[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
AN EXAMINATION OF PRICE DISCREPANCIES,
TRANSPARENCY, AND ALLEGED UNFAIR
PRACTICES IN CATTLE MARKETS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
APRIL 27, 2022
__________
Serial No. 117-32
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Agriculture
agriculture.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
48-190 PDF WASHINGTON : 2022
-----------------------------------------------------------------------------------
COMMITTEE ON AGRICULTURE
DAVID SCOTT, Georgia, Chairman
JIM COSTA, California GLENN THOMPSON, Pennsylvania,
JAMES P. McGOVERN, Massachusetts Ranking Minority Member
ALMA S. ADAMS, North Carolina, Vice AUSTIN SCOTT, Georgia
Chair ERIC A. ``RICK'' CRAWFORD,
ABIGAIL DAVIS SPANBERGER, Virginia Arkansas
JAHANA HAYES, Connecticut SCOTT DesJARLAIS, Tennessee
ANTONIO DELGADO, New York VICKY HARTZLER, Missouri
SHONTEL M. BROWN, Ohio 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 CHRIS JACOBS, New York
TOM O'HALLERAN, Arizona TROY BALDERSON, Ohio
SALUD O. CARBAJAL, California MICHAEL CLOUD, Texas
RO KHANNA, California TRACEY MANN, Kansas
AL LAWSON, Jr., Florida RANDY FEENSTRA, Iowa
J. LUIS CORREA, California MARY E. MILLER, Illinois
ANGIE CRAIG, Minnesota BARRY MOORE, Alabama
JOSH HARDER, California KAT CAMMACK, Florida
CYNTHIA AXNE, Iowa MICHELLE FISCHBACH, Minnesota
KIM SCHRIER, Washington JULIA LETLOW, Louisiana
JIMMY PANETTA, California ------
SANFORD D. BISHOP, Jr., Georgia
------
______
Anne Simmons, Staff Director
Parish Braden, Minority Staff Director
(ii)
C O N T E N T S
----------
Page
Axne, Hon. Cynthia, a Representative in Congress from Iowa:
Submitted letter on behalf of Bob Noble, President, Iowa
Cattlemen's Association.................................... 139
Submitted statement on behalf of Iowa Cattlemen's Association 140
Bacon, Hon. Don, a Representative in Congress from Nebraska;
submitted letter on behalf of Brenda Masek, President, Nebraska
Cattlemen...................................................... 147
Davis, Hon. Rodney, a Representative in Congress from Illinois,
submitted letter............................................... 143
Rouzer, Hon. David, a Representative in Congress from North
Carolina, submitted letter..................................... 144
Scott, Hon. David, a Representative in Congress from Georgia,
opening statement.............................................. 1
Prepared statement........................................... 3
Submitted article............................................ 127
Submitted chart.............................................. 135
Submitted statement on behalf of Robert L. Larew, President,
National Farmers Union..................................... 135
Thompson, Hon. Glenn, a Representative in Congress from
Pennsylvania, opening statement................................ 4
Submitted letter on behalf of Neil L. Bradley, Executive Vice
President, Chief Policy Officer, and Head of Strategic
Advocacy, U.S. Chamber of Commerce......................... 140
Witnesses
Young, Coy, cow-calf producer, Young Angus Farm, Blythedale, MO.. 7
Prepared statement........................................... 9
Stockton, Gilles, cow-calf producer, Stockton Ranch; President,
Montana Cattlemen's Association, Grass Range, MT; on behalf of
Northern Plains Resource Council; Western Organization of
Resource Councils.............................................. 11
Prepared statement........................................... 13
Schiefelbein, Donald K., cattle producer, Schiefelbein Farms LLC;
President, National Cattlemen's Beef Association, Kimball, MN.. 31
Prepared statement........................................... 32
MacLennan, David W., Board Chair, President, and Chief Executive
Officer, Cargill, Inc., Wayzata, MN............................ 65
Prepared statement........................................... 67
Submitted questions.......................................... 171
Schellpeper, Timothy O., Chief Executive Officer, JBS USA Food
Company, Greeley, CO........................................... 68
Prepared statement........................................... 69
Submitted questions.......................................... 173
Klein, Tim, President and Chief Executive Officer, National Beef
Packing Company, LLC, Kansas City, MO.......................... 71
Prepared statement........................................... 72
Submitted questions.......................................... 176
King, Donnie, Chief Executive Officer, Tyson Foods, Springdale,
AR............................................................. 81
Prepared statement........................................... 82
Supplementary material....................................... 150
Submitted questions.......................................... 177
Submitted Material
Omar, Hon. Ilhan, a Representative in Congress from Minnesota,
submitted statement............................................ 153
Potts, Julie Anna, President and Chief Executive Officer, North
American Meat Institute, submitted statement................... 154
AN EXAMINATION OF PRICE DISCREPANCIES,
TRANSPARENCY, AND ALLEGED UNFAIR PRACTICES IN CATTLE MARKETS
----------
WEDNESDAY, APRIL 27, 2022
House of Representatives,
Committee on Agriculture,
Washington, D.C.
The Committee met, pursuant to call, at 10:00 a.m., in Room
1300 of the Longworth House Office Building, Hon. David Scott
of Georgia [Chairman of the Committee] presiding.
Members present: Representatives David Scott of Georgia,
Costa, McGovern, Adams, Spanberger, Hayes, Delgado, Kuster,
Maloney, O'Halleran, Khanna, Correa, Harder, Axne, Schrier,
Panetta, Thompson, Austin Scott of Georgia, Crawford,
DesJarlais, Hartzler, LaMalfa, Davis, Allen, Rouzer, Kelly,
Bacon, Johnson, Baird, Jacobs, Balderson, Cloud, Mann,
Feenstra, Miller, Moore, Cammack, Fischbach, and Letlow.
Staff present: Lyron Blum-Evitts, Daniel Feingold, Lesley
Weber McNitt, Prescott Martin III, Ashley Smith, Parish Braden,
Caleb Crosswhite, Patricia Straughn, Erin Wilson, John Konya,
and Dana Sandman.
OPENING STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN
CONGRESS FROM GEORGIA
The Chairman. Welcome, everyone, and I want to thank all of
you for joining today's hearing. The Committee will now come to
order.
After brief opening remarks, Members will receive testimony
from our witnesses today, and then the hearing will be open to
questions.
Good morning. I would like to make my opening statement.
And first, I want to thank our House Agriculture Committee
staff for pulling together this important and historic hearing.
And I want to thank each of my Committee Members and of course
our witnesses for appearing today before the Committee.
Now, we are holding this very critical hearing to discuss
cattle markets, concentration in the meatpacking industry--and
may I also remind everyone to mute yourself so that we don't
have noise interference.
We are holding this critical hearing, very important, to
discuss cattle markets, concentration in the meatpacking
industry, and allegations that the big four meatpackers have
partaken in unfair practices that have driven down prices for
cattle producers and left distorted markets.
Now, the one point I want to make up front is that I, as
Chairman, am coming into this hearing with an open mind, and I
hope and I am sure that my colleagues on the Committee are,
too, because hearings provide us with opportunities to
facilitate open discourse and get public answers to some very
difficult questions. And I do not have any foregone conclusions
on the subject of today's hearing, but I am alarmed at the
serious allegations that are out there and concerning stories
about what has been happening in our packing industry. So my
goal for this hearing is to get answers to those questions and
have the packers speak about these allegations.
Since the 1980s, we have seen a steady increase in the
concentration in the packing industry, and this consolidation
has coincided with a steady decrease in the number of cattle
ranchers over that same period. In one analysis that I read,
the authors noted that over \1/2\ million ranchers have gone
out of business since the 1980s. This threatens the food
security of our great nation. That averages out to about 17,000
cattle operations a year. This statistic is highly worrisome,
and it is a direct and alarming threat to our nation's food
supply, our nation's food security. And the family cattle
farmer is an essential part of our country and its food system.
And this hearing was inspired by what has been happening to
those family cattle farms. And the purpose of this hearing is
so that we can hear what our cattle farmers have to say.
And in that line, I would like to enter into the record a
well-researched article from The New York Times by Peter
Goodman that describes in a very impactful way the
circumstances that our ranchers are facing. And it was this
article when I read it, I felt compelled to have this hearing.
That is why I want entered into the record, and I would
encourage everyone to read this article, to examine the passion
and the difficulties of our farmers, our ranchers, those who
produce our cattle.
[The article referred to is located on p. 127.]
The Chairman. And so my concern is the nation's concern
about these family ranching farms shutting down, and I believe
this hearing will be a catalyst, a key for turning this trend
around. And that is why we are having this hearing. We on this
Committee want the information so that we can determine how we
in Congress can play our part in this.
I am concerned that in the last 40 years this country has
lost its grip on the free market component of capitalism. Fair
and competitive markets should engender opportunities for many
and not just benefit for the few at the top. We created
antitrust laws for a reason, and unfortunately, we have gotten
away from enforcing these anticompetitive practices. And we
have moved toward a system that prioritizes efficiency at all
costs.
I was very glad to see President Biden's Administration
reprioritize enforcement of competition laws through their
Executive Order on promoting competition in our American
economy. And I hope that this is a sign of more action to come.
As we move through this hearing and examine this issue, I think
we should keep in mind the idea of how competition and markets
increase equity and fairness.
Another issue with consolidated industry is that it can
create less resiliency in our supply chains. We saw this
directly during the Holcomb fire in 2019. And then the COVID-19
pandemic when a small number of companies control an entire
link in the supply chain, it makes it more susceptible to
shocks and less resilient when black swan events occur. And in
that vein, consolidation doesn't just hurt our ranchers, it
also hurts our consumers who face supply bottlenecks, higher
prices, and limited choices.
Today's witnesses bring together many years of experience
in the cattle industry and also different perspectives, and I
thank all of our witnesses for being here. Unfortunately, we
were supposed to have a fourth witness, a rancher on our panel,
but due to intimidation and threats to this person's
livelihood, to this person's reputation, they chose not to
participate out of fear. Witness intimidation is unacceptable,
and it is not conduct befitting this treasured institution, the
Congress of the United States. And I never want to hear about a
witness choosing not to come before our Committee because of
fear again. We are looking into this. Fear cannot run our
Congress. Fairness runs our Congress. Openness runs our
Congress. And so I'm saddened and disappointed that we reached
that point. And of course we will be following up with the
incident. We have folks looking at it.
I expect today that there will be differences of opinion,
even disagreements. We are looking forward to it. That is why
we are having this hearing. But I also expect civil discourse
for our discussions from everyone, and I look forward to
hearing our witnesses' testimony and leveraging the insights
and solutions they offer to work towards a better future for
our industry that we all care about.
Thank you again for coming. We are in for a very, very
important and significant moment in the history of agriculture
in the United States.
[The prepared statement of Mr. David Scott follows:]
Prepared Statement of Hon. David Scott, a Representative in Congress
from Georgia
Good morning. I'd like to thank our House Agriculture Committee
Members for joining us and our witnesses for appearing before the
Committee today. We are holding this critical hearing to discuss cattle
markets, concentration in the meatpacking industry, and allegations
that the big four meatpackers have partaken in unfair practices that
have driven down prices for cattle producers and led to distorted
markets.
One point I want to make up front is that I am coming into this
hearing with an open mind--and I hope my colleagues are too. Hearings
provide us with opportunities to facilitate open discourse and get
public answers to difficult questions.
I do not have any forgone conclusions on the subject of today's
hearing, but I am alarmed at the serious allegations out there and
concerning stories about what has been happening in the packing
industry. My goal for this hearing is to get answers to those questions
and have the packers speak about those allegations.
Since the 1980s we have seen a steady increase in concentration in
the packing industry. This consolidation has coincided with a steady
decrease in the number of ranchers over that same period. In one
analysis that I read, the authors noted that over \1/2\ million
ranchers have gone out of business since the 1980s, that averages out
to about seventeen thousand cattle operations a year. This statistic is
highly worrisome.
The family farmer is an essential part of this country and its food
system. This hearing was inspired by what has been happening to those
family farms and the purpose of the hearing is so that we can hear what
those farmers have to say. In that light, I would like to enter into
the record an article from The New York Times that described the
circumstances that our ranchers are facing. I also hope to hear from
the CEOs today on what they believe has led to so many small farms
shutting down and how we can turn that around.
In the early 20th century, the country saw what concentration did
to small business and how it hurt the everyday American. In 1921,
Congress passed the Packers and Stockyards Act because of concern
around concentration in the packing industry and anticompetitive
practices.
I am concerned that in the last forty years this country has lost
its grip on the ``free market'' component of capitalism. Fair and
competitive markets should engender opportunities for many, and not
just benefit a few at the top. We created antitrust laws for a reason,
and unfortunately, we have gotten away from enforcing anticompetitive
practices, and we have moved toward a system that prioritizes
efficiency at all costs.
I was glad to see the Biden Administration reprioritize enforcement
of competition laws through their Executive Order on promoting
competition in the American economy and I hope that is a sign of action
to come. As we move through this hearing and examine this issue, I
think we should keep in mind the idea of how competition in markets
increases equity and fairness.
Another issue with consolidated industry is that it can create less
resilient supply chains. We saw this directly during the Holcomb fire
in 2019 and then the COVID-19 pandemic. When a small number of
companies control an entire link in the supply chain it makes us more
susceptible to shocks and less resilient when black swan events occur.
In that vein, consolidation doesn't just hurt ranchers, it also hurts
consumers, who face supply bottlenecks, higher prices, and limited
choices.
Today's witnesses bring together many years of experience in the
cattle industry and different perspectives. And I thank all of our
witnesses for being here. Unfortunately, we were supposed to have a
fourth witness on our producer panel but, due to intimidation and
threats to this person's livelihood and reputation they chose not to
participate.
Witness intimidation is unacceptable, and it is not conduct
befitting this institution. I never want to hear about a witness
choosing not to come before our Committee because of fear again. I am
saddened and disappointed that we reached that point, and I will be
following up on the incident.
I expect today that there will be differences of opinions and even
disagreement--but I also expect civil discourse from everyone involved
in this discussion. I look forward to hearing our witnesses' testimony
and leveraging the insights and solutions they offer to work toward a
better future for an industry we all care about.
Thank you and I now recognize the Ranking Member, Mr. Thompson.
The Chairman. And with that, I now recognize my good
friend, the gentleman from Pennsylvania and our Ranking Member,
Mr. Thompson.
OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN
CONGRESS FROM PENNSYLVANIA
Mr. Thompson. Mr. Chairman, thank you so much. I would like
to say I am pleased we are having this hearing today; but, I am
little disappointed in the way it is coming together.
I also want to say today the U.S. Chamber of Commerce sent
a letter to the Chairman and I urging Congress and this
Committee to refocus attention on, quote, ``the real underlying
causes, namely, macroeconomic trends that include supply and
demand shocks and monetary policies, rather than the strawmen
of industry concentration or unfair business practices,'' end
quote. And I have that letter here with me. I would like to
submit that letter for the record.
The Chairman. Sure.
[The letter referred to is located on p. 140.]
Mr. Thompson. Thank you.
As I have said on numerous occasions, we need to focus on
preparing for the next farm bill. And while I acknowledge there
has been modest progress starting in February on that front and
I am very appreciative of that, we are inexplicably veering off
course today. Issues surrounding cattle markets are really
important, and I agree with you on that, Mr. Chairman, and I
think that the importance is exemplified by the time that this
Committee has already spent exploring and debating them. We
have had a productive closed-door roundtable on the matter and
an insightful subcommittee hearing where we heard from a slate
of esteemed economists, not to mention a 5 hour full Committee
hearing where Senator Grassley was given a platform to promote
his legislative proposal. Secretary Vilsack weighed in with his
views, and we heard from a diverse array of livestock
stakeholders and a packer representative.
That work culminated in the bipartisan and ultimately
bicameral passage of legislation to ensure the continued
availability of crucial livestock mandatory reporting data and
the establishment of a Cattle Contract Library to provide an
additional layer of market transparency.
As cattle markets continue on a steady trajectory and we
await USDA's implementation of the Contract Library Pilot, I
have to wonder why today's hearing was so urgent, so urgent
that I wasn't even consulted in scheduling it. Rather, I was
told it was happening as letters were drafted to send to
packers' CEOs, and the threat of subpoenas began to fly. And
that is just not the way this Committee should conduct its
business.
I do appreciate the Chairman's opening remarks, noting his
open-mindedness, and I trust and enjoy a great relationship
with the Chairman, and so I appreciate hearing that in your
comments, being open-minded in this hearing as you gaveled us
in.
I said it before and I think it bears repeating, if there
has been collusion, manipulation, or other wrongdoing by
packers, then the law should be enforced under the existing
authorities at USDA and DOJ. Absent such findings, it is time
to stop demonizing the packing industry out of political
convenience. And like the rest of us, the packers are dealing
with, not causing, the record levels of inflation that are
plaguing our economy with skyrocketing input costs across the
board, not to mention severe labor shortages and continued
transportation and supply-chain challenges. Despite these
enormous obstacles, the packers continue to provide an
invaluable service and do so with incredible efficiency.
We know we need greater competition, and I think we are
committed to doing the right things to help small processors
become medium-sized, medium-sized processors become larger, and
to have greater competition. Yet at every turn this
Administration has pointed the finger at the packing industry,
blaming them almost single-handedly for rising food costs. They
have done so via blog posts, contrived public events, and press
briefings, all without any acknowledgment of the culpability of
their own reckless spending and heavy-handed regulatory agenda.
And I fear that today's hearing is nothing more than
perpetuating the Biden Administration's attempt to continue
that desperate, baseless narrative.
Now, if we are generally trying to better understand beef
pricing dynamics, you would think we might benefit from having
the heads of packing companies, beef units testify today. I
know several of the companies proposed that alternative, and
their suggestions were repeatedly denied. Perhaps a trusted
economist or a seasoned market analyst would be a key to that
conversation? Despite a bipartisan request from several of our
Members, I understand that that idea also was rejected. Mr.
Chairman, I am hoping I am wrong, but this hearing reeks of
political point scoring on behalf of the Administration in an
effort to justify drastic, unvetted, or controversial
legislative action. The hearing title alone suggests the decks
were stacked long ago in favor of a predetermined outcome.
The Senate Agriculture, Nutrition, and Forestry hearing
yesterday served as yet another reminder of the lack of
agreement on proposed cattle market mandates. It also brought
to light serious questions about the purpose, intended scope,
and the need for special investigator legislation.
So despite my concerns with today's hearing, I really want
to extend my sincerest thanks to our witnesses who have come
here from a great distance and at great expense, both producers
and packing industry leaders alike. Thank you for taking the
time to be with us and sharing your perspectives. I am looking
forward to that insight, and I intend to make the best of the
situation. I look forward to what, in the end, I am hoping will
be a productive and insightful discussion.
With that, Mr. Chairman, I yield back.
The Chairman. The chair would request that other Members
submit their opening statements for the record so witnesses may
be able to begin their testimony and to ensure that there is
ample time for questions.
Our first witness for our first panel today is Mr. Coy
Young, a cow-calf producer from Blythedale, Missouri.
Our second witness today is Mr. Gilles Stockton, who is
testifying on behalf of the Northern Plains Resource Council
and the Western Organization of Resource Councils. He is from
Grass Range, Montana.
And to introduce our third and final witness for this
panel, I am pleased to yield to the gentlewoman from Minnesota,
Mrs. Fischbach.
Mrs. Fischbach. Thank you, Mr. Chairman. I am very honored
to introduce our witness today, Mr. Don Schiefelbein, President
of the National Cattlemen's Beef Association and one of my
constituents. Mr. Schiefelbein has a long history of industry
service most recently as Chairman of the Beef Industry Long-
Range Planning Committee. He has also held several positions on
committees and the board of directors for the American Angus
Association and was past President of the Minnesota Cattlemen's
Association. He served as the Executive Director of the
American Gelbvieh Association, and early in his career after
graduating from Texas A&M University he worked for the North
American Limousin Association. Mr. Schiefelbein also owns and
operates a large, diversified farming operation in Kimball,
Minnesota, along with his father Big Frank, seven brothers, and
three nephews. His wife of 32 years and his three daughters are
also active in the industry.
And thank you so much for being here today. We really
appreciate it. And I look forward to hearing your perspective
on all of the issues. Thank you.
The Chairman. And I thank the gentlewoman for her comments.
Now, we are going to have swearing-in. If all witnesses
would raise your right hands, thank you. And please jointly
state your names for the record.
Mr. Young. Coy Young.
Mr. Stockton. Gilles Stockton.
Mr. Schiefelbein. Don Schiefelbein.
The Chairman. Now, do you solemnly swear that this
testimony you are about to give today before this Committee in
the matters under consideration is the truth, the whole truth,
and nothing but the truth?
Mr. Young. Yes.
Mr. Stockton. Yes.
Mr. Schiefelbein. Yes.
The Chairman. Thank you.
Mr. Young, thank you for coming. And now I would like for
you to be our first witness, and please begin your testimony
when you are ready.
TESTIMONY OF COY YOUNG, COW-CALF PRODUCER, YOUNG ANGUS FARM,
BLYTHEDALE, MO
Mr. Young. Mr. Chairman and Members of the Committee, I
really appreciate you selecting me to be here today. My name is
Coy Young. I'm a fourth-generation cattle farmer from the
rolling hills of northern Missouri. I come here before you
today and try to save what is left of rural America because
rural America is under attack by the greed and corruption of
the big four that are in question here today.
For years, the packing industry has been concentrating more
and more with fewer larger mega plants to process our proteins.
The American cattle farmers and ranchers are tired, tired of
being taken advantage of and losing money year after year while
watching the big four post record profits every single quarter.
The packers have manipulated the system with their alternative
marking agreements or arrangements which is forming their own
captive supply with the huge corporate-owned feedyards that
control 87 percent of the fed beef in this country. AMAs have
killed the cash market and competition within the beef
industry, making the markets that cow-calf producers have to
compete against so depressed for the times, bankruptcy rates
continue to be on the rise and were at a 10 year high in 2019.
