, PROFESSOR OF LAW, UNIVERSITY
OF WISCONSIN LAW SCHOOL, MADISON, WISCONSIN
Mr. Carstensen. Thank you very much, Senator. It is a great
honor to be here, and I am particularly pleased to see the
bipartisan support for reform in the framework that we have for
regulating agriculture.
The thing that I think is most important to appreciate is
that agricultural markets, both in the input and the output
side, represent special problems in terms of risks of
dysfunction in the market. This is partly because of the lags
between the time one starts to plant a crop or acquire an
animal and the time that it is available for market. But it
also has to do with the disproportionate relationship of small
producers, large buyers--that is, you have some inherent buyer
power problems--with informational issues, with other kinds of
negative consequences for the market. And added to that we have
serious problems of increased concentration on both the input
side and the output side.
The role of law here, and especially the kind of law that
this Committee addresses, is to facilitate fair, open market
transactions. This legislation, like the Securities Exchange
Act, like the Commodity Futures Trading Act, is one that is
designed to facilitate the efficient operation of the market,
and, unfortunately, it has really not functioned well in a
whole variety of agricultural markets. And in my statement, I
emphasized the problems first in the dairy world that come from
increased concentration and the distortions that have resulted
in purchases, buying processes of fluid milk; second, and the
primary focus for your concerns here, I think, the livestock
and poultry markets that we have, where, again, we are seeing
increased concentration. I particularly here am concerned about
the pending merger of Smithfield and Premium Standard brands
that will greatly increase concentration not only in the
Midwest but in the eastern part of the United States. In North
Carolina, it will reduce the number of competing processors
from two to one. We call that ``monopoly,'' and I am appalled
that the Justice Department has not yet moved on that.
I have looked somewhat at the RTI study, and,
unfortunately, I think it is deeply flawed in terms of a
forward-looking evaluation of alternative means and methods of
marketing agricultural products, the marketing particularly
here of livestock, in that it makes a simple-minded distinction
between the cash market, which is bad apparently, and all other
forms of contracting, whatever their flaws, which are
apparently good. That is simply not the way to go about a
forward-looking study that identifies desirable features of
contracting, desirable features of particular cash
transactions, and then ask how best can we adjust between and
among these different instruments of policy.
As I think you are aware, Mr. Chairman, there are some very
serious problems with the way the courts have interpreted the
Packers and Stockyards Act, especially in the recent Pickett
decision. There is, I am pleased to report, a case out of Texas
which takes a better view of the law. Whether that will be
upheld on appeal, I do not know. But it is long overdue to
revisit how the Packers and Stockyards Act's provisions are
interpreted because they absolutely require modernization so
that they address unfair practices, discriminatory practices,
especially denial of access to the market in a world where
contracting is going to be a much more common feature.
I want briefly also to emphasize another area which I think
your proposal, Mr. Chairman, would provide important coverage
in the market for various kinds of crops, especially corn and
soybeans. I have spent some time in my written statement
explaining both the emergence of contracting as a major new
force in these markets and the particularly pernicious problems
that exist because of the use of patented genetics on seeds and
the kind of anticompetitive conduct of the genetic patent
holders, especially I will name specifically Monsanto here
because they are overwhelmingly dominant, in foreclosing
important competition in the input side of the seed market. And
my prediction of things to come unless Congress does something
is that Monsanto is going to start imposing a tax on valuable
corn and soybeans because, as I read the law, Monsanto has the
legal right, right now, to tell farmers who raise Monsanto
genetic soybeans or corn, ``Here is the person you will sell
to.'' That is, they can sell the right for Monsanto to
foreclose competition downstream.
So the agenda you have got is an enormous one, and I wish
you all the good luck in the world in dealing with it.
[The prepared statement of Mr. Carstensen can be found on
page 53 in the appendix.]
Chairman Harkin. Thank you very much, Professor Carstensen.
Now we will turn to Lynn Hayes from the Farmers' Legal
Action Group. Lynn was the founding attorney and program
director at Farmers' Legal Action Group in St. Paul, Minnesota.
She received her BA degree in English from Coe College in Cedar
Rapids, Iowa, and a J.D. degree from Columbus School of Law,
Catholic University of America--my alma mater.
[Laughter.]
Chairman Harkin. Welcome to the Committee, Ms. Hayes.
STATEMENT OF LYNN A. HAYES, FARMERS' LEGAL ACTION GROUP (FLAG),
INC., ST. PAUL, MINNESOTA
Ms. Hayes. Thank you. Over the past several decades, the
markets for farmers' agricultural commodities have experienced
rapid consolidation of market share in the hands of a few large
companies and a dramatic increase in vertical integration by
packers and processors. This has resulted in the vast reduction
in the number of buyers to compete for farmers' products, a
loss of transparency in the markets, manipulation of prices
paid to producers, and an increase in the use of production
contracts, and, most importantly, a horrendous imbalance of
bargaining power between the farmers and processors.
Today I want to discuss two principal ways the packers and
processors have vertically coordinated their production. First
is production contracts, using the poultry industry as an
example, and the second is captive supply procurement methods
in the red meat packing industry.
The vast imbalance of bargaining power is exemplified in
the poultry industry, which now 90 percent of production is
done production contracts, where the company owns the birds and
the producers on contract raise those birds. Those contracts
are take-it-or-leave-it contracts written by the companies.
There is no negotiating by the farmers for the terms of those
contracts, and consequently, they leave farmers with huge risks
under those contracts. Farmers are encouraged to participate in
these contracts through oral representations of their financial
feasibility and the lifestyle benefits, which often are not
borne out in the contract terms whatsoever.
For example, the poultry interest broiler growers indicate
they receive much less money, have much higher costs, and they
have to work many more hours than the companies represented
would be the case. However, once they find this out, they have
already--by the time they find this out, they have already made
hundreds of thousands of dollars in investments in buildings
and other facilities to raise the poultry, and at that point
they are at the whim--they are left to the mercy of the
companies because in many cases there is only one or two
companies that would pick up birds from the growers' area. This
leaves the growers with no bargaining power, but when they try
to form bargaining associations, they are often retaliated
against by the companies, by either manipulating inputs that
reduce their prices or possibly just terminating their
contracts.
In the poultry industry, particularly the broiler growers
are paid under tournament system where the growers are ranked
against other growers in feed efficiency. However, the
companies control most of the inputs that really control how
well the producer is going to play on the feed efficiency
front.
Many of the contracts are for only one 7-week period for
broiler contracts. The companies usually have the opportunity
to terminate the contracts at will. They can require the
growers to install thousands of dollars in equipment upgrades
during the course of the contract. And the contracts also
usually require disputes to be resolved there binding
arbitration.
Things that Congress can do to level the playing field on
the bargaining power for growers is to require that all
production contracts be in plain language and include a cover
sheet that summarizes the material risks to the farmers,
prohibit any confidentiality clauses or binding arbitration
clause in the contracts, prohibit the tournament system of
payment for poultry contracts, require that companies negotiate
in good faith in all dealings with the growers, and to improve
the Agricultural Fair Practices Act by requiring companies to
bargain in good faith and not to retaliate against growers who
are organizing in associations, and to make it unlawful for
companies to participate in production contracts by using
unfair, deceptive, or discriminatory practices.
The other area I want to mention is captive supplies in the
red meat industry. The Packers and Stockyards Act has for years
prohibited unfair and deceptive practices. When Congress passed
the act, it intended to prohibit both anticompetitive practices
and unfair and deceptive and price-manipulating practices
between packers and producers.
Unfortunately, because USDA has failed to effectively
regulate and define what kinds of practices are unfair and
unjustly discriminatory, as the industries have changed we have
lost much of the original intent. And this was demonstrated in
the London court cases and the Pickett case that Mr. Carstensen
mentioned, where the court had required producers to show
anticompetitive practices in order to show unfair practices.
To address these issues, the Packers and Stockyards Act
should be amended to close the poultry loophole so that USDA
can enforce the act in the same way against poultry dealers as
red meat packers. And it should prohibit formula price forward
contracts for the procurement of slaughter livestock, and all
forward contracts should be traded in open public market.
Packer ownership of cattle and hogs more than 7 days before
slaughter should be prohibited, and the act should be amended
to make it clear that anticompetitive effect is not required to
show an unfair, deceptive, or price-manipulating practice in
violation of the Packers and Stockyards Act.
Producers should also be allowed to file lawsuits to
enforce the act in Federal district court and to be awarded
attorneys' fees when successful.
Thank you.
[The prepared statement of Ms. Hayes can be found on page
79 in the appendix.]
Chairman Harkin. Thank you very much, Ms. Hayes.
We have just been notified that a 15-minute roll call vote
started at 9:48. I think we can hear from one more witness
before we have to make a mad dash out of here, and so--and I do
not know. I am trying to find out if there is one or two votes.
I do not know. There are two votes? Well, let us hear from one
more witness.
Dr. Mary Muth, Director of the Food and Agricultural Policy
Research Program at RTI International, an independent, not-for-
profit research institute in the Research Triangle Park, North
Carolina. She was the project manager for the congressionally
funded GIPSA Livestock and Meat Marketing Study that was
completed earlier this year. She has a Ph.D. in economics from
North Carolina State University, an M.S. in ag economics from
Cornell University, and a B.S. in agricultural and managerial
economics from the University of California at Davis.
Welcome to the Committee, Dr. Muth, and please proceed.
STATEMENT OF MARY K. MUTH, DIRECTOR, FOOD AND AGRICULTURAL
POLICY RESEARCH PROGRAM, RTI INTERNATIONAL, RESEARCH TRIANGLE
PARK, NORTH CAROLINA
Ms. Muth. Thank you. Good morning, Senator Harkin and
members of the Committee. I also wanted to add in with my bio
that my husband's family owns a cow-calf operation in western
Kentucky, so some of the issues that I talk about hit pretty
close to home. I am pleased to be here, and thank you for the
opportunity to provide an overview of the findings of the
Livestock and Meat Market 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 at the University of
Pennsylvania. The study addresses the economic effects that
alternative marketing arrangements have on the livestock and
meat industries. As you know, the cash or spot market includes
auction, 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 across 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 quality, cost of
production, and risk; and the implications of using marketing
arrangements on livestock producers, meat packers, and
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-loss statements from packers, industry interviews, and
publicly reported 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 to 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 small 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 5 percent of fed cattle and fed lamb
volumes and 20 to 30 percent for finished hogs. Based on the
industry surveys and industry interviews we conducted, we
expect 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. 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 costs 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 we found that
this result actually 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 very
small decrease in production costs at the packer.
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 methods. Similarly, in the pork
industry, we found that hogs sold through marketing contracts
are higher quality than hogs sold through direct trade.
Related to market access and price risk, across all
species, alternative marketing arrangements offer some
guarantee of market access for both livestock producers and
meat packers. Furthermore, use of alternative marketing
arrangements generally reduces price or income risk for cattle
and hog producers.
Third, regarding implications of the use of alternative
marketing arrangements, we conducted simulations of various
hypothetical scenarios in which alternative marketing
arrangements were restricted. Across all species, the 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
1 of the report for the Livestock and Meat Marketing Study.
This volume contains the executive summary and the overview for
the study.
Thank you.
[The prepared statement of Ms. Muth can be found on page
107 in the appendix.]
Chairman Harkin. Dr. Muth, thank you very much, and we are
into the second phase of the vote right now. I guess we have
two votes, so if we leave now, we should be able to be back in
about 15 minutes, I think. So we will stand in recess for about
15 minutes. We will go vote and we will be right back.
[Recess.]
Chairman Harkin. The Committee will resume its sitting.
Next we will hear from Mr. Tim Schmidt, a pork producer from
Hawarden in northwest Iowa. He farms with his three partners in
a diversified operation that includes farrow-to-finish hogs, a
cattle feedlot, along with growing corn and soybeans. And I am
told that most of the corn produced on their farms is used by
their livestock enterprises. Tim also serves as the President
of the Sioux County Pork Producers. His wife, Mary, and two
daughters, Karen and Callie, who both attend West Sioux
Community School in Hawarden, so a real family farmer.
Welcome to the Committee, Mr. Schmidt, and please proceed.
STATEMENT OF TIM SCHMIDT, PORK PRODUCER, HAWARDEN, IOWA
Mr. Schmidt. Thank you. Good morning, Chairman Harkin and
members of the Committee. Thank you very much for inviting me
here today to discuss some of the changes and challenges
occurring in the U.S. meat production industry. I am Tim
Schmidt, a third-generation pork producer from Sioux County,
Iowa. My partners and I operate a 250-sow, farrow-to-finish hog
operation on a century farm. Prior to entering the partnership,
I worked for a major packer in Nebraska for several years and
also for an agricultural co-op. The strength and vitality of
the U.S. pork industry is very important to me, and I serve in
a leadership role in my county pork producer association.
