[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                  STATE OF THE BEEF SUPPLY CHAIN: SHOCKS, 
                          RECOVERY, AND REBUILDING

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

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON LIVESTOCK AND FOREIGN 
                               AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 28, 2021

                               __________

                           Serial No. 117-14
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           


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

                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
47-124 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   

                        COMMITTEE ON AGRICULTURE

                     DAVID SCOTT, Georgia, Chairman

JIM COSTA, California                GLENN THOMPSON, Pennsylvania, 
JAMES P. McGOVERN, Massachusetts     Ranking Minority Member
FILEMON VELA, Texas                  AUSTIN SCOTT, Georgia
ALMA S. ADAMS, North Carolina, Vice  ERIC A. ``RICK'' CRAWFORD, 
Chair                                Arkansas
ABIGAIL DAVIS SPANBERGER, Virginia   SCOTT DesJARLAIS, Tennessee
JAHANA HAYES, Connecticut            VICKY HARTZLER, Missouri
ANTONIO DELGADO, New York            DOUG LaMALFA, California
BOBBY L. RUSH, Illinois              RODNEY DAVIS, Illinois
CHELLIE PINGREE, Maine               RICK W. ALLEN, Georgia
GREGORIO KILILI CAMACHO SABLAN,      DAVID ROUZER, North Carolina
Northern Mariana Islands             TRENT KELLY, Mississippi
ANN M. KUSTER, New Hampshire         DON BACON, Nebraska
CHERI BUSTOS, Illinois               DUSTY JOHNSON, South Dakota
SEAN PATRICK MALONEY, New York       JAMES R. BAIRD, Indiana
STACEY E. PLASKETT, Virgin Islands   JIM HAGEDORN, Minnesota
TOM O'HALLERAN, Arizona              CHRIS JACOBS, New York
SALUD O. CARBAJAL, California        TROY BALDERSON, Ohio
RO KHANNA, California                MICHAEL CLOUD, Texas
AL LAWSON, Jr., Florida              TRACEY MANN, Kansas
J. LUIS CORREA, California           RANDY FEENSTRA, Iowa
ANGIE CRAIG, Minnesota               MARY E. MILLER, Illinois
JOSH HARDER, California              BARRY MOORE, Alabama
CYNTHIA AXNE, Iowa                   KAT CAMMACK, Florida
KIM SCHRIER, Washington              MICHELLE FISCHBACH, Minnesota
JIMMY PANETTA, California            JULIA LETLOW, Louisiana
ANN KIRKPATRICK, Arizona
SANFORD D. BISHOP, Jr., Georgia

                                 ______

                      Anne Simmons, Staff Director

                 Parish Braden, Minority Staff Director

                                 ______

           Subcommittee on Livestock and Foreign Agriculture

                    JIM COSTA, California, Chairman

ABIGAIL DAVIS SPANBERGER, Virginia   DUSTY JOHNSON, South Dakota, 
JAHANA HAYES, Connecticut            Ranking Minority Member
J. LUIS CORREA, California           SCOTT DesJARLAIS, Tennessee
JOSH HARDER, California              VICKY HARTZLER, Missouri
RO KHANNA, California                DAVID ROUZER, North Carolina
CYNTHIA AXNE, Iowa                   TRENT KELLY, Mississippi
BOBBY L. RUSH, Illinois              DON BACON, Nebraska
STACEY E. PLASKETT, Virgin Islands   JAMES R. BAIRD, Indiana
ANGIE CRAIG, Minnesota               JIM HAGEDORN, Minnesota
SANFORD D. BISHOP, Jr., Georgia      TRACEY MANN, Kansas
------                               RANDY FEENSTRA, Iowa
                                     BARRY MOORE, Alabama

             Lesly Weber McNitt, Senior Professional Staff

                                  (ii)
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Bacon, Hon. Don, a Representative in Congress from Nebraska; 
  submitted letter on behalf of William H. Rhea III, President, 
  Nebraska Cattlemen.............................................    93
Costa, Hon. Jim, a Representative in Congress from California, 
  opening statement..............................................     1
    Prepared statement...........................................     4
    Submitted letter.............................................    61
    Submitted letter on behalf of Bill Bullard, Chief Executive 
      Officer, Ranchers Cattlemen Action Legal Fund United 
      Stockgrowers of America (R-CALF USA).......................    62
    Submitted statements on behalf of:
        Potts, Julie Anna, President and Chief Executive Officer, 
          North American Meat Institute..........................    65
        National Cattlemen's Beef Association....................    76
Johnson, Hon. Dusty, a Representative in Congress from South 
  Dakota, opening statement......................................     5
Mann, Hon. Tracey, a Representative in Congress from Kansas, 
  prepared statement.............................................     6

                               Witnesses

Lusk, Ph.D., Jayson L., Distinguished Professor and Head, 
  Department of Agricultural Economics, Purdue University, West 
  Lafayette, IN..................................................     8
    Prepared statement...........................................     9
van de Ligt, Ph.D., Jennifer, Associate Professor Veterinary 
  Population Medicine, College of Veterinary Medicine; Director, 
  Integrated Food Systems Leadership Program; Director, Graduate 
  Studies Applied Sciences Leadership; Director, Food Protection 
  and Defense Institute, University of Minnesota, St. Paul, MN...    12
    Prepared statement...........................................    14
    Submitted question...........................................    95
Jacobs, Ph.D., Keri L., Associate Professor of Ag and Applied 
  Economics; MFA Chair in Agribusiness; Distinguished Fellow, 
  Division of Applied Social Sciences, College of Agriculture, 
  Food and Natural Resources, University of Missouri, Columbia, 
  MO.............................................................    18
    Prepared statement...........................................    19
Aherin, Ph.D., Dustin, Vice President, RaboResearch Animal 
  Protein Analyst, Rabo AgriFinance, Chesterfield, MO............    23
    Prepared statement...........................................    25

 
    STATE OF THE BEEF SUPPLY CHAIN: SHOCKS, RECOVERY, AND REBUILDING

                              ----------                              


                        WEDNESDAY, JULY 28, 2021

                  House of Representatives,
         Subcommittee on Livestock and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:01 a.m., in 
Room 1300, Longworth House Office Building, Hon. Jim Costa 
[Chairman of the Subcommittee] presiding.
    Members present: Representatives Costa, Spanberger, Hayes, 
Harder, Khanna, Axne, Rush, Craig, Johnson, DesJarlais, 
Hartzler, Rouzer, Kelly, Bacon, Baird, Hagedorn, Mann, 
Feenstra, Moore, and LaMalfa.
    Staff present: Prescott Martin III, Lesly Weber McNitt, 
Caleb Crosswhite, Patricia Straughn, Erin Wilson, and Dana 
Sandman.

   OPENING STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN 
                    CONGRESS FROM CALIFORNIA

    The Chairman. Good morning, everybody. The Subcommittee on 
Livestock and Foreign Agriculture will now come to order. The 
hearing this morning of the Subcommittee is on the State of 
Beef Supply Chain: Shocks, Recovery, and Rebuilding. We have 
four very good witnesses that will shed some light on the 
challenges we are facing across the country as a result of a 
multitude of factors.
    First, let me commend Members of the Subcommittee here 
today and give you a shout-out for those who are here in person 
and those who are not, to deal with the safety issue and set 
good examples by wearing our masks. It is something that none 
of us really care to do; but, because of good public health 
safety, it is something that we should do. And for the safety 
of our staff and fellow Members, I want to thank those of you. 
It is required in this hearing room per the guidance of the 
attending physician that was issued yesterday, and it is just a 
frustrating thing for all of us that this new variant has 
raised a new level of outbreak among those primarily who are 
unvaccinated. And so, it is a hope and a prayer that I urge all 
of our American citizens to please, please get vaccinated. It 
is the right thing to do for yourselves and for your family, 
and for our nation. It is just, as kids we get vaccinated 
because we want to, that is not the subject of this hearing, 
but I remind people in my district all the time, and it is a 
good thing to remind all of us.
    So, this is a hybrid hearing. Proceedings allow, obviously, 
for folks to participate as they are from their offices, and 
thank you all for being engaged this morning.
    For Members of the Committee, as you probably heard, we are 
going to have votes at 11 o'clock, so Dusty and I, the Ranking 
Member, we are going to try to figure out how to finesse it 
when the votes are called. I am told there are three votes, so 
that is about an hour. So, I want to still try to get our work 
done. But I would like to make sure, at least, we have our 
witnesses all give their testimony before the votes are called, 
and then we will figure out what works best. Whether we try to 
keep the hearing going and people alternate going to vote and 
then come back, or whether we just adjourn. But I want to get 
through this so that--everybody has busy schedules. Some of us 
have multiple hearings that are going on right now. I have a 
Foreign Relations Committee markup at 10 o'clock that I am 
going to try to vote on.
    And so, we are all busy and I am very sensitive to your 
efforts to try to meet all your demands today, as I am trying 
to meet mine.
    With that housekeeping effort done, let me begin the 
hearing in earnest. Obviously, as a result of the last 15, 16 
months, we have learned--I hope we have learned some lessons. 
One of them that I think I share with all the Members of this 
Subcommittee is that because of the pandemic, as a result of 
closing schools and closing restaurants, we last spring learned 
that this complex, complicated food supply chain that we have 
in our country was virtually turned upside down, and 
bottlenecks ended up taking place in ways that we could never 
have imagined. Therefore, it is incumbent upon us in the 
Subcommittee to really examine what took place in this last 
year, because I think we all believe that food is a national 
security issue. We don't tend to look at it that way, but I try 
to remind folks that less than five percent of America's 
population every day works so hard at all the levels of food 
production to put food on America's dinner table. And we do it 
so well, in some ways that people take it for granted. A lot of 
people think their food comes from the grocery store or their 
favorite restaurant. And we know, of course--I mean, they may 
get it at--well, most of them get it at the grocery store or 
their favorite restaurant, but it doesn't come from there. And 
so, therefore, I think we have learned that we are vulnerable. 
We are vulnerable in a number of different ways, and the 
purpose of today's hearing is really to look at that, to look 
at the impacts.
    Let me give you, as we like to say, all politics are local. 
But my own situation in California, in 2019 the cattle and 
calves industry in my state were valued at over $3 billion, 
placing them in the top four valued commodities in California. 
So, obviously like all of you, I have an interest in making 
sure that our ranchers, producers, our cattlemen and -women 
have resiliency as it relates to the ability to deal with 
supply chains, fair markets in which they are able to put that 
food on America's dinner table.
    Over the past several years, the livestock industry has 
been subject to three notable shocks, each which has 
illuminated various vulnerabilities in the supply chain, and 
has created instability in the marketplace. And that is really 
going to be our discussion today.
    The fire at one of the country's largest beef processing 
plants in Holcomb, Kansas, in 2019 was the first event. That 4 
month closure of this large plant created significant reduction 
in processing capacity, which led to a drop off in fed cattle 
prices. The market has just been very volatile in the last 
couple years.
    The next event, I mentioned already, was the COVID-19 
pandemic. As we are all aware, the pandemic had an enormous 
impact in every segment of America's economy and the beef 
supply chain was not spared. Anyone who tried to buy ground 
beef or a steak at the grocery store during the first few 
months of the pandemic experienced the bottleneck in the supply 
chain firsthand. At the farmgate, producers were dealing with 
oversupply and, as I noted a moment ago, incredible volatility 
in prices. That is not good.
    President Biden and his Administration, I just think, 
deserve great credit for their hard work over the last 6 months 
to help Americans get back on their feet. I also want to give 
credit to all of the Members here last year who helped us pass 
multiple COVID relief packages. The most recent one, of course, 
is the American Rescue Plan (Pub. L. 117-2), which has provided 
relief to our farmers and ranchers as they continue to rebuild, 
and Secretary Vilsack and his team are, I know, working 
overtime to implement this relief.
    The third shock that I think we have to look in depth--and 
we are not going to solve that problem this morning, but we 
have some witnesses who can certainly add some value as to what 
we might think about doing--is cyberattack, cyberattack on JBS 
over Memorial Day weekend. Cyberattacks like this will only 
increase. Their potential effect on our food and agriculture 
system cannot be ignored, just as they cannot be ignored as 
their potential impacts on our electrical grid, on our 
financial systems, and every other aspect of American life, 
because in the 21st century, we are all connected. And that 
provides a lot of benefits and efficiencies, but it provides a 
lot of vulnerabilities, and our food supply chain, we have 
learned the hard way about potential vulnerability to 
cyberattacks. So, we cannot allow food security, which is 
national security, and the protecting our food system from 
foreign interferences to be disrupted, and it something that I 
want to work with all of you in terms of thoughts on how we 
protect our vulnerabilities from cyberattacks.
    So, it is our job on the Subcommittee to get to the bottom 
of many of the complex challenges confronting agriculture and 
help our farmers, ranchers, dairymen and -women overcome these 
challenges. Today we will hear from four very good witnesses--I 
hope you have had a chance to read their testimony--who will 
tell us where they think the vulnerabilities in our food supply 
chain lie and their innovative ideas for helping the beef 
supply chain adapt, adapt, and to become more resilient, so 
that we can use what we have learned over these three factors 
that have impacted us over the last 2 years, and create some 
positive change.
    Now, my Subcommittee staff, who makes me look good in spite 
of myself, will probably be upset that I didn't fail to read 
the earlier part of the briefing, but I will read it now.
    Obviously, after brief opening remarks, Members will 
receive testimony from out witnesses, and then we will follow 
the normal process where the Ranking Member will make his 
thoughts heard, and then Members will be recognized in the 
order of seniority, alternating between Majority and Minority, 
and when you are recognized, you all know the rules. You have 5 
minutes and we try to be sensitive to everybody's time. If you 
are in the middle of a question being responded to, I will not 
interrupt the response to the answer to your question. But 
also, I am not a wild fan of people spending 4\1/2\ minutes 
making a statement and then asking the question. I have been 
chairing hearings for a long time, so just a little thing I 
have.
    Anyway, if you are not speaking, remain muted because we 
have this virtual hearing that we are dealing with, and it is 
difficult. It is challenging, and for those Members who are--
because of other conflicting obligations--working out of your 
office, may I remind you what I try to remind myself--my staff 
reminds me, and that is when you are not speaking, please press 
the mute button. I know sometimes you are multitasking, but I 
don't think the rest of us need to hear some of the other 
efforts that you are multitasking on. So, please mute your 
microphone if you are not dealing with your 5 minutes.
    Anyway, the timer, I am told, because of our good, good 
staff will remain visible, right? Okay. So, in consultation 
with the Ranking Member, pursuant to Rule XI(e), I want to make 
Members of the Committee aware that Members of the full 
Committee may join us today. Those are the magic words. She was 
wondering whether I was going to say them or not. I have said 
that.
    [The prepared statement of Mr. Costa follows:]

Prepared Statement of Hon. Jim Costa, a Representative in Congress from 
                               California
    Good morning. To start, I'd like to thank our witnesses, my Ranking 
Member Mr. Johnson, and the other Members of the Subcommittee for 
participating in today's hearing to discuss a topic that continues to 
garner a great degree of attention, and rightfully so. The shocks that 
our cattle industry have undergone in the last 2 years have impacted 
millions of people along the entire supply chain--from the cattle 
producer to the feeders, processors, retailers, and consumers.
    Livestock are a critical part of our food system and a crucial 
component of the economy in my home State of California. In 2019 cattle 
and calves in my state were valued at over $3 billion, placing them in 
the top four valued commodities in the state. So, I have a substantial 
interest in making sure that our producers have resilient supply chains 
and fair markets in which to trade. Over the past several years the 
livestock industry has been subject to three notable shocks, each of 
which has illuminated various vulnerabilities in the supply chain and 
created instability in the marketplace.
    The fire at one of the country's largest beef processing plant in 
Holcomb, Kansas in 2019 was the first event. The 4 month closure of a 
large plant created a significant reduction in processing capacity, 
which led to a drop off in fed cattle prices.
    The next event was the COVID-19 pandemic. As we are all aware, the 
pandemic had an enormous impact on the entire economy and the beef 
supply chain was not spared. Anyone who tried to buy ground beef or a 
steak at the grocery store during the first few months of the pandemic 
experienced the bottleneck in the supply chain firsthand. At the 
farmgate, producers were dealing with oversupply and incredible 
volatility in their prices.
    President Biden and his Administration deserve great credit for 
their hard work over the past 6 months to help Americans get back on 
their feet. I'd also like to give credit to my colleagues in Congress 
who helped pass multiple COVID relief packages, most recently the 
American Rescue Plan, which has provided relief to our farmers and 
ranchers as they continue to rebuild. Secretary Vilsack and his team 
are working overtime to implement this relief.
    The third shock is the cyberattack on JBS over Memorial Day 
weekend. Cyberattacks like this will only increase, and their potential 
effect on our food and agriculture system cannot be ignored. I think 
everyone on this Committee understands that food security is national 
security and protecting our food system from foreign interference and 
disruption is something that must be taken seriously.
    It is our job on this Subcommittee to get to the bottom of the most 
complex challenges confronting agriculture and to help our farmers and 
ranchers overcome these challenges. Today we will hear from four expert 
witnesses, who will tell us where the vulnerabilities in our supply 
chain lie and share their innovative ideas for helping the beef supply 
chain adapt to become more resilient, so that we can use what we learn 
today to create positive change. Before the introduction of our 
witnesses, I'd like to recognize the Ranking Member, Mr. Johnson of 
South Dakota, for any remarks he'd like to make.

    The Chairman. I think we are all there, and I will defer to 
my friend, the Ranking Member, for his opening statement, 
because I do not see the chair or the Ranking Member of the 
full Committee here. So, we are going to go on. Dusty?

 OPENING STATEMENT OF HON. DUSTY JOHNSON, A REPRESENTATIVE IN 
                   CONGRESS FROM SOUTH DAKOTA

    Mr. Johnson. Thank you very much, Mr. Chairman, and I will 
start with two notes of gratitude. The first is to you. When 
Congress focuses in a bipartisan way on issues, good things 
happen and these witnesses, this is going to be a good thing. 
Thank you.
    And I also just want to note my gratitude to other Members 
of this Subcommittee. I mean, when I think about the number of 
conversations, earnest conversations, honest conversations I 
have had on these topics with Jim Costa or Randy Feenstra or 
Tracey Mann or Jim Baird or Don Bacon or Vicky Hartzler or 
anybody who is on Zoom, it is amazing. I mean, I think the 
American people should feel good that their Members of Congress 
really do care about these issues in an emotional way, but also 
in a data-driven way. Because for those of us who represent 
ranchers or backgrounders or stockers or feeders, we know how 
emotional and how unpredictable the last couple of years have 
been. And Mr. Chairman, you noted it right. Black swan event 
after black swan event, and it has made it really hard for the 
people who try to feed America. And I think even the urban 
folks have seen how critically important, but also how fragile 
these supply chains are.
    You are right, Mr. Chairman. Food is a national security 
issue, and it is something that all Americans probably should 
pay more attention to than they do.
    I thought in the wake of COVID or during the middle of 
COVID we did some really good bipartisan work. One hundred 
forty Members of Congress stepped up in a bipartisan way to 
work with the Administration to make sure that CFAP was rolled 
out to the people in the cattle industry who absolutely needed 
that assistance. And I think as we move past, hopefully, COVID, 
we will understand that that was extremely important relief, 
but it was temporary relief for an extraordinary time. And the 
market deficiencies that were laid bare during that time aren't 
just going away, so we need to focus on moving from triage to 
long-term recovery. The cattle markets and processing are 
incredibly complex industries, and they are all trying to 
respond to market signals. Some of our presenters today will 
talk about how they are always seeking but never finding 
equilibrium, that balance to make sure that the number of head 
of cattle match the processing capacity, match consumer demand, 
and vice versa. Every step along that way is fraught with 
complexity, and I think one thing that we are all are going to 
hear loud and clear in the testimony today is that we don't 
have enough processing capacity. And that is a market failure 
that has negative impacts both on consumers who want to eat the 
beef, as well as producers who are trying to raise it. And we 
need to figure out how to increase that capacity. The lack of 
capacity has hindered the American ranchers' ability to reap 
some of the benefits of an increasing demand, an increasing 
appetite for beef across the world.
    As I move toward my close, though, I don't want to be so 
negative because I think we understand that with challenging 
times come opportunities. And since the pandemic, we have seen 
a tremendous amount of action to increase and to diversify our 
processing capacity. I am glad to see that the bill that I had 
with Congresswoman Angie Craig that leveled the playing field 
for small processors when they run overtime and need Federal 
inspectors, I was glad to see that that passed and I am glad to 
see that that is being rolled out. I am also pleased with the 
announcements that $500 million is going to be available to 
increase resiliency in the processing sector. My goodness, how 
much we need that resiliency. My hope and that of a number of 
people on this Subcommittee is that we can allocate those funds 
in a way that promotes producer and cooperative ownership that 
leverages funding to focus on enhancing processing capacity, 
and on lowering cost to entry for that diversified processing 
ownership.
    I also want to call out the role of private-sector, because 
obviously, that is the biggest piece of this puzzle, and we 
have a number of new, independent processors that have 
announced plans to build facilities. And to the extent that 
this Committee can remain focused on reducing those barriers to 
entry, so many regulatory hurdles, so many capital hurdles, so 
many workforce hurdles, to the extent that we can stay focused 
on reducing those barriers to entry, we are going to have a 
healthier marketplace.
    I will close, Mr. Chairman, by noting what we all know, 
that American ranchers have worked for generations to improve 
quality and efficiency so they can feed their fellow Americans 
and people all across this globe, and if we do it right, we are 
going to be in a position to help them continue that glorious 
and that sacred mission for generations more to come. And if 
that isn't work worth doing, I don't know what is.
    And with that, I would yield back.
    The Chairman. I thank the gentleman for his comments, and 
as I have indicated, any Members who wish to have a statement, 
we can submit that for the record.
    [The prepared statement of Mr. Mann follows:]

 Prepared Statement of Hon. Tracey Mann, a Representative in Congress 
                              from Kansas
    On behalf of the farmers and ranchers in the 1st District of 
Kansas, I am glad to participate in today's Subcommittee hearing to 
address the beef supply chain. This issue is especially near and dear 
to me, since both sides of my family have farmed and fed cattle in 
western Kansas for more than 120 years.
    The Big First ranks number one among Congressional Districts for 
the value of sales of cattle and calves, at more than $9 billion 
annually in the latest Census of Agriculture. There are more than 4.4 
million cattle and calves raised in my district and significant packing 
capacity with more than 20 percent of the nation's beef slaughter 
capacity.
    We see the entire beef supply chain in the Big First, from cow-calf 
producers to cattle feeders to the packers. More broadly, the beef 
sector supports the grain producers, equipment manufacturers, 
veterinarians, livestock markets, and many other businesses that 
populate rural towns across Kansas.
    In a competitive cattle market, it is vital for producers to be 
able to differentiate their product to eventually suit the tastes of 
consumers. As seen by the growing demand for beef, selective breeding 
and nutrition that have increased quality bring opportunities for 
producers to negotiate a premium price for their cattle. These 
contracts allow feeders to benefit from making a value-added investment 
and provide some certainty in a volatile market.
    As we have seen over the last several years, market disrupting 
events can have lasting impacts on the beef supply chain. While the 
Tyson plant in Holcomb was back up and running more quickly that we 
expected, COVID-19 followed soon after and made price recovery more 
difficult. We are still seeing a large supply of slaughter-ready cattle 
in the supply chain. Combined with labor shortages, this backup keeps 
cattle prices down, even when there is strong demand from consumers 
domestically and abroad.
    There have been questions regarding packer behavior in the 
marketplace, and I have asked USDA and DOJ to provide details on any 
findings of misconduct. This uncertainty has also led to several 
legislative proposals and government solutions for a market that has 
historically seen high and low prices in both the beef and cattle 
sectors. Before we consider more government involvement, I would 
encourage my colleagues to consider the possibility that this could 
limit producers' ability to choose how to market their own cattle.
    We need to reduce the oversupply of cattle by ensuring our packing 
plants are back to full operating capacity. The additional unemployment 
benefits are hurting the labor shortage, and I have encouraged our 
Governor to put an end to the supplemental unemployment payments. We 
should also work to increase shackle space, and also increase price 
discovery.
    As they have for decades, I am confident that our farmers and 
ranchers will rise to the challenge and continue to provide a safe and 
affordable food supply. I look forward to hearing from each of the 
witnesses today and working with my colleagues on these vital issues.
    Thank you.

    The Chairman. Let's get on to our witnesses here so we can 
begin their testimony. It is a busy day today and tomorrow, and 
so we have a lot of things going on.
    But I am please to welcome a very distinguished panel that 
our staff were able to put together here for this important 
hearing. They have a wide, wide range of experience and 
expertise.
    So, our first witness today--and I don't know what box they 
are in, in this virtual here--is Dr. Jayson Lusk. I think we 
all lament. Hopefully we can knock down this pandemic, but I 
like to have the witnesses here. I like to talk to them before 
the hearing starts and get a chance to interact. But Dr. Lusk 
is a Distinguished Professor and Head of the Agricultural 
Economics Department of Purdue University. Lusk is a food and 
agriculture economist who studies what we eat and why we eat 
it. That is really a subject of a much longer conversation, I 
think. He has a bachelor's of science and food technology from 
Texas Tech, a Ph.D. in agriculture economics from Kansas State 
University. My gosh. Purdue, Texas Tech, Kansas State, and has 
appointments to Mississippi State and Oklahoma State 
Universities. Obviously, he made it a point of visiting many of 
the wonderful universities in this country. So, let us begin 
with Dr. Lusk.
    Dr. Lusk, are you there?
    Dr. Lusk. Yes, I am here.
    The Chairman. Can you hear us?
    Dr. Lusk. I can.
    The Chairman. Okay, please begin.

       STATEMENT OF JAYSON L. LUSK, Ph.D., DISTINGUISHED 
   PROFESSOR AND HEAD, DEPARTMENT OF AGRICULTURAL ECONOMICS, 
             PURDUE UNIVERSITY, WEST LAFAYETTE, IN

    Dr. Lusk. Chairman Costa, Ranking Member Johnson, and 
Members of the Subcommittee, thank you for inviting me here 
today. As indicated, my name is Jayson Lusk. I currently serve 
as a Distinguished Professor and Head of the Agricultural 
Economics Department at Purdue University.
    Beef and cattle markets have been extraordinarily volatile 
over the past couple years, and when you are trying to 
understand the current challenges, I think some historical 
perspective is warranted.
    Over the past decade, cattle inventories have followed a V-
shaped pattern. From 2010 to 2015, cattle slaughter fell by 
more than 16 percent as producers cut inventory in response to 
high feed prices and drought. The change in cattle numbers 
affected the packing sector. There was, at that time, too much 
packing capacity relative to the number of cattle and some 
packers exited because it was no longer profitable. Following a 
common cyclical pattern, producers retained heifers and 
expanded their herds to capture the benefits of the higher 
prices that were experienced in 2014 and 2015, but by 2019, 
total cattle slaughter had increased almost 17 percent relative 
to the 2015 low. The packing sector, having adjusted to a 
smaller herd size, now found itself in the opposite position. 
There was a high number of cattle relative to capacity, which 
put downward pressure on cattle prices. And it was against this 
backdrop that we experienced the unexpected fire, pandemic, and 
cyberattacks.
    There is a key lesson to take from this recent historical 
episode. There are long lags and ripple effects in cattle 
markets. My recommendation to you is don't overly focus on what 
is happening today, but make policies for the future.
    With that background, I am going to briefly touch on three 
issues facing the industry. The first is capacity. As noted, 
processing capacity in 2020, even if the pandemic hadn't 
occurred, was likely going to be tight. But today, we appear to 
be in a different phase of the cattle cycle. Cattle inventory 
is falling, feed prices have been rising, there is a drought in 
the West. These factors will likely bring cattle numbers closer 
in line with current capacity. Moreover, there are number of 
private initiatives to increase automation and add more 
capacity. More capacity, fewer cattle will help support future 
cattle prices. Making additional government investments in 
capacity for the purpose, at least, of improving cattle prices 
may be fixing yesterday's problem.
    Support for small and local processors may benefit local 
economic ecosystems and may increase custom harvest operation 
for producers, but these operations, because they lack 
economies-of-scale, must focus on quality or service to be 
competitive.
    The costs of adding packing capacity are not limited to 
concrete and iron. I encourage you to consider other barriers 
that limit new entrants. These factors include labor 
availability and costs of complying with regulations related to 
labor, food safety, zoning, transportation, and more.
    The second issue relates to proposals to require a share of 
cattle to be sold on a negotiated or cash basis, as opposed to 
a formula or grid, in an effort to improve price transparency. 
An important distinction needs to be made between price levels 
and price volatility. And even if all cattle were traded on a 
negotiated basis, the price level would not necessarily 
improve.
    Are there less costly ways to improve price discovery than 
a mandate? Livestock Mandatory Reporting, LMR, is one tool that 
has improved price transparency. Continued research into this 
legislation might further benefit the industry. Market maker 
programs that incentivize voluntary participation and cash 
markets is another tool. Even if a mandate were pursued, it 
might be made more efficient if coupled with a cap-and-trade 
system where obligations to secure cattle in a cash market 
might be bought and sold in a secondary offset market similar 
to what currently exists for fuel manufacturers mandated to 
blend biofuels. Including negotiated grids in a mandate would 
also lessen the cost of such a policy.
    Finally, I encourage you to focus on policies that improve 
the health of the entire industry. Discussions of cattle prices 
and packing capacity can give the incorrect impression that 
beef and cattle markets are a zero-sum game. But consider 
policies that increase the size of the pie for all players. 
Examples include improving trade relations that allow products 
to flow to consumers who value them most, and investments in 
research and innovation that improve demand or improve 
productivity.
    In conclusion, my view is that the beef cattle system 
responded remarkably well to a series of large and unexpected 
disruptions. Cattle prices have been on the rise. Consumer 
demand is strong, and these core facts should remain front of 
mind when considering policy changes because the cattle 
industry is constantly evolving, and there is a need to remain 
competitive with other plant- and animal-based proteins that 
have a place on the consumer's dinner plates.
    [The prepared statement of Dr. Lusk follows:]

 Prepared Statement of Jayson L. Lusk, Ph.D., Distinguished Professor 
and Head, Department of Agricultural Economics, Purdue University, West 
                             Lafayette, IN