The Packers and Stockyards Act of 1921 was put in place to
protect the cattle farmers and ranchers from the very thing
that's happening within the beef industry today. I ask, why are
we not enforcing the Packers and Stockyards Act? Is everyone in
Washington on the payroll of the big four to let them continue
their free reign without consequence? AMAs are legalized market
manipulation practices that should not be allowed and enforced
under the Packers and Stockyards Act of 1921.
There's an alarming number, the number is 40.27 cattle
farms that call it quits every single day in this country for
the past 3 decades because they can no longer make ends meet.
Alone, that should grab the attention of leaders in Washington
that there is a problem going on here. Family legacies and
century farms are being ripped out of their hands and families
are losing their loved ones from an unprecedented amount of
suicides. Farming and ranching has the most suicides in any
industry to distress a shrinking bottom line, and that's fueled
by the greed and capitalistic nature that's everyday business
in the big four that are in question here today. There's blood
on the hands of the packers and leaders in Washington, and no
one seems to care. No one seems to want to do anything about
it. I know we live in a country where capitalism reigns
supreme, and it's every man for himself, but packers take
capitalism to a whole new level.
We as cattle farmers and ranchers just want an even playing
field and be able to raise our families and live a decent life
as our fathers and grandfathers did before us. Nowadays in
rural America everyone in the farming community has one, two,
or even three extra jobs outside of the farm to help pay their
bills and make ends meet. The cows no longer pay for themselves
and haven't for a very long time now. I never thought I would
see the day when feeding America would become a part-time job.
It's wrong and it's not fair.
There's enough money to go around in the beef industry.
It's the distribution of profits that are proportionally
unbalanced. That is the problem. I know I sound like a broken
record, but it's from the manipulation of the big four packers
that control 85 percent of the beef packing industry, but they
also control 87 percent of all the fed cattle that are
slaughtered.
Mandatory Country-of-Origin Labeling, also known as MCOOL,
was repealed in December of 2015, which was just another slap
in the face of the American cattle farmers and ranchers, which
now cannot differentiate their superior product from cheap
foreign beef that now floods 20 percent of the market in this
country. The public and consumers no longer have the option to
choose between our superior American-raised beef or foreign
beef. Restoring MCOOL would help restore some competition to
the marketplace so the consumer would be able to choose their
product every time they go to the grocery store, and the
consumer would drive the demand for American-raised beef.
Imagine waking up every single day and knowing that the
cattle that you have birthed, fed, and raised are not going to
make you any money because there isn't enough room in the
rigged system for the small cattle farmer to make a buck. The
share of the retail dollar of the complete disconnect from the
farmer to the grocer is what's bankrupting the farmers and
ranchers. We're only receiving 37 percent of the retail dollar
as the farmer compared to 60 percent 30 years ago, now paying
200 percent increases in equipment costs and overall inputs,
it's a complete recipe for disaster and a losing proposition to
raise cattle in this country anymore.
My dad always said you could sell your calves in 1975 and
go to the Chevy dealership and buy a new pickup. That still
holds true today. You can go sell your calves and you can still
go buy a 1975 Chevy pickup.
The market share that was once the cattle farmers has since
been redistributed to the middlemen, the packers, and the
grocers. They make all the money and we pay all the inputs and
go broke raising the very product they profit so handsomely
from. And what's America going to do when there aren't any
American family farms left to produce the most flavorful, juicy
steak in the world? And that's all I have.
[The prepared testimony of Mr. Young follows:]
Prepared Testimony of Coy Young, Cow-Calf Producer, Young Angus Farm,
Blythedale, MO
Mr. Chairman and Members of the Committee I appreciate you
selecting me to be here today. My Name is Coy Young, I am a 4th
generation cattle farmer from the rolling hills of northern Missouri. I
come from a long line of family farmers on both sides of my family; my
mother's father was a dairy farmer from Stacy Minnesota and my great
grandfather, grandfather, and father were all farmers on my father's
side of the family. I was born into this life of cattle farming and had
come to love it, raising quality Black Angus seed stock starting in
2006 with my father, it's a way of life most people can't and don't
understand. You become one with the animals you care for daily and it's
a feeling only a cattle farmer can feel. Our way of life that we love
so much is being infringed upon by the current system that is in place
within the Beef industry by the multi-national packer Cartel known as
the Big Four whom are here today.
Concentration and unfair practices in the beef industry in America
is a huge and unprecedented problem and needs to be addressed before
all the American cattle farmers and ranchers are no more. We have stood
by for years and said nothing while watching our way of life
disintegrate before our eyes. There have been historical amounts of
family farms that have went by the wayside in the past 4 decades,
losing on average of 14,700 family cattle farms annually; that's a
staggering 40.27 family cattle farms per day that have to call it quits
because they can no longer pay their bills or even break even. Billions
of dollars have been stripped from rural communities that are dying in
America only to further the concentration of the industry for the sole
benefit of the multinational packer Cartel so they can post multi-
billion dollar profits quarterly. American cattle farmers and ranchers
are resilient humble people; almost every person I have talked with
over the years have had to tell their children and grandchildren there
is no life on the farm when you grow up and you'll need to work outside
of the farm to maintain it or even keep it in the family. The American
cattle farmer has been taken advantage of for too long and it's come at
hand of the multinational packer Cartel that controls 85% of the fed
cattle industry in this Country.
Our way of life that we love so much and have handed down for
generations is under attack, and it is time for the American cattle
ranchers and farmers to take back the industry they built many decades
ago. First step would be reinstating MCOOL or Mandatory Country Origin
of Labeling; it never ever should have been repealed in the first
place. Once it was repealed it gave free reign of the market to the Big
Four multinational packers to flood the United States with cheap
foreign beef and slap Product of USA label on it as long as the mystery
meat was processed and packaged in United States. The repeal of MCOOL
came at about the same time as the collapse of the markets in the 2015.
Since 2015 I and almost every single cow-calf producer I am friends
with and have talked with have had nothing but a shrinking profit
margin since coincidence, I think not! MCOOL would give the American
consumer the chance to pick up a steak or package of hamburger from the
meat case and make the decision if they want a steak from The United
States of America or one from one of the other twenty different
Countries it may be from, or a pound of hamburger that contains beef
from more than one country in a one a pound package, hence the term
mystery meat! Store bought hamburger contains beef from several
countries, why do you think you can't see the meat in that pound of
hamburger you buy from the big supermarkets labeled 80/20 it's not
appetizing to look at and is served to our children on the government
lunch program system because it's cheap. Reinstating MCOOL would give
the American Cattle Farmers and Ranchers a fighting chance to compete
with foreign beef that accounts 20% of all beef sold in this Country
now days. But who I am kidding, the leaders in Congress and Washington
D.C. will never allow such legislation to pass as long as they remain
heavily influenced by the lobbyist of the Big Four to keep everything
business as usual while the American Cattle Farmer and Rancher continue
to go broke!
There's a recession of epic proportions coming in this Country,
this year 2022 and the next few. It's going to be the American Cattle
Farmer and Rancher Great Recession. With over inflated inputs and
unfair calf prices the concentration of the industry will further play
into the hand of the multinational packer's and they'll control more of
the marketplace than ever before unless something changes. There is no
competitive market in the cattle industry with the Alternative
Marketing Agreements or AMA's the packers have in play with the
corporate feed yards they control [] 80% of the fed cattle in this
Country on AMA's. Family feed yards are going by the wayside because of
AMA's the Big Four have and the control they have over the marketplace.
There's no competition with AMA's because they're a steady stream of
private contracts with the giant corporate feedyards that are in
collaboration with the Big Four. All this is illegal under the Packers
and Stockyards Act of 1921 which needs to be amended to completely
eliminate Alternative Marketing Agreements so the Packers have to
compete in a cash market and not control all of the prices, it's legal
illegal activity the Packer Cartel gets away with every, single, day.
Members of Congress need to enforce the Packers and Stockyards Act of
1921 to protect the family cattle farmers and ranchers but instead they
listen to the NCBA and do nothing to enforce it. Maybe we should dig
out The Original Packers and Stockyards Act of 1921 the NCBA uses as a
door stop and take look at it and bring it into the 21st century so the
American Cattle Farmers and Ranchers can possibly get an even playing
field to sell their cattle in, rather than the rigged system that's in
place today.
We may be at the end of a viral pandemic but there's a new pandemic
about to take over in the American Cattle Farmer and Rancher's world,
and that's an astronomical amount of farmer and rancher suicides that
will happen this year and in the next few if something doesn't change.
The Markets are so broken they're breaking people, breaking them to the
point of ending their own lives, and those lives could have been saved
if the Congressmen and -women of this country would do what needs to be
done to fix a completely corrupt and rigged system. There's blood on
the hands of the multinational packers and Washington, D.C. and you
could have and can prevent it from further happening with the stroke of
a pen. I almost called it quits completely, meaning completely and
entirely by committing suicide in the spring of 2020. I had a gun to my
head and waited for my wife to leave for work and I was going end the
pain and suffering that I've lived with for years knowing that I'll be
the last of my generation to be or have attempted to be a cattle farmer
in a completely corrupt and rigged beef industry. I was at my end; I
had the bank collector calling me daily after a private seed stock sale
that took years to prepare for and was killed by the market
manipulation in March of 2020. Luckily my wife had forgotten something
at home that day and I saw her pull back into the driveway and I took
that as a sign, and changed my decision. I am alive today because of my
wife, and that gave me the chance to be here before you today to give
this testimony for the thousands of Cattle Farmers and Ranchers that
want an even playing field and to not be taken of advantage of any
longer. Rural America is tired, sick and tired of being squeezed to
death of their last penny so corporate America and the Big Four can
post Billion dollar profits every single quarter.
Imagine waking up every single day and knowing that the cattle you
have birthed, fed, and raised are not going to make you any money
because there isn't enough room in the rigged system for a small cattle
farmer to make buck. The share of the retail dollar the complete
disconnect from the farmer to the grocer is what's bankrupting the
farmers and ranchers. With only receiving 37% of the retail dollar at
the farmer compared to 60% 30 years ago. Now paying 200% increases in
equipment costs and overall inputs, it's a complete recipe for disaster
and a losing proposition to raise cattle in this country anymore. My
dad always said, ``You could sell your calves in 1975 and go to the
Chevy dealership and buy a new pickup. That still holds true today, you
can go sell your calves and still go buy a 1975 Chevy pickup.'' The
market share that was once the cattle farmers has since been
redistributed to the middlemen, the packers and grocers make all the
money and we pay all the inputs and go broke raising the very product
they profit so handsomely from. What's America going to do when there
aren't any American Family Farms left to produce the most flavorful
juicy steak in the world? You think Beef is high now, wait until the
Multinational Packers own the entire industry from the farm, to the
feeder, to the packer just like the pork industry. That's called a
monopoly the last time I checked, the doorstop would be useful when
that all happens. The Packers and Stockyards Act of 1921 that is.
Change in Producers Share of Consumer Beef Dollar: Complete Reversal in
Four Decades
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Cattle Prices Crash While Consumers Pay Record Beef Prices
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Economic Research Service.
The Chairman. Thank you, Mr. Young.
And now I recognize Mr. Stockton.
TESTIMONY OF GILLES STOCKTON, COW-CALF PRODUCER, STOCKTON
RANCH; PRESIDENT, MONTANA CATTLEMEN'S ASSOCIATION, GRASS RANGE,
MT; ON BEHALF OF
NORTHERN PLAINS RESOURCE COUNCIL; WESTERN
ORGANIZATION OF RESOURCE COUNCILS
Mr. Stockton. I hope my voice is coming through. Mr.
Chairman, Members of this Committee, thank you for the
opportunity to address you today. My name is Gilles Stockton. I
raise sheep and cattle near Grass Range, Montana. And today,
I'm representing the Northern Plains Resource Council, the
Western Organization of Resource Councils, and the Montana
Cattlemen's Association for which I am President. These
organizations' mission is to preserve family agriculture and
the rural communities upon which we depend.
I took over the family ranch in 1975, the same year that I
graduated from Montana State University with a master's degree
in animal science. My wife and I started ranching with nothing
except our degrees, the generosity of my parents, and a loan
from the FHA. But if I had to start from scratch today, it
would be impossible. We are losing an entire generation of
motivated, talented, and trained young men and women because
they cannot afford to take over the family farm or ranch. As
Mr. Young has just testified, the economic realities just do
not allow it.
In 1975, the concentration in the beef packing industry had
four firms controlling 25 percent of the market. Today, they
monopolize 85 percent. I lived and ranched through the entire
period and have seen the beef industry become subservient to a
monopoly cartel. In 1975, the year I started ranching, the
farm-to-retail spread for beef stood at 71.3 percent. We
ranchers and feeders were able to retain 71.3 of every dollar
spent by the consumer at the grocery store. In 2021, the farm-
to-retail spread was 36.5 percent. Over the course of my career
in ranching, my income has been cut in half. In terms that are
very concrete and just like Mr. Young had said, in 1979 I
purchased a 1 ton, four-wheel-drive truck from the proceeds of
selling 18 calves. The equivalent truck today would cost me 59
calves.
Now, I don't want to give you the impression that I'm
looking for sympathy. I've made my life, and it was a good
life. But my concern is for my community, the future of
agriculture and the future of food security for this nation. My
community has, over the course of my life as a rancher, dried
up and blown away like a tumbleweed. Today, Grass Range, which
was once a thriving small town has only one functioning
business on Main Street, a tire repair shop.
And there is no part of U.S. agriculture that is not
oppressed by monopolized dysfunctional markets. And this
longstanding market dysfunction was laid bare by the COVID-19
pandemic when illness in the packing plants slowed the
processing of cattle, which resulted in empty shelves at the
meat counter, and the packing cartel profited by buying cattle
for less and selling beef for more. And I'm sure that we're
going to hear here today how this is all about supply and
demand, but it is also about having an entire meat production
system funneled through a very narrow bottleneck where packers
can exploit both producers and consumers.
One tactic that the packers use is captive supply, also
known as alternative market agreements, AMAs, which are cattle
committed to packers through a type of forward contract that
are never competitively priced. Recent research at Georgetown
University reveals that for every one percent increase in the
amount of cattle that's procured through AMAs, captive
supplies, there is a 5.9 percent decrease in the price. Another
study from Iowa State University shows that meatpackers are
leveraging their market power across multiple plants, further
eroding true price discovery in the cattle markets.
So what's to be done? Actually, it's really not that
complicated. First, pass the American Beef Labeling Act (H.R.
7921). It is absurd that beef and pork are the only food or
manufactured items that do not carry a country-of-origin
labeling. So thank you very much, Representatives Gooden and
Khanna, for introducing this legislation. American consumers
have the right to know the origins of their beef purchases, and
cattle producers have the right to a fair and transparent
market.
Second, do what your colleagues did in 1921. Require that
the beef packers buy their cattle in a competitive and
transparent marketplace that they neither own nor control. This
is what the consent decrees that accompanied the passage of the
Packers and Stockyards Act required. It was a perfectly free
market, free enterprise approach, and it actually worked.
I see I'm running long here, so thank you very much. Unless
you, Congress, acts, the American people will find themselves
with an unreliable, extremely expensive food supply, so thank
you, Members of the Committee, and I look forward to your
questions.
[The prepared testimony of Mr. Stockton follows:]
Prepared Testimony of Gilles Stockton, Cow-Calf Producer, Stockton
Ranch; President, Montana Cattlemen's Association, Grass Range, MT; on
Behalf of Northern Plains Resource Council; Western Organization of
Resource Councils
Mr. Chairman and Members of the Committee, thank you for the
opportunity to address you today on the urgent issue of price
discrepancies, transparency, and unfair practices in our cattle
markets.
My name is Gilles Stockton. I raise sheep and cattle near Grass
Range Montana. Today, I am representing the Northern Plains Resource
Council, the Western Organization of Resource Councils, and the Montana
Cattlemen's Association, organizations that work to preserve family
agriculture and the rural communities upon which we depend. I took over
the family ranch from my parents in 1975, the same year that I
graduated from Montana State University with a Masters Degree in Animal
Science.
When my wife and I started ranching in 1975 we had no assets except
for our degrees. We were fortunate to have support from my parents and
a loan from the Farmers Home Administration. It was not easy but we
were able to make it work. In 2022, a young couple starting with the
situation that we had would find it impossible to make a living in
production agriculture. The economic reality simply does not allow it.
We are losing an entire generation of farmers and ranchers, the people
upon which many of our Montana communities are built.
In 1975, 25% of the beef packing industry was controlled by four
firms. Today, approximately 85% of the beef packing industry is
controlled by four firms. This corporate concentration is underlying
and shaping the economic reality that prevents farmers and ranchers
from thriving. Monopoly power extracts wealth from rural communities
and takes a larger share of the retail dollar away from producers like
me. From 2012-2017, in Fergus County, Montana, where I am from and the
number one cattle-producing county in the state, we have seen
devastating losses. In these 5 years, our county reported a 14% decline
in market value of products sold per farm, and a 54% decline of net
cash farm income per farm. In my community of Grass Range, I've seen
this play out as a main street which now has only one functional
business.
In 1975, the farm to retail price spread for beef was 71.3%. That
means for each $1 spent on beef at the grocery store, 71.3 made it
back into the pockets of ranchers and cattle feeders. We spent that
money in our communities, at truck dealers and farm suppliers,
restaurants and grocery stores. In 2021, that spread is just 36.5%.
This means that ranchers and feeders have lost half of the value of the
beef that we raise, to the packing and retail cartels that have come to
dominate the beef industry over the course of my lifetime as a rancher.
Our profit share declined, and consumers pay higher prices for beef.
I carry with me in my own experience over 5 decades. For example,
in 1979, I purchased a 1 ton four-wheel drive truck with the proceeds
of selling 18 steer calves. The equivalent truck today would cost me 59
steer calves. No wonder our local businesses have not survived.
That share of the beef dollar we've lost does not come back to me
and my fellow ranchers, or my community. Marginal rises in prices for
cattle, if appearing at all, are seasonal and volatile at best, and
cannot be relied upon for feeders and ranchers who struggle to make
ends meet and cannot be guaranteed a fair shake at date of sale.
I do not want you to get the impression that I am looking for
sympathy, far from it. I have had a wonderful life, working in an
occupation that I love. I have had experiences as a routine part of my
day, that many people can just dream of. I have been blessed, to have
two wonderful women, willing to put up with me. My first wife passed
away in 2003. Between us, we have three sons, one of whom has
volunteered to look after my sheep, which are currently having their
lambs. Without his help, I could not be here today.
My concern is for my community, the future of agriculture, and the
future of food security for this nation. My community of Grass Range
has over the course of my life as a rancher dried up and blown away
like a tumble weed.
There is no part of the U.S. agricultural system that is not harmed
by monopoly corporate power, but the beef sector and its experience
during the pandemic may be the example of this that is most visible
today. The disruptions during the pandemic revealed how vulnerable of
beef and pork supply chain is. The lack of basic protections for
workers that contributed to rampant illness in the packing plants
slowed the processing of cattle with the result of empty shelves in the
meat counter. Ranchers like myself and my neighbors were suddenly
unable to sell our cattle, and were left desperately scrambling to find
a buyer. Many could only find a ``take it or leave it'' price that was
far below our cost. Prices to consumers skyrocketed, when they could
find beef on the shelf at all. And the big four packers profited from
buying cattle for less and selling beef for more.
The packers have said that this is all about supply and demand, but
it is also about having our entire meat production system funneled
through a very narrow bottle neck, where a few big packers can exploit
both producers and consumers.
The big four packers exercise their concentrated market power to
maximize their profits through the use of captive supplies: cattle that
packers either own outright or have a commitment for delivery through
formula contracts which are also called Alternative Marketing
Arrangements or AMAs. Most of the remaining purchases are made on the
cash market, referred to as the negotiated spot market.
These captive supplies, which at times amount to \3/4\ of the
market, allow for packer price manipulation. When cattle are sold in an
open, public market with multiple buyers on a level playing field, the
competitive bidding results in ``price discovery'' that reaches a sale
price that reflects the true value. Even smaller buyers will bid on
many more cattle than they ultimately purchase, and are therefore
important competitors to even the largest packers. Use of captive
supplies also allows packers to offer sweetheart deals to select
ranchers and feeders. Prices to these operators have declined over time
as well, but they make incrementally more than independent ranchers and
feeders, who often face uncertainty over whether they will be able to
sell their cattle at all.
As increasing amounts of cattle are sold outside of an open market,
prices decline. For every 1% increase in the level of captive supply,
there is a 5.9% decrease in the price of cattle according to a study by
Nathan Miller, et al., of Georgetown University.\1\ With captive supply
levels now approaching 80% of all fed cattle, you can readily see how
much ranchers and feeders are losing in this rigged market system.
Another study, this case from Iowa State University shows that the big
four packers are leveraging their power across multiple plants, further
eroding true price discovery in the cattle market.\2\
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\1\ https://www.r-calfusa.com/wp-content/uploads/2022/03/220331-
cattlemarkets.pdf.
\2\ https://www.card.iastate.edu/products/publications/pdf/
21wp630.pdf.
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The effect of captive supplies on U.S. cattle markets was
demonstrated in 2003, when mad cow disease was detected in Canada, and
imports of Canadian live cattle to the U.S. were banned. Canadian
imports made up less than five percent of the U.S. slaughter at the
time, and were all captive supplies. Within months of the Canadian
border closure, U.S. fed cattle prices jumped an unprecedented $26 per
cwt, or about $325 per head.
Last summer in a Senate Ag Committee hearing, Senator Grassley of
Iowa revealed that packers were making over $1,000 per head profits,
for owning the cattle for just a few days. Ranchers and feeders were
losing money on each head raised, and consumers were paying more.
What to do? Actually, it is not that complicated, and the solutions
can be executed through this Committee.
The first solution is mandatory Country of Origin Labeling.