My comments today are about market access and market price
changes that I have seen in the industry, stemming from
consolidation in the US packing business.
Over the years we have sold weekly loads of hogs after
shopping around for bids from packers. Ten years ago, our farm
could get multiple competitive bids from several hog buyers.
Around 5 to 6 years ago, we began having a hard time getting
more than one bid from a group of buyers. Since we were only
getting one bid, we ended up selling mostly to just one buyer.
Today it is almost impossible to get a competitive bid on the
80 hogs we sell every week. So I have a less competitive bid
and fewer market options. When you only receive one bid, the
market price liquidity is poor, and market price transparency
is questionable at best.
So what changed between 10 years ago when bids were readily
available and 5 years ago when they stopped? The packers began
aggressively signing contracts for hogs with producers. Those
contracts lock in hog deliveries to the buyers and push my cash
sale hogs into a residual supply situation which drops buyers'
interest in competing for my hogs.
The interesting thing about these contracts is that most of
them have price components that are formulas based upon the
open cash market. This means that those hogs get priced based
on my residual supply. On rare occasions when the hog supply is
really short, that spot cash market can spike higher, but when
hogs are in adequate supply--which is most of the time--the
market is residual and soft. A high supply of hogs can break
the market downward hard.
The consolidation of hogs under contract has made the
market less liquid and less reflective of the true value of the
hogs.
Another point about changes in the approach of the packing
industry revolves around our county pork producer association's
annual market contest. Each year eight or ten producers would
bring in 20 hogs each to a packer on the same day and at the
same time. We would have the hogs processed and compare the
carcasses to see how well we were marketing and how our hogs
compared for meat performance. Because we scheduled the hogs
well in advance, the packer always knew when the hogs were
coming. They handled that as a spot cash sale. We stopped doing
it because the packers would not pay competitively the day the
hogs were delivered. Association members, myself included, sold
hogs to the same packer on that day that were not part of the
market contest and received a higher market price. In essence,
the packer took advantage of our desire to improve our hogs and
work together as a group. That was disappointing to those that
participated.
Currently the Iowa Legislature is debating a bill that
would require meatpackers to buy 25 percent of their animals
from non-affiliated livestock producers. The bill, SF 504, was
passed by the Iowa Senate last month. It is currently awaiting
action in the Iowa House.
I support the 25 percent open market bill because it would
ensure more liquidity in the market and would ensure that
contracts formulated off of the open market accurately reflect
market conditions.
I also believe that in order to ensure true market
transparency, we need mandatory price reporting so that all hog
prices are reported to the USDA and publicly reported each day.
Factual information about all market price transactions--cash
sales and contract deliveries--is an important key to market
transparency.
Besides my personal issues, I am concerned about the next
generation of hog producers. Without open, transparent, and
competitive markets, the young men and women who are the future
of our industry will not have the opportunity to be independent
pork producers. Without a level playing field, our rural youth
with an interest in hog production will only have two options:
to work for an integrator or to find another occupation. To
limit their opportunity in pork production because we do not
give them a free, open, and transparent marketplace would be a
real shame.
At issue today is not whether big farms or small farms are
best. It is about independence and freedom that can only be
achieved by having and maintaining a fair, free, and honest
marketplace. In order to have that, we need more open market
transactions in a reportable and transparent market.
Thank you for listening. I appreciate this opportunity. If
you have any questions, I would be happy to answer them.
[The prepared statement of Mr. Schmidt can be found on page
177 in the appendix.]
Chairman Harkin. Mr. Schmidt, thank you very much.
Now we will turn to Scott Hamilton, a poultry grower from
Phil Campbell, Alabama. He got into the poultry growing
business in 1995, after graduating from Auburn University. He
also raises cattle on his farm, lives on the farmstead with his
wife and two children, so another real family farmer.
Welcome to the Committee.
STATEMENT OF SCOTT HAMILTON, POULTRY GROWER, PHIL CAMPBELL,
ALABAMA
Mr. Hamilton. Chairman Harkin, Ranking Member Chambliss,
and members of the Committee, thank you for the opportunity to
testify before you today on this important topic.
As stated, my name is Scott Hamilton. I am a poultry grower
from Phil Campbell, Alabama. I also raise cattle on my farm,
where I live with my wife and two children. I graduated from
Auburn University with a degree in zoology and later graduated
from Auburn's Agriculture and Forestry Leadership Program.
The structure of U.S. agriculture has changed significantly
in recent decades, and farmers are rapidly losing their
independence. For many of us, that independence was lost long
ago.
I am here today to tell you a few of my experiences as a
poultry grower with regard to the abusive practices that have
become commonplace in poultry.
Because of the large size of the poultry loan, growers
usually have to put up their farmland and their homes as
collateral. For most growers, you cannot shop around for other
companies if you disagree with your company's practices. There
is very little competition in local areas.
There are no negotiations. Either you sign what is put in
front of you, or they do not bring you chickens. If they do not
bring you chickens, you cannot make you mortgage payments, and
you lose your family farm.
Growers are ranked against each other for their pay.
Basically, this means you can grow the heaviest bird and the
least amount of feed. This is called the feed conversion. The
company controls all of the inputs that determine your success
in adding weight to the bird, the quality of chickens and feed,
the length of time you keep your birds relative to the other
growers. No matter how successful you are at raising their
birds, the system is rigged so that half the growers get pay
cuts to compensate for the other half that get bonuses.
I am also here today to tell you that retaliation in the
poultry industry is real. After I started to be more active in
the Alabama Poultry Growers Association, I saw my ranking file
and was placed on a probation program. I had sick birds through
no control of my own. When you are put on this program, you
need to show improvement in the ranking or the next step is
termination, even though you have made a huge investment for
the purpose of the contract and your ranking may have nothing
to do with your own performance.
Perhaps the most abusive contract clause that growers are
facing currently in the mandatory arbitration clause. As
poultry growers started to win lawsuits against poultry
companies over contract abuses, companies started to present
new contracts to their growers. These new contracts included
provisions that essentially said that growers were waiving
their right to take the company to court for any reason.
Instead, the growers would be forced into a private system
called ``mandatory arbitration,'' where a private group of
arbitrators would hear their case and render the decision.
But the up-front costs of this process are prohibitive.
Some growers have been handed bills for as much as $20,000 just
to get an arbitration hearing. Further, unlike the public court
process, there is limited right of discovery in arbitration,
meaning that the grower cannot get access to the evidence that
they need to prove their case.
So what is the solution? Senators Harkin and Enzi have
introduced legislation, S. 622, that addresses many of the
concerns that I raise in my testimony. The bill would amend the
Packers and Stockyards Act to give GIPSA the full authority,
like in the red meat sector, to crack down on unfair and
deceptive trade practices over the entire poultry industry,
including breed hen and pullet growers.
It would set a minimum contract standard, such as
prohibiting pre-dispute, mandatory arbitration clauses, and
assure that equipment upgrades are not made solely at the
grower's expense. It would also require companies to bargain in
good faith with bargaining associations.
As a poultry farmer from Alabama, I am honored to be here
today providing this testimony. But at the same time, it is a
sad commentary on the state of our Nation that I had to
seriously consider whether or not my testimony here today would
put me in financial jeopardy because of retaliation.
Contracts are vital to the economy in this country. But it
also vital that basic standards of fair dealing apply to
contract relationships.
In recognition of that fact, over 1200 organizations sent a
letter to this Committee in January of this year, urging that a
comprehensive competition title be in the 2007 farm bill. A
copy of that letter is attached to my written statement.
It is my hope that this Committee will include all of these
provisions when the farm bill is drafted later this year.
Thank you.
[The prepared statement of Mr. Hamilton can be found on
page 64 in the appendix.]
Chairman Harkin. Mr. Hamilton, thank you very much. Thank
you all for your testimony. I will start now a round of maybe 7
minutes. If you can give me about 7 minutes, Bob, we will start
a round of 7-minute questions here.
I would just like to start where Mr. Hamilton just left
off. You said in your testimony, ``In no way am I arguing that
contracting is a bad thing. Contracts are vital to the economy
in this country. But it also vital that basic standards of fair
dealing apply to contract relationships.''
I cannot think of a better place to start than that because
I tend to agree with that sentiment. I have often said that
forward contracts and things, if they are done with
transparency and with openness, with at least some semblance of
equality between the contracting parties, can be a good thing.
But there also ought to be a place in there for open markets
also and for those that want to partake in an open market
system. And as long as contracts like that are open, are
transparent, as long as individuals who perhaps do not have a
lot of economic power, as long as they are given some abilities
to examine it, to be able to discuss those contracts with their
families and their attorneys, then that could be OK. But that
is not the situation we have right now.
I just wanted to clear up a couple things about the study
because, Dr. Muth, you were in charge of that study that we had
set up. Now, again, you said it was a scientifically based
sample, but there are about 67,000 hog producers nationwide.
Your survey team surveyed 229 producers. Now, again, I am not a
statistician so I do not know, but it seems to me that 229--can
you assure us that that is a statistically valid sample? And
why didn't you get more than just that number?
Ms. Muth. Well, one thing to explain is that we did draw a
much larger sample, it was a random sample drawn from the
population, and we drew a much larger sample--a lot more
producers than that were given the opportunity to respond to
the survey. But ultimately we received 229 responses.
Based on conversations with our statistician, who
specializes in survey sampling procedures, this is close to
adequate to represent the practices in the industry. You need a
certain number to represent a large population, but it does not
need to be a very large number.
Chairman Harkin. The RTI study assumes that hogs are sold
through a national market where all producers are treated the
same and have the same number of buyers. But, again, that is
not realistic. The marketing of hogs is regional. Some regions
have fewer buyers than others. So area's producers have only
one buyer, as we have heard. Market power is clearly different
for different regions of the country, especially if one packer
can dictate complete control over the producer. RTI stated that
further investigation into market power was outside the scope
of the report.
So my question is: Why didn't RTI examine the hog industry
as a regional marketing system?
Ms. Muth. When we conducted the study, we were following
the specific scope of work that was given to us under the
contract, and under that contract, we were to look at the
national-level effects of these alternative marketing
arrangements. And we developed economic models to represent
those relationships within the industry based on the questions
we were asked to address in the study. And in terms of the
specific regional differences, those were accounted for in a
lot of the analyses by use of binary variables to account for
differences in the regions.
Furthermore, I did want to point out that in the study we
did look at testing for the existence of market power in the
pork industry. We used two different methods--one that is a
more traditional, new empirical industrial organization
approach, and another that was based on a more state-of-the-art
modeling technique. In both of those instances, we did, in
fact, find that there is evidence of the existence of market
power in the pork industry. However, I also want to emphasize
that in developing those models, you can find evidence of
market power, but you cannot find intent to exercising that
market power to take advantage of producers. So that goes
beyond what we can say.
Chairman Harkin. So what you are saying is that the
Department of Agriculture's instructions to you was to base it
on a national market rather than looking at regional? Is that
right?
Ms. Muth. Right, to base the core economic models on a
national market and to make adjustments for differences in
regions.
Chairman Harkin. But could you have not looked at the
regional markets to see how they operate and fold that into a
national market?
Ms. Muth. Based on the data that are available, further
analyses of regional differences could be conducted.
Chairman Harkin. Well, you said that RTI thought that
further investigation into market power was outside the scope
of the report. Is that right?
Ms. Muth. Actually there were analyses of market power in
the study. That statement that comes from one portion of the
report is at the conclusion where we have looked at two
different methods of testing for market power.
The study did not ask us to investigate whether or not--it
was not focused specifically on market power, but on the use of
alternative marketing arrangements. So we focused our analysis
primarily on the use of alternative marketing arrangements and
the effects of those on the market.
Chairman Harkin. I guess that is a criticism I have of the
study, but maybe I have to direct this also to the Department
of Agriculture. But we will figure that one out, you know,
where the responsibility lies, whether it lies with RTI or with
the Department of Agriculture. I am not certain about that yet.
But, again, the conclusions in the report, I think, assume
that Congress wants to prohibits contracts. There is currently
no legislation in Congress that would prohibit contracts. This
report also assumes that if there was a ban on packer
ownership, the packers would incur increased costs that could
then be passed on to producers and consumers.
Why did RTI assume that if there is a ban on packer
ownership, packers will have increased costs due to having to
buy off the open market? Don't you think that packers would
instead increase the number of contracts they enter into with
producers instead?
Do I need to repeat the question?
Ms. Muth. Yes, there are multiple parts to that question.
Chairman Harkin. Why does RTI assume that if there is a ban
on packer ownership, packers will have increased costs due to
having to buy off the open market? Why wouldn't you assume that
they might just increase the number of contracts they have?