    Chairman Costa, Ranking Member Johnson, and Members of the 
Subcommittee, thank you for inviting me here today. I am a food and 
agricultural economist and I serve as Distinguished Professor and Head 
of the Agricultural Economics Department at Purdue University.
    I will begin by providing some background on some of the economic 
factors that have contributed to the volatility in cattle and beef 
markets in recent years. Then, I will shift my focus to three economic 
issues currently facing the beef cattle industry: packing capacity and 
resiliency, price discovery, and the importance of trade and 
innovation.
    For the past couple years, beef and cattle markets have been 
extraordinarily turbulent and volatile. Major events include the loss 
of a major packing plant to fire in 2019, demand-induced disruptions 
from COVID-19 resulting from the decline in restaurant spending and the 
spike in grocery spending, supply-induced disruption from COVID-19 
resulting from the worker illnesses in packing plants, increasing feed 
prices, drought in the West, and recently, increased Chinese imports 
and cyber-attacks. Only one other year in the past 30 has witnessed 
more volatility in live fed cattle prices than 2020.\1\ Consumers 
likewise experienced significant price shocks. Retail beef prices 
increased 25% year-over-year price in June 2020 before falling 3% year-
over-year in May 2021.\2\
---------------------------------------------------------------------------
    \1\ Volatility, in this instance, is defined as the annual average 
of the week-to-week absolute value of the percent change in 5-market 
weighted average live steer price as reported by the USDA Agricultural 
Marketing Service. There was similar but slightly higher volatility in 
2016 compared to 2020.
    \2\ Figures are my calculations based on data from the Bureau of 
Labor Statistics.
---------------------------------------------------------------------------
    When trying to understand the current challenges, some historical 
perspective is warranted. Over the past decade, cattle inventories have 
followed a V-shaped pattern. Corresponding cattle prices have followed 
an inverse V-shaped pattern. From 2010 to 2015, total number of 
commercial cattle slaughtered fell by more than 16%.\3\ The decline 
resulted from producers cutting inventory as a result of a dramatic 
increase in feed prices and a drought in some parts of the Midwest. The 
change in cattle numbers affected the packing sector. There was, at the 
time, too much packing capacity relative to the number of cattle, and 
returns to cattle processing took a hit. Some small and medium packers 
exited because it was no longer profitable, and some large packers 
shuddered plants in an attempt to align capacity with inventory.
---------------------------------------------------------------------------
    \3\ Figures are my calculations based on data from USDA, National 
Agricultural Statistics Service.
---------------------------------------------------------------------------
    The high levels of capacity relative to cattle numbers, coupled 
with strong demand, led to a rise in cattle prices. Following a common 
cyclical pattern (the ``cattle cycle''), producers retained heifers and 
expanded their herds to capture the benefits of higher prices that were 
experienced in 2014 and 2015. By 2019, total commercial cattle 
slaughter had increased 16.7% relative to the 2015 low. The packing 
sector, having adjusted to a smaller herd size, now found itself in the 
opposite position: there was a high number of cattle relative to 
processing capacity, which put downward pressure on cattle prices. It 
was against this backdrop that we experienced the unexpected fire, 
pandemic, and cyber-attack that further exacerbated the effects of 
limited capacity. If these unexpected events had occurred in 2014 or 
2015, the impacts on producers would have been much different.
    There is a key lesson to take from this recent historical episode. 
There are long lags and ripple effects in cattle and beef markets. A 
producer makes a decision today to breed a cow, and it will be roughly 
3 years till the resulting offspring is ready for market. Likewise, 
investors today decide to build a new packing plant. It will be years 
before construction is finished and the capacity is brought online. 
Everyone is betting on the future with information that ultimately be 2 
to 3 years old by the time outcomes are realized. Cattle inventories 
have already started to fall, and cattle prices have risen since last 
summer. My recommendation to you, as policy makers, is the following: 
do not overly focus on what is happening today. Consider what will be 
needed 3 to 5 years from now. Market participants adapt to changing 
circumstances, although sometimes more slowly than we'd like because of 
biological and construction lags, but policy ideally should focus on 
longer-run forces that improve the well-being of producers and 
consumers in an industry.
    With that backdrop, I will move on to the first of three current 
issues facing the industry. There are a number of state and Federal 
initiatives to increase processing capacity. As previously, noted, 
processing capacity in 2020, even if the pandemic hadn't occurred, was 
likely to be ``tight,'' which contributed to downward pressure on 
cattle prices. We appear, however, to be in a different phase of the 
cattle cycle. Cattle inventory is falling. Feed prices are rising. 
There is a drought in West. These factors will, over time, likely bring 
cattle numbers closer in line with current capacity. Moreover, even 
absent Federal investments, there are a number of private initiatives 
to increase automation and add more packing capacity. More capacity, 
and fewer cattle, will help support future cattle prices. But, as the 
experience of the past decade has revealed, that will not be the end of 
the story. Whether we are setting ourselves up, in 5 years' time, for 
another situation in the packing sector like the one experienced in 
2014 and 2015 remains to be seen. Additional government investments in 
capacity, for the purpose of improving cattle prices, may be fixing 
yesterday's problem.
    There is another argument being made for adding capacity: improving 
resiliency to the sector. Extra capacity could be seen as a form of 
insurance against unexpected capacity reductions from events like fire, 
pandemic, or cyber-attack. COVID-19 infections led to and dramatic 
reduction the nation's beef slaughter capacity. There was little excess 
capacity in the system and nowhere for market-ready cattle to go.\4\ My 
research with Purdue colleague Meilin Ma indicates that even if we 
would have had a more distributed packing sector consisting of more 
small and medium sized plants instead of a small number of large 
plants, the price spread dynamics and beef supply disruptions would not 
have likely have been appreciably different than what we witnessed.\5\ 
The problem at the time was not the size or localness of the plants but 
total industry capacity.
---------------------------------------------------------------------------
    \4\ There is some short-term ability to bring extra capacity online 
by packers running additional shifts on weekends or moving steer and 
heifer slaughter to cow-kill plants.
    \5\ Ma, M. and J.L. Lusk. ``Concentration and Resilience in the 
U.S. Meat Supply Chains.'' Paper presented at National Bureau of 
Economic Research (NBER) conference on Risks in Agricultural Supply 
Chains, May 21, 2021.
---------------------------------------------------------------------------
    However, excess capacity is expensive, and it is in no individual 
packer's interest to routinely operate at significantly reduced 
capacity. Imagine approaching an investor asking for tens of millions 
of dollars with a plan to only operate a facility at only 50% capacity. 
Few bankers would agree to such a deal. Support for subsidizing 
additional processing capacity might be justified on public insurance 
grounds, but ultimately, the ebbs and flows of the cattle cycle will 
determine the long-run size of the packing industry, and newly 
subsidized plants will be at an advantage over older existing plants 
when cattle numbers come back in line with capacity and ultimate 
profitability determines the size of the packing sector. Support for 
small and local processors might benefit local economic ecosystems and 
increase custom harvest operations for producers, but these operations, 
because they lack economies-of-scale, must focus on quality and service 
to be competitive, and are such a small part of the national industry 
that investments at this size are unlikely to significantly alter the 
aggregate industry capacity. It is also worth noting that costs of 
adding packing capacity are not limited to concrete and iron. I 
encourage you to consider other costs and barriers that limit new 
entrants thus expanded capacity. Availability of labor has been a 
significant challenge for the industry and labor constraints put a 
limit on processing capacity. Other factors include the costs of 
complying with Federal, state, and local regulations related to labor, 
food safety, zoning, transportation, and more.
    Second, in light of the relatively low cattle prices experienced in 
2020, there have been a number of proposals to affect the marketing of 
cattle. One set of concerns has focused on the share of cattle sold on 
a negotiated or cash basis. While the share of cattle sold in this 
manner, roughly 20%, has not changed much since the high-cattle-price 
era experienced in 2014 and 2015, it is lower than was the case a 
decade ago. Cattle sold on a formula basis often utilize the 
negotiated, cash price as a base. Thus, trades on a relatively small 
number of cattle influence the price for a much larger number of 
formula-priced cattle. A concern has emerged as to whether there are 
enough trades in the cash market to truly reflect market fundamentals. 
In efforts to improve price discovery, an important distinction needs 
to be made: price levels and price volatility. Even if all cattle were 
traded on a negotiated, cash basis, the price level would not 
necessarily improve; however, we might be more confident that any given 
transaction would be reflective of the ``true'' underlying supply and 
demand conditions at the time and location. Whether, in fact, there are 
too few cash transactions to reflect market fundamentals is debatable.
    Attempting to mandate more cattle be sold in a negotiated, cash 
basis has potential benefits and certain costs. The fact that most 
producers and packers choose to sell cattle using alternative marketing 
arrangements suggests they see benefits in this form of marketing in 
the form of increased certainty, lower transactions costs, and supply 
chain coordination. Mandating a certain percent of cattle be sold on a 
negotiated basis would entail some producers and packers foregoing a 
marketing method they currently find more desirable. That is a cost. 
Moreover, strengthening of consumer demand for beef over the past 
couple decades has occurred over a period in which there was increased 
use of formula pricing that rewarded quality improvements. Eroding the 
ability of consumers, retailers, and packers to incentivize quality 
through formulas and vertical coordination may have detrimental impacts 
on demand.
    The best economic case for mandating more negotiated transactions 
rests on the argument that price discovery is a public good. Are there 
less costly ways to improve price discovery than a mandate? Livestock 
Mandatory Reporting (LMR) is one tool that has improved price 
transparency and discovery. Continued research into improvements in 
this legislation might further facilitate price discovery. Taxes to 
avoid, or subsidies to use, negotiated cash markets are seldom 
mentioned despite having similar economic intuition as a mandate. Even 
if a mandate were pursued, it might be made more efficient if coupled 
with a ``cap and trade'' system, where obligations to secure cattle in 
a cash market might be bought and sold in a secondary ``offset'' market 
similar to what currently exists for fuel manufactures mandated to 
blend a given amount of biofuels. Including negotiated grid or formula 
transactions in a mandate would also lessen the costs of the policy. It 
is important to consider solutions that may be less costly and 
restrictive than a mandate because the cattle industry is constantly 
evolving and needs to remain cost-competitive with other animal- and 
plant-proteins to have a place on consumers' dinner plates.
    I will conclude with an encouragement to focus on policies that 
improve the health of the entire industry. Discussions of cattle prices 
and packing capacity can give the impression that beef and cattle 
markets represent a zero-sum game. But, one party's gain does not have 
to come at the expense of another. What policies increase the size of 
the pie available to all participants: cow-calf producers, 
backgrounders, feedlots, packers, retailers, and ultimately, consumers?
    As witnessed in recent months, improved trade relations have the 
ability improve economic circumstances for multiple segments of the 
industry. The U.S. exports about 12% of beef production. Trade 
agreements are important to help open markets for U.S. producers to 
allow products to flow to consumers who value them most.
    Investments in research and innovation that increase demand or 
improve productivity are likely a net win for consumers, producers, and 
the environment. Had we not innovated since 1970, about 11 million more 
feedlot cattle would have been needed to produce the amount of beef 
U.S. consumers actually enjoyed last year. Innovation and technology 
saved the extra land, water, and feed that these cattle would have 
required, as well as the waste and greenhouse gases that they would 
have emitted. Investments in research to improve the productivity of 
livestock and poultry can improve producer profitability, consumer 
affordability, and the sustainability for food supply chain.
    Despite the challenges of the past couple years, the beef cattle 
system responded remarkably well to a series of large, unexpected 
disruptions. Producer prices have been on the rise. Consumer demand is 
strong. These core facts should remain front of mind when considering 
changes that would significantly affect the cattle industry, going 
forward.

    The Chairman. Thank you very much for your insightful 
testimony. I think you are suggesting that we look at the long-
term as we deal with the challenges that we are facing in terms 
of the supply chain, and I know that there will be questions 
based upon your very good testimony. So, stay tuned, because we 
all have questions.
    Our next witness today is Dr. Jennifer van de Ligt, the 
Director of Integrated Food Systems Leadership Program, the 
Director of Food Protection and Defense Institute, and an 
Associate Professor of the University of Minnesota. A key focus 
of Dr. van de Ligt's current research portfolio is building 
collaborations to advance food and feed security, safety, and 
defense, and supply chain resilience, which is all part of, 
really, this morning's Subcommittee hearing.
    Dr. van de Ligt completed her Ph.D. in nutrition from the 
University of Kentucky, and what I am noticing here is a trend. 
Our witnesses here today seem to have had very good education 
from a number of American universities, so good for all of you.
    Dr. van de Ligt, would you please begin your testimony?

      STATEMENT OF JENNIFER van de LIGT, Ph.D., ASSOCIATE 
           PROFESSOR VETERINARY POPULATION MEDICINE, 
           COLLEGE OF VETERINARY MEDICINE; DIRECTOR, 
          INTEGRATED FOOD SYSTEMS LEADERSHIP PROGRAM; 
          DIRECTOR, GRADUATE STUDIES APPLIED SCIENCES 
 LEADERSHIP; DIRECTOR, FOOD PROTECTION AND DEFENSE INSTITUTE, 
             UNIVERSITY OF MINNESOTA, ST. PAUL, MN

    Dr. van de Ligt. Thank you, Chairman Costa, Ranking Member 
Johnson, and Members of the Subcommittee on Livestock and 
Foreign Agriculture. Thank you for inviting me to participate 
in today's hearing. It is an honor to appear before you.
    I am the Director of the Food Protection and Defense 
Institute, and Associate Professor in the College of Veterinary 
Medicine at the University of Minnesota. And as Chairman Costa 
indicated, I also have experience from the University of 
Kentucky, as well as from the University of Illinois and North 
Carolina State University. So, with the theme of representing 
the country and its fine educational institutions.
    Since 2004, the Food Protection and Defense Institute, an 
Emeritus Homeland Security Center of Excellence, has partnered 
with stakeholders across government, industry, and academia to 
protect the food system from disruption. Cyber risk, the focus 
of my testimony, is not new to the food and ag sector, but the 
risk of significant business disruption and national security 
threats from cyberattack are growing.
    An evolving cyber risk in the food and ag sector is the 
growing dependence upon cyber-based information and operational 
technology systems. These operational technology systems manage 
the most critical aspects of food production, typically have 
the lowest level of integrated cybersecurity protections, and 
are often omitted from enterprise cybersecurity plans, 
protections, and training.
    In response to the USDA request for public comment on 
supply chains for the production of agricultural commodities 
and food products, we recommended five specific actions for the 
USDA to take to improve cybersecurity within the national food 
and agriculture supply chains. These actions are outlined in my 
written testimony and require that USDA serve as the lead 
agency in collaboration with FDA, DHS, and FBI with 
consultation of food and ag insurance and cybersecurity 
industry partners.
    So, why should these actions be taken? The food and ag 
sector is incredibly diverse, from small businesses and family 
farms to multi-national corporations that produce an infinite 
variety of foods. All of these businesses are individually 
vulnerable to cyberattack. On a broader scale, though, the food 
system is one of the most interconnected systems within the 
critical infrastructures. From a cyber perspective, this 
amplifies the attack surface and the risk. It also amplifies 
the potential magnitude of system disruption and failure from a 
cyberattack, including its secondary and tertiary cascading 
impacts.
    For example, the recent JBS cyberattack disrupted meat 
processing operations in several countries, and simultaneously 
caused disruptions to supply chains, logistics, and 
transportation to customers, and it increased consumer prices. 
Additionally, the food and ag sector is labor intensive. A 
history of labor shortages coupled with technology advancements 
have driven automation in the sector. With increased automation 
and computational and network complexity, cyber risk also 
increases.
    Regardless of why cyber risk exists, cyberattacks in the 
food and ag sector have the potential to cause catastrophic 
supply chain disruption, and can endanger our national 
security.
    As a hypothetical example of a national security threat, 
consider for a moment the impact if both of the only two HDPE 
pellet plants--those are the plants that produce the gallon 
milk jug preforms--were victims of a simultaneous cyberattack. 
This is not unrealistic. We do know that during Hurricane 
Katrina, when just one of these HDPE facilities was 
compromised, the supply of fluid milk at the consumer level 
plummeted to shortage levels in many areas of the country, 
while dairy farmers dumped millions of gallons of milk. A 
situation such as this could be repeated and affect a broad 
area of the nation in the event of a targeted cyberattack.
    It should also be recognized that the food and ag sector 
partners must balance a multitude of supply chain, food safety, 
labor, financial, and other operational risks, in addition to 
cyber risk. Not only does managing cyber risk increase 
operational costs, but there are very few experts with the 
knowledge and experience to effectively enhance cybersecurity 
in the food and ag operational environment. This type of expert 
is often recognized as irreplaceable, and sometimes are 
referred to as unicorns within the food industry. We need to 
train and field many more of them.
    Securing the vast cyber infrastructure and electronic 
information system sustaining America's food and ag supply 
system is vital to the economic totality of the system, and to 
our nutritional and national security. If we do not act, we 
risk the nation's ability to provide a sufficiency of 
nutrition, the very essence of well-being for our friends, 
family, colleagues, constituents, and institutions.
    We appreciate the opportunity to engage and contribute to 
this national discussion. I look forward to further discussion.
    [The prepared statement of Dr. van de Ligt follows:]

Prepared Statement of Jennifer van de Ligt, Ph.D., Associate Professor 
    Veterinary Population Medicine, College of Veterinary Medicine; 
    Director, Integrated Food Systems Leadership Program; Director, 
Graduate Studies Applied Sciences Leadership; Director, Food Protection 
      and Defense Institute, University of Minnesota, St. Paul, MN
    Chairman Jim Costa, Ranking Member David Rouzer, and Members of the 
Subcommittee on Livestock and Foreign Agriculture, thank you for 
inviting me to participate in today's hearing. It is an honor to appear 
before you.
    I am the Director of the Food Protection and Defense Institute and 
Associate Professor in the College of Veterinary Medicine at the 
University of Minnesota.
    The Food Protection and Defense Institute (FPDI) at the University 
of Minnesota is an Emeritus Homeland Security Center of Excellence 
dedicated to providing leading-edge research, technical innovation, and 
education to protect the food system from disruption. Since 2004, FPDI 
has partnered with stakeholders across government, industry, NGOs, and 
academia to assure product integrity, supply chain resilience, and 
brand protection throughout the food and agriculture sector.
    I have an extensive background in food defense, animal feed and 
human food production, human and animal nutrition, systems modeling, 
and scientific and regulatory affairs, with academic, industry, and 
global perspective. My academic career has focused on building 
collaborations to assure effective public-private partnership and 
stakeholder engagement to advance food and feed security, safety, 
defense, and supply-chain resilience. Prior to joining the University 
of Minnesota, I held numerous leadership positions at a multinational 
food company operating in 70 countries where I provided nutrition, 
regulatory, and scientific affairs expertise across their human food 
and animal feed portfolios. I have more than 130 global patents and 
patent applications covering specialty ingredients, processing 
technology, packaging innovations, and biology-based dynamic modeling 
formulation systems.
Background
    Cyber risk is not new to the food and agriculture sector, but the 
risk of significant business disruption and significant national 
security threats from cyberattack are growing.\1\ Traditional 
information technology (IT) in the form of email, data storage, records 
retention, and point of sale activities are ubiquitous and have been 
for many years. These systems are updated regularly with most food 
firms relying on in-house, or third-party, IT providers to manage 
cybersecurity for their systems.
---------------------------------------------------------------------------
    \1\ Food Protection and Defense Institute. 2019. Adulterating More 
Than Food: The Cyber Risk to Food Processing and Manufacturing. https:/
/hdl.handle.net/11299/217703.
---------------------------------------------------------------------------
    The newer cyber risk in the food and agriculture sector is the 
growing dependence upon cyber-based information and operational 
technology (OT) systems used to perform an ever-expanding variety of 
normal operating procedures. The operational technology systems, 
including industrial control systems and internet-connected sensors, 
controllers, and devices (sometimes referred to as the internet of 
things or IoT), manage the most critical aspects of food production, 
typically have the lowest level of integrated cybersecurity 
protections, and are often not included in enterprise cybersecurity 
plans, protections, and training.
    Two pieces of operational technology illuminate aspects of cyber 
risk in the food and agriculture sector. First, a pasteurizer in a 
fluid milk or juice manufacturing facility is critical to assuring the 
food safety of those products. The pasteurization time and temperature 
are controlled by sensors communicating with control systems monitored 
remotely by food safety professionals. Second, in beef harvest 
facilities, carcasses must be split into right and left halves prior to 
further processing. This splitting is increasingly being done by 
robotic carcass splitters. If either of these pieces of equipment are 
compromised through a cyberattack, the facility would be required to 
shut down and economic consequences would result. Depending upon the 
type of cyberattack and the speed at which it is detected, other 
consequences may also occur. For example, if the pasteurizer is 
compromised, it may inaccurately, and possibly even maliciously, report 
and record that acceptable food safety metrics were reached--even 
though they were not--resulting in unsafe product being distributed and 
wide-scale human health harm. Cyberattack on the carcass splitter could 
result in serious worker injury to human operators present in those 
areas.
    Although the above examples are hypothetical and used to illustrate 
types of technology at risk of cyberattack, the concept of cyberattack 
in the food and agriculture sector is not hypothetical. It has been 
occurring for years and is gaining recognition as a significant threat 
to business continuity and national security. In fact, Dragos, Inc. 
reported that ransomware attacks on industrial entities increased more 
than 500% from 2018 to 2020.\2\
---------------------------------------------------------------------------
    \2\ Larson and Singleton. 2020. Ransomware in ICS Environments 
(https://hub.dragos.com/hubfs/Whitepapers/Ransomware in ICS 
Environments_Dragos 2020.pdf).
---------------------------------------------------------------------------
History of Cyber-Attacks in the Food and Agriculture Infrastructure
    As early as 1998, cyber criminals targeted the food and agriculture 
sector with denial-of-service attacks, e-commerce thefts, and 
intellectual property thefts. However, most of these attacks had 
limited public exposure to avoid brand damage. The more recent 
cyberattacks have evolved to compromise networks, disrupt operations, 
and/or exfiltrate vast amounts of data. The scale of these recent 
attacks, in terms of ransoms paid and levels of operational disruption 
due to the significant consolidation across the sector, make such 
events difficult to keep from the public eye. To make matters worse, 
the rise of cryptocurrency payments to end the attack and recover data 
makes it exceptionally hard for law enforcement to identify the 
criminal organization and track and recover payments.
    Since late 2020, major cyber incidents (e.g., SolarWinds, E&J 
Gallo, Molson Coors, Colonial Pipeline, JBS, Kaseya, and others) have 
severely disrupted the ability to conduct business for many companies 
in the food and agriculture sector. With many of these companies paying 
ransom to end the attack, it is likely that attacks will continue. In 
addition, the pandemic highlighted how food and agriculture sector 
consolidation and interdependencies increase not only risk of 
disruption but also the probability that accompanying publicity will 
result in increased targeting of food and agriculture sector 
infrastructure. Ransomware, data theft, and operational disruption are 
not the only issue. As shown with water treatment facilities in 
California and Florida, cyberattacks are also intended to harm health. 
In these attacks, water disinfection chemical levels were adjusted to 
harmful levels.
Implications of the Growing Cyber Risk in the Food and Agriculture 
        Sector
    The food and agriculture sector is incredibly diverse. It is 
composed of facilities ranging from small businesses and family farms 
to multinational corporations that produce an infinite variety of 
foods. Some aspects of the food and agriculture sector are highly 
distributed, while some are highly consolidated. Each and every 
business, farm, production facility, and company is individually 
vulnerable to cyberattack. On a broader scale, however, the food system 
is one of the most interconnected and interdependent systems within the 
critical infrastructures. Relationships among food companies can 
include supplier, customer, and competitor simultaneously. These 
interconnections often mean that data flows routinely and fluidly 
across the sector. From a cyber perspective, this amplifies the attack 
surface and the risk. It also amplifies the potential magnitude of 
system disruption and failure from a cyberattack, including its 
secondary and tertiary cascading impacts.
    The food and agriculture sector is labor intensive. However, a 
history of labor shortages coupled with technology advancements have 
driven automation in the sector. The changing worker health provisions 
and expectations exacerbated by labor shortages during the pandemic 
have only accelerated the motivation within the food and agriculture 
sector to increase automation. However, with every advancement comes 
unintended consequences. With increased automation and the concomitant 
rise in computational and network complexity, cyber risk also 
increases.
    Regardless of why cyber risk exists, cyberattacks have the 
potential to cause catastrophic disruption and endanger national 
security concerns. For example, the recent JBS cyberattack disrupted 
meat processing operations in several countries and simultaneously 
caused disruptions to supply chains, logistics, and transportation to 
customers. And it increased consumer prices. This amplification of 
disruption can easily result in national security threats depending 
upon the scale of attack and subsequent disruption.
    As a hypothetical example of a national security threat, consider 
for a moment the impact if both of the only two HDPE pellet plants that 
produce the gallon milk jug pre-forms were the victims of a 
simultaneous cyberattack? We know that during Hurricane Katrina when 
just one of these HDPE facilities was compromised, the supply of fluid 
milk at the consumer level plummeted to shortage levels in many areas 
of the country while dairy farmers dumped millions of gallons of milk. 
A situation, such as this, could be repeated and affect a broad area of 
the nation in the event of a targeted cyberattack.
    Our FPDI research and experience engaging with food system 
stakeholders led us to identify the following primary (but not 
exclusive) causes for cybersecurity risk to agricultural and food 
products supply chains:

   Lack of awareness throughout the sector of the scale of 
        cybersecurity risks to agricultural and food processing and 
        manufacturing and the potential consequences if those risks 
        were realized.

   Lack of regulatory guidance and clarity regarding how 
        cybersecurity risks should be accounted for and addressed in 
        assessing food safety risks.

   Lack of standards for the cybersecurity of agricultural and 
        food processing systems, both for the operation of those 
        systems and for the design and development of the software and 
        hardware that comprise them.

   Lack of research and vulnerability assessment data upon 
        which to make evidence-based cybersecurity risk mitigation and 
        policymaking decisions. This especially hampers the ability to 
        prioritize the most vulnerable products or processes for 
        mitigation efforts.

   Lack of cybersecurity education and training among 
        operations technology personnel and lack of control systems 
        knowledge among information technology personnel tasked with 
        cybersecurity at agriculture and food companies. This is 
        particularly acute at small- and medium-sized businesses.

    It should also be recognized that although some food and 
agriculture sector partners may recognize the risk, constraints exist 
in their ability to manage that risk. They must balance a multitude of 
supply chain, food safety, labor, financial, and other operational 
risks in addition to cyber risk. Not only does managing cyber risk 
increase operational costs, but there are also very few experts with 
the knowledge and experience to effectively enhance cybersecurity in 
the food and agriculture operational environment. This type of expert 
is often recognized as irreplaceable and are sometimes referred to as 
`unicorns' within the food industry. We need to train and field many 
more of them.
Recommendations for enhanced cyber resilience
    Current Federal law (the Food Safety Modernization Act) specifies 
that covered facilities must establish and implement a food safety 
system that includes an analysis of hazards and risk-based preventive 
controls. Regulations promulgated by FDA require a written food safety 
plan that includes steps for hazard analysis, preventive controls, 
oversight and management of preventive controls, monitoring, corrective 
actions, and verification. Few of these steps can be undertaken without 
information technology, industrial control systems, and internet-based 
communication systems. Any compromise of these supporting systems 
jeopardizes implementation of these critical food safety procedures, 
including the process controls that must be addressed in hazard 
analysis and protective strategies, as well as others such as product 
testing and environmental monitoring. In addition, more historical FDA 
regulations address electronic records creation, accuracy, and 
retention. However, aspects of the food and agriculture sector may not 
be covered by these regulations (e.g., USDA-regulated food facilities, 
farm-level production, etc.) and none of the current regulations 
address cybersecurity of the systems required to acquire, manage, and 
preserve these records.
    As provided in the FPDI comments offered in response to ``Notice: 
Supply Chains for the Production of Agricultural Commodities and Food 
Products, Request for Public Comments'', I, as Director of FPDI, 
recommend the following actions:

   USDA should take the lead in developing new minimum 
        information technology risk reduction regulations and develop 
        new Good Manufacturing Practices (GMPs) specific to the 
        production agriculture and food and beverage industries. These 
        could be developed as a new set of cyber preventive controls to 
        be consistent with the implementation of other Food Safety 
        Modernization Act (FSMA) requirements. This action should be 
        taken in concert with industry, the Department of Homeland 
        Security (DHS), the Food and Drug Administration (FDA), and the 
        Federal Bureau of Investigation (FBI).

   USDA, in collaboration with FDA, should develop sector-
        specific system risk reduction measures, facility-level 
        cybersecurity risk reduction plans, and operator guidelines and 
        training. They should also develop specific preventive controls 
        training and reporting for cyber systems within the food and 
        agriculture sector.

   USDA should host a series of cybersecurity review and 
        technology forums or similar events for food and agriculture 
        sector senior management to accelerate the education of senior 
        leadership within industry. Senior leadership needs a better 
        understanding of the cyber risks and the importance of 
        investing in risk reduction for cyber systems, especially in 
        the food and agriculture operating environment. This action 
        should occur in partnership with the insurance industry, the 
        cybersecurity industry, FDA, FBI, and DHS,

   USDA should develop a university-based food and agriculture 
        sector focused cyber Center of Excellence to conduct research 
        and education that aids in cyber risk reduction.

   USDA should collaborate with industry and DHS to establish 
        an Information Sharing and Analysis Center (ISAC). The mission 
        of this ISAC should be to understand evolving food and 
        agriculture sector cyber risks as they may impact both 
        individual facilities and entire supply chains, anticipate 
        local and broad supply chain exposures, and monitor cyber 
        technology shifts and emerging cyber-based or control 
        technology risks across all aspects of the food system.
Closing Remarks
    Securing the vast cyber-infrastructure and electronic information 
systems sustaining America's food and agriculture supply system is 
vital to the economic vitality of the system and our nutritional and 
national security. If we do not act, we risk the nation's ability to 
provide a sufficiency of nutrition, the very essence of well-being for 
our friends, family, colleagues, constituents and institutions.
    I, and the Food Protection and Defense Institute, appreciate the 
opportunity to engage in and contribute to this national discussion of 
our food system's resilience.
    Thank you. I look forward to further discussion on this important 
topic.

    The Chairman. Thank you very much, Dr. van de Ligt, and we 
look forward to our opportunity to ask you about what sorts of 
private-public partnerships we can pursue to reinforce our 
vulnerabilities against cyberattacks, and that opportunity will 
come shortly.
    Our third witness today is Dr. Keri Jacobs. Dr. Jacobs 
holds an MFA Chair in Agribusiness, is a graduate of the 
Institute of Cooperative Leadership Fellows, an Associate 
Professor of Agriculture and Applied Economics at the 
University of Missouri, the Show Me State. Her research 
explores consolidation and catalysts and impacts among Midwest 
agriculture cooperatives and the benefits of increased supply 
chain participation by producers, very appropriate for today's 
Subcommittee hearing.
    She received her bachelor of arts in economics--associate 
degree, excuse me, business administration from Coe College, 
and a Ph.D. in economics from North Carolina State University. 
Again, enjoying the multitude of universities of this wonderful 
country of ours.
    Dr. Keri Jacobs, please open on your statement this 
morning.

         STATEMENT OF KERI L. JACOBS, Ph.D., ASSOCIATE 
      PROFESSOR OF AG AND APPLIED ECONOMICS; MFA CHAIR IN 
AGRIBUSINESS; DISTINGUISHED FELLOW, DIVISION OF APPLIED SOCIAL 
 SCIENCES, COLLEGE OF AGRICULTURE, FOOD AND NATURAL RESOURCES, 
                         UNIVERSITY OF 
                     MISSOURI, COLUMBIA, MO

    Dr. Jacobs. Thank you, Chairman Costa, Ranking Member 
Johnson, and Members of the Subcommittee. Thank you for the 
invitation to participate in this discussion regarding producer 
ownership in our beef supply chain.
    As an economist, I believe in the power and elegance of 
capitalism. The pursuit of profitability through private 
ownership, private control, and private returns fuels 
innovation and efficiency. My testimony today is not about the 
economics of the beef supply chain; however, through 
cooperation, pricing information exchange, and other market 
dimensions can be improved and sustained.
    In 1922, in response to growing imbalances and tensions in 
ag, not unlike what we see in here today, Congress authorized 
producers to form cooperatives, the law known as the Capper-
Volstead Act. In doing so, Congress provided a mechanism for 
producers to have equal footing with the big companies they 
purchased from and sold to. The requirements of Capper-Volstead 
are that the co-op be governed by its producer-members, be 
capitalized by them, and that those producers share in the 
profitability of those business activities. Those requirements 
helped co-ops bring discipline to markets. Instead of focusing 
on short-term profitability, the cooperative transfers the 
value from the upstream and downstream markets back to its 
producer-members.
    The question this Committee, the Subcommittee, and the 
industry contemplates is whether producer ownership is a way 
forward for this industry. You have heard testimony of the 
significant scale economies that exist in beef processing----
    The Chairman. Pardon me. Could you repeat that one more 
time?
    Dr. Jacobs. Yep. I said--I started with--the question this 
Subcommittee and the industry contemplates is whether producer 
ownership is a way forward for the industry. You have heard 
testimony of the significant scale economies that exist in beef 
processing, suggesting that small scale processing to commodity 
markets is unlikely to be sustainable long-term.
    Rather than working against scale economies, one option is 
to support livestock producer ownership to an efficient scale. 
We do have examples of large-scale producer ownership in pork. 
Triumph Foods is producer-owned and its structure reflects the 
characteristics of cooperatives that discipline a market. The 
producer-owners have long-term contracts to sell hogs, and they 
effectively earn wholesale meat prices for their animals. 
Concentration of livestock industry, particularly at the 
processing stage, seems inevitable from the efficiency lens. 
Through cooperation, however, livestock producers can flip the 
script and participating in generating and receiving the value 
this efficiency creates. Producer ownership in beef processing 
is possible, and it has the potential to improve conditions for 
beef producers in the entire supply chain. When at scale, 
producer ownership can smooth variability in producer incomes 
because it allows them to capture income from downstream 
markets that may be less volatile. More of the value-added 
income stays in the producers' rural communities and the 
cooperatives' communities instead of flowing to investors.
    To accomplish this, livestock producers must coordinate and 
commit production via contracting. They likely need assistance 
in overcoming challenges such as selling byproducts from 
processing and addressing uniformity in feedstock supplies. I 
encourage Congress to consider the additional policies and 
actions that can improve the likelihood of an adoption and 
success of producer ownership in beef processing, and the 
successes of livestock producers.
    Among these are investments in research to understand 
minimum efficient scale in beef processing and the producer 
commitment it will require. Temporarily subsidizing evidence-
based scalable capacity, creating a loan guarantee that reduces 
risk to lenders to beef--excuse me, producer-owned beef 
finishing, and ensuring financing is available earlier in their 
investment period, preserving these market products and 
investments to relabeling laws, and finally, coordinating 
technical assistance for producers interested in forming 
cooperatives, helping them gain traction in a start-up period, 
and helping them as they navigate market coordination with 
their downstream partners.
    I began my testimony by stating my belief in capitalism. 
Through my work with cooperatives and their producer-members, I 
do appreciate the collective action model as a workhorse of 
capitalism in agriculture. Cooperation takes a holistic view of 
the agricultural supply chain. With temporary assistance and 
the appropriate policies, producers can work within the 
parameters of scale and benefit from it. Capitalism through 
cooperation by producers enables even the small producer to 
improve his or her economic situation. This form of capitalism 
can improve economic conditions in rural communities, and it 
pays attention to the whole supply chain.
    Mr. Chairman, thank you for this opportunity to join the 
discussion. I look forward to your questions.
    [The prepared statement of Dr. Jacobs follows:]

Prepared Statement of Keri L. Jacobs, Ph.D., Associate Professor of Ag 
and Applied Economics; MFA Chair in Agribusiness; Distinguished Fellow, 

 Division of Applied Social Sciences, College of Agriculture, Food and 
        Natural Resources, University of Missouri, Columbia, MO
    Chairman Costa, Ranking Member Johnson, and Members of the 
Subcommittee, thank you for this opportunity to testify regarding the 
potential for producer-ownership in the U.S. beef supply chain. I am an 
agricultural economist at the University of Missouri. As an extension 
specialist, I have spent 10 years working closely with producers and 
the cooperatives of which they are member-owners. My extension work 
supports the governance roles and financial acumen of cooperative 
directors and educates producers, students, and the public about 
cooperatives. My research considers the evolving agribusiness landscape 
as it relates to consolidation in Midwest agriculture, the challenges 
facing agricultural cooperatives and producers, the role and value of 
cooperation, and the benefits to producers as they participate more 
fully along their supply chains.
    As an economist, I believe in the power and elegance of capitalism. 
The pursuit of profitability through private ownership, private 
control, and private returns fuels innovation and efficiency. I also 
believe that sustainable capitalism must take a holistic view of 
markets, and this requires competitive markets--where no single entity 
has undue control or influence on the pricing or availability of a 
product or service that disadvantages others in the supply chain. An 
equally important feature of capitalism is market efficiency--where 
coordination of market activities minimizes costs; permits free 
exchange of information; and leads to an appropriate allocation of 
resources, goods, and services. Although my testimony today is not 
about pricing, concentration, market power, information exchange, or 
efficiency in the beef supply chain, these are all dimensions that can 
be improved and sustained through producer-ownership. Cooperatives 
bring discipline to a supply chain, and this discipline is critical to 
efficient and competitive markets.
    Cooperatives are a special type of corporation. They are 
distinguished from traditional corporations by their ownership 
structure, who makes the decisions and how, and who benefits from their 
activities. Traditional corporations are investor-owned. Investors 
contribute equity capital privately or buy shares of a company's stock. 
The value of that investment depends on the corporation's 
profitability. Investors benefit when the shares of their stock 
increase in value and when the corporation pays dividends on those 
shares. The more you invest, the more voting power you have and the 
more you benefit from the business' success. Investors expect a return 
on their investment, and management's job is to ensure that. No 
requirements stipulate that these investors are otherwise linked to the 
business, and most often they are not. Furthermore, the board of 
directors--the corporation's governing body--has no requirements to be 
actively involved otherwise in the supply chain. This creates a 
situation where the corporation makes decisions in the best interest of 
its investors by looking at its bottom line. Beyond ensuring that it 
meets the needs of suppliers and buyers, the business has little 
incentive to share the benefits of its activities upstream or 
downstream.
    A supply chain--or part of a supply chain--dominated by a few very 
large, investor-owned firms that pay most attention to their immediate 
economic needs can become undisciplined and lack sustainability from a 
holistic market viewpoint. This was precisely the situation our nation, 
producers and consumers faced in the early 1900s. Producers trying to 
market and distribute their products were outsized and subject to 
unfair trade terms and pricing. Congress recognized that the supply 
chains in grain, dairy, and other critical sectors left producers with 
too little control, subjected producers to predatory pricing, and 
distorted the prices that consumers paid. In 1922, in response to the 
growing imbalances, Congress authorized producers to form associations, 
or cooperatives, through the law titled ``An Act to Authorize 
Association of Producers of Agricultural Products''--more commonly 
known as the Capper-Volstead Act. By permitting producers to form 
associations to collectively process, prepare for market, handle, and 
market their products, Congress provided a mechanism for producers to 
have equal footing with the big companies with which they did business. 
The law did include several requirements. Those requirements, which 
state statutes governing cooperatives and producer associations 
subsequently reinforced and enumerated, are embodied in the Principles 
of Cooperation. Among these are the following:

  1.  Open and Voluntary Membership: There is no requirement to become 
            a member. Producers participate voluntarily so long as they 
            can use a cooperative's services and accept the 
            responsibilities of membership, regardless of race, age, 
            religion, gender, and economic circumstances.

