[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
REGULATORY INJURY: HOW USDA'S PROPOSED GIPSA RULE HURTS AMERICA'S SMALL
BUSINESSES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE
of the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 7, 2011
__________
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Small Business Committee Document Number 112-026
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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Page
OPENING STATEMENTS
Tipton, Hon. Scott............................................... 1
Critz, Hon. Mark................................................. 2
WITNESSES
The Honorable Edward Avalos, Under Secretary, Marketing and
Regulatory Programs, United States Department of Agriculture,
Washington, DC................................................. 4
Ms. Robbie LeValley, LeValley Ranch, Hotchkiss, CO............... 22
Mr. Gary Malenke, Sioux-Preme Pork Products, Sioux City, IA...... 20
Mr. Joel Brandenberger, President, National Turkey Federation,
Washington, DC................................................. 23
Mr. Bob Junk, Fay-Penn Economic Development Council, Uniontown,
PA............................................................. 25
APPENDIX
Prepared Statements:
The Honorable Edward Avalos, Under Secretary, Marketing and
Regulatory Programs, United States Department of
Agriculture, Washington, DC................................ 36
Ms. Robbie LeValley, LeValley Ranch, Hotchkiss, CO........... 38
Mr. Gary Malenke, Sioux-Preme Pork Products, Sioux City, IA.. 42
Mr. Joel Brandenberger, President, National Turkey
Federation, Washington, DC................................. 44
Mr. Bob Junk, Fay-Penn Economic Development Council,
Uniontown, PA.............................................. 49
Statements for the Record:
Dan & Janet King, Owners/Operators, Zenda Poultry LLC and
Zenda View Farm LLC Rockingham County, Virginia............ 58
REGULATORY INJURY: HOW USDA'S PROPOSED GIPSA RULE HURTS AMERICA'S SMALL
BUSINESSES
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THURSDAY, JULY 7, 2011
House of Representatives,
Subcommittee on Agriculture, Energy and Trade,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
room 2360, Rayburn House Office Building. Hon. Scott Tipton
(chairman of the subcommittee) presiding.
Present: Representatives Tipton, Bartlett, King, Ellmers,
Landry, Critz, Cicilline.
Chairman Tipton. Well, good morning, everyone, and thank
you for joining us. The hearing will now come to order.
I would like to thank our witnesses for taking the time to
be here today as well. We do look forward to your testimony.
One of the greatest barriers that job creation has today is
regulatory uncertainty. Small businesses already bear a heavy
regulatory burden. Overreaching new proposed regulations are
having a chilling effect, prolonging the economic downturn that
we are experiencing in our country. Today we will examine the
U.S. Department of Agriculture's Proposed Grain Inspection,
Packers and Stockyards Administration or the GIPSA Rule and the
potential ramifications it will have on America's small
businesses.
I would like to extend special thanks to each of our
witnesses today for taking the time out of your busy schedules
to be here. And I would like to especially thank the folks from
the USDA and Under Secretary Avalos for being here. I also want
to extend a warm welcome to Robbie LeValley, a constituent of
mine from Hotchkiss, Colorado who we will hear testimony from
later, along with other representatives for small businesses
within the beef, pork, and poultry industries.
Just over a year ago the USDA announced a proposed rule
that would significantly alter livestock marketing practices
and further inject the government into small businesses'
marketing and business decisions. If implemented, as proposed,
this overreaching new rule would hurt thousands of small
businesses in the livestock industry and cost our country
thousands of jobs. The GIPSA Rule would create uncertainty for
livestock producers and open the door for frivolous lawsuits
based on nothing more than accusations of competitive injury.
Further, although the rule was prompted by the 2008 Farm Bill,
I believe what was proposed by the USDA went far beyond the
intent of Congress.
The proposed rule has raised concerns for many in the
agricultural community. During the public comment period, the
USDA received more than 61,000 comments from stakeholders in
the beef, pork, and poultry industries. Despite the proposed
rule's potential for having far-reaching impacts on small
businesses, no comprehensive cost-benefit analysis was
performed.
Chairman Graves and I found the USDA's disregard for the
Regulatory Flexibility Act extremely troubling. As a result,
last month we sent a letter to USDA Secretary Tom Vilsack,
expressing our concerns and calling for, among other things, a
revised regulatory flexibility analysis. To ensure that the
USDA fully understands the private sector costs of regulations
and its imposing these new rules on small businesses.
Independent studies estimate that the proposed rule would deal
a $1.5 billion blow to our nation's economy and directly cause
the loss of 23,000 jobs. Clearly, our country cannot afford
further economic injury of this magnitude.
I look forward to hearing from our witnesses as they
provide testimony and seek to prevent regulatory injuries that
will likely result by the implementation of the existing
proposed rule. I also look forward to hearing from Under
Secretary Avalos on the current status of the proposed rule. It
is my hope that if the USDA moves forward on the proposed rule
it will do so only after significantly revising the rule to
address concerns raised here today and to incorporate the
suggestions from those who commented on the rule.
I would also encourage the USDA to consider and include in
the record the letter that Chairman Graves and I sent to
Secretary Vilsack on June 13, addressing inadequacies of the
Agency's initial regulatory flexibility analysis and the
potential ramifications on small businesses.
Again, I would like to thank all of you for taking the time
to be here today and I will now yield to Ranking Member Critz
for his opening statement.
Mr. Critz. Thank you, Mr. Chairman. Mr. Secretary, Mr.
Christian, thank you for being here.
Over the past 60 years, technological improvements and
scientific breakthroughs have enabled our farms to become the
most productive in the world. However, the dramatic expansion
of industrial agriculture has also made it increasingly
challenging for small family farms to thrive. One area that has
factored into this trend has been consolidation and vertical
integration of the meat and poultry industry. Compared to 20
years ago, the cattle industry is roughly 40 percent more
concentrated. The modern poultry industry is 67 percent more
concentrated than two decades ago. These trends have profoundly
affected how small farms operate. As industry consolidation
reduced the number of outlets for agricultural products, many
family farms have shifted toward contract production.
In addition, market forces have strained the bottom-line of
many farmers. Congress recognized this and took steps to
address these concerns in the 2008 Farm Bill. That measure
contains provisions to improve marketing practices, including
new rules for production contracts. The bill required the Grain
Inspection Packers and Stockyards Administration (GIPSA) to
define anti-competitive practices with the goal of improving
oversighting compliance. Last June, GIPSA published its
proposed rule intended to bring transparency to the industry
and help small family farms compete.
Today we will examine how effective this proposal is in
restoring the competitive balance to the meat and poultry
industries. This Subcommittee will also be investigating the
economic costs on small- and medium-size farms. I look forward
to any suggestions our witnesses may have for improving the
regulation before the USDA issues its final rule.
While the goal of the rulemaking is to help level the
playing field, it is imperative that USDA properly weigh any
adverse economic impact and explore less burdensome
alternatives. I am confident after this hearing the USDA will
continue to proceed in a transparent manner that allows public
comments to the proposal, as well as the pending economic
analysis. This input must be fully considered before a final
rule is issued.
Independent family farms play a vital role in rural
economies. In addition to providing jobs, family farmers also
help support small businesses by purchasing goods and services
within their communities. Without them, rural areas are left
with higher rates of unemployment and little opportunity for
economic growth. It is vitally important that farms who will be
directly impacted by the changes are heard.
In advance of the testimony, I want to thank all of the
witnesses who traveled here today, including Bob Junk from my
Congressional District, for their participation and insights
into this important topic.
Thank you, Mr. Chairman. I yield back.
Chairman Tipton. Thank you, Ranking Member Critz. And I
would ask if Committee members have a statement that they
submit it for the record.
Gentlemen, you are probably familiar with it but if I may
take a moment to explain our lighting system. You will have
five minutes for your testimony. When the light turns yellow
you have one minute left. If you exceed that a little bit, if
you would wrap up your comments as quickly as possible and we
can proceed on with questions from the Committee, we would
appreciate it.
Our first panel today, we will hear testimony from the
Honorable Edward Avalos, Under Secretary for Marketing and
Regulatory Programs for the USDA. Mr. Secretary, I want to
certainly let you know that we do appreciate your having
reached out to our office and I know the other members as well.
Mr. Avalos provides leadership and oversight for the Animal
and Plant Health Inspection Services which addresses animal and
plant pests and diseases. The Agricultural Marketing Service,
which provides standardization testing and marketing of
commodities and specialty crops, and Grain Inspection Packers
and Stockyards Administration, which promotes marketing of
livestock, cereals, and meats, as well as fair trade practices.
Mr. Avalos grew up in a family farm in Mesilla Valley of
Southern New Mexico. Mr. Avalos is joined by Mr. Alan
Christian, Deputy Administrator for Grain Inspection Packers
and Stockyards Administration (GIPSA) and I would like to thank
you gentlemen for taking the time to be here today.
Mr. Avalos, if you would begin with your testimony. Thank
you.
STATEMENT OF UNDER SECRETARY EDWARD AVALOS, MARKETING AND
REGULATORY PROGRAMS, U.S. DEPARTMENT OF AGRICULTURE
STATEMENT OF EDWARD AVALOS
Mr. Avalos. Chairman Tipton, Ranking Member Critz, members
of the Subcommittee. Thank you for the opportunity to appear
before you today to discuss the proposed rule issued by the
Grain Inspection Packers and Stockyards Administration, better
known as GIPSA, on June 22, 2010.
While I am looking forward to getting to the important
small business perspectives from members of this committee, I
am limited by the Administrative Procedures Act and USDA's ex
parte guidelines of what I can discuss at this stage of the
rulemaking.
Before we talk about the proposed rule, let me provide some
context. It is very appropriate for the Small Business
Committee to decide to focus on this hearing a small business
in the livestock and poultry industries. The vast majority of
farmers in general, and specifically livestock and poultry
producers are small businesses. There are currently 70,000 hog
producers in this country, almost a million cattle ranchers in
the country, and nearly 20,000 poultry growers. The majority of
these individuals are family-owned small businesses.
I think the point that farmers, ranchers, livestock
producers, and poultry growers are small businesses is
important to note. And as you all know, small businesses are
the lifeblood of our economy and where jobs are created and
where new ideas are developed. The secretary and I have long
recognized the importance of farmers, ranchers, and producers
to rural communities. Our livestock and poultry producers
benefit rural communities because they also support other small
local businesses such as the local hardware store, the feed
store, local restaurants, the local tractor and farm equipment
dealers.
The primary mission of GIPSA, and in particular the Packers
and Stockyards program, is to make sure that the marketplace is
fair and transparent, and ensuring small businesses get a fair
shake. Decades before the Small Business Administration was
formed and the importance of small business was really fully
recognized, the predecessor of GIPSA was created by Congress
through the Packers and Stockyards Act of 1921. This was
largely done to protect small businesses in the form of
livestock producers and ranchers, against abuses of market
powered by large meat packers.
The Packers and Stockyards Act, which is the basis for
GIPSA's enforcement authority and the livestock and poultry
industry is 90 years old this year. These industries have
changed dramatically over this time. For example, stockyards
are virtually non-existent today. This longevity means the
regulations and the act itself need to be updated periodically.