Meatpackers oppose COOL because they don't think consumers should have
the right to know where their beef comes from, and they want to be able
to use international livestock trade to help keep the prices they pay
producers low. With other markets food and manufactured items,
consumers are able to exercise choice on where purchases are sourced,
except for beef and pork. Consumers overwhelmingly support mandatory
Country of Origin Labeling or COOL, and demonstrated that they are
willing to pay more for U.S. beef and pork when COOL was fully in
effect between 2013 and 2016. Consumer demand for U.S. beef and cattle
prices increased. Unfortunately, after an adverse WTO ruling, Congress
repealed COOL in 2015, before the dispute process had been completed,
but it is still possible to negotiate a settlement that will allow
mandatory COOL to be reinstated by passing the American Beef Labeling
Act. We thank Rep. Gooden (TX-5) and Rep. Khanna for sponsoring this
bill. H.R. 7291 will once again give consumers the ability to know
where their beef comes from, which is a prerequisite in order to
reignite competition at the retail level, and for cattle producers to
have a fair and transparent market.
The second policy that's needed is require that the beef packers
purchase their cattle in a competitive and transparent marketplace that
they neither own nor control. USDA can do this through rules under the
Packers and Stockyards Act, or Congress can do so by strengthening
amendments to the Act to require this free enterprise approach to anti-
trust enforcement. In fact, your colleagues from a century ago used
this method to restore competition to the cattle industry. It is really
just that simple. In order to have a market that works for producers,
packers, and consumers you need to pass the two following provisions,
as included in the Captive Supply Reform Act of 2007, which was
sponsored by Senators Enzi and Tester:
1. That all forward contracts and alternative marketing agreements
for slaughter livestock be offered or bid in an open,
public market and contain a fixed base price (one that can
be equated with a specific dollar amount on the day the
contract is entered).
2. That all livestock owned and fed by packers more than 14 days
before slaughter be sold through an open, public market.
The Cattle Price Discovery and Transparency Act, currently being
considered in the Senate, is a step forward to increase the percentage
of cattle purchased on the cash market, but falls short in restoring
competition to cattle markets.
Creating a fair, open, and competitive marketplace for cattle
producers is important because our food and economic security depend on
it. We must act now for ourselves and future generations. As states
across the West, including Montana, are dealing with a megadrought,
wildfires, and economic devastation, we don't have time for baby steps
and false solutions. We need bold and transformative change. Mr
Chairman, I urge you and the Committee to pass the American Beef
Labeling Act and reintroduce and pass the Captive Supply Reform Act.
Thank you for the opportunity to speak to these issues.
Member, Northern Plains Resource Council.
President, Montana Cattlemen's Association.
Attachment
Country of Origin Labeling: Restoring Power to the People
A report on Country of Origin Labeling looking at its
progression through Congress and the Montana State Legislature,
economic impacts and where it stands today.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[Northern Plains Resource Council, 2018]
Introduction
Agricultural producers in the United States today are subject to
some of the most highly concentrated markets in the world. This is
particularly the case for cattle ranchers. Once a cow is fattened for
slaughter, it must be processed and packaged before it is ready for
consumption. Yet, the meatpacking industry is becoming so concentrated
that four meat packers have gained control of 84 percent of the market
for fed cattle since the 1980's,\1\ and that number is climbing. Not
only do these packers own their own cattle herds all over the world to
flood the markets and depress prices for ranchers, they misrepresent
the origin of meat. This gives American consumers no transparency or
choice over what meat they want to eat. American ranchers have no
opportunity to negotiate or receive fair prices for their livestock,
nor can they distinguish their product in American markets.
---------------------------------------------------------------------------
\1\ Western Organization of Resource Councils. 2016. Growing The
16%. Pg. 2.
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Country of Origin Labeling (COOL) is one solution to give American
producers recognition for their product, and consumers a choice about
their food. COOL is a comprehensive labeling system that requires
specific commodities sold in the United States to bear a label or
placard indicating where a product was born, raised, and slaughtered,
yet beef and pork are currently exempt.
Livestock Markets
Packers work internationally to import meat cheaply from other
countries and commingle the product to make American-raised beef
indistinguishable from foreign beef. Under current food inspection
laws, as long as meat is processed or repackaged in the United States,
it can be labeled as ``Product of USA'', regardless of how much of the
production occurred in countries with standards different than that of
the United States. Meat processors can thus pass off meat products as
meeting USA standards entirely when, in fact, a large portion of
production was dictated by varying safety, environmental, and labor
standards. The current system undercuts the valuable work of American
producers to meet high domestic standards in order to grow high-quality
beef. It also forces family-scale domestic producers to compete with
large-scale corporations abroad.
Trends of the last 20 years show that the American cattle herd is
continuously shrinking. Without a strong American herd, the cattle
industry is vulnerable to market changes and foreign disease. Country
of origin labeling demands more transparency in our food system, which
gives consumers free choice to support local and trusted producers.
Increased support for U.S. beef would prompt packers to buy more
domestic products. Competition would influence U.S. cattle prices, not
meatpacking corporations. COOL is practical way to support the U.S.
cattle industry and to give consumers their right to know where their
food is coming from.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Why COOL?
COOL is essential to build a more robust domestic food and
agricultural system. Mandatory COOL increases consumer choice by
providing information to consumers that is necessary for a more
efficient marketplace, supports U.S. farmers and ranchers, and
establishes trade relations built on fairness. Ranchers benefitted when
COOL was in place and have been losing profits since its repeal.
Researchers also proved it to be cost effective if implemented in a way
that maximizes use of existing labeling requirements. Additionally,
COOL restores transparency in our trade policies and food system, which
works in favor of local producers and economies. Implementation of COOL
is a necessary step to promote economic and social wellness to U.S.
consumers and producers.
COOL is important because:
(1) People have the right to know where their food is coming from.
COOL creates a more efficient marketplace where consumers have
access to information that allows them to make purchases based on their
individual concerns. This opinion has been reinforced by the Federal
court. The United States Court of Appeals for the District of Columbia
ruled in favor of COOL under the first amendment in Am. Meat Inst. v.
United States Dep't of Agric., 760 F.3d 18, 411 U.S. App. D.C. 318,
(2014). The Federal court recognized the legitimacy of COOL and its
usefulness to consumers worried about ``production standards or
contamination threats.'' \2\ The court also determined COOL disclosed
``purely factual and uncontroversial'' information about covered
commodities. This case was a milestone for COOL because the Federal
court recognized government's right to disclose country of origin
information and consumers' right to access it.
---------------------------------------------------------------------------
\2\ Anon. 2015. ``American Meat Institute v. USDA.'' Harvard Law
Review. Retrieved August 2, 2018 (https://harvardlawreview.org/2015/03/
american-meat-institute-v-usda/).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
COOL promotes transparency in our food system which allows
consumers to make more informed purchases based on their
---------------------------------------------------------------------------
individual concerns.
Research supports a strong public approval of COOL. Consumers have
shown a preference for COOL for reasons of traceability and access to
information. In a study conducted with 273 consumers in Denver and
Chicago in 2003, researchers found the most commonly cited reasons
consumers prefer COOL to be:
``food-safety concerns about imported beef,
a preference for labeling source and origin information,
a strong desire to support U.S. producers, and
beliefs that U. S beef was of higher quality.'' \3\
---------------------------------------------------------------------------
\3\ Umberger, Wendy J., Dillon M. Feuz, Chris R. Calkins and
Bethany M. Sitz. 2003. ``Country-of-Origin Labeling of Beef Products:
U.S. Consumers' Perceptions.'' Journal of Food Distributional Research
34(3): 104-116. Pg. 113.
Since information on country of origin is already being tracked in
most cases, it is a matter of ensuring that this information is passed
on to the consumers. A study reviewing 20 years of COOL-related
research reiterated similar consumer motivations for COOL, explaining
that these labels can serve as a ``proxy'' for consumers to get valued
information such as ``food safety, traceability, and health
information.'' \4\
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\4\ Newman, Christopher L., Anna M. Turri, Elizabeth Howlett, and
Amy Stokes. 2014. ``Twenty Years of Country-of-Origin Food Labeling
Research: A Review of the Literature and Implications for Food
Marketing Systems.'' Journal of Macromarketing 34(4) 505-519. Pg. 513.
---------------------------------------------------------------------------
Consumers value COOL as a way to determine the safety of the food
they eat. The country of origin of a product can be used alongside
other food inspection laws to better inform consumers about the quality
and growing practices of the source of their meat. Without COOL,
decreased transparency increases the risk of the U.S. unknowingly
importing diseased livestock and beef. In the case of a meat-borne
illness outbreak in a country that imports meat to the U.S., meat can
be easily avoided if bearing labels indicating where it came from. When
consumers know exactly where their meat is born, raised and
slaughtered, they can make informed decisions about the health and
safety of the food they buy. This allows consumers to leverage their
purchasing power to support trusted producers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
COOL creates niche markets for domestic producers and
retailers to market local meat at higher premiums.
What about the Money?
Consumers have demonstrated they would pay more for COOL,
specifically for beef products. The Denver and Chicago study from 2003
found that 73% of respondents were willing to pay a premium for COOL of
about 11% for steak and 24% for hamburger.\5\ Consumers were willing to
pay more for products when they had access to information about where
it came from. An additional study in the same year found that consumers
were concerned about labeling issues and were willing to pay $184 more
per household per year for COOL.\6\
---------------------------------------------------------------------------
\5\ Umberger, Wendy J., Dillon M. Feuz, Chris R. Calkins and
Bethany M. Sitz. 2003. ``Country-of-Origin Labeling of Beef Products:
U.S. Consumers' Perceptions.'' Journal of Food Distributional Research
34(3): 104-116. Pg. 113.
\6\ Loureiro, Maria L. and Wendy J. Umberger. 2003. ``Estimating
Consumer Willingness to Pay for Country-of-Origin Labeling.'' Journal
of Agricultural and Resource Economics 28(2): 287-301. Pg. 287.
---------------------------------------------------------------------------
Studies have also shown that consumers would choose domestic beef
over imported beef and would be willing to pay more for it. In 2014,
researchers found that consumers valued beef labeled ``Born, Raised and
Slaughtered in the U.S.'' nearly $1 more than beef labeled ``Born in
Canada, Raised and Slaughtered in the U.S.'' \7\ COOL increases the
competitiveness of domestic agricultural products and improves the
bottom line of producers by providing consumers with accurate
information.
---------------------------------------------------------------------------
\7\ Lusk, Jayson and Susan Murray. 2014. Food Demand Survey.
Retrieved July 26, 2018 (https://www.usda.gov/oce/about_oce/
corrective_action/Attachment13FoodDemandSurvey.pdf).
``Researchers found consumers valued beef labeled `Born,
Raised and Slaughtered in the U.S.' nearly $1 more than beef
---------------------------------------------------------------------------
labeled `Born in Canada, Raised and Slaughtered in the U.S.' ''
While much research demonstrates positive impacts of COOL, there is
some conflicting research about COOL's impacts. A 2015 USDA economic
analysis of COOL explains that, ``evidence does not support a
conclusion that COOL significantly increases consumer demand even
though consumers desiring such information benefit from its
provision.'' \8\ Researchers found that consumers did not make much
difference in their purchasing patterns after COOL was put into effect.
Another report, conducted by many of the same researchers involved in
the USDA economic analysis of COOL, similarly found that there was no
change in demand for meat products following the implementation of
COOL.\9\ The exact effects of COOL are highly debatable and
unclear.\10\ Whether a majority of consumers are willing to put their
money where their mouth is and buy local beef or not, their ability to
choose should be nonnegotiable.
---------------------------------------------------------------------------
\8\ Office of the Chief Economist. 2015. Economic Analysis of
Country of Origin Labeling (COOL). Washington, D.C. Pg. 8.
\9\ Tonsor, Glynn T., Jayson L. Lusk, Ted C. Schroeder, and Mykel
R. Taylor. 2012. Mandatory Country of Origin Labeling: Consumer Demand
Impact. Kansas State University. Retrieved July 26, 2018 (https://
www.r-calfusa.com/wp-content/uploads/cool/121113Tonsor_KSU_FactSheet_
MCOOL.pdf).
\10\ Newman, Christopher L., Anna M. Turri, Elizabeth Howlett, and
Amy Stokes. 2014. ``Twenty Years of Country-of-Origin Food Labeling
Research: A Review of the Literature and Implications for Food
Marketing Systems.'' Journal of Macromarketing 34(4) 505-519. Pg. 515.
---------------------------------------------------------------------------
(2) COOL requires minimal costs to implement when it works with
existing labeling requirements. These costs are outweighed by
the benefits.
Before mandatory COOL was passed into law, USDA researchers
projected high costs of implementation. Research has proven, however,
that COOL can be implemented in a way that requires minimal changes to
existing labeling infrastructure and requirements. This would alleviate
potential burdens to producers, processors and retailers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ranchers move pasture with their cattle in the winter. COOL
supports long-standing ranching communities.
Projected COOL Implementation Costs
When COOL was first added to the 2002 Farm Bill, the USDA published
an estimate of record keeping costs in the Federal [Register]. The
total cost was calculated to be $1.96 billion, with producers bearing
$1 billion in record keeping costs.\11\ These estimates faced
opposition from groups like Northern Plains Resource Council and
Western Organization of Resource Councils who felt this cost of
implementation was largely over estimated. Their opposition was
supported with a 2003 economic analysis of COOL by the International
Agricultural Trade and Policy Center (IATPC). IATPC researchers found
the cost of record keeping from COOL to be 90-95% less than the USDA
projection, at between $69.86 million and $193.43 million.\12\ The
researchers assert that the benefits of COOL substantially outweigh the
cost, which comes out to less than \1/10\ of 1 per pound for covered
commodities. They also highly recommend the cheapest system of labeling
to assume U.S. origin of all products unless it is carrying a mark from
another country. This eliminates a need for a costly third party
verification rule as well as a self-verification rule. A self-
verification rule requires all entities to report country of origin,
which is largely unnecessary and possibly unlawful.\13\
---------------------------------------------------------------------------
\11\ John J. VanSickle. 2003. Country of Origin Labeling--A COOL
Update. International Agricultural Trade and Policy Center Washington,
DC: University of Florida. Pg. 3.
\12\ VanSickle J., R. McEowen, C.R. Taylor, N. Harl, and J. Connor.
2003, ``Country of Origin Labeling: A Legal and Economic Analysis.''
Policy Brief Series. International Agricultural Trade and Policy
Center. University of Florida. PBTC 03-5. https://www.iatp.org/sites/
default/files/Country_of_Origin_Labeling_A_Legal_and_Economi.pdf.
Accessed July 12, 2018. Pg. 3.
\13\ VanSickle J., R. McEowen, C.R. Taylor, N. Harl, and J. Connor.
2003, ``Country of Origin Labeling: A Legal and Economic Analysis.''
Policy Brief Series. International Agricultural Trade and Policy
Center. University of Florida. PBTC 03-5. https://www.iatp.org/sites/
default/files/Country_of_Origin_Labeling_A_Legal_and_Economi.pdf.
Accessed July 12, 2018. Pg. 7.
The International Agriculture Trade and Policy Center
estimated COOL record keeping costs to be 90-95% less than USDA
---------------------------------------------------------------------------
projections.
Differing cost estimates of implementing COOL comes down to the
method. Lower estimates are based on implementation that works with
existing labeling requirements while more costly estimates create new
systems of regulation which would be resource intensive to establish.
The 2002 USDA economic analysis of COOL estimated large expenditures in
employee time to create new labeling systems. The USDA estimated high
job wages along the supply chain to perform more work than would be
needed to implement labeling systems for producers, handlers and
retailers. The IATPC argues this report is inaccurate because:
For Producers: Due to state and Federal animal ID laws,
livestock producers already maintain records sufficient to
prove origin of their animals and no new record keeping would
be necessary.
For Handlers: The large majority of commodities covered
under COOL are produced within the U.S. and only the few
dominant processing firms for each commodity are likely to
import from foreign countries. These firms that import goods
must already keep records on country of origin for custom
regulations. As a result, the burden on record keeping for
imports will be minimal.
For Retailers: Retailers will mainly need to pass country of
origin information onto customers, which they will be required
to get from suppliers. This would require small changes to
display processes and existing record keeping.\14\
---------------------------------------------------------------------------
\14\ VanSickle J., R. McEowen, C.R. Taylor, N. Harl, and J. Connor.
2003, ``Country of Origin Labeling: A Legal and Economic Analysis.''
Policy Brief Series. International Agricultural Trade and Policy
Center. University of Florida. PBTC 03-5. https://www.iatp.org/sites/
default/files/Country_of_Origin_Labeling_A_Legal_and_Economi.pdf.
Accessed July 12, 2018. Pg. 15-19.
---------------------------------------------------------------------------
Actual COOL Implementation Costs
When implemented in 2008, COOL was proven to cost much less than
estimated. It allowed anyone who visually appraises cattle to issue a
U.S. origin if there was not branding for Canada or Mexico found.
Producers signed an affidavit indicating that the cattle were of U.S.
origin. This essentially removed the need for all record keeping for
U.S. producers.\15\ This was a change from the intended implementation
strategy from 2003 where all cattle, foreign and domestic, would have
needed to be labeled country of origin. An assessment by Informa
Economics compared estimated costs to implement COOL in the beef
industry from 2003 to costs in 2009.\16\ Costs of COOL from 2009 turned
out to be \1/2\ of $1 billion less than expected in 2003. This largely
has to do with the fact that under COOL, beef supply chain workers
opted to handle more U.S. only origin beef and cattle, meaning born,
raised and slaughtered in the U.S., because of lower costs, opposed to
handling beef and cattle from mixed countries of origin. Figure 1.
shows how costs were significantly cheaper along the supply chain for
U.S. only origin cattle and beef. Costs were estimated to overall be
highest for retail distributors, who paid $.75 a head for U.S. origin
beef and $35.00-$40.00 a head for mixed origin meat products.
---------------------------------------------------------------------------
\15\ Peel, Derrell S. 2008. ``Implementation of Country of Origin
Labeling (COOL) in the Beef Industry.'' Choices, 35-38. Pg. 37.
\16\ Informa Economics. 2009. ``Update of Cost Assessments for
Country of Origin Labeling--Beef & Pork.'' Retrieved July 13, 2018
(http://www.informaecon.com/coolstudyupdate2010.pdf).
---------------------------------------------------------------------------
Figure 1--Beef Supply Chain COOL Cost Estimates.
Table 1 Beef Supply Chain COOL Cost Estimates
------------------------------------------------------------------------
2009 Mixed
2009 U.S. Origin
2003 $/head * Only Origin Animals/
$/head Products $/
head
------------------------------------------------------------------------
Cow-calf Producer 4.88 .25 Not
applicable
Feedlot/Backqrounder 3.75-5.75 .25 .50-1.00
Packer/Processor 15.00-18.00 .25 10.00-18.00
Retail distribution and 23.00 .75 35.00-40.00
Retail Store
--------------------------------------------
Total.................... 46.63-51.63 1.50 45.50-59.00
------------------------------------------------------------------------
* Costs reported in the Sparks April 2003 analysis.
Informa Economics 2009. Costs of COOL implementation to the
U.S. beef supply chain per unit costs compared from 2003 to
2009. Implementation costs are lowest along the supply chain
for cattle and beef of U.S. only origin compared to those of
mixed country of origin.
Opposition to COOL
The USDA has generated data, unsurprisingly, that conflicts with
this research. The 2015 USDA economic analysis of COOL determined
economic effects of mandatory COOL when in place to be consistent with
the costly projections from the USDA 2002 economic analysis. This 2015
report found that ``the economic benefits of implementing COOL
regulations would be insufficient to offset the costs of
requirements''.\17\ The researchers evaluated the first-year
implementation costs to be $305 million for beef producers, $373
million for beef intermediaries and $574 million for beef retailers.
Research on COOL produced by the USDA repeatedly uses models run on
grossly overestimated costs. Other research has found COOL to increase
overhead costs along the beef supply chain, which could reduce profits
if consumers are not willing to pay more.\18\ It has been noted,
however, that with these higher overhead costs in some parts of the
supply chain comes the opportunity for producers, processors and
retailers to benefit off of niche markets worthy of higher premiums.
---------------------------------------------------------------------------
\17\ Office of the Chief Economist. 2015. Economic Analysis of
Country of Origin Labeling (COOL). Washington, D.C. Pg. 2.
\18\ Newman, Christopher L., Anna M. Turri, Elizabeth Howlett, and
Amy Stokes. 2014. ``Twenty Years of Country-of-Origin Food Labeling
Research: A Review of the Literature and Implications for Food
Marketing Systems.'' Journal of Macromarketing 34(4) 505-519.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Opponents argue that if COOL is beneficial to the market, than it
would be more widely used when in place as a voluntary model. Yet, once
COOL was repealed, a standardized voluntary COOL program also failed to
pass for beef and pork. Now, some brands label origin, but with no
specific standards as originally envisioned with COOL. This leaves room
for fraud. Voluntary COOL is not widely used because consumers are less
likely to trust a private entity's labeling quality, giving retailers
less motivation to implement a self-created COOL marketing system.\19\
It is also in meat packer's best interest not to label country of
origin on products when they can repackage imported meat and label it
of USA origin for higher premiums. This makes it nearly impossible for
retailers to track COOL information on their own. COOL being mandatory
is the only way to fully understand its cost effectiveness. Since COOL
has been in place already, these costs have been taken on so they will
not be as significant.
---------------------------------------------------------------------------
\19\ Lusk, Jason L., Jason Brown, Tyler Mark, Idlir Proseku, Rachel
Thompson, and Jody Welsh. ``Consumer Behavior, Public Policy, and
Country-of-Origin Labeling'' Review of Agricultural Economics 28(2)
284-292 Pg. 286.
---------------------------------------------------------------------------
(3) COOL boosts profits for U.S. ranchers.
Cattle prices have fluctuated in correlation with the
implementation and repeal of COOL. Figure 2. shows the relationship
between the enactment of COOL and feeder cattle prices between 2002 and
2018. Created by the Ranchers--Cattlemen Action Legal Fund United
Stockgrowers of America (R-CALF USA), this graph emphasizes a strong
correlation between the gradual implementation of COOL and an increase
in cattle prices, with cattle prices reaching their peak in the
beginning of 2015, just before COOL was repealed by Congress in
December 2015. The fact that cattle prices started falling before
COOL's official repeal can be explained by opponents strong attack on
COOL that made it clear COOL was going to be repealed before it
actually was. Cattle prices continued to fall after COOL was repealed
in December 2015, falling an additional $61 per cwt from Dec. 2015-Oct.