  2.  Democratic Member Control: Members actively participate in 
            setting policies and making decisions through a democratic 
            process that is independent of their equity contribution. 
            The cooperative is governed by a board of directors elected 
            by and from among the membership. The board is accountable 
            to those members.

  3.  Economic Participation: Members contribute capital equitably, and 
            the association operates for the benefit of its members. 
            Profitability is shared with the membership proportional to 
            members' use, and the cooperative can allocate surpluses 
            for growth; reserves; and other activities, including 
            investments in their communities, approved by the 
            membership.

    Capper-Volstead created a vehicle for a nearly inextricable link 
between producers and their supply chains--however far into it they 
choose to organize vis-a-vis cooperation. This structure and its 
requirements are precisely why we say that a cooperative brings 
discipline to a market. Instead of focusing on short-run profits, the 
cooperative seeks to aggregate and transfer the value further along the 
supply chain back to its producer-members. In contrast to a traditional 
investor-owned corporation, a cooperative's incentives are aligned with 
the interests of those who do business with it because they are the 
ones who provide equity capital, make decisions, oversee its 
operations, and benefit from its activities. Furthermore, those owning, 
controlling, and benefitting from the business live in the communities 
in which the cooperative operates. Producer-members have an incentive 
to ensure that the business acts responsibly in the community.
    According to the USDA's 2019 Agricultural Cooperative Statistics 
Report, more than 1,700 U.S. producer-owned agricultural cooperatives 
operate more than 9,000 locations in the U.S. and have nearly 1.9 
million voting producer-members. You may recognize cooperatives such as 
Land O'Lakes, Dairy Farmers of America, and Organic Valley--dairy 
marketing and processing cooperatives that each uniquely provide their 
producer-members with access to supply chains for dairy and its 
products. Blue Diamond Growers; Florida's Natural Growers; the Ocean 
Spray Cooperative; and the National Grape Cooperative Association, 
which owns the Welch's brand, are composed of independent growers who 
control and own their respective supply chains from production to 
product branding to retailing. Hundreds of local and federated grain 
marketing and input supply cooperatives including Ag Processing (AGP), 
CHS, GROWMARK, MFA Inc., and Southern States give grain producers 
sufficient scale to collectively purchase inputs, market their grain, 
and expand into value-added markets. Producers even participate in 
financing their own operations and their cooperatives through 
ownership, governance, and risk- and profit-sharing in financial 
cooperatives such as the Farm Credit System and CoBank. Each of these 
cooperatives has succeeded in improving producers' control in the 
marketplace, facilitating greater coordination, adding value to 
producers' operations and income through profit- and risk-sharing, and 
improving their rural communities.
    I want to address a common misunderstanding, too, about 
cooperatives and collective action by producers--that is, that big 
cooperatives act just like big corporations and eventually seek to 
maximize their own profitability. A company, even a monopolist, that is 
owned by producers and required to be governed by those producers and 
share profits with those producers will still reflect a competitive 
outcome. This is because the company will allocate its profits back to 
those producers. Even if the cooperative earns very high margins, it 
shares the returns with producers proportional to their business. This 
effectively increases the net price a producer receives for her or his 
or her output or decreases the price a producer pays for a product or 
service. Producer-owners decide how and how much of the profitability 
to allocate and how much to retain for investments in the cooperative's 
assets, relationships, and innovation that enhance producers' 
production, efficiency, or competitiveness in value-added markets. This 
is, again, what I mean when I say that cooperatives are a disciplining 
factor in markets. Cooperatives reflect the values and needs of their 
producer-members, and they do so by prioritizing people, communities, 
and values over maximizing profits.
    We do have successful, large-scale producer-ownership in livestock, 
specifically in the pork industry. Triumph Foods is a producer-owned 
LLC, and its operation reflects the features of cooperatives I have 
described. In its model, each producer commits to deliver a specific 
number of hogs to the plant each year, and producer-members provide a 
proportionate share of the plant construction cost. Producers are free 
to deliver surplus hogs to other processors. Meat produced at the plant 
is marketed by Seaboard Foods, and the producer-owners are paid based 
on the dollars generated by these wholesale sales. The producer-owners 
have a long-term contract to sell hogs and effectively earn wholesale 
meat prices for their animals.
    The question this Subcommittee and the beef industry contemplates 
is whether producer-ownership--through cooperatives or other forms of 
collective action--can be a way forward for this industry. You have 
heard testimony about the significant scale economies that exist in 
beef processing, suggesting that small-scale processing to commodity 
markets is unlikely to be sustainable in the long term. Country Natural 
Beef is a cooperative representing more than 90 family-owned ranches in 
the western U.S. It began in 1986 and is still operating today. The 
business processes approximately 500 head of cattle per day. The 
producer-owners collectively engage in custom processing, packaging, 
and marketing of their beef through local retail stores, and the 
ranchers capture profits from raising cattle through processing. Every 
rancher is an owner and serves on the board of directors. Grass Roots 
Farmers' Cooperative and Buckeye Valley Beef Cooperative are smaller-
scale examples of beef processing for niche and value-added markets, 
and they sell direct to consumers as well. To my knowledge, however, 
there is currently no large-scale producer-ownership in beef finishing 
or processing to traditional markets or that can compete with the very 
large processors. I can only speculate about the reasons for this. Beef 
processing has significant scale economies due in part to labor 
intensity and specialization, the enormous up-front capital investment, 
and the requirement of a predictable daily intake of a consistent 
feedstock, which I understand has proven problematic due to the 
diversity in cattle genetics and cattle production's long biological 
cycle. The sum of these confounding factors is likely why a small, 
collective-action model has not emerged with long-term success.
    There is a path forward that recognizes concentration in beef 
processing for traditional markets may be inexorable, even preferred, 
due to the scale economies that exist. Rather than working against 
scale economies, one option is to support producer-ownership to an 
efficient scale. A producer-owned supply chain from the cow-calf stage 
through processing that reaches a profitable minimum efficient scale in 
terms of per-head margins will have a different outcome in producer 
profitability than we see today. We need research to understand the 
minimum scale. Coordination along the supply chain by producers, when 
done at scale, can smooth variability in producer incomes by capturing 
income from downstream markets that are less volatile. The income 
producers and their cooperatives generate will flow to the rural 
communities where they operate instead of to investors. Importantly, 
this model places producers closer to consumer markets and allows 
coordination between consumer preferences and production decisions.
    Concentration in the beef industry, particularly at the processing 
stage, seems inevitable from an economic sustainability lens. Through 
cooperation, however, producers have an opportunity to flip the script 
and participate in earning value that this efficiency creates. Beef 
producers must desire to coordinate and commit production to the effort 
via contracting. Challenges related to selling byproducts, such as 
offal and hides, and uniformity of feedstock supply through genetics 
must be addressed. With this in mind, I encourage Congress to consider 
five actions that could improve the likelihood of adoption, success, 
and outcomes of beef producers participating in collective action.

  1.  USDA invests into research on minimum efficient scale in beef 
            processing and the commitments needed to achieve it.\1\
---------------------------------------------------------------------------
    \1\ A 2013 USDA ERS Economic Research Report (No. 150), ``Local 
Meat and Poultry Processing: The Importance of Business Commitments to 
Long-Term Viability'' (https://www.ers.usda.gov/webdocs/publications/
45094/37949_err-150.pdf?v=5131.8) by Gwin, Thiboumery, and Stillman is 
a model for this investigation.

  2.  Temporarily subsidize demonstrated or evidence-based scalable 
---------------------------------------------------------------------------
            capacity.

  3.  Create a loan guarantee programs that reduce risks to lenders for 
            producer-owned beef finishing, processing, and marketing 
            and that ensure financing is available earlier in the 
            investment period.

  4.  Preserve niche-market products and investments through labeling 
            laws.

  5.  Provide technical assistance for producers to form associations 
            or cooperatives, gain traction in the start-up period, and 
            navigate market coordination with downstream partners.

    I began my testimony by stating my belief in capitalism. Through my 
work with cooperatives and the producers who own and control them, I 
have come to appreciate the cooperative model and collective action by 
producers as a workhorse of capitalism in agriculture and a way of 
conducting business that has benefits well beyond private returns to 
investors. Concentration in the U.S. beef supply chain may be 
inevitable due to economies-of-scale. In this case, market discipline 
is critical. With temporary assistance, producers can work within the 
parameters of scale and benefit from it by utilizing a coordinating 
model, such as cooperation. This form of capitalism enables even the 
little guy to participate and improve her or his economic situation. 
This form of capitalism can improve economic conditions in rural 
communities. This form of capitalism pays attention to the whole of the 
supply chain--from producer to consumer. Through collective action, 
producers have the ultimate incentive to ensure the safety, security, 
and sustainability of their supply chains. Their livelihood depends on 
it.
    Mr. Chairman, thank you for the opportunity to discuss the 
potential of producer-ownership in the beef supply chain. I look 
forward to your questions.

    The Chairman. Thank you very much, Dr. Jacobs, for your 
very informative testimony, and we will look forward to the Q&A 
portion.
    Our last witness, certainly but not the least, is Dr. 
Dustin Aherin. Dr. Aherin is an Animal Protein Analyst at Rabo 
AgriFinance. I think many of us know that Rabo AgriFinance has 
a great presence in providing lending activity throughout 
American agriculture, a well-respected financial institution.
    Dr. Aherin within animal protein concentrates his work on 
beef. Aherin has a unique combination of commercial beef 
production experience and analytical training. He joined 
RaboResearch after completing his Ph.D. at the Beef Cattle 
Institute at Kansas State University, and he also holds a 
bachelor's and master's degree in animal science from Kansas 
State. It looks like, Dr. Aherin, you have stayed in Kansas, 
but good for you, and we look forward to your testimony.

STATEMENT OF DUSTIN AHERIN, Ph.D., VICE PRESIDENT, RaboResearch 
   ANIMAL PROTEIN ANALYST, RABO AgriFinance, CHESTERFIELD, MO

    Dr. Aherin. Thank you, Chairman Costa, Ranking Member 
Johnson, and Members of the Subcommittee. Thank you for 
inviting me to join the discussion today.
    As an Animal Protein Analyst for Rabobank, which is engaged 
across the entire beef supply chain, I assist in strategic 
decision-making for both the bank and the bank's clients by 
offering a research-based perspective on fundamental market 
dynamics and future trends.
    Major U.S. beef supply chain disruptions over the past 2 
years have sent the cattle and beef industry into uncharted but 
explainable territory. The imbalance of excess market ready 
cattle supplies in the face of reduced operational packing 
capacity has put downward pressure on cattle prices. Meanwhile, 
consumer demand for beef and all animal proteins has reached 
record levels. These dynamics, combined with elevated 
processing costs, have increased the spread between beef price 
and cattle price, just as economic principles, past research, 
and historical relationships would suggest. Both the direction 
and magnitude of the price grid are well within the range of 
expectation.
    The pandemic has created enormous challenges for cattle 
producers. Seeing the price difference between cattle and beef 
has only added to the emotional strain. I understand the 
frustration. I have owned and bred cattle most of my life, and 
I have friends and family that make a living ranching and 
feeding cattle. However, with stakeholders that are invested 
throughout the entire supply chain, from rancher to packer to 
retailer, I must look at the beef industry from an objective 
and analysis-based perspective.
    First, cattle are not beef. Cattle are one of several 
inputs in the beef production. Other major inputs include 
labor, physical capital, and technology. These inputs are 
always seeking but never finding the perfect balance. This 
creates cycles. Input imbalances are communicated through 
prices, whether that is cattle prices, wages, or investments.
    In recent years, extreme and unexpected events have 
severely restricted several of these inputs. Examples include 
facilities in the August 2019 plant fire and labor during the 
pandemic. A working market sends price signals to adjust. These 
same price signals created record high cattle prices and packer 
losses in 2014 and 2015.
    The biology of the beef industry makes it slow-moving and 
capital intensive. Adjustments take years. While recent 
unforeseen events have exacerbated the situation, the 
foundation for today's circumstances was laid over several 
decades. Beef packing has historically been a low margin 
business. In the year 2000, the U.S. harvested nearly 30 
million head of fed cattle. By 2015, fed cattle slaughter was 
under 23 million head. Throughout this period of cattle supply 
contraction, the most inefficient packing plants were driven 
out of business as competition for limited cattle supplies 
drove cattle prices to record highs. From 2000 to 2015, U.S. 
beef industry experienced a net decline of roughly 14,000 head 
per day and fed cattle processing capacity. Even before the 
extremes of 2020, recent margins suggest opportunity to add 
operational packing capacity; however, that opportunity comes 
with significant risk. Based on recent new plant announcements 
in the current environment of high construction costs, the new 
plant currently costs roughly $200 million for every 1,000 head 
of daily capacity. Then a new endeavor must meet regulatory 
requirements, build a labor force, and keep enough cash on hand 
to absorb losses. Most crucially, it is not just about building 
facilities. It is about building a business model. To compete 
against the efficiency of large incumbent packers, new entrants 
will likely have to build a differentiated premium brand 
strategy. Differentiated beef requires differentiated cattle. 
Alternative marketing agreements are the best way to secure a 
consistent supply of such differentiated cattle. Strong 
vertical supply chain relationships will be critical to the 
success of any new beef business.
    In response to market signals, numerous plans for 
greenfield plants or expansions of existing facilities have 
been unveiled in recent months. If all of the announced plans 
for plant construction and expansion come to fruition, more 
than 8,000 head of daily fed cattle capacity could be added to 
the U.S. beef industry over the next 5 years. Recognizing 
current drought conditions, if the beef cow herd declines by 
two percent or less, there is opportunity for about 5,000 head 
per day of profitable packing expansion.
    A note of caution. There is a point where industry capacity 
goes too far to withstand cyclical periods of tight cattle 
supplies. Drought risks and cyclical fundamentals must be 
considered. Additional operational capacity does not solely 
have to come from new facilities. Increased technology 
implementation will be critical to success. Recently, many 
packers have revitalized their focus on technology development. 
Enlightened by the pandemic to the longstanding labor shortages 
in the meat industry, startups are also bringing outside 
expertise to advance technology and automation. One percent 
improvement in volume efficiency across all existing plants 
would add 1,000 head of daily fed cattle processing capacity.
    2020's cattle backlog is nearly cleared. Year over year 
cattle prices are already improving, and should continue to do 
so through the second half of 2021 and beyond. In conjunction 
with tightening cattle supplies, capacity expansion will come 
online over the next several years, and new technologies will 
reduce labor constraints, further shifting margins to the 
benefit of cattle producers.
    In closing, the recent shocks to the beef industry have 
presented the entire beef supply chain with enormous 
challenges. The resulting price movements have been frustrating 
for cattle producers, to say the least, yet these same price 
movements and supply chain disruptions have also contributed to 
the accelerated investment in packing capacity expansion, new 
technologies, and new business strategies that will help the 
beef industry adapt and evolve to ever-changing demand, and 
that is the market at work. Thank you.
    [The prepared statement of Dr. Aherin follows:]

      Prepared Statement of Dustin Aherin, Ph.D., Vice President, 
RaboResearch Animal Protein Analyst, Rabo AgriFinance, Chesterfield, MO
    Chairman Costa, Ranking Member Johnson, and Members of the 
Subcommittee, thank you for inviting me to join the discussion today. 
As an animal protein analyst for Rabobank, which is engaged across the 
entire beef supply chain, I assist in strategic decision making for 
both the bank and the bank's clients by offering a research-based 
perspective on fundamental market dynamics and future trends.
Summary
    Major U.S. beef supply chain disruptions over the past 2 years have 
sent the cattle and beef industry into uncharted, but explainable 
territory. The imbalance of excess market-ready cattle supplies in the 
face of reduced operational packing capacity has put downward pressure 
on cattle prices. Meanwhile, consumer demand for beef and all animal 
proteins has reached record levels, fueled by pandemic stockpiling, 
increased and reallocated consumer income, and more recently, 
restaurant re-openings, not to mention export demand. These dynamics, 
combined with elevated processing costs, have increased the spread 
between beef price and cattle price, just as economic principles, past 
research, and historical market relationships would suggest. Both the 
direction and magnitude of the price spread are well within the range 
of expectation.
    Like many businesses, the pandemic has created enormous challenges 
for cattle producers. Seeing the price difference between cattle and 
beef has only added to the emotional strain. I understand the 
frustration. I've owned and bred cattle most of my life, and I have 
friends and family that make a living ranching and feeding cattle. 
However, with stakeholders that are invested throughout the entire 
supply chain, from rancher to packer to retailer, I must look at the 
beef industry from an objective, analysis-based perspective.
    First, cattle are not beef. Cattle are one of several inputs into 
beef production. Other major inputs include labor, physical capital, 
and technology. These inputs are always seeking, but never finding, the 
perfect balance between one another. This creates cycles. Input 
imbalances are communicated through prices, whether that's cattle 
prices, wages, or investments. Over the past several years, extreme and 
unexpected events have severely restricted several of these inputs. 
Examples include facilities in the August 2019 Tyson plant fire and 
labor during the pandemic. A working market sends price signals to 
adjust. These same price signals created record high cattle prices and 
packer losses in 2014 and 2015.
    The biology and natural time-delays of the beef industry make it 
slow moving and capital intensive. Adjustments take years. While 
recent, unforeseen events have exacerbated the situation, free market 
signals, economic losses, drought, and the natural cattle cycle laid 
the foundation for today's circumstances over several decades.
    Beef packing has historically been a low margin business. In the 
year 2000, with a total cattle population of 98 million head, the U.S. 
harvested nearly 30 million head of fed cattle. By 2014 and 2015, the 
total cattle population was below 90 million head with 2015 fed cattle 
slaughter under 23 million head. Throughout this period of largely 
drought induced beef cow herd contraction, the most inefficient packing 
plants were driven out of business as competition for limited cattle 
supplies drove cattle prices to record highs. From 2000 to 2015, the 
U.S. beef industry experienced a net decline of roughly 14,000 head per 
day in fed cattle processing capacity.
    Even before the extremes of 2020, recent margins suggest that there 
is opportunity to add operational packing capacity. However, that 
opportunity does not come without significant risk. First, the up-front 
cost of a new or expanded plant is extremely expensive. Based on recent 
new plant announcements and the current environment of high 
construction costs, a new plant currently costs roughly USD 200m for 
every 1,000 head of daily capacity. Then, a new endeavor must meet 
regulatory requirements, build a labor force, and keep enough cash on 
hand to absorb losses.
    Most crucially, it's not just about building facilities, it's about 
building a business model. Competing in commodity cattle markets 
against the efficiency of large, incumbent plants would be extremely 
difficult for a new entrant. However, if a new entrant can capitalize 
on a differentiated branding strategy, the premium component may be 
enough to offset efficiency disadvantages. Differentiated beef requires 
differentiated cattle. Alternative marketing agreements are the best 
way to secure a consistent supply of such differentiated cattle. 
Strong, vertical supply chain relationships will be critical to the 
success of any new beef business.
    In response to the described market signals, numerous plans for 
greenfield plants or expansions of existing facilities have been 
unveiled in recent months. These plans come from new entrants, minor 
incumbents, and major incumbents alike. If all of the announced plans 
for plant construction and expansion come to fruition, more than 8,000 
head of daily fed cattle capacity could be added to the U.S. beef 
industry over the next 5 years. Recognizing current drought conditions, 
if the beef cow herd declines by 2% or less, there's opportunity for 
about 5,000 head per day of profitable packing capacity expansion.
    A note of caution. There is a point where industry capacity 
expansion goes too far to withstand cyclical periods of tight cattle 
supplies. The long-term cattle cycle, drought risks, and market 
fundamentals must be considered.
    I want to emphasize that additional operational capacity does not 
have to come solely from new facilities. Whether in new or existing 
plants, increased technology implementation will be a critical 
component of future success. Recently, many packers have revitalized 
their focus on technology development as a means to address labor 
challenges, manage processing costs, and reduce product waste. 
Enlightened by the pandemic to the long-standing labor shortages in the 
meat industry, many startups are also bringing outside expertise and 
perspectives to advance technology and automation in the meat supply 
chain. Even a one percent improvement in volume efficiency across all 
existing plants would add 1,000 head of daily fed cattle processing 
capacity.
    With any luck, we will work through the long tail of 2020's cattle 
backlog in Q3 2021. Year-over-year cattle prices are already improving 
and should continue to do so through 2H 2021 and beyond. In conjunction 
with tightening cattle supplies, capacity expansion will come online 
over the next several years and new technologies will reduce labor 
constraints, further shifting margins to the benefit of cattle 
producers.
    In closing, the shocks to the beef industry over the last couple 
years have presented the entire beef supply chain with enormous 
challenges. The resulting price movements have been frustrating for 
cattle producers, to say the least. Yet, these same price movements and 
supply chain disruptions have also contributed to the accelerated 
investment in packing capacity expansion, new technologies, and new 
business strategies that will help the beef industry adapt and evolve 
to ever changing demands. That's the market at work.
Beef Production is a Balancing Act
    Before advancing the conversation, it's important to note the 
difference between cattle and beef. In a simple equation form, a recipe 
if you will, beef can be represented as the output from the combined 
inputs of cattle, human labor, physical capital (e.g., facilities), and 
technology.

          Beef = Cattle + Labor + Physical Capital + Technology

    The inputs of this equation are always seeking, but never finding, 
the perfect balance between one another. Input imbalances are 
communicated through prices, whether that's cattle prices, wages, or 
investment/divestment in physical capital and technology. As expected 
in commodity markets, whether it's natural gas or cattle, the over-
expansion/over-contraction and subsequent price signals responding to 
imbalances generate cycles (e.g., the cattle cycle). If any two inputs 
in the beef production equation are unbalanced, either the limiting 
input has to expand or the surplus input has to contract. For example, 
packing capacity (facilities, labor, technology) expands, or cattle 
numbers decline. Often, it's cattle numbers that are the most 
responsive to imbalance. Between the two possibilities, the decision to 
retain or sell a few head comes much easier for the multitude of cow-
calf producers than the high-risk, capital-intensive, regulatory-
complex endeavor of packing capacity expansion.
Historical Perspective
    Beef packing has historically been a low margin business (see 
Figure 1). Precise estimates of individual company performance are 
extremely challenging with publicly available, industry average data, 
but estimates can get close and identify trends. Based on the estimates 
shown in Figure 1, beef packers averaged an annual loss of USD 11 per 
head from 2002 to 2014. In the year 2000, with a total cattle 
population of 98.2 million head, the U.S. harvested 29.6 million head 
of fed cattle (see Figure 2). By 2014 and 2015, the total cattle 
population was below 90 million head with 2015 fed cattle slaughter at 
only at 22.7 million head. Throughout this period of largely drought 
induced beef cow herd contraction, the most inefficient packing plants 
were driven out of business as competition for limited cattle supplies 
drove cattle prices to record highs. From 2000 to 2015, the U.S. beef 
industry experienced a net decline of roughly 14,000 head per day in 
fed cattle processing capacity. Today's maximum U.S. fed cattle 
processing capacity (no absenteeism, no equipment breakdowns, flawless 
logistics, etc.) is estimated at just above 100,000 head per day.
    The remaining plants are those that have best managed operating 
costs through optimal geographic location, supply chain relationships 
(both suppliers and customers), and economies-of-scale. However, as 
cattle herd expansion has outpaced packing capacity and shifted the 
balance of the beef production equation, packers have been 
strategically positioned to capture record margins in recent years. 
This shift was well in place in the years prior to the pandemic. The 
Tyson-Holcomb fire and [COVID]-19 only magnified the shift by creating 
acute and unexpected massive imbalances between cattle numbers and 
suddenly limited availability of labor and/or facilities. As of mid-
June 2021, beef packers are still struggling to utilize more than 90-
92% of daily capacity as a result of labor shortages and additional 
[COVID]-19 precautions, even in the face of ample cattle supplies.
Figure 1. Estimated annual beef packer operating income per head and 
        estimated annual average monthly excess fed slaughter capacity, 
        2002-2020
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Note: Operating income = (cutout value + by-product value) ^ 
        (cattle purchase cost + estimated processing cost). Estimated 
        monthly capacity is the maximum federally-inspected steer and 
        heifer slaughter for a given month over the previous 3 years, 
        except for 2020, during which [COVID]-19 related impacts and 
        cattle backlogs were considered.
          Source: USDA NASS, USDA AMS, LMIC, Rabobank 2021.
Figure 2. Annual Fed Cattle Slaughter and Total Cattle Inventory, 2000-
        2020
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: USDA NASS, LMIC, Rabobank 2021.
The Relationship Between Cattle and Beef Prices
    Packers are margin operators. Thus, operating costs influence the 
spread between cattle and beef prices, as packers attempt to capture 
some profit above operating costs. As operating costs increase, packers 
will attempt to pass some of those costs to their suppliers or 
customers, depending on who has the most leverage in the negotiation. 
This is no different than cattle feeders adjusting their feeder cattle 
bids based on feed prices and expected fed cattle prices.
    The relationship between fed cattle prices and beef prices is also 
driven by the relative balance between fed cattle supply and 
operational fed cattle processing capacity (the capacity actually 
achievable given labor conditions, equipment function, weather, and 
logistics). The greater the fed cattle supply in relation to processing 
capacity, the greater the spread between cattle prices and beef prices. 
In such a scenario, packers don't have to compete as aggressively to 
buy cattle, and cattle feeders are more willing sellers because packers 
can more easily find cattle elsewhere to meet their needs.
    Throughout the pandemic, packers simply haven't had the operational 
ability to harvest all of the cattle ready to be marketed. While record 
strong beef demand in both domestic and international markets and, at 
times, a limited beef supply have driven up beef prices, the bottleneck 
in packing capabilities has prevented that demand from being 
transmitted to the cattle sector. Beef cattle value is dependent on the 
ability to transform cattle into beef. The impacts of both the pandemic 
and the Holcomb, KS, plant fire severely constrained this 
transformation. A limited resource, in this case operational packing 
capacity, will be rationed to those willing to give up the most to 
access and incentivize that resource. On one end of the supply chain 
that means paying high prices for beef, while on the other, that means 
accepting a lower price for cattle. Under such extreme circumstances, 
cattle price could even be interpreted as how much cattle feeders were 
willing to pay (i.e., receive a lower selling price) to get an 
available harvest slot and clear their cattle backlog.
    Increased beef demand, which translates to a higher price for the 
same quantity of available beef, also seems to contribute to higher 
packer margins. Using quarterly data from 2002 through 2019, a 
structural supply and demand model was developed, representing the cow-
calf, cattle feeder, and packer segments, along with consumer beef 
demand. The results indicate that a 1% increase (decrease) in wholesale 
beef price (comprehensive cutout) is associated with a 0.8% increase 
(decrease) in fed steer price. Upon inserting 2020's market conditions 
into the model, accounting for consumer beef demand, fed cattle 
supplies, and operational packing capacity, it was predicted that the 
average spread between wholesale beef price and dressed fed steer price 
would increase by USD 25 per cwt vs. 2019. The actual price spread in 
2020 increased by USD 26 per cwt compared to 2019. This model does not 
account for the increased operating costs due to [COVID]-19 impacts, 
which would be expected to further increase the predicted gross margin.
    Packer gross margin as percent of sales revenue has also behaved 
within the realm of expectation. From 2002 to 2019, the correlation 
between annual estimated packer gross margin percent and annual 
estimated ratio of fed cattle supply to operational packing capacity 
was +0.73 (see Figure 3).
Figure 3. Estimated U.S. beef packer gross margin as percent of sales 
        and estimated fed cattle supply as percent of operational 
        packing capacity
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: USDA NASS, USDA AMS, LMIC, Rabobank 2021.

    A simple linear regression model to predict packer gross margin 
based on the ratio of fed cattle supply and operational packing 
capacity using the 2002 through 2019 data was estimated. When the 
resulting equation is applied to the estimated ratio of fed cattle 
supply to operational capacity for 2020, the predicted packer gross 
margin for 2020 is 27% (see Figure 4). The calculated packer gross 
margin based on USDA market data was 30%. Again, this analysis does not 
account for the increased operating costs due to [COVID]-19 impacts, 
which would be expected to further increase the predicted gross margin.
Figure 4. Predicted 2020 U.S. beef packer gross margin as percent of 
        sales
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: USDA NASS, USDA AMS, LMIC, Rabobank 2021.