Ms. Muth. Well, when we conducted the analyses, we were
asked to develop simulation scenarios to look at what the
effects of different types of restrictions would be. Those were
developed by the study team because the intent was not that we
would give policy recommendations, but that we would look at
some different types of scenarios that might possibly exist
based on the judgment of the team members.
When we looked at the ban on packer ownership, it was one
of three scenarios that we looked at. We applied that in the
hog industry to look at what those effects would be. One of the
reasons why we assumed that there would be increased costs is
because we assumed that if there was a ban on packer ownership,
those hogs would be on the spot market. A different assumption
could have been developed, but these were based on scenarios as
we designed them for the study to look at some different
alternatives.
Chairman Harkin. Well, I guess I am just wondering why that
other scenario was not looked at, because obviously since there
is no legislation that would ban contracts pending, then a ban
on packer ownership, then you would have to look both at maybe
increased contracts as well as open markets. But you only
looked at one aspect.
Ms. Muth. Yes. Well, we also looked at a couple of other
scenarios, and understand, again, these were not to look at
particular policies that had been under consideration. These
were just to give some comparisons so that you could see some
relative magnitudes of differences, depending on what the
situation might be.
Chairman Harkin. Thank you very much. My time has more than
run out.
Senator Chambliss?
Senator Chambliss. Thank you, Mr. Chairman.
Mr. Carstensen, in your testimony, you request that
Congress correct problems in the livestock market
legislatively. You then go on to say, ``The enforcement of
current law, despite its limitations, is also a critical
concern.'' And I agree with that assertion that current law
must be enforced if we are to have an open and competitive
marketplace. I am concerned, however, that one of the remedies
you advocate is the limitation of options for producers.
Do you think it is appropriate for the Federal Government
to decide how producers should and should not market their
livestock?
Mr. Carstensen. Well, sir, the law constructs most markets.
There are contract terms that are illegal for the sale of any
kind of good. Where we get to more complex markets--and here,
again, as I said in my earlier testimony, I think of securities
markets and complex futures markets--there are all kinds of
contract terms, practices of buyers and sellers that are
outlawed because Congress has reviewed what makes markets work
efficiently.
The problem with a completely unstructured market is that
you do not get the most efficient behaviors because the
advantage of strategic conduct, of insider trading, of other
kinds of behavior, outweigh the community's benefit from having
an efficient, fair, and open market.
So that the law from the very earliest times has tried to
restrict the alternatives that buyers and sellers can use to
focus them on efficient market practices. This does not mean--
and I think the Chairman has emphasized this--that I am against
contracts. I think that contracting needs to be regulated so
that we have fair and just terms, so that we make the market
work efficiently.
Senator Chambliss. OK. Is there any available data for the
Committee's review that supports the argument that livestock
producers would enjoy less volatility and higher prices if
alternative marketing agreements were limited or prohibited?
Mr. Carstensen. Again, as we have just heard, one of the
problems with the RTI study is that they did not do the kind of
sophisticated forward-looking analysis that would have
permitted us to identify those contractual practices that
really contribute to market stability, those practices that
contribute to market volatility and, therefore, help us
identify the alternative marketing agreements, as I think is
the generic term here, that were economically, competitively
desirable.
I am going to be very interested to talk to some of my
colleagues in the ag econ department at Wisconsin to see
whether we can mine the data because it does sound as though
there may be some very useful information in this very
expensive project that collected a lot of data that might help
us answer your question. But it appears that RTI, which has the
data, was not asked those questions and, therefore, has not
done the analysis that would be necessary.
Senator Chambliss. But you do not know of any other study
that parallels that that might provide some of that data?
Mr. Carstensen. Not off the top of my head. I will make
further inquiries, sir, and if I come up with some suggestions,
I will let you and the Chairman know.
Senator Chambliss. Good. Thank you.
Ms. Muth, in your testimony you state that the use of
alternative marketing arrangements provides benefits not only
to meat packers but also to livestock producers and meat
consumers. You conclude that restricting their use would have
negative economic consequences on most segments of the
industry.
Can you expand on those statements for the benefit of the
Committee? I am particularly interested in how livestock
producers can benefit from these types of arrangements.
Ms. Muth. There are essentially three key ways. The first
one is in reduced price risk and income volatility, and looking
at the different types of marketing arrangements, we did find
that there was substantially less price volatility under
alternative marketing arrangements, particularly under
marketing contracts for hog producers and marketing agreements
for cattle producers, and also reduced income volatility under
production contracts for hog producers that use those.
The second thing is that they can benefit producers who use
them when it allows them market access so that they can ensure
that they have a market for their animals.
And the third way that it can benefit them is in terms of
providing the capital that they need in order to operate their
production operations. In many cases, by having an ensured
buyer for their animals, that allows them to raise the capital
that they need to continue their operations.
Senator Chambliss. It is a common belief in some circles
that alternative marketing agreements limit the marketing
capability of small producers and will ultimately force them
out of business. Based on that logic, limiting the use of
alternative marketing agreements would ensure small producers a
more competitive marketplace where they would enjoy higher
prices.
Your testimony seems to contradict that belief. For
example, you state that increasing the hog cash market share to
25 percent from the current 11 percent would cause hog
producers and pork consumers to lose economic surplus. This
would indicate that small producers would not benefit from
banning alternative marketing arrangements.
Can you explain that a little bit further?
Ms. Muth. Well, in terms of, going back to looking at what
some of the benefits might be, there is increased efficiencies
at the packer level, that this allows them to continue their
operations and to ensure that they have sufficient capacity
utilization to operate their plants. By operating those plants,
they are allowing a market for smaller producers. In some
cases, packers are not able to secure enough livestock to
operate their plants. There are substantial economies of scale
in the packing industry. When you reduce volumes at those
plants, their costs increase substantially and makes it less
viable for the packer. If you have packing plants closing, that
is also reducing market access for producers, including small
producers.
Senator Chambliss. Mr. Hamilton, you raised several
concerns about unfair contracting practices in the poultry
industry, and you cite several instances that you have
personally observed. And as you know, the poultry industry
today is defined by vertical integration and companies that
contract with family farmers.
If there is one thing that could be done legislatively to
address the many issues that you raise, what would it be?
Mr. Hamilton. If I had to pick one thing for you to do to
help us?
Senator Chambliss. Right.
Mr. Hamilton. Get rid of arbitration, because if we can get
rid of arbitration to where that we can discover what is going
on, if we can go back to the courts, I think that you will see
some of the companies, if they are doing what they are doing,
they will stop it, because you are going to see it show up in
the courts.
Right now there is no cop on the beat. We have a hard time
proving anything because we do not have access to the records,
for one thing. We have to take everything as it is right now at
face value. If they say they have brought me X amount of weight
of feed, if they say they have brought me this type of bird,
that they have been held to anything, I do not have access to
the records of that flock number to indeed prove that.
So if I had to choose one thing, it would be get rid of
arbitration in my contract because then the court--that will
give us access to the courts. You will probably see a rush of
some lawsuits, and then after that, I think you will see it
decline back down because you are going to have a cop on the
beat regulating what is going on, and that will force them to
eliminate some of the practices that they are doing.
Senator Chambliss. OK. Thank you, Mr. Chairman.
Chairman Harkin. Thank you, Senator Chambliss.
Let's see. Down the list next would be Senator Salazar.
Senator Salazar. Thank you very much, Chairman Harkin and
Senator Chambliss. Thank you for holding the hearing on the
economic challenges and opportunities regarding livestock,
poultry, and competition issues. I would also like to thank the
witnesses for sharing their time and their expertise with our
Committee today.
Mr. Chairman, I would like to commend you for the hearing
process so far on the farm bill. This is the first farm bill
that I work on, and I have found the hearings that we have had
thus far to be immeasurably valuable.
In 2002, in the chairman's mark at that time, there was a
title on competition, and it included such subjects as country-
of-origin labeling, packer ownership ban, contract items, USDA
enforcement, and management provisions of USDA, and a whole
host of other things. Let me ask a couple of questions of the
witnesses.
In terms of country-of-origin labeling, you probably have
taken a look at that and have an opinion on it. Is it something
that you think that we ought to move forward with? I know that
in the agricultural community in Colorado there is a split of
opinion and that there are some who think we ought to move
forward with country-of-origin labeling and others who do not.
Mr. Hamilton, I noticed in your testimony and in the letter
that was submitted by all of the producers that signed up on
your letter, country-of-origin labeling was included in there
as something that we ought to do. So can you provide me and the
Committee with some of your positions relative to country-of-
origin labeling?
Mr. Hamilton. Yes. As a consumer, I want to see country-of-
origin labeling because as a producer and being active as I
am--and I think I keep up with things pretty well--I realized
that there are some things going on in some other countries
that we are not allowed to do here. In Alabama, for instance, a
few months back the Commissioner of Agriculture condemned a
load of catfish imports into Mobile because they had been using
a substance that had been banned in this country for quite some
time. So as a consumer, I am for it because I have seen it as a
producer that some of these other countries, they are doing
things that we cannot do, for whatever reason. And, you know, I
do not want to get into that. But from the production
standpoint of it, it has shown me--I believe that we have the
safest and best food supply. And as a consumer, that is what I
want to buy. If you want to buy different, have that choice.
But if there are oranges from Florida and there are oranges
from Mexico, give me the choice in the grocery story and let me
as the consumer choose which ones I want to buy.
Senator Salazar. Thank you.
Mr. Schmidt?
Mr. Schmidt. I would agree with Mr. Hamilton. I have
supported country-of-origin labeling, and I believe the county
pork board that I am on also supports that.
I know there are some issues with country-of-origin
labeling as far as it does not have enough scope, does not
cover some products, especially hotel retail, institutional
products. I also know there are some concerns that maybe some
agricultural commodities are not covered in that. But from my
standpoint, I believe in country-of-origin labeling, and I
think it needs to be done.
Senator Salazar. Dr. Muth?
Ms. Muth. Yes, in terms of what we looked at for our study,
we did not look specifically at country-of-origin labeling, but
one of the implications of country-of-origin labeling is that
it would actually encourage individuals in the industry to move
more toward alternative marketing arrangements so they can
increase traceability in the industry.
Senator Salazar. Ms. Hayes?
Ms. Hayes. I believe that country-of-origin labeling is
necessary, I think both for the reasons that Mr. Hamilton and
Mr. Schmidt said, that there is concern about production
practices in other countries, and that is a concern of the
consumers as well as the producers in this country and that
they should be allowed--consumers should have the opportunity
to make choices on the kinds of production practices that they
want to meet.
I think it is also appropriate, however, that producers and
consumers be able to support American industry by choosing to
buy American products and American-raised products, not just
because they are a higher quality but also because it is a way
of supporting economically our own communities.
Senator Salazar. Mr. Carstensen?
Mr. Carstensen. I would join in the general consensus that
better consumer information is desirable. It is part of making
markets transparent.
Senator Salazar. Let me ask you, Peter, a question
regarding your testimony. In your testimony, you state the
importance of properly enforcing the laws that we have on the
books, and so my question to you is: Do we need more laws or do
we just need to have proper enforcement of the laws through
USDA?
Mr. Carstensen. Both. That is, the problem--and the
Chairman, when he started, mentioned the Packers and Stockyards
Act was written in 1921. It has been modified a little bit. As
Mr. Hamilton, I think it was, discussed, with poultry it no
longer works in terms of the way the industry has evolved.
So the arbitration issues, a number of issues like that, I
think are best addressed by a revisiting of the statutes,
expanding their coverage so that they will cover crops, so that
they will be much more comprehensive than just the particular
fixes that Congress imposed at various times in the past.
I put dairy on the table as well because I think that that
is a major area that needs reform.
That said, Congress can only do so much. After that, you
have got to have somebody who is willing to enforce the law. If
there is some way to do something to get the Department of
Agriculture under, I regret to say, both Democrats and
Republicans, to understand that it is supposed to be a law
enforcement agency and not a tool of special interests, that
would solve a great deal of our problems. If that is not going
to happen, then we are going to need to find other ways to make
those laws workable. And, again, as Mr. Hamilton pointed out,
if poultry growers can go to court, get some damages, get some
injunctions, that is an alternative way to enforce the law, and
you really need to think through how the law will be enforced,
not just----
Senator Salazar. Let me interrupt you, since we have very
limited time.
Mr. Carstensen. Yes, sorry.
Senator Salazar. In terms of, you said, both Democratic and
Republican administrations have failed to enforce the law out
of USDA, why do you think that happens?
Mr. Carstensen. My guess is that there is a certain kind of
political pressure brought on the Secretaries of Agriculture
and those who make decisions in the Department of Agriculture
that causes them to ignore their duties to enforce the law.