2016. The Organization for Competitive Markets (OCM) supports these
claims by reporting that, ``Pricing research clearly demonstrates that
the 2016 fall in the price cattle producers receive for their calves,
of almost 50%, can be tied to the abandonment of COOL. U.S. calves are
now worth half of what they were prior to COOL being repealed.'' \20\
U.S. ranchers saw a boost in profits with COOL in place and have been
losing money since its repeal.
---------------------------------------------------------------------------
\20\ Anon. 2018. ``Country of Origin Labeling.'' Organization for
Competitive Markets. Retrieved July 11, 2018 (https://
competitivemarkets.com/cool/).
---------------------------------------------------------------------------
Montana rancher Jeanie Alderson and her community experienced
significant price cuts from the repeal of COOL first hand. Alderson
notes that before COOL was repealed, prices for feeder cattle were
going up. After COOL was repealed, the price per pound for feeder
cattle dropped a full dollar. Montana ranchers generally sell their
feeder calves by the semi load, with one semi load carrying around
60,000 pounds. A drop in feeder cattle prices by $1 translates into a
$60,000 loss for every truck leaving the community. A loss this large
is crippling, considering ranchers make all of their money selling
calves in just a couple of days a year at shipping time. Most of that
money is also already spent on bills and other expenses throughout the
year, leaving ranchers with limited options to make back their
expenses. Large meatpacking corporations are benefitting from cheaper
cattle prices while rural communities are devastated by it. Alderson
explains that these price cuts were not widely spoken about even though
many ranchers shared the experience. Mandatory COOL clearly benefited
United States ranchers while in effect and the repeal of COOL has lost
Montana ranchers and rural communities significant amounts of money.
Figure 2. COOL & Feeder Cattle Prices (500 to 550 lbs) Oklahoma City,
January 2002 to April 2018.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
R-CALF USA. Feeder cattle prices were going up with COOL in
place and have dropped since its repeal.
Opponents argue that drought is the cause for drop in feeder cattle
prices around the repeal of COOL.\21\ Regardless of the root cause of
this market crash, it shouldn't happen and can devastate any industry.
It is proof that the United States need stronger agricultural and trade
policies to better support ranchers and beef production workers.
---------------------------------------------------------------------------
\21\ Lusk, Jayson. 2016. ``Country of Origin Labeling and Cattle
Prices.'' Jayson Lusk. Retrieved July 13, 2018 (http://jaysonlusk.com/
blog/2016/11/13/country-of-origin-labeling-and-cattle-prices).
---------------------------------------------------------------------------
(4) COOL allows for more fair globalized trade.
COOL protects domestic cattle markets by reducing incentives for
transnational processors to import cheap meat from abroad. U.S. cattle
are proven to bring in more money than Canadian cattle, but without
labels there is no market distinction. Because meatpackers are sourcing
cheaper cattle from Canada in order to meet demand shortages in the
U.S., our domestic prices are falling. COOL would allow more consumers
to buy locally produced beef. This would stimulate and strengthen the
U.S. cattle herd diminishing packers need and ability to outsource
cheap foreign meat. Currently, global trade is dictated by
transnational corporations who do not advocate for fair and free trade.
COOL would shift power to consumers by providing information they need
to support local economies.
COOL and Current Trade Agreements
When mandatory COOL was in place, Canada and Mexico alleged it
violated the WTO Technical Barriers to Trade (TBT) Agreement because
domestic products were treated more favorably than foreign products.
Both countries claimed that COOL would cost them $2.1 billion from loss
of exports because U.S. consumers would buy more domestic goods.\22\
The WTO ruled in their favor in 2012.
---------------------------------------------------------------------------
\22\ Food and Water Watch. 2005. ``Trade Damages from WTO COOL Case
Massively Overstated.''
---------------------------------------------------------------------------
With the investor-state dispute settlement (ISDS) provisions in
NAFTA, which allows investors to sue countries for alleged
discriminatory practices, Canada and Mexico were able to threaten the
U.S. through the WTO for the loss of profits they projected to
experience from COOL. Though the volume of meat the U.S. imports from
Canada and Mexico is small in relation to the total U.S. import market,
these imports represent significant shares of these country's
exports.\23\ These financial loss claims by Canada and Mexico are
extremely high, however, considering the total hog and cattle exports
from both of these countries amounted to $2.5 billion in 2014. Canada
and Mexico alleged that eliminating COOL when it was in effect would
increase the value of their livestock exports by 77 percent.\24\ More
research should be done to confirm the market effects in Canada, Mexico
and the U.S. since the repeal.
---------------------------------------------------------------------------
\23\ Pouliot, Sebastien and Daniel A. Sumner. 2014. ``Differential
Impacts of Country of Origin Labeling: COOL Econometric Evidence from
Cattle Markets.'' Food Policy 49: 107-16. Pg. 107.
\24\ Food and Water Watch. 2005. ``Trade Damages from WTO COOL Case
Massively Overstated.''
---------------------------------------------------------------------------
ISDS provisions in NAFTA give transnational corporations the power
to fight for policies that work in their favor and takes the power to
pass policy away from local communities. Though COOL may lead to a
higher demand for U.S. meat, it does not apply different labeling
requirements to foreign imports and domestically produced goods.
Advocates argue COOL can be implemented in a neutral manner and is
compatible with WTO trade agreements.
NAFTA has also historically hurt domestic cattle ranchers and put
the rights of transnational corporations over the viability of local
communities. While COOL may affect international trade flows,\25\ R-
CALF USA estimates the U.S. cattle and beef trade deficit with NAFTA
countries contributed more than $1.04 billion annually to the trade
deficit during the past 22 years.\26\ The U.S. cattle industry is
losing money because of NAFTA, which is also preventing the U.S. from
creating policies to protect the cattle industry. COOL would restore a
sense of sovereignty over our food system in the U.S. Renegotiating
NAFTA to eliminate ISDS and include COOL would improve trade policies
to work for family-scale producers, rather than against them.
---------------------------------------------------------------------------
\25\ Newman, Christopher L., Anna M. Turri, Elizabeth Howlett, and
Amy Stokes. 2014. ``Twenty Years of Country-of-Origin Food Labeling
Research: A Review of the Literature and Implications for Food
Marketing Systems.'' Journal of Macromarketing 34(4) 505-519.
\26\ R-CALF USA Presentation to the U.S. Trade Representative on
the Columbian Free Trade Agreement, U.S Cattle/Beef Trade Deficit with
NAFTA Countries Contributed More than $1.04 Billion Per Year to the
Trade Deficit During Past 22 Years; April 18, 2011 slide 4.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Western Organization of Resource Councils advocates for NAFTA
---------------------------------------------------------------------------
renegotiations to include COOL and eliminate ISDS provisions.
An alarming loophole that is surfacing today is that, without
mandatory COOL in place, meat that is imported can be passed off as a
``Product of USA'' under current USDA Food Safety and Inspection
Services' (FSIS) Standards. While 91% of U.S. beef consumption is from
domestic production, the grass-fed beef market in the U.S. is largely
imported. 75% of grass-fed beef sold in the U.S. is imported from
Australia, New Zealand and South America. This imported meat can be
stamped as ``Product of USA'' if processed or repackaged in the
U.S.\27\ This labeling loophole gives consumers a false notion that
their beef is born, raised and processed in the U.S., when none of that
may be true. This false advertising may be just one more loophole that
erodes trust in our labeling systems that are so critical to consumer
choice.
---------------------------------------------------------------------------
\27\ Anon. 2018. ``A New COOL Debate.'' DTN Progressive Farmer.
Retrieved July 11, 2018 (https://competitivemarkets.com/cool/)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Domestic grass-fed beef shares the same ``Product of USA''
label as grass-fed beef that is imported from [overseas].
COOL Today
Grassroots groups are recognizing the importance of COOL and are
working to reinstate it today. Several states have seen COOL bills
since the repeal of a national mandatory COOL policy. Wyoming,
Colorado, and South Dakota have tried to pass legislation in 2017 with
limited success. United Food and Commercial Workers International Union
(UFCW) is currently prioritizing efforts in Iowa and Oklahoma to pass
state COOL bills. They are looking at other states to work with as
well.
Recent Efforts for State COOL Bills
Wyoming
Introduced: 2017
Bill: House Bill 198 would have required Country of
Origin Labeling for beef sold in the state of Wyoming.
Outcome: Passed the House Ag Committee. Committee of
the Whole opted to not consider this bill and it died for
not meeting the deadline.
Introduced: 2018
Bill: House Bill 0090 was a Country of Origin
Placarding law for beef.
Outcome: This law is on the books but it is not being
implemented. Bills in Wyoming have died by pocket veto in
that last couple of years due to fears of Federal
preemption.
Colorado
Introduced: 2017
Bill: House Bill 17-1234 was a placarding act. It
would have required retailers to post signs next to
displays of fresh beef indicating if it was a ``Product of
the USA'' or imported. Imported meat was to be indicated
what country it was from.
Outcome: Political disputes caused democrats to vote
heavily against the bill. It was postponed indefinitely by
House Agriculture, Natural Resources and Livestock
Committee.
South Dakota
Introduced: 2017
Bill: Senate Bill 135 would have required grocery
stores to label country of origin of beef and ground beef
sold in grocery stores. Beef originating in U.S. would bear
a ``Product of USA'' label, imported meat would bear a
label of all countries of production and meat of unknown
origins would be labeled ``Country of Origin Unknown''.
Outcome: The bill made it out of the Senate State
Affairs Committee on a 5-3 vote, only to be killed on the
floor.
Oklahoma
Introduced: 2018
Bill: Senate Bill 1486 requires food labels indicating
country of origin for muscle cut and ground beef and pork.
Outcome: Status is pending in a second reading in the
Senate Agriculture and Wildlife Committee.
Iowa
Introduced: 2018
Bill: H.F. 2357 mandates that muscle cut and ground
beef and pork have a label stating the country of origin.
Regulations are based on 2009 COOL rules.
Outcome: Status is pending in the House Agricultural
Committee.
Major Players Today
Prominent groups in the fight for COOL today have been focusing
efforts to prevent meat from being labeled ``Product of USA'' if
imported from abroad. R-CALF USA and Cattle Producers of Washington
(CPoW) filed a lawsuit against the USDA in 2018 alleging that the USDA
was unlawful in allowing imported beef to be sold without a country of
origin label and as a ``Product of USA'' if the animal was born,
raised, or slaughtered in a foreign country. They also argued that lack
of COOL regulations in place causes financial harm to U.S. producers.
The U.S. District Court Eastern District of Washington acknowledged
that the ranchers faced financial harm from lack of COOL requirements
on imported beef and that the harm was ``fairly traceable'' to USDA
actions.\28\
---------------------------------------------------------------------------
\28\ Campbell, Chris. 2018. ``When It Comes to Labeling, COOL Is No
Longer the Rule.'' The Food Institute Blog. Retrieved July 25, 2018
(https://foodinstitute.com/blog/cool-is-no-longer-the-rule).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
---------------------------------------------------------------------------
R-CALF USA.
The court did not rule in the cattle producer's favor, however,
arguing that they were time-barred from challenging regulations because
regulations removing COOL on imported beef were promulgated in 1989 and
the statute of limitations expired in 1995.\29\ This lawsuit succeeded
in validating the financial harm cattle ranchers' face from lack of
COOL regulations and highlighting ways national COOL can be reinstated.
The court determined that only executive or legislative action could
pass COOL legislation. President Trump can issue an Executive Order
requiring the USDA to reinstate COOL on imported beef and pork or
include COOL in NAFTA renegotiations.\30\
---------------------------------------------------------------------------
\29\ Anon. 2018. ``R-CALF USA Urges Origin Labels on Beef so
Consumers Can Choose to Respond to Canada's Retaliatory Tariffs.''
News.MikeCallicrate.com D A NoBull News Service. Retrieved July 24,2018
(https://news.mikecallicrate.com/r-calf-usa-urges-origin-labels-on-
beef-so-consumers-can-choose-to-respond-to-canadas-retaliatory-tariffs/
).
\30\ Muraskin, David. 2018. ``Trump Can Guarantee a Win for
Farmers: Country-of-Origin Labeling.'' TheHill. Retrieved July 25, 2018
(http://thehill.com/opinion/energy-environment/391046-trump-can-
guarantee-a-win-for-farmers-country-of-origin-labeling).
---------------------------------------------------------------------------
In a similar vein, The Organization for Competitive Markets (OCM)
and American Grassfed Association (AGA) have filed a petition with the
USDA to close the FSIS loophole. Grassroots groups around the country
are rallying support for the petition to put pressure on the labeling
loophole and raise public awareness. The petition will end August 17th
2018.
The United Food and Commercial Workers International Union (UFCW)
is pushing COOL because it rebuilds the U.S. cattle herds, improves
consumer choice and safety, and supports high quality jobs for working
Americans. UFCW is advocating for a renegotiation of NAFTA to meet
these goals. In 2014, the U.S. cattle herd reached its lowest level
since 1941. The weakened beef industry has prompted growth of the
poultry industry, which has lower labor standards. According to UFCW,
red meat employment in slaughter fell by over 14,000 jobs between 2008-
2017. Rebuilding the U.S. cattle herd is an important step to restore
good paying and union protected jobs that guarantee hard-working
families a better quality of life. UFCW sees COOL as an important way
for consumers to ensure they are buying beef from safe and reliable
domestic sources, which would provide ranchers with a premium for their
products and ultimately stimulate growth of the U.S. cattle industry.
Conclusion
COOL is necessary to promote consumer choice, support local
producers, and foster more fair and free global trade. Opponents of
COOL are using strong tactics to convince the public and elected
officials that COOL is not good for the American people. The facts are
clear. Consumers place higher value on meat that they know originated
from safe and reliable sources, which boosts markets for local
producers. Domestic producers benefit from higher premiums and niche
markets. COOL can also be implemented in an affordable and efficient
way when it is assumed that all meat is domestic unless labeled
otherwise. Last, renegotiating COOL into NAFTA would reverse the
substantial economic losses the U.S. cattle industry has faced over the
years and restore a sense of national sovereignty over our food system.
A strong network of allies are pushing for COOL to restore power over
the food system back to the American people and away from large
meatpacking corporations.
The time is ripe for Montana to bring back COOL legislation in the
2019 Montana State Legislature. The Trump Administration runs on an
American-First narrative, which COOL is a fundamental part of.
Reinstating a COOL bill in Montana could get the ball rolling on more
widespread COOL legislation, open conversations about how to improve
trade policies, and determine which elected officials in the state are
serious about supporting local producers.
COOL Timeline
1976
Judicial
American Meat Institute v. B. Dale Ball, Director of
Michigan State Department of Agriculture and Ronald M. Leach,
Chief of Food Inspection Division. 424 F. Supp. 758, 1976 U.S.
Dist.
The court ruled that placards or notices placed near
products are not ``labels'' and do not violate the Federal
Meat Inspection Act (FMIA) (which regulates labels on
meat). This ruling distinguished placards from labels under
the Michigan Comminuted Meat Law, which imposed greater
requirements to the content and labeling of meat products
than FMIA . The case did not address country of origin
information.
2001
Montana
Montana's Country of Origin Labeling Bill (SB 196) passed
the Senate with a 49-1 vote. The bill required placards
declaring the country of origin be displayed for all meat.
Meat needed to be segregated by country of origin in
display cases clearly marked with placards stating one of
three things about product:
(1) that it was produced in Montana; or
(2) that it was produced in the USA; or
(3) that its country of origin is unknown.
The bill was sponsored by Senators Jon Tester (D-Big
Sandy) and Ric Holden (R-Glendive), Chairman of the Senate
Ag Committee.
SB 196 survived the House Agriculture Committee 10-9 with
opposition led by Kraft Foods, Inc. (Phillip Morris), Anheuser-
Busch, Montana Chamber of Commerce, Montana Food Distributors
Association and Montana Retailers Association.
SB 196 passed the House 63 to 37, minus the penalties
section, with a 2 year delayed effective date, and with
exemptions for grains and blended meats. The bill would not go
into effect until 2003, and an amendment removing the penalties
section makes the labeling provisions in the bill
unenforceable.
With a 5-1 vote, the house's amendments to the bill were
accepted. Only Sen. Tester voted to reject the amendments. The
committee consisted of Sen. Ric Holden (R-Glendive 01), Sen.
Pete Ekegren (R-Choteau 44), Sen. Jon Tester, Rep. Don Hedges
(R-Antelope 97), Rep. Karl Waitschies (R-Peerless 96), and Rep.
Matt McCann (D-Havre 92). Sen. Tester proposed a number of
amendments. Four of those amendments would have returned the
bill to the state in which it entered the house. All four of
those amendments failed.
2002
Congress
The Farm Security and Rural Investment Act of 2002 (2002
Farm Bill) and 2002 Supplemental Appropriations Act (2002
Appropriations) amended the Agricultural Marketing Act of 1946
to require retailers to notify customers of covered commodities
origin with country of origin label.
Mandatory COOL regulations were to be implemented in
2004.
This amendment includes regulations for muscle cut and
ground beef, pork and lamb; wild and farmed fish,
perishable ag. commodities (fruits and veg.) and peanuts.
Labels stating ``United States Country of Origin'' are
needed only if animals were ``exclusively born, raised and
slaughtered in the U.S.'' The amendment did not speak to
covered products derived from animals born, raised or
slaughtered outside of U.S.\31\
---------------------------------------------------------------------------
\31\ Butler, J. Dudley. n.d. ``The Story of COOL: The Saga
Continues.'' The National Agricultural Law Center. Retrieved July 13,
2018 (http://nationalaglawcenter.org/wp-content/uploads/2013/11/
Discussion-Points-Butler.pdf). Pg. 2.
---------------------------------------------------------------------------
Administrative
AMS issues guidelines for the voluntary country of
origin labeling of covered commodities.
2004
Congress
FY 2004 Consolidated Appropriations Act delayed mandatory
COOL for all commodities except wild and farmed fish until
2006.
2005
Congress
The Agriculture, Rural Development, Food and Drug
Administration and Related Agencies Appropriations Act of 2006
delayed mandatory COOL for all commodities except wild and
farmed fish and shellfish until 2008.
Montana
Montana Legislature enacts Country of Origin Placarding Act
(HB 406), which establishes placarding requirements for beef,
pork, poultry and lamb. If meat is produced in a country
outside of the U.S. it must be placarded. If meat is produced
in Montana or the United States than placarding is voluntary.
Effective 2006.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
COOL benefitted Montana ranchers when in effect 2006-2008.
Sunset provisions are included in the bill for when a
Federal COOL bill takes effect.
2006
Montana
COOL put into effect April 2006.
2008
Congress
The Food, Conservation and Energy Act of 2008 (2008 Farm
Bill) amended COOL to:
Include chicken, goat meat, [macadamia] nuts, pecans
and ginseng.
It further defined what the country of origin would be
based on where the various production steps for meat (beef,
lamb, goat, chicken and pork) animals took place.
Three additional country of origin designations were
added: multiple coun-
tries of origin, imported for immediate slaughter, and
foreign countries
of origin.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A label from the initial implementation of COOL. Multiple
countries of origin are listed.
Administrative
AMS published an interim final rule for the remaining
covered commodities, not including fish and shellfish.
WTO
Canada and Mexico brought suit against the United States'
COOL requirements for beef and pork.\32\
---------------------------------------------------------------------------
\32\ Anon. n.d. ``Country of Origin Labeling Overview.'' The
National Agricultural Law Center. Retrieved July 13, 2018 (http://
nationalaglawcenter.org/overview/cool/).
---------------------------------------------------------------------------
Montana
COOL repealed because Federal rule enacted.
2009
Administrative
The provisions of the Final Rule (FR) for the mandatory
country of origin labeling of lamb, chicken, goat meat, wild
and farm-raised fish and shellfish, perishable agricultural
commodities (fresh and frozen fruits and vegetables), peanuts,
pecans, ginseng, and macadamia nuts were passed.
Mandatory COOL for all covered commodities in effect.
2011
WTO
WTO issues initial ruling that COOL is inconsistent with the
United States' obligations under the WTO Agreement on Technical
Barriers to Trade (TBT) because COOL:
Favored domestic livestock production over imported
livestock from Canada and Mexico;
COOL did not achieve its purpose of providing specific
information to consumers about the country of origin for
covered commodities.\33\
---------------------------------------------------------------------------
\33\ Carter, Colin A. 2014. ``Some Trade Implications of the 2014
Agricultural Act.'' Choices. Retrieved July 13, 2018 (http://
www.choicesmagazine.org/choices-magazine/theme-articles/3rd-quarter-
2014/some-trade-implications-of-the-2014-agricultural-act).
---------------------------------------------------------------------------
2012
WTO
The WTO Appellate Body issued a ruling that COOL
requirements were detrimental to imported livestock industries
because costly record keeping and verification requirements
incentivized producers to use exclusively domestic livestock.
The United States government was given until May 2013 to rework
COOL regulations to meet WTO directives.\34\
---------------------------------------------------------------------------
\34\ Anon. n.d. ``Country of Origin Labeling Overview.'' The
National Agricultural Law Center. Retrieved July 13, 2018 (http://
nationalaglawcenter.org/overview/cool/).
---------------------------------------------------------------------------
2013
Administrative
AMS issued a final rule that made changes to the labeling
provisions for muscle cuts of covered animals to provide
consumers with the specific countries where that meat was
``Born, Raised and Slaughtered''. Commingling of muscle cut
commodities was prohibited.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A label from the full implementation of COOL indicating where
meat is born, raised and slaughtered.
Judicial
A lawsuit was filed by Meat Packer Trade Associations, the
National Cattlemen's Beef Association (NCBA), the National Pork
Producers Council (NPPC) and Canadian and Mexican cattle
associations in U.S. district court alleging that COOL law is
unconstitutional.
WORC and other groups joined Federal lawsuit as
interveners to support USDA's defense of COOL;
The U.S. District Court upholds the COOL law by
rejecting the request by the meatpackers and their allies
for a preliminary injunction against the 2013 amendments to
COOL.