    In both of the exercises described above, it's important to note 
that 2020 data was not used to train the models. Supply and demand 
relationships present in the beef industry prior to 2020 were used to 
estimate price relationships in 2020 with very respectable accuracy. 
This provides evidence that the same market relationships that were in 
play when packers were losing money in the early 2010s were also at 
play during 2020. Based on the conditions of the market in 2020, the 
spread between beef and cattle price has responded well within the 
bounds of expectation in both direction and magnitude.
Meeting Consumer Demand
    All beef industry value originates with consumers. Over many 
decades, centuries perhaps, consumers have increasingly demanded high 
volumes of high quality, consistently supplied, safe, and affordable 
food. The food supply chain, from retailers and distributors all the 
way to producers, has evolved to meet these demands through improved 
quality, safety, and production efficiencies. The beef supply chain is 
no exception.
    There is a small, but growing segment of consumers who place a high 
priority on sourcing food directly from primary producers or attach 
significant value to other specific food attributes. The market is 
naturally evolving to meet these preferences. However, for the vast 
majority of consumers, price, taste, and safety are still the most 
important factors.
    The use of economies-of-scale to increase production efficiency and 
reduce production costs motivated the mid- to late-20th century 
investment in larger packing plants and consolidation into larger meat 
packing companies. It also stands to reason that larger beef packing 
companies can better serve large customers, such as retailers and 
distributors, who have also grown in size in recent decades. It is 
worth noting that beef industry concentration has not changed 
meaningfully in the past 25 years, while beef and cattle prices have 
fluctuated dramatically based on market fundamentals.
    Cattle feeders and packers have turned to contractual agreements, 
defined as alternative marketing agreements (AMAs), to reduce marketing 
costs, supply chain risks, and increase capacity utilization, which 
reduces per head operating costs for both packers and cattle feeders. 
The inventory management offered by AMAs also helps improve the 
consistency of beef delivered to consumers by allowing fed cattle to be 
marketed in a more dependable and timely manner.
    Furthermore, AMAs offer convenient implementation of value-based, 
post-harvest marketing, which directly incentivizes and helps improve 
beef quality. Over the past 15 years, the share of beef grading Choice 
or Prime has increased from 55 percent to more than 80 percent. 
Improved beef quality and consistency grow consumer beef demand.
Mandates Have Costs and Major Risks
    If the government mandated a certain percentage of negotiated spot 
(cash) transactions between cattle feeders and packers, there is an 
exceptionally high likelihood that cow-calf producers would receive a 
lower price for their cattle. Cow-calf producers would bear the 
greatest burden of the negative impacts because they are primary 
suppliers rather than margin operators (i.e., there's no other market 
participant further upstream to pass the burden to).
    Government intervention into how cattle are marketed does not 
change the market fundamentals described above and thus will not 
improve cattle prices. Price discovery in some form or fashion is 
necessary in any market. It is possible that increased negotiated cash 
transactions could improve price discovery, but improved price 
discovery does not mean a better price. Price discovery means that we 
get closer to the ``true'', fundamentally driven market price. That 
``true'' price could be better or could be worse. We have no way of 
knowing exactly what that ``true'' price is. We can only estimate it 
based on market dynamics of supply and demand, such as those described 
above. And based on those dynamics, recent beef to cattle price spreads 
have been well within the range of expectations.
    In this context, a comparison of 2014 and 2020 is noteworthy. In 
2014, weekly cash transactions averaged 22.9 percent of all fed cattle 
transactions. In 2020, that measure was nearly identical at 22.5 
percent. The annual average live fed steer price was USD 154 per cwt 
and USD 108 per cwt for 2014 and 2020, respectively. The difference was 
fed cattle supply relative to operational packing capacity. In 2014, 
estimated market-ready fed cattle represented only 89% of operational 
capacity. In 2020, estimated market-ready fed cattle represented 120% 
of operational capacity.
    It has been suggested that mandating increased cash trade will 
bring more bids to the open market, increasing competition and 
increasing cattle prices. If all else stays equal, increased bids would 
be expected to increase price. But it is almost certain that all else 
will not stay equal. For both cattle feeders and packers, AMAs reduce 
marketing costs and reduce supply chain risks, while increasing 
capacity utilization, which reduces per head operating costs for both 
packers and cattle feeders. Increasing cash trade would do the 
opposite. As packer operating costs increase, they will decrease the 
price they pay for fed cattle. Again, this is no different than cattle 
feeders reducing their bids for feeder cattle when corn price 
increases. All told, it is very possible that the net effect of 
mandating increased cash trade could decrease cattle price while also 
increasing marketing costs and inventory risks for cattle feeders. 
Because cattle feeders are also margin operators, increased costs, 
increased risks, and lower fed cattle prices would ultimately result in 
cattle feeders paying less for feeder cattle and calves.
    All of the above points are supported by an immense body of 
economic research literature, as well as my own personal research. The 
most comprehensive research to-date on the topic of fed cattle 
transaction type and potential market power is the ``GIPSA Livestock 
and Meat Marketing Study--Volume 3: Fed Cattle and Beef Industries 
Final Report'' (RTI, 2007), which was commissioned by the USDA, 
authored by 16 economists from public institutions and nonprofit 
organizations, and peer-reviewed by multiple anonymous reviewers. Both 
market participant interviews and quantitative analysis conducted as 
part of RTI (2007) support the conclusions stated above. While the 
cattle and beef industry have continued to evolve since 2007, to my 
knowledge there is no published research that contradicts the full 
production system impacts that were estimated in RTI (2007).
Keeping the Future in Mind
    There is always opportunity to learn, adapt, and improve 
industries. However, it is important that today's ``solutions'' do not 
inhibit tomorrow's progress. Allowing markets the flexibility to adjust 
to a changing world and consumer is imperative.
    Price discovery is necessary for any market, but the source of 
price discovery can change. While the negotiated spot market currently 
serves as the primary base price reference for fed cattle formula 
transactions, other species, swine in particular, have shown that 
wholesale meat prices (pork cutout value) and futures prices can also 
serve as reference prices. In some cases, base price for hog formulas 
is calculated as a combination of negotiated spot, pork cutout, and/or 
futures price. If cattle producers truly want cattle prices to more 
closely reflect consumer demand, it may make sense to price cattle 
based on transactions that occur closer to the consumer (e.g., meat 
prices) rather than farther away (e.g., negotiated cash). It's 
important to note that all reference prices have advantages and 
disadvantages.
    AMAs will play a critical role in the market of the future. 
Consumer, investor, and government demand has positioned sustainability 
as a major and growing focus across all of agriculture. Marketing beef 
in grocery stores and restaurants based on sustainable cattle and beef 
production practices has already begun. Given the sustainability goals 
of major beef and food companies, beef brands centered around 
sustainability will continue to grow. Verifying and tracing sustainable 
production practices throughout the entire beef supply chain and 
guaranteeing a supply of cattle that meet sustainability standards for 
a particular brand require information sharing and supply coordination 
between market participants. As already discussed, one of the best ways 
to coordinate supply chains and incentivize demanded traits is the use 
of AMAs or other contractual agreements.
The Opportunity for Packing Capacity Expansion
    Even before the extremes of 2020, recent margins suggest that there 
is opportunity to add packing capacity. However, that opportunity does 
not come without significant risk. Escalating drought conditions 
coupled with a currently contracting cow herd foretell of cyclically 
tighter cattle supplies over the next few years.
    Several considerable hurdles must be addressed by both incumbents 
and new entrants to achieve success regarding new capacity. First, the 
up-front cost of a new or expanded plant is extremely expensive. Based 
on recent new plant announcements and the current environment of high 
construction costs, a new plant currently costs roughly USD 200m for 
every 1,000 head of daily capacity. Putting together and allocating 
that kind of capital is not a simple exercise, particularly for a 
potential newcomer.
    Second, it's challenging to compete with the established supply 
chain networks, markets, and efficiencies of existing plants, even if a 
new plant were opened by one of the large incumbent packing companies. 
Not only have major packers achieved economy of scale, but most all 
have also achieved economy of scope. Packers are increasingly involved 
in value-added processing that targets specific customers, such as 
case-ready retail cuts or ground beef products. Most existing plants 
already proved their competitiveness and fitness for survival when the 
last cattle cycle forced less-efficient plants out of business in the 
early and mid-2010s. It's not just about building a facility, it's 
about building a business model.
    Third, the packing sector has been facing labor challenges for 
years. Building a skilled and dependable work force in what may likely 
be a region that already has a packing plant presence will be a 
formidable task.
    Finally, the capital depth and longevity required to build and 
maintain a new plant through its first cattle cycle precludes most 
would-be investors from considering such a project. If a packing plant 
project is initiated at peak cattle numbers when packing margins look 
favorable, it's likely that the cattle cycle would turn over in the 
multiple years required to build the plant, meet regulatory 
requirements, and start harvesting and that the new plant would have to 
operate with tight cattle supplies and negative profit for its first 
few years of business. That's not a recipe for thin capital or weak 
hearts.
Beef Packing Plant Gross Margin Outlook
    Figure 5 and Figure 6 apply a model that includes the fed supply to 
operational packing capacity ratio, percent of weekly slaughter on 
Saturday (which accounts for the strain being put on employees and 
facilities), U.S. domestic beef demand, and U.S. export beef demand to 
predict beef packer gross margin as percent of sales. Both figures 
assume a 5,000 head per day expansion in total industry operational 
packing capacity by 2023. The key difference is beef cow inventory.
    With the Jan[.] 1, 2021 beef cow inventory at 31.2 million, Figure 
5 assumes that beef cow inventory bottoms at 30.5 million head in 2023. 
Figure 6 assumes that beef cow inventory bottoms at 30 million head in 
2023. Figure 5 forecasts gross margin to return to levels similar to 
2016 and 2017. However, the gross margin forecast for 2023 in Figure 6 
is 2.5 percentage points below the same year in Figure 5 and 
dangerously close to the unprofitable early 2010s.
    Predicting the future is hard. The point of this exercise is to 
illustrate that if the beef cow inventory only declines moderately, 
5,000 head per day of new packing capacity should have relatively 
favorable conditions to initiate operations. If the beef cow inventory 
declines sharply, the first few years of new capacity could be 
incredibly challenging from a profitability perspective.
Figure 5. Forecast of U.S. beef packing gross margin percent assuming 
        total industry operational packing capacity expands by 5,000 
        head per day by 2023 and U.S. beef cow inventory declines to 
        30.5 million head in 2023
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Note: Shaded area represents two times the 2010 to 2020 RMSE. 
        DD = U.S. beef domestic demand index, EXD = U.S. beef export 
        demand index.
          Source: USDA NASS, USDA AMS, LMIC, Rabobank 2021.
Figure 6. Forecast of U.S. beef packing gross margin percent assuming 
        total industry operational packing capacity expands by 5,000 
        head per day by 2023 and U.S. beef cow inventory declines to 30 
        million head in 2023
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Note: Shaded area represents two times the 2010 to 2020 RMSE. 
        DD = U.S. beef domestic demand index, EXD = U.S. beef export 
        demand index.
          Source: USDA NASS, USDA AMS, LMIC, Rabobank 2021.
Industry Response
(1) New construction and expansion
    In response to the economic signals being sent from the imbalance 
of cattle supplies and operational packing capacity, numerous plans for 
greenfield plants or expansions of existing facilities have been 
unveiled in recent months. These plans come from new entrants, minor 
incumbents, and major incumbents alike. If all of the announced plans 
for plant construction and expansion come to fruition, 8,000 to 9,000 
head of daily fed cattle capacity and more than 2,000 head of daily 
non-fed capacity could be added to the U.S. beef industry over the next 
5 years.
    Most all of the greenfield construction or new entrant plans are 
small to medium sized (500 to 1,500 head/day capacity), supply chain 
coordinated, and focused on product differentiation premiums. If these 
smaller plants are going to compete with the efficiency, economic 
scale, and scope of the large incumbents, they will have to be 
successful in these supply chain relationships and product 
differentiation. Differentiated beef requires differentiated cattle. 
The best way to secure a consistent supply of such program cattle is 
through alternative marketing agreements. Not only are cattle supply 
relationships critical, but strong relationships with buyers (for every 
piece, not just the high-value cuts) are critical. Again, entering the 
meat packing space is not just about building a facility, it's about 
building a business model.
    Current consumer and investor trends suggest that moving forward 
there's real opportunity for beef companies with traceable, well-
informed, coordinated supply chains that can verify production 
practices and differentiate product on more than just eating quality. 
Thriving export markets and growing export opportunities also point to 
ever growing demand for U.S. beef. Many of the current plans to build 
new capacity are a long way from realization with many of the 
previously described challenges yet to be tackled.
    Local lockers and `micro-plants' have a place in direct-to-consumer 
marketing and can play an important role in rural communities, however 
they simply don't offer enough scale to make a measurable, industry-
wide impact in the balance of cattle numbers and packing capacity. That 
said, with the proper business model, they can offer great 
opportunities for some operations.
(2) Technology
    Additional operational capacity does not have to come solely from 
new facilities. Whether in new or existing plants, increased technology 
implementation will be a critical component of future success. 
Recently, many packers have revitalized their focus on technology 
development as a means to address labor challenges, manage processing 
costs, and reduce product waste. Enlightened by the pandemic to the 
long standing labor shortages in the meat industry, many startups are 
also bringing outside expertise and perspectives to advance technology 
in the meat supply chain.
    Maintaining necessary skilled labor has long been a challenge for 
packers. [COVID]-19 has magnified labor challenges and revealed the 
necessity of additional employee safety measures. Although hazard 
bonuses, additional sick leave, and other costs most directly 
associated with the pandemic will diminish with time, many additional 
labor costs associated with employee well-being, including base wages, 
benefits, and in-plant safety measures will persist into the future.
    As the packing plants of the future gradually become more 
automated, efficiency will improve and throughput volatility will 
decrease. Operating hours may also become less restrictive, 
particularly if technology allows for a smaller Saturday workforce. 
While increased automation in carcass breakdown and fabrication is 
certainly a long-term goal, improved production-line data collection 
and machine monitoring have the most near-term promise. Increased real-
time production-line monitoring will help identify choke points and 
inefficiencies while preventing breakdowns and the introduction of 
foreign material. Estimating current industry daily fed slaughter 
capacity at roughly 100,000 head, even a one percent improvement in 
efficiency across all existing plants could add 1,000 head daily fed 
cattle capacity. The final result will be an inherent increase in 
operational capacity at existing plants. However, these changes will 
take time.
A Note of Caution
    As already described, current market fundamentals suggest that for 
those willing to take the capital risk and do the work to build a 
viable, competitive business, today may offer the best opportunity in 
decades to expand packing capacity. Yet, there is a point where 
industry capacity expansion goes too far to withstand cyclical periods 
of tight cattle supplies. Support for new packing capacity that is 
given too freely, without enough private risk, and with disregard to 
long-term market fundamentals, may invite over-expansion, putting all 
market participants in jeopardy, particularly new entrants.
Cattle Producer Risk Management
    Supply chain disruptions presented challenges for all producers, 
and risk management goals and outcomes vary depending on the individual 
producer and the strategy implemented. That said, a general conclusion 
is that risk management strategies performed as expected, or perhaps 
even better than expected considering the record positive basis during 
the periods of the most extreme market uncertainty and price declines, 
and effectively protected prices for those producers who had risk 
management plans in place.
    CME Group offers both futures and options contracts for Live Cattle 
and Feeder Cattle. While continuous monitoring for potential 
improvements and changes is necessary, Live Cattle futures and options 
contracts in their current form are used extensively as risk management 
tools.
    Using Feeder Cattle futures and options can be more challenging. 
Compared to Live Cattle, Feeder Cattle futures basis has more seasonal 
and regional variability resulting from seasonal and regional 
variability in supply of and demand for feeder cattle. For some 
contracts, the often strong seasonal price appreciation from initial 
trading to expiration precludes some producers from using feeder cattle 
futures as a risk management tool. There is also consistently lower 
volume in Feeder Cattle futures trade. Combined, these factors can 
limit the use of Feeder Cattle futures.
    Livestock Risk Protection (LRP) offers a viable alternative to 
using commodity futures for risk management, particularly for calves 
and feeder cattle. Whereas commodity futures contracts have a fixed 
contract size, LRP's head count flexibility is an attractive feature. 
With major changes to LRP in recent years, including expanded head 
count limits, increased premium subsidies, and allowing premium 
payments to be made at the end of the coverage period, even producers 
who considered, but decided against implementing the product in the 
past may find the new specifications more accommodating. LRP can be a 
reasonable option to protect producer revenue in the case of a general 
market decline and may be particularly attractive to small to mid-sized 
producers or producers who are less familiar with or do not care for 
the attributes of commodity futures.
    Forward contracts often utilize futures contracts as well. In many, 
or probably most cases, forward contracts establish basis at contract 
initiation and allow producers to lock-in a selling price based on the 
futures contract that is nearest, but not before the agreed upon cattle 
delivery period.
    In general, risk management tools, used individually or in 
combination, can be used to achieve two different goals: to either 
``lock-in'' a price or price window, or protect a producer from a price 
move in the undesired direction (price decrease if a seller, price 
increase if a buyer). It is important to note that risk management does 
not guarantee profitability, but it can decrease uncertainty and help 
prevent catastrophe. While each risk management tool offers unique 
advantages and disadvantages, many cattle producers have effectively 
employed the currently available suite of risk management tools. Such 
risk management tools encompass not only cattle prices, but feedstuffs, 
such as corn futures and USDA's Pasture, Rangeland, Forage (PRF) 
insurance program.
Producer Education
    Producer education is key to cattle and beef industry success, and 
university extension programs have a critical role to play. Evaluating 
current extension programs, practices, and funding for opportunities to 
revitalize producer outreach, improve effectiveness, and better fit 
communication strategies with 21st century technologies is necessary 
and would be an extremely worthwhile endeavor. The wide array of 
responsibilities faced by beef producers, particularly small and 
medium-sized owner-operators, often means that financial assessment, 
business strategy, and risk management take a backseat to immediate 
animal husbandry demands. Cow-calf producers in particular would 
benefit from risk management education efforts. The importance of 
consistent, thorough, and applicable producer education, particularly 
surrounding business management and risk management, cannot be 
overstated.
Price Spreads Will Narrow
    The biology and natural time-delays of the beef industry make it 
slow moving and capital intensive. Adjustments take years. Total U.S. 
cattle numbers peaked in 2019 at 94.8 million head and will likely 
contract for another couple years. If not for the pandemic disruptions, 
cattle supplies and packing capacity would already be much better 
aligned. In such a ``No-[COVID]'' scenario, current packer gross margin 
percent would likely be closer to 2018 levels, 18%, rather than today's 
30%.
    With any luck we will work through the long tail of 2020's cattle 
backlog in Q3 2021. Year-over-year cattle prices are already improving 
and should continue to do so through 2H 2021 and beyond. In conjunction 
with tightening cattle supplies, capacity expansion will come online 
over the next several years and new technologies will reduce labor 
constraints, further shifting margins to the benefit of cattle 
producers.
Markets At Work
    The shocks to the beef industry over the last couple years have 
presented the entire beef supply chain with enormous challenges. The 
resulting price movements have been frustrating for cattle producers, 
to say the least. Yet, these same price movements and supply chain 
disruptions have also contributed to the accelerated investment in 
packing capacity expansion, new technologies, and new business 
strategies that will help the beef industry adapt and evolve to ever 
changing demands. That's the market at work.