Congress realized this in the 2008 Farm Bill by making some
changes in the Act and directing USDA to propose specific
regulations. Combined with a handful of additional areas that
USDA felt deserved closer attention and needed input from
stakeholders, this was the genesis of the rulemaking that is
the subject of this hearing today.
The purpose of the proposed rule was to make the markets
more fair and transparent, which was intended to benefit
livestock producers and poultry growers, the vast majority
which are family-owned businesses. This is in no way to
minimize concerns about potential unintended consequences of
the proposed rule, either generally or related to small
businesses. For example, I know there are various concerns that
have been raised about the rule hindering value-added and other
market activities. I want to make clear to Mr. Chairman and the
Committee that our intent and the intent of the secretary and
myself, that we are very strong supporters of these marketing
arrangements. These arrangements that often provide premiums to
farmers and ranchers at the same time meet consumer demand.
We received over 61,000 comments. These comments were
comprehensive, thoughtful, and educational. We view these
comments as tools that will guide us on our path to make the
appropriate and needed reforms. It is important to us to have a
workable and common sense rule. These comments will assist the
Department to determine if all factors have been properly
considered. The comments will also aid us to develop a more
rigorous, cost-benefit analysis and other related analyses,
such as a small business analysis.
While it would not be appropriate to go into detail on
specific modifications, I can assure you that the Department
will take careful account with the public comments. We ask that
everyone have patience as we carefully work through the
comments and we ask that we not prejudge the outcome.
Thank you again for the opportunity to appear before you
today to talk about this proposed rule and share our support
for small businesses in rural America. I welcome your questions
and your comments.
[The statement of Mr. Avalos follows on page 36.]
Chairman Tipton. Thank you, Mr. Secretary. And we will now
proceed with the questioning for Secretary Avalos. And I will
begin.
I think it is important to probably note, and I think you
brought up a very important word in ``intent.'' You know, we
have seen some good, cooperative work with the USDA, of course,
and I am encouraged to hear that you are taking into
consideration the 61,000 comments that came into play,
particularly as it gets down to some of the cost-benefit
analysis.
Mr. Secretary, in recent testimony before the Senate
Agricultural Committee, the USDA Chief Economist Joe Glauber
stated that the Department's economic analysis of the rule is
difficult given how the regulations could affect behavior by
packers and interrogators in how they do business. Given that
the Department has now admitted that the rule would have a
significant economic impact, will the findings of the economic
analysis result in the Department undertaking a new regulatory
flexibility analysis?
Mr. Avalos. Congressman, first I want to--I am sorry, Mr.
Chairman. First, I want to say that this administration is
strongly committed to helping small business and we strongly
support transparency, fairness, and equity in the marketplace.
This is really very important to us. The comments that we
received on the proposed rule, they bring up some of these
concerns that we just talked about on the small business
analysis that Dr. Glauber was talking about.
And I guess once again what I am asking is that we have
patience to let the time tested rulemaking process continue.
And I can assure you that we are going to listen to these
comments, the comments on the cost analysis that was in the
proposed rule, the comments that were on the small business
analysis and I can assure you, Mr. Chairman and members of the
Committee that Dr. Glauber, the chief economist, first of all,
will lead the team to develop the cost benefit analysis because
this is important. He will have considerable input on how this
impacts small business.
Chairman Tipton. One question I guess that I am curious
about, Mr. Secretary, is once we have taken into consideration
those 61,000 comments and we have that patience, before the
rule goes final will there be a general review coming back to
Congress?
Mr. Avalos. Okay. Mr. Chairman, members of the Committee,
this process has really been tedious and it is a new process
for me. Coming from New Mexico, I have never been exposed to
something like this and sometimes it can really try your
patience. But we received all the comments, and then we
summarized them. And now we put them in categories as to how
they impact on specific provisions of the proposed rule. And
having done all that, we are now looking at options, at
alternatives. We are looking at possible modifications and I
just do not want to prejudge the rulemaking process. So I
cannot tell you what the end product is going to be. I cannot
tell you, you know, what kind of form the end product will have
and I cannot tell you if we are going to have additional
comments or not.
Chairman Tipton. You know, as mentioned in the comments
from Chairman Graves and myself, the Department's information
gathering on small businesses appeared to be inadequate. What
procedures will the Department have in place to better measure,
number one, the scope of small businesses potentially being
impacted and how these businesses would be impacted compared to
their larger rivals?
Mr. Avalos. Mr. Chairman, once again, were you making
reference to the letter that came into the secretary?
Chairman Tipton. Yes, sir.
Mr. Avalos. Well, Mr. Chairman, first of all I want to
acknowledge and to appreciate the considerable thought and
effort that was put into the letter. This is really important.
But it did have some specific requests and recommendations that
due to the Administrative Procedures Act I cannot discuss right
now. But I can tell you this. Most of the requests that were in
the letter also came up in the comments in the rule and are
being considered. I can also tell you that these concerns,
requests, are on my mind because of how they impact on small
businesses, how they impact on growers and producers all over
the country.
And maybe I should share a story with you, Mr. Chairman.
The reason it is on my mind, why it is important to me, in the
past I worked a lot with the livestock industry, did a lot of
work to export livestock in New Mexico, and I still have
friends all over the United States. And in particular, I have
an old friend from, of all places, from Tulia, Texas. They
called me up about the proposed rule. I told him, I cannot talk
about it but I told him one thing. He was concerned about his
operation, how he was getting premium for his cattle. Small
operator, 300 mother cows--but because of the quality of his
cattle he got a premium and he was concerned about losing that
premium. So I told him, just like I said in my statement,
Secretary Vilsack and I strongly support value-added. We
strongly support marketing arrangements. We strongly support
premiums to producers that producers that produce high quality
cattle.
So anyway, going back to your question, Mr. Chairman, no
option is being ruled out. We are really focused on the issues
and concerns. We are taking these comments very serious. And I
can assure you that at the end of the day we will fully comply
with the provisions of the Farm Bill, the provisions of the
Packers-Stockyards Act, the Administrative Procedures Act, and
the Regulatory Flexibility Act.
Chairman Tipton. Mr. Avalos, you and I are probably two of
the only people in this room that know where Tulia, Texas
actually is.
Mr. Avalos. Probably.
Chairman Tipton. We come from rural America. I am out of
Colorado and we are actually pretty close neighbors. But during
a recent Ag Committee Subcommittee meeting you had stated that
you wanted to repopulate rural America as a result of the
implementation of the proposed rule. And as I mentioned in my
statement, independent studies estimate that the proposed rule
would deal a $1.5 billion blow to our nation's economy and
directly cause the loss of about 23,000 jobs. The majority of
these job losses will be found, obviously, in rural America
given the nature of this. How is this going to help really
repopulate rural America?
Mr. Avalos. Mr. Chairman, I appreciate those comments
because rural America is very important, not only to me but to
Secretary Vilsack and to the administration. This
administration has made revitalizing rural America a priority,
keeping farmers and ranchers on the farm and on the ranch a
priority. The intent of this proposed rule was to maintain
fairness, transparency, equity in the marketplace. The intent
is not to hurt producers.
Once again, I will refer back to the 60,000 plus comments
that we received. A lot of these concerns were raised in the
comments and again, we are taking these comments very serious.
We are not leaving out any options, and as we move forward the
comments will guide us.
Chairman Tipton. You know, under the proposed rule it will
be necessary for small packers to determine and document the
benefits of contractual terms in order to satisfy the
recordkeeping requirements that are mandated. Is that correct?
Mr. Avalos. Mr. Chairman, I want to make sure we get a
correct answer to you so I am going to defer to Mr. Christian.
Mr. Christian. Thank you. Mr. Chairman, I think the intent
of the rule was to provide a fair and transparent market for
producers, and in particular, small producers, that over the
years we have heard from do not feel that they have the same
access to those markets as some of the larger producers. And so
the intent of that provision and others, similar to it was to
provide that level playing field, if you will, and some
transparency so they know what type of mechanisms or marketing
arrangements are available for them.
Chairman Tipton. When we were talking about those
calculations, to whom are the benefits to be calculated? The
packers? Producers? Consumers? What is kind of the matrix?
Mr. Christian. I beg your pardon, Mr. Chairman. The----
Chairman Tipton. In terms of who are the benefits when we
are talking about when those are going to be calculated out.
Are the benefits going to be to the packers, the consumers, the
producers?
Mr. Christian. In the cost benefit analysis?
Chairman Tipton. Yes.
Mr. Christian. Well, I think that it varies depending on
the particular provision. Dr. Glauber, with the Chief
Economist's Office is, in fact, as we speak, undertaking the
cost benefit analysis for the rule based on the comments that
we received.
Chairman Tipton. I just have one final question here. Has
GIPSA considered the cost for a small packer to engage separate
packer buyers for each auction barn with which it currently
does business?
Mr. Avalos. Mr. Chairman, I think that is probably getting
into the specifics of the rule. But I do know that has been
brought up in the comments. And once again, I am asking for
your patience and the patience of the Committee and the
stakeholders to let this rulemaking process continue. And let
us focus on these issues and concerns that were brought up in
the comments and let us address them. And I can assure you that
at the end the final product, whatever form it is, will take
into consideration all these very important comments that we
received.
Chairman Tipton. Thank you, gentlemen. I would like to now
yield to Ranking Member Critz for his questions.
Mr. Critz. Thank you, Mr. Chairman.
Mr. Secretary, as you mentioned in your statement and as
you have been detailing, there has been a consolidation in
livestock, in pork and in poultry over the last 10 to 20 years.
I am new to this process, just elected last year so I am trying
to get up to speed as much as possible. I have written to
Secretary Vilsack about the economic impact of the rule. Can
you detail what initially prompted this analysis for GIPSA? And
then tell me about a timeline going forward as well.
Mr. Avalos. Okay. Congressman, Mr. Critz, your question was
what prompted the cost benefit analysis?
Mr. Critz. With the consolidation, and I guess going
further, there is a lot of talk about loss of jobs resulting
from this GIPSA rule. My concern is that in my part of the
world, I have a lot of small farmers, so what has been the
impact on them due to this consolidation over the years that
prompted this revisiting of GIPSA?
Mr. Avalos. Congressman, as I mentioned in the opening
statement, the Packers and Stockyards Act is 90 years old.
Mr. Critz. Right.
Mr. Avalos. And I will go back to advice I received from my
dad a long time ago when I was just a young man and we moved--
you will appreciate this, Mr. Chairman. We moved from the farm
to town, to the city. And I was not very happy. And my dad sat
me down and said, look, son. In this world everything is always
changing. Nothing ever stays the same. You need to adjust to
survive.
I think this applies with the Packers and Stockyards Act.
It is 90 years old. The industry has changed tremendously in 90
years and we are having to make adjustments to the regulations
to keep up with the industry, and to address the needs of the
industry, whether it be the packer or the producer.
So, this need for change, for modification, is really what
prompted these changes to the Act. I am going to, just to make
sure we answer your question, Congressman, I am going to defer
to Mr. Christian. Maybe he can help me out a little bit.