I think there are also some complexities in terms of the
history of how GIPSA has operated, the kind of economic support
it has had; that is, it has not had an adequate staff, it has
not had adequate enforcement authority within the Department of
Agriculture. So that combination of factors and a long history
of inactivity makes it very hard to get it restarted.
Senator Salazar. Thank you very much. My time is up.
Thank you, Mr. Chairman.
Chairman Harkin. Thank you, Senator Salazar.
Let's see. Next would be Senator Casey.
Senator Casey. Mr. Chairman, thank you very much. I want to
thank you and Senator Chambliss for this hearing today, and
especially with regard to the challenges and the opportunities
that face the livestock industry. If the Chairman will permit
me to do a little bragging about my State, we are known as the
Dairy State, as members of this panel know, but I am also happy
to inform you that we have got a tremendous ag production
history, and we are about No. 3 in that. We have a great deal
of hog farming in Pennsylvania. So the issues that you are
discussing today are critically important to Pennsylvania and,
of course, the Nation. And a lot of the farmers in our State
who have come to visit us recently have discussed important
issues like the classification of manure as a toxic waste under
Superfund access to new export markets, and a whole range of
other issues. We are going to be spending even more time with
them.
But I think one thing that I wanted to focus on today in
the limited time that we have are the questions surrounding
dairy farmers in Pennsylvania. Professor, I wanted to ask you
one or two questions about this.
First of all, with regard to your testimony today on a
whole range of issues, but in particular with regard to dairy
farming, do you think that allowing dairy farmers to forward
contract directly with the processor of their choice would help
alleviate some of the problems associated with having just a
few processors control the market? And I have one additional
question after that.
Mr. Carstensen. First of all, as somebody from Wisconsin,
of course, we claim to be the Dairy State. I just need to get
that into the record here.
There is a potential for forward contracting or other
direct contracting with fluid milk processors to provide an
alternative. I think one has to be--because what we have heard
from chicken, pork, beef, you really need to think through
carefully the terms and conditions for the forward contracting,
and you need--and this is the access point. Then you need to
really say to fluid milk processor, ``You have got to engage in
this activity. You have got to offer those contracts,'' because
right now the problem is that the fluid milk buyer, the
dominant one, has entered into an exclusive dealing contract
with a single cooperative, which has foreclosed access to the
market. And if you are not willing to block that kind of
contracting, your forward contracts will not exist.
Senator Casey. And I wanted to ask you about the principal
dairy problem in our State, which is the gross differential
between what it costs the dairy farmer to produce the milk that
he or she will produce versus the price that they can obtain.
And I have spent a good deal of time not just talking about
this issue, but also visiting people kind of on the ground, so
to speak. One of them up in Wayne County in northeastern
Pennsylvania, Joe Davitt, and his family have been doing dairy
farming for years, but he is at the end of his rope. He said
something which really made an impression on me. This young man
is a college graduate, but he said, because of the challenges
he faces, ``What I have learned as a dairy farmer''--and the
struggles he has had to endure, he said, ``There is not a wall
big enough to fit that diploma.'' And I thought it was an
insightful way of talking about how difficult this work is.
But do you have any advise or any comments on the question
of how we can bridge that gap between the cost of production
and the price that our farmers can obtain for fluid milk?
Mr. Carstensen. It is an extremely difficult problem to
resolve. I was quite enthusiastic about the--I think it is the
MILC program.
Senator Casey. MILC, right.
Mr. Carstensen. Because it provided a guarantee that varied
with the degree to which your milk was used for fluid milk so
that it had the appropriate direction. It was also capped so
that it focused on supporting the small to middle-size dairy
farm and left the very large cow operations, if they want to be
in the market, they can be in the market.
I think that something like MILC is probably the best route
to provide the underlying support for dairy farmers to assure
them of a basic kind of income. There are also market reforms
that would facilitate increased price flowing down to the farm
gate. One of the problems we had is that the price of milk has
gone up at the grocery store because of concentration there,
and that increased price has been split between the fluid milk
processor and the grocery chain, and the farm gate has not seen
any of that increased revenue.
And so there are some other proposals out there that I am,
frankly, a little more leery of that might put collars on
prices and essentially say if you are going to raise the price
of milk, that increased price has got to flow down to the
farmer. But I think that is the goal. If price can go up in the
market, the farmer needs to get a share of that.
Senator Casey. Thank you.
Chairman Harkin. Thank you, Senator Casey.
Senator Klobuchar?
Senator Klobuchar. Thank you, Mr. Chairman, and thank you
for holding this hearing on the issue of competition in the
livestock industry.
The State of Minnesota has many livestock producers. In
fact, we produce about $1 billion worth of beef and nearly $2
billion worth of pork each year, and a little-known fact is
that we are the Nation's leading turkey producer. You did not
know that, Senator Casey.
My question is first of our Minnesota witness, Ms. Hayes,
and I wanted to follow up first about what Mr. Hamilton was
talking about, and that is the arbitration clauses. Do you
think there is a legitimate need for mandatory arbitration
clauses in livestock contracts, or are these being used to a
farmer's disadvantage?
Ms. Hayes. I think the arbitration clauses are definitely
being used to a farmer's disadvantage. One thing about
arbitration to keep in mind is that the farmer, in order to
attempt to resolve a dispute through arbitration, actually has
to pay what can be quite large arbitration proceeding expenses
as well as the fees for the arbitrator. So it is essentially
like having to pay for a judge to hear your case. So it can
cost tens of thousands of dollars to go to arbitration, even on
a relatively small issue.
In addition to that, arbitration is the problem because it
does not have any precedential effect, so once a case decides,
for example, that the use of the tournament contract system was
an unfair practice or something under the Packers and
Stockyards Act, something like that, it is not going to hold
true for any other grower, that it is going to apply just to
the individual growers.
And then another issue that was raised earlier was that
there is no discovery in an arbitration proceeding in most
instances, and discovery is the way in a court system you would
have the opportunity to find out all of the evidence,
essentially. So growers go into arbitrations without adequate
evidence essentially to prove their case because that evidence
is in the hands of the company rather than the grower
themselves.
Senator Klobuchar. So what do you think would be a better
way to help the farmers in this situation?
Ms. Hayes. Definitely, I think, a ban on arbitration
provisions in this. You know, there may be a rare instance
where a grower, fully informed of the consequences of
arbitration, could, after a dispute was raised, agree to go to
arbitration. But, generally, I think they should be banned from
being included in production contracts, partially because
production contracts are essentially contracts of adhesion.
They are written wholly by the company, but the growers have
absolutely no negotiating power on the terms of those
contracts. Therefore, the contracts protect the company, not
the grower.
Senator Klobuchar. And I also noted you were nodding your
head when Senator Casey was asking Mr. Carstensen about the
enforcement issues with the Agriculture Department. Could you
talk a little bit about that?
Ms. Hayes. Yes. I think there are a couple of important
things to keep in mind under the Packers and Stockyards Act.
For the poultry industry, one of the enforcement problems is
that USDA does not have the authority to bring adjudicatory
actions to enforce the unfair and deceptive trade practices
section of the act against poultry dealers. They do have that
authority to bring enforcement actions against red meat
packers. They have not done a very good job of that, and I
think that another way that the agency has failed to enforce
the act is they have very broad regulatory authority, and it is
very clear in the legislative history of the Packers and
Stockyards Act that it was intended to be used to keep up with
the changing structure of the industry. So they should have
been looking at the industry as it became more concentrated and
more vertically integrated and started defining what is unfair,
what is unjust discrimination, what is price manipulation in
this new context. And they have not been doing that.
As a result of that, we have essentially through court
decisions started to lose some of the original intent of the
Packers and Stockyards Act--not that it was not there, it is
just that it is not getting enforced because the agency is not
doing it and the courts now have come out and started saying
that you have to prove anticompetitive effect. Essentially you
have to prove there is an anticompetitive effect between the
packers in order to prove that a practice is unfair to a
producer, which was never the intent of the statute.
That is the reason why we need specific legislation that
comes in and makes it clear that in order to prove an unfair
practice or a price-manipulating practice, you do not have to
prove an anticompetitive effect. So those are ways that the
statute needs to be amended.
We will always need the enforcement authority of the agency
because, to a great extent, producers cannot afford many times
to bring actions to enforce the act. Another way that you could
improve that would be to authorize the award of attorneys' fees
for private causes of actions to enforce. But the agency will
always be needed to be there, and what needs to be impressed
upon them is the need to start defining unfair, unjust price-
manipulating practices in the structure of this current
industry.
Senator Klobuchar. Thank you.
Mr. Carstensen, you talked about how the consolidation of
the livestock industry is having the effect of putting farmers
at an economically disadvantaged and vulnerable position. What
would you say to producers who say that they actually prefer a
production contract with the animal feed supply because then
they do not bear a risk or have the liability?
Mr. Carstensen. Well, it may be individually rational to
enter into various kinds of contracts in the context where your
next best alternative is worse. So that a production contract
that guarantees you something is going to look better than a
cash market that we are now being told by the RTI study has an
increasingly bad price consequence for farmers, as the point
was made earlier in the pork industry in Minnesota and Iowa. So
that, you know, compared to my alternative, this contract is
good if we can regulate--this is why I keep saying the law
needs to construct a set of rules that facilitate fair,
efficient market operation, whether it is by contract or by
cash market transaction.
So it is perfectly rational to take a bad choice if your
alternative is worse. That does not make the bad choice
desirable.
Senator Klobuchar. Nicely put. Thank you.
Chairman Harkin. Thank you very much, Senator.
Now we go to Senator Thune.
Senator Thune. Thank you, Mr. Chairman, and I want to thank
the panel for your testimony. These are important issues, and
based on my experience in my home State of South Dakota with
livestock growers and organizations, sometimes these are not
issues that generate agreement. There are differences of
opinion between different agricultural organizations, as there
are differences between individual neighboring producers in
some cases. But to me the competition title in the farm bill
ought to strengthen our antitrust laws to ensure that no single
entity has so much market power that livestock producers and
consumers are negatively impacted. And in my home State of
South Dakota, we have a proposed acquisition of Premium
Standard Farms by Smithfield. If approved, this merger would
eliminate Premium Standard Farms as a buyer of hog and hog-
feeding services.
Now, the Department of Justice is currently reviewing this
particular merger, which would have serious repercussions for
hog producers throughout the Midwest and other parts of the
country. In my view, this is a clear example of why our
antitrust laws need to be strengthened, particularly as they
pertain to the agricultural industry.
What I would like to do is direct a question, if I could,
to Mr. Carstensen regarding that merger. You referenced it in
your testimony. What do you think would be the impact of the
Smithfield-Premium Standard Farms merger on the competitiveness
of the Midwestern hog market?
Mr. Carstensen. Well, as Dr. Muth pointed out, we already
have clear evidence of market power in hog processing. This
merger will significantly increase that kind of market power
and will cause two kinds of problems in the Midwest. I should
say it is going to cause even more problem in North Carolina,
but I realize your focus is on the Midwest, sir.
In the Midwest, we have two things that will happen. As you
eliminate the competition between Smithfield and Premium
Standard, you will reduce the ability of farmers to get the
benefit of competition, and in the buyer power world, we need
multiple competitors. And although Premium Standard's operation
is in northern Missouri, this is going to have a spillover or a
reverberating effect, where I think it is very likely to see
Smithfield pull out of South Dakota, move out of that more
competitive part of the Midwest hog market, relocate its
activities to the less competitive southern part of the
Midwest, and thus, all hog producers throughout the Midwest are
going to suffer lower market prices.
The other thing that will happen is because Smithfield will
be more vertically integrated after this merger, its incentive
to engage in both price manipulation on the cash market which
directly affects its contract prices and its incentive to use
that strategically to harm both hog producers and its
competitors will be increased.
So, in my view, it is a very, very bad merger, and I am
perplexed as to why the Justice Department has not objected to
it strenuously already.
Senator Thune. And I want to follow up on that question,
your view on Justice's role in this, the Department of Justice,
and whether or not they have been thorough in adequately
reviewing this merger, if I could get you to comment on that as
well. I know you have made some reference again to it in your
testimony.
Mr. Carstensen. I did have the privilege of talking with a
major investigative team from the Justice Department last
October, along with some others, to raise concerns. My sense is
that at a staff level, they have staffed this adequately. They
have got people who are well trained--since one of them is one
of my former students--and quite able to do the analysis.
They have a terrible track record of following through and
getting the top management to actually bring lawsuits. They
have not brought a major merger lawsuit now in a number of
years. And at this point, there is no transparency in their
process.