2014
Judicial
Am. Meat Inst. v. United States Dep't of Agric., 760 F.3d 18
The Court of Appeals for the D.C. Circuit sitting en
banc held 9-2 that the meat labeling requirement was
constitutional.
WTO
The WTO compliance panel ruled that the changes the United
States made to COOL regulations in 2013 were inadequate.
2015
WTO
The WTO authorizes Canada and Mexico to institute
retaliatory tariffs against the U.S. in the amount of
approximately $1.1 billion based on the WTO's determination
that the COOL law violated U.S. trade obligations.\35\
---------------------------------------------------------------------------
\35\ Anon. n.d. ``Country of Origin Labeling Overview.'' The
National Agricultural Law Center. Retrieved July 13, 2018 (http://
nationalaglawcenter.org/overview/cool/).
---------------------------------------------------------------------------
Congress
Country of Origin Labeling Amendments Act of 2015 (H.R.
2393) is introduced to repeal mandatory COOL for beef, pork and
chicken.
Rep. [K. Michael] Conway sponsored the bill and it was
supported by Montana Representative Ryan Zinke;
Congress voted 300-131 to repeal mandatory COOL.
The Chairman. Thank you, Mr. Stockton, for your excellent
and very informative testimony.
And now Mr. Schiefelbein--I hope I got that right.
Mr. Schiefelbein. You did pretty well, sir.
The Chairman. Thank you.
TESTIMONY OF DONALD K. SCHIEFELBEIN, CATTLE
PRODUCER, SCHIEFELBEIN FARMS LLC; PRESIDENT,
NATIONAL CATTLEMEN'S BEEF ASSOCIATION, KIMBALL, MN
Mr. Schiefelbein. Chairman Scott, Ranking Member Thompson,
and Members of the Committee, my name is Don Schiefelbein. I am
a cattle producer from Kimball, Minnesota. Together with my
wife, my three fabulous daughters, parents, seven brothers, six
nephews, and our spouses and children, we own and operate
Schiefelbein Farms, an entirely family-owned diversified
farming operation, which includes both seedstock production and
cattle feeding.
Our livelihood is completely dependent upon the success of
our customers, cow-calf producers from Iowa to Montana and
others across the entire land. I have also served as President
of both the Minnesota State Cattlemen's Association and the
American Angus Association. I am appearing this morning as the
President of the National Cattlemen's Beef Association or NCBA,
the oldest, largest national trade association representing
U.S. cattle industry. Our direct membership of over 26,000 and
roughly 178,000 members of our 44 state affiliate organizations
are comprised of a wide array of seed stock producers, cow-calf
operators, stockers, backgrounders, and cattle feeders. My
testimony today is rooted in policies submitted, debated, voted
on, and adopted by cattle producers through NCBA's century-old
policymaking process.
It has been said many times over the cattle industry is
home to the most complex markets on Earth. The intricacies of
this system have been highly scrutinized over the past years,
but the fundamental dynamics at play have been consistent
through times of plenty and hardship. Let me be clear. Cattle
producers know best what they do and do not need to do in order
to be successful. I implore you to listen to what producers are
telling you.
The hearing focuses on meatpackers. We share the
Committee's concern about the consolidation, but we would have
preferred to discuss a host of more pressing challenges with
you today. Make no mistake, curbing rampant inflation and
skyrocketing input costs, addressing urgent labor shortages,
and increasing market transparencies are the true immediate
needs of producers. I urge you, do not let today's proceedings
disguise that fact.
Producer leverage with packers has been a hot topic for
over a century. However, of greatest concern to NCBA is the
current shortage of adequate beef packing capacity not seen in
several decades. NCBA supported measures both in Congress and
with the Biden Administration to increase packer capacity. Most
importantly, we have continued to advocate for those new
facilities to be small, regionally focused small businesses.
Following both the Holcomb fire and COVID-19, packer
capacity losses resulted in the highest recorded spreads
between boxed beef and live cattle, $67.17 per hundredweight
and $279 per hundredweight respectfully. This behavior is
rooted in basic laws of supply and demand, but given the
magnitude of these price disparities, it would have been
imprudent not to further scrutinize the packers. That is
precisely why NCBA called upon the Department of Justice to
investigate the four major packers. The results of this
investigation have yet to be released, but I urge Congress to
proceed carefully as we await the findings. I ask that you
continue to engage with the Attorney General as he continues
this investigation and hold off on crafting new legislation
until a determination has been made.
NCBA strongly supports robust enforcement of the Packers
and Stockyards Act and believes the Department of Agriculture
has adequate legal authority to enforce it properly. We support
the Biden Administration's effort to streamline collaboration
between the Packers and Stockyards Division and the Justice
Department, but we do not believe creating a new office within
the USDA is the proper way to enhance enforcement.
Briefly, I would like to address the Cattle Price Discovery
and Transparency Act, Senate Bill 4030 and its House companion
H.R. 5992. NCBA opposes this legislation. Freedom to market
matters. It has allowed cattle producers like myself to respond
directly to consumer needs. If the government were to erode
this freedom or completely take it away, everyone suffers. I
will elaborate further on these highly complex issues in my
written testimony.
In closing, Mr. Chairman, I ask you and this Committee to
listen to cattle producers and address the real threats to our
industry. For too long Congress has been gridlocked by a
handful of controversial policies while a host of widely
supported measures await enactment. It is time to move on and
focus on areas where agreement can be met. Thank you for your
time to testify. I look forward to your questions.
[The prepared testimony of Mr. Schiefelbein follows:]
Prepared Testimony of Donald K. Schiefelbein, Cattle Producer,
Schiefelbein Farms LLC; President, National Cattlemen's Beef
Association, Kimball, MN
Introduction
Chairman Scott, Ranking Member Thompson, and Members of the
Committee, on behalf of America's cattle producing families, thank you
for inviting me to provide a producer perspective to today's
proceedings.
My name is Don Schiefelbein, and I am a cattle producer from
Kimball, Minnesota. Along with my father, seven brothers, and five
nephews, I own and operate Schiefelbein Farms, a diversified farming
and ranching operation. I have also worked to advance beef quality
through my previous staff roles at the American Gelbvieh Association
and the North American Limousin Association. In addition, I am a past
President of both the Minnesota State Cattlemen's Association and
American Angus Association.
I am appearing today on behalf of the National Cattlemen's Beef
Association, where I currently serve as President. NCBA is the oldest
and largest national trade association representing the U.S. cattle and
beef industry. In addition to our over 26,000 direct members, NCBA
represents forty-four state affiliate organizations whose members
number some 178,000 cattle farmers and ranchers.
The testimony I am submitting today is based on policies submitted,
debated, voted on, and adopted by cattle producers through NCBA's
century-old grassroots policymaking process. Each of our members has a
voice in the discussion, and everyone has a vote. Our membership
includes seedstock producers, cow-calf operators, stockers,
backgrounders, and cattle feeders from all fifty states. The vast
majority of these small businesses--each of which are crucial to their
respective rural communities and local economies--are, like my own,
family owned and operated. This diversity of business models,
production practices, and unique regional challenges inherently results
in a wide range of thought and opinions. Our role at NCBA is to
facilitate a dialogue between those viewpoints and provide a platform
for consensus-building. Since 1898, we have taken that responsibility
seriously and are proud to continue that time-honored tradition today.
Background
It has been said many times before, including in this very room
before the Members of this Committee, that the U.S. cattle industry is
home to some of the most complex commodity markets on [E]arth. The
intricacies of this system have been on full display in recent years,
but the fundamental market dynamics at play have been present through
bull and bear periods for decades. The 2019 Holcomb fire, the COVID-19
pandemic, cybersecurity breaches, and supply chain disruptions have
troubled cattle producers nationwide. As they work to problem-solve and
innovate new ways to capture value and cut costs, Congress is debating
a number of legislative proposals which would substantially impact
their day-to-day dealings.
Let me be clear, the only people who know exactly how cattle
producers should navigate these uncertain times are the individuals who
work around the clock, day in and day out, to raise the safest and
highest quality beef in the world--in other words: cattle producers
themselves. They have used their voice through their involvement in
organizations like NCBA and the American Farm Bureau Federation to tell
Congress exactly what they need and, perhaps more importantly, what
they do not need to be successful. As you consider various ideas in the
coming days, I implore you to listen to what they have said and not be
distracted by fringe elements or those who claim to speak on their
behalf. The overwhelming majority of cattle producers are trying to
tell you how to help them and how to avoid adding to their
difficulties.
The purpose of this morning's hearing is to examine the
relationship between cattle ranchers and meatpackers. This issue has
been the subject many hearings during the 117th Congress, including in
both the House and Senate Judiciary Committees which also have
legitimate jurisdiction over such matters. While NCBA shares the
concerns of many Members of Congress regarding consolidation in the
packing sector, we would have preferred to discuss a host of immensely
more pressing needs with you today. Curbing runaway inflation,
arresting soaring input costs, resolving on-going supply-chain
vulnerabilities, addressing labor shortages, and increasing market
transparency are the true immediate needs of cattle producers. Please
do not allow today's proceedings to disguise that fact. I urge you to
take action on these issues as expediently as possible.
The Relationship Between Cattle Producers and Meatpackers
From very beginnings of NCBA, producer leverage has always been top
of mind. In fact, it was the subject of many of our association's first
meetings. The situation in the marketplace today is strikingly similar
to the landscape which existed over a century ago, during the tenure of
our ninth President. Consolidation at the packing sector had captured
the attention of cattle producers even then. John B. Kendrick, who
wrote the original draft of the Packers and Stockyards Act and was
later elected Governor of Wyoming and U.S. Senator, told a gathering of
the American National Live Stock Association in 1919, ``this squall
between the packers and the producers of this country ought to have
blown over forty years ago, but we still have it on our hands.'' In the
hundred years since that time, cattle producers have experienced times
of great profit and times of immense hardship--all with little change
to the market power structure of the packing sector.
Cattle producers rely on the services provided by meatpackers of
all sizes to convert livestock into a consumer product. Without access
to beef processing, raising cattle would not be a profitable
enterprise. This problem has been on full display since 2016, when our
industry realized a shortage of adequate packing capacity for the first
time in decades.\1\ As a result, cattle producers have experienced
reduced negotiating leverage in pricing negotiations with meatpackers.
Cattle herd inventories fluctuate over the course of a fairly
consistent 10 year cycle, and the value of cattle is further influenced
seasonally within the calendar year. The relationship between cattle
supplies and the availability of processing (or ``hook space'') is the
primary factor in determining the price of fed cattle. The best
solution to improving producer leverage is to increase hook space with
more independent processors controlling more diversified hook space,
and NCBA has long supported processing capacity expansion through
investments in small to midsize, regional packing ventures.
---------------------------------------------------------------------------
\1\ Aherin, Dustin. The Case for Capacity. RaboBank: 2020.
---------------------------------------------------------------------------
NCBA supported the Butcher Block Act (H.R. 4140) when it was
introduced earlier this Congress. The legislation would establish loan
and grant programs for prospective entrants to the meat and poultry
processing sector. These resources are intended to increase the
diversity of processing options available to producers by helping small
and very small meatpackers meet capital needs. We were also pleased by
this Administration's actions to direct approximately $1 billion in
Federal resources to this effort via the authorities granted to the
U.S. Department of Agriculture (USDA) in the American Rescue Plan Act
(Pub. L. 117-2). USDA programs like the Meat and Poultry Processing
Expansion Program, Food Supply Chain Guaranteed Loans, and Meat and
Poultry Inspection Readiness Grants programs help to alleviate the
overwhelming costs associated with construction or expansion of these
small packers. Many of our members have expressed an interest in these
programs, and we anticipate additional opportunities will be announced
in the near future.
Disruptions at the packing sector have a ripple effect on cattle
prices as evidenced most recently by the Holcomb fire and pandemic-
related closures of high-throughput plants. Congress must do everything
in its power to prevent further volatility due to packing capacity
reductions. Innovative solutions are needed to address labor
recruitment and retention, reduce arduous regulatory red tape, and
increase resiliency within the food supply chain, and I ask Members of
the Committee to seek those bipartisan answers out.
Exertion of Meatpacker Market Power
The price disparities recorded between boxed beef and live cattle
following the most recent black swan events were some of the most
drastic in the over twenty year history of Livestock Mandatory
Reporting (LMR). In the case of the Holcomb fire, the price spread
reached $67.17/cwt.--the highest ever recorded at the time.\2\ Months
later, temporary plant closures and line speed slowdowns resulting from
the COVID-19 pandemic took roughly 40% of domestic beef processing
capacity offline. The resulting shockwaves caused the fed cattle and
boxed beef price spread to jump to a new high of $279/cwt.\3\ Despite
the fact that this market behavior was rooted in basic laws of supply
and demand, the impacts to family farmers and ranchers was abrupt and
brutal, and the magnitude of the disparity warranted further scrutiny.
---------------------------------------------------------------------------
\2\ Boxed Beef & Fed Cattle Price Spread Investigation Report.
USDA-AMS: 2020.
\3\ Ibid.
---------------------------------------------------------------------------
In response, NCBA called upon both the Packers and Stockyards
Division (PSD) at USDA and the U.S. Department of Justice to (DOJ)
investigate the four largest meatpacking companies to ensure that
anticompetitive practices did not artificially depress cattle prices to
increase their profits. Both agencies promptly responded to our
requests, and PSD released a report detailing the market reactions to
both events in July 2020. That report, however, did not elaborate on
any potential findings of corporate malfeasance on the part of the
packers. As of this writing, we are still awaiting the results of the
DOJ investigation. NCBA greatly appreciates the bipartisan and
bicameral efforts of our friends on Capitol Hill to urge DOJ to provide
an update on their findings. However, before attempting to fix a
problem, we must know if things went awry, if so then whether or not it
was illegal, and if it was unlawful how to prevent it from happening
again. It is essential that DOJ conclude their investigation and report
their findings to the public in order to ascertain this information,
and we ask you to continue your engagement with the Attorney General to
that end.
Meat Packing Special Investigator Act
NCBA policy strongly supports robust enforcement of the Packers and
Stockyards Act of 1921 (Pub. L. 67-51). This landmark law, which
recently observed its hundredth anniversary, is designed to secure a
fair and transparent environment for all participants in the cattle
marketplace. Through various amendments over the past century, it has
been adjusted and improved upon to accommodate the ever-changing
dynamic of the livestock marketing complex. NCBA is confident that the
current enforcement authorities provided by the Act are adequate to
realize its objectives and maintain fairness, provided adequate
resources are allocated to PSD. We don't need another enforcement
agency; we need action from that entity which currently has the power
to enforce.
Largely in response to the aforementioned price disparities, some
Members of Congress have introduced legislation to establish an Office
of the Special Investigator for Competition Matters within USDA. While
well-intended, the Meat Packing Special Investigator Act (H.R. 4103),
and its Senate companions S. 3870 and S. 2036, would divert critical
resources from other mission areas at USDA and blur the jurisdictional
lines between such an office and the PSD. At a time when oversight of
the marketplace is so important, it is redundant and misguided to
create an entirely new entity. Further, NCBA has grave concerns with
the latest Senate proposal to establish a special investigator's office
as a politically-appointed position completely separate from the PSD.
If such an unnecessary office were to be established, its goal should
be to exercise objective enforcement of relevant statutes, not
frivolous investigation for political gain.
NCBA supports the Biden Administration's efforts to increase
collaboration between PSD and DOJ, including the newly launched online
portal which allows producers to submit tips to both agencies at once.
However, we do not believe that granting USDA new prosecutorial and
subpoena power would improve enforcement capabilities, and I urge you
to oppose this legislation.
Cattle Price Discovery and Transparency Act
While not the specific subject of today's hearing, it is
appropriate to address the Cattle Price Discovery and Transparency Act
(S. 4030) and it's House companion H.R. 5992. This legislation is often
billed as a means to give the cattle producer more leverage by forcing
packers to compete in the negotiated market. In reality, it does
nothing to change the underlying supply and demand dynamics and would
empower the Federal Government to arbitrarily choose winners and losers
in cattle pricing negotiations. If enacted, the bill would restrict
cattle producers' economic freedom to market cattle in a manner best
suited to their unique needs.
The bottom line here is that freedom to market matters. It is this
very economic freedom which has allowed cattle producers, like myself,
to respond directly to consumer demands. Consumers use their purchasing
power to communicate back to us precisely what they want and do not
want--and if we want them to continue buying beef it is critical that
we maintain our ability to communicate directly in this manner. We are
paid based upon how well we have responded to those demands. This
direct consumer interface has literally transformed the beef market
both in terms of traditional metrics, such as quality and yield grade,
and newly emerged ways to differentiate products like branded programs,
breed affiliations, and production techniques.
I can speak firsthand to the importance of this economic freedom
based on my experience as both a seedstock producer and cattle feeder.
For generations my family has sought to develop top-quality beef
genetics which are both economical for the producers who buy our
breeding stock and prone to yield those beef qualities desired by the
public. Through trial-and-error, we have seen successes in striking
that balance over the years. Consequently, it is not uncommon for the
offspring of our bulls and females to fetch premiums when they are sold
by our customers. We know this because, like many others in the beef
genetics business, Schiefelbein Farms maintains a customer buyback
program. In order to improve upon our role as seedstock producers, and
provide our customers with consumer-level insights to improve their
operations, we buy feeder calves back from those commercial cow-calf
operators who have integrated our genetics into their herd. We then
grow the cattle to market weight at our feedlot, and market them as fed
cattle. By utilizing a value-based grid, we are able to collect
performance data on each individual animal we market. This information
is critical, both to us and our customers, as we try to remain
responsive to the consumer's evolving demands.
While I am proud of my family's continued commitment to
improvement, I want to be clear: it is cow-calf producers across this
entire country, including our customers from Iowa to Montana, who have
put in the hard work to achieve near-record beef demand both
domestically and in our major export markets. They are the ones who
deserve the credit for utilizing land and water resources more
efficiently, improving livestock handling, and tending most closely to
animal wellbeing--all of which makes the United States the most food
secure nation in the world with the most choices available to
consumers. Those cow-calf producers deserve to be rewarded in the
market for these improvements, and I implore you not to impose measures
which could jeopardize their ability to be so rewarded.
Please do not stifle our innovation and our hard work by taking
economic freedom away from me and my fellow cattle producers. A
marketing system mandated by the Federal Government, which would
constrain our industry to a less transparent and less consumer-focused
enterprise, is not the solution to our needs as cattle producers. I
urge you to oppose the Cattle Price Discovery and Transparency Act.
Conclusion
Congress should focus its efforts on finding solutions to the real
threats facing our industry, and it should consult with genuine
stakeholders like NCBA to identify them. Broadly supported proposals
have seen tremendous legislative success in this chamber recently. We
supported, and continue to, the extension of LMR authority and the
establishment of a cattle contract library, both of which passed this
Committee and the full House with ease. However, repeatedly belaboring
the same divisive issues has detracted from that collaborative work to
the benefit of no one.
It is time to move on and focus on areas where agreement can be
reached. NCBA stands ready to aid in that effort, and I encourage you
to reach out to our Center for Public Policy if you have ideas or
questions.
The Chairman. Thank you, all three of you, and your
testimonies reflect why we are here and the urgency and the
critical challenges that the meat industry is facing right now.
And so with that, I just want to say thank you. We are going to
move now to questions.
And at this time, Members will be recognized for questions
in order of seniority, alternating between Majority and
Minority Members. Everyone will be recognized for 5 minutes
each in order to allow us to get in as many questions. And
again, please keep your microphones muted until you are
recognized in order to minimize the noise.
And now I want to start by recognizing myself for a few
minutes here. As I said before, this issue is urgent, and each
of your testimonies express the urgency of it. Our food
industry is without question our single most important
industry. We can all do without a lot of things, but the one
thing we cannot do without is food. And so this is why we are
here. And you all have expressed the problems and the
challenges, and we are here to help solve the problem, not to
spread blame.
But you mentioned the point about legislative action. And,
as I said to my friend Senator Grassley, who came over and
asked to speak with me, and we met. And we expressed our
concerns. There are legislative pieces moving, but I said, let
us hear from the people who have to solve the problem so we
will know what we need to legislate on. And that is why I
believe we are doing it the correct way. And this Committee is
going to take your testimonies here and the testimony of the
meatpackers. We are going to put this together and be able to
show and point a direction for solving the problem that is
multidimensional. And so I wanted to get that out of the way.
Let me start with you, Mr. Young. As I said, The New York
Times article hit me right in my heart. And when I read about
your story, all I can say is I thank God for your wife
returning. And I want to hit on this, Mr. Young, because you
said not only were you contemplating suicide, but you said that
there are others. How serious is this? Please express this to
our Committee.
Mr. Young. Yes, thank you. I mean, as we all know, one
percent of the population feeds the world, and farmer suicides
are 2.5 percent of that one percent. And that's an alarming
rate. There's roughly only, the last time they checked in 2017,
720,000 cattle farmers left, and we're being squeezed,
pressured, and that has in turn caused a lot of people to not
see another way out. They're so far in debt that it would take
them years to get out of debt. And, like I say, it's 2.5
percent of the one percent. This is an alarming number of, like
I say, the 729,000 that were in the Census in 2017. And that's
all.
The Chairman. And I just want to say--and I think your wife
has joined you here as well. And that is a very dramatic story,
and it shows us the seriousness of this issue. And now, I think
it was Mr. Schiefelbein. I'm going to get it right in a minute.
You mentioned some things that you would like to see as far as
a legislative movement in this. Would you share with us what
you feel we should do as we are moving with additional
legislation to address this problem?
Mr. Schiefelbein. Yes, thank you very much. Congressman
Johnson knows full well there there's a group of agricultural
entities that got together in Arizona, and we laid out a pretty
clear plan on items that we thought would move the industry
forward. They included things that I'm pleased that you acted
upon, and that is the Contract Library, which is crucial. The
other thing we agreed on is the fundamental support we need is
more packing capacity. And I know the Butcher Block Act (H.R.
4140) is going through Congress, but those are very, very
important to the well-being of our industry.
The other item that we discussed, I think it's very
important, given the concentration that's been discussed, and
that is that we have proper and effective oversight of the
packers. Those are the three big areas I think that we agreed
on, and to me, fundamentally that is the role of government in
solving those three issues.