    The Chairman. Well, thank you very much, Dr. Aherin, and 
basically what you are saying is what has always proven true, 
and that is necessity is the mother of invention, and that in 
terms of the changes that have occurred in the food supply 
chain, the necessity of the combination of factors that we have 
outlined this morning have resulted in innovation and changes 
within the beef cattle market industry.
    All good testimony, folks, and now, we will get to the 
opportunity for Members to ask questions in your allotted time. 
I conferred with the Ranking Member here. It is the chair's 
wish, if we can make it work, and we will try to make it work, 
that when votes are called we will continue to go, and people 
go and come back. We have three votes, supposedly.
    The list that I have here among Members who wish to speak 
and ask questions on the Democratic side: Axne, Rush, Craig, 
Hayes, and Spanberger. On the Republican side: DesJarlais, 
Kelly, Bacon, Baird, Mann, Feenstra, Moore, Hartzler, Rouzer, 
and possibly LaMalfa, who is participating. That is the list I 
have in the order it has been given to me.
    So, with that said, let me begin my questions.
    Dr. Lusk, as you know, we have had in the West drought-
stricken challenges that we have been faced with. Ranchers and 
farmers, dairymen and -women have been impacted by these 
droughts. Eighty-five percent of the respondents rated selling 
out portions of their herd or flocks as prevalent or higher in 
their area. Can you talk about how the extreme drought has 
impacted, along with wildfires in the western United States, 
including California that we are experiencing right now, and 
how it might impact the beef supply chain and cattle markets?
    Dr. Lusk. Sure. I think for those folks that are 
experiencing drought, it is an extraordinarily difficult 
position, and it is one of the factors that leads to these 
cycles that I think I alluded to, also Dustin, I believe 
alluded to as well, that some of that liquidation that is 
happening now is going to have repercussions 3 or 4 years from 
now.
    Unfortunately in some cases bad news for people in the West 
is good news for people in other parts of the country, because 
it will eventually lead to some higher prices as there are 
fewer supplies in the market. Fewer cattle on the market will 
support future prices.
    I think it is a very difficult time. It does suggest, to 
me, to protect against weather-related risks and price-related 
risk, and I think there are a number of tools available to 
producers to help protect, at least somewhat, against those 
adverse situations. I think it also speaks to the need to 
understand some of the impacts of climate change on the 
industry, and think about research and technology science that 
can be used to help producers adapt to and be more resilient in 
the face of some of these changing weather conditions.
    The Chairman. Thank you.
    Members, I initiated a letter that many of you signed to 
Secretary Vilsack that urged the USDA to take a stronger role 
in helping food and agriculture industry bolster their 
cybersecurity and better respond to cyberattacks.
    [The letter referred to is located on p. 61.]
    The Chairman. Dr. van de Ligt, I would like you to comment. 
In your testimony, you referenced an alphabet soup of 
government agencies and some tied to cybersecurity. Can you 
comment on how the interagency is working together or should be 
working together? Too often I think we operate in silos that 
really aren't helpful to ensure that our Federal Government as 
a whole, as well as the industry, are better prepared to fight 
cyberattacks as a whole. And I would like your comments on the 
recent efforts that we have experienced on the payoffs of 
ransomware, and whether or not that should be encouraged or 
discouraged, and your thoughts on that. Dr. van de Ligt?
    Dr. van de Ligt. Great, thank you. A couple questions 
there.
    Within the food sector, the alphabet soup of agencies, 
USDA, FDA, DHS, FBI, they all play a role. Part of that is 
because of the way that food is----
    The Chairman. Are they talking to each other?
    Dr. van de Ligt. I am. Can you hear me?
    The Chairman. No, no, I said are these alphabet of agencies 
talking to each other? I know you are talking to us.
    Dr. van de Ligt. I am sorry. They do. They do, Chairman 
Costa. So, there is a food and agriculture critical 
infrastructure government coordinating and sector coordinating 
council, and so, there is communication at that level. They do 
talk, but there are still some inefficiencies in that. One of 
the reasons that we recommended that USDA take the lead, 
particularly with cybersecurity, is because they have more 
influence across the broader set of agriculture, particularly 
pre-harvest. But it is really important that they continue this 
collaboration and this communication.
    DHS and FBI are two interesting ones that come in. DHS, 
from a national security perspective, as you alluded earlier, 
food supply is actually a national security issue, and so, they 
bring a different influence and a different view to the table. 
FBI, particularly in the cybercrime arena, is really important.
    But we also can't forget our private-sector partners, 
because they are the ones that are going to be doing much of 
the work. And so, this collaboration and this communication 
through--and I think we can begin it and continue to implement 
it through the GCC and SEC--but we should also take into 
account the Congressional actions that have already taken 
place. So, for example, the Food Safety and Modernization Act 
(Pub. L. 111-353) actually has an infrastructure--a legal 
infrastructure in order to--that could be leveraged to move 
cyber defense forward in the food industry under the auspices 
of how it impacts food safety and things like traceability.
    The other----
    The Chairman. Well, we'd like your recommendations, and my 
time has expiring here, I apologize, but your view on 
ransomware?
    Dr. van de Ligt. That is where I was going, on ransomware.
    Ransomware is really the nemesis right now, and as 
publicity increases and more people are paying off ransomware 
attackers, it becomes more lucrative for them to be able to do 
that. And that, particularly, is true in the realm of 
cryptocurrencies.
    So, I think we will see a rise in ransomware; however, we 
are also finding that there is a way to pull back. I think like 
in the case of JBS, through our FBI and our Federal partners, 
they were able to pull back some of that payment. So, that 
offsets it. But publicity and money, it drives a lot of 
evildoers in the society, and so, I do think we can continue to 
see it--cyberattacks continue to perpetrate themselves.
    The Chairman. Well, my time has expired, but, this is 
something I want to pursue further in terms of the appropriate 
role in which we can protect the private-sector, because I 
think this is going to continue until, whether it is through 
the NSA or FBI or other means of the Federal Government to 
provide this protection, because of the factors that are 
involved.
    My friend, the Ranking Member, it is your opportunity to 
ask questions or make comments.
    Mr. Johnson. Thank you, sir.
    Dr. Aherin, I will start with you. I thought your addendum 
to your testimony was very interesting insofar as it showed how 
high packer margin had been in the last 3 or 4 years, and then 
how modest it was in maybe the 10 or 15 years prior to that.
    We have heard some discussion today about an extra 5,000 
head of capacity likely coming online. What would be--maybe in 
just 1 minute--what would be the impact on packer margin if 
that new capacity does show up?
    Dr. Aherin. So, all else equal, expanding packing capacity 
would likely reduce packer margins, because it is going to 
increase competition for cattle, which will drive up cattle 
prices. And I think it is important to remember that packers 
are margin operators, so the money that they make is the 
difference between beef price and cattle price, and the cost 
that they incur to turn those cattle into beef.
    Mr. Johnson. And we have seen futures trend up. Is the 
market baking in some of these assumptions about capacity 
expansion?
    Dr. Aherin. In terms of futures, I think the primary 
driver, at least in current contracts, is tightening cattle 
supplies. We largely worked through the one million head 
backlog that was created in the second quarter of 2020 when all 
those plants were shut down or slowed down, and we are going 
through extreme drought situations in much of the country. The 
cow herd is in a contractionary phase. So, a lot of these 
plants that are being built, if they are successful, won't come 
online for a number of years. So, I think the most immediate 
price moves are due largely to cattle supplies.
    Mr. Johnson. Yes, excellent point about the short-term 
versus the long-term.
    So, I mean, I would be interested in getting the take on 
this next question from Dr. Aherin, Dr. Lusk, Dr. Jacobs if we 
have time.
    Dr. Lusk, I was struck by your point. I will put some words 
in your mouth, but basically that just expanding capacity maybe 
in a dumb way might create another set of bankruptcies or 
acquisitions on the capacity side. I think we do--to the extent 
that we do anything, I think we do want it done in a smart way 
and in a way that will create some abiding and some sustainable 
benefits.
    So, Drs. Aherin, Lusk, Jacobs, how do we try to make sure 
that these policy interventions are done in a helpful, long-
term beneficial way?
    Dr. Lusk. I think from my perspective, the best case for 
expanding capacity is really the one related to the resiliency 
issue. In my view, resiliency is not necessarily related to the 
size or the location.
    The problem we had during the pandemic was just there 
wasn't enough space for those cattle to go, and the problem was 
there was no individual packer's capacity to have excess 
capacity that they are not currently utilizing. I don't think 
there are really any easy answers to that problem, but you 
know, if you want excess capacity to exist in the system, 
somebody has got to pay for it at the end of the day.
    Dr. Aherin. From my perspective----
    Mr. Johnson. Not to put words in your mouth, but I think 
the whole point of your testimony is that cooperative ownership 
could provide a way to invest in a way that you would think 
would be more sustainable and abiding. Is that right?
    Dr. Jacobs. Yes, that is right, and I think there are a lot 
of benefits to a supply chain from cooperation and producers 
have the ultimate incentives to ensure the sustainability, the 
security of their supply chains. Their livelihoods depend on 
it.
    I do want to say, though, however that the margins have to 
be there. A cooperative model is not a fix to a market to a 
business model that is not profitable, part of the supply chain 
is not profitable. So, that has to be there and that is why I 
was suggesting that there needs to be investment to help 
understand what the minimum efficient scale is so that there 
can be margins that--producer ownership and processing, and 
help in scaling up to that.
    Mr. Johnson. Thank you.
    Dr. Aherin, the last minute is yours.
    Dr. Aherin. So, one thing I think we really need to focus 
on is, it is not just about facilities. We have to be able to 
meet consumer demands in a cost-effective manner, and simply 
trying to replicate commodity cattle processing facilities, 
beef processing facilities for some of these smaller 
initiatives really is probably not destined for success. So, I 
think really investing in research and market research and 
business model development, understanding consumers and how do 
we get the cattle that we need to meet that product 
differentiation. I think that is where a lot of the focus needs 
to be.
    Mr. Johnson. Thank you, and Mr. Chairman, I yield back.
    The Chairman. I thank the gentleman, and the next Member to 
be recognized is Congressmember Craig from Minnesota. 
Congressmember, are you on there? I see you.
    Ms. Craig. Yes, Mr. Chairman. Thank you so much, Chairman 
Costa, and thank you to Ranking Member Johnson as well for 
calling this hearing to focus on the beef supply chain and the 
overall security of our food supply chain.
    Given the consolidation in the beef packing and meat 
processing industry and the events of this past year, including 
the COVID-19 pandemic and the increasingly common cyberattacks 
targeting U.S. industries, today's conversation is especially 
relevant.
    Thank you also to those who have testified today. I 
appreciate the input you shared with us, and I am especially 
grateful for your work to tackle these incredible challenges we 
have before us.
    During the most recent meeting of my bipartisan Farmer 
Advisory Council, the issue of processing capacity and supply 
chain stability came up over and over. Producers in my district 
have struggled to get their product to market due to the 
facility closures during the pandemic, and other unexpected 
events like the JBS attack. Unfortunately, we don't know when 
the next cyberattack or black swan event is coming, and farmers 
and ranchers in my district need these supply chain issues 
addressed immediately.
    With that perspective in mind, I want to ask a question 
both to Dr. Aherin and a question to Dr. van de Ligt.
    First, Dr. Aherin, thank you for your testimony and your 
mention of how additional processing capacity can come from new 
facilities and also from expansion and increased investment in 
existing facilities. Can you talk a little more about the 
challenges that existing facilities face when seeking to expand 
their operations, and what steps could be helpful in addressing 
those challenges?
    Dr. Aherin. Certainly. One of the biggest challenges facing 
existing operations is labor and meeting the labor needs. A 
facility doesn't do any good if we don't have the labor or the 
technology to put product through that facility. I think one 
area that really deserves a lot of attention is technology and 
automation, and trying to work smarter, not harder in terms of 
getting beef product through these facilities and relieving 
some of these labor challenges.
    So, a key point I want to make is that when I talk about 
processing capacity, I am really focusing on operational 
capacity. So, not the physical size of the facility, but what 
is our throughput? And you can increase throughput in a number 
of ways, and one of those ways is more efficient production 
through technology.
    Ms. Craig. Incredibly important, thank you.
    I now want to turn to Dr. van de Ligt. Thank you for your 
leadership on food systems security at the University of 
Minnesota. Your testimony on the current state of cyber 
resilience in the food supply chain makes it incredibly clear 
that we have a long way to go in ensuring immunity from 
sophisticated attacks on operating technology systems. Your 
recommendations are incredibly helpful.
    I am wondering if you can expand a little bit on what 
companies are doing in light of the JBS cyberattack to improve 
their cybersecurity systems. What can Congress do to ensure 
those efforts are thorough and successful?
    Dr. van de Ligt. Thank you, Congresswoman Craig.
    So, the private-sector obviously takes these risks very, 
very seriously. Anytime that they are down with a cyberattack, 
they are losing money. So, there is an economic incentive to 
prepare. What is difficult is that many of our private-sector 
partners don't really embrace or fully understand the 
difference between informational technology, so email, data 
records payroll, things like that versus their operational 
technology. So, one of the things that can be done is working 
with this collaborative partnership of government agencies to 
really take some of the cybersecurity best practices that are 
prevalent in other critical infrastructures and adapting them 
so that they are fluent across both the informational and the 
operational technologies within--that are specific in the food 
and ag infrastructure.
    And then the other thing is Congress could encourage 
regulatory agencies to take full advantage of the Food Safety 
Modernization Act to use the strength of that law to create an 
equal playing field and a requirement that cybersecurity be an 
essential component in their food safety plans. Because these 
cyberattacks, they don't just have the opportunity to cause a 
company to cease business, they also have the capability of 
putting unsafe food in the market.
    So, the regulatory and the legal structure already exists, 
it is just encouragement to take advantage of that.
    Ms. Craig. Thank you so much, Dr. van de Ligt, and I think 
with that, my time has expired and I will yield back.
    The Chairman. We thank the gentlewoman from Minnesota, and 
the next Member in order is Mr. DesJarlais from Tennessee.
    Mr. DesJarlais, it appears that you are at your office. You 
have 5 minutes.
    Mr. DesJarlais. Thank you, Chairman Costa. I appreciate 
that.
    Tennessee is a large producer of cattle. It ranks about 
12th in the nation, and cattle and calf receipts rank number 
two in the state for total farm cash receipts, so this is an 
important issue for us, as it is in many states. We are blessed 
to have the largest Farm Bureau in the nation in my district in 
Columbia, Tennessee, so we are so glad you are all here today 
to help us sort through these tough issues.
    Dr. Aherin, Tennessee farmers want to know that they are 
receiving a fair price for their cattle. How can Congress help 
increase transparency into this cattle market, while also 
ensuring that today's solutions do not inhibit tomorrow's 
progress?
    Dr. Aherin. So, from a transparency perspective, I think we 
need to recognize that mandatory price reporting really does a 
lot already. I think there are certainly some places where we 
can investigate expanding some of that price reporting as we 
reauthorize LMR, moving forward. I think a couple of areas 
could be reporting some base prices on formula transactions. I 
also think it is worth noting that in a lot of ways, the 
formula pricing bucket is kind of a catch-all, and it has 
become a very large portion of transactions at the fed cattle 
level. So, there may be some opportunity to just aggregate that 
a little bit without getting into too many confidentiality 
challenges.
    Mr. DesJarlais. Okay, following up to that, what are the 
positives for farmers and----
    Dr. Aherin. Another area that I think is worth exploring is 
price reporting----
    Mr. DesJarlais. Okay, I am sorry. What are the positives 
for farmers and feedlots to entering various contracts like 
formula grid future with the packers rather than just selling 
cattle through negotiated trade?
    Dr. Aherin. So, alternative marketing agreements, which are 
agreements that occur outside of the calf spot cash market, 
they really help to minimize supply chain risks, reduce 
marketing costs, increase capacity utilization both at the 
feedlot level and the packer level. So, really, what this does 
is it reduces operational costs and operational risks, which, 
in turn, filters down to being able to pay higher prices for 
cattle as it goes back to the cow-calf sector.
    Mr. DesJarlais. Okay. Thank you, Doctor.
    My last question is for Dr. Lusk. Labor recruitment 
retention is a chief concern shared by meat producers of all 
sizes. How do labor shortages at meat plants impact cattle 
producers, and in your view, can Congress do anything to aid in 
workforce recruitment and retention efforts?
    Dr. Lusk. I agree with what Dr. Aherin said earlier, that 
what you really want to focus on is effective capacity. Even if 
you have the buildings, you need the labor there, and so, in a 
way, labor acts as a constraint on capacity.
    Visa issues, there is a lot of foreign labor that is 
employed in these plants, thinking about immigration and visa 
policies that increase that availability, and then, of course, 
thinking about opportunities for domestic workers too, whether 
it is workforce training or what have you, I think are 
important.
    And then the other piece of this is investments and 
research related automation to make these plants less reliant 
on laborers. So, I think a combination of those are three 
things that you could think about, immigration issues, training 
issues for domestic workers, and then investments in research 
and automation.
    Mr. DesJarlais. Okay. I said that was my last question, but 
in the here and now, have you noticed a difference from state 
to state on labor shortages where states like Tennessee that 
drop the unemployment bonus, the $300 per week unemployment 
bonus, have you seen an increase in uptake in production in 
those state that have done that?
    Dr. Lusk. Sure. I mean, this is a matter of debate among 
some economists a lot of impact that extra unemployment 
benefits and payments have been associated with the COVID 
recovery Acts have done to our labor force.
    My view is it probably has some effect. It has had some 
effect on people's willingness to engage in the labor force. 
What we do see is in food processing, we have seen some pretty 
significant increases in wages as well, so it is an attempt by 
packers to try to pull up, pull labor in, but that is fighting 
against people's other incentives to do different things. So, I 
think it is a difficult balance there.
    I am not personally aware of big regional or geographic 
differences in there, although I am sure they probably exist.
    Mr. DesJarlais. All right. Thank you, Dr. Lusk, and 
Chairman Costa, I yield back.
    The Chairman. I thank the gentleman for yielding back, and 
the chair will now recognize the gentlewoman from Iowa, a very 
significant beef state in this country, Congresswoman Axne. 
Congresswoman Axne, are you there?
    Mrs. Axne. I am here, Mr. Chairman. Thank you. Can you hear 
me?
    The Chairman. Please, go ahead.
    Mrs. Axne. Okay. Thank you, Mr. Chairman, for holding this 
important hearing certainly, and the witnesses here for sharing 
your testimony with us on the Committee.
    We all know that over the last year and a half, the COVID-
19 pandemic exacerbated our supply chain issues with the beef 
industry, and our producers faced bottlenecks, and processing 
price fluctuations, and increased uncertainty. These issues 
aren't new, and as a result, producers in Iowa are definitely 
feeling the harmful effects.
    I have heard time and time again from my constituents 
something needs to change, so just this month, I was with 
Secretary Vilsack touring a couple of operations in southwest 
Iowa for the Secretary's announcement to expand processing 
capacity. And we heard directly from producers who told us they 
recently literally had to sell their cattle at a loss only for 
the packer to turn around and make a higher profit on it.
    I know these stories aren't unique. We have all heard of 
them, and I am sure many of my colleagues on both sides of the 
aisle would attest that we need to change that. Obviously, this 
isn't right. It is not sustainable, and it is something that we 
need to change. I am so glad that Secretary Vilsack is putting 
funds from the American Rescue Plan towards this issue to help 
us expand more processing capacity and increase competition in 
the industry.
    We need more regional processing, more price discovery, and 
more competition so our family farmers in Iowa can be 
profitable and stay in operation.
    So, Dr. Jacobs, first off, always great to see an Iowan. 
Thank you for being here before the Committee and joining us 
today.
    I am particularly interested in the ideas in your testimony 
to support producer ownership of processing facilities. You 
gave a couple of examples of smaller scale operations that are 
producer-owned but noted that there really aren't any large-
scale facilities that are owned by the producers.
    So, my first question is you offered a few reasons as to 
why this might be the case, such as economies-of-scale and 
suggested that USDA reaches minimum efficient scale for 
processing. Can you elaborate a bit here as to what such a 
study might look like, and what you think they might find?
    Dr. Jacobs. Thank you for that question, and I can 
elaborate on what a study might look like, and I think it is 
important to understand that, I want to clarify as part of my 
testimony that I wasn't trying to suggest that producer 
ownership may reach the same capacity as some of the very large 
processors we have right now, or maybe that it is even 
necessary. But they do need to reach a capacity--that allows 
for some profitability in those margins.
    And I think what is important to note here is that when you 
have producer ownership in the downstream markets, for example, 
producer ownership of the packers--the processing, excuse me. 
The example you gave where the livestock producer lost money on 
the sale of cattle to the processor only for the processor to 
have a very large margin, all of those then, that value would 
be aggregated back at the producer. So, that does help solve 
that--partially mitigate that challenge.
    I think a study needs to understand--and I know we see a 
number of plants that have announced coming onboard potentially 
at 500 head per day. Anecdotally, I think that is the number I 
have heard, and I am not prepared to testify about the 
economics of that because I am not an expert in livestock 
economics. But I think something to understand where, on 
average, margins can be profitable at the processing level. 
They don't necessarily have to be on the same level of margins 
of the very large-scale processors. But something to understand 
that is needed. And I think we have the data to do that, and 
we, through surveys of existing processing and producers and 
the data we have, I think we can do that.
    Mrs. Axne. Just out of curiosity, how long do you think a 
study like this would take?
    Dr. Jacobs. How many economists are on it? Sorry, that was 
flippant.
    A couple months? I am not really sure.
    Mrs. Axne. Okay. I just want, for curiosity because as we 
get moving on this, I want to see what kind of timelines we are 
looking at. I appreciate that.
    The other thing I wanted to see if you could expand on in 
your testimony is how these producer-owned facilities would be 
more resilient and could navigate some of these supply chain 
problems that we have talked about today?
    Dr. Jacobs. I think the resiliency really comes through the 
coordination that happens between the producers and the part of 
the supply chain they own. So, when you have communication 
between the producers and the company that they own, you get 
more information exchange. You get more pricing exchange. It 
allows producers to be closer to the consumer and closer to the 
wholesale and the retail markets, in that case. And so, while 
we don't have examples, we can't say for sure, for example, 
that the experience of a producer-owned or a cooperative and 
processing would have been any different in the face of COVID 
or some of the other shocks that we have had, we do see 
examples where cooperatives have exemplified more resiliency.
    One example of that, for example, is Land O'Lakes during 
COVID didn't dump a single gallon of milk. Now, their situation 
is different and the shocks to their supply chain were 
different than what would be facing livestock processing, but I 
think because the communication, because of that, that 
intricate tie between the producers and the processing that 
could exist, you are going to get more creative solutions, in 
my opinion.
    Mrs. Axne. Well, I appreciate that, and as somebody who 
spent time talking with the CEO of Land O'Lakes and knows a 
little bit about how they operate, I couldn't agree with you 
more. I think their internal operations helped them create the 
resiliency that they needed.
    So, thank you so much. I appreciate that, and I yield back.
    The Chairman. We thank the gentlewoman. Her time has 
expired, and the chair will now recognize the gentleman from 
Mississippi, Mr. Kelly.
    Mr. Kelly. Thank you, Chairman Costa, and thank each of you 
witnesses for being here and this important testimony.
    Dr. Lusk, you mentioned immigration. Specifically, what 
policies or work policies can we implement in that arena to 
make it better?
    Dr. Lusk. I can't claim to be an expert on those issues; 
but, from my understanding, numbers of H-2A visas, these sorts 
of things, the types of workers that would be most likely to 
work in these processing plants would be a place that I would 
start looking. But, there are probably people more qualified 
than me to answer that specific question.
    Mr. Kelly. Okay, but to make it easier for renewals and to 
make sure that we can get those folks in here when we need them 
and to make it easier for them to get here and work, that 
definitely helps, whether that is electronically or just easing 
up on the process for green cards?
    Dr. Lusk. Indeed.
    Mr. Kelly. Okay. Second for you, what effects did you see 
in the market as a result of the JBS attacks and have they been 
resolved, and if so, how quickly did that occur?
    Dr. Lusk. The impacts of the JBS attack were sort of--they 
were a bit confounded with the holiday event, on the holiday 
weekend. Many packers will actually process fewer cattle on 
holidays to begin with, and this happened to occur at the same 
time that probably they would have reduced processing fewer 
cattle in the first place.
    So, it appears that the market impacts of that were fairly 
short-lived, and Professor van de Ligt can talk about this more 
than me. My understanding is that JBS had some backup systems 
so they were able to get back up and running, and there are 
things I think individual producers can do to make sure that 
when these things happen, that their effects are, indeed, 
short-lived, and that seems to be what happened in this 
particular case, fortunately.
    Mr. Kelly. Okay.
    Dr. Aherin, I have a question. As you know, U.S. cattle 
herd cycles through periods of expansion and contraction over 
the course of several years. During peaks and herd expansion, 
cattle prices tend to be lower because of the higher 
availability of supply. Conversely, during the troughs of 
contraction, cattle prices increase as more packers compete for 
tighter cattle supplies.
    I am proud that we have our great big meat packers, but I 
also believe in the diversity in having more smaller sources. 
So, with that in mind, what tools do small beef packers and 
processors need to remain solvent and successful during the 
contractions, when they are competing with larger firms for 
finishing cattle?
    Dr. Aherin. I think, number one, they need to be able to 
identify consumer demand opportunities that they can 
differentiate their product from, just commodity product. I 
also think they need to be able to coordinate their supply 
chains, both with cattle producers and within product beef 
consumers. So, being able to make sure they can supply the 
cattle that they need for their operations is critical.
    Mr. Kelly. And then finally, Dr. van de Ligt, for you, 
these cyberattacks are going to continue until we either make 
the cost high enough for the people that are conducting them, 
or either we harden ourselves such that it becomes so difficult 
that it is no longer profitable.
    With that in mind, what can USDA or we in Congress do that 
would make it easier for us to defend a cyberattack, especially 
some of our smaller places, smaller farms or smaller producers 
that just don't have the basic tools and knowledge in order to 
prevent a cyberattack or make it difficult?
    Dr. van de Ligt. Thanks.
    So, as an academic, I am going to say education, right? So, 
most of the cyberattacks, there is a human element to it. There 
is a lot that we can do to harden systems, but it is that human 
machine interface that often presents the openings for these 
cyberattacks to occur.
    So, education not only for all of our owners and operators, 
but also education in--for specific cybersecurity professionals 
that really understand the operational environment into these 
facilities I think what will truly be critical. And to me, USDA 
can--USDA and DHS can play a role in that by making really 
clear--adapting those cybersecurity plans that other critical 
infrastructures use to make it really super easy and understood 
to our food and agriculture partners.
    But it is really--it is an education process.
    Mr. Kelly. Well, I want to thank all four of you witnesses. 
I have no doubt with great minds like yours advising this 
Committee and our nation, that we will work through all the 
problems that we have. Thank you very much for your time today, 
and I yield back, Mr. Chairman.
    The Chairman. All right. The gentleman yields back his 
time. We thank him for his questions.
    The chair will now recognize the gentleman from Illinois, 
Congressman Rush, as our next Member, and then followed by 
Congressmember Bacon.
    Congressman Rush?
    Mr. Rush. Thank you, Mr. Chairman, for this very exciting 
hearing.
    My question is directed to Dr. van de Ligt.
    Dr. van de Ligt, I want to thank you for your excellent 
testimony today regarding cyberattacks. This is an issue that I 
am extremely concerned about. I am the Chairman of the Energy 
and Commerce Committee's Subcommittee on Energy and Power, and 
I have championed solutions to cyberattacks in the energy 
sector.
    I believe that this multi-sector problem will also benefit 
from a broader solution and end the threat to our food supply 
chain issues. It's really, really troubling to me. In 
particular, I am concerned about ransom payments, which you 
succinctly stated that attacks will continue [inaudible] 
cryptocurrency, which, of course, is hard if not impossible for 
law enforcement to track.
    In your excellent testimony, Madam van de Ligt, should the 
government prevent companies from paying a ransom? Why or why 
not? And, second, same [inaudible] currencies using 
cryptocurrency? Why and why not also?
    Dr. van de Ligt. Thank you for the questions.
    It is tough to say that there is a one policy fits all 
here. If you think about the attack on JBS, they had encrypted 
backups and they were able to rebuild their systems, and could 
potentially have done so even without the ransomware payment. 
But they were concerned about data that could have been stolen 
that they wanted to be able to recover.
    But in the most recent Kaseya attack, there are still many 
in the industry, not just food and ag sector, but also 
affecting some academic institutions, where their data is now 
completely locked because they don't have an encryption key to 
recover that. And so, you are going to lose multiple years of 
research effort and initiative.
    So, I think if we go down the path of a policy to say we 
can't pay ransomware, that is going to be a difficult one to 
navigate.
    And then cryptocurrency is also interesting. My personal 
view is I think cryptocurrency is here to stay; but, having our 
Federal authorities, our digital authorities that are working 
actively, NSA, FBI, those guys, a better understanding of how 
and monitoring that space and monitoring that electronic space 
is going to be really critical, and they proved their 
essentiality by being able to pull back some of the JBS 
cryptocurrency money.
    So, I think it is going to be a really tough area to 
navigate, and we should certainly do it in a collaborative 
public-private fashion.
    Mr. Rush. Thank you.
    Switching gears, Dr. Lusk, how do we--I am sorry. Dr. 
Jacobs, I am sorry. Dr. Jacobs, I want to thank you for your 
fascinating testimony on the importance of cooperatives. What 
is the average size of a producer-owned agricultural 
cooperative, and while I understand that cooperative membership 
cannot discriminate on the factors of race and other factors, 
do you know whether African American producers are 
proportionately represented in the cooperative sector? Are 
there any barriers that would prevent them from choosing to 
join a cooperative, and if so, what do we need to do in order 
to lower those barriers?
    Dr. Jacobs. Thank you for that question. You asked some 
insightful ones, and I will say my familiarity in working with 
agricultural cooperatives is primarily dominated by my 
experience in the Midwest. I do know that cooperatives exist, 
and in fact, some of the early historical cooperatives did 
have--were owned by African Americans in the Southeast, and so, 
while we don't see--in my work, I don't see representation, 
that representation does reflect what we see of the 
demographics of farmers.
    It is important to note that cooperatives are voluntary 
organizations, so voluntary and open membership, and you are 
right. They do not, should not discriminate on the basis of 
race or age or on religious preferences or along those lines. 
So, there are opportunities, and what I would encourage states 
to do is look at their cooperative statutes and make sure that 
they are appropriately structured, such that there are no 
barriers to participation by any race.
    Mr. Rush. Thank you.
    Mr. Chairman, I think that concludes my time. I want to 
yield back.
    The Chairman. I thank the gentleman from Illinois. He 
yields back, and the next Member in order is Congressmember 
Bacon.
    Mr. Bacon. Thank you, sir.
    The Chairman. Thank you.
    Mr. Bacon. Thank you, Mr. Chairman, and thank you to all 
our experts testifying today.
    This is a very important subject for Nebraska. We are the 
number one beef export state in the country, and it is vitally 
important to our economy.
    My first question is to Dr. Aherin and Dr. Lusk. The USDA 
recently announced the availability of $500 million in 
assistance to help increase and diversify U.S. processing 
capacity. Do you anticipate they will need to be highly 
specialized to succeed, and if so, how important might 
alternative marketing arrangements, specialized formula 
purchase agreements be to this success? Thank you.
    Dr. Aherin. I will share my thoughts.
    Mr. Bacon. Go ahead.
    Dr. Aherin. So yes, I do believe these new ventures, if 
they are going to succeed, will need to be specialized and in 
terms of AMAs, alternative marketing agreements, I think they 
are the best way to ensure that these new plants can get the 
specialized type of cattle in a consistent manner in order to 
meet the demands of the brand that they are trying to build.
    Mr. Bacon. Thank you. Any other input?
    Dr. Aherin. One point I would make--and we talked a lot 
about producer ownership and cooperatives, and I just want to 
provide an example that has proven very successful in the beef 
industry, and currently it is not in the form of a cooperative. 
I will use names. It is all public information. But U.S. 
Premium Beef is a company that is producer-owned, and it is a 
minority but significant shareholder in National Beef, the 
fourth largest packer in the U.S., and previously to that, they 
were majority shareholders in that packing company. So, just an 
example of how producer ownership has been successful in some 
cases.
    Mr. Bacon. I think that is a great example of an 
alternative marketing arrangement.
    Are there other examples like that? Thank you.
    Dr. Aherin. On that scale, certainly not that I am aware 
of, but no. Producer ownership in some plants has been 
definitely attempted in the past, and a lot of the roadblocks 
that those types of ventures run into is not clearly 
identifying how they are going to sell every pound of beef that 
they have. Not just the consumable product, but rendering, the 
hides, offal. So, there is really a lot that needs to be done 
on the back-end of the plant, as much as with cattle coming in 
to ensure that any business is going to be successful.
    Mr. Bacon. My next question is for anybody on the entire 
panel. When I was first elected in 2017, the 115th Congress, I 
made the foot-and-mouth vaccine disease bank a top priority to 
get funded. I think this year we are in the final year of 
getting an IOC and operational. Could you just talk about maybe 
the importance of protecting our cattle market, our processors, 
and this whole industry from foot-and-mouth disease, and the 
importance of having this vaccine bank? Thank you. I will just 
open it up to anyone who would like to speak up.
    Dr. Lusk. I think we can look at the impacts of some of 
those animal disease events, whether it is foot-and-mouth 
disease or even before that, the mad cow incidents that have 
extraordinarily negative impacts on the industry.
    One of the ways that happens is through losing export 
markets. That is another answer to how some of these new plants 
could differentiate themselves is by specializing in products 
that are demanded by certain foreign customers.
    When you think about risk mitigation, investments in 
vaccines and understanding the impacts of new emerging diseases 
I think is critically important in ensuring the health of the 
industry.
    Mr. Bacon. Well, Mr. Chairman and to the Ranking Member, I 
guess this is a success. I think the Committee in getting this 
foot-and-mouth disease vaccine bank stood up. I think we are 
hitting the final year of it becoming an IOC, and it is 
something we can feel proud of that we led in this Committee.
    Thank you. I yield back.
    The Chairman. Thank you, and vaccines work, as we all know. 
We were just commenting on--any of us who grew up in 
agriculture and cattle dairy industry understands the concepts 
of vaccines and herd immunity and everything else, so that is 
just, as my father used to say, common sense. But then he would 
pause and say I am not sure why they call it common sense. It 
doesn't seem to be that common.
    Our next questioner, I think we have--oh, Members, votes 
have been called and so, it is the chair and the Ranking 
Member's intention to continue this hearing. So, I believe 
there are three votes and we will just alternate them, and for 
everybody's understanding, the list that I have here in front 
of me is on the Republican side: Baird, Mann, Feenstra, Moore, 
and Rouzer. On the Democratic side: Hayes and Spanberger. Hayes 
has her camera off, I am told, and Spanberger is voting, so I 
will defer to Mr. Baird.
    Mr. Baird, you are next. You are up to bat.
    Mr. Baird. Thank you, sir. We appreciate it, Mr. Chairman, 
and appreciate the opportunity with the Ranking Member Johnson 
and being able to participate in this very important issue of 
cattle marketing. I really appreciate the expertise that we 
have in the witnesses before us today.
    Dr. Lusk, I am going to probably start with you. We 
appreciate all the work that you and your team do back at 
Purdue. That is my alma mater, and you provide tremendous 
information to farmers and ranchers, as well as many, many 
entities within the food supply chain. And you give them the 
information to make better and more informed decisions.
    But I am going to start, in your testimony, you describe 
how a small number of cattle that are sold on the cash basis 
influence the price of a much larger number of formula price 
cattle, and how this may not allow the formula price market to 
truly reflect these market fundamentals. So, I think I am a 
little reluctant since the data and some of the decisions we 
are talking about are based on 2 very volatile years, the fire 
at Holcomb, Kansas, as well as the pandemic year. So, I would 
appreciate--and we know that the cattle cycle in order from the 
time you decide to breed a cow until that finished steer makes 
it to market can be 2 or 3 years.
    So, how do we--how do you think we can do price discovery, 
improve the prices for the producers, and yet not lose some of 
the economies-of-scale that we have in the current slaughter 
capacity? So, that is my question. I would appreciate your 
thoughts.
    Dr. Lusk. Yes. So, first thanks for your excellent 
representation in Indiana, Representative Baird, and we are 
proud to have you as an alumni at Purdue University.
    I think there are a variety of ways to think about 
improving price discovery. I think there is some debate about 
how many transactions one actually needs for good price 
discovery, and it is not necessarily clear we are at a point 
where there are too few, but there are certainly some people 
who would argue that we need more.
    A couple of ideas have been floated to improve more, to 
increase the amount of information that is in the market. There 
are some proposals for a market maker program, essentially a 
mix of assessments and sort of subsidies, incentives for people 
to trade in a cash market. There emerged some electronic 
trading markets, for example, the fed cattle exchange is one 
that has the ability to bring more transactions in a very 
transparent way to the market. There have been some proposals 
floated for a mandate. I think I have made my view clear that I 
think that is probably fairly costly, but there could be ways 
to make such mandates less costly through things like a cap-
and-trade type of program.
    Mr. Baird. So, I also noticed that you encouraged maybe one 
of the things we could do would be to improve consumer demand, 
as well as producer productivity, and look for those 
efficiencies. Do you care to elaborate on that any more?
    Dr. Lusk. Sure. One of the great things about working at a 
land-grant university is I get to see all the fantastic work my 
colleagues are doing at the university. So, when I look at my 
colleagues in the Animal Science Department or the Vet Med 
Department, they are working all kinds of interesting things 
like putting wearables on dairy cattle to monitor their 
movements and using artificial intelligence to get early 
warning detection of disease. Some of my colleagues are working 
on biosensors to detect bovine respiratory disease early and an 
affordable way to do that. Studying heat stress, how you can 
reduce that heat stress in animals and animal health issues so 
that we can reduce reliance on antibiotic issues. And we have a 
big research program here at Purdue focused on improving animal 
welfare issues.
    So, I think there are a lot of really interesting things 
going on, and some of that is aimed at improving sustainability 
of the beef supply chain, but hopefully providing a higher 
quality product to consumers as well.
    Mr. Baird. Thank you. I appreciate that very much. Anyone 
else care to comment on that, the production efficiency and so 
on, and maintaining the capacity?
    Dr. Aherin. Congressman, I will add a couple thoughts, and 
this is more along the lines of price discovery.
    I think we have seen in other species that we don't always 
have to discover price solely at the livestock level. There are 
examples, particularly in swine, where they use meat prices to 
help determine the price of hogs that are on formula. So, I 
think any mandate that would dictate that we have to price a 
certain number of cattle off of a cattle cash transaction 
certainly hinders the ability to adapt to maybe some new 
opportunities to price cattle off of beef itself sometime down 
the road.
    Mr. Baird. Thank you very much.
    Dr. van de Ligt. This is----I was going to say, this is Dr. 
van de Ligt. I just want to play on Dr. Lusk's comment.
    All those technologies that he mentioned in his response to 
the question about improving efficiency, the biosensors and 
such, those are all operational technology issues that now 
takes that cyber concern that I have at the packer level all 
the way down now to the producer level.
    Mr. Baird. Thank you very much, witnesses, and I see my 
time is up, so with that, I yield back, Madam Chair.
    Ms. Spanberger [presiding.] Thank you very much, and to our 
witnesses, I am filling in for Chairman Costa while he goes to 
vote.
    I will now recognize myself for 5 minutes.
    I am excited to be here today to talk about an issue that 
matters deeply, not just to the many cattle producers across my 
district, Virginia's 7th District, but to all of us across the 
country that have come to rely on affordable, high-quality and 
readily accessible U.S. beef. Across my district, I have heard 
about how disruptions to our supply chain brought on by the 
COVID-19 pandemic have threatened the livelihood of livestock 
producers over the last year. And unfortunately, volatility and 
uncertainty in the beef and cattle markets are not new. 
Continued consolidation within the meat packing and processing 
industry have resulted in long-term reductions in processing 
capacity and increased risk from an unexpected and unplanned 
disruptions.
    This is why I was proud to work with my colleague, 
Representative Dusty Johnson, to introduce the Butcher Block 
Act (H.R. 4140), which would establish a loan program at USDA 
for new and expanding meat processors, as well as a grant 
program to help increase hiring and processing capacity at 
these plants. I have been excited to see USDA take steps with 
funding provided through the American Rescue Plan to help 
increase competition for meat and poultry processing, and I 
believe the Butcher Block Act would help expand these efforts 
and ensure their longevity.
    So, Dr. Lusk, I would like to begin with a question for 
you. Can you explain or speak to how having increased diversity 
in the supply chain, such as more small- or medium-sized 
plants, could help reduce the likelihood that a black swan 
event will have such a large impact on cattle and beef prices?
    Dr. Lusk. Well, the hope is that if some future pandemic 
comes along and it affects the workforce of a plant, that if 
one goes down there is enough heterogeneity, diversity in the 
system that the aggregate supply side effects are fairly 
minimal.
    I think the challenge, the tradeoff that exists there is 
this issue of economies-of-scale that has been mentioned that 
to really produce beef at an affordable price, you really need 
to be large--achieve some high level of volume is one of the 
reasons we see the kinds of large-scale packing that we have in 
the sector. And as a result, if you look at the number of 
cattle, say, processed by a fairly small plant, it is a fairly 
small share of the overall story.
    I think there is value in having some of that heterogeny 
and diversity in the system. I think the question is really at 
what cost? We will have to assist them. Can they stay in 
business and compete?
    I think one issue that I see is related to the cyberattack 
issue. In some ways, I think the larger plants are more 
vulnerable to cyberattacks because they are a bigger, more 
lucrative target to seek out. So, in some sense having some 
smaller and more diversified plants could help in the sense 
they may be less visible to people seeking to disrupt our food 
supply chain through that mechanism.
    Ms. Spanberger. Thank you very much, and thank you for that 
comment related to potential vulnerabilities to cyberattack.
    In your opinion, are the recent investments by USDA and by 
small- and medium-sized processors enough to mitigate the 
current issues that we are seeing in cattle and beef markets, 
and do you believe that Congress should take any additional 
steps, or do you have any suggestions that you would want us to 
be highlighting related to supply chain resiliency?
    Dr. Lusk. I mean, I think we are already in a process where 
we are realigning processing capacity with cattle numbers. So, 
my fear, to be honest, is that we wake up 3 years from now and 
have a bunch of processors that can't affordably operate. 
Adding more capacity will, in the short run I think help 
support cattle prices, but I think what we have to hedge 
against is, not now, but 4 or 5 years from now when we get 
those numbers realigned is to make sure you keep an eye out for 
what is happening, and are we going to see a series of 
bankruptcies or reductions in plant sizes. I think that is my 
concern with the additions of capacity we are seeing at the 
moment.
    Ms. Spanberger. Thank you very much for that.
    And, Dr. Aherin, would you care to comment on that question 
or add anything to the answer?
    Dr. Aherin. Certainly. In a lot of ways, I would echo what 
Dr. Lusk mentioned. I have put in my testimony that I think 
there is opportunity for about 5,000 head of operational 
capacity, and again, I am going to highlight that, meaning it 
not only could come from physical facilities, but could come 
from improved efficiencies and throughput and better being able 
to staff these facilities.
    I also want to highlight that that 5,000 number that I have 
put out is very contingent on the depth of the contraction in 
the cow herd, and the deeper this contraction goes, the smaller 
that number of profitable expansion is going to get. And so, 
again, I will reiterate something I have said all along. I 
think it is more important to invest in research and education 
and understanding the business environment than it is in 
specifically in facilities themselves.
    Ms. Spanberger. Okay. Thank you very much for that feedback 
and for your answer.
    My time has expired and I will now recognize the 
gentlewoman from Connecticut for 5 minutes.
    Mrs. Hayes. Thank you so much, Madam Chair.
    Connecticut is home to ten meat processing facilities. All 
are small- to medium-sized, mostly family-run facilities. 
Additionally, we are home to 48 beef cattle producers, 
according to the State Department of Agriculture.
    When talking about beef supply chains and processing, 
facilities like these are often left out of the conversation. 
While Congress has appropriated millions to the Coronavirus 
Food Assistance Program to help producers, including beef 
cattle producers, only 8.1 percent of Connecticut farmers were 
eligible. This is a negligible amount, even when compared to 
other small northeastern states.
    These farms and processing facilities also were affected by 
adverse conditions of the past year. Our producers also had to 
adapt to the sudden lack of demand from commercial, 
institutional, and restaurant purchasing. They also had to 
address the labor concerns caused by COVID, and they also had 
to adapt to the dropping demand in U.S. export meat. So, my 
questions will focus on those small- to medium-sized plants 
that I just mentioned.
    Dr. Jacobs, during the pandemic we saw an increase in 
consumer demand for beef directly from the producer or small, 
local butchers. Are there signs that this opportunity will 
remain as Americans return to more normal economic activities, 
and what technical assistance, workforce development, and other 
capacity-building is required of small- to medium-sized 
producers to ensure they can meet food safety standards, 
consumer preferences, and stay competitive?
    Dr. Jacobs. Thank you for that question.
    First of all, I think support for that system needs to 
recognize that that type of small- and medium-scale processing 
allows the producer to be closer to consumers, and although I 
don't have the data and can't comment on that, your question 
about whether or not we have seen consumers return to their 
pre-pandemic purchasing, the food away from home versus food at 
home and where they are getting their beef, my suspicion is 
that we are going to have many consumers will remain purchasing 
their animal products directly from farmers or small 
processors. I think part of that will stick. How much of it, I 
can't comment on that and I would be happy to look into that 
further to see what has remained.
    But you mentioned what other ways can we support this, and 
I want to comment too about and introduce this idea of the 
USDA's efforts to provide funding and capacity. I think what is 
important here is to do the things that you mentioned, which is 
instead of necessarily offsetting capacity costs, work on the 
things that are also costs to the input and beef processing, 
such as labor development challenges. Also, challenges related 
to meeting regulations and the differential impacts that may 
have on small producers and small processors, relative to the 
very large ones. Loan guarantees could be a very important part 
of this overall package.
    What I would encourage is to look at the more indirect 
investments that can benefit our producers, our livestock 
producers and their processors. I am glad to hear that there 
are small, local processors that are doing well, and I hope 
that they continue to and I might encourage those that are 
family-owned to consider thinking about a model in which they 
coordinate, in which they consolidate, and maybe there is an 
opportunity there for joint processing capacity, shared 
capacity that allows them to scale up.
    Mrs. Hayes. Thank you.
    You mentioned it briefly, but can you just touch upon what 
are the benefits of having more local and regional processing 
options where they are right next to their consumers?
    Dr. Jacobs. The benefits are options for consumers. The 
benefits are flexibility. When you have challenges in larger 
scale processing, even though our--as I understand it, our 
small- and medium-scale, we don't have enough of those to pick 
up slack when we have major disruptions at some of our largest 
processors. That local scale is important to the continuity of 
our food supply chain locally. It is important to the local 
rural economies where those farmers are living and the 
processors are, and they are paying wages and they are paying 
taxes. And so, I think the benefits go well beyond what we see 
as profitability, profitability margins at those levels. And 
that is one of the features I love about the cooperative model 
is that many of those benefits stay local, and those benefits 
aren't just confined to profitability-based benefits.
    Mrs. Hayes. Well, my time is almost up so I won't have time 
for another question, but I agree wholeheartedly with 
everything you just said, and I know, at least in Connecticut 
District 5, if you go to any restaurant, you go out to dinner, 
you know that that beef is from Connecticut when it is, because 
it is fresh and people immediately identify the name of the 
producer that it can be attributed to.
    Thank you so much. Madam Chair, I yield back.
    Ms. Spanberger. Thank you.
    The chair now recognizes the gentleman from Iowa for 5 
minutes.
    Mr. Feenstra. Thank you, Chairman Costa and Ranking Member 
Johnson.
    The consolidation of the cattle industry is one of the most 
critical issues in my district. I hear about this all the time, 
probably the most important issue in my district at this point. 
Cattle producers in my district are angry, and they are worried 
that they are getting a raw deal. They see everyone in the 
supply chain making large profits while they are losing from 
$100 to $150 a head. My in-laws, my friends, my constituents 
are seeing their livelihood end because of this.
    The processing of cattle is mostly operated by four 
packers, and they control approximately 80 percent of the 
market. This market share lets them control the price through 
contracts, manage the amount being slaughtered through line 
speeds, and decide when livestock is needed for their own 
profitable benefits. The system is set up where the packers 
will very rarely ever see a loss, creating massive guaranteed 
profit, while rural farmers are on the hook to lose lots 
[inaudible].
    Congress needs to engage in this and focus on transparency 
and competition and processing capacities. The cash market for 
live cattle has been declining over the last decade. At the 
same time, we see higher grocery prices and even higher demand. 
Diminished cash market participation contributes to USDA being 
unable to publish LMR reports, furthering the market's lack of 
transparency.
    So, this is my question. My question is for Dr. Lusk. In 
2005, 52 percent of the cattle were purchased on the cash 
market. In 2020, that has gone down to 23 percent. The reverse 
was true as well. In 2005, 33 percent of the cattle were 
purchased through formula contracts, yet in 2020, 62 percent 
are on formula contracts. Knowing that the cash market price is 
primarily used on the basis for formula pricing, how has the 
decrease in cash-negotiated trade impacted the market and price 
discovery?
    Dr. Lusk. Yes, I think it is important to, again, 
distinguish between when you are talking about price discovery, 
about price levels and then sort of market fundamentals, and I 
think the concern with the smaller share of cattle being sold 
in the cash market is whether you are getting sufficient price 
discovery. But even if 100 percent of cattle were being sold in 
a cash market, it doesn't mean prices would have been any 
higher than what we recently observed.
    In regards to LMR, the things that could be done to 
increase the amount of information that is being conveyed 
through there, thinking about confidentiality rules, about some 
of the additional details that could be provided about formula 
contracts, those sorts of things to provide even more price 
transparency. I think even doing that, there is not necessarily 
any guarantee that is going to improve the price level, which 
is a separate issue.
    Mr. Feenstra. Well, I am glad you said that. Smaller farms, 
you probably don't realize this, but there are 700,000 farms in 
the country. Ninety percent of them are family-owned. My in-
laws are one of them, own 1,000 to 2,000 head of cattle. My 
friends own 2,000, 3,000 head of cattle and they are considered 
small farms.
    The problem is when you have large operations, you have 
30,000 or 40,000 head, it shuts out people like my in-laws and 
my friends and my family because they are going through a cash 
basis and not formula contracting. That is why people get a 
little grumpy.
    So, my other question is in regard to the many proposals 
before Congress aiming to increase price transparency in the 
cattle market. Cattle producers, just like any other business 
owner, would like to receive higher prices for their product. 
What is your assessment on requiring certain levels of 
negotiated transaction to improve producers' bottom line, Dr. 
Lusk?
    Dr. Lusk. Sure. To be honest, I don't necessarily 
anticipate that policy as improving overall price levels. I 
think there could be some benefits in some of those policies 
improving price discovery, but I don't necessarily think we can 
expect those policies to improve the price that cattle 
producers are getting paid today.
    Mr. Feenstra. Well, thanks for your comments, and this is a 
great concern, because we are going to lose thousands and 
thousands of family farms that are doing this that are getting 
bullied out, pushed out by packers and formulated contracts.
    With that, I yield back. Thank you.
    Ms. Spanberger. Thank you.
    The chair now recognizes Mr. Mann of Kansas for 5 minutes.
    Mr. Mann. Thank you, Madam Chair. Thank you, Chairman Costa 
and the Ranking Member Johnson for having this important 
hearing today.
    This is crucial to the ag industry as we know it. I am glad 
that we are doing this Subcommittee hearing. Frankly, I would 
like to see this be a full Committee hearing, because I am 
hard-pressed to think of any issue facing agriculture in 
America today that is more important than what we are seeing in 
the cattle markets, and the importance of the beef industry 
specifically to American agriculture.
    It is also very important to my district. I represent the 
big 1st, the largest beef producing district in the country. 
Our family has farmed fed cattle for 120 years. I grew up in a 
small feedyard preconditioning and doctoring sick calves, so 
this is near and dear to my heart personally as well. I am also 
a proud K-Stater, and I am really glad to see a lot of K-
Staters here as well.
    I have a lot of concerns about what we have seen over the 
last 20 months. My first question would really be to both Dr. 
Jacobs and Dr. Lusk. Congress and the USDA have allocated 
hundreds of millions in funding toward additional slaughter 
capacity to help small and medium meat and poultry processors 
over the last couple of years, obviously an announcement more 
recently as well.
    There is currently a shortage of shackle space, but as many 
of you have mentioned if the cattle industry, like any 
business, is still subject to the basic economics of supply-
and-demand.
    So, my question really is this. How do we ensure that 
taxpayer dollars create the maximum shackle space possible? In 
other words, how do we spend these dollars the most efficiently 
to move the needle, so to speak?
    Drs. Lusk and Jacobs, Dr. Jacobs first, and then maybe Dr. 
Lusk, if you would weigh in on that, I would appreciate it.
    Dr. Jacobs. Yes, thank you.
    These investments, I think in my testimony, what I would 
say is that I think these investments should perhaps think 
about focusing more on the indirect investment. So, direct 
investment in shackle space. Unless we know, for example, that 
that gets these processors, these small and medium to a point 
where they can be profitable on their own without the support 
and without the subsidization, I would question that. And that 
is why I think a study is needed to understand what are the 
minimum capacity requirements to get these processors get 
small- and medium-scale--in other words, what is medium-scale? 
What gets them to a minimum efficient scale where they can be 
profitable, apart from subsidization?
    I do support the indirect investments and things like 
workforce development, ensuring we have the right policies in 
place. Making sure that the playing field is level in terms of 
regulatory burden and regulatory requirements, but short of 
that, investments in shackle space are one-time--it is a one-
time shot in the arm and I would want to make sure that that 
could be sustainable beyond any investment period.
    Mr. Mann. Great, thank you.
    Anything to add to that or any different perspective, Dr. 
Lusk?
    Dr. Lusk. Yes. First, I appreciate the question to think 
about using taxpayer dollars wisely and efficiently, and I 
would agree with Dr. Jacobs. The things that really come to 
mind is what do you do to increase the size of the pie to 
improve that overall demand? So, some of it is market access 
issues increase that size of the pie by having access to more 
consumers in different parts of the world, or to improve 
quality, improve what consumers are willing to pay. That has a 
longer run benefit for the entire supply chain.
    The other aspect, too, I think is innovation, productivity, 
improving innovation. Some of that--we have talked about the 
labor issues. That is a way to improve capacity, effective 
capacity is maybe some automation there, but also just 
efficiency. I think there is, again, beef cattle is in 
competition with a variety of other food stuffs, and we are in 
competition with producers all across the world for a place on 
consumers' dinner plates. And so, we have to continue to find 
ways to be more efficient, make responsible use of our natural 
resources.
    Mr. Mann. I agree.
    My last question will be for Dr. Aherin. Your testimony 
suggested that there is an exceptionally high likelihood that 
cow-calf producers would receive a lower price for their cattle 
if the government would mandate certain required percentages of 
negotiated cash sales. Could you explain that more, and why do 
you believe that to be the case?
    Dr. Aherin. Certainly.
    So, I think the first step is understanding the benefits 
that AMAs bring to the marketplace. As I have mentioned both in 
testimony and an earlier question, AMAs allow packers and 
cattle feeders to both reduce their supply chain risks, better 
manage inventory, better utilize their cattle feeding and 
cattle processing capacity, and reduce their marketing and 
procurement costs. Both of those sectors of the beef industry 
are margin operators, so the price that they are willing to pay 
for the upstream input into their production system is very 
much determined by what their operating costs are. If we 
increase operating costs at the packer level, packers are 
likely to pay less for fed cattle. If we reduce the price of 
fed cattle and increase the operating costs of feedlots, then 
they are likely to pay less for calves and feeder cattle.
    So, I readily admit that price discovery is necessary, but 
we have to recognize that it does have a cost and if we 
eliminate or reduce the benefits of AMAs, that also has a cost, 
and with cow-calf producers being primary producers and not 
margin operators, they have no one else to pass on the burden 
of that cost.
    Mr. Mann. Thank you all. I see my time has expired, so I 
yield back. Thank you.
    Ms. Spanberger. Thank you.
    Before we adjourn today, I invite the Ranking Member to 
share any closing comments that he may have.
    Mr. Johnson. Well, I think this has been remarkable, and I 
just want to focus on three things quickly. First off, there 
are hopeful signs in this market. We have future prices 
trending up, but even more importantly than that, longer-term 
we have all kinds of macro factors that will contribute to 
upward pressure on price for producers, and should exert some 
downward pressure on price for consumers. And I think the 
extent that we can get that done in a sustainable way, that 
could be tremendously good news.
    The second thing I want to point out is the reason that 
this hearing has been so remarkable--and the acting chair and I 
were just talking about this--there has been a tremendous 
amount of bipartisanship. There is a legitimate search for 
policy solutions, rather than just the two sides throwing 
bumper sticker slogans at one another. There has been a real 
passion. So many of these Members have real-life experience 
with these issues. And then finally, there is also real 
knowledge. I mean, Congress works best when Members wade into 
areas that they understand and that they have taken the time to 
fully comprehend.
    And so, I would just close, Madam Chair, by saying this. 
Not only are the signs hopeful, not only has this been a great 
hearing, but to the extent that we can continue those four 
major concepts of bipartisanship, search for truth, passion, 
and knowledge, I think the outlook is going to be better yet 
for cattle producers and for consumers, and that is awfully 
good news in my mind.
    Thank you, and I yield back.
    Ms. Spanberger. Thank you very much, Mr. Johnson.
    And at this time, votes have been called and at this time, 
the Subcommittee will stand in recess, subject to the call of 
the chair.
    [Recess.]
    The Chairman [presiding.] Well, clearly the talented group 
of Members of this Subcommittee have done well without me, and 
I thank them.
    Are there any further questions? Have our--okay. So, shoot. 
I had one more question I wanted to ask. Actually, I think I 
see the witness I wanted to ask this to.
    Dr. Jacobs, are you there?
    Dr. Jacobs. I am.
    The Chairman. Question, and I was going over this with my 
colleague here from South Dakota. The landscape for over 100 
years in American agriculture has seen the success in co-ops in 
a whole host of regions and different areas, but it doesn't 
seem to me that co-ops have really established themselves 
within the beef industry, the cattle industry. I am wondering 
if you have any thoughts about that, based upon your own 
experience and research with co-ops, why that has not been the 
case, and whether you think that is consistent or not?
    Dr. Jacobs. That is a great question, and that is something 
that I have spoken with colleagues about. You are right. If you 
look across many of the sectors within ag, dairy, fruit, nuts, 
the list goes on and on, juices. We do see farmer-owned 
cooperatives playing major parts in those landscapes, grain 
marketing included. And we do have a couple examples, like 
Country National Beef, Grassroots Farmers Co-op in Buckeye 
Valley. These aren't large-scale cooperatives, and the question 
you ask is a good one. Like why don't we see producer ownership 
along the supply chain--further along the supply chain in a 
major way in beef? And I think the answer comes down to the 
enormous capital investment it requires. That is what I come 
back to, and over time, the landscape has changed such that and 
there has been concentration such that producers who try to 
form now are really starting a foot race much later in the 
game.
    And so, that is the only explanation I would have for that. 
I am sure there are other reasons, but I think that 
concentration happened early and for factors that I am not 
prepared to talk about or an expert to talk about, but I think 
it has a lot to do with the enormous capital that is required 
in this industry.
    The Chairman. Well, thank you. All of our time has expired, 
and I think we have had an excellent panel of witnesses this 
morning, and we thank you for your time and your effort. I want 
to thank my--the Ranking Member, the gentleman from South 
Dakota, my friend, and we are going to continue to work 
together with this Subcommittee over the course of this session 
and the rest of this year to make sure that our efforts are 
productive and reflective of the needs of the livestock needs 
throughout our country, and also dealing with issues of foreign 
agriculture.
    So, thank you all. I want to say that, frankly, the beef 
supply chain is heavily dependent upon having an important 
processing capacity to operate efficiently. We have talked 
about it this morning, innovative ways to protect and adapt the 
supply chain to new realities. We have talked about that. I 
farm in the Fresno, California area, but I don't farm the way 
my father did, nor my grandfather. I think that the innovation 
that we see in American agriculture for over 245 years is a 
great part of its success. There will be externalities such as 
wildfires or droughts like we are facing in the West. In 
California, 50 of the state's 58 counties are under drought 
emergency. But disasters we know are frequent, whether they be 
floods along the Mississippi River, or whether hurricanes in 
the South, and clearly with climate change, these factors, 
these weather factors are more constant and we have to look at 
how we provide a resilient supply chain and sufficient 
processing capacity to factor in.
    So, there are a lot of things we got to do, we got to 
consider. The Ranking Member and I have talked about ways in 
which we can work smarter and strategically that will enable us 
to foster a more shock-resilient supply chain, because as we 
learned in this pandemic, you turn that supply chain upside 
down and it has significant, significant ramifications, and 
also more volatility in the marketplace. And that doesn't help 
anybody, consumers who are all Americans, and our producers.
    So, the chair will adjourn the Subcommittee. Under the 
Rules, the record of today's hearing will remain open for 10 
calendar days to receive any additional material and 
supplementary written responses from witnesses to any question 
posed by a Member. That is an opportunity for all Members of 
the Subcommittee.
    So, this hearing of the Subcommittee on Livestock and 
Foreign Agriculture is adjourned, and I want to thank the staff 
on the Majority and Minority side for making it a very 
productive Subcommittee hearing. Thank you very much.
    [Whereupon, at 12:13 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
 Submitted Letter by Hon. Jim Costa, a Representative in Congress from 
                               California
June 22, 2021