I know that they have asked for a further delay in the
merger. They have got another 30-day delay in the closing of
the merger so that they can continue their review. That is
somewhat unusual, and it suggests that they are giving serious
attention. The proof of the pudding is whether they are
actually going to take action, and on that one I wish I knew
more. I could make a fortune in the stock market, I suppose.
But, no, that would not be right. But, more importantly, we
would all be able to know what is going on. But, unfortunately,
I do not and I do not think anybody outside of Justice does.
Senator Thune. Let me ask you another question with regard
to another proposed merger, and that has to do with, in the
past several years, Monsanto, the world's biggest seed
enterprise, has acquired considerable market power in
biotechnology, trademarked most notably its Roundup Ready corn
and soybeans. Does the Delta Pine and Monsanto merger have
additional anticompetitive implications for the corn and
soybean market in the Midwest? And how is Monsanto's increasing
market power affecting the independent seed companies? If you
could address that.
Mr. Carstensen. Yes. Again, this is another merger that has
been under study at Justice for a long time. They actually had
objected to it in 1998 when it was first proposed. The parties
backed away. Now they are back again seeing whether they can
sneak it through.
The harm to the broad market is this: Delta and Pine Land
is a major cotton seed producer and has contractual
arrangements with several competitors of Monsanto. They are
developing competitive genetic--herbicide-resistant genetic
pesticide characteristics.
If the merger is blocked, Delta Pine will be a principle
developer of the technology and application first in cotton,
but what that means is that it opens the door to being able to
transfer these genetic characteristics to corn and soybeans.
The minute we get competing genetic technologies for herbicide
resistance and pesticide resistance in corn and soybeans, the
price of corn and soybean seed is going to go down.
So farmers in the Midwest have an enormous stake in how
this merger is evaluated because, on the one side, we are going
to get a much more competitive market in genetics, and that is
very much to the benefit of farmers. To the other side, if it
is not blocked, that competition is going to be further
impaired as we go down the road, as new technologies are not
made available. And as I laid out in my statement, the
additional risk for farmers is that Monsanto, dominating all of
this, is going to be in a position to start imposing a tax on
the farmer. Every time the farmer wants to sell a soybean or a
corn kernel that has a Monsanto gene in it, the farmer may have
to pay a tax to Monsanto, or Monsanto will sell the right to
buy from that farmer to particular grain elevators.
A very, very serious problem here that needs to be
addressed.
Senator Thune. Thank you.
Mr. Chairman, I have questions for other members of the
panel. I did not want to turn this into a two-way dialog here,
but I do think as we review this issue that obviously the
market works when there is competition, and in order for
competition to be effective, there has got to be good
transparency. And I hope as we look at these issues with regard
to the next farm bill that we will keep that in mind, and we
obviously want to be sensitive to making sure that the market
can work and that the producers can manage their risk
effectively, but that we have got an appropriate, effective
level of competition out there and the transparency that is
necessary to ensure that.
So I thank you all for your testimony, and thank you, Mr.
Chairman, for holding the hearing.
Chairman Harkin. Thank you, Senator Thune. Again, I look
forward to working with you on this in the farm bill and
obviously ask for any advice and consultation that you have on
this issue. Obviously you know a lot about this, and I would
respect your views and any input that you would have on this.
So I ask for that.
Next I turn to my colleague from Iowa, Senator Grassley.
Senator Grassley. Thank you, Senator Harkin, for holding
such a very important hearing. Probably over the long haul,
getting more competition in agriculture will do more for
farmers' income than what we do through the farm bill, although
we will be doing both, hopefully, having competition very
strongly involved in the debate in the Senate. And I think I
made it clear that my position is to ban packer ownership of
livestock and to get rid of mandatory arbitration clauses.
Those are things that I worked on in the last farm bill. We did
get it through the Senate. It did not survive conference, but
hopefully this year these things of that nature will survive
Congress.
I am going to put an opening statement in the record, Mr.
Chairman, and I have just a few questions.
[The prepared statement of Hon. Charles Grassley can be
found on page 50 in the appendix.]
I am going to start with Mr. Carstensen. Isn't it true that
when the spot market drops to less than 10 percent with fewer
packers--I said that wrong. Isn't it true that when the spot
market drops to less than 10 percent with a few packers, the
risk of price manipulation increases?
Mr. Carstensen. Definitely.
Senator Grassley. OK. Do you agree that consumer meat
prices do not follow cheaper livestock prices?
Mr. Carstensen. I am sorry. Say that again?
Senator Grassley. Do you agree that consumer meat prices do
not follow cheaper livestock prices?
Mr. Carstensen. The correlation is very weak.
Senator Grassley. OK. If you were selling, for example, a
handmade product at a local auction, isn't it true that you
would rather have ten bidders than two or one?
Mr. Carstensen. Again, definitely.
Senator Grassley. OK. And then for Tim Schmidt, we have
heard from the packers that contracting is necessary to provide
quality incentives. But isn't it true that the quality payment
system and quality incentives are the same for hogs sold under
both contract as well as in the open market?
Mr. Schmidt. Yes, exactly. I follow all their quality
requirements and need to meet those in order to sell my hogs to
their facilities.
Senator Grassley. OK. Mr. Chairman, I have no other
questions, and I will submit the others for the second panel.
Chairman Harkin. Thank you very much, Senator Grassley.
Our time is running out, but I just want to ask one
question. I will just go down the line and just kind a one-
sentence or two-sentence answer I would certainly appreciate to
this one question that I hope kind of sums it up.
What do you think needs to happen to ensure that there is a
fair and open market for small and medium-size hog operations
and poultry operations like Mr. Schmidt and Mr. Hamilton, small
and medium-size livestock operations? What do you think needs
to happen to ensure that there is a fair open market for small
and medium-size livestock operations? Mr. Carstensen.
Mr. Carstensen. First of all, we need full disclosure of
contract terms; second, we need access for all producers
through some form in which they can tender their livestock; and
we need fair contract terms whenever we are going to be using a
contract, and that is the regulatory structure that I have
talked about.
Chairman Harkin. You are talking about getting rid of
mandatory arbitration.
Mr. Carstensen. Yes.
Chairman Harkin. Ms. Hayes?
Ms. Hayes. I believe that we need a ban on packer ownership
of livestock. We need a restriction on forward contracting that
would require all forward contracts to have a fixed-based
price, not a formula-based price, because it is through the
formula pricing that manipulation can occur, that all forward
contracts be traded in an open and public market that makes it
available to all producers, including small producers, and
ensures transparency of those transactions. And then we also
need to ensure that the Packers and Stockyards Act can be
enforced for unfair and deceptive trade practices and make sure
that terms in production contracts are fair and that there is
adequate bargaining power between growers and the companies.
Chairman Harkin. Thank you very much.
Dr. Muth?
Ms. Muth. Based on our experience working with transactions
data from packers and profit-and-loss statements, to ensure the
ability to conduct thorough analyses, to look at the
relationships in the industry, standards for how transactions
data and profit-and-loss statement data are maintained would
facilitate analyses of those relationships over time.
Chairman Harkin. Mr. Schmidt.
Mr. Schmidt. I believe that pork producers should be
allowed to sell at least a portion of their hogs on the open
negotiated spot market, and I believe that those prices should
be reported to the USDA Market Service along with alternative
contracts, with the prices those producers are receiving also.
Chairman Harkin. Thank you very much.
Mr. Hamilton.
Mr. Hamilton. We need balance. We need negotiation with our
companies. We need them as much as they need us. The problem is
everything is shifted to their side right now.
Chairman Harkin. But what needs to happen to ensure there
is a fair open market for small and medium-size operations?
Mr. Hamilton. We need transparency in the market, and on
the poultry side of it, the arbitration is the biggest thing. I
think that needs to go.
Chairman Harkin. OK. Good enough. Thank you all very much
for your testimony and for being here today. We appreciate it
very much. You have added greatly to our thoughts and our
information on developing this aspect in the farm bill. So we
will dismiss this panel. Thank you again very much.
We will call up our second panel: Mr. Eric Nelson, Mr. John
Queen, Ms. Joy Philippi, Mr. Ron Truex, Burdell Johnson, and
Mr. William Roenigk.
Now, again, while the previous panel that we had was
focused on the competition title in the farm bill, what we are
going to do strictly on competition, this panel is more broadly
based. I have asked you to come and just basically testify on
broader issues. It does not have to be on competition at all,
but on areas that affect you or the organizations that you
represent.
And so, again, the same thing, if you can sum up in 5
minutes--we are supposed to be out of here by 12:30, so we are
going to have to move. So I would ask you if you could just sum
it up in 5 minutes or so, I would sure appreciate it, and we
will just down the line.
Mr. Eric Nelson and his wife own and operate a beef feedlot
along with a cow-calf farming operation in western Iowa near
Moville. Eric is a fourth-generation farmer-cattleman and
operates the same land his great-grandfather purchased in 1920.
They have five children. He serves as Region VI Director of R-
CALF and the Iowa Membership Chair.
Mr. Nelson, welcome to the Committee and please proceed.
STATEMENT OF ERIC NELSON, RANCHERS-CATTLEMEN ACTION LEGAL FUND,
UNITED STOCKGROWERS OF AMERICA (R-CALF USA), MOVILLE, IOWA
Mr. Nelson. Good morning, Chairman Harkin, Ranking Member
Chambliss, and members of the Committee. I appreciate the
opportunity to testify about including livestock and
competition issues in the 2007 farm bill.
Again, as stated, my name is Eric Nelson and, along with my
wife, Carol, and our five children, we do operate a beef
feedlot, cow-calf, and farming operation in western Iowa, and
as was stated, I am a member of the board of directors of R-
CALF USA and am President of the Independent Cattlemen of Iowa.
R-CALF USA is a nonprofit cattle producer association that
represents thousands of U.S. cattle producers in 47 States,
along with over 60 State affiliates and local affiliates. R-
CALF USA's mission is to ensure the continued profitability and
viability of independent U.S. cattle producers. The
demographics of the R-CALF USA's membership are reflective of
the demographics of the U.S. cattle industry, with membership
ranging from the largest of U.S. cattle producers to the
smallest. R-CALF USA's membership consists primarily of cow-
calf operators, cattle backgrounders, and feedlot owners. The
2007 farm bill presents an important opportunity to strengthen
the cattle sector and create a competitive playing field, at
home and abroad, for United States cattle producers.
Ensuring a market framework that provides participants in
the U.S. live cattle industry with the opportunity to remain
profitable should be a central focus of the 2007 farm bill. A
profitable and vibrant U.S. cattle industry is vitally
important to the health of our citizens and the overall welfare
of rural America. Today's production agriculture, which, in
addition to its principal role of producing an abundance of
safe, wholesome, and high-quality food, now includes the
development of biofuels and a heightened emphasis on
international trade. This makes for a highly complex and
dynamic industry that has created many overlapping and
interconnected relationships.
To effectively address the new complexities that were
brought about by changes in national policy, we must adhere to
sound market principles. For example, R-CALF USA believes that
each segment of U.S. agriculture should have the opportunity to
prosper at the same time, without pitting one group against
another. This belief is based on our knowledge that competitive
markets have long assimilated increased production costs
without rendering entire industry segments unprofitable.
When applying this principle to the Nation's current policy
of achieving more energy independence through alternative
energy promotion, R-CALF USA does not join critics who claim
the Government's ethanol incentives are inappropriate. Instead,
R-CALF USA believes the proper response by the U.S. cattle
industry to this National Energy Policy is to work aggressively
to remove the barriers that currently prevent the U.S. cattle
market from assimilating necessary increases in productions
costs. If appropriate reforms are made to enable U.S. cattle
producers to begin receiving their competitive share of the
consumer's beef dollar and their competitive share of the
consumer beef market, then they will be able to recover
increased production costs from the competitive marketplace.
Such reforms should be included in the farm bill's competition
title. These reforms would be inclusive of limiting packer
ownership of livestock and packers' use of certain captive
supply contracts, strengthen the Packers and Stockyards Act,
improve price transparency, allow interstate shipment of State-
inspected beef, and, very importantly, put mandatory country-
of-origin labeling into place.
The removal of current market competition barriers from the
U.S. cattle market would generate another benefit for the U.S.
cattle industry, besides that of accommodating the Nation's
desire to achieve energy independence. Production agriculture
is a capital-intensive endeavor, making it very difficult for
young people to gain entrance. For generations, livestock
production has served as the means by which young entrepreneurs
have gained entry into agriculture.
In 1930, my grandfather, with help from my great-
grandfather, built a barn that still stands on our home farm.