Mr. Christian. Yes. Congressman, I think if you look over
the last, say, 20 years, you go back to the '90s, there has
been, as you mentioned, a very significant decrease in the
number of farmers. If you look at cattle, you are going from
say 1.2 million to under a million. You had 250,000 hog
producers. Now you are down to around, under 70,000. And even
with livestock markets, you are going from about 1,800
livestock markets down to about 1,200 livestock markets. I am
sure there are many factors that have contributed to that
decline but one of the things that we hear all the time from
small farmers, and really, the smallest of small businesses, is
that they cannot compete in the marketplace. I mean, we have
heard from small poultry growers that they have invested a
substantial amount of money, $500,000 to a million dollars. And
they have got a contract that they have entered into freely to
raise poultry for a large integrator and then after a short
period of time the integrator comes back and changes their
contract. Maybe from a three year contract to a flock-to-flock
contract. And the grower at that point really is under a
contract of adhesion and has no ability to then bargain. We
have heard those kind of issues from small growers.
From small hog producers, we have heard that there are
cost-plus contracts in the industry. There are ledger contracts
in the industry. But a lot of these contracts that provide some
type of financial protection are available to the large
producers and are not available to small producers, even if the
small producer can meet those terms.
So we have taken those concerns into account as we have
developed this proposed rule and the intent of the rule is then
to provide at least a more transparent marketplace and a fairer
marketplace where the small producers can at least see what is
available and have an opportunity then to compete for those
marketing arrangements.
Mr. Critz. So we are looking to become more transparent to
give the small producers a seat at the table. And I guess a
fair chance to compete for contracts. And this comes back to, I
think, the letter that the chairman and Chairman Graves had
sent and that I talked about actually in a letter that I sent
last year about the economic impact. And, you know, obviously
in this country we like everything as cheap as possible. And I
am assuming that with vertical integration it keeps the price
compressed which dealing in the world of subcontracting I know
that it is the guy at the bottom of the rung that usually feels
the pinch the hardest.
Now, I do not know from your seat if you have seen----you
talked about the loss of farming--farms, small producers over
the years. What is the time, I guess I am asking--I think we
have all asked for an economic impact of what this rule change
would do. Where in process are we with getting an answer on the
economic impact?
Mr. Avalos. Congressman, as we all know, the Secretary
directed our chief economist, Dr. Glauber, to lead a team of
economists at USDA to conduct a very thorough and comprehensive
cost benefit analysis and economic analysis. I do not know
exactly where we are in the process. I know the team has been
working very hard on this and I know that it has taken
considerable time because of the extent of the comments. The
comments received on the proposal are being used as guidance in
preparing this cost benefit analysis.
So I cannot give you a timeline as to where we are but I
can tell you that Dr. Glauber and the team are working very
hard on this.
Mr. Critz. Okay. That brings me to my next question. And
obviously, those of us in Congress get a two-year contract
every two years, so time is very important to us. From the
testimony and from the information I received, the comment
period ended on November 22nd, which was about 32 weeks ago.
With sixty-one thousand comments, one person going through 400
comments a week on a five-day work week could have covered
that. So if you have got 10 people, that is only 40. So I am
curious as to where we are in the process? You talked about
putting these in silos or categorizing them. How close are we
to coming up with some sort of guidance? For those of us on the
Small Business Subcommittee on Agriculture, this is extremely
important because we all represent small producers. But we also
recognize the larger economy, and we have to figure out where
the balance is.
Mr. Avalos. Congressman, I wish I could just give you an
answer. It is a hard question to answer because I do not know
when we are going to have a final product. As I mentioned
earlier, we have----
Mr. Critz. Tell me how many people are working on it?
Mr. Avalos. I cannot but I can defer to Mr. Christian. He
might know how many folks are working on this.
Mr. Christian. Yes. Thank you, Mr. Congressman.
GIPSA is a very small organization. The Packers and
Stockyards program is 160 people. The rules that we work on
typically receive anywhere from, 20 to, a couple hundred
comments. We have leveraged people from outside of the agency
from the Animal and Plant Health Inspection Service to help us
review these comments. We have been working as hard as we
possibly can with the few amount of people that we have to get
this completed. And I can assure you Dr. Glauber, the Chief
Economist's Office, is working very diligently to get the cost
benefit analysis completed. And I think, you know, that is a
key piece. Once we get the cost benefit analysis then that
gives us, a lot of information to look at the options that are
available to move forward.
Mr. Critz. It has been seven months, so are we looking at
within a year of the close, November 22, 2011? Can you even
ballpark it that we are close, or that we have several months
to go? I do not mean to be pushy about this, but I think the
chairman mentioned that it is the uncertainty that creates
issues for a lot of people. At least if you know where you are,
you know how you can compete or how you cannot compete. I think
this is creating uncertainty within all levels of this
marketplace.
Mr. Avalos. Congressmen, Mr. Chairman, I appreciate that.
I wanted to add a little something and I will try to give
you a more direct answer. On the comments that we received,
they were not just for the rule, against the rule. The
stakeholders that took time and expense to submit the comments
which we greatly, greatly appreciate, were very comprehensive.
They gave alternatives, recommendations, options. Very, very
thorough. So it is not just you read them, say this guy is for
them, this guy is against them. It is really a very, very time
consuming, thorough process. A very important process. So to
answer your question on the timeline, fairly soon we should
have a final product.
Mr. Critz.. Fairly soon. Okay.
Mr. Avalos. Fairly soon.
Mr. Critz. Well, that is hopeful. It is summer. We will see
where that takes us.
One thing Mr. Christian just mentioned about the size of
GIPSA; with this proposed rule you are talking about a more
transparent process but you are also talking about more
enforcement. What does that mean to your level of staffing? If
you were already a small organization, how do you then find
people to do enforcement of some of these issues? I think the
chairman mentioned there is a worry about frivolous lawsuits. I
think if you look at our legal system, anyone can find
different areas where there are frivolous lawsuits. Hopefully,
farming and livestock would be immune to it, but we are not
that lucky. So how is this playing into the size of your
operation?
Mr. Christian. Well, I think, as you know, obviously
implementing new regulations requires an extra effort. I have
kind of a theory of--I have been working in regulatory
enforcement for about my entire career. And I have a regulatory
enforcement theory related to the 80/20 Rule, and how it
applies to enforcement. If you let folks know what the
requirements are, about 80 percent will voluntarily comply.
About two percent will never comply. And so you focus your
efforts first on education to get the industry up to that 80
percent and then you focus your limited, resources on
enforcement of that two percent so you can get the other 18
percent to understand that it would be better to comply than to
not comply.
And so that is how GIPSA really--or the Packers and
Stockyards program is implemented. I mean, we really just spot
check. We make sure that people understand what the rules are
in the industry the best we can by getting folks out there,
working with industry, and then we identify the flagrant
violators because we, cannot look over everybody's shoulder,
and we try to take strong enforcement action against those
flagrant violators to set up the deterrent to get that
compliance rate up. And one of the areas that is of concern,
because our overall goal, our measure, is compliance. If we can
get 100 percent or 90-some percent compliance with the Packers
and Stockyards Act and the regulations that were promulgated
under it, and if it is a good law and if there are good
regulations, then we will have done our job. We will have
protected livestock producers, livestock sellers.
What we found in poultry, with the limited regulations that
cover poultry right now, our compliance rate is still down
around 67 percent when we are looking at contract compliance.
And what I think will happen if these rules are promulgated in
a way that helps provide guidance to the industry as to what we
consider compliance under an unfair practice or an unreasonable
preference, that it will help the industry get that compliance
rate up, to over 80 percent and help improve the protections
for poultry growers and the small entities that are out there.
Mr. Critz. Well, Mr. Chairman, I see you have a full slate
of folks on your side, so I will yield back so that they can
get to their questions. Thank you very much.
Chairman Tipton. Thank you, Ed.
Now I would like to recognize Mr. Bartlett for his
questions.
Mr. Bartlett. Thank you very much.
Mr. Christian, would you tell us why our small businesses
and our farmers think that they are going to be hurt by this
proposed rule? And after you have done that then I would like
the secretary to tell us why they are wrong.
Mr. Christian. Congressman, you know, to look at the
response that we have gotten to the proposed rule, the 61,000
comments will give you an idea of how people feel about the
rule and how they----
Mr. Bartlett. And how do they think it is going to hurt
them? What do they think it is going to do to them?
Mr. Christian. Well, I mean, looking at the comments there
is a wide range of issues that different entities of different
sizes have----
Mr. Bartlett. Tell us some of those if you would.
Mr. Christian. Would you like me to reiterate what some of
the comments have indicated?
Mr. Bartlett. Yeah. I am sure you can categorize them, you
know, just a few of the biggest plurality of hits.
Mr. Christian. Well, in the rulemaking process, the number
of comments are not necessarily as relevant as the substantive
nature of the comment. And so, I mean, in terms of numbers we
received a lot of postcards. We received a lot of e-mails. I
mean, we received probably----
Mr. Bartlett. Of the substantive comments, why do you think
this rule is going to hurt them? What will it do to them?
Mr. Christian. Well, in terms of cost, we have identified
in the cost benefit analysis adjustment costs. We have
identified analysis costs. And, you know, those were identified
and expounded on in the comments that we received. In fact, we
asked for in the comments, information on cost benefit and
information on the effect on small business, a number of times
in our preamble.
Mr. Bartlett. This is, I gather, an unprecedented number of
responses. Am I correct? Pretty much unprecedented?
Mr. Christian. For GIPSA?
Mr. Bartlett. Yes.
Mr. Christian. For the Packers and Stockyards program.
Mr. Bartlett. So there must be some real major concerns out
there. I am still having some trouble understanding what those
major concerns are. What do they think this rule is going to do
to them? Why did 80,000 of them you say respond to you we think
this is a bad idea? Give me just a couple of the reasons that
they think this is going to hurt them. So far you have just
given me very generic things that I cannot get my teeth into.
Mr. Christian. Well, I mean, there were a little over
60,000 comments and there were comments for the rule. There
were comments opposed to the rule. There were comments
suggesting modifications or changes to the rule. And we are
considering every single one of those comments seriously as we
move forward with the process.
Mr. Bartlett. Mr. Secretary, can you tell us some of their
major concerns and why you think they are wrong? Or they may be
right and you are going to fix it.
Mr. Avalos. Congressman, I appreciate your persistence and
I really want to give you a direct answer but because of the ex
parte I cannot get into the specifics of the proposed rule. But
I can give you a perspective coming from the countryside,
working with farmers and ranchers all my life. This is a
proposed rule, something so different. We have not had a change
in this law in 90 years at this magnitude. So there is concern.
There is concern just because it is a new regulation coming
from the government. They are concerned about the impact on
their livelihood, on their farm and ranch operation, the future
of their kids. So once again, I cannot give you the specifics
that you can put your teeth in but I can assure you,
Congressman, that these comments that we received, their
concerns are expressed in those comments and we are taking
those comments very serious.
Mr. Bartlett. Thank you. I am still having trouble
understanding what their major concerns with the--there must
have been enough specifics in your announcement of this
proposed rule that really stirred them up and I am having
trouble understanding of what those specifics were that they
became so agitated you got, what, more than 50,000 responses.