  Hon. Thomas J. Vilsack,
  Secretary,
  U.S. Department of Agriculture,
  Washington, D.C.

    Dear Secretary Vilsack:

    As you are aware, the recent cyberattack on JBS, and the potential 
for future attacks like it, present a grave threat to the livestock and 
poultry supply chain and the entire U.S. food system. As Members of the 
U.S. House Agriculture Committee, we view this attack and its 
implications for supply chain security and resiliency as a top 
priority.
    As you know, food security is national security. This maxim takes 
on further meaning in light of the rising threat of cyberattacks on 
critical U.S. industries as they fight to rebound from the impacts of 
the COVID-19 pandemic. JBS is the most recent and prominent example of 
a cyberattack in the food and agriculture sector, but according to 
ransomware experts, at least 40 food companies have been targeted by 
ransomware gangs over the last year.\1\ These types of attacks, and the 
risks they pose to supply chain resiliency, are increasing and we need 
a coordinated response to prevent them.
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    \1\ https://www.npr.org/2021/06/03/1002819883/revil-a-notorious-
ransomware-gang-was-behind-jbs-cyberattack-the-fbi-says.
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    To that end, we urge USDA to collaborate with industry, the 
intelligence community, and law enforcement agencies across the Federal 
Government to share intelligence on food and agriculture-specific 
cyberthreats, to ensure that industry is aware of best practices for 
preventing cyberattacks, and to execute a coordinated response to 
attacks such as this one. Additionally, we would also like to see USDA 
collaborate with the Department of Justice to recover the $11 million 
paid in ransom money that JBS was coerced into paying to bring their 
plants back online. Allowing perpetrators of attacks such as this one 
to achieve financial gain will only encourage further attacks.
    When it comes to our food system, it is vital that we do not act in 
a reactionary way, but that our reactions inspire preventative measures 
to protect against future attacks. We were encouraged to see that the 
Department committed to spending $4 billion to address supply chain 
issues, and that you are co-chairing the White House Supply Chain 
Disruptions task force. It is our hope that overall cybersecurity will 
be prioritized, and we would like to see additional plans that 
specifically address the threat that cyberattacks pose to the livestock 
industry.
    We look forward to working with you on this critical issue to 
ensure that America's food supply chains remain resilient and, at your 
convenience, would like to discuss how USDA is pursuing these matters.
            Sincerely,
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            

 
 
 
Hon. Jim Costa                       Hon. Dusty Johnson
Member of Congress                   Member of Congress
 

                                     
                                     

 
 
 
Hon. Cheri Bustos                    Hon. Kat Cammack
Member of Congress                   Member of Congress
 

                                     
                                     

 
 
 
Hon. Gregorio Kilili Camacho Sablan  Hon. Cynthia Axne
Member of Congress                   Member of Congress
 

                                     
                                     

 
 
 
Hon. J. Luis Correa                  Hon.  Salud O. Carbajal
Member of Congress                   Member of Congress
 

                                     
                                     

 
 
 
Hon. Ann Kirkpatrick                 Hon. Bobby L. Rush
Member of Congress                   Member of Congress
 

                                     
                                     

 
 
 
Hon. Angie Craig                     Hon. Sanford D. Bishop, Jr.
Member of Congress                   Member of Congress
 

                                 ______
                                 
 Submitted Letter by Hon. Jim Costa, a Representative in Congress from 
    California; on Behalf of Bill Bullard, Chief Executive Officer, 
Ranchers Cattlemen Action Legal Fund United Stockgrowers of America (R-
                               CALF USA)
July 28, 2021

  House Committee on Agriculture,
  Subcommittee on Livestock and Foreign Agriculture,
  Washington, D.C.

    Dear Chairman Jim Costa, Ranking Member Dusty Johnson, and Members 
of the Subcommittee:

    The Ranchers Cattlemen Action Legal Fund United Stockgrowers of 
America (R-CALF USA) appreciates this opportunity to present this 
written statement to the U.S. House Agriculture Committee Subcommittee 
on Livestock and Foreign Agriculture regarding its July 28, 2021 
hearing on State of the Beef Supply Chain: Shocks, Recovery, and 
Rebuilding.
    R-CALF USA is the largest U.S. trade association that exclusively 
represents United States cattle farmers and ranchers within the multi-
segmented beef supply chain. Its thousands of members reside in 45 
states and include cow-calf operators, cattle backgrounders and 
stockers, and feedlot owners. R-CALF USA also represents U.S. sheep 
producers.
    As depicted below in Chart 1, for \1/4\ century (1990-2015) there 
was a strong synchronous relationship between monthly fed cattle prices 
and monthly retail beef prices. Something--a glue of sorts--held this 
strong price relationship together over this considerable period 
despite the occurrence of exogenous factors such as drought, changes in 
cattle inventories, changes in feed costs, changes in currency 
valuations, changes in beef demand, and changes in the price of protein 
substitutes.
    But no more. Beginning around the first of 2015, cattle prices 
inexplicably collapsed. And when the dust settled, monthly fed cattle 
prices and monthly retail beef prices began moving in opposite 
directions. That something--that glue of sorts--that long held the 
historically strong synchronous price relationship together had been 
vanquished.
    Longer than 4 years after the 2015 manifest disconnect between fed 
cattle prices and retail beef prices, the nation's beef supply chain 
encountered its first of three major market shocks--the August 2019 
temporary closure of a major beef packing plant in Holcomb, Kansas. 
This event highlighted the fragility of the beef supply chain that now 
lacks the glue that once held the supply chain together. The onset of 
COVID-19 in early 2020 was the second major shock, and it served to 
exacerbate the disastrous symptoms associated with the first shock. The 
third major shock, a cyberattack impacting one of the four largest beef 
packers, served to further highlight the systemic weakness of America's 
beef supply chain.
Chart 1
Historical Relationship Between Cattle Prices and Retail Beef Prices 
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: USDA Economic Research Service.

    Everyone should now know that that something--that glue of sorts--
that held the pricing relationship within the entire beef supply chain 
together was none other than competitive market forces. And since at 
least 2015, those competitive market forces have been purged from the 
beef supply chain.
    This is now an elephant in the room crisis that Congress must 
tackle with swift and decisive action. If not, we will soon witness a 
further acceleration of the already fast-shrinking domestic cattle 
industry, and we will witness it in months, not years. Many cattle 
producers, already suffering severely depressed cattle prices, now face 
unprecedented drought conditions. The situation is critical and 
America's family farm and ranch system of cattle production hangs in 
the balance.
    Chart 2 below illustrates the financial harm accruing to the live 
cattle sector of the beef supply chain in a marketplace now void of 
competition. It depicts ever rising and unprecedented weekly beef 
packer margins beginning in 2015 while cattle feeders continually 
struggle to achieve monthly returns that would allow them to just break 
even.
Chart 2
Per Head Est. Packer Margins vs. Per Head Est. Cattle Feeding Returns
Based on 1,400 lb. Fed Steer
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Data Source: USDA Market News MPR Datamart; USDA High Plains 
        Cattle Feeding Simulator.

    America's family farm and ranch system of cattle production cannot 
be sustained if the situation described above, i.e., lack of 
competitive market forces resulting in systemic losses to the live 
cattle sector, is allowed to persist.
    Congress has several options with which to address this acute 
problem: (1) It can address the core of the problem by taking decisive 
measures to reinsert competitive market forces where they have been 
purged from within the beef supply chain. (2) It can build, or cause to 
be built, an alternative beef processing infrastructure (e.g., new and 
expanded local and regional packing plants) to compete against the 
existing beef processing infrastructure. (3) It can, of course, pursue 
a combination of the first two options.
    R-CALF USA urges Congress to immediately pursue the first option as 
it holds the greatest potential to provide both immediate and permanent 
results. This is because a robustly competitive industry is inherently 
more sustainable than one propped up with government subsidies, as 
would be required under the second option.
    Importantly, Congress must recognize a critical fact that can be 
deduced from Chart 1 above. And that is that since 2015 consumers have 
demonstrated their willingness to pay more than enough for retail beef 
to have made everyone along the beef supply chain whole. The problem, 
therefore, is a supply-chain allocation of profits problem and it is 
competition itself that is best suited to correct it.
    We recommend Congress implement two immediate triage measures for 
which to reinsert competitive market forces along and within the beef 
supply chain: (1) Force the concentrated beef packers to immediately 
begin competing for the available supply of cattle by requiring them to 
purchase at least half of their cattle needs in the negotiated cash 
market, which is the most important price discovery market for the 
entire live cattle industry. Bipartisan Senate Bill 949 sponsored by 
Senators Chuck Grassley and Jon Tester is the appropriate means with 
which to reinsert competition in the domestic cattle market. (2) 
Empower consumers to exercise choice in the retail marketplace by 
differentiating between beef produced exclusively from cattle born and 
raised by U.S. cattle farmers and ranchers and beef produced in whole 
or in part in foreign countries. New legislation to require all beef in 
U.S. commerce to be labeled as to where the animal was born, raised, 
and harvested--known as mandatory country-of-origin labeling (mCOOL), 
is the appropriate means with which to reinsert competition in the 
retail beef market.
    Given the oligopolistic structure of the nation's beef packing 
industry, the forgoing recommendations must be viewed as merely the 
first step--the triage step--in restoring for consumers and cattle 
producers alike a more resilient and reliable domestic beef supply 
chain. The second step must address each transaction point along the 
entire beef supply chain where competition has been purged.
    To accomplish this, Congress should enact legislation to reverse 
those non-competitive cattle procurement practices by the oligopolistic 
beef packers that have now become institutionalized under the misguided 
theory that efficiency trumps competition. Prohibiting packers from 
contracting for cattle without establishing a firm base price at the 
time of the agreement and banning packer ownership and control of 
cattle for more than 7 days before slaughter are two such legislative 
reversals of institutionalized cattle procurement practices that 
contribute greatly to the loss of competitive market forces within the 
beef supply chain.
    Thank you for this opportunity to submit our written statement in 
the hearing record. We would appreciate the opportunity to meet with 
you and your staff for purposes of further examining America's beef 
supply chain and formulating a more comprehensive plan to improve it.
            Sincerely,
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
Bill Bullard, CEO.
                                 ______
                                 
 Submitted Statements by Hon. Jim Costa, a Representative in Congress 
                           from California *
---------------------------------------------------------------------------
    * Editor's note: references annotated with () are retained in 
Committee file.
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                              Statement 1
 on behalf of julie anna potts, president and chief executive officer, 
                     north american meat institute
    On behalf of the North American Meat Institute (NAMI or the Meat 
Institute) based in Washington, D.C., and its 724 members around the 
country, thank you for the opportunity to submit this testimony.
    The Meat Institute is the United States' oldest and largest trade 
association representing packers and processors of beef, pork, lamb, 
veal, turkey, and processed meat products. NAMI members include more 
than 350 meat packing and processing companies, large and small, and 
account for more than 95 percent of the United States' output of meat 
and 70 percent of turkey production. The Meat Institute provides 
legislative, regulatory, international affairs, public relations, 
technical, scientific, and educational services to the meat and poultry 
packing and processing industry.
    On July 19, NAMI and eleven other organizations representing 
livestock producers, farmers and companies who produce the vast 
majority of America's meat, poultry, and dairy, as well as animal feed 
and ingredients, unveiled the Protein PACT for the People, Animals, and 
Climate of Tomorrow.* The Protein PACT is the first joint initiative 
designed to accelerate momentum and verify progress toward global 
sustainable development goals across all animal protein sectors to 
ensure customers, consumers, and policy makers trust that meat aligns 
with their sustainability expectations. The Protein PACT has been 
submitted to the United Nations' (UN) Food Systems Summit as a 
sustainability game changer, and sustainable livestock and poultry 
production was featured in a side event at the Food Systems Summit 
ministerial in Rome on July 27.
---------------------------------------------------------------------------
    * https://www.meatinstitute.org/ht/display/ReleaseDetails/i/192863/
pid/287.
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    Through the Protein PACT, Meat Institute members have developed 
robust metrics for continuous improvement that sustain healthy animals, 
thriving workers and communities, safe food, balanced diets, and the 
environment and align with the UNs' 2030 Sustainable Development 
Goals.**
---------------------------------------------------------------------------
    ** https://sdgs.un.org/goals.
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Claims about Increasing Consolidation and Concentration are Misplaced
    Let me state at the outset, the members of the Meat Institute--and 
their livestock suppliers--benefit from, and depend on, a fair, 
transparent, and competitive market. This testimony is offered to 
provide a comprehensive picture of the dynamic, competitive market in 
which cattle producers and beef packers operate.
    Much of the rhetoric about concentration in the beef packing sector 
wrongly implies that consolidation is on-going and that packers' market 
power is becoming more and more concentrated. That is not the case. The 
four-firm packer concentration ratio for fed cattle slaughter has not 
changed appreciably in more than 25 years. According to the 
Agricultural Marketing Service's (AMS) Packers and Stockyards Division 
(P&S), the four firm concentration ratio was 82 percent in 1994; today 
it is 85 percent.
    The meat packing industry has been, and continues to be, one of the 
most highly scrutinized industries when it comes to antitrust review. 
P&S is uniquely charged, by statute, to provide on-going oversight for 
fair business practices and to ensure competitive markets in the 
livestock, meat, and poultry industries. Additionally, any potential 
merger or acquisition regulators believe threatens ``too much market 
power'' is subject to review by the Justice Department or the Federal 
Trade Commission. The last proposed merger of two of the ``big four'' 
fed cattle slaughterers occurred in 2008--and it was blocked by the 
Department of Justice.
    Another clarification is needed. It is frequently claimed that the 
big four packers control 85 percent of beef production in the U.S. 
Again, that is not the case and a misleading exaggeration. Fed cattle 
make up 79 percent of the total cattle slaughter. Cows and other non-
fed cattle, make up the balance, primarily slaughtered to be made into 
hamburger. The lean meat from these animals is a necessary ingredient 
to be made into America's supply of hamburger produced in combination 
with the less demanded muscle cuts from the fed cattle. This 
distinction is important because up to 50 percent of all beef in the 
U.S. is consumed as hamburger. Even factoring in the non-fed cattle 
slaughter plants they own; the four largest beef packers represent 
about 70 percent of total U.S. beef production.
    Critics of the industry frequently mistake individual packing plant 
size with overall industry concentration. The size and location of 
plants, however, reflect basic economic factors like the cattle supply 
and the economics of plant operations. Indeed, the cattle supply itself 
is concentrated. The farms and ranches that produce about \1/2\ of all 
beef cattle in the U.S. are in just seven states. Further, more than 70 
percent of all fed cattle are in just five states. Economies of scale 
drive the capacity and production of a packing plant. That is 
especially true in areas with large numbers of fed cattle.
    Likewise, cow slaughter plants rely on a supply of cull cows from 
pasture-based cow-calf farms or dairy farms and are structured based on 
those factors. Each packing plant has its own cost structure. Packers 
bid on cattle based on the supply and demand factors in their own 
region. Owning a plant in Texas does not change the bottom-line to a 
company's operation in Iowa or Colorado.
    Finally, given that the structure of the beef packing industry 
industry is driven by supply and demand factors, the false premise 
regarding concentration providing undue market power for beef packers 
must be corrected. The bottom-line is the current level of four-firm 
concentration has existed for more than 25 years and it has not ensured 
packer profitability at the expense of producers.
    No sector--cow-calf, feedlot, nor packer--has realized positive 
margins every year. For example, the four-firm ratio in 2014, when cow-
calf and feedlot margins were at record highs, was the same as in 2017 
when all three sectors showed positive margins. However, over this 25 
year timeline, the cow-calf sector incurred negative margins the fewest 
number of years of the three as the chart below shows.
Historical Margins Per Head by Sector versus Packer 4 Firm 
        Concentration Ratio
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: USDA Packers and Stockyards Division (concentration); 
        Sterling Marketing (margin).
The U.S. Meat Industry is Efficient and Affords Americans the Benefit 
        of Spending Less of their Personal Disposable Income on Food 
        than any other Country in the World
    Notwithstanding some popular perspectives being espoused about 
supply chains, particularly the meat the industry's response to 
significant ``black swan'' events, including the Holcomb packing plant 
fire, the recent cybersecurity attack, and the COVID-19 pandemic, the 
facts support the conclusion the industry proved resilient in 
extraordinary circumstances. One can argue the market worked as one 
would expect and suggestions that the government needs to step in and 
``do something'' may be trying to fix something that is not broken.\1\
---------------------------------------------------------------------------
    \1\ Economic Reasons for What was Observed in Fed Cattle and Beef 
Markets During the Spring of 2020, Steve Koontz, Department of 
Agricultural & Resource Economics, Colorado State University, May 28, 
2020.
---------------------------------------------------------------------------
    Before trying to ``fix'' something it is prudent to look back and 
acknowledge the benefits that flow from the system as it exists. In 
2019, Americans spent an average of 9.5 percent of their disposable 
personal incomes on food-divided between food at home (4.9 percent) and 
food away from home (4.6 percent). Between 1960 and 1998, the share of 
disposable personal income spent on total food by Americans, on 
average, fell from 17.0 to 10.1 percent, driven by a declining share of 
income spent on food at home.\2\ Indeed, Americans spend less of their 
disposable personal income on food than any other country in the world. 
This remarkable drop is attributable largely to systemic efficiencies 
that allow food processors to offer food to consumers at lower prices.
---------------------------------------------------------------------------
    \2\ https://www.ers.usda.gov/data-products/ag-and-food-statistics-
charting-the-essentials/food-prices-and-spending/.
---------------------------------------------------------------------------
COVID-19 Affected the Cattle and Beef Markets
    The COVID-19 pandemic was a shock to the meat supply chain, as it 
was for every industry in America. A brief review provides some 
instructive context for a discussion of cattle and beef markets during 
the pandemic. Meat was not the only item affected in the grocery store; 
we saw similar situations in everything from toilet paper, to 
disinfectants, to hand sanitizer.
    Last year, pandemic-related plant interruptions temporarily idled 
about 40 percent of slaughter capacity for cattle and hogs at the peak 
of its impact. This disruption happened in tandem with unprecedented 
retail demand for beef due to panic buying and freezer stocking as 
shelter-in-place orders were put in place. The situation was worsened 
by the significant operational changes needed to rebalance production, 
processing, and distribution away from foodservice toward retail. The 
type of cuts, product sizes, processing equipment, packaging and 
distribution vary considerably between retail and foodservice and are 
not easily transitioned.
    The impact of the shift from foodservice to retail was substantial. 
Before the pandemic, in both 2018 and 2019, foodservice accounted for 
about 61 percent of all domestic beef consumption. That dropped to less 
than 55 percent in 2020. Conversely, retail sales of beef increased 
from 38 percent to 45 percent of overall domestic consumption.\3\
---------------------------------------------------------------------------
    \3\ Nielsen, Answers on Demand, 2020 Beef Sales; NPD Category 
Sizing.
---------------------------------------------------------------------------
    According to the Beef Checkoff,

          A major change in consumer behavior that affected the retail 
        industry was the ``stocking-up'' behavior experienced at the 
        beginning of the pandemic. Shoppers rushed to their grocery 
        stores to buy surplus groceries, especially meat products. Even 
        as late as September of last year, 50% of consumers surveyed 
        reported to be ``stocking-up'' at a greater rate than normal. 
        With this behavior, and with the foodservice industry 
        restricted or shutdown, 83% of consumer meals were being cooked 
        and consumed at home. Ground beef was one of the main products 
        to be stored in refrigerators and freezers, with over 50% of 
        consumers reporting to have surplus ground beef products.\4\
---------------------------------------------------------------------------
    \4\ Beef Checkoff, Hindsight 2020: Retail and Foodservice Trends 
Through the Pandemic (https://www.beefitswhatsfordinner.com/retail/
sales-data-shopper-insights/pandemic-market-trends), accessed July 
2021.

    This had a dramatic impact. In 2020, retail beef sales increased by 
606 million pounds by volume, or more than 11 percent. All fresh meat 
and poultry sales increased 19 percent by value, an increase of $9.6 
billion. Beef sales increased by $5.9 billion in value, accounting for 
61 percent of that overall growth in protein demand. Ground beef sales 
alone grew by $2.02 billion,[1] accounting for 21 percent of 
the total increased aggregate demand for meat and poultry. Beef demand 
remains high: the total volume of beef sales in 2021 from January 
through mid-June remained more than four percent higher than the pre-
pandemic levels over the same period in 2019. This increase in beef 
demand in 2020 happened while the packing sector's ability to process 
cattle was experiencing operational constraints, and has continued into 
this year while labor availability has similarly affected the packing 
industry's ability to operate at full capacity. Meanwhile, the supply 
of fed cattle remained large. In short, COVID-19 created a significant 
``kink in the chain'' that took time to straighten.
---------------------------------------------------------------------------
    \[1]\ Id. at 3.
---------------------------------------------------------------------------
    Early in the pandemic the National Cattlemen's Beef Association 
(NCBA) commissioned the Oklahoma Cooperative Extension Service and 
several distinguished agricultural economists to examine the impact 
COVID-19 was having and was expected to have on the beef cattle 
industry. That paper warned ``the timeline for market recovery from 
COVID-19 is unknown, and cow-calf losses could expand into 2021 when 
the summer and fall 2020 calf crops would be marketed.'' \5\
---------------------------------------------------------------------------
    \5\ Economic Damage to the U.S. Beef Cattle Industry due to COVID-
19, OSU/NCBA, April 2020.
---------------------------------------------------------------------------
    The market is rebounding. This week Feeder Cattle futures reached 
contract highs for the August through March 2022 contracts. On Monday, 
July 26, the Feeder Cattle contract closed at its highest since March 
2016. Live Cattle futures prices so far in July have averaged higher 
than the same month in 2017, 2018, and 2019, all pre-pandemic. This 
reflects a smaller supply of cattle, which according to USDA's mid-year 
cattle inventory report released last week, is down 1 percent from last 
year. Also, it reflects the recovery in cattle processing capacity.
Fed Cattle Marketing and Price Discovery
    From ranch to the slaughter plant rail, live cattle typically 
change ownership two to three times. Cow-calf producers market their 
cattle to feeders, or to backgrounders who in turn move those cattle to 
feeders, who then market to packers. The price for cattle at any of 
those three most common points of transactions is a function of how 
many cattle are in each respective market segment. In other words, the 
price is determined by supply of cattle to sell from one segment and 
the demand for buying cattle by the next segment. That explains why 
each segment can experience different margins and why there is a 
futures contract for two types of cattle: feeder cattle and fed cattle. 
When any of those segments are out of balance, prices move, and the 
moves can be dramatic, as witnessed by the COVID-spurred retail beef 
demand, which represents the final segment of the entire pasture to 
plate value chain, and the COVID-imposed imbalance within various 
segments of the cattle sector.
    Considerable attention has been focused on packer margins hitting 
historic levels during COVID, and before that, after the 2019 fire at 
the beef packing plant in Holcomb, Kansas (which happened right before 
Labor Day weekend, a point of high seasonal beef demand). These 
dramatic and unforeseen events put the cattle supply chain temporarily 
out of balance. In both cases due to a temporary loss of processing 
capacity, the interrupted demand for cattle led cash market fed cattle 
prices to fall, while the reduced and uncertain supply of beef led 
wholesale beef prices to rise dramatically.
    In his analysis of the COVID situation, Dr. Steve Koontz of 
Colorado State University wrote,

          To expect historical relationships between meat price and 
        livestock prices to persist when major facilities in the 
        packing sector are at times closed and in others operating at 
        reduced capacity has no economic foundation.\6\
---------------------------------------------------------------------------
    \6\ Koontz.