It took a lot of faith to build that large structure back in
1930, just months after the stock market crash of 1929. But
they were livestock producers, and less than 10 years earlier,
the Packers and Stockyards Act had reestablished a competitive
livestock market, which provided hard-working entrepreneurs
with a genuine opportunity to prosper in the livestock
industry. The 2007 farm bill could again reestablish
competitive livestock markets that would afford that same
opportunity to a whole new generation of livestock producers.
The core problem facing the cattle industry today that the 2007
farm bill can help to correct is that the overall framework
that defines how our industry operates is no longer adequate to
ensure a balanced and properly functioning competitive
marketplace. The present industry framework comprised of the
statutes, regulations, and policies that govern contracts and
market competition, consumer information, and information
disclosure, heath and safety, and trade have evolved under the
considerable influence of the Nation's largest meatpackers, and
without sufficient counterbalance from producers. As a result,
the balance of power within the present industry framework is
tilted in favor of the meatpackers, resulting in a pricing
advantage for them and an erosion of competition for livestock
producers.
Independent producers cannot match the economic or
political power held by the Nation's largest meatpackers. We
cannot expect to level the playing field by correcting the
deficiencies within our industry's framework through
negotiations with the meatpacking sector. Ironically, we are in
an intense competition to win back competition. Therefore, our
success in winning back our competitiveness will depend on you,
the Congress.
Thank you again for allowing me the opportunity to provide
input in this important hearing. I welcome any questions from
members of the Committee.
[The prepared statement of Mr. Nelson can be found on page
116 in the appendix.]
Chairman Harkin. Thank you very much, Mr. Nelson.
Now we will turn to John M. Queen, President of the
National Cattlemen's Beef Association. He is the own of John
Queen Farms, a third-generation cattle farm founded in 1917 and
located in the western mountain region of North Carolina. His
background in the beef industry includes cow-calf producer,
stocker, backgrounder, feeder, and grazer. He is now currently
serving as President of the National Cattlemen's Beef
Association.
Welcome to the Committee, Mr. Queen, and please proceed.
STATEMENT OF JOHN M. QUEEN, PRESIDENT, NATIONAL CATTLEMEN'S
BEEF ASSOCIATION, WAYNESVILLE, NORTH CAROLINA
Mr. Queen. Thank you, Mr. Chairman. My name is John Queen,
and I am a third-generation cattle producer and livestock
market operator from Waynesville, North Carolina. I am
President of the National Cattlemen's Beef Association and am
pleased to be with you to discuss our policy on market
structure issues, a policy which was brought forward by,
debated by, and voted on by our rancher members. This is grass-
roots policy where one-member/one-vote has always been the
standard.
When it comes to market structure and competition issues,
the National Cattlemen's Beef Association's position is simple:
We ask that the Government not tell us how we can or cannot
market our cattle. The way we market cattle has changed
significantly over the years, and it has come from recognition
within our industry that we are not just cattle producers but
beef producers and must be responsive to the consumers'
demands. The consumer focus has led to many innovative
marketing programs that have improved the quality of beef,
giving the consumer what they are asking for and allowing
ranchers to get paid for the value they add to the animal.
In addition to being responsive to our consumers,
participation in these marketing arrangements provides a
rancher with tools that help 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 him to be profitable. If the price
does not 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
herd and focusing on the traits which produce the highest
quality animals.
The benefits of the AMAs, or the alternative marketing
arrangements, which we heard about earlier, was commissioned by
GIPSA under the direction of Congress. The study took 3-1/2
years and $4.5 million of taxpayer dollars and was billed as
the ``definitive answer'' on these issues we are discussing
here. 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 or 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 Rancher's Reserve beef
only on Tuesdays. The consumer demands the convenience of
picking up a package of Rancher's Reserve beef any day of the
week. To meet that demand, the retailer and packer need a
steady and consistent 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 talked only AMAs, but approximately 62
percent of the cattle marketed today is done through cash or
spot markets. Spot markets, such as auction barns, are
critically important to the U.S. 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 the spot market gives 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
their 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 consumers
all across this country.
The results of these innovations are telling. Demand for
beef has grown over 20 percent since 1998--never heard of
before in the history of our country. Consumers spent a record
$71 billion dollars on beef in 2006. And consumer confidence in
our product is at 91 percent--higher than it was in 2003, when
we had the BSE cow in Washington State.
The study concludes that restrictions on AMAs would cause a
decrease in the supply of cattle, quality of beef, and feed or
cattle prices. These results would set our industry back and
place the burden on the individual cow/calf producer.
At 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 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 has 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
have made in keeping ranching a viable industry.
In the end, we must have a Government that works to help
our industry and not one that limits or removes choices for
cattlemen in the marketing of their cattle.
Thank you.
[The prepared statement of Mr. Queen can be found on page
157 in the appendix.]
Chairman Harkin. Thank you very much, Mr. Queen.
Now we will turn to Joy Philippi, a pork producer, a row
crop farmer from Bruning, Nebraska; Immediate Past President of
the National Pork Producers Council, co-chair of the NPPC Farm
Bill Task Force, and Chair of the NPPC's Working Group on Foods
and Ethanol and Livestock.
Ms. Philippi, thank you very much for being here. Please
proceed.
STATEMENT OF JOY PHILIPPI, NATIONAL PORK PRODUCERS COUNCIL,
BRUNING, NEBRASKA
Ms. Philippi. Good morning, Chairman Harkin, Ranking Member
Chambliss. My name is Joy Philippi. I am a pork producer from
Bruning, Nebraska, and a row crop farmer, and I am also 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
producers.
Pork producers have a keen interest in the next farm bill.
NPPC formed a 2007 Farm Bill Policy Task Force to gather input
from producers from around the country. As the next farm bill
is written, we hope Congress will consider the needs of the
Nation's pork producers. Our desire is to maintain the
industry's competitive advantage globally, strengthen our
competitiveness, and defend our competitiveness by opposing
unwarranted and costly provisions and regulations. Please let
me address some of the issues that likely will be considered in
the next farm bill.
Pork producers support the development and the use of
renewable and alternative energy as a way to reduce our
country's dependence on foreign oil. But we continue to have
the jitters over the rapid expansion of the corn-based ethanol
industry and the challenges that expansion presents to
maintaining our competitiveness.
We are concerned about not having an adequate transition
period to adjust to this expansion, the availability of corn to
feed our pigs, and about market prices. And that is why we
support allowing a 51-cent-per-gallon blender's tax credit and
the 54-cent tariff on imported ethanol to expire, incentives
for capturing and digesting methane from swine farms as an
alternative energy source, and releasing early and
incrementally, without penalty, CRP acres so they can go back
into crop production. As you fashion your energy title, please
consider our concerns.
With regard to conservation, pork producers would like to
see dismantled the regulatory hurdles we face in trying to
incorporate conservation planning into our operations. Pork
producers want to continue participating in USDA's Working
Lands Conservation Programs such as EQIP, but EQIP funds have
not been allocated fairly to pork producers who, from 2003
through 2005, received just 3 percent of the cost share
assistance provided for all livestock. NPCC would like more
EQIP funds for pork operations and would like those funds to be
allocated for specific on-farm practices that have a clear
environmental benefit.
Animal well-being is a top priority for myself and for my
fellow pork producers. We raise our pigs in a humane and
compassionate manner, and our industry has a 20-year history of
developing and using progressive animal well-being programs
such as pork quality assurance and trucker quality assurance.
We have invested hundreds of millions of dollars in research
and practical applications that enhance our swine well-being.
But our industry is under attack by those who would
legislate how farmers raise livestock and poultry for food. In
the next farm bill, so-called animal rights groups are planning
to push for a number of provisions that, if adopted, would be
very detrimental to the viability of the U.S. pork industry,
including a ban on non-ambulatory or fatigued hogs from
entering the food supply, a ban on certain antibiotics, and a
ban on the use of sow stalls on farms that produce food animals
that are purchased by the Federal Government.
There are also efforts to limit how we market our pigs. The
U.S. pork industry has enjoyed unparalleled prosperity over the
past 3 years, and this success has come while the structures of
the U.S. pork industry and the pork and hog markets have
changed. We urge Congress to focus not on structural issues but
on the more important efficiency measures of conduct and
performance as you deliberate the wisdom of any Government
intervention.
But we believe--and a recent GIPSA study concurs--that U.S.
pork producers will not be well served if a particularly
marketing or pricing mechanism is eliminated or mandated. Pork
producers strongly support free trade agreements, but the
extent of any future increase in global pork trade hinges
heavily on continued efforts to bring about further
agricultural trade liberalization. We support funding increases
for the Market Access Program and the Foreign Market
Development Program. We also encourage Congress to pass trade
agreements which were negotiated with Peru, Colombia, Panama,
South Korea, and also extend trade promotion authority.
To protect the U.S. pork exports, we support programs such
a Federal revenue-based assurance option that would assist
producers should our export markets ever be interrupted. And,
last, we would like to see continued funding for Government
research related to our industry, including research on
improving the swine genetics by completing the mapping of the
swine genome, testing and deploying new and improved animal
vaccines, further increasing animal productivity, and
developing new and environmental and management and mitigation
technologies.
NPPC and the many pork producers we represent thank you for
holding this hearing, allowing us to share the U.S. pork
industry thoughts. We look forward to working with you, the
Committee, as you craft the 2007 farm bill, and I would be glad
to answer questions at the appropriate time.
[The prepared statement of Ms. Philippi can be found on
page 137 in the appendix.]
Chairman Harkin. Thank you very much, Ms. Philippi.
And now we turn to Ron Truex, President and General Manager
of Creighton Brothers, LLC, United Egg Producers. Mr. Truex is
the President and General Manager of Creighton Brothers and an
egg producer in northeast Indiana. He has been in the egg
production business for 37 years, has held several leadership
positions in the industry, having served as President of the
Indiana State Poultry Association, Chairman of the American Egg
Board, and currently as Chairman of the Government Relations
Committee of United Egg Products. Ron also serves his community
as an elected county commissioner in Indiana.
Mr. Truex, welcome to the Committee and please proceed.
STATEMENT OF RON TRUEX, UNITED EGG PRODUCERS, WARSAW, INDIANA
Mr. Truex. Good morning, Chairman Harkin, Senator
Chambliss. It is a privilege to be here this morning. As you
said, I am Ron Truex, and I am President and General Manager of
Creighton Brothers, a family owned farm since 1925 in Warsaw,
Indiana. I chair the Government Relations Committee of the
United Egg Producers. The United Egg Producers is the Nation's
egg organization. Almost 90 percent of all eggs in the United
States are produced by our members. We appreciate being
included in this hearing. The farm policies that you adopt will
definitely affect our industry.
In the past year, we have been affected by the booming
demand for ethanol and biodiesel. Production costs for eggs
have skyrocketed as rising demand for biofuels has driven up
feed prices. About 55 percent of the cost of producing a dozen
eggs is feed; 63 to 65 percent of our typical layer diet is
corn.
From September of 2006 through the end of February in 2007,
a typical egg operation saw almost a 60-percent increase in
feed costs. During that period corn prices rose from around $2
a bushel to more than $4 per bushel. The cost of getting a
dozen eggs to the grocery store went up around 10 cents a
dozen.
United Egg Producers supports alternative fuels as a part
of the Nation's strategy for energy independence, but we
believe that U.S. policies must take into account the needs of
egg, poultry, and livestock and dairy producers.
In the 2007 farm bill, Congress should expand research to:
one, commercialize technologies to make ethanol from cellulosic
biomass; two, modify the DDGs and other byproducts to expand
their use in layer rations; three, develop other renewable
energy sources, such as power generation, using manure and
mortality.
Although tax incentives are not a part of the farm bill, we
believe that any tax credit or similar benefits available to
ethanol or biodiesel should also be available for other sources
of renewable fuels, including products of the livestock and
poultry industries. We also suggest that you explore making tax
credits countercyclical so that they would be lower when oil
prices are very high.
During recent years our organization has spent more time on
animal welfare than any other single issue. We feel strongly
that animal welfare standards should be based on science, not
emotion or politics. In the late 1990's, we commissioned an
independent, unpaid Scientific Advisory Committee that
recommended industry-wide guidelines for animal husbandry.
About 85 percent of the producers have voluntarily adopted
these guidelines, which are known as the UEP Certified Program.
These guidelines have been well accepted by our retail and food
service customers and provide assurance to consumers that the
eggs they buy were produced under animal husbandry standards.
We want this Committee to know that the private sector has
been actively working on animal welfare because we are
concerned that when you take the 2007 farm bill to the Senate
floor, a variety of amendments could be offered that would be
hostile to animal agriculture. These amendments may or may not
have anything to do with eggs directly, but they might target
other species groups instead. But our request to you is simple:
Please vote against hostile, anti-livestock amendments that may
be offered. Instead, please support our industry and its use of
science, not emotion, to develop and implement voluntary animal
husbandry guidelines in the private sector.