Mr. Avalos. Congressman, I would not say they became
agitated. Because I can tell you this from the comments, and I
want to make sure that the Committee--Mr. Chairman and the
Committee knows that I did take time to read some of these
comments. I promised--there is a gentleman here from NCBA that
I visited with earlier--I promised the then-president of NCBA
that I would read their comments and I did. And very thorough,
very comprehensive, and very--it is pretty tough reading. And I
also read some comments from the other groups that came in and
it is tough reading. But they are not agitated. It is just
something that is so different, so new, and they want to make
sure that they understand what is being proposed. So they are
asking questions. They are supplying alternatives, options.
Keep in mind also, Congressman, that not everyone was upset
or agitated. A lot of people were really pleased that these
changes were being proposed. So it is a group of stakeholders
that submitted some very thorough comments and made some very
good recommendations and I will leave it at that.
Mr. Bartlett. Thank you. Thank you, Mr. Chairman.
Chairman Tipton. Mr. King.
Mr. King. Thank you, Mr. Chairman. I do thank the
witnesses. And Mr. Secretary, I appreciate your demeanor here
and a little about your background is interesting to me,
growing up in the country and having to make that adjustment. I
think that was an interesting narrative.
Can you just give me a few seconds on what the family
farmer ranch operation was like? Did you have a family there?
Brothers and sisters also you grew up with and you all had to
be relocated to the city?
Mr. Avalos. Congressman, I can. You know, I have always
said that I grew up on a family farm but I usually do not get
the opportunity to explain the rest of the story. That family
farm was not my family's farm. We were the labor on that farm.
I had relatives who owned farms nearby but my dad was injured
in an accident, a tractor accident on the farm and we had to
relocate to the city. And it was really, really tough,
Congressman, when you grow up as a little kid, you run around
barefooted all day long on the farm--you run cattle around, and
all the different crops. To then move to a city, it is a
strange world. So it was a major adjustment. That is what my
dad always told me, that it was so different for me having come
from a farm.
Mr. King. Do you have siblings also?
Mr. Avalos. I do. The one thing that I wanted to emphasize
to you, Congressman and the Committee, agriculture is so
important to me. It did not matter that we were the labor on
the farm. It was so important to me because it gave me a work
ethic. I remember being in town. I was a big kid, pretty
athletic. I was on the football team, the basketball team, and
I used to run the hurdles. And I remember all the city kids,
they go lift weights and go hang out at the swimming pool. I go
back to the farm and harvest onions all summer.
Mr. King. Thank you, Mr. Secretary. I appreciate that. I
know that the Chair has been a little lenient with the clock or
I probably would have focused this a little bit more. As you
talk about the tractor accident of your father I just happen to
think that as we sit here now there is a funeral going on for
one of my neighbors and friends that was killed in a tractor
accident and I regret I am not able to be there today. Those
things do happen on the farm. It is a dangerous place to work.
I am interested in that background because it forms you and
the job that you do. I normally do not ask those kind of
questions either. But I noticed that in both your testimony and
that of Mr. Christian, the word fairness comes up over and over
again. I mean, the effort in this GIPSA rule is to provide
fairness. And so could you provide for this Committee a
definition of the word ``fairness''?
Mr. Avalos. Well, I did not come prepared to give you a
definition for fairness.
Mr. King. But if that is a motivator for this rule there
should be something that is pretty clear.
Mr. Avalos. And I can give you my perspective, not an
official definition. From my perspective it is in any type of
transaction there are two sides. And I just feel that fairness
is where both sides are treated fairly.
Mr. King. Okay. But you grew up on a farm with parents and
siblings and all of you working together. Did you ever hear any
of them say that is not fair?
Mr. Avalos. Absolutely not. You are right. Absolutely.
Mr. King. And so does anyone that grew up in a family with
two or more kids understand that there is no such thing as fair
in a family like that?
Mr. Avalos. Well, again, fairness from what perspective?
Mr. King. Well, and that is right. And that is my point.
And this is being driven--I do not know if the president is
involved--being driven by the Secretary of Agriculture,
Secretary of ILSAC. It is being driven by some interests out
there that think they are not being treated fairly in
contracts. And I have been involved in a lot of contracts over
the years and I have heard people use that word ``fair'' but it
never really got us to a resolution. I see it scattered
throughout the legal language in this Congress. It is scattered
throughout the code of the U.S. code and through the states.
And I will tell you I can define the state fair. I can define a
county fair. But I cannot define fair. And if fair is our
guideline here, it is in the perspective of whoever is
advocating. And I will say from this perspective that if you
have someone that raises a premium line of hogs and they go
negotiate a contract to be paid that premium and they are
producing that high quality product for a niche market and the
packer is anticipating that load a week or whatever it is that
they have agreed to do coming in and they get paid a premium on
the other end, it is not fair to say to that producer and that
packer that the government is going to intervene. Intervene in
that contract.
Who can determine what is fair? Can government bureaucrats
determine if a contract is fair? Or does it turn into the
government deciding it is not fair that someone raises a
premium product and the other person does not and they do not
get paid the same amount. It is about the equivalent of 4-H
giving participation ribbons instead of blue and red ribbons
instead. We have got to have competition in this marketplace.
And my argument would be that if people think it is not fair,
why do they not get in and compete with those. What keeps them
out of that market? If they believe they are locked out of the
market start your own packing plant. Start your own business.
Open your own niche market. Run the locker plant and expand it
into a franchise. Come to this Congress and ask us to allow
them to sell meat across state lines so that people can
actually penetrate into this marketplace.
I think we are on the wrong path here. I think we are on a
path that sets up the government to be setting prices in the
terms of approving or disapproving of contracts. If the
variance goes outside of the government's variance, then
government has to approve the contract? And what are they doing
intervening themselves in between a producer and a packer who
have two consenting adults have reached an agreement and now
the government says well, it is not fair to somebody else.
I can tell you that as a young man I delivered hogs to the
packing plant for a fellow that I worked for and there might be
a 300 pounder in there. There might be a 160 pounder in there
and a 220 pounder in there in a pickup with a stock rack
waiting in line with pot trailers where every hog was uniform
size and weight and easy for the packer to handle. Now, do we
not know that even if I had one hog in that pickup truck that
was the same profile I will call it of all those hogs on that
pot trailer, is that hog worth as much to the trailer as the
whole pack load? As a whole truckload?
Those were the kind of things that the government is
seeking to interject themselves into. And if we are going to be
a free market economy, then we have to let the market settle
this. And I do not think government can determine fairness
anymore than your father, whom I know that you respect and hold
in high esteem and raised you, could broker that and have all
of the siblings agree that he had come down in a fair decision.
I do not want the government to be the nanny state. And I just
give you an opportunity to respond to what I said and then I
yield to the chairman. I have abused my privilege here. I am
sorry about that.
Mr. Avalos. Congressman, I appreciate your comments. They
are good comments. But at the same token I cannot get into the
detail of the proposed rule. But, those are good comments and I
appreciate this and I have had similar conversations with
producers throughout the country.
But I just feel that we still need to let this process
continue because we have to respect all those comments that
came in. And there are comments similar to concerns that you
just expressed and comments you just made. We are going to take
those into consideration as we move forward.
Now, I am going to ask if my partner here, Deputy
Administrator Christian, would like to expand on this.
Mr. Christian. Well, Congressman, I think the issue that
you have raised is the question that a lot of people have asked
us as well. The Packers and Stockyards Act has included the
word ``unfair practices,'' since the beginning and a lot of
people have asked what does that mean? I think one of the
things that you saw in this proposed rule was to try to provide
some clarity as to what an unfair practice is to help provide
that guidance to the marketplace to determine, okay, what is
unfair and what is not. So that was part of the intent of the
proposed rule.
Mr. King. Thank you, Mr. Chairman. I yield back.
Chairman Tipton. Mrs. Ellmers?
Ms. Ellmers. Thank you, Mr. Chairman.
I have a couple of questions and thank you for coming
today. And actually, I would like for both of you to weigh in
on these. And I know that you have basically stated that you
are not necessarily discussing some of the actual rule
positions basically as it is. But I am curious again and I know
this question has been asked already. I am just curious about
the timeline. You know, I know you are still receiving comments
now?
Mr. Avalos. Congresswoman, no, the comment period is over.
Ms. Ellmers. Okay. And the comments are being reviewed?
Mr. Avalos. Absolutely. Congresswoman, the question that we
receive all the time is when is this process going to end? When
are we going to have a final product? And I appreciate that
very much. And I was pleasantly surprised, or maybe not
pleasantly surprised. When I came to work at USDA I never
realized what everyone had to go through to go through the
rulemaking process. This was really new to me. And it was a
surprise to me.
Ms. Ellmers. I think you may have--this question may have
already been posed. I am not sure. But how many people are
working on this? How many USDA staff are reviewing the comments
and coming up with kind of a----
Mr. Avalos. Congresswoman, I cannot tell you exactly how
many but we have contracted outside the agency for assistance.
But I am not sure if you were here when a similar question was
asked. You know, we received these 60,000 plus comments and
then we summarized them and we put them in a category based on
how they address specific provisions of the proposed rule. And
then now we are looking at alternatives and options that have
been proposed. And it just takes a long time.
Ms. Ellmers. Also, and there again, that gives me as much
information as I need. I do want to ask about the economic
analysis of the proposed rule. Will that information be
released? My understanding is you have done an economic
analysis.
Mr. Avalos. Congresswoman, in the proposed rule there was
an economic analysis, cost benefit analysis. We have received
quite a few comments on the costs. And as I mentioned earlier,
our chief economist is leading the team and is preparing a very
thorough cost benefit analysis that will be in the final
product. Right now it is really too early to prejudge what the
final product is going to look like. And I want to emphasize to
you, Congresswoman, and to the Committee that based on the
comments, no option is going to be ignored. We are going to
look at any possible option. And it is really too early right
now in the process to, one, give you a timeline and to tell you
what final product we are going to have----
Ms. Ellmers. Will you allow for public comments on that? I
mean, we have submitted a letter. Many of my colleagues, myself
and 146 other members as per this.
Mr. Avalos. Absolutely. I am real familiar with the letter.
But on the comments, it is too early now to determine if we are
going to have another comment period because we do not really
know what the final product is going to look like.
Ms. Ellmers. Okay. Have you spoken to stakeholders about
how the rule may impact their businesses? And if so, have you
spoken to those in North Carolina?
Mr. Avalos. Congresswoman, we have not since the comment
period opened and now that we are after the comment period
trying to draft a final product, we cannot talk directly to
stakeholders to tell them about what we might propose. However,
I have spoken a lot with stakeholders. As part of my job I have
been keynote speaker at different groups, cattle growers, and
of course, the question always comes up on the proposed rule.
And I cannot get into specifics with them but one thing that
comes up all the time is premiums to producers and there is one
thing I can say and I always tell them that the Secretary and I
strongly support value-added. We strongly support marketing
arrangements. We strongly support premiums being paid to
producers.
Ms. Ellmers. I have one more question and I ask the
chairman if--I know I am about ready to run out of time here--
if that would be all right. And I will direct this to Mr.
Christian. It is a specific question. In the proposed rule,
GIPSA is attempting to overturn numerous judicial decisions by
providing that a finding--and I am going to--this is a quote.