    Nonetheless, calls for investigations into market transparency, 
collusion, and the structure of the beef packing industry were made. In 
August 2019 USDA announced its intent to investigate the economic 
impact to the cattle market stemming from losing beef processing 
capacity after the fire at the Holcomb slaughter facility. In April 
2020 that investigation was expanded to include the impact of COVID-19 
to ``determine if there is any evidence of price manipulation, 
collusion, restrictions of competition or other unfair practices.'' \7\
---------------------------------------------------------------------------
    \7\ USDA Statement on Beef Processing Facility in Holcomb (https://
www.usda.gov/media/press-releases/2019/08/28/secretary-perdue-
statement-beef-processing-facility-holcomb-kansas), Kansas, August 28, 
2019.
---------------------------------------------------------------------------
    In July 2020, USDA's AMS released its Boxed Beef and Fed Cattle 
Price Spread Investigation Report detailing the agency's investigation 
into cattle and beef price margins, finding no wrong-doing and 
confirming the disruption in the beef markets was due to devastating 
and unprecedented events.
    Further, per that report, AMS related ``One of the underlying 
concerns about price discovery is the declining number of participants 
in the negotiated cash market.'' \8\ Since then, there have been 
several proposals, including legislation introduced in Congress, to 
restructure and regulate the cattle market through significant 
government intervention. Prominent among the proposals is to require 
cattle feeders to sell cattle to packers, and packers to buy from 
feeders, a mandatory minimum volume of fed cattle on a cash, spot 
market basis, or ``negotiated'' basis purportedly to improve price 
discovery. These proposals, however, threaten the industry with 
numerous adverse, unintended consequences.
---------------------------------------------------------------------------
    \8\ Boxed Beef and Fed Cattle Price Spread Investigation Report 
(https://www.ams.usda.gov/sites/default/files/media/
CattleandBeefPriceMarginReport.pdf), USDA AMS, July 22, 2020.
---------------------------------------------------------------------------
    There is robust price discovery in the cattle and beef markets. 
Congress established and USDA administers the Livestock Mandatory 
Reporting Act (LMR) program to facilitate open, transparent price 
discovery and provide all market participants, both large and small, 
with comparable levels of market information for slaughter cattle and 
beef, as well as other species.
    Under LMR, packers must report to AMS daily the prices they pay to 
procure cattle, as well as other information, including slaughter data 
for cattle harvested during a specified time period and with net 
prices, actual weights, dressing percentages, percent of beef grading 
Choice, and price ranges, and then AMS publishes the anonymized data. 
AMS publishes 24 daily and 20 weekly cattle reports each week. Weekly 
reports start Monday afternoon and end the next Monday morning. These 
reports cover time periods, regions, and activities and the data 
include actual cattle prices.
    Further, packers report all original sale beef transactions in both 
volume and price through the Daily Boxed Beef Report. This data is 
reported twice daily, at 11:00 a.m. and at 3:00 p.m. Central Time. The 
morning report covers market activity since 1:30 p.m. of the prior 
business day until 9:30 a.m. of the current business day. The afternoon 
report is cumulative, including all market activity in the morning plus 
all additional transactions between 9:30 a.m. and 1:30 p.m., and is on 
the USDA DataMart website. The boxed beef report covers both individual 
beef item sales and beef cutout values and current volumes, both of 
which are derived from the individual beef item sales data.
    Stepping back for a moment, it is unimaginable in virtually any 
other industry participants in a free market would be required to 
report such data on an on-going, daily basis, and that the data would 
then be published by the government for competitors and other market 
participants to view, analyze, and use as a basis for strategic 
decisions. And yet, despite all of the onerous, mandated reporting 
requirements already in place, some people claim there is no market 
transparency and there needs to be more price discovery. Where does it 
end?
    The proposals to implement a mandatory minimum volume of negotiated 
cash sales go far beyond the purported objective of market transparency 
and price discovery to regulating terms of sale in a private 
transaction between producers and packers. They represent the beginning 
of the Federal Government regulating more--or all--terms of sale in the 
cattle market. Such behavior should be concerning to producers given 
the number of transactions among the segments of the cattle production 
supply chain described earlier.
    Further, there have been suggestions Congress should amend the 
confidentiality provisions in the Agricultural Marketing Act applicable 
to LMR. One bill has been introduced that would prohibit USDA from 
withholding any ``information, statistics, and documents.'' This 
concept has data privacy and antitrust implications for both packers 
and feeders. USDA has examined the LMR confidentiality requirements and 
determined relaxing the requirements would not ensure anonymity among 
the market participants. Producers are not the only market participants 
using the published LMR data: packers and others constantly analyze the 
data, and any loosening of the confidentiality requirements could 
provide some market participants full view of their competitors' 
actions in the market.
    By design, a mandate for packers to meet a minimum volume of 
negotiated cash sales would limit a producer's ability to use other, 
preferred types of cattle procurement and marketing tools, including 
forward contracts and various formula-based purchases that comprise the 
majority of transactions for market-ready cattle. These pricing 
methods--collectively known as alternative marketing arrangements 
(AMAs)--combined with the negotiated cash market pricing, have served 
U.S. cattle producers, the beef industry, and consumers well over the 
past 2 decades by:

   Providing producers and cattle feeders with an effective 
        risk management tool;

   Reducing marketing costs for cattle feeders and producers;

   Improving efficiency though the supply chain;

   Improving the quality of U.S. beef;

   Meeting U.S. consumer demand and building trust by 
        incentivizing not only quality, but the safety, sustainability, 
        and consistency of U.S. beef; and

   Enhancing the competitiveness of U.S. beef in global export 
        markets.

    Greater utilization of AMAs has coincided with a significant 
improvement in beef quality. The percent of beef grading at the top two 
levels, Choice and Prime, has increased from 60 percent in 2000 to 85 
percent in 2020.
Negotiated Sales versus Beef Quality Grade
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: AMS.

    There are economic and business reasons why cattle transactions 
have evolved in the way they have. In its 2018 Report to Congress, AMS 
said ``Stakeholders were in general agreement that formula-based 
purchases provide greater benefits, in terms of operational efficiency, 
for both packers and feedlots.'' \9\ Proponents of mandatory negotiated 
cash sale volumes have not acknowledged, much less addressed, 
fundamental questions such as which producers would be forced to give 
up their AMAs, and what effect on beef quality and demand could result.
---------------------------------------------------------------------------
    \9\ Report to Congress, Livestock Mandatory Reporting, USDA AMS, 
2018.

    Analysis of this impact has been done, however. The Research 
Triangle Institute (RTI) conducted the definitive study about the use 
of and benefits that flow to all sectors regarding AMAs.\10\ The study 
was mandated and funded by Congress, published in six volumes, by 30 
researchers in four teams, conducting nearly 3 years of research and 
was peer reviewed. In the executive summary RTI said:
---------------------------------------------------------------------------
    \10\ See United States Dept. of Agriculture. Grain Inspection, 
Packers and Stockyard Administration. GIPSA Livestock and Meat 
Marketing Study. Vol. 1. Research Triangle Park: RTI International, 
2007.

          Many meat packers and livestock producers obtain benefits 
        through the use of AMAs, including management of costs, 
        management of risk (market access and price risk), and 
        assurance of quality and consistency of quality.\11\
---------------------------------------------------------------------------
    \11\ Id. at ES-3.

---------------------------------------------------------------------------
    RTI also concluded:

          In aggregate, restrictions on the use of AMAs for sale of 
        livestock to meat packers would have negative economic effects 
        on livestock producers, meat packers, and consumers.\12\
---------------------------------------------------------------------------
    \12\ Id.

---------------------------------------------------------------------------
    RTI also found, for cattle, that

          Hypothetical reductions in AMAs, as represented by formula 
        arrangements (marketing agreements and forward contracts) and 
        packer ownership, are found to have a negative effect on 
        producer and consumer surplus measures. . . . Over 10 years, a 
        hypothetical 25% restriction in AMA volumes resulted in a 
        decrease in cumulative present value of surplus of

       2.67% for feeder cattle producers;

       1.35% for fed cattle producers;

       0.86% for wholesale beef producers (packers); and

       0.83% for beef consumers.

          A hypothetical 100% restriction in AMA volumes resulted in a 
        decrease in cumulative present value surplus of

       15.96% for feeder cattle producers;

       7.82% for fed cattle producers;

       5.24% for wholesale beef producers (packers); and

       4.56% for beef consumers.\13\
---------------------------------------------------------------------------
    \13\ Id. at ES-8-9.

    Finally, ``price discovery'' should not be confused with price 
determination, i.e., supply and demand fundamentals. Typically, when 
market prices are low or falling, there are increased concerns 
expressed about ``price discovery.'' There appears to be a widespread 
perception that a reduction in cash trade is, by definition, bearish. 
In fact, in times of market disruption, formula and contract pricing 
can prevent precipitous drops and support quicker recovery. From an 
economic perspective, bearish cattle prices result from ``price 
determination'' factors, such as supply of cattle in each segment of 
the supply chain and the capacity to process cattle into beef, but also 
the overall demand for beef and other competing proteins.
    Mandating more cash purchases does nothing to remedy bearish price 
fundamentals. The volume of cash sales is less relevant than is the 
type and quality characteristics of the cattle sold being 
representative of the market. Additionally, the types of cattle 
transactions vary greatly over time, even week to week. Imposing 
mandatory minimum volumes creates an incentive to alter transaction 
types that could result in less price discovery.
Supply and Demand Fundamentals Are at Work
    Before the pandemic, the supply of cattle was growing. For the 
first 3 months of 2020, the fed cattle supply experienced year-over-
year growth. For each month--January, February, and March--the number 
of cattle and calves in feedlots with capacity of 1,000 or more head 
was larger than it was during the same months in 2019. The supply of 
fed market cattle remains high this year. USDA reports that in 2021, 
the cattle-on-feed inventory has been the second highest monthly total 
ever on record for 4 of the first 6 months of the year, February 
through June 2021.
    As expected, when supplies of cattle increase, prices decrease--and 
vice versa. The chart below shows how this has played out over the past 
10 years, with or without such significant ``black swan'' events as 
COVID, the fire at the Holcomb packing plant in 2019, or this year's 
cyber ransomware attack.
Cattle Market Supply and Demand
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: USDA AMS.

    Nonetheless, in the face of the many challenges, the beef packing 
sector has proven resilient. Total beef production in 2020 was slightly 
higher than 2019, based on heavier slaughter and carcass weights. As 
expected, cattle weights increased during the disruptions from COVID. 
Total head of commercial slaughter in 2020 was down just two percent 
from 2019, despite the dramatic disruption to the cattle harvest during 
the second quarter of 2020 resulting from the pandemic.
    Packers adjusted to the combination of the large supply of cattle 
and constraints on their capacity by increasing their Saturday 
slaughter and processing operations to increase through-put. Saturday 
slaughter year-to-date (through June 19, 2021) has been nearly 40 
percent higher than 2020 and 50 percent higher than the more normal 
year of 2019.
Saturday Cattle Slaughter
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: USDA AMS.

    Although through the first half of 2021 there remained a large 
supply of fed cattle to be harvested, which affected cattle markets and 
prices, through June, year-to-date cattle slaughter is nearly six 
percent greater than the previous 5 year average for the same period.
The Labor Supply Affects Cattle Markets
    Production in meat packing and processing plants are, in some 
respects, tied to the number of employees working the line. During the 
early phases of the COVID-19 pandemic, employee absenteeism, whether 
due to contracting COVID-19, or being sent home with symptoms, or 
quarantined because of exposure, or simply because of apprehension of 
coming to work as seen in some locations, caused processing lines in 
some plants to slow. Additionally, many packers were further challenged 
by the hodge-podge of enforcement actions, however well-intentioned, 
taken at the state and local level.
    Moreover, certain cuts of beef and pork require comparatively more 
labor to process compared to other cuts. These include boneless steaks, 
which are high value products in high demand. Labor shortages for 
fabricating these cuts exacerbate the economic impact on beef and 
cattle prices from plant slowdowns. A slowdown at any point in a beef 
packing plant creates a bottleneck through the whole plant. Meat and 
poultry companies are utilizing capacity to the best of their abilities 
with COVID protocol constraints still in place and despite significant 
labor challenges.
    To be clear, labor challenges were not caused by the pandemic; 
COVID-19 only exacerbated the issue. The meat industry has been facing 
a labor shortage for some time, and it continues today. Indeed, the 
pace of Saturday shifts has also strained available labor and adds to 
processing costs. Recent press stories report the industry's 
recruitment efforts, including wage increases, signing bonuses, 
relocation bonuses, retention bonuses and generous benefits. This labor 
shortage impact is not only on processing lines but also warehouse 
workers, maintenance positions, and other jobs also critical to 
maintaining the supply chain.
    Virtually none of the calls for government intervention into the 
market acknowledge or address labor availability, even though it is, 
and is likely to remain, a significant factor that affects utilization 
of capacity. Packers cannot work through large supplies of market-ready 
cattle when plants are not fully staffed with skilled labor.
The Private-Sector is Adding Packing Capacity
    USDA has announced it will provide $500 million in grants and loans 
from the American Rescue Plan to expand meat and poultry processing. 
Asking taxpayers to subsidize harvest capacity ignores two fundamental 
issues. First, adding more capacity simply for the sake of having added 
capacity for a notoriously cyclical cattle supply is short sighted and 
could distort more significant and longer-term private-sector 
investments. Second, adding capacity ignores the long-running challenge 
of finding a sufficient labor pool.
    The beef and cattle markets are not static, but rather regularly 
adjust to find balance as the chart below shows. The industry responds 
to market signals in terms of capacity and the size of the cattle herd, 
and ultimately beef demand.
Daily Slaughter Capacity versus Cattle Inventory
With 2022 Projections *
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          * Publicly announced capacity expansions; cattle inventory 
        implied from USDA May 2021 Livestock Dairy & Poultry Outlook.

    Over the past 10 months, in response to market signals, one new 
plant has opened, and several expansions and new facilities have been 
announced--including those with investment from cattle producer 
stakeholders.

      2020-2021 Publicly Announced Beef Packing Capacity Expansion
------------------------------------------------------------------------
           Announced                                                Est.
 Packer --------------- Capacity hd/  State     Est.     Ownership   on-
          Date  Action      day              Investment             line
------------------------------------------------------------------------
AgriBee  Aug.   New             500      ID              Producer   TBD
 f/True   2020   Plant
 West
FPL      Oct.   Expans          500      GA  $120 mln    FPL        Q4
          2020   ion                                                 202
                                                                     1
Iowa     Mar.   Expans        1,250      IA  $100 mln    National   Q4
 Premiu   2021   ion                                      Beef       202
 m/                                                                  2
 Nation
 al
 Beef
Sustain  Mar.   New           1,400      NE  $300 mln    Feeder     TBD
 able     2021   Plant
 Beef
Missour  Mar.   Conver          500      MO              NexGen,    Mar.
 i        2021   ted                                      feeders    202
 Prime           pork                                                1
                 plant
JBS      Jun.   Expans        1,050      NE  $150 mln    JBS        Q4
          2021   ion                                                 202
                                                                     1
America  Jun.   New             TBD      WI  AFG         TBD
 n        2021   Plant
 Foods
 Group
                       --------------
  Total                      +5,200
------------------------------------------------------------------------
Source: company press releases and news coverage.

    These new entrants or company expansions were based on decisions to 
build or expand based on market conditions, not because of government 
intervention. Government interference into the market could well 
undermine this industry growth.
    This market-based expansion of the beef packing industry is what 
cattle industry analysts have identified and called for in various 
reports. As a Rabobank analysis stated in September 2020, ``An 
additional daily packing capacity of 5,000 to 6,000 head of fed cattle 
could restore the historical balance of fed cattle supplies and packing 
capacity and still allow for positive packer margins.'' \14\ The 
Rabobank report further stated, ``While many have discussed the need 
for more geographically dispersed, smaller plants, adding packing 
capacity in the name of supply chain resiliency is unlikely to work. It 
must be driven by long-run economics.'' \15\ Dr. Koontz expressed 
similar concerns about building capacity that is not used when not 
needed but built ``just in case.'' \16\
---------------------------------------------------------------------------
    \14\ The Case for Capacity; Can the U.S. Beef Industry Expand 
Packing Capacity? Rabobank, Sept. 2020.
    \15\ Ibid.
    \16\ Economic Reasons for What was Observed in Fed Cattle and Beef 
Markets During the Spring of 2020, Steve Koontz, Department of 
Agricultural & Resource Economics, Colorado State University, May 28, 
2020.
---------------------------------------------------------------------------
    Small and midsize beef slaughter and processing companies endured 
the same challenges large companies faced during the pandemic, perhaps 
more so. Artificially creating more, smaller regional harvest 
facilities will not prevent future market disruptions nor protect 
cattle producers from cyclical or volatile markets. The unintended 
outcome could be the opposite.
Proposed Regulatory Actions by USDA Under the Packers and Stockyards 
        Act will Adversely Affect Producers and Packers
    On June 11, USDA announced it planned to propose rules to 
``strengthen enforcement'' of the Packers and Stockyards Act (PSA).\17\ 
The expected proposed regulations would be problematic for several 
reasons, including their impact on livestock producers' options to 
market their cattle, as described previously.
---------------------------------------------------------------------------
    \17\ https://www.usda.gov/media/press-releases/2021/06/11/usda-
begin-work-strengthen-enforcement-packers-and-stockyards-act.
---------------------------------------------------------------------------
    The concepts expressed in USDA's announcement are not new and were 
considered, and rejected, in the past. When proposed, they will 
conflict with legal precedent in no less than eight Federal appellate 
circuits, and will hurt livestock producers, packers, and consumers.
    For example, USDA plans on re-proposing a rule to clarify that a 
plaintiff need not demonstrate harm to competition to bring and prevail 
in Packers and Stockyards Act litigation. Additionally, USDA indicates 
that it intends to ``propose a new rule that will provide greater 
clarity to strengthen enforcement of unfair and deceptive practices, 
undue preferences, and unjust prejudices.'' \18\ It is beyond dispute 
that eliminating the need for a plaintiff to show harm to competition, 
or likely harm to competition, will encourage litigation, most of it 
likely specious litigation. That threat will severely limit or 
terminate AMAs with all the adverse unintended consequences discussed.
---------------------------------------------------------------------------
    \18\ Ibid.
---------------------------------------------------------------------------
Protecting Federal Meat Inspection: The Gold Standard of Food Safety
    Under the guise of ``increasing capacity,'' there are various 
legislative proposals to allow the shipment of state-inspected meat and 
poultry products across state lines without meeting Federal standards, 
and even allowing uninspected meat from custom processors to be sold 
commercially intrastate. These ideas are ill-conceived.
    Federal inspection is a food safety issue, and food security is not 
something to be waived for a short run economic inducement. Any company 
wishing to sell in interstate commerce should be willing and able to 
meet the food safety and other consumer protection standards set by the 
Food Safety and Inspection Service (FSIS).
    First, these bills ignore the fact that there already exists a 
program, administered by FSIS, that allows state-inspected 
establishments to ship meat and poultry products across state lines--
the Cooperative Interstate Shipment (CIS) program. Nine states have 
elected to participate in the program, with two of those nine, Iowa and 
South Dakota, announced during the COVID-19 pandemic. CIS was created 
by Congress as part of the 2008 Farm Bill and ensures product moving in 
interstate commerce meets the requisite food safety standards. CIS also 
ensures a level playing field for all meat and poultry companies 
selling product in interstate commerce.
    Second, the assertion that meeting Federal standards is too 
burdensome for small and very small plants is a specious argument. 
There are approximately 6,000 federally inspected meat and poultry 
establishments and more than 5,000 of them are small or very small.

------------------------------------------------------------------------
                                                           Number of
                  Size of Facilities                       Federally
                                                        Inspected Plants
------------------------------------------------------------------------
Small (more than 10 but fewer than 500 employees)                  2,329
Very Small (fewer than 10 employees or less than                   2,866
 $2.5M in annual sales)
------------------------------------------------------------------------
Source: FSIS.

    Allowing interstate shipment of state-inspected meat opens a 
Pandora's Box of potential trade concerns. Under World Trade 
Organization (WTO) rules requiring ``like treatment,'' the U.S. could 
be forced to accept imported meat and poultry regulated under local and 
provincial rules in foreign countries rather than the audited and 
verified national inspection systems in those countries, as required. 
Moreover, important export markets, which have their own national 
inspection systems could deny market access to U.S. beef, pork, and 
poultry. Neither outcome is good.
Beef Imports and Country-of-Origin Labeling
    Much like USDA's proposed rules, another issue settled legally and 
discredited economically has been revived: mandatory country-of-origin 
labeling (COOL). In four rulings, each of which the U.S. lost, the 
World Trade Organization concluded that COOL was discriminatory and 
illegal under WTO rules, and if left in place would have triggered more 
than $1 billion in retaliatory tariffs. That is why Congress repealed 
COOL for beef and pork in 2015. Despite COOL being in place the largest 
and fastest growth in beef imports was in 2014--which was the year the 
size of the U.S. cattle herd was at its lowest, as expected based on 
supply and demand fundamentals that drive the cattle and beef industry.
    When COOL went into effect, per capita consumption of beef in the 
U.S. was 60.8 pounds; by the time COOL was repealed in 2015 beef 
consumption per capita had dropped to 53.8 pounds. As explained 
earlier, up to half of U.S. beef consumption is as hamburger and ground 
beef. Most of the beef imported into the U.S. is lean, grass-fed trim 
and lower value cuts, which supplements the beef from non-fed cattle 
making up 21 percent of annual slaughter as a necessary ingredient in 
into processed meat and ground beef. Because of this balance with 
imports, steaks, loins and higher value cuts are not forced into such 
lower value products, which helps support prices both domestically and 
through exports of U.S. beef. According to the U.S. Meat Export 
Federation, the per pound price of U.S. beef exports has averaged a 68 
premium over the price of imports that go into lower value beef 
products.
Conclusion
    The discussion above demonstrates that market fundamentals drive 
the cattle and beef markets and that what we have seen before and 
during the course of the pandemic was to be expected. The North 
American Meat Institute is prepared to discuss these issues and work 
with the Committee on the issues facing the industry. Thank you for the 
opportunity to provide this testimony.
                              Statement 2
           on behalf of national cattlemen's beef association
Introduction
    On behalf of America's cattle producers, thank you for the 
opportunity to provide testimony as the Subcommittee examines the 
resiliency of the beef supply chain.
    The National Cattlemen's Beef Association (NCBA) is the U.S. cattle 
and beef industry's oldest and largest trade association. In addition 
to our 25,000 direct members, NCBA represents forty-four state 
cattlemen's associations with collective memberships numbering some 
175,000 cattle producers--each of whom has a voice in our grassroots 
policy-making process. It is important to note that well in excess of 
90 percent of those members are family-owned business entities involved 
in the cow-calf, stocker/backgrounder, and feeding sectors of the 
supply chain. In other words, true ranchers and farmers.
    In a grassroots membership base as diverse as ours, it necessarily 
follows that business models and opinions are equally diverse. Just as 
cattle production in the western United States is very different than 
in the Midwest or Southeast, so too are the methods by which our 
producers choose to market cattle between segments of the supply chain. 
Our role at NCBA is to facilitate a policy process that respects those 
differing perspectives, consults informed expertise, allows for robust 
discussion and debate, and ultimately arrives at policy positions that 
are representative of the entire industry. It is from this perspective, 
based upon that very grassroots policy-making process, that NCBA 
submits the following testimony to the hearing record.
Background
    The present situation unfolding within the U.S. cattle markets is 
highly complex and multifaceted. Some of the underlying dynamics at 
play have been present in our industry for some time. Other factors 
have emerged more recently. Independent of the origins of the issues 
themselves, the present conversations on how best to address them were 
recently elevated as a result of two major events.
    In August of 2019, a fire at Tyson Foods' Finney County beef plant 
in Holcomb, KS wreaked havoc upon the cattle markets. In the days 
following the fire, live cattle prices declined substantially while 
boxed beef values soared.\1\ At the peak of this market volatility, the 
spread between fed cattle and boxed beef prices reached $67.17/cwt--at 
the time, the widest gap since records began under Livestock Mandatory 
Reporting (LMR).\2\ While the supply shocks brought about by this 
``black swan'' event created severe challenges for cattle producers, 
those hardships were dwarfed by those brought on by the COVID-19 
pandemic.
---------------------------------------------------------------------------
    \1\ Boxed Beef & Fed Cattle Price Spread Investigation Report. 
USDA-AMS: 2020.
    \2\ Ibid.
---------------------------------------------------------------------------
    As meatpacking plants began to temporarily close, whether due to 
isolated outbreaks of the virus or to comply with local public health 
orders, cattle supplies began to build up across all segments of the 
supply chain. At the height of the pandemic, the industry realized a 
roughly 40 percent decline in beef processing capacity utilization.\3\ 
The resulting supply and demand dynamics showed similar results to the 
Holcomb fire: fed cattle prices fell by 18 percent and boxed beef 
prices skyrocketed 80 percent.\4\ While the industry has made great 
strides toward recovery, the effects of COVID-19 are still being felt 
by cattle producers today.
---------------------------------------------------------------------------
    \3\ Ibid.
    \4\ Ibid.
---------------------------------------------------------------------------
Recent NCBA Engagement on Cattle Marketing
    NCBA has maintained a standing Live Cattle Marketing Committee for 
many years, and often employs a working group of market participants, 
state affiliates, and outside experts to research specific issues and 
offer objective guidance that may be used in the development of NCBA 
policies. While a few outside observers have been critical of NCBA's 
approach and policies, we have remained committed to respecting the 
direction and intent passed by our tens of thousands of grassroots 
members through our policy process. To discount those voices around the 
country because they do not align with a specific regional or 
organizational view is tremendously disrespectful to the very family 
operations many claim to be speaking for.
Price Discovery
    While declining levels of negotiated trade of fed cattle had 
already begun an industry-wide discussion on the subject of price 
discovery long before the Holcomb fire or COVID-19, these two major 
market disruptors underscored the urgency of this dialogue. In July 
2020, NCBA's Live Cattle Marketing Committee met to discuss policy 
proposals as part of our organization's 2020 Summer Business Meeting. 
Producer leaders from more than forty state cattlemen's associations 
worked for more than 6 hours to craft a policy that would help resolve 
concerns about live cattle marketing issues and lead the industry 
toward more robust price discovery. The NCBA Committee considered 
several proposals, each aimed at encouraging greater volumes of cash 
cattle trade. After debate, the NCBA Committee recommended and the NCBA 
Board of Directors approved a policy that supports voluntary efforts to 
improve cash fed cattle trade with the potential for a legislative or 
regulatory solution in the future if robust regional cash trade numbers 
are not achieved.
    As mandated by this member-passed policy, NCBA leadership appointed 
a subgroup of the Live Cattle Marketing Working Group to develop a 
framework by which NCBA would monitor negotiated trades and establish 
benchmarks of weekly negotiated trade volumes. In October of 2020, the 
group announced this plan and issued a report titled, ``A Voluntary 
Approach to Achieve Robust Price Discovery in the Fed Cattle Market'' 
(Addendum 1).
    NCBA implemented this framework in January 2021. Since that time, 
cattle feeders within USDA's five major cattle feeding reporting 
regions (the ``5-Area'') \5\ have responded to the need for more 
negotiated trade in order to improve price discovery at the fed cattle 
level. In an impressively short period of time, many cattle producers, 
particularly in the Texas-Oklahoma-New Mexico and Kansas regions, have 
adjusted longstanding business models to offer more cattle on a 
negotiated basis. In some cases, they have even done so against the 
indications of short-term market signals. As a result, negotiated trade 
volumes in the first quarter of 2021 increased against recent years 
(Addendum 2). Many analysts and agricultural economists have credited 
this rise to NCBA's voluntary efforts (Addendum 3). We recently 
concluded our analysis of negotiated trade throughout second quarter, 
and found that trend had continued. In fact, during 3 trading weeks in 
this period, all 5-Area regions exceeded negotiated trade volumes that 
current academic research indicates is necessary for ``robust'' price 
discovery \6\ (Addendum 4). This is certainly a marked improvement from 
trends observed even 9 months ago, and cattle producers deserve high 
praise for this work. Unfortunately, some meatpackers have still not 
participated in negotiated trade at meaningful levels, jeopardizing the 
success of our framework and impeding price discovery for all market 
participants.
---------------------------------------------------------------------------
    \5\ Alphabetically, USDA's five LMR reporting regions are: 
Colorado, Iowa-Minnesota, Kansas, Nebraska, and Texas-Oklahoma-New 
Mexico.
    \6\ Objective Measures of Price Discovery in Thinning Fed Cattle 
Markets. Colorado State University: 2016. (Executive Summary).
---------------------------------------------------------------------------
    All transactions require both a willing buyer and a willing seller. 
As evidenced by the negotiated trade volumes exhibited in the first and 
second quarters, cattle producers have been willing to sell their 
cattle on a negotiated basis, rather than utilizing alternative 
marketing arrangements (AMAs) such as formulas and forward contracts. 
Still, some meatpackers have yet to demonstrate a serious commitment to 
purchasing cattle on a negotiated basis. NCBA recently completed the 
``packer participation silo'' of our voluntary framework, which will 
allow us to gauge whether or not the largest meatpackers are 
participating in negotiated trade at sufficient levels.
    To be clear, AMAs are very important in the fed cattle trade, and 
NCBA supports their continued use as they fit the unique business 
models of cattle producers. They allow cattlemen and women to earn 
premiums for higher quality cattle and mitigate risks associated with 
selling in the spot market. However, equally as important, is the price 
discovery derived from direct, buyer-seller negotiations. Just as NCBA 
and industry experts warn against a total rejection of AMAs, we also 
know that lack of participation in the negotiated market will similarly 
result in dire consequences for our industry. The benefits of AMAs 
cannot be allowed to come at the cost of robust price discovery. There 
must be a balance. That is why we continue to explore new means to 
encourage greater use of the cash market and negotiated grids through 
our voluntary framework.
    While more improvements are still needed to achieve consistency, 
including adequate meatpacker participation in the negotiated market, 
these results are encouraging. As new and innovative price discovery 
tools continue to emerge, we are confident that transactional 
contribution to price discovery remains attainable in the very near 
future.
Market Transparency
    Since enactment of the Livestock Mandatory Reporting Act in 1999 
(P.L. 106-78), cattle producers have benefitted from the consistent and 
timely reporting of market information by USDA. Producers utilize this 
information to make informed marketing decisions that best suit their 
unique business needs. LMR requires Congressional reauthorization every 
5 years and was set to expire at the end of the 2020 Fiscal Year. A 1 
year extension of the program was included in the Consolidated 
Appropriations Act of 2021 (P.L. 116-260), and it is currently 
authorized through September 30, 2021. NCBA strongly supports LMR and 
urges Congress to ensure that this critical tool does not expire.
    Though LMR is essential to cattle producers, improvements could be 
made to the program to increase transparency within the cattle markets. 
Though many of these proposals can be adopted through the regulatory 
process, NCBA supports the establishment of a cattle contract library, 
reporting of formula base prices, and next-day carcass weight reporting 
among other things. We believe that these new reports could further 
benefit producers in marketing their cattle. USDA is required by law to 
protect the confidential business information of entities who report 
market information under LMR.\7\ To implement this mandate, USDA 
established the ``3/70/20'' confidentiality guidelines in 2001. Under 
this provision, price reports are published provided each report meets 
three conditions over the most recent 60 day period:
---------------------------------------------------------------------------
    \7\ 7 U.S.C.  1636(a).

  (1)  At least three reporting entities provide data at least 50 
---------------------------------------------------------------------------
            percent of the time;

  (2)  No single reporting entity provides more than 70 percent of the 
            data for a report; and

  (3)  No single reporting entity may be the sole reporting entity for 
            an individual report more than 20 percent of the time.