The Chairman. Thank you. I appreciate that. And now I
recognize the Ranking Member, the gentleman from Pennsylvania,
you are recognized for your 5 minutes.
Mr. Thompson. Thank you, Mr. Chairman.
Mr. Schiefelbein, thank you so much. My first question here
is for you. I mean, we are talking about what government can do
but also it is important within industry we look at innovation,
right? I mean, the solutions come from many different places. I
am very proud in Pennsylvania we have an initiative, there is a
grocery store, it is a moderate-sized grocery store chain, it
is not huge actually, but they have been working with ranchers,
beef farmers, and they have actually put together a Karns beef
program consisting of 15 farms. It is not huge compared to some
of the places where you all are from 40 to about 170 head, but
they are working together with this grocery store chain to be
able to provide a great steak experience, right? These grocery
stores, that is what they sell, and so they have been working
together collectively. And it is kind of a unique model. It is
just one of probably many innovations that we need to see out
there.
My question for you, in your opinion are there more
pressing issues or proposals that we should be working on?
Thank you for the kind words for the work that we have done. We
have our Livestock Subcommittee Chairman sitting here and our
Livestock Subcommittee Ranking Member. Under their leadership,
we have been able to get some success. And you have named a few
things. Is there anything additional that we should be focused
on and spending our time on exploring?
Mr. Schiefelbein. Well--made sure it was on. The other
thing that's awfully crucial, and again, it's the role of
government as I see it. When people are in desperate need,
that's when government comes in and provides them a safety net.
Mr. Thompson. Right.
Mr. Schiefelbein. What you've done with the drought
assistance is superb, and the immediacy that you provided that
here just in the last week, I can't tell you how many phone
calls I received saying thank you very much. You're probably
clearly aware that there's a portion of our country that is
still suffering the drought, but there's also a portion just
north of you, Congressman Johnson, that is dealing with a
horrible blizzard. If you have not seen the photos of what
these producers are experiencing, you need to get hold of them
and see. And to me, providing that safety net is really a
critical function of government when Mother Nature or things
outside your own control cannot be managed.
Mr. Thompson. Yes, correct me if I am wrong, but I think we
had a significant number of cattle that went to market
prematurely and not at the best price point, because of the
lack of feed and forage over the past couple years, given the
drought conditions. From your perspective, what are the
benefits of alternative marking arrangements to cattle feeders?
And do these benefits trickle down to their cow-calf suppliers?
Mr. Schiefelbein. Yes, and again, you mentioned it just a
moment ago, and I think it's important for the whole Committee
to hear this. Innovation is the engine that drives agriculture.
Drive across this country, go to any other foreign country and
you'll see the manner in which we adopt innovation and make
things better is really what drives our competitiveness. My
father, who Congresswoman Fischbach mentioned, Big Frank, he
gets asked a lot of questions. He says how does your family
succeed in a family of that many members, yet how can you be
successful? His quote that he is quoted on saying, and I think
it's a lesson everybody could learn, my dad's quote is, ``The
reason our family is successful is because we don't raise
cattle the way I used to.'' And I want you to absorb that just
for a moment. That is critical and it plays exactly into AMAs
and new ways of doing business and new ways of marketing. We've
got to evolve, and you've got to allow innovation to enter your
business.
Mr. Thompson. Well, I always appreciate the grassroots
efforts of both NCBA and quite frankly the American Farm Bureau
Federation that are able to tell Congress and the
Administration what producers need to be successful, but maybe
more importantly what they don't need. And so can you also
share with us a little bit more about some of the things that,
as you suggest, producers don't need that we shouldn't do?
Mr. Schiefelbein. Yes, and again, I--and this is where
government should be involved. I am a strong believer,
government, please stay out of our markets. We mentioned
earlier that the marketplace is an incredibly complex situation
in agriculture. I don't know how many of you recall the 1986
dairy buyout when the government decided to put its finger into
the marketplace. I was a victim of that. That was the most
awful disruption of beef cattle prices in the history of the
beef cattle industry. And again, it's those points when you say
I know the marketplace needs some adjustment to get back into
play, but the last thing we want to do is inject the government
into the marketplace in a manner where we can't get it back
out.
Mr. Thompson. Thank you, sir. Thank you, Mr. Chairman.
The Chairman. Thank you. And now the gentlewoman from
Connecticut, Mrs. Hayes, who is also the Chairwoman of the
Subcommittee on Nutrition, Oversight, and Department
Operations, is recognized for 5 minutes.
Mrs. Hayes. Thank you so much, Mr. Chairman. Thank you for
hosting this hearing today, and thank you to all our panelists
for being here. My first question is for Mr. Young. I first
would like to thank you for your very moving testimony and for
all of the very important information that you have added to
this hearing today.
Alternative marketing arrangements, or AMAs, arose in the
1970s and are increasingly used in cattle market transactions.
The meat packaging industry has consistently championed AMAs,
claiming that they allow farmers to secure better prices with
less risk. Mr. Young, cattle farming has clearly been in your
blood for generations. Can you explain to us how your farm's
experience with AMAs has evolved over time?
Mr. Young. Yes. I mean, I don't deal directly with AMAs
because I'm not a feedyard. I raise the calves from birth, sell
them at market, and feedyards are the ones that set up the AMAs
and the arrangements with the packers. And, it's come to my
attention several years ago, I mean, they are bad for the cash
market. And the cash market is what I sell my calves in. Well,
if you keep the cash markets suppressed by contracting 87
percent of the beef and nobody knows what the price is, you're
basing the cash calf market off 13 percent of the cash market
that some beef is sold on. But everything through the AMAs is
directly from the feeders to the packers and then on from
there. Like I say, I raise the calves that you will consume
from birth, up at midnight, digging them out of snowbanks,
saving their lives, and giving you the next best steak.
Mrs. Hayes. Thank you. I think that is very important
because as we have been talking a lot about inflation and food
prices, and I think as a Committee we have to look at the
entire continuum. And just like you said, the cash markets
affect that.
Mr. Schiefelbein, in your testimony you voice support for
the newly launched Farmers Fairness Portal * that allows
producers to submit antitrust complaints to the U.S. Department
of Agriculture and DOJ at the same time. How has this system
been working for farmers in the National Cattlemen's Beef
Association, and do you see any room for improvement?
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* https://www.usda.gov/farmerfairness.
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Mr. Schiefelbein. Yes. The bottom line is when you look at
it, we've asked the DOJ to do an investigation on beef packers
almost 2 years ago, right? Where are we today? We have not
heard boo or squat. We don't know what the situation is, what
the response ought to be. So what cattle producers need more
than ever is answers to the questions, is everything being done
correctly? And if not, how can we adjust it to make sure things
are done fairly? And to me the laws are on the books. It's
enforcement that matters and making sure that we're carrying
out the rules that are already in place to ensure that we have
a fair market system.
Mrs. Hayes. Thank you. Mr. Schiefelbein, one last question
for you. I know there has been a lot of conversation
surrounding country-of-origin labeling. I just would like to
know, in your role on the NCBA, how has that product of USA
labeling system impacted the market?
Mr. Schiefelbein. Well, it's hard to say, but the bottom
line is country-of-origin labeling--I am a huge supporter of
U.S. beef. I travel the world telling them how good U.S. beef
is. The rub with country-of-origin labeling has nothing to do
with labeling beef as made from the United States and has
everything to do with the government mandating--that's what the
M stands for in MCOOL--mandated country-of-origin labeling
where you're forcing the government to get into the marketing
of your product and not the retailers or the purveyors or
others who will have a cash incentive. So we want to make sure
it's a market-driven innovation, and that's why we're opposed
to MCOOL but we're 100 percent supportive of labeling beef
properly as U.S. beef.
Mrs. Hayes. Thank you. That's very helpful. Mr. Chairman,
that's all I have. I yield back.
The Chairman. Thank you. And now the gentlelady from
Missouri, Mrs. Hartzler, is recognized for 5 minutes.
Mrs. Hartzler. Thank you very much, Mr. Chairman. As a
fellow cattle producer, I feel your pain, and I appreciate you
all being here today and advocating for our industry and
feeding the world because that is what you do.
I wanted to start with fellow Missourian, Mr. Young, very
compelling testimony. You mentioned in there that you think the
Packers and Stockyards Act is not being enforced. Could you
expand on that a little bit, please?
Mr. Young. I feel a little unprepared because I don't have
it here before me and I have read it multiple times, but within
the Packers and Stockyards Act, everything that's happening in
the industry that shouldn't have happened is here,
concentration of the packing industry and the fair prices to
the American cattle ranchers and farmers are not there. And,
the legislation and everything in that Packers and Stockyards
Act has been there for 100 years and it just needs to be
enforced.
Mrs. Hartzler. Right. Okay. Thank you. I appreciate that. I
recently introduced with Representative Panetta, who was here a
little bit ago, the Amplifying Processing of Livestock in the
United States Act (H.R. 7438), which works to fix the
regulatory roadblocks to increasing meat processing capacity
and allowing livestock auction market owners to invest in small
and regional packing facilities. So, Mr. Schiefelbein, you
discussed processing capacity and the relationship between
cattle producers and meatpackers. In fact, you state in your
testimony about how without access to beef processing, raising
cattle would not be a profitable enterprise. So can you share
your thoughts about the A-PLUS Act and ways Congress can work
to increase processing capacity and competition for livestock?
Mr. Schiefelbein. Yes, absolutely. And we are 100 percent
supportive of the A-PLUS Act. We believe anytime you can allow
another group of individuals to come in and help add hook
space, it's a good solution for the industry. And I think what
we're living with, the current situation is just an antiquated
law, a law that defined an industry much differently than what
it is today. And I think allowing those sale barn operators to
participate in owning a packing processor, provided it's small,
makes a great deal of sense and I commend you for your efforts.
Mrs. Hartzler. Well, thank you. You would think this would
be a no-brainer, something that we could get passed very
easily. Hopefully, the Chairman and others and the Ranking
Member maybe can help support this because it just makes sense
to allow these sale barn owners to be able to invest in
meatpacking plants and start one locally there.
And last summer, I introduced the Optimizing the Cattle
Market Act of 2021 (H.R. 3766), which, among other things,
included the creation of the USDA-maintained Cattle Contract
Library and I was very, very pleased to work with
Representative Johnson and others to get that passed. So do you
believe that establishing a Contract Library for cattle similar
to establishing the Swine Contract Library would provide more
transparency to cattle producers in my state as well as others,
Mr. Schiefelbein?
Mr. Schiefelbein. Yes, well, I hope so, and that's why it's
a pilot project, and that's why I actually like the way it's
played out is you can learn as you go. And we want to make
sure, as you carefully construct that library, that it's done
in the right way. And sometimes the devil's in the details,
right, and that's why this pilot project makes a great deal of
sense in that we want to make sure that, as we enlighten
everybody into what the contracts look like, we don't enlighten
the packers more than we enlighten the producers. So there
needs to be a balance to make sure it's written correctly and
make sure it's done correctly and initiated correctly so that
it benefits the right people. So yes, we're in favor of it, but
the devil's in the details on the Contract Library.
Mrs. Hartzler. I am hopeful that that will be helpful. I
think it is time to empower the cattle producers themselves to
know what some of the deals are that the meatpackers are giving
and maybe leverage that a little bit more so they can get a
better deal in the process. So I am hopeful for that.
And I appreciate your comments about the DOJ investigation.
I just want to say on the record I am very frustrated with the
Department of Justice in that it has been over 2 years, and we
have heard nothing. I cosigned a letter with Representative
Johnson and many others in this room asking the Department of
Justice, several months ago, can you give us an update? When
can we anticipate this will be done? We just got this generic
letter back basically saying, well, we can't comment on any
investigation. We deserve to know as Members of Congress but
certainly as cattle producers what happened and if there was
any collusion, if there was any price-fixing. It really hurt
not only consumers with these high costs but the boxed beef
spread that you shared, those cattle producers, those of us
weren't receiving an adequate price. So I just hope that the
Department of Justice is listening and will wrap up that
investigation as soon as possible so that we can have the
information that we deserve. So thank you. With that, I yield
back.
The Chairman. Thank you. And now the gentlewoman from New
Hampshire, Ms. Kuster, is recognized for 5 minutes.
Ms. Kuster. Thank you, Mr. Chairman. I very much appreciate
you holding this hearing this morning. It is a timely
discussion to have as costs for food are rising while many
Granite State families are still working to financially recover
from the COVID-19 pandemic.
The price of beef has climbed 16 percent just in the last
year, and the price of bacon has risen over 18 percent. There
are many reasons for this, and of course many existing
challenges facing the food and agriculture sector were further
aggravated by the pandemic. But it is incumbent upon Congress
to ensure our markets are fair and competitive. I believe
everyone along the supply chain can be fairly compensated while
still producing food that consumers can afford.
And for me a critical piece of the solution here is
strengthening local food networks wherever possible. When
consumers have access to locally-produced and grown food, we
foster a healthy climate for small and midsize farms and
businesses, and we reduce the pollution from the trucking of
getting our food across the country, and we help to save our
planet. It also helps to shrink our strained supply chains and
offers greater certainty for those on both ends of the chain.
In New Hampshire, we are fortunate to have numerous
farmers' markets and agricultural businesses that market
directly to consumers. I was gratified to hear from producers
in my state about how they are able to remain connected to
their local consumers despite the logistical hurdles that the
pandemic presented. With that said, much more can be gained
from cultivating more of these local food opportunities in New
England and across the country, including meat processing.
Growing the number and capacity of local small meat processing
facilities like those we have in New England will help
diversify the processing industry and reduce supply chains.
I am grateful to President Biden for his Executive Order
last summer initiating efforts to increase competition in the
meat processing sector. The USDA's new Meat and Poultry
Processing Expansion Program builds perfectly upon the
President's goals by teeing up loans and grants to meat
processors for startup and expansion operations. For New
England livestock and dairy farmers facing long wait times at
meat processing facilities around the region, this new capacity
will be most welcome.
To that end, I am also proud to be an original cosponsor of
Representative Pingree's Strengthening Local Processing Act
(H.R. 1258), which would support meat processing training and
incentivize state inspection programs. By taking a holistic
approach to building out our local meat processing capacity, I
am convinced that we can help reinforce our food and ag sector
for decades to come.
I appreciate the opportunity to say a few words, Mr.
Chairman. I yield back.
The Chairman. And now the gentleman from California, Mr.
LaMalfa, is recognized for 5 minutes.
Mr. LaMalfa. Thank you, Mr. Chairman. I appreciate having
this hearing today and to hear from our cattle growers who face
so much turbulence these days here. And my understanding is
they were told to swear in before this Committee today, the
cattle growers here, Mr. Chairman?
The Chairman. Yes.
Mr. LaMalfa. Because that seems kind of----
The Chairman. That is correct.
Mr. LaMalfa. That is kind of unprecedented to me. What was
that about?
The Chairman. It is very important that we do that for this
critical hearing.
Mr. LaMalfa. Yes. All right. Well, I----
The Chairman. And we will be doing it for the second panel
as well.
Mr. LaMalfa. Okay. I understand. I know many of these folks
in my home district, and they don't need to be sworn in. I
trust them, and I know they are going to give good testimony,
and in this case, very heartfelt testimony. And we talk about
their struggles and even suicide rates is what Mr. Young had
mentioned there. So I hear you loud and clear, Mr. Young. And
1975 Chevys were available back, 45 years ago, and you still
have to buy them now. I am fixing up now an old 1974 F250 just
to make things a little better around my place. In looking at
my 1977 model 8630, I need a 619 engine for it because $600,000
combines and $350,000 tractors doesn't really pencil great
these days.
But that all said, in California and the West we are facing
drought levels partly because of nature and partly because of
mankind's poorly managed water resources. So much of it is
being flushed out of the delta in northern California to save a
fish that doesn't exist anymore.
Mr. Schiefelbein, would you talk about cattle operations
that are downsizing, having to cut down the size of their
heard, selling off their herds? And what is the longer-term
effect of rebuilding that herd? What are they going to be
looking at in 2 or 3 years if they are selling their herd early
and they are not able to be replaced? Talk about that a little
bit for me, please.
Mr. Schiefelbein. Yes, and as you know, the--cattle is a
cyclical business, and so this goes through ups and downs. And
right now, we are going through a liquidation phase, and it's
driven exactly based on the economics that say I can't afford
to raise them so it weans off some of the cattle and then, as
the markets get higher because there's fewer head involved, the
markets respond and get higher, expansion reoccurs, and you go
through this expansion, reduction cycle every 10 years. And
it's almost 10 years on the year that cycle exists.
Mr. LaMalfa. So that is a lot of mayhem and your ability to
plan or not take a bath on if you are overstocked or maybe have
to pay premiums in order to build your herd back up. Is that
pretty fair?
Mr. Schiefelbein. Yes, sir. And again, the other important
issue is there's also this big variable called weather that
comes into it, right? And weather can disrupt all the plans in
the world. So you can have the best business plan for beef
cattle and have a weather function hit you and just destroy
that plan entirely.
Mr. LaMalfa. Understood. I mean, I feel like weather, we
can roll with the punches to some level. It is rolling with
government punches of whether it is taking water like they are
in California or taking your vehicles away or trying to turn
them into electric tractors and combines and stuff they are
talking about. I mean, I don't know how much more people can
put up with. But we also understand there is a concerted
effort. I was just looking at a grazing permit, one of the
entities decide, well, we don't think we can do that grazing
permit here in a portion of California because it might be an
environmental problem, yet we burn the forest down, we burn
half the landscape down where grazing would be a very helpful
asset towards making things a little more fire-safe, not to
mention the Forest Service has been busy hiring helicopters
with snipers in them to shoot wild cattle down in New Mexico.
Mr. Chairman, I think we need to have a hearing about that one
day on Forest Service practices instead of fixing the problem
of burning down a million acres like what happened in my
district last year or chasing a few cattle down there because
an environmental organization is offended they might be getting
in the river, like elk and deer and other stuff do.
So the priorities around here are really messed up, and our
food source is in great peril. Prices are up, and it is not the
growers seeing the high prices. It's somewhere in the middle of
all that. And when we are seeing freezer shelves in the store
empty in the United States of America, this isn't Russia. Why
are we moving towards Russia in what we are doing? It is crazy.
And so you guys, God bless you and hang in there because
some of us understand the value you provide our communities
even though I think a part of the effort around here is to have
you be pushed out because everybody wants to become a vegan now
or something. So we appreciate you, and we want you to
continue----
Mr. Schiefelbein. And I just appreciate you re-addressing
food security because it is paramount to the success of the
United States of America.
Mr. LaMalfa. Absolutely. We are in a perilous world, and we
are cutting our own throat with this, so thank you. Hang in
there.
The Chairman. The gentlewoman from Washington, Ms. Schrier,
is now recognized for 5 minutes.
Ms. Schrier. Thank you, Mr. Chairman. And welcome to our
witnesses.
Not for the first time on this Committee I want to discuss
access to slaughter and processing for small- and medium-sized
producers, which is a top concern for ranchers in my district.
Most small producers in Washington State are served by
slaughter and processor services operating under custom exempt
licenses granted by the state, yet Washington has a shortage of
inspected processing plants, and many producers are not able to
pay the cost of those processors or to upgrade their own
businesses to meet inspection requirements. As a result, many
producers that want access to retail markets are currently
unable to do so. To address the market access issues for local
producers in Washington, better access to slaughter and
processing would make the biggest difference, in addition to a
pipeline of workers in that field.
And let's be clear, a concentration of power in ownership
for slaughter creates challenges for small farmers who are
unable to access these facilities. And we need to have more
USDA processing available to producers outside of just the big
guys. If we want to better improve our food supply chains and
create local food systems that better serve both producers and
consumers, it is essential to increase our processing capacity
and access to that.
So I want to ask you, Mr. Stockton, what is your experience
with slaughter and processing like?
Mr. Stockton. Thank you, Madam. I have a number of friends
in Montana who are doing direct-to-consumer marketing of their
cattle, but it's a very, very tough business to get into. It's
very hard to develop a client base and get in front of the
consumers with your product. It's an expensive way to do so
because of the lack of marketing infrastructure at that level.
One of the concerns that I have about the movement here to
produce more--to have more small packing plants is just exactly
that. How do you get your product in front of the consumer when
the meat case that's in Albertsons and Walmart and stuff is
already committed to JBS or Tyson or Cargill? I mean, this is
part of the dysfunction that we have in the cattle industry.
So it's all very nice to say we want to produce more food
locally, but those people also can't be competitive because the
overall market is not competitive. I mean, you need to look at
these issues holistically. Until you start addressing really
the competitiveness of the cattle market, these direct-to-
consumer things will be a struggle for people. God bless them
for doing it and God bless the consumers who buy from them, but
it's an uphill battle.
Ms. Schrier. I am hearing very similar things from farmers
in my district where even inspected and even looking for places
outside of the big supermarkets, a small neighborhood
supermarket or even a farmers' market or online sales is very
hard to find those consumers, and there is a lot of education
that has to happen with what it means to be a small local
rancher. So thank you.
I just want to close my remaining time by saying that we
need, our ranchers need more transparency around what other
ranchers are being paid. That would help them tremendously and
give them a negotiating edge. And small family-operated ranches
in my district need that kind of fairness because the margins
are so thin, the distances to travel are so great, and the
inputs to raise cattle are so high. And so setting prices from
the top down has led to the farmers' percentage of final
product falling for some time now, and that means producers
can't get the income they need for certainty to make ends meet
and to have a whole new generation of ranchers.
So thank you, and I yield back.
The Chairman. The gentleman from Illinois, Mr. Davis, is
recognized for 5 minutes.
Mr. Davis. Thank you, Mr. Chairman. I want to say thank you
to the witnesses, very compelling testimony. I appreciate your
willingness to be here. Although today's hearing is very
compelling, hearing from each of you, but at the same time this
Committee has disappointed me in the process because we have
yet to talk about meaningful farm bill oversight. And more
importantly, I don't think our discussion today actually gets
to the root cause of the issues that most Americans are facing.