``Finding that the challenged act or practice adversely affects
or is likely to adversely affect competition is not necessary
in all cases.''
Basically, the way that I interpret that is that the
plaintiff would now not necessarily have to show actual harm
when challenging a packer activity. Is this correct? Is this
basically the interpretation of that?
Mr. Christian. That is somewhat correct. The Department's
longstanding position is that to prove a violation of the two
sections of the Packers and Stockyards Act that apply to
packers and swine contractors, that would be 202A and 202B, the
unfair practice section and the unreasonable preference
section, that in some cases you do not need to show competitive
harm to prove a violation. An example might be if someone is
fraudulently weighing your livestock at the packing plant, you
as an individual packer, as an individual producer, when GIPSA
brings that case against the packer for weighing your livestock
incorrectly, we bring that administratively for livestock and
can assess a penalty and we do not have to show competitive
injury.
So that is the Department's longstanding position. There
are some cases where you do have to show competitive injury.
Some cases of unfair practices and that may be a situation
where a packer is working also as a dealer. And there is a lack
of competition in that practice. So that is the longstanding
position. And then the intent of this rule was to clarify that
longstanding position.
Ms. Ellmers. Thank you. I yield back.
Chairman Tipton. Thank you, Mrs. Ellmers. And we would like
to thank the Secretary for taking the time to be here. You, as
well, Mr. Christiansen [sic].
If the Committee members have any other questions, if you
would submit them I am sure the secretary will be happy to
answer some of those.
Mr. Avalos. Mr. Chairman, would I be allowed to just make a
few closing remarks?
Chairman Tipton. Yes, sir.
Mr. Avalos. Mr. Chairman, members of the Committee, I just
wanted to emphasize that this administration is committed to
helping small businesses. We strongly support transparency,
fairness, and equity in the marketplace.
The proposed rule that we discussed today, it is a starting
point. We received over 60,000 comments and I want everyone to
know that we are listening. We are taking these comments very
seriously. No option is being ruled out and we will let these
comments guide us to develop the final product. And I want to
emphasize to you, Mr. Chairman, and the Committee that I have
spent a career working with small businesses. After leaving the
farm I had the opportunity to work with many farmers, many
ranchers, all family operations, to develop markets in Mexico
for cattle and sheep. To develop markets in China for pecans.
Develop domestic markets in 28 different states with chili
peppers and onions. So I really, really feel connected to small
businessmen and feel connected to farmers and ranchers.
And I just want to thank you, Mr. Chairman, members of the
Committee, for all the work that you do for small businesses,
for your commitment to small businesses. And thank you for
allowing us to be here today and present to you. Thank you very
much.
Chairman Tipton. Thank you, Mr. Secretary. And we will have
our second panel start in just a moment. Thanks.
[Recess.]
Chairman Tipton. I would now like to yield to Congressman
King for an introduction.
Mr. King. Thank you, Mr. Chairman. I appreciate your
deference. I have a markup going on in another Committee and I
am afraid I have to slip out.
But I wanted to have the opportunity to introduce Mr. Gary
Malenke, who is a constituent of mine from Sioux Center, Iowa,
and also the center of the number one pork producing
congressional district in America. He is the CEO of Natural
Food Holdings, which was formerly known as the Sioux-Preme
Packing Company. And that is also located in Sioux Center,
Iowa.
Gary graduated from Northwest Iowa Technical College in
1985 with an Associate degree in Agribusiness. After two years
in a livestock and feed business and one year at Iowa Beef
Packers, Gary joined the Sioux-Preme Packing Company. And while
at the company he held positions starting with hog buyer, then
head of livestock procurement and community sales. And in 2001,
he became the president of the company and he is currently
serving as chairman of the North American Meat Packers
Association and his business is also an active member of the
U.S. Meat Export Federation and the National Meat Association.
Mr. Malenke's company is a prime example of a kind of a small
packing plant that is so important to local communities and
small businesses that we have been talking about in the earlier
panel. And the overall industry competitiveness is reflected by
his company.
It is important that we think about these businesses, Mr.
Chairman, especially because when they deal with specialty and
niche markets, it is not just large companies. We evaluate
rules and see how they affect the small companies as well.
So I want to thank Mr. Malenke and the other witnesses for
being here to testify today. And I think it is important we
turn our ear to the interests of the industry and I point out
also that Mr. Malenke's company is again from the number one
pork producing congressional district in America. I could not
leave that commercial out, Mr. Chairman. I welcome all the
witnesses. I thank you for your indulgence and I yield back the
balance of my time.
Chairman Tipton. Mr. Malenke, if you would like to go
ahead.
STATEMENTS OF GARY MALENKE, PRESIDENT AND CEO, NATURAL FOOD
HOLDINGS; ROBBIE LEVALLEY, LEVALLEY RANCH; JOEL BRANDENBERGER,
PRESIDENT, NATIONAL TURKEY FEDERATION; BOB JUNK, FAY PENN
ECONOMIC DEVELOPMENT COUNCIL
STATEMENT OF GARY MALENKE
Mr. Malenke. Good morning, Chairman Tipton. Sorry. That is
better. Good morning, Chairman Tipton and Ranking Member Critz.
I appreciate this opportunity.
As Congressman King said, we are up in Sioux Center, Iowa.
Our firm is not large enough to be classified in the top 10 hog
slaughters plants, but nevertheless, we have been in business
for over 40 years and I have had the privilege of being in the
meat industry for over 20 years myself.
We are proud to have arrangements with a number of
producers to bring us hogs that fit various niche markets with
whom we have marketing agreements under various brands. And to
do this we are looking for very specific hogs that require
growers to follow very specific protocols. Our producers are
then paid a premium for meeting these expectations, and these
products are then sold into markets and restaurants, that
differentiate our products to create an enhanced value. To
accomplish this, we work with well over 500 growers, many of
which are small family farmers. And we do this to really
produce a consistent supply of product to our customers.
I am sensitive to the feelings in the countryside that
producers are not getting a fair deal. And I and my senior
staff are involved in industry organizations to give a little
and to gain a lot in terms of advice and resources to better
help us as business leaders. And indeed, I happen to be the
chairman of one of those associations at this time.
At a recent meeting that I attended, I visited with a young
man who inspired me to reach back to producers and to give back
to the men and women, families, who produce hogs for a
business. I want these producers to know as much about fixing a
fair price for pork as they do about the business of raising
hogs.
A couple of suggestions I might have in the ways that we
can work together.
Meeting consumer expectations for pork, at retail and/or at
the center of the plate is critical. I, and my organizations,
can develop better programs to help producers better understand
how we can work together. Working together every week of the
year for the long haul and better share and communicate with
each other what it takes for these programs to be successful in
meeting consumer expectations.
There is already a great deal of information in the
marketplace about the price for hogs and for pig meat. And I
will agree that this can be very complicated. It is not always
as accessible and could perhaps use some improvement. But
nevertheless, I am committed to working with the organizations
I belong to to enhance transparency and information that would
be useful to producers. I believe that the enhancement set
forth in current legislation would also be helpful. I also know
that one of the organizations in which we hold membership has
been meeting with USDA's marketing officials to improve the
information for specifically pork price reporting. I expect
these efforts to be useful in improving the flow of
information.
I grew up on a small farm myself some 30 years ago and have
witnessed firsthand the changes to rural America. There is no
longer a hardware store and grocery store in small towns.
Numerous school districts have merged and the economies of
scale have been driven by the Wal-Marts of the world. This
trend is not to fault the big business. It is driven by the
changing consumer. Folks like Wal-Mart have done a great job of
attracting customers. Face it. Thousands of people shop there
every day because they choose to do so. As much as I desire to
look back with nostalgia, the realities of the economic forces
today are very strong. GIPSA's attempt to regulate the future
by returning the way things used to be will be a bad economic
decision and will not succeed.
In the summer of 2009, our business was not very good and
we were not profitable. Fortunately, this year we are doing
much better. I know it is because of both domestic demand and
improved exports. In 2009, the price of hogs were some 30 to 35
percent lower than in 2010 and we lost money. In 2010, we had
this improved demand and we did much better because of the
market conditions. And even in light of the fact that the price
of the livestock was higher.
My point is really this. The primary influence of the price
of livestock is the demand for the finished products we
produce. It is customers coming in the door and buying the
product.
This is a tough business. It is a tough business for
producers and for packers. Working together in partnership and
cooperation will give us the opportunity to be successful
together. I am not here to cry about the large firms. Their
very largeness really denies them the flexibility that we enjoy
at Natural Food Holdings. We do not need GIPSA, a government
regulatory agency, in our business plan. Enhancing our
partnerships with producers for the mutual benefit is a much
better solution.
I thank you for allowing me to testify. I would be happy to
take any questions.
[The statement of Mr. Malenke follows on page 42.]
Chairman Tipton. Thank you, Mr. Malenke.
As a reminder, just in terms of the lights that we have,
you have five minutes for your testimony and when it gets down
to the final minute the yellow light will come on and then the
red light. And if you could summarize after that.
I would also like to have the privilege of introducing one
of my constituents, Ms. Robbie LeValley from Hotchkiss,
Colorado. And I am sorry the secretary left because we could
talk about Tulia and Hotchkiss. A lot of folks do not know
where these communities are.
But Ms. LeValley is a beef producer who is past president
of the Colorado Cattlemen's Association and a board member of
the National Cattlemen's Beef Association. She received her
Bachelor's and Master of Science in animal science from
Colorado State University. I would certainly like to thank you,
Robbie, for being here and taking the time to be here. And I
look forward to your testimony.
STATEMENT OF ROBBIE LeVALLEY
Ms. LeValley. Thank you, Mr. Chairman, Ranking Member
Critz.
My name is Robbie LeValley and I have been a beef producer
all of my life and my two boys represent the fourth generation
on our ranch. In addition to our ranch, my family and I are co-
owners of Homestead Meats, a direct beef marketing business
that has been in operation since 1995. There are six ranching
families who co-own this small business and we have 13 full-
time employees. To enhance our direct marketing beef business,
Homestead Meats owns and operates a packing plant regulated by
USDA. Therefore, we are producers, feeders, and packers.
The proposed GIPSA rule will significantly hinder our small
business model, cripple our ability to market our cattle the
way we want, and limit consumer choices. As I said, I am a
producer on the cow-calf side and our business is built on
relationships and alliances. Throughout the beef chain, for
years we have successfully marketed our calves through an
alliance with a packer. That alliance has created a
relationship that provides feedback from the packer on the
quality of our cattle, quality for which we get paid a premium
for. I strongly believe in the fundamental American business
tenet of a willing seller and a willing buyer being able to
enter into a private business transaction because it protects
my pricing and marketing mechanism.
Our cattle marketing contracts are the heart of our small
business, the incentive to manage for the future, and the
stability for our banking partner. And it does not warrant
being posted on the Internet or receiving additional government
intervention and oversight or being subject to potential
litigation.
When the proposed rule banks packer-to-packer sales, the
six families and Homestead Meats may not be able to sell to
other packers. This will substantially reduce the profitability
for the rest of our cattle and compromises the alliance we have
spent years building. This is a great example of how this rule
truly harms producers and processors across the country. For
years USDA has promoted exactly what we are doing--sell direct
to the consumer, operate as a small processor in a strategic
area of the country, being rewarded for adding value to the end
product and producing local food. We responded to consumer
demand. We followed USDA's lead. Now we are being punished.