We also feel strongly that the Nation should invest more in
basic and applied agricultural research extension and
education. Compared to the other scientific fields, Federal
funding for agricultural research has been stagnant at best.
The CREATE-21 proposal endorsed by land grant institutions is
an important contribution to this debate, and we support its
goals.
We do feel that while better coordination between
intramural and outside research is important, the Agricultural
Research Service should remain a separate agency. For animal
agriculture, research can help us not only make our farms more
viable, but also serve the public goods. For example, the
Government has paid increasing attention to air emissions from
livestock and poultry operations. Already there are several
technologies that show promise in reducing air emissions. The
next step is to test them on actual farms in order to
demonstrate their efficacy and economic feasibility. Once this
is done, producers can begin to adopt new technologies. We hope
this Committee will consider authorizing air emission
mitigation research in the farm bill.
Mr. Chairman, my written testimony provides additional
details on these and other issues that are important to us.
Once again, I appreciate your including the livestock and
poultry industries in your hearings on the 2007 farm bill.
Thank you.
[The prepared statement of Mr. Truex can be found on page
179 in the appendix.]
Chairman Harkin. Mr. Truex, thank you very much for your
testimony, but you left out the single most important part of
your written testimony, and that was knowing that Iowa is the
No. 1 egg producer in the Nation.
Mr. Truex. That is true.
Chairman Harkin. I just want to make note of that for the
record.
Now we move to Mr. Burdell Johnson, President of the
American Sheep Industry Association, a fourth-generation lamb
and wool producer, who raises Columbia and Hampshire ewes and
feed sheep through the family business, Diamond J Livestock. He
also raises cattle and grows several crops, including wheat,
corn, barley, oats, and sunflowers. He is a former ASI
Executive Board representative for Region VI and also served on
numerous ASI committees. He is currently President of the North
Dakota School Board Association and serves on the North Dakota
Insurance Reserve Fund. He and his wife have three children and
two grandchildren. Again, another good family farmer, so
welcome to the Committee, Mr. Johnson. Please proceed.
STATEMENT OF BURDELL JOHNSON, PRESIDENT, AMERICAN SHEEP
INDUSTRY ASSOCIATION, TUTTLE, NORTH DAKOTA
Mr. Johnson. Thank you, Mr. Chairman and members of the
Committee. I am honored to be here today to visit with you and
follow up with the conversations you had at the field hearings
with my fellow producers in Montana and Nebraska.
I am very proud of the accomplishments that our industry
has made in previous years, not too far off. We had our Flock
Expansion Program that we have increased numbers in a couple of
years. We have a successful industry-supported promotion
program, and we have put American wool on the international
market. The 2002 farm bill deserves a lot of credit for us
being able to accomplish a lot of this.
One of the things that did come out of the 2002 farm bill
was our Wool Loan Deficiency Program. This was a program for
shorn wool and unshorn pelts on the LDP program. However, we
feel that the loan base rate should be set at $1.20 rather than
what it is right now. The way it is set now, only one out of
the nine categories are being utilized. If it is set at $1.20,
it will involve a lot more producers to use it.
Another successful program for USDA is the National Sheep
Industry Improvement Center. This is a program used to assist
lamb and wool businesses through loans and grants to rebuild
our infrastructure that was declining because of the loss of
numbers. This came out of the 1996 farm bill. The only problem
is we did not get to finish it before it run out. There was
still $20 million that was authorized in the 1996 bill. We
would like to see it reauthorized so we could continue to
finish this program. I am a firm believer that once you start
something, you finish it, and that is why I am pushing to
reauthorize the National Sheep Industry Improvement Center. It
has been a great program for industry.
On the conservation side of the farm bill, we support a
priority for prescriptive grazing using sheep to control
noxious weeds and invasive species on the rangelands in the
U.S., which is a big problem with these, and sheep can
contribute tremendously in that area.
We look forward to working with the Committee to
reauthorize these two programs. They have been helpful not only
to individual producers, but also to the entire industry.
On the competitive side, we urge implementation of an
interstate shipment of State-inspected meat. By allowing this
to happen, it will open up more marketing opportunities in
lamb.
Also, mandatory price reporting is a big issue for us. This
is what our price protection that we just got approved hinges
on, mandatory price reporting, and it has a great effect on our
industry.
We also support the country-of-origin labeling with lamb.
We have always been in favor of that.
On the international level, we would like to see the
Federal Government look at the sheep meat trade reform.
Currently, the European government subsidizes their sheep
industry $2 billion annually, and they have a very strict quota
system on imported lamb.
The industry looks forward to working with you in the
future on a successful farm bill, but I would also like to add
my appreciation for the disaster assistance that is in the
works because of drought conditions. Examples of the drought
conditions like in New Mexico, we have examples of where
weaning lamb crops was as low as 35 percent because of the
drought. And the drought has continued all the way from Texas
to my ranch in North Dakota. With this drought, higher fuel
costs, and feed costs, disaster assistance will help a lot of
struggling producers, which is happening at the time.
Thank you very much.
[The prepared statement of Mr. Johnson can be found on page
102 in the appendix.]
Chairman Harkin. Thank you, Mr. Johnson.
Now our last witness of the day, William Roenigk, Senior
Vice President of the National Chicken Council. This
organization represents companies that produce and process over
95 percent of the young meat chickens, broilers, in the United
States. Mr. Roenigk oversees projects that involve industry and
consumer market surveys. He serves on the U.S. Department of
Agriculture's Agricultural Technical Advisory Committee for
Trade in Animals and Animal Products, and prior to his present
position as Senior Vice President, he was Director of Economic
Research and Membership Services for the National Broiler
Council.
Welcome to the Committee, Mr. Roenigk, and please proceed.
STATEMENT OF WILLIAM P. ROENIGK, SENIOR VICE PRESIDENT,
NATIONAL CHICKEN COUNCIL, WASHINGTON, DC
Mr. Roenigk. Thank you. Good morning, Chairman Harkin,
Senator Chambliss. The National Chicken Council appreciates
this opportunity to present our views and recommendations on
the important issues in today's hearing. My name is Bill
Roenigk. I am Senior Vice President of the National Chicken
Council, and I would note that in today's operating
environment, the number of challenges seem to far outweigh the
number of opportunities. And for the record, Chairman Harkin,
we do wish there were more chickens in Iowa, broiler-type
chickens. I would also note that Georgia is the largest
broiler-producing State, and so we are very pleased to be able
to recognize that.
Senator Chambliss. If we could ever get them to Hatch some
eggs, we might keep up with you guys.
Chairman Harkin. You have got the eggs. We have the
broilers.
Mr. Roenigk. I would like to bring the Committee's
attention to what we think is a rather interesting and serious
development, and that is, for the first time in 32 years,
broiler production this year will be less than it was last
year. Now, it does not happen very often--32 years, the last
time was 1975. If you have had a chance to look at my chart on
page 8, you are probably struck by the very sharp and continual
uprise in our production. But if you notice from 1970 to 1975,
there was a very flat period during that time. I hope I am
wrong, but I believe we may be in now a period where we are
going to go into another flat period of production. This is
going to limit the opportunities not just for chicken
companies, but it is going to limit the opportunities for
growers.
Companies have lists of people, growers who would like to
add houses. They have people who would like to become growers.
Those lists are going to become longer if our production stays
flat rather than continue to increase.
The reason production may not increase in the next few
years is, as my statement says, due to Government policy--not
entirely but primarily Government policy. That was the case in
1975 and 1973 when our production last turned down. The primary
policy I refer to is what some of the other people on the panel
said, and that is, corn-based ethanol is causing a real change
in our feeding arrangement.
You will notice in my statement, if you look a year ago
when USDA first made the forecast on per capita consumption of
the various meats, it was a rather rosy forecast, especially
for broilers, at over 88 pounds per person. Now they say 85
pounds. When you add up all the meats, it is a change of 5.6
pounds from the first forecast, not all due to ethanol but a
significant part of it is. And these fewer pounds mean fewer
opportunities to generate income, jobs, and local and national
economic activity.
The challenge to getting back on the upward track is to
make sure there is enough corn, not just for ethanol and not
just for exports, but for animal agriculture also.
In my statement, I list two ideas that could be applied to
the Conservation Reserve Program, and time does not permit me
to get into that. One of those was borrowed from the soybean
producers, which I think is a pretty good idea.
I also suggest in my statement that there needs to be a
relief valve in case there is a significant shortfall in the
corn crop. And I understand corn has a difficult time going
into the ground in the Midwest due to the cold and wet ground.
We need to get the corn in, we need to get it up, and we need
to have an excellent harvest if we are not going to have a
problem. If we do have a problem, there needs to be some way to
address a significant shortfall.
I also mention in my statement that the USDA and related
agencies are doing an excellent job on biosecurity safeguards
and firewalls, keeping highly pathogenic avian influenza out of
our flocks, and there needs to be continued good budget and
resources to allow those agencies to do that. If we did get
influenza in our flocks, I believe the issues before this
Committee would be much different than whether or not mandatory
arbitration is the most appropriate mechanism in a contract.
The Foreign Agricultural Service and APHIS have been very
supportive in building our exports. We need exports, especially
our leg quarters. The American consumer prefers boneless
skinless breast, and the export market allows us to move our
leg quarters into foreign markets.
USDA's Environmental Quality Incentive Program, as was
mentioned earlier, needs to be fully funded. Growers are good
stewards of the land, water, and air, and EQIP will allow them
to continue to do that.
The Committee has talked quite a bit about market
structure, but we would respectfully submit that priorities for
the Committee and Congress should be not necessarily on
restructuring the vertical integration and contract arrangement
in the chicken industry. It has worked well for more than 50
years, and as I mentioned, companies have lists of people who
would like to get into growing chickens. Some of the panelists
today would like the Committee to believe that somehow the
companies have been able to successfully misinform for more
than 50 years not only the growers but the people who provide
substantial quantities to finance these operations. I submit
that the system is working pretty well.
I appreciate the opportunity to provide our views and
comments and look forward to your questions.
[The prepared statement of Mr. Roenigk can be found on page
170 in the appendix.]
Chairman Harkin. Thank you all very much for your
testimonies. I just have a few questions, and then I will yield
to my friend from Georgia.
I am going to get off of the issue of competition. I heard
all your testimonies, and I have that. I would like to delve
into a couple of other areas.
Ms. Philippi, your testimony points out that pork producers
have not benefited from the EQIP program as much as other
producers. You stated that pork producers only receive about 3
percent of the cost-share assistance provided to other
livestock producers. Some of this is due to EQIP giving
priority to producers needing immediate help rather than
providing assistance to improve existing system. But what
recommendations would you have to address this issue?
Ms. Philippi. One thing that we believe we need to do with
the EQIP dollars is make sure that it is easy, that we can go
in and with the right application, that they are available for
us. You know, I talk about getting rid of some of the
hindrances to the program. One of the things that we need to do
is look at how operations need to be improved. They go through
the permitting process, and then quite often they have to wait
to find out how they could get EQIP dollars.
We would like to see the livestock industry get the dollars
that were appropriated the last time. The last time you talked
about that we should get the lion's share of the EQIP dollars
to use for our projects. And it seems like we just got slowed
down in the qualification process, and we did not get access to
the money as we should.
Chairman Harkin. For all of you, and if I can just get a
one- or two-sentence answer to this question, I would
appreciate it. USDA for several years now has made an attempt
to implement a national animal identification system. I have
heard from producers upset that they do not what is expected of
them or how the system will cost their operations or if the
information will be kept confidential. I also hear from
producers concerned that it is taking USDA too long to
implement the system.
Again, I am told by my staff that we can expect a report
coming out soon from GAO, a report of an investigation we asked
for, that will shed light on how well USDA has implemented the
system.
So my question basically is: Do you think USDA has
implemented the animal identification system in a common-sense
manner? And what would be the best action to get Animal ID back
on track to ensure that it is a feasible, practical system? Mr.
Nelson.
Mr. Nelson. Well, R-CALF USA I guess would look at the
journey that Animal ID has been on to date, and, you know, it
initially started out it was going to be a mandatory program
and then moved to a voluntary system. And we have actually made
a proposal that there is a workable program that has already
been in place, and it revolves around the brucellosis testing
program that is already in already in place with permanent
metal ear tags that go on the females in the cow herd, and it
already allows the traceback system. It has been proven, it is
workable, and it would not be burdensome, expense-wise, on
producers.
Chairman Harkin. I will go down the line, is there anybody
else that wants to add to this, Mr. Queen?
Mr. Queen. Yes, Mr. Chairman. We at NCBA have always been
for a voluntary, cost-efficient, market-driven Animal ID
system, and I think it should be that way because the ID adds
value to our commodity, but it should be a willing or voluntary
effort on those producers. It does not make our commodity any
safer. There is no science-based evidence out there that shows
that beef is safer if it has an ID button in it.