``Inflation: It's what's for dinner'' would actually be a more
appropriate name for this hearing. After all, the latest CPI
report showed the largest 12 month increase in the price of
food since 1981. And here is the spoiler. I don't think it is
all due to rising beef costs. I am certain it has a lot more to
do with this Administration's reckless spending and policies
than it does consolidation in the beef industry as the White
House and the Chairman so desperately seem to want us to
believe.
In a good-faith effort to make this a more productive
hearing, I teamed up with a bipartisan group of colleagues and
sent a letter to Chairman Scott requesting an economist or a
market analyst familiar with beef pricing dynamics to be able
to testify today to give this Committee a more holistic view of
the market situation. Unfortunately, that request was not
granted even after one of the Majority's witnesses pulled out.
I have that letter here with me, Mr. Chairman. I would like
to submit it for the record.
The Chairman. Without objection.
[The letter referred to is located on p. 143.]
Mr. Davis. Thank you. I know that the Minority was only
offered one witness today and found it necessary to use that
opportunity to hear from a more balanced producer panel. It
seemed prudent for a representative from the nation's largest
organization of cattle producers to have a seat at the table
during discussions of ideas and legislation that could have
enormous industry impacts. In a Committee that is used to being
so bipartisan and solutions-oriented, it is really unfortunate
that this bipartisan request couldn't be granted today.
Meanwhile, inflation is up 8.5 percent. We are sitting here
pointing fingers, and the Biden Administration demands more and
more spending. There are so many things we should be addressing
in this Committee when we talk about the market and consumer
prices like work requirements; supply-chain issues; the waste,
fraud, and abuse we continue to see in pandemic spending; the
refusal to engage in new, free, and fair trade deals; and
refusing to hold China accountable for the trade deals that we
already have.
So with that, I do have a question. I will start with you,
Mr. Schiefelbein. To any of the producer witnesses starting
with you, what do you think your operations would look like in
terms of cash flow and bottom line, absent these record levels
of inflation?
Mr. Schiefelbein. Oh, they would be incredible. So the
market prices have gone up. It's just that costs are huge. We
call it the three F's, right? It's feed, it's fuel, and it's
fertilizer. But if you look at those three components, the
inflation marks on those three components which drive the
engine of our farm are up incredible amounts, and it makes,
regardless of almost the selling price, an almost impossibility
to recover your initial cost. So those inflationary pressures
are real, they're huge, and given everything we're talking
about today, I couldn't agree more with you that that is
fundamentally the most economic impactful thing that's
occurring on the farm.
Mr. Davis. I missed some of my colleagues' questions. I
wonder if climate change came up, carbon issues or--have they?
Mr. Schiefelbein. No, they have not.
Mr. Davis. That is a shock because usually that is the
discussion this Committee has been discussing at our hearings
previously instead of inflation, instead of the issues that you
talk about that are impacting your ability to survive as a
producer. So I appreciate the opportunity. Any more comments
that you might want to make that would----
Mr. Schiefelbein. I just want to reiterate, you're right on
track, Congressman. Refocus on the issues that are impacting us
daily and are huge. I always focus on the big things. My dad
always says successful people get the big things right, but the
first thing you have to do is figure out what the big things
are and then attack them. So I think you're right on track, so
thank you.
Mr. Davis. Well, thank you. I do have a few seconds left.
Mr. Young, did you want to address the inflationary issues? How
would your operations fare?
Mr. Young. I mean, they're not--just from a year ago when I
sold my calves to this year, there's only an 18 percent
increase in calf prices that have remained stagnant for years.
This is the first time it went up forever, I mean, as long as I
can remember, and----
Mr. Davis. Is it covering your other costs related to
raising those calves?
Mr. Young. Well, yes, and the cost to raise those calves
have went up exponentially, especially you said the three F's
of farming, they are your biggest expenses. I mean, they
literally account for 35 to 40 percent of your overall expense,
feed, fuel, and fertilizer. And, right now with the feed
markets and everything going astronomically high, $10 corn to
raise a buck-45 feeder calf, it doesn't pencil out very well.
Mr. Davis. Well, I yield back. I am out of time. Thank you.
The Chairman. The gentleman from California, Mr. Costa, who
is also the Chairman of the Subcommittee on Livestock and
Foreign Agriculture, is recognized for 5 minutes.
Mr. Costa. Thank you very much, Mr. Chairman, for holding
this hearing today. I think the examination of price
discrepancies, transparency, and alleged unfair practices in
cattle markets is something that clearly is on the minds of
many. I appreciate our testimony by the witnesses on this first
panel and look forward to the second panel.
I think we all agree on this Committee that food is a
national security issue. And I am one of the, I guess, handful
of Members of Congress that actually derives my primary income
from farming, three generations. And we like to say that
farmers and ranchers, dairymen and -women, and the cattle
producers are price-takers not price-makers. I am wondering
based upon the testimony that you have made here on terms of
the factors that we are trying to deal with today, how much
that goes into account? I mean, there are a lot of factors of
increased prices, and I think the incredible ingenuity of
American agriculture has been the fact that change is constant
and agriculture understands that and that innovation toward
change. I don't farm the way my father farmed, and he didn't
farm the way my grandfather did. It is a different operation.
We had over 20,000 dairies in California 40 years ago. Today,
we have a little over 1,200 dairies. We were milking less than
200 cows per dairy over 40 years ago. Today, the average size
is almost 2,000 cows per dairy. That is just one of many
examples.
Let me get to some of the questions here. Mr. Delbodic, you
indicated that AMAs are often credited with incentivizing
improved quality. Where do you think that really takes place? I
know the genetics are much different today than they were in my
father's generation.
Mr. Schiefelbein. Sir, were you addressing me?
Mr. Costa. Yes.
Mr. Schiefelbein. Okay. I didn't catch the name, my
apologies.
Mr. Costa. I am sorry.
Mr. Schiefelbein. Yes, AMAs basically is the--allows the
transmission of what consumers want to producers. So it is
basically a roadmap that says if I want a certain product,
let's say non-hormone-treated beef, it sends the signal
backwards and all of a sudden an AMA is written that says, you
know what, I got some of my customers, some of my Schiefelbein
Farms customers who have cattle that fit that need for those
consumers. I am able then to procure those cattle, feed them in
such a way with the understanding and realization that I will
get paid to do the practices that are necessary to meet those
consumer needs. So it's basically that transmission of what is
necessary to be done, and then because some of these things are
so costly up front, not having an agreement before you put them
into production is very detrimental because you're giving away
so much cost----
Mr. Costa. Yes, well, I have family in the cattle business,
a cow-calf operation and family in the dairy business, although
I am not directly involved in that anymore, but I thank you,
Mr. Schiefelbein, for your comments.
Mr. Stockton, you talked about the difficulty of trying to
get on the market shelf, and I think you spoke very well of
that difficulty, having had some experience with that. How do
you propose or how do you think the proposal to mandate
regional cash minimums and cattle transactions would impact the
cattle market?
Mr. Stockton. Could you rephrase that? I didn't hear you
completely, sir.
Mr. Costa. The mandate for regional cash minimums that has
been discussed in cattle transactions, how do you think that
would impact cattle markets?
Mr. Stockton. Well, that proposal was put forward because
it--kind of an emergency proposal in order to get better
prices, more confidence in the price that spot markets were
giving to what Mr. Schiefelbein here says is so important, the
AMAs, the captive supply cattle.
Mr. Costa. Price finding is all part of the challenge.
Mr. Stockton. Excuse me?
Mr. Costa. I said trying to determine the prices in these
markets is part of the challenge, right?
Mr. Stockton. Right, yes, the confidence that you have that
it's actually the price. The problem with--that I--it's my
personal thing that--the problem with that position, that
proposal is that it does not really go to the heart of what's
dysfunctional in the cattle market, the lack of competition.
And until that's being addressed directly, everything else is
kind of just kicking the can down the road I'm sorry to say.
Mr. Costa. Thank you, Mr. Chairman. My time has expired.
The Chairman. The gentleman from South Dakota, Mr. Johnson,
is now recognized for 5 minutes.
Mr. Johnson. Thank you, Mr. Chairman. And for Mr.
Schiefelbein, I thought you were right to bring up the Phoenix
meeting because it gave us a sense of what are the consensus
items for the marketplace. I think in your testimony you
alluded to the fact that sometimes because the cattle industry
can't agree, we don't get as much done as we should. And there
are some consensus items. The Phoenix meeting had three areas
of agreement, number one, the importance of transparency. We
have made progress on that with the Cattle Contract Library,
also about adding capacity, the Butcher Block Act has made
progress. But then three, critically important, oversight,
which you mentioned. And I don't know that we have made
progress on that front. You mentioned that enforcement is
important. Of course I agree with you.
So a little thought exercise for you, sir. Let's say the
President calls you, says that you are going to be the next
head of Packers and Stockyards. I mean, give us a sense of what
is your vision for the agency. How do we do it better, and what
is your advice to Congress about what tools we can give you as
the head of the agency to do a better job?
Mr. Schiefelbein. Yes, and to me, it's all about
enforcement. And I don't know if the funding's not there. I
don't know the intricacies to be quite honest. But to me, the
laws are on the books. We just need to make sure enforcement is
occurring, and knowledge is also power. If we knew what was
occurring and why it occurred, if it occurred, it would be so
helpful to my membership, right? They're demanding answers.
They're saying our lives are on the line here, okay? Our lives
depend on fair markets. How come we can't get answers on what
has happened and what has transpired and where we are today? So
that's the push I would get is there's a lot of movement
towards adding a new agency, a new oversight agency, but the
reality is from a government standpoint, why don't you get the
one that you have working first? That's my dad's thought
process. Fix the tractor that you have before you buy another
tractor.
Mr. Costa. Mr. Johnson, would the gentleman yield?
Mr. Johnson. Yes, sir.
Mr. Costa. I think this is a very good question, and with
your experience over the years, how would you say enforcement
has changed one way or the other over the last 3 decades? You
go back to your father and grandfather. Has it gotten more
enforcement, less enforcement? Have you noticed?
Mr. Schiefelbein. And again, I'm--I look older than I am,
so I am actually not that big a span of ages. But the reality I
believe is that it just seems like the wheels of the Department
of Justice have gotten slower and slower and slower. Now, maybe
that is just my perspective, but it seems--I understand justice
takes time, but the progress is so slow that you cannot have a
system in place to protect people if the timing on the process
can put them out of business. And that's what I'm getting at.
Mr. Johnson. And reclaiming my time, I think that is
exactly right. And for me, we talk about transparency and
transparency in the marketplace. I think it would be helpful to
have some transparency within the government as well. I think
we all understand the rationale of why they don't release a
report if they haven't found any wrongdoing. But that silence
is not good for the producer, it is not good for the consumer.
I would submit it is not good for the packer. It makes
everybody think something is going on behind the veil.
So when we talk about--you mentioned earlier that we
haven't heard boo or squat, which is exactly the right phrase,
sir----
Mr. Schiefelbein. Sorry.
Mr. Johnson.--about the investigations in the wake of the
Holcomb fire and COVID. I mean, let's set this information
free. It seems to me that that is one key thing we could do to
bring a higher level of understanding to what is going on from
an enforcement perspective and tell those of us in this room
maybe what we could be helping the DOJ do better with regard to
enforcement. I will give you an opportunity to react.
Mr. Schiefelbein. Yes, and again, it's--it goes back to a
pretty simple principle you learn raising kids, right? The
bogeyman disappears when you turn the light on, right? And
there's a bogeyman out there. We don't know if it's real or not
real because the light's off. We need the light flipped back on
to know whether or not the bogeyman exists.
Mr. Johnson. Anything else, Mr. Costa, before I yield back?
Mr. Costa. No, I thank the gentleman for his good
questions, as always.
Mr. Johnson. Sounds good. Well, thank you. I think you are
exactly right. Let's turn the light on, and that is something I
think we could find robust bipartisan agreement on. With that,
Mr. Chairman, I would yield back.
The Chairman. The gentlewoman from Iowa, Mrs. Axne, is
recognized for 5 minutes.
Mrs. Axne. Thank you, Chairman Scott. Thank you so much for
holding this hearing on such an important issue. I would first
like to request unanimous consent to submit to the record a
letter and a statement from Bob Noble, President of Iowa
Cattlemen's Association.
The Chairman. Without objection.
[The documents referred to are located on p. 139.]
Mrs. Axne. Thank you. In the letter, I see President Noble
expresses the need for price discovery and transparency to make
sure that we can combat the meatpacking industry consolidation,
its captive supply, and price manipulation issues. And I
appreciate his call to support my bipartisan legislation, the
Cattle Price Discovery and Transparency Act (H.R. 5992), and
share his urgency that it is now time for Congress to act on
this on behalf of our nation's cattle producers. And after
listening to some of the testimony this morning, I am sure many
of my colleagues would agree that something has to be done.
Mr. Young, thank you so much for being here. I am glad to
have you here with us today, and thanks for sharing your story.
And if there are others who are watching this hearing in a
similar situation, please know it is okay to ask for help, and
you can reach the 24/7 National Suicide Hotline Service at 800-
273-TALK. And this summer you will be able to reach that by
calling 988. And the sad part is I am sitting here at a hearing
for our cattle producers having to put out information like
that because it is so rough on our producers in Iowa and other
places to get ahead.
So here is my first question. I share many of the concerns
raised in your testimony. And, Mr. Young, can you describe the
value that cash trades have in the cattle market?
Mr. Young. Yes. As a cow-calf producer, we base everything
off the Chicago Board of Trade, and that's based off of what's
supposed to be the free market, there's only, like I say, 13
percent cash cattle on the market that are sold, and everything
else is through AMAs and those are all private and you don't
know what the pricing is. And the cash market if it was--
everybody in the beef industry should be able to buy on the
cash market, and all that information would be out there and
you would know exactly what everything is selling for. And
there would be more competition between the packers and they
wouldn't have nearly as much control.
And that's where we know it will never happen. We hope and
pray it will but AMAs are not going to go away and they're
going to continue to dominate the marketplace and keep the
price of beef to the cow-calf producers suppressed.
Mrs. Axne. So is it fair to say then that all producers
benefit from a robust cash trade market?
Mr. Young. That is correct.
Mrs. Axne. Thank you. And, Mr. Stockton, in you're nearly
50 years as a rancher, how has the value of your product
changed, and what has that led to within your community?
Mr. Stockton. Ma'am, as I said in my oral statement, my
income has been halved. The retail price spread over the life
of myself as a rancher has been halved over that 47 year
period. And my community is devastated. There are less than
half as many ranches every day taking up the, bought up the
smaller ranches, consolidated them. One of the most disturbing
things that's happening in my community is that millionaires
and billionaires are buying huge ranches just for private
hunting reserves, and all of us locals are simply locked out of
that. And of course those people have no interest at all in the
health of our community and the children in school and all of
the things that it takes, the businesses that you can have a
thriving group of people working together for a good life.
So no, we call it the cheap food policy and the cheap food
policy of the United States Government has been extraordinarily
successful. It's hollowed out rural America all the way from
Grass Range, Montana, to Lumpkin, Georgia, where--I was told
not to use this word and I'm sorry but I can't think of another
word. Rural America is one huge slum, and this is a result of
the lack of antitrust enforcement.
Mrs. Axne. Mr. Stockton----
Mr. Stockton. And we've elected to conduct rural and
agricultural policy through the farm bills.
Mrs. Axne. Thank you. And if we do nothing, what do you
think the future looks like? If we don't act on this in
Congress now, what do you think the future looks like?
Mr. Stockton. I think the food security of your children
and your grandchildren is in jeopardy.
The Chairman. That is right.
Mr. Stockton. When you have--you know, it's--we're talking
about the beef cartel at this hearing, but this isn't the only
cartels or source of monopolization. It cuts across all of
agriculture, but it cuts across a lot of the other most
important industries of the United States. And until we start
trying to deal with that and do something, we're simply
vulnerable to every--vagaries of the weather, which I shouldn't
call it vagaries because it's getting very pronounced, and
things that are happening in other countries that--of which we
have no control, for instance, this invasion of the Ukraine by
Russia. I mean, that affects us. To use a phrase, America first
here. When are we going to look after the interests of the
people of the United States and their security and their needs?
The Chairman. The gentlelady's time has expired.
And now the gentleman from Mississippi, Mr. Kelly, is
recognized for 5 minutes.
Mr. Kelly. Thank you, Mr. Chairman, and thank you,
witnesses, for being here.
Mr. Schiefelbein, your testimony expresses clear opposition
to the Cattle Price Discovery and Transparency Act, and you
have answered a little bit why that is if you would like to
expand on that. And further, what alternatives can we as
Congress do that remedy this situation or aid cattle producers
in the marketplace?
Mr. Schiefelbein. Yes, to me it's all about empowering
producers. Let producers come up with the solutions, and let
them innovate, as the Chairman suggested, in terms of making
the next best things. And to me the best government is a
government that stays out of the way when it comes to marketing
and lets the good of the people come up with the great ideas
and move an industry in the direction it needs to go. And
that's what we've done over the last 20 years. If you look at
the mandate that's putting--that they're trying to push,
they're basically trying to cram our industry back into the
bottle the way it was 20 years ago, 15 years ago. That's not
healthy for an industry. Change is a part of the industry, and
especially if you look at the impact it's had on meeting
consumer preferences, nothing could be more advantageous for
the industry than to listen to your consumer.
Mr. Kelly. And just some data, just according to the recent
USDA Ag Census, we have lost over 32 percent of my home state's
cow-calf producers over a 25 year time period from 22,097 to
14,000 in 2017. That number today is probably really much
worse. It concerns me greatly, also, the timing of a negotiated
cash market to the point that there may not be a cash market
one day. Are there any solutions or do you have any ideas on
that?
Mr. Schiefelbein. It's going to take innovation. I think--
if I were to put on my crystal--look into my crystal ball, I
would say there will be a time when the AMAs probably include a
component of boxed beef price so that it allows you to share in
the good and share in the bad with the person downstream so
that if it's beneficial, everybody benefits, and if it's bad,
everybody suffers. And to me it's those innovations we want to
make sure continue to flow that allow the marketplace to figure
out this awkward time and how do we distribute this money
equitably.
Mr. Kelly. I am kind of old-school. I grew up--my
granddaddy ran about 20, 25 head of cows in a cow-calf
production, and so I grew up in that environment. There are not
a lot of those guys left, just like there are not small
dairies, there are not a lot of other small things. But we need
to get back to that. It is good to have lower prices and to
have the big guys, that is great, but at some point there is no
redundancy in that. And we don't want this nation to be relying
on two, three producers that can be taken out and then we have
no producers. We lose the ability. So what do we do to get more
small cow-calf producers engaged in the process? Is there
anything we in Congress can do to help do that so that we have
some redundancy and backup?
Mr. Schiefelbein. And I think some of the things you're
doing is valuable. In terms of allowing local processings to
occur I think is an absolute windfall for small producers. I
was in Kentucky just a week ago and talked to two different
guys who are now using the energy of being able to market their
own products successfully to a consumer within 50 miles around
them, right? And that invigorates them. That excites them. And
I think we're doing something along those ways. So to me it's
providing tools that allow them to be the best at what they do,
not confining them or taking away tools that allow them to do
the best possible.
Mr. Kelly. I want to thank you guys, every one of you all
again, for what you do for America. I truly am one of those
guys--I am on the Armed Services Committee and the Intel
Committee and I am on the Ag Committee because I think all
those things are national security because I truly believe that
food security and the ability to produce in all conditions is
national security, and I don't think there is anything greater.
To the one percent who farm in America of which you are, I just
want to thank you.
And with that, Mr. Chairman, I yield back.
The Chairman. Well-stated, thank you.
The gentleman from Arizona, Mr. O'Halleran, is recognized
for 5 minutes.
Mr. O'Halleran. I want to thank the Chairman and Ranking
Member for this hearing today and also for those who are
participating as witnesses.
Cattle ranching is an important part of Arizona's economy.
Earlier this month, I hosted a processing roundtable with beef
producers from my district. I heard from a range of
stakeholders, including rural producers, Tribal producers, and
economic development specialists. The recent disruptions in
capital markets have disproportionately harmed small and rural
producers who were already at a disadvantage in competing in a
highly consolidated marketplace. And because of an increase in
the cost of fuel, feed, maintenance, land, and water, producers
are dealing with a 75 to 80 percent increase in operating
costs, making it nearly impossible for small family-run farms
to compete, and this hearing today hasn't brought out anything
to make my optimism grow.
I think that the other concerns that we heard from where
our young producers are coming from, what about the families
that have historically been there? The beef packing capacity,
and I will talk about co-ops in a little bit. The real
problem--I come from both a family in--our family's history of
dairy farming and also have spent time--I heard the Board of
Trade mentioned a little while ago, and I was a trader on the
Board of Trade and came up with those and worked in that
environment where we knew what transparency was about. And I am
sorry to see that [inaudible] it is impossible to be able to
meet the challenges [inaudible].
It came to my mind during the course of this that the word
monopoly came to my mind, the word cartel came to my mind, and
when I looked up the definition, it is the excessive possession
or control of supply of trade----
The Chairman. Excuse me for one moment, Mr. O'Halleran.
There may be someone that is not muted. We are having
difficulty hearing the Congressman. Everyone except the
Congressman, let's get muted. You may continue, Mr. O'Halleran.
Mr. O'Halleran. Thank you, Mr. Chairman. I will just
continue on with the definition of a trade or a commodity or
service. What we didn't talk about is the other powers, the
economic powers, not only devastating economic powers to the
producers, the smaller producers, but those powers that they
are allowed to have economically to be able to overcome the
type of costs that we have seen on the smaller market producers
and that is feed, fuel, and fertilizer, also market control and
many other aspects, and I do hope the Attorney General's office
will go down a path of fairly identifying and working on these
issues.
I would like to ask a question of Mr. Young. Have you
considered this in the past the process of the idea of
establishing co-op processing facilities to increase processing
capacity, which is scarce in rural areas, especially my area
also? And if so, what were the hurdles you faced? And can the
USDA be helpful in this process?
Mr. Young. I didn't quite hear what you said. I can barely
hear you.