This is a slap in the face to innovative businessmen and women
across the U.S.
The proposed GIPSA rule offers neither clarity nor clear
definition in terminology. Elimination of the competitive
injury requirement will provide a disincentive for packer
premiums and value-added contracts because of the fear of
litigation. The vague definition such as unfair or reasonable
person will open the door to an increased number of lawsuits
because mere accusations without economic proof suffice for
USDA or an individual to bring a lawsuit against a buyer. Who
determines fairness? Does increased government intervention and
litigation determine fairness? Arbitrary judgment by GIPSA will
only increase paperwork and costs for small business owners
like me. Who pays for this increased intervention and
litigation? The beef cattle industry does.
When cost increase for the packer, the trickle-down effect
is to decrease the price paid to ranchers, this will be a trial
lawyer's dream and will devastate small businesses such as
mine. What will be the consequence when the cost to defending
prices paid for my cattle and complying with this rule add to
the operating cost? What happens to every other industry when
litigation increases? No one takes a risk or sticks their neck
out or pays a premium for fear of reprisal. This ends
creativity, partnerships, and the desire to take a chance,
which is the very basis of the entrepreneurial spirit of the
American small business owner. Do we truly want that for the
beef industry?
The rule requires buyers of my cattle to justify paying a
premium for my livestock. What will be the standard for that
justification? Who will set it? One size does not fit all. The
regulation seems to infer that it is the role of big
government, and I strongly oppose the government setting or
justifying the premiums paid. This will roll back the clock 30
years and take us back to commodity beef which consumers have
told us they do not want.
Value-based marketing has given our family business the
opportunity to compete for market share at the highest level.
As a result, we have been able to build a small business that
supports the local economy and provide consumers with the
products they want. We do not need big government setting up
shop on our farms and ranches, and government intrusion into
the private marketplace is not the answer.
I urge the Committee to help stop this rule from being
finalized as it is detrimental to ranchers, consumers, and the
entire U.S. economy. Thank you.
[The statement of Ms. LeValley follows on page 38.]
Chairman Tipton. Thank you.
Next we have Mr. Joel Brandenberger, president of the
National Turkey Federation. Mr. Brandenberger joined NTF in
1991 as the Federation's director of public affairs and served
in a variety of positions, most recently as senior vice
president for legislative affairs, before being appointed to
his current post in December of 2006. Thank you for being here
today, Mr. Brandenberger.
STATEMENT OF JOEL BRANDENBERGER
Mr. Brandenberger. Thank you, Chairman Tipton, Ranking
Member Critz, members of the Subcommittee.
The National Turkey Federation represents all segments of
the turkey industry, including growers, processors, breeders,
hatchery owners, and allied industry. NTF appreciates the
opportunity to testify because our members believe GIPSA's
proposed marketing rule will harm the many small businesses
that play a vital role in producing more than five billion
pounds of ready to cook turkey meat in the United States.
A decade ago, our leadership recognized the need to develop
comprehensive policy on legislation and regulation that could
affect the grower-processor relationship. We formed a special
committee of growers and processers and spent six months
developing policy that was unanimously approved by our board of
directors. The policy calls on NTF to support legislation or
regulation that helps all parties better understand the nature
of the contract they are entering into. We supported the 2009
GIPSA rule that enhanced transparency in contracts and
permitted growers to discuss a proposed contract with financial
and legal advisors, as well as business partners. But NTF
strongly objects to any proposed law or rule that would insert
the government into the negotiating process by dictating
specific terms of compensation or excessively limiting the
ability of either party to manage their financial risk. Our
members believe this is exactly what the current GIPSA rule
would do.
The rule fails to grasp the diversity of today's turkey
industry. Turkeys are processed by family-owned companies,
grower-owned cooperatives, and large diversified international
companies. Ten of the 25 turkey processors in the country meet
SBA's definition of a small business, but small business plays
a bigger role in the industry as well. A significant percentage
of the more than 8,000 family farms that raise turkeys are, in
fact, small businesses employing staffs in some cases as large
as 250 people. Some of these family-owned small businesses are
also part of the seven grower-owned cooperatives that produce
turkey in this country. All of them understand the critical
importance of maintaining a strong business relationship
between growers and processers.
About 80 percent of the turkeys today are produced under
the traditional production contract where the company owns the
turkeys, provides the feed, the veterinary care, and the grower
provides the housing and their expertise. Another 10 percent
are produced under marketing contracts where the grower owns
the birds, provides the feed, the veterinary care, as well as
the housing and expertise, and sells to the processor at a
previously contracted price. In both of those cases, growers'
compensation can vary according to specific terms in the
contract. The remaining 10 percent of turkeys are raised on
company-owned farms.
I want to highlight three aspects of the rule that create
an enormous potential problem for today's industry. The first
is the competitive injury provision that has been talked about
quite a bit here. The second is the provision that would
require processors to virtually guarantee a grower can recoup
80 percent of their capital investments, and the third is a
series of provisions which the previous witness discussed that
would discourage competitive contracts and reduce the premiums
or deductions that growers can receive based on the performance
of the birds in their care. Taken together these provisions
create significant new legal and regulatory risk for turkey
processors.
And as processors seek to manage that risk there could be
serious, unintended consequences. The most obvious is the
contracts will become less competitive and compensation more
uniform. Those farmers, large and small, who are doing an
outstanding job in receiving premiums will justifiably feel
cheated as the new regulation forces everyone to a lower common
denominator.
The bigger impact may come later. As processors seek to
minimize their risk, one conceivable option would be to grow
more turkeys on fewer farms, eliminating or reducing production
on all but the best performing farms. Processors could also
increase the number of turkeys grown on company-owned farms. An
excellent example of unintended consequences comes from a
grower-member who testified last week before the Senate
Agriculture Committee. His family farm is one of 16 that owns a
processing cooperative in the upper Midwest. This co-op is
hoping to expand over the next few years. Some of the expansion
can be covered by increasing the number of turkeys grown on the
existing farms, but ultimately they believe that contracting
with other farmers may be the only route they have to the
expansion they envision. They have said if this rule takes
effect they believe the risk will be too large and it will
limit their expansion.
So the irony in this is rich. We have growers who feel that
a rule allegedly designed to empower them will, in fact,
ultimately stifle their ability to grow and create new jobs.
What is especially frustrating is what has been discussed here
already at length. USDA proposed this rule without conducting
an adequate assessment of its economic impact. A study funded
by NTF found an economic impact of $360 million to our industry
alone. Others have shown impacts in other industries as large
as one billion dollars over five years and a $14 billion
reduction in the gross domestic product.
USDA now has agreed to conduct an economic assessment as we
have heard, but as we have also heard, there is no commitment
yet to open it for comment after it is completed. In order for
there to be any level of confidence that this final rule really
is going to promote the best interest of family farmers and
their small businesses, it is essential that this economic
analysis be submitted for public comment before the rule is
finalized.
Thank you again for the opportunity to be here. I look
forward to answering your questions.
Chairman Tipton. Thank you, sir.
I would like to yield now to Ranking Member Critz to
introduce our next witness.
[The statement of Mr. Brandenberger follows on page 44.]
Mr. Critz. Thank you, Mr. Chairman.
It is my pleasure to introduce Mr. Bob Junk. Mr. Junk is a
local economy manager for Fay Penn Economic Development
Council, a nonprofit organization aimed at increasing jobs and
quality of life in Fayette County, Pennsylvania, which ranks
usually either the second or third, or first poorest county in
Pennsylvania.
As the local economy manager, he develops marketing plans
to bring awareness to surrounding farms and build regional
business networks. Bob has a degree in business agriculture
from Penn State University and has extensive experience with
farm operations. He once owned a 10-acre strawberry farm with
15 employees and has managed a large dairy operation in
Uniontown. Mr. Junk also has 40-plus years of working on
sustainable farm policy at the state and federal level. He has
served as the State President of the Pennsylvania Farmers Union
for 10 years, and has served on numerous committees and boards
representing the interests of small farmers.
Welcome, Mr. Junk.
STATEMENT OF BOB JUNK
Mr. Junk. Thank you very much, Congressman Critz. It is my
honor to be here today and I thank you for the opportunity to
bring testimony here in support of GIPSA's proposed rules.
Chairman Tipton, Ranking Member Critz, and Subcommittee
members, my name is Bob Junk. As the congressman mentioned, I
am the local economy manager for Fay Penn Economic Development
Council.
I am going to summarize my testimony in lieu of time
because there is no way I know because of all the issues that
we are supporting and that these proposed rules are addressing.
I would like to start out though by stating that our mission at
Fay Penn is to maintain and increase employment opportunities/
jobs in Fayette County in an effort to improve the quality of
life for all of its residents. And again, it is all of our
residents that we are focused on. And agriculture is a main
part of our local economy.
So with that, today we have heard a lot of information and
a lot of numbers thrown around. And I would really like to
start out with the fact that to date we have lost 1.5 million
beef and hog producers over the last 30 years. So I think we
have a problem when we are looking at losing that many
producers that are small business owners out of our local
economy. They are reinvesting those dollars locally. They are
creating the opportunity for small business entrepreneurs. They
are also creating the opportunity for local reinvestment into
the neighborhoods, communities, and also into our public
schools and so on.
So with that, you know, we talk a lot about regulation,
government. You know, we do not want big government. But when
we take a look at really what the GIPSA rules are geared to,
and we can go right back to the Farm Bill, and it was a
directive through the Farm Bill and we all had an opportunity
to debate and negotiate and vote on the Farm Bill which was
approved three years ago, that this regulation is to be looked
at to look how we can bring balance to the market for the
producers. For many, many years, producers have been faced with
a number of challenges. Being a producer a number of years ago,
those challenges have not changed much. I am from a small rural
community. We have lost a lot of our stockyards, our local
packers because of consolidation and mergers and it has created
even more of a hindrance to get access.
But what I am going to talk about a little bit now at this
point in time is the fact that a lot of our producers today are
being forced to do certain upgrades to their operations to be
able to receive contracts. And a lot of times these contracts,
and especially in poultry, are only six to eight weeks long.
But at the same time they are forced into taking a 30-year
mortgage to be able to do these upgrades. Knowing that, again,
farmers have limited ability to access credit and they are not
usually able to access the same type of credit that normal
small business operations have, they are sometimes forced into
taking alternative credit measures. And it forces them to be
then relying on hopefully getting new contracts. This proposal
will actually give the producers some compensation as long as
they continue to meet those obligations with the processors.
Contract terminations, we have a serious problem with
processors being able to just eliminate contracts with
producers. This proposal would give the opportunity for those
producers to capture at least 80 percent of their investment
from those individuals and those processors.
The other issue I would like to talk about, and it is
really key, is the issue of the ranking payment system and base
assumption that all growers are provided comparable inputs in
varieties of performance as a result in farm management. A lot
of times what will happen today is farmers are just there for
the management and the building as you heard from a previous
witness and they are carrying the risk and there is really no
way of them being able to make that relationship to what they
are being paid and how they can truly balance the price that
they are actually being paid by those companies.