So voluntary ID should be what we strive for in this
industry, here again not dictating to those producers out there
what they have to do with that animal.
Chairman Harkin. Ms. Philippi?
Ms. Philippi. The swine industry believes that ID should be
mandatory. We have used it----
Chairman Harkin. Should be what?
Ms. Philippi. ID needs to be mandatory. We have used it
since we had the pseudo-rabies program put in place. It worked
to eradicate that disease. We believe in mandatory premise
registration and a mandatory ID system that will protect the
herd health of our industry.
Chairman Harkin. Thank you.
Mr. Truex?
Mr. Truex. The egg industry has no problem, and as you
know, we have worked for a flock ID instead of an animal ID
because of just the numbers of poultry in a building. And then
our concern would be the confidentiality of that information.
Chairman Harkin. All right. Mr. Johnson, lambs?
Mr. Johnson. The American sheep industry already has a
mandatory identification through the Scrapie Eradication
Program, and we feel as long as this NIS is put together in
conjunction with that so we can run it together, we have no
problem with it.
Chairman Harkin. Does it affect you at all, Mr. Roenigk?
Mr. Roenigk. I would suggest that we already have flock
identification. Essentially, all commercial companies
participate in the National Poultry Improvement Plan, and that
does identify the flocks. So I would suggest that we are
already there.
Chairman Harkin. Thank you.
Mr. Johnson, I am intrigued that in your written testimony
you discussed how invasive species and noxious weeds are
damaging land productivity, decreasing water quality and
quantity, and degrading wildlife habitat. And you talked about
how sheep can provide biological control of weeds.
Now, again, obviously this has to do with conservation,
what we are going to be doing on conservation lands and things
like this. What types of incentives would you like to see in
the Conservation Title that would encourage the use of sheep to
control invasive plants?
Mr. Johnson. Well, if you put programs together where you
can take sheep into areas where there are noxious weeds growing
and pay these producers to graze them there, it would give them
a little more income. Sheep will eat noxious weeds where other
species will not touch them. It has been proven, especially
with leafy spurge in my particular area, where we can get lamb
back into production by grazing sheep on the spurge, and then
you can follow with cattle afterwards. It works very well.
Chairman Harkin. Repeat again for me. Are there any
incentives, anything we need to put in the Conservation Title?
Tell me again.
Mr. Johnson. Well, one of the biggest things with this is
predator management, when you move them out into areas where
there are wide open spaces. So if you can have more money for
predator control and also incentive for sheep ranchers to take
their sheep out into other areas on land that they do not own
or lease, just to graze, to get a multispecies grazing program
going to enhance the production of grass.
Chairman Harkin. I am running out of time. One last
question. For many years there have been efforts to remove the
restrictions on interstate shipment of meat from State-
inspected facilities. Somebody mentioned that in their
testimony. Was that you?
Mr. Johnson. Yes, Mr. Chairman, I did mention that.
Chairman Harkin. But to give some perspective on this, I
have been around this a long time, and I chaired the Livestock,
Dairy, and Poultry Subcommittee in the House in the early
1980's, and I chaired a hearing on this issue. For many years
large meatpackers opposed the legislation. Now they seem to be
more open. But now the food safety advocates oppose it, so it
kind of gets bounced around. As I say, I have been watching
this for 25 years.
For those on this panel, does everyone agree that there
should be interstate shipment of meat from State-inspected
plants? And would interstate shipment of meat from State-
inspected plants help to improve competition in the meatpacking
industry? So two questions. Do you support that? And if you do,
do you think this might increase competition?
I would just, again, go down the line. How would you feel
about this?
Mr. Nelson. Yes, we definitely support the interstate
shipment and feel that it would definitely improve competition.
Chairman Harkin. Mr. Queen?
Mr. Queen. We, too, sir, and this is the No. 1 thing that
can help competition within the packing industry.
Chairman Harkin. Ms. Philippi?
Ms. Philippi. Well, that is an issue that we do not talk
about as much as we probably should at times, and we do not see
there could be any advantage competitively.
Chairman Harkin. You do not have a position on interstate
shipment of State-inspected meat?
Ms. Philippi. No, we do not.
Chairman Harkin. Thank you.
Mr. Truex?
Mr. Truex. Nor does the egg industry.
Chairman Harkin. Mr. Johnson, obviously you do.
Mr. Johnson. We do support it, but we also are a little
cautious that the State programs have a high enough standard so
we know the inspection service is there.
Chairman Harkin. Mr. Roenigk, do you have anything?
Mr. Roenigk. We would ask the question, if the State
inspector plant meets all the USDA requirements, why not be a
USDA plant? If there was a change for poultry, I do not think
it would, as far as competition, change things very much.
Chairman Harkin. Well, you know, Mr. Roenigk just raised
something. My time is up. I assume in your answer you are
saying as long as they meet the Federal standards, right? I see
you nodding. I think that is probably generally accepted. Thank
you all very much.
I will turn to my colleague, Senator Chambliss.
Senator Chambliss. We talked about animal ID. What about
country-of-origin labeling? Mr. Nelson, let's start with you.
Mr. Nelson. Mandatory country-of-origin labeling is very
important. We spend a lot of time talking about value-added
agriculture, and being able to have the country of origin on
meat is being able to retrieve the value-added price;
otherwise, you reward imported, lower-quality products that
could be marketed at a higher price without an identification.
Senator Chambliss. Mr. Queen?
Mr. Queen. Well, I do not think there is a cattle producer
in America that would not approve some type of country-of-
origin labeling. The law as we have it today that will soon be
implemented is flawed, and to spend the money, if we cannot
restructure this law the way it is intended to be spent today,
is not a level playing field, certainly not for the beef
industry. The purpose of this bill is to identify imported
product into our country, aside from our domestic products
here. Less than 8 percent of the imported product would be
affected by this law. Also, other meat segments in our
industry--and I was pleased to hear some of the panelists here
in the chicken industry say earlier that they would like to
have country-of-origin labeling. At this point they are not
included in this country-of-origin labeling law. Food service
is not included in this law, and how we segregate that, I am
not sure, because, you know, 54 percent of all the beef in the
United States is served in the form of ground beef, and that is
a blended commodity using imported product with our domestic
product.
So how we differentiate here, I am afraid if we do much
differentiation, we are going to have a lot of marketplace
disruption out there. We are going to create a non-safe
attitude with our consumers, and it could set us back
considerably if we do this.
So a lot of issues have to be worked out, but, yes, if we
can get this worked out, I do not think there is a cattleman
alive that would not like a country-of-origin labeling law.
Senator Chambliss. Ms. Philippi?
Ms. Philippi. The pork industry supports voluntary country-
of-origin labeling because we just think it is all cost and no
benefit back to the producer, and because of the exclusions of
poultry and the food service items, it just does not seem like
it is a program that would be workable for us.
Senator Chambliss. Mr. Truex?
Mr. Truex. The egg industry does not have a position on
country-of-origin labeling, but I can assure you gentlemen that
if you eat an egg in this country, there is a real high
probability it was produced here.
[Laughter.]
Senator Chambliss. Mr. Johnson?
Mr. Johnson. Over 50 percent of the lamb that is consumed
in the United States is imported, and a lot of that is being
passed off as American lamb because American lamb is a better
product. So we definitely are in favor of country-of-origin
labeling.
Senator Chambliss. Mr. Roenigk?
Mr. Roenigk. As was mentioned, poultry is excluded from
COOL at the moment. We are comfortable with that position. If
there was reason to change, we would be willing to look at it.
But with food service and prepared products excluded, imported
product--the burden would fall on retail grocers. I am not sure
that that would benefit what is trying to be done.
I will leave it at that.
Senator Chambliss. Mr. Johnson, I really appreciate your
comment relative to the European Union subsidies and import
quotas issue. The problem we have had in our attempts to
complete the Doha Round, is getting the attention of the
Europeans relative to import quotas and import tariffs, as well
as their subsidies, which are significantly higher than U.S.
support programs. So I am pleased to hear you say that.
Ms. Philippi is the only one to mention the South Korean
Trade Agreement. I am actually meeting with the USTR this
afternoon, and I am curious as to what the attitude of
everybody else is relative to that agreement. I have got a
feeling I know what the beef folks are going to say, but let me
hear from you, Mr. Nelson.
Mr. Nelson. Well, we definitely need to be able to get the
beef channels open back to that country before we would look
favorably on that trade agreement.
Senator Chambliss. Mr. Queen?
Mr. Queen. Well, we at the National Cattlemen's Association
certainly would love to have a free trade agreement with South
Korea, considering that they do have full trade of all U.S.
beef at the time that free trade agreement comes forward. If we
do not have that agreement in June, when it comes time for the
President to sign onto this free trade agreement, we would
certainly hope that this Congress would step forward and block
this free trade agreement until we have full beef trade with
South Korea.
Senator Chambliss. Anything else, Ms. Philippi, from you?
Ms. Philippi. The only thing I am going to add is it is one
of the best agreements that has ever been put together for the
pork industry, and we appreciate the effort that went into
that.
Senator Chambliss. OK. Mr. Truex?
Mr. Truex. The egg industry generally supports this
agreement.
Senator Chambliss. Do we export eggs?
Mr. Truex. Yes, sir. Currently this year we have exported
more eggs than we have in the last 3 or 4 years. But we are
very actively exporting eggs now.
Senator Chambliss. Who is our primary customer?
Mr. Truex. I do not know that. We export through the U.S.
Egg Marketers, and they do the dealing with those, and then the
egg industry as a member of U.S. Egg Marketers ships our eggs
through that system.
Senator Chambliss. OK. Mr. Johnson?
Mr. Johnson. I just like to use the term ``fair trade''
instead of ``free trade.''
Senator Chambliss. Mr. Roenigk?
Mr. Roenigk. The Chicken Council supports a Korean
agreement. We have issued a statement to that effect. Korea
last year was our tenth largest poultry market. We think the
agreement could move that on up in terms of importance. We look
forward to that agreement getting passed, and there are a
couple other ones that are ahead of that. We hope those get
approved, too.
Senator Chambliss. Well, let me say I share the concern of
Mr. Nelson and Mr. Queen relative to the beef issue. As I said
in my public statement, I am losing patience with the Koreans.
We have been very cooperative with them on the BSE issue, and I
think it is really ridiculous that they have responded in the
way they have, particularly with this agreement. And I think
Senator Harkin and I share this concern, and we want to see
this agreement come to fruition. It does look like it is a
positive agreement. But we have got to have the free and open
trade of U.S. beef going into Korea as a part of this agreement
before we are going to be able to support it. And I am very
hopeful that we are going to see that in the short term.
Mr. Roenigk, you heard the previous testimony, I am sure,
from Mr. Hamilton relative to these arbitration clauses in
integrator contracts. What is your thought or position on that?
Mr. Roenigk. The question was asked of the previous panel
whether or not they knew of a better mechanism, and I did not
hear an answer to that question of a better mechanism. We are
open to a better mechanism. We do not know one. We need
something that is timely, efficient, and there are differences
and we need to resolve those. Until someone comes up with a
better idea, mandatory arbitration seems to be the best
mechanism.
Senator Chambliss. Well, I am a little leery of opening up
a can of worms on litigation even though I am a lawyer myself.
I am still recovering from that.
[Laughter]
But arbitration sounds like a good alternative to
litigation, but at the same time, if the current situation is
not working right, as apparently it is not--because I hear this
all the time from my poultry producers across Georgia--we need
to either change the rules of the road in the current
contracts, or some change needs to be made to give them more
authority from a legal perspective.
So I do not know what the answer is, but I would just urge
you to take that message back to your industry because this
will be up for discussion and I am sure probably some action as
we move into the farm bill.
Mr. Roenigk. I will make sure that that message is
delivered, and I will also assure you that we will come back to
you with something in terms of a more concrete idea as to what
might be an alternative.
Senator Chambliss. Good. Thank you, Mr. Chairman.
Chairman Harkin. Thank you, Senator Chambliss.
I have no further questions. Again, I thank you all very
much for your testimony, for being here today, and again, as we
proceed on with the farm bill, if you have further thoughts,
suggestions, advice, consultation, please let us know, on these
or any other issues that we will be addressing in the farm
bill.
So, with that, thank you all very much, and the Committee
will stand adjourned.
[Whereupon, at 12:22 p.m., the Committee was adjourned.]
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A P P E N D I X
April 18, 2007
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DOCUMENTS SUBMITTED FOR THE RECORD
April 18, 2007
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QUESTIONS AND ANSWERS
April 18, 2007
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