    While NCBA recognizes the Agency's requirement to balance the need 
for information with safeguarding confidentiality, the 3/70/20 
guidelines have often resulted in withheld reports throughout the major 
cattle feeding regions--most notably in the Colorado region. NCBA 
supports efforts to revisit confidentiality rules to reduce instances 
of nonreporting, and will continue to work alongside allies on Capitol 
Hill and with USDA to ensure this critical information remains 
accessible to cattle producers.
Processing Capacity
    Adequate beef processing capacity is critical to maintaining 
profitability in the cattle industry and providing a steady supply of 
essential food products to American consumers. Currently, there is a 
serious shortage of processing capacity (commonly referred to as ``hook 
space'') throughout the beef production system. A recent study by 
Rabobank found that excess operational beef processing capacity--or 
hooks available in addition to those used to process existing fed 
cattle supplies--fell to zero in late 2016 and turned negative in early 
2017. The same study found that, under the current dynamics of supply 
and demand, the industry could economically accommodate an additional 
5,700 hooks of daily processing capacity. This equates to roughly 1.5 
million additional animals per year.\8\
---------------------------------------------------------------------------
    \8\ Aherin, Dustin. The Case for Capacity. RaboBank: 2020.
---------------------------------------------------------------------------
    At present, the processing sector represents a bottleneck in the 
overall beef supply chain. The result has a negative effect on cattle 
producer leverage in fed cattle negotiations. When cattle supplies 
exceed the capacity to process them, the livestock become a less scarce 
resource and cattle prices decline. It is important to note that this 
is independent of demand for beef. Even when demand for U.S. beef is 
strong, a lack of processing capacity depresses prices for live cattle. 
The most pointed examples of this can be found in the Holcomb fire and 
COVID-19. In both cases, operational beef processing capacity 
utilization fell dramatically following temporary closures of high-
throughput beef plants. As a result, cattle prices declined, and boxed 
beef values drastically increased.
    To improve producer leverage in fed cattle negotiations, either 
cattle supplies must be reduced, or processing capacity must be 
expanded. Herd contractions and expansions occur naturally over the 
course of a somewhat predictable 10 year cycle. Currently, U.S. cattle 
inventories are cyclically high,\9\ but beef demand is also high both 
domestically and in our major export markets.\10\ The clearest solution 
to meeting this demand while fostering profitability throughout the 
supply chain is to expand beef processing capacity.
---------------------------------------------------------------------------
    \9\ Cattle Report, USDA-NASS, January 2021.
    \10\ Factors that Drive Beef, Cattle Prices to Record Highs. 
RaboBank: 2021.
---------------------------------------------------------------------------
    Meatpackers of all sizes face similar operational challenges, the 
most consistent and severe of which is labor recruitment and retention. 
The largest barrier to entry, however, is access to sufficient capital 
for construction. The industry average startup cost for a meat 
processing facility is roughly $100,000 per hook.\11\ This means that a 
modest 25-head-per-day plant would need to secure $2.5 million in 
financing just to build the infrastructure. As a further complication, 
traditional lending institutions are often unable to provide adequate 
financing due to the risk profile assessed to meatpacking business 
models.
---------------------------------------------------------------------------
    \11\ Newlin, Lacey. So You Want to Build a Slaughter Plant? High 
Plains Journal: 2020
---------------------------------------------------------------------------
    NCBA has partnered with lawmakers in Congress to introduce 
legislation authorizing federally guaranteed, low-interest loans to 
prospective meatpackers. We urge Congress to swiftly take up this 
legislation and vote yes to supporting small, local, and independent 
meat processors.
Market Oversight
    Markets can only properly function when all participants play by 
the same rules. While much of the spread between boxed beef and fed 
cattle prices during the pandemic can be explained by the inherent 
characteristics of supply and demand, NCBA called upon the Department 
of Justice to investigate the major meatpackers in June 2020. The 
purpose of this request was to ensure that no anticompetitive behavior 
or illicit activity contributed to these disparate prices paid for 
similar commodities. To date, we have not learned the results of this 
investigation, nor have we received any confirmation that it is still 
ongoing. Over 100 lawmakers have signed onto letters requesting a 
status update from the Attorney General, and NCBA supported most of 
these efforts. It is imperative that cattle producers learn the 
Department's findings at the earliest possible opportunity. They 
deserve transparency and accountability.
NCBA Recommendations
    Throughout cattle marketing conversations over the past sixteen 
months, a small but vocal minority has suggested--and continues to 
suggest--that low cattle prices can be remedied or balanced simply 
through a government mandated marketing requirement. This is not 
accurate. Definitively, there is no simple solution sufficient to 
address the myriad challenges facing our industry. To suggest that any 
single legislative, regulatory, or industry-led action will be a 
``silver bullet'' is to grossly oversimplify and mislead. Rather, 
progress and marked improvement will require a multifaceted response 
from the industry, Congress, and Federal agencies.
    In Congress, lawmakers should focus their efforts on bringing more 
transparency to the cattle marketplace, supporting small and mid-size 
beef packers, promoting expansion of processing capacity, ensuring a 
timely reauthorization of LMR, reviewing the confidentiality 
obligations required of USDA, and continuing oversight of the 
Department of Justice to ensure their ongoing investigation reaches a 
swift conclusion. NCBA is aware that a handful of lawmakers, are 
curious about legislation to require certain levels of negotiated 
trade, such as the Cattle Market Transparency Act \12\ and legislation 
known as ``50/14.'' \13\ Per our member-driven, grassroots policy, NCBA 
opposes government mandates in the cattle market at this time. Our 
industry-led effort to achieve price discovery must be allowed the 
opportunity to succeed or fail before our membership decides to support 
a legislative or regulatory solution. Simply put, the midst of an 
ongoing market crisis is never a good time to make long-term, market 
altering statutory changes. Careful consideration must be given to the 
risk and reward of enacting market-influencing laws for hundreds of 
thousands of American ranchers and millions of avid beef consumers.
---------------------------------------------------------------------------
    \12\ S. 543 (117th Cong.).
    \13\ S. 949 (117th Cong.).
---------------------------------------------------------------------------
    As Congress evaluates several legislative proposals intended to 
help cattle producers during these uncertain times, we urge thorough 
vetting and attentive evaluation of economic assessments and feedback 
from the entire cattle industry. As we have for over fifty years, NCBA 
is happy to assist the Subcommittee in this endeavor.
Conclusion
    NCBA appreciates this opportunity to provide testimony on behalf of 
our members--the men and women who put beef on the American dinner 
plate. We commend and thank the Subcommittee for taking the time to 
delve into this important and complex subject. It has been a difficult 
2 years for cattle producers in every corner of the country, and the 
Subcommittee's desire to assist them during this time has not gone 
unnoticed. Your attention to these issues is greatly appreciated. As we 
continue to discuss creative solutions and potential paths forwards, we 
stand ready to assist in any way. Please do not hesitate to reach out 
to the NCBA Center for Public Policy at (202) 347-0228 with any 
questions.
Addendum 1--Overview Presentation of NCBA's Voluntary Approach to 
        Achieve Robust Price Discovery in the Fed Cattle Market
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
        
Addendum 2--Letter from NCBA President Jerry Bohn to NCBA Members 
        Regarding Q1 Results of Voluntary Price Discovery Efforts
April 16, 2021

    Dear Fellow NCBA Member,

    March 2021 marked 1 year since the declaration of a national 
emergency due to COVID-19. Nobody could have predicted then the serious 
impact the pandemic would have on our nation, the economy, or within 
the cattle markets. As states begin the process of fully re-opening, I 
am hopeful that the worst of this crisis is behind us. Although the 
business environment for cattle producers has improved since March 
2020, the volatility caused by the virus continues to impact our 
industry.
    To improve the business climate for cattle producers, further work 
is needed in the area of price discovery. Last October, you received a 
letter \1\ from Marty Smith announcing NCBA's Voluntary Approach to 
Achieve Price Discovery in the Fed Cattle Market.\2\ This framework, 
sometimes called the ``75% Plan,'' was developed by NCBA's Live Cattle 
Marketing Working Group Regional Triggers Subgroup as directed by the 
Fed Cattle Price Discovery policy (M 1.10) adopted at our 2020 Summer 
Business Meeting. As a reminder, the voluntary approach requires the 
subgroup to analyze the program's performance at the end of every 
quarter. The subgroup has completed its evaluation of the first quarter 
of 2021, and I write today to report their findings to the members of 
NCBA.
---------------------------------------------------------------------------
    \1\ https://policy.ncba.org/Media/Policy/Docs/regional-triggers-
subgroup-report-letter-from-marty-to-ncba-membership-final_10-16-2020-
38.pdf.
    \2\ https://policy.ncba.org/Media/Policy/Docs/ncba-regional-
triggers-subgroup-report-overview-presentation_10-16-2020-53.pdf.
---------------------------------------------------------------------------
    After evaluating the weekly USDA-AMS negotiated trade data in the 
five major cattle feeding reporting regions, the subgroup has 
determined that a major trigger was tripped during the first quarter of 
2021. According to our member-approved framework, if another major 
trigger is tripped during any of the remaining quarters this year, NCBA 
will pursue a legislative or regulatory solution to increase negotiated 
trade as determined by our membership.
    Under the ``Negotiated Trade'' silo of the 75% Plan, one minor 
trigger is assigned to each of the regions. The subgroup evaluated the 
weekly negotiated trade volumes for each cattle feeding region, and 
determined that the Iowa-Minnesota and Nebraska-Colorado regions 
exceeded their thresholds under the 75% Plan during all of the 
reporting weeks--therefore, passing their negotiated trade threshold 
for this quarter. They also found that the Texas-Oklahoma-New Mexico 
and Kansas regions each fell short of the threshold during five of the 
Q1 reporting weeks. One of those weeks occurred during Winter Storm Uri 
and another coincided with mandatory maintenance at a major packing 
plant which resulted in a lengthy closure. Both events disrupted normal 
cattle flows and brought critical packing capacity to a grinding halt. 
The data from the weeks surrounding both events justified invoking the 
force majeure provisions of our framework, though a major trigger was 
still tripped due to a lack of packer participation. The subgroup will 
continue to explore ways to evaluate force majeure events in a more 
objective manner.
    Let me be clear, our producers deserve high praise for their 
diligent efforts to implement the voluntary framework this past 
quarter. They offered cattle on a negotiated basis to comply with our 
framework, even when market signals were telling them to hold on to 
cattle in anticipation of higher prices. Often, these trades were made 
at a loss. We recognize the steps cattle producers have taken to 
address the need for greater price discovery and market transparency, 
and deeply appreciate their actions. Unfortunately, there was not 
enough participation in the negotiated market from some of the packers. 
Simply put, feeders can offer all their cattle on a negotiated basis--
but we only achieve our thresholds if there is a buyer willing to bid 
fairly on those cattle offered.
    While the 75% Plan framework calls for the evaluation of a ``Packer 
Participation'' silo (in addition to the ``Negotiated Trade'' silo), 
this piece of the program is not yet complete, and thus was not 
evaluated during this quarter. NCBA continues to finalize the details 
with the four major meatpackers. While we are in the final stages of 
these negotiations, the basic mechanics have already been established 
by the subgroup--and we know that, had this silo been evaluated during 
the first quarter, we would have tripped a major trigger with the 
packer silo as well.
    This quarter, the market fell short of the negotiated trade volumes 
outlined in our voluntary framework, but that should not overshadow the 
significant improvements made to price discovery since the framework's 
implementation. For example, negotiated trade activity is already up 
significantly year-over-year in the Texas-Oklahoma-New Mexico region.
TX-OK-NM Negotiated Trade Volume
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: CattleFax; USDA-AMS.

    It is apparent that the work of NCBA, and the efforts of the 
producers who have participated in this framework, have been critical 
in this increase. These gains were made despite residual COVID-19 
disruptions, packing plant closures, natural disasters, and a volatile 
market. Cattlemen and women should be commended for their efforts to 
bring more price discovery to the marketplace. But we still have a ways 
to go.
    We remain committed to working with all levels of the supply chain 
to ensure more fed cattle are offered and procured on a negotiated 
basis. Please do not hesitate to reach out to your NCBA officer team or 
our staff in Washington, D.C., with any questions or concerns.
            Sincerely,

Jerry Bohn,
President,
National Cattlemen's Beef Association.

                                                                        Addendum 3_Q1 Negotiated Trade Volumes by 5-Area Region Compared to NCBA's 75% Thresholds
                                                                                            NCBA Fed Cattle Negotiated Trade Tracker--2021 Q1
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Week Ending:
    Region          75%                     Category               ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                 Threshold                                           1/10/2021    1/17/2021    1/24/2021    1/31/2021    2/7/2021    2/14/2021    2/21/2021    2/28/2021    3/7/2021    3/14/2021    3/21/2021    3/28/2021    4/4/2021
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM         9,750  Neg. Cash                                    7,239        7,331        4,988        6,800       6,929        6,441        6,390        8,376       8,742        6,669        2,774        8,657       4,642
                             Neg. Grid Base                               2,046        4,893        3,356        2,827       5,159        3,690        4,003        5,104       6,299        6,060        3,553        4,649       3,997
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             8Total Neg.                                 89,285      812,224       88,344       89,627     812,088      810,131      810,393      813,480     815,041      812,729       86,327      813,306     88,6390
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
           KS        15,750  Neg. Cash                                   13,754       12,481       20,591       10,598      18,085        8,531        8,310       10,830      14,859       17,952       13,259       17,093      13,486
                             Neg. Grid Base                               3,430        2,343        3,410        2,105       3,504        6,198        1,382        4,086       4,383        2,903        3,978        5,442       5,556
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             8Total Neg.                                817,184      814,824      824,001      812,703     821,589      814,729       89,692      814,916     819,242      820,855      817,237      822,535    819,0420
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
           NE                Neg. Cash                                   23,816       31,081       29,738       30,547      30,312       25,664       25,512       29,886      19,807       34,422       22,850       30,549      21,930
                             Neg. Grid Base                               3,947        5,153        5,371        8,014       6,071        8,456        4,679        4,352       4,403        2,887        3,216        4,760       5,232
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                     27,000  Subtotal Neg.                               27,763       36,234       35,109       38,561      36,383       34,120       30,191       34,238      24,210       37,309       26,066       35,309      27,162
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
         CO *                Neg. Cash                                    1,573        5,485        2,419        4,333          --           --           --           --       5,422        4,083        5,097        6,311         728
                             Neg. Grid Base                               1,654        5,498        2,297        4,566          --           --           --           --       3,155        2,777        1,982        2,071       1,263
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             Subtotal Neg.                                3,227       10,983        4,716        8,899          --           --           --           --       8,577        6,860        7,079        8,382       1,991
                                                                   =====================================================================================================================================================================
                             8Total Neg.                                830,990      847,217      839,825      847,460     836,383      834,120      830,191      834,238     832,787      844,169      833,145      843,691    829,1530
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        IA-MN        12,000  Neg. Cash                                   19,414       27,355       18,887       24,220      26,081       21,443       20,342       18,668      19,844       18,875       26,397       21,961      26,291
                             Neg. Grid Base                               3,471        4,166        2,984        4,040       2,716        4,394        2,681        4,668       3,095        2,941        3,027        3,004       4,390
                             8Total Neg.                                822,885      831,521      821,871      828,260     828,797      825,837      823,023      823,336     822,939      821,816      829,424      824,965    830,6810
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM         9,750  Pass/Fail                                   8(465)       62,474     8(1,406)       8(123)      62,338         6381         6643       63,730      65,291       62,979     8(3,423)       63,556   8(1,111)0
           KS        15,750  Pass/Fail                                   61,434       8(926)       68,251     8(3,047)      65,839     8(1,021)     8(6,058)       8(834)      63,492       65,105       61,487       66,785     63,2920
        NE-CO        27,000  Pass/Fail                                   63,990      620,217      612,825      620,460      69,383       67,120       63,191       67,238      65,787      617,169       66,145      616,691     62,1530
        IA-MN        12,000  Pass/Fail                                  610,885      619,521       69,871      616,260     616,797      613,837      611,023      611,336     610,939       69,816      617,424      612,965    618,6810
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      * Zeroed cells denote unavailability of data due to confidentiality.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Sources:
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Region:         USDA-AMS Report:
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM   LM--CT156 (https://www.ams.usda.gov/mnreports/ams_2483.pdf)
           KS   LM--CT157 (https://www.ams.usda.gov/mnreports/ams_2484.pdf)
           NE   LM--CT158 (https://www.ams.usda.gov/mnreports/ams_2485.pdf)
           CO   LM--CT134 (https://www.ams.usda.gov/mnreports/ams_2670.pdf)
        IA-MN   LM--CT137 (https://www.ams.usda.gov/mnreports/ams_2672.pdf)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                    Addendum 4_Q2 Negotiated Trade Volumes by 5-Area Region Compared to NCBA's 75% Thresholds and 100% of ``Robust'' Price Discovery
                                                                                            NCBA Fed Cattle Negotiated Trade Tracker--2021 Q2
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Week Ending:
    Region          75%                     Category               ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                 Threshold                                           4/11/2021    4/18/2021    4/25/2021     5/2/2021    5/9/2021    5/16/2021    5/23/2021    5/30/2021    6/6/2021    6/13/2021    6/20/2021    6/27/2021    7/4/2021
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM         9,750  Neg. Cash                                   13,387        8,900        3,668        9,055       6,850        7,953        7,071        9,183       5,776        7,470        7,440        1,324       5,355
                             Neg. Grid Base                               4,750        5,643        5,561        7,764       4,998        5,778        6,190        7,936       8,771        7,573        6,990        7,534       5,029
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             8Total Neg.                                818,137      814,543       89,229      816,819     811,848      813,731      813,261      817,119     814,547      815,043      814,430       88,858    810,3840
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
           KS        15,750  Neg. Cash                                   21,343       14,758        6,345        8,374       7,881        8,814       16,536       13,843       9,326       13,602       22,727        2,921      13,291
                             Neg. Grid Base                               5,395        4,984        4,127        8,206       8,350       10,318        7,496       11,021      10,864        9,624        7,499        7,115      12,075
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             8Total Neg.                                826,738      819,742      810,472      816,580     816,231      819,132      824,032      824,864     820,190      823,226      830,226      810,036    825,3660
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
           NE                Neg. Cash                                   31,150       25,593       21,314       22,886      32,744       23,087       25,735       28,551      17,189       35,353       20,781       18,700      25,960
                             Neg. Grid Base                               6,841        4,338        2,945        5,762       3,371        2,563       10,683       13,562      13,248       16,922       10,141        8,437       7,410
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                     27,000  Subtotal Neg.                               37,991       29,931       24,259       28,648      36,115       25,650       36,418       42,113      30,437       52,275       30,922       27,137      33,370
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
         CO *                Neg. Cash                                    4,322        2,850        1,708       25,261         995        1,135          857        1,299          --           --           --           --          --
                             Neg. Grid Base                               2,451        2,061          553        2,545         265          210        1,664        2,263          --           --           --           --          --
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             Subtotal Neg.                                6,773        4,911        2,261       27,806       1,260        1,345        2,521        3,562          --           --           --           --          --
                                                                   =====================================================================================================================================================================
                             8Total Neg.                                844,764      834,842      826,520      856,454     837,375      826,995      838,939      845,675     830,437      852,275      830,922      827,137    833,3700
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        IA-MN        12,000  Neg. Cash                                   26,573       27,552       24,529       15,590      26,387       18,389       19,093       21,447      22,738       27,427       16,652       16,347      30,317
                             Neg. Grid Base                               3,053        3,903        2,308        2,998       3,269        4,516        4,413        7,047       4,484        5,195        4,975        3,414       6,035
                                                                   ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             8Total Neg.                                829,626      831,455      826,837      818,588     829,656      822,905      823,506      828,494     827,222      832,622      821,627      819,761    836,3520
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             75% Thresholds
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM         9,750  Pass/Fail                                   68,387       64,793       8(521)       67,069      62,098       63,981       63,511       67,369      64,797       65,293       64,680       8(892)       66340
           KS        15,750  Pass/Fail                                  610,988       63,992     8(5,278)         6830        6481       63,382       68,282       69,114      64,440       67,476      614,476     8(5,714)     69,6160
        NE-CO        27,000  Pass/Fail                                  617,764       67,842       8(480)      629,454     610,375         8(5)      611,939      618,675      63,437      625,275       63,922         6137     66,3700
        IA-MN        12,000  Pass/Fail                                  617,626      619,455      614,837       66,588     617,656      610,905      611,506      616,494     615,222      620,622       69,627       67,761    624,3520
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        8100% Robust (FYI Only)0
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM        13,000  Over/Under                                  65,137       61,543     8(3,771)       63,819    8(1,152)         6731         6261       64,119      61,547       62,043       61,430     8(4,142)   8(2,616)0
           KS        21,000  Over/Under                                  65,738     8(1,258)    8(10,528)     8(4,420)    8(4,769)     8(1,868)       63,032       63,864      8(810)       62,226       69,226    8(10,964)     64,3660
        NE-CO        36,000  Over/Under                                  68,764     8(1,158)     8(9,480)      620,454      61,375     8(9,005)       62,939       69,675    8(5,563)      616,275     8(5,078)     8(8,863)   8(2,630)0
        IA-MN        11,000  Over/Under                                 618,626      620,455      615,837       67,588     618,656      611,905      612,506      617,494     616,222      621,622      610,627       68,761    625,3520
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      * Zeroed cells denote unavailability of data due to confidentiality.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  Sources:
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Region:         USDA-AMS Report:
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
     TX-OK-NM   LM--CT156 (https://www.ams.usda.gov/mnreports/ams_2483.pdf)
           KS   LM--CT157 (https://www.ams.usda.gov/mnreports/ams_2484.pdf)
           NE   LM--CT158 (https://www.ams.usda.gov/mnreports/ams_2485.pdf)
           CO   LM--CT134 (https://www.ams.usda.gov/mnreports/ams_2670.pdf)
        IA-MN   LM--CT137 (https://www.ams.usda.gov/mnreports/ams_2672.pdf)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                 ______
                                 
 Submitted Letter by Hon. Don Bacon, a Representative in Congress from 
    Nebraska; on Behalf of William H. Rhea III, President, Nebraska 
                               Cattlemen
July 28, 2021

  Hon. Jim Costa,
  Chairman,
  House Subcommittee on Livestock and Foreign Agriculture,
  Washington, D.C.

  Hon. Dusty Johnson,
  Ranking Minority Member,
  House Subcommittee on Livestock and Foreign Agriculture,
  Washington, D.C.

  RE: State of the Beef Supply Chain: Shocks, Recovery, and Rebuilding

    Dear Chairman Costa, Ranking Member Johnson, and Members of the 
Committee:

    Nebraska Cattlemen is grateful for the opportunity to share our 
member's concerns regarding the live cattle market, processing 
capacity, and market transparency. Our organization is a grassroots 
membership organization representing thousands of farmers and ranchers 
from every scope and sector of the beef cattle industry in Nebraska.
    Live Cattle Market: It is our cattle producer members and their 
livelihoods that are directly impacted by the cattle market's ability 
or inability to send appropriate price signals up and down the beef 
cattle supply chain. In the past decade, those price signals have 
encouraged ranchers to expand their cow herds and cattle feeders to 
expand their feeding operations as domestic and global demand has 
exponentially grown like few could have imagined. Yet today as 
wholesale beef prices start to shift from historic highs, the percent 
of the available beef supply chain profit margins being passed onto 
cattle producers is near historic lows.
    It has become painfully apparent to our members that, in recent 
years, the ability of the cattle market to send the correct price 
signals to producers has been broken. For the greater part of a decade, 
this has been a headline issue for members of our organization.
    Where we are today is not a result of a malicious plot to purposely 
stifle ranchers' livelihoods, but rather has been a progression--across 
the beef supply chain over the last 2 decades to become increasingly 
more efficient in fed cattle marketing and inventory management as an 
industry through the use of alternative marketing agreements (AMAs). 
While these efficiencies have benefited some, they came at the cost of 
robust price discovery and market leverage for other producers. 
Undoubtedly, you will hear today about the positive industry effects of 
AMAs, otherwise defined by USDA Livestock Mandatory Reporting as 
``formula'' trades, which have helped incentivize the production of 
higher quality beef. Please realize, however, that the long-term 
proliferation of AMA's has also led to a continued deterioration of 
price discovery as beef packers have financially incentivized 
commitment of cattle without price negotiation.
    Price discovery is a public good. Negotiated cash market 
participants invest resources to negotiate and discover cash market 
prices for the entire industry, while those who utilize AMAs capitalize 
on that investment, benefit from the efficiencies, and make use of the 
prices discovered by cash market participants. This type of scenario is 
best described as a tragedy of the commons. When an increasing number 
of market participants overuse a public good or ``shared resource'' for 
their own short-term best interest, abuse of the shared resource 
results in less value of that resource overall for everyone in the long 
run. Until the price discovery ``public good'' is better valued by both 
beef packers and some cattle feeders, the industry will continue on 
this downward spiral until there is little to no negotiated trade left 
and other outside markets will have to be relied on for price 
determination.
    How does our industry correct this course? Continuing to focus on 
expanding options for market participants to participate in price 
discovery is key. Our members seek options that contribute to price 
discovery like working with the packing industry to sell on a 
negotiated grid--a mechanism that allows producers to garner premiums 
for higher value cattle while still participating in the price 
discovery process by offering their cattle to numerous buyers. However, 
producers have grown frustrated with the lack of willingness of all 
packers to offer this marketing option. In order to incentivize packers 
to participate in the negotiated market and contribute to price 
discovery the industry must either mandate participation, financially 
incentivize negotiated trade or penalize entities who continually show 
a lack of participation in the price discovery process.
    An additional source of frustration for our members is the 
continued perception that all AMAs reward carcass merit and therefore 
are the sole reason the industry has seen an increase of quality grade. 
Earlier this month, Nebraska Cattlemen worked with USDA-AMS to gain 
additional insight into the mix of transaction types that comprise the 
``formula'' fed cattle price and volume data that is reported by USDA-
LMR. Specifically, NC sought more information regarding the total 
volume and/or percentage of total reported ``formula'' headcounts that 
are transacted in such a way that USDA quality and/or yield grade 
parameters have a bearing on the final price paid vs. the volume and/or 
percentage of total reported volume where that is NOT the case.
    Analysis of USDA-LMR data from January through mid-May of 2021 
indicated rather clearly that in the Nebraska and Iowa/Southern 
Minnesota LMR regions (compared to other regions), there is a higher 
percentage of cattle that fall into the ``formula'' transaction type 
that are simply marked at the LMR weekly Nebraska dressed steer 
weighted average price, or possibly that data point plus some 
predetermined premium, but there are no other premiums or discounts 
applied relative to quality grade or yield grade. We understand why 
this type of transaction falls into the ``formula'' data as it is not a 
negotiated cash sale, a negotiated grid sale, or a contract purchase--
however we also see it to be somewhat different than a transaction that 
involves quality and or yield grade premiums and discounts. Our 
specific ask was to look at the prevalence of this type of transaction 
type in the LMR ``formula'' data set on a regional, 5-Area, and 
nationwide scale.
    The results showed that the northern regions, specifically Nebraska 
and Iowa/Minnesota, exhibited the highest proportion of transactions 
with no premium or discount applied. With the quality of the cattle/
beef not having any direct impact on the net price paid for cattle 
marketing in this manner it would appear that any premium being paid by 
the buyer is essentially being done to reward suppliers for furnishing 
unpriced inventory and consequently reducing the buyers need to 
participate/compete in the negotiated market and contribute to the 
price discovery process.
    Processing Capacity: Just as cattle producers respond to market 
signals to expand their cow herds and feeding operations to meet 
domestic and global demand, we question why the beef packing industry 
has not responded to those same signals for the past 5 years?
    Adequate beef processing capacity is critical to maintaining 
profitability in the beef and cattle industry, and ensuring a steady 
supply of beef and beef products to consumers. Currently, there is not 
only a shortage of adequate processing capacity, there is also a 
reduction of processing throughput across the country. A recent study 
by Rabobank found that excess operational beef processing capacity fell 
to zero in late 2016 and turned negative in early 2017, resulting in a 
negative effect on cattle producer leverage in fed cattle negotiations 
because of lack of competition.
    To improve producer leverage in fed cattle negotiations, either 
cattle supplies must be reduced, or processing capacity must be 
expanded. With domestic and foreign beef demand at an all-time high, 
the obvious solution to meet this growing demand without shrinking the 
U.S. beef herd is to expand beef processing capacity. We understand 
expanding capacity with new construction comes with a certain level of 
risk and takes time, but we do believe there are opportunities with 
current facilities to help meet the growing demand for beef in the 
near-term. Beef packing plants, transporters and our member farms and 
ranches are all currently experiencing challenges with labor 
recruitment and retention. Congressional action to reform immigration 
policy to advance needed H-2A visa restructuring and ensuring state and 
Federal resources are available for immigrants to be offered employment 
opportunities and to successfully thrive in our communities is critical 
to helping current packing plant infrastructure reach full 100% 
throughput.
    Market Transparency: Another key component to price discovery and 
price determination is market transparency. Senator Deb Fischer, in 
both the 116th and 117th Congress, introduced the Cattle Market 
Transparency Act to address many of our members' concerns in regards to 
market transparency. Similar efforts in the House of Representatives, 
led by Congresswomen Vicky Hartzler of Missouri, mirror the call for 
increasing price discovery and expanding market transparency as well as 
the adoption of a beef contract library, 14 day slaughter reporting 
window, and ensuring that USDA finds a way to report collected 
information in a manner that ensures confidentiality but prevents USDA-
AMS from withholding from the public information collected in LMR.
    Thank you for the opportunity to share the thoughts and concerns of 
Nebraska Cattlemen members. As we continue to work towards finding 
solutions to keep cattlemen and women in business, we look forward to 
being at the table to talk through these solutions and take actions to 
protect our members' family legacies.
            Best,
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
William H. Rhea III,
President,
Nebraska Cattlemen.
                                 ______
                                 
                           Submitted Question
Question Submitted by Hon. Dusty Johnson, a Representative in Congress 
        from South Dakota
Response from Jennifer van de Ligt, Ph.D., Associate Professor 
        Veterinary Population Medicine, College of Veterinary Medicine; 
        Director, Integrated Food Systems Leadership Program; Director, 
        Graduate Studies Applied Sciences Leadership; Director, Food 
        Protection and Defense Institute, University of Minnesota, St. 
        Paul, MN
    Question. The COVID-19 pandemic has shown us firsthand the 
interconnection between people, animals, their shared environment, and 
the devastation that global diseases can bring to food supply chains 
everywhere. In fact, more than \2/3\ of the emerging human infectious 
diseases are zoonotic--meaning that they are passed from animals to 
people. That is why my colleague, Congressman Schrader, and I have 
introduced legislation that would require interagency coordination to 
respond to zoonotic diseases through a One Health Program. Dr. van de 
Ligt, can you share with us your work in the space of animal health and 
protection?
    Answer. September 24, 2021

    Honorable Dusty Johnson, thank you for your inquiry ``The COVID-19 
pandemic has shown us firsthand the interconnection between people, 
animals, their shared environment, and the devastation that global 
diseases can bring to food supply chains everywhere. In fact, more than 
\2/3\ of the emerging human infectious diseases are zoonotic--meaning 
that they are passed from animals to people. That is why my colleague, 
Congressman Schrader, and I have introduced legislation that would 
require interagency coordination to respond to zoonotic diseases 
through a One Health Program. Dr. van de Ligt, can you share with us 
your work in the space of animal health and protection?''
    I am the Director of the Food Protection and Defense Institute and 
Associate Professor in the College of Veterinary Medicine at the 
University of Minnesota.
    The Food Protection and Defense Institute (FPDI) at the University 
of Minnesota is an Emeritus Homeland Security Center of Excellence 
dedicated to providing leading-edge research, technical innovation, and 
education to protect the food system from disruption. Since 2004, FPDI 
has partnered with stakeholders across government, industry, NGOs, and 
academia to assure product integrity, supply chain resilience, and 
brand protection throughout the food and agriculture sector.
    In reviewing the proposed legislation you referenced, we submit 
that the focus on zoonotic diseases in the proposed legislation, under 
the auspice of One Health, is too narrow a definition, albeit an 
important component of One Health. According to the Center for Disease 
Control and Prevention (CDC), ``One Health is a collaborative, 
multisectoral, and transdisciplinary approach--working at the local, 
regional, national, and global levels--with the goal of achieving 
optimal health outcomes recognizing the interconnection between people, 
animals, plants, and their shared environment.'' The CDC definition 
continues ``One Health issues include zoonotic diseases, antimicrobial 
resistance, food safety and food security, vector-borne diseases, 
environmental contamination, and other health threats shared by people, 
animals, and the environment. Even the fields of chronic disease, 
mental health, injury, occupational health, and noncommunicable 
diseases can benefit from a One Health approach involving collaboration 
across disciplines and sectors.''
    Our work in the space of animal, human, and environmental health, 
protection, and sustainability, under the auspice of One Health, is 
focused with a lens of food and feed security and safety for the health 
of humans and animals including environmental impact. Examples of 
specific research and outreach include:

   Establishing a cross-functional research and response team 
        related to African Swine Fever. This team has developed a Risk-
        free In-situ Non-pathogenic Assay (RISNA) to speed development 
        of protection, decontamination, and mitigation strategies to 
        prevent transmission of African Swine Fever through the food 
        and feed supply chain. Although African Swine Fever is not a 
        human health pathogen, introduction of ASF into the U.S. would 
        devastate the pork industry and lead to additional food 
        insecurity and nutritional inadequacy concerns within the U.S., 
        and internationally.

   Leading the premiere food defense training program within 
        the United States to protect the food and feed supply chains 
        from the risk of intentional adulteration. Intentional 
        adulteration has the potential to cause wide-scale harm to 
        human and animal health. In this role, we offer workforce 
        development training programs that provide essential skills-
        based training to enable food company compliance with the Food 
        Safety Modernization Act ``Mitigation Strategies to Protect 
        Food Against Intentional Adulteration.'' We also collaborated 
        with the Food and Drug Administration and Food Safety and 
        Preventive Controls Alliance to transition key aspects of this 
        training to enable instructor-led virtual (online) delivery. 
        The online delivery began in response to COVID pandemic 
        conditions, but will be retained as a successful training model 
        into the future.

   Informing food and feed supply chain emergency response. We 
        produced a 43-issue series of ``COVID-19 Near-Term Issues 
        Spotting in Food Supply Chain'' \1\ updates from April 17, 2020 
        to August 21, 2020 that informed our stakeholders about 
        imminent COVID-19 issues threatening the food supply chain and 
        national health security. The focus of the updates was related 
        to the disruption in the beef, pork, and poultry supply chains 
        that were driven by closures of meat processing facilities for 
        worker health reasons. Broader food access and food security 
        concerns were also highlighted. Stakeholders found the 
        situation updates informative and the distribution list grew 
        organically to include over 150 Federal, state, and local 
        representatives across government, industry, and academia. The 
        updates were influential within the national emergency response 
        surrounding the meat processing plant closures including 
        briefing and subsequent action by the White House due to the 
        issues spotting function and inclusion of actionable 
        opportunities available to emergency response teams.
---------------------------------------------------------------------------
    \1\ https://hdl.handle.net/11299/219252.
    Editor's note: the 43 issue series is retained in Committee file.

   Educating public and private stakeholders on the importance 
        of cyber hygiene and protection in the food and agriculture 
        infrastructure. Our research highlighted several key areas of 
        cyber hygiene and defense that are unique, and often 
        overlooked, in the food and agriculture space. For example, 
        many aspects of the food and agriculture infrastructure require 
        operational technologies to perform the most critical functions 
        of production needed to assure food safety (e.g., 
        pasteurization, rapid chilling, pressurization, etc.) and/or 
        protect worker health. Unfortunately, most of these operational 
        technology systems do have appropriate cyber protections in 
        place to protect them from disruption. As a result, the 
        ransomware attacks on JBS and the grain cooperatives, New 
        Cooperative and Crystal Valley Cooperative, resulted in 
        shutdown of essential functions adversely affecting the food 
---------------------------------------------------------------------------
        supply chain and consumer prices.

   Informing broader University of Minnesota research teams 
        focusing on zoonotic diseases, anti-microbial resistance, 
        vector-borne diseases, environmental contamination, chronic 
        disease, occupational health, and noncommunicable disease about 
        the implications and applications of their research within the 
        food and feed supply chains and facilitating connections for 
        further exploration.

    These research and outreach areas are not the only ways in which we 
work to protect the food and agriculture critical infrastructure 
through a One Health approach. As you mentioned in your question, 
interagency collaboration and coordination will be an essential part of 
our success to assuring One Health across human, animal, and 
environmental health. We also believe this coordination should extend 
broadly across the sector including both public and private 
stakeholders. Our engagement in this area and these discussions help 
assure that meaningful and productive dialogue continues at all levels 
of food and feed production, human and animal health, and environmental 
sustainability from farm to fork. We look forward to continued dialogue 
and any further questions you may have.
            Respectfully,
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
Jennifer van de Ligt, Ph.D.,
Director, Food Protection and Defense Institute Associate Professor,
College of Veterinary Medicine University of Minnesota.

                            [all]