And then the other issue I would like to also bring up is,
in relationship to that, the company can still pay bonuses on
top of what they pay to the producers. This does not restrict
them from being able to pay premiums to performance. This is
not in any way restricting niche markets to be able to pay a
farmer for any of the added premiums that then could be passed
on or that the consumers are requesting from the marketplace. I
want to make that perfectly clear that there is no restriction
from that.
With that I want to thank you for the opportunity to
testify here and I will be ready for any questions. Thank you.
[The statement of Mr. Junk followson page 49.]
Chairman Tipton. Thank you, sir. We will now begin our
questioning. I would like to start with Ms. LeValley.
Under the proposed rule with packer-to-packer affiliates
there would be a ban in terms of selling. In your case that
would be very problematic obviously since you have a producer-
owned packaging plant and also produce livestock. Therefore,
you would not be able to sell livestock to your own packing
plant. What would that mean for your business?
Ms. LeValley. Well, we could continue to sell to our own
packing plant. We just are six families and market about a
third of the cattle through the Homestead Meats, through the
packing plant that we own. But what it would hinder is our
ability to sell to another packer. That is what it would
hinder. So our other two-thirds of all the families of the six
families would then be restricted in who they could market
their cattle to. It takes buyers out of the market. And again,
that would be a detriment to producers across the economy,
especially us and other packing cooperatives. Premium beef,
Oregon country beef, all of those that are in a similar
situation.
Chairman Tipton. You know, you mentioned in your testimony
that this is going to create new paperwork and increase costs.
Do you have any idea how much this is going to increase your
costs?
Ms. LeValley. When we have looked at the proposed
regulation, again, we have 13 employees. Now, that does not
consider the six families. Certainly, that is a great question.
We have not done an in-depth analysis to say that it is going
to cost us another $2 a hundredweight or anything like that. We
do know that it would take another half-time person to comply
with this regulation. That is approximately, you know, $30,000
to $40,000 additional to our operating cost for our packing
plant. And we only, again, have 13 employees to begin with.
Chairman Tipton. So you are a wealthy small business. You
can afford that, surely.
Ms. LeValley. We operate on a pretty slim margin.
Chairman Tipton. I know you do.
You know, as you pointed out in your testimony, Ms.
LeValley, for years the Federal government has pushed farmers
and livestock operators to become more actively involved in
value-added downstream economic activities as a means of being
extremely--it seems to be problematic since you are a producer-
owned packing plant and also produce livestock. Really when--
sorry. I got lost in my paper here. In terms of going
downstream, are you going to be able to maximize the value of
your business? Is this going to be hitting you in the
pocketbook and possibly creating job loss for you if this rule
goes through?
Ms. LeValley. Again, when I look at the in-depth analysis
of this proposed regulation, and Mr. Chairman, I look at the
unintended consequences. And yes, it has an impact on our
business. Yes, it has an impact on our six families and our six
ranches. But it also has a huge impact on the beef industry
across--whether just our area or across the country. Again,
increased government intervention, increased potential
litigation. All of these factors have a trickle-down effect to
where there is a reduction in the price and an increase in the
operating cost. And again, in this era of very slim margin,
increased cost and decreased revenue is never good for any
producer of any size, whether it is small, medium, or large.
Chairman Tipton. Great. Thank you.
Mr. Malenke, you mentioned in your testimony that you have
arrangements with a number of producers that raise hogs for
niche markets which requires producers to follow a very
specific growing protocol. If the GIPSA rule is implemented as
written, do you feel that an incentive exists for these
producers to undertake the added expense in following these
protocols and if they are not guaranteed a premium or the added
value?
Mr. Malenke. Clearly, these growers are not going to raise
pigs with the protocol that really ultimately these consumers
have set forth. In other words, it is the consumer saying, hey,
this is what we want and this is why we want it. So it is
flowing backwards. And if they are not assured of a premium,
they simply will not do it.
Chairman Tipton. Do you feel that by guaranteeing every
producer base pay that the quality of livestock available to
consumers, that will decrease? Is that what I am hearing?
Mr. Malenke. I believe it would be that case, definitely.
Chairman Tipton. Great.
Mr. Brandenberger, you mentioned in your testimony a
provision in the proposed rule that would allow a grower to
recover 80 percent of the cost of the required capital
investment. Do you think given the margin small integrators may
find it difficult to make such assurances?
Mr. Brandenberger. I think that is a potential problem. In
reality, in the overwhelming majority of the cases, that
investment in our industry at least is going to be recouped and
then some. It is going to happen. Usually for new growers,
fairly long-term contracts are offered. We have relatively
small turnover rates among our growers. It is the problem of
once you put that risk in writing, you know, on the line. You
assume that risk by guaranteeing it in essence. That is part of
your contracts. How do the lenders, you know, how do the people
that help finance the companies in our industry--how are they
going to look at that? How is that going to affect their
ability, their willingness to make some investments that are
going to be important? And for our companies at that point if
you are going to offer these guarantees in writing, that is
part of our business obligation, which growers are you going to
choose to do that with? And do you start making some very hard
decisions that may affect some growers whose performance is far
from poor but who may not meet the criteria necessary to
survive in this new, higher risk world.
Chairman Tipton. So it will impact smaller growers?
Mr. Brandenberger. Smaller growers or, yeah, and growers
that, you know, for whom the investment might be a bigger
stretch it may have a little bit larger risk because of a
variety of factors. Yes. That is what concerns growers a little
bit is what is going to happen when my contract is renewed.
They want to make this investment. If this is a guarantee,
where am I going to fall in that new world?
Chairman Tipton. And Mr. Junk, in your testimony it
indicates that you agree with GIPSA in their proposal to remove
the tournament pay system for poultry contractors. Smaller
growers raise their flocks to meet certain requirements using
different diet formulas and creating a niche market for their
unique birds. If the growers know that they are going to be
receiving the same base pay as another grower that does not
follow the same requirements, these birds could be of a lesser
quality. Where is the incentive for growers to continue to grow
and produce these consumer-driven birds?
Mr. Junk. Well, like I was saying, number one, they can
be--well, first off, the contractors can still pay premiums for
better quality or better performing animals. I am sorry. I just
lost my train of thought. Could you repeat the last part of
that question that you asked?
Chairman Tipton. Yes. What it is, where is the incentive
for growers to continue to produce consumer-driven birds?
Mr. Junk. Well, right now as far as the small producer,
because I think you were making a relationship to the smaller
producers at the same time, right now the smaller producer does
not have a lot of options in the first place because he is
already being penalized. Secondly, in the poultry industry,
most of the birds and the feed is already owned by the
contractor. The farmer is basically providing the building
which the birds are housed in.
Chairman Tipton. But they are all receiving the same base
pay.
Mr. Junk. Yes. And so what I am trying to do is defend or
define why we are supporting a base pay structure versus, you
know, whatever the contractor wants to pay. I mean, the bottom-
line right now is it is a take it or leave it contract. If you,
as the poultry grower, are sitting there with a 30-year
mortgage after you made the improvements and then all of a
sudden you are sitting there saying okay, it is time to renew
the contract and here is what we are going to pay for the birds
or for your production on the birds but you do not have the
opportunity to negotiate the price, who is setting the market
then? And that comes back to, you know, what is the real value
of that bird? And how does the producer have the opportunity to
determine that without being able to negotiate with that
contractor in a good, faithful way. Any other contracts, we
have the opportunities to, if we feel that we have been unduly
judged as far as fairness or whatnot, the ability to negotiate.
Chairman Tipton. Do you see? I guess the point I am trying
to get at is where you have the same base pay that is going to
be put into place, I am having a hard time really understanding
that distinction. Should there not be----
Mr. Junk. There is still value to that bird. I mean, just
like in the cattle industry. I may have a different size hog or
a heavier hog versus an ideal hog. I could have a steer that is
the ideal weight and the ideal size and it might be the ideal
breed that does not have the big bone where you are going to
have a lot of waste. But that animal is still valued at the
same base price. It is at the same starting number. It is still
there. It still has that value. That is what we are trying to
say. Make it more balanced on that base price. If it is a
higher quality animal, pay the premium. Nobody is saying that
they cannot but we want to know as a grower what is that base
price going to be when we are starting to enter into these
contracts. You know, and it should not be pinning one producer
against another producer.
Chairman Tipton. Okay. Mr. Brandenberger, do you have some
comments maybe?
Mr. Brandenberger. Well, there is one thing that is
mentioned a lot and I know Mr. Junk hears it a lot from the
people he talks to, is the question of inputs. And you
sometimes hear talk about the poults which are baby turkeys or
chicks that they receive of varying qualities. Now, a live
animal is not something you can rubberstamp, but in the turkey
industry at least an important thing to know is that the
genetic lines are managed almost entirely by two primary
breeders that operate in the United States. They are the ones
that produce the genetic lines that the processors use. They
spend tens of millions of dollars to create as much uniformity
between each poult that is delivered as through the hatchery
owners who hatch the poults and get them out there. Their
businesses suffer if the processors start seeing that any
percentage of these poults are substandard, are not performing.
And there is no percentage in sending substandard poults on to
any farm because with the high feed costs we have today--we
could talk about other government policies but we will let it
go for this point--with the high feed costs we have today, you
know, no processor is going to continue buying and sourcing
poults and sending them to growers if they are not getting
maximum feed efficiency off of that bird. So there is already
an enormous economic disincentive for any substandard poult to
be delivered to any farm with any degree of regularity.
Chairman Tipton. Great. Just follow up one other question
there, Mr. Junk. In terms of your organization, do you have any
fears that the competitive injury provisions in the rule, along
with provisions banning the use of tournament systems to rank
growers and the requirements that growers recoup their
investment in new barns and housing will lead to some
processors restricting all their future contract buying only to
the most successful growers or even doing all of their own
growing in-house, reducing the number of opportunities for
other growers, including beginning growers?
Mr. Junk. Were you saying fares?
Chairman Tipton. Yeah. No, when we are talking about the
competitive injury provisions in the rule, is this going to be
restricting some of these opportunities for growers to be able
to develop and actually closing down the market?
Mr. Junk. Myself personally? No. I do not think it will. If
anything, it gives, again, the producers the opportunity to
have an opportunity to identify and be able to access justice
for their probable cause. And so, no, I do not see this causing
any problems within the industry.
As far as the producers, again, for the last, you know, I
was president of Pennsylvania Farmers Union back in the late
'80s and '90s, and these are some of the same problems that we
had back then that we have been trying to address and bring
concerns to. The consolidation of the industry today has been
growing bigger and bigger, and our concern is no different than
any other industry's concern. When does it get too big to fail?
And right now what we are looking at is make sure we have a
fair balance opportunity to access the market and provide
competitive pricing.
Chairman Tipton. Okay. Thank you.
I would like now to yield to Ranking Member Critz for his
questions.
Mr. Critz. Thank you, Mr. Chairman. Because time is running
short I only have one question, but now I have a second
question because you, Mr. Malenke, or you, Mrs. LeValley,
talked about one size fits all. At the federal level, we do two
things very well. One size fits all, and two, mandate. We do a
lot of mandating, and push it down to states which then have to
figure out how to pay for it.
You talked about the packer-to-backer sales. I understand
in reading that there is a possibility that packer-to-packer
sales are being used to effect prices. That is why they are
talking about it. I am curious if there is a solution to
protect against using packer-to-packer sales to influence
pricing and not impact what you are doing at a smaller level?
Is there a way to exempt smaller packers from this rule, or is
there something that you see as a possible solution? Both of
either one of you can answer.
Mr. Malenke. Just from the pork side, today the pork
industry operates under mandatory reporting of live animals.
And packer-to-packer sales are reported there but they are in a
separate bucket. In other words, they are clearly defined
separate from other livestock.
Mr. Critz. Okay.
Mr. Malenke. And, you know, my experience as a packer,
buying hogs from another packer is, hey, the only reason I
bought them was because it was the most attractive deal I could
get. Purely a pure business decision.
Ms. LeValley. And again, similar for beef. One size fits
all again does not take into account the inherent variation
across whether you are Utah or Colorado or the East. It does
not take in that inherent variation or the significant
difference, the significant miles between markets. All of that.
The weight variation, the different environments, the
operating, all of that. So to say that we could make a size
threshold and again try to put that on industry will have the
same trickle-down effect of decreasing the actual price paid to
the rancher as you have mentioned earlier that is the person at
the bottom of the ladder and all the way up through the beef
chain. So, similar to the pork as far as the reporting. Size
threshold would have a similar impact of ratcheting down the
price paid.
Mr. Critz. I lack knowledge about your industries and I am
trying to learn this so we can work together to come up with a
stand when we are talking to USDA about what is the best way
forward.
Mr. Malenke, you made a comment about Wal-Mart being
successful. So you know where I stand, I do not buy into the
Wal-Mart model--and I am going to give you a very specific
example of why not. There have been several times when my wife
has gone to Wal-Mart, because I live in a rural part of
Pennsylvania and there are no other stores left. They have
driven pretty much everyone else out of business, so you go to
Wal-Mart. My wife goes to buy the thing that she wants and Wal-
Mart does not carry it anymore because they demanded a price
from the producer and the producer cannot meet that price, so
they drop them from their shelves. So I have just a little bit
of heartburn about how that operates; I think you are limiting
your choices.
The other hat I wear in this Congress is I am on the Armed
Services Committee, and we have seen a consolidation of
industry. Consolidation is not always good because if you have
a problem, and you only have one company, or two companies
which can handle it, you have got some issues. So you know
where I stand, many times people come into our Congressional
offices and say they have a problem; you need to fix it. So
then we push back, and that is what happened with this Farm
Bill and with GIPSA; people were coming in saying there is a
problem. So I am going to ask every one of you to answer this
question and we will go right--your left to right, my right to
left. What do you think drove this ruling, this revisiting of
the GIPSA rule; what do you think caused that? Is it just
bellyaching by some small farmers and that people are letting
off some steam? Is there a real issue out there? Is this
revision not the answer? Do you have any ideas? I am sure your
industries have sent comments. At 60,000 comments, obviously,
producers and the industries have commented; what do you think
the solution might be? Or do you think there really is not a
problem and that we should just leave it as is? That is my only
question, Mr. Chairman.
So Mrs. LeValley, if you would start and then we will just
work across.
Ms. LeValley. Thank you, Mr. Critz.
You bring up an interesting question, and it is a question
that we have thought about. You heard over and over the age on
this rule and that the industry has evolved. When you look at
the proposed regulation though and you look back at what you
put forward in the 2008 Farm Bill, this regulation has
overreach and it went beyond the 2008 Farm Bill. And so, again,
the unintended consequences, the not having the clear economic
analysis that has been fully vetted and looked at by USDA, and
I know that they said they are continuing to work on it----
Mr. Critz. I am going to interrupt you for one second. I do
not want to know what you think about what USDA is doing. What
I want to know is do you think there is an issue, and is there
something that USDA should be doing to address it?
Ms. LeValley. Again, as I was starting to say, when you
look at the unintended consequences of this proposed
regulation, this does not address--this does not put more
ranchers back in rural America. This does not put more sale
barns back in small towns. So, no, this regulation, this
proposed regulation does not take us where they want us to be.
And no, this regulation should be shelved. Go back to the 2008.
But this regulation should be shelved.
Mr. Malenke. No, I do not believe that--the issue comes
down to economics. You know, as I mentioned in my testimony, I
mean, I grew up on a small farm. I love the small farm
atmosphere, et cetera. But the forces of economics are simply
against smallness. You know, smallness, you literally have to
differentiate yourself in order to be competitive because, you
know, like I say, those economic forces are huge. Face it, that
is the way the world has become. You know, and I used Wal-Mart
as that example. You know, is there anything USDA can really do
about it? I do not know. I do not know what it would be. You
know, encouraging producers to differentiate themselves, get
into different markets or, you know, you have to, you know,
what is the old saying? If you cannot beat them you have got to
join them. Not great choices in some cases. I fully understand
and I sympathize for those that are faced with those decisions
but that is the world we are in.
Mr. Brandenberger. It is a very good question. And I would
say a couple of things. One, in any business relationship, you
know, it is not always going to be smooth sailing. You know, I
have got three people who work for me in here and they might
not always say the best things about me. You know, there are
concerns. There are grumbles that occur from time to time. But
in our industry it would be hard to see how the growers would
feel that they do not have an opportunity for empowerment. Four
of the last five new business entities to enter the processing
in the turkey industry have been grower-owned cooperatives.
They have been able to empower themselves. In fact, two of them
would tell you the biggest problem they had was the paperwork
at USDA to get a loan guarantee that they needed for their
financing.
Another situation in your home state, about five or six
years ago a group of growers were not happy with the deal they
had from the processor closest to them. They formed a
cooperative. They decided not to go into the processing end of
the business but with this cooperative they went to a processor
in another state which was still close enough for the
transportation to make sense and cut a better deal for
themselves. I think they felt very empowered by what they were
able to do for themselves as a group. So, you know, in terms of
what we would recommend about will the rule have reach, I think
if GIPSA started just by going back and adhering more closely
to what was in the last Farm Bill that would probably be, you
know, an important step forward.
Mr. Junk. Of course, you know, I support the proposed
rules. And I support moving forward into the process. We all
know that there have been over 60-some thousand comments being
made and we do not know what all those comments mean and how
USDA is going to respond to it. So right now we are to comment
on a proposed rule that is not a final rule and we believe that
in order to really see what USDA is really going to implement,
without going to the final rule part of that procedure, we do
not know.
When I say we, we are members of NSAC, have developed a
letter and sent it to each of the members and it is attached to
my testimony of an additional 143 other organizations from all
over the country supporting moving this into the next level.
Because we do not know what the actual outcome is going to be
here. Yeah, we had comments. We submitted comments also. So we
do not know what those comments--what comments are going to get
picked up, what is not going to be picked up.
Also, American Farm Bureau, National Farmers Union both
have submitted letters saying let us take it to the final
rulemaking. Let us see what, you know, just to throw the baby
out with the bathwater at this point in time, the Farm Bill
directed both the president, the Senate, and the House, all of
those chambers approved the Farm Bill. It is in the Farm Bill.
And this was approved under the Bush administration. So let us
finish it out. Let us get the final rule out and let us see
what actually is going to be the end result. A lot of these
comments, 60,000 comments are coming from producers. It is
coming from producer groups. It is coming from producer groups.
It is coming from co-ops. It is coming from general farm
organizations. It is coming from processors. So let us take it
to the next level. Let us continue to process and let us see
what the final rules are going to be like.
Mr. Critz. Thank you very much. I appreciate that this is
all about perspective, and I appreciate you offering that. And
with that I yield back.
Chairman Tipton. Thank you. I would now like to recognize
Mrs. Ellmers.
Ms. Ellmers. Thank you, Mr. Chairman. And thank our
panelists for being here today and discussing this very
important issue.
Mr. Malenke, I have a question for you in regard to the
USDA, the rule basically, and the approval of the contract
terms after a sale has actually been completed. And I am
wondering if you have concerns in relation to that. Obviously,
that puts a little more cost and difficulty to you because you
are having to deal with that upfront. Do you think that there
may be a chance that packers will withhold part of their
contract payment until they get the contract approved by USDA?
Is that a possibility? Or what are your thoughts on that?
Mr. Malenke. We are regulated under Packers and Stockyards
today to make payments within 24 hours or the next business
day. Okay? You know, how packers may look at those contracts in
the future, you know, it is a little hard to tell. Face it, I
can only assume that they are not going to want to take on
extra burden or feel as if, gee, you know, I had this potential
bull's-eye after me because I know I am in this contract. So
there may likely be incentive to do less contracting.
Ms. Ellmers. If some of the portion of the payment was
withheld, what would that do to your business and your cash
flow?
Mr. Malenke. Well, obviously, I do not own the livestock. I
am paying for the livestock. And, you know, face it. Paying for
it within 24 hours from the time of delivery or from the time
of processing, my money turns really fast. So----
Ms. Ellmers. It would just extend everything out?
Mr. Malenke. Well, basically, I would get to use someone
else's cash, which I do not think that is--I do not really
think that is the intent.
Ms. Ellmers. Okay. Well, thank you. And Mr. Junk, I have a
question for you, too. You state in your testimony that the
GIPSA proposed rule will also help hog producers. Can you
elaborate on that further? How do you feel in particular that
this will help our hog farmers?
Mr. Junk. Part of it is under the ranking. It will give
them also the opportunity to be able to get a base price off of
the--sorry, out of the contractor. The other issue, it would
also give them the opportunity to be able to, if they feel that
they have not been treated right within the contract, the
ability to go to litigation and be able to have an opportunity
to have a trial by jury hearing if so desired.
Ms. Ellmers. Do you feel that the hog producers will
benefit from every provision that is being put forward in the
proposed rule that has the effects on all of the swine
industry?
Mr. Junk. I do not think--across the board different
provisions will have different impacts in different livestock
segments. So all the provisions that are being proposed, will
they have an impact in hog production or hog producer? No. But
will there be some benefits? Yes.
Ms. Ellmers. What would you say in your assessment would be
some of the negative effects that might occur?
Mr. Junk. Negative? I could not honestly tell you at this
point in time.
Ms. Ellmers. Thank you, Mr. Chairman. I yield back the rest
of my time.
Chairman Tipton. Thank you, Congresswoman Ellmers. And I
would like to thank all of you for taking the time to be able
to participate today.
As this Subcommittee continues to focus on burdensome
regulations that affect small businesses, I would like to once
again encourage the USDA to take into consideration all of the
testimony and questions that we have heard here today as they
work through their economic analysis. I would also like to
encourage the USDA to revise their analysis on small businesses
as part of the more detailed economic analysis currently
underway. After that, the USDA should publish the new
regulatory flexibility analysis for comment to ensure small
businesses that they can have input and can inform the agency
on its effects on their businesses.
Again, thanks to all of our witnesses for being here today,
and I ask unanimous consent that members have five legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered. This hearing is now
adjourned.
[Whereupon, at 12:09 p.m., the Subcommittee hearing was
adjourned.]
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