Mr. O'Halleran. I am sorry about that. I will try this
again. Several Arizona producers brought up the idea of
establishing a co-op processing facility to increase processing
capacity, which is scarce in rural areas. Have you considered
this in the past, and if so, what were the hurdles you faced,
and can the USDA be helpful in this process?
Mr. Young. I mean, yes, that idea has been out there for a
long time. I've actually been talking about it recently. There
were a lot of small processors that popped up during the
pandemic. They saw the store shelves were empty so they took
the opportunity to open their own small locker. The only
problem they're having is getting USDA approval so they can
sell their beef, as a farmer, directly to the consumer at a
farmers' market, set up an online marketing system directly
from their farm to the table, and that's the only hurdle that
they face now is all the red tape associated with getting USDA
approval for their small locker operations.
And they're so overregulated and, I mean, there's a lot of
red tape to get through to get that USDA stamp of approval,
which I understand. The sanitation standards in this world in
which we live now are so high that it--some of the regulations
and the approval of USDA facilities may not be negligent or
required, but yet the smaller producers that's--more power to
them. That would be great if they could get 10, 15, 20, 30 guys
to invest in a co-op locally owned processing facility. That
empowers them as producers.
Mr. O'Halleran. Thank you, Mr. Chairman. Thank you, Mr.
Young, and I yield back.
The Chairman. The gentleman from Kansas, Mr. Mann, is now
recognized for 5 minutes.
Mr. Mann. Thank you, Mr. Chairman, and on behalf of the
farmers, ranchers, and agriculture producers in the 1st
District of Kansas, thank you all for participating in today's
full Committee hearing regarding beef markets.
This issue is especially near and dear to me since both
sides of my family have farmed and fed cattle in western Kansas
for the last 120 years. I grew up on a preconditioning
feedyard, spent thousands of hours doctoring sick cattle, kind
of the best of times and worst of times all wrapped into one,
but good family time.
The Big First, my district, ranks number one in the country
for the value of sales of cattle and calves at more than $9
billion annually. 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 packers. More
broadly, the beef sector supports grain producers,
manufacturers, veterinarians, and many other businesses that
populate rural towns across Kansas and across the country.
In a competitive cattle market, it is vital for producers
to be able to differentiate their product to eventually suit
the taste of the consumer. As seen by the growing demand for
beef here in the U.S. and internationally, selective breeding
and nutrition that have increased quality bring opportunities
for producers to negotiate a premium for price for their
cattle. These contracts allow feeders to benefit from making a
value-added investment and provide some certainty in the
volatile market.
Across the country, cattle producers continue to face
challenging market dynamics, including historically wide gaps
between wholesale beef prices and fed cattle prices, packing
capacity regulation, and more. I have talked to hundreds of
cattle producers in Kansas ranging from small cow-calf
operations to some of the country's largest feedyards.
Overwhelmingly, I have heard that we need to increase price
discovery in the cash market, make sure that producers benefit
when they provide a superior product, refuse to let the
government interfere in the free market, and acknowledged
regional differences.
There is currently discussion, here in Washington and
around the Federal Government, about mandating a certain
percentage of cash or spot transactions between the feeder and
the packer, limiting the number of alternative marketing
agreements. AMAs, are popular across the Big First and used by
many because they cut costs, increase efficiencies, and reward
producers for a higher quality product.
So a few questions, first question for you, Mr.
Schiefelbein, and thank you for being here. Do you feel that
the legislation proposed to limit the use of AMAs would
negatively affect the beef market? And how do you think it will
impact beef quality?
Mr. Schiefelbein. As I've mentioned before that AMAs and
that transparency is basically the signals from the consumer to
producers on what to do. So from that standpoint I know with
certainty it's going to have an important negative impact,
okay, because we need those signals strong and transparent and
flowing freely from consumer to producer. The whole idea of
mandating the packers, to me, is a misnomer because when you
mandate one half of a dealmaker, you're also mandating
producers, and that's where we get the rub. When you're
mandating producers on how they ought to manage their cattle
and market their cattle, I think bad things will occur and
actually to the detriment of the people promoting it.
I think the largest concern occurs into small- and midsize
producers like myself because when you're limited to a certain
number, all of a sudden now you have a packer picking winners
and losers. And it doesn't allow me to exert my thing that says
because I have a superior product, choose me, choose me.
Instead, you're deferring to a packer. So I think it goes down
a very dangerous road, especially for mid- and small-sized
feeders.
Mr. Mann. Okay. Thank you. Another question for you, sir.
Do you believe the establishment of the Cattle Contract
Library, that was done by this Congress really this year
similar to what exists in the Swine Contract Library, do you
think that is going to provide more transparency to the market,
and how do you think it is going to impact producers in Kansas
and around the country?
Mr. Schiefelbein. Well, the intent certainly is there. And
again, I've mentioned before--I testified previously--the
devil's in the details. And that's what raises some concern for
our producers is the way it's put together may actually tell
you whether it's favorable or it actually could be neutral to
unfavorable depending on if the packers have more utility with
the contract than the producers. So to me I really like their
approach of the pilot project, but I think constructing it in a
manner that is a benefit to producers is of utmost importance.
Mr. Mann. Okay, great. I see my time is expiring. Thank you
for being here. And with that, I yield back.
The Chairman. Thank you. The gentleman from Georgia,
Congressman Austin Scott, is now recognized for 5 minutes.
Mr. Austin Scott of Georgia. Thank you, Mr. Chairman. And I
want to apologize to the panel for being late. I was in the
Armed Services Committee with the Secretary of the Air Force
and a couple of generals going over their budget.
Mr. Stockton, I believe it was you that brought up the
antitrust and Federal Trade Commission. Is that correct? And
the monopolization if you will of what is happening in
processing?
Mr. Stockton. Could you restate that for me, please? I have
a little----
Mr. Austin Scott of Georgia. I think I heard a statement
from you that I very much agree with. The Federal Trade
Commission has not been active enough in this and it has led to
a significant amount of monopolization in the processing.
Mr. Stockton. Yes, Federal but also particularly lack of
enforcement of the Packers and Stockyards Act. When the Packers
and Stockyards Act was first initiated in 1921 and there was a
consent decree that required that the packers--the cartel at
that time had to purchase all of their cattle in a marketplace
that they did not own or control, it was a free enterprise
approach to solving that problem that worked beautifully
because by the time I started ranching in 1975, the packer
concentration was down to about 25 percent, the four largest
firms.
Mr. Austin Scott of Georgia. Mr. Stockton, can I ask you
something on another law at the time? If I am not mistaken, and
this is going back many years--my grandfather and I ran a few
hundred head in Georgia. And back at that stage in the--it
would have been in the early 1990s, there were several
stockyards in the area, there were multiple places where you
could take a calf to get it processed. Most of those don't
exist anymore. Would----
Mr. Stockton. Exactly, yes.
Mr. Austin Scott of Georgia. And it has been brought up as
one of the problems. So there is not a whole lot of options for
the farmers to sell their product. But there was a time when
the packers were not allowed to actually own the animal up to
and until maybe 2 or 3 days before the animal was processed if
I am not mistaken.
Mr. Stockton. Yes.
Mr. Austin Scott of Georgia. Am I correct in that? And
those laws have all gone away. Most of them were at the state
level if I am not mistaken, not necessarily a Federal law, do
you think that--that that is an issue that if it were
revisited----
Mr. Stockton. Well, yes. The Packers and Stockyards Act is
very clear that there--a packer should not give an advantage or
disadvantage to any buyer or seller. And if they are owning
cattle, they are obviously giving an advantage to themselves.
And yes, you need to revisit the consent decree that they had
in 1921. If the packers were purchasing all of their cattle
through some form of a competitive market, we wouldn't have any
reason to be sitting here today. This whole problem would be
solved.
Mr. Austin Scott of Georgia. I do know that the Georgia
cattlemen--and I am not saying all of them are in favor of
this, but I do know there has been discussion with the Georgia
cattlemen about them putting together some type of a co-op and
the ability to slaughter and process. And slaughter is a word
nobody likes to use, right, but the bottom line is our
hamburgers come from an animal that has been slaughtered and
processed.
But most of the places that, as a kid, if you could go to
and have something slaughtered, I mean, today, if they are
still in business, they are cutting boxed beef. Very few of
them actually have the license to actually kill the animal. And
it is hogs as well as cows, and so I have hog farmers that have
to ship their hogs from south Georgia all the way to Tar Heel,
North Carolina. Well, that is a lot of transportation cost when
diesel is $5 a gallon.
Mr. Stockton. Yes.
Mr. Austin Scott of Georgia. So I appreciate you all being
here. I will tell you I am very concerned about some of the
conduct I am seeing from some of the people that are about to
testify in the differentials and what they are paying people
based on race, and I am going to ask that question as we go
forward with the next panel. But thank you for your time and
your testimony.
Mr. Stockton. Yes, thank you for your question, Mr. Scott,
because I agree with you completely. What we need is a
multiplicity of market channels, and now that we've
concentrated it through this one funnel, until we solve that
problem----
Mr. Austin Scott of Georgia. The retailers are not innocent
in this.
Mr. Stockton. And the retailers are not innocent in this.
Mr. Austin Scott of Georgia. I yield back.
The Chairman. The gentleman from Georgia, Mr. Allen, is
recognized for 5 minutes.
Mr. Allen. Thank you, Mr. Chairman. And of course I presume
the purpose of this hearing today is to deal with the cost of
what we are paying for meat and who is responsible. Obviously,
we are faced--I think it was a record 8.5 percent inflation in
this last year. Obviously, one of the drivers of inflation is
not only what the Feds are pumping into the economy to cover
government spending but it is government spending, it is
policy, and it is energy policy, and it is driving the cost of
everything beyond anything we have seen probably in our
lifetime, maybe even since the Carter presidency. So, that is
the issue. That is why we are here. And of course what we have
is apparently some allegations that we need to get to the
bottom of as far as our industry is concerned.
Mr. Chairman, you mentioned in your opening statement that
due to intimidation or threats to a person's livelihood, one of
our witnesses chose not to participate today. You also
mentioned that you will be following up on the situation, and I
hope you will. These are very serious criminal allegations. I
know many of our Members are curious to know additional details
of this situation. If true, this is deeply concerning. Are
there additional details you can provide our Members so we can
address it? And I understand if there is a desire to protect
this individual, but why do you choose to raise the matter in a
public setting? And with that, Mr. Chairman, I yield back to
you.
The Chairman. We are looking into it. It is a very serious
situation. And the right thing for us to do is to address it so
that it will not happen ever again.
Mr. Allen. And so you are not prepared here to disclose
any----
The Chairman. Not until we get all the facts. It would be
improper for me to discuss any details on it when I don't have
the full facts.
Mr. Allen. Okay. All right. Well, with that, I will yield
back.
The Chairman. Thank you. And now the gentlelady from
Minnesota, Mrs. Fischbach, is recognized for 5 minutes.
Mrs. Fischbach. Well, thank you very much, Mr. Chairman,
and thank you all for being here today.
Mr. Schiefelbein, as you know, the issues of price
discovery, concentration, and market manipulation are serious
issues, but I firmly believe that government mandates or
strong-arming the private-sector when politically expedient is
the wrong approach. The best solution in my mind is more
transparency and more competition, and you mentioned some of
that earlier in some other answers. Discussing these issues
with you earlier, you clearly feel the same way. But we also
discussed the grassroots effort that your organization took to
get to this point, and I was wondering if maybe you could
describe the voluntary 75 percent plan and the process that
your organization uses to get your policy positions.
Mr. Schiefelbein. Yes, I'd be glad to. And basically, we
know negotiated trade is important. We know it's important. We
know it's important to our members. So the question then became
within our membership is we have the control because a buyer
and a seller must agree on a way to sell an animal for it to go
forward. So how do we push more negotiated trade into the
system? So what we did is we put together a voluntary approach
that said, producers, we know negotiated trade is important.
How can we elevate this and especially in key regions? And we
set targets, so we put robust marketing targets at each region
to say if we meet this goal, the likelihood of successful price
discovery is high. And we implemented that. And the remarkable
results where we doubled in the State of Texas the percent of
negotiated trade and met that threshold 75 percent or more of
the time all the way through. So it was an incredibly good
experience.
Mrs. Fischbach. Thank you. And just, as I mentioned
earlier, you are a constituent of mine. I have been out to the
farm and visited with your family. But I just wanted you to
maybe take a moment to briefly talk about the family and the
farm so that we understand a little bit better about the
company.
Mr. Schiefelbein. Yes, and one thing maybe that this group
could take to heart is we're a family affair, a large family
affair. Just like this body, we have differing opinions, and
when you have differing opinions, respect each other, but you
have to go forward with something. And what we found out is
when a body disagrees on an item, we don't keep pushing that
item and pushing that item and pushing that item. And I think
that plays well into the mandate question. We have lots of
potential solutions for our industry to go forward, yet we
continue to come back and say how do we get government involved
in marketing through mandates when clearly that's a divisive
wedge issue. Why can't we move on to some outcomes that are
positive just like in the family that say let's do this item
that makes sense that we all can agree on? And I would share
that's probably the most fundamental thing similar to our farm
that would show value in the Congress.
Mrs. Fischbach. Thank you very much. And I appreciate that,
and I yield back, Mr. Chairman.
The Chairman. Thank you very much. And now the gentleman
from Nebraska, Mr. Bacon, you are recognized for 5 minutes.
Mr. Bacon. Thank you, Mr. Chairman, and I hope you don't
mind a guy named Bacon asking some good beef questions to you.
So in our district we have a lot of feedlots. We also have
a lot of meat processing plants, so I think it is really
important that we get this right for all involved with a
balanced policy.
So the first question is to Mr. Schiefelbein. Can you
briefly talk us through the recent fed cattle and beef price
trends and, in your opinion, are those reflective of market
supply and demand? And how do these prices compare to pre-
pandemic?
Mr. Schiefelbein. Yes. And that's the perspective. That's a
fantastic, fantastic question. From a perspective standpoint,
everybody has to understand it's so hard to realize what you
just lived through, but if you look at what occurred with a
pandemic to the beef industry, there has never been anything
like it before. When you talk about 40 percent of your market
share disappearing overnight, I mean, the effect to the
economy, to the beef industry is huge. And then you have to
study on why it occurred the way it did, and that's where I
think the question is really good.
From a simplicity standpoint, when you have cattle numbers
like this and you have to push them through a processing
pipeline this size, somebody has to decide which of these
cattle make it through the pipeline. In America, capitalism
does that through describing prices. And so you're basically
forced to say, through pricing, how do we eliminate this many
cattle to this many cattle? And that's a huge price fall that
occurred in the fed cattle market.
Then I just want to say on the flipside people wonder why
the beef price went so high. The beef price on the other hand
went from that small funnel to all these producers who want
good American beef, right? so that's why the discrepancy
occurred. There was a funnel in the middle that had to ration
on the left side and they had to ration on the right side and
that's where the price discrepancy----
Mr. Bacon. So it sounds like the answer is more capacity.
And it takes a lot of capital investment to do that. What is
the role for Congress in trying to facilitate more capacity?
Mr. Schiefelbein. And it's going to go contrary to a lot of
what Congress likes to do and that is as you put on more
regulations, red tape, and oversight, okay, as you put on all
three of those, it actually hinders the ability of mid- to
small-packers to compete with large packers who can put in an
enormous amount of the top line if you will into that. So you
have to be able to--how do we streamline getting these in the
process with the least amount of red tape and allow them to
function efficiently?
Mr. Bacon. A follow-up question with you there, sir. You
mentioned the importance of knowing the results of the DOJ
investigation before we go forward attempting to fix some of
these alleged problems. Do you worry that Congress or the
Administration are rushing ahead to attempt to fix problems
that don't exist or that we simply don't know enough about at
this point? What are your thoughts?
Mr. Schiefelbein. I don't know. I wish I knew, and that's
where, again, that--shining the light on that would be better.
I'm hopeful. I'm an optimistic person at heart, so I'm hopeful
that the answer is they just haven't come around to it yet and
they're not trying to withhold information from us. So that's
my optimistic nature.
Mr. Bacon. So it is better to ready, aim, fire versus fire,
ready, aim Feds first.
Mr. Schiefelbein. Yes, sir. Yes, sir.
Mr. Bacon. To all the panelists, I am curious, are any of
you or your businesses directly involved in the trade of fed
cattle with at least one meatpacker? If so, how often and can
you describe what your typical interactions might be with that
packer, just--do you deal with one or more packers, and what
has been your relationship?
Mr. Young. No, I said earlier I don't deal directly with
the packers. I'm a cow-calf guy. I breed them, raise them, then
sell them off as calves at 7 to 10 months of age to either a
feeder or whomever purchases them, and they feed them out and
have to sell their cattle through a packer, so the consumer can
purchase their product. But I don't deal with them at all.
Mr. Bacon. Thank you.
Mr. Stockton. Yes, and I have probably sold calves to Mr.
Schiefelbein.
Mr. Bacon. Okay. Well, I appreciate your testimony today
and we are learning from you, so I am grateful for your time.
Thank you. Mr. Chairman, I yield back.
The Chairman. The gentlelady from Florida, Mrs. Cammack, is
recognized for 5 minutes.
Mrs. Cammack. Well, thank you, Mr. Chairman, Ranking Member
Thompson. I am very excited about this particular hearing as I
come from a small cow-calf operation myself. I grew up on a
small ranch in Colorado, so I appreciate and sympathize with a
lot of our witnesses here today.
Livestock is one of the most important agricultural
commodities in my district and certainly in our state. And what
I hear on the ground from our producers in Florida is a far
more nuanced and complex picture of the current challenges
facing the livestock industry than this Administration and the
Majority are willing to admit. The Florida cattlemen are
adamantly opposed to a cattle market mandate, and when I hear
from folks back home, they typically express their concerns
about government intervention and overreach that jeopardizes
their own futures. Many of the mandates that have been
proposed, the attacks on packers of all sizes, and an all-out
war on the livestock industry, our producers from this
Administration that has chosen to wage war in the name of
unfounded, unproven allegations will ultimately do more harm
than good to the folks that I know back home but of course
elsewhere. Honestly, this seems like an oversimplification of a
very complex issue is going to do more harm than good.
Now, to that end, Mr. Schiefelbein--and I am so sorry, I am
probably butchering that--I would like to pick your brain about
what I perceive to be a very real threat to the industry.
Cattle producers are the first line of defense in protecting
the land, the environment, and our natural resources. Sadly or
unsurprisingly, this Administration has ignored this fact and
instead marshaled its regulatory agencies to stage an all-out
assault on our livestock producers with a slew of burdensome
regulations that lack both science and logic, for example, the
April 11 SEC published rule talking about greenhouse gases
emissions and the disclosures for publicly traded companies.
Now, our producers may not immediately be impacted, but this
may require these companies to disclose emission rates from
their supply chain, which could include our cattle producers.
So how does regulatory dysfunction at the Federal level, as
I just mentioned, impact our U.S. cattle producers? And are you
concerned that this Administration may be pushing an agenda
that is based far beyond real, credible scientific evidence?
Mr. Schiefelbein. To answer the question, yes, absolutely.
There are times when facts don't matter, and facts should drive
everything. If you look at the National Cattlemen's Beef
Association, how we differ from many other organizations is we
are fact-based. So what the truth is, is what the truth is, and
when they start to hurtle around emissions that are way beyond
the reality of what's occurring out there, boy, you start to
diminish the case and diminish the reality of what we're
dealing with. So to me it's all about getting the right
information and the right people and promoting it correctly.
If you look at the environmental grab of like Waters of the
United States, to me, that is an all-out grab to take away
stewards of the environment and put the government in charge.
And, just from my perspective I would encourage anybody who
believes the government should have more say in managing
resources to come out by me and look at the land that the
government owns and manages, contrasted with the land that our
private citizens own, and I think there would be not a soul in
here who wouldn't say the movement towards more government
control and reach over environmental controls is not healthy
for the industry.
Mrs. Cammack. Thank you. Thank you, Mr. Schiefelbein. And I
might just call you Don so that I don't continue to butcher
your name----
Mr. Schiefelbein. That's fine.
Mrs. Cammack.--but I do appreciate that answer. And I do
appreciate the fact that you have your hat sitting properly on
the table. That is how I know that you are a true country boy.
Now, you just further proved my point that the regulatory
environment has helped kill our small- and midsize processors
and packers. And I know it is not just from your testimony
today but I can name about a half a dozen of these operations
that have dissolved and are up for sale. And, it is just
because simply the margins aren't there. We know that the
margins aren't there. And I can tell you from experience that
we don't always know what our inputs are. And I would challenge
our producers to check on what our inputs are.
Now, this is an ever-evolving situation, and we know that
is in large part because of the government overreach that we
are experiencing. When you have operations that are processing
up to 2,500 cattle a week and they still can't make the numbers
work and you would need at least 2,500 a week to make a
regional dent in the marketplace, this isn't a mismanagement
issue. This is a fact that this government and this
Administration are doing more to harm our producers and by
extension the industry and the very vertically integrated
system that we have, and we cannot sustain the regulatory
environment to make these operations work. So it is just not
tenable, and I thank you all for being here today. I know that
this is something that is a very complex and nuanced issue, but
to our witnesses for appearing before the Committee, thank you
for your testimony, and thank you to the Chairman and the
Ranking Member for hosting a hearing on this very, very
important topic. And with that, I yield back.
The Chairman. The gentleman from Iowa, Mr. Feenstra, is now
recognized for 5 minutes.
Mr. Feenstra. Thank you, Chairman Scott, Ranking Member
Thompson. Thank you to the witnesses concerning this very tough
topic.
During my time today, I would like to ensure that Iowa
producers have a seat at the table by discussing Iowa issues
concerning market reform. I have three out of four packers in
my district. I have traveled all 39 counties in my district at
least twice a year, and I hear the critical concerns of my
producers about the industry. My district ranks number one in
pork, number three in poultry, number six in cattle and calves,
and out of 431 Congressional districts that sell agricultural
products, my district ranks second. With all this information,
one can conclude that agriculture is truly the economic engine
in my district.
According to the report from the University of Nebraska,
the USDA cattle region with the highest cattle grading is the
Iowa-Minnesota region. In fact, over 94 percent of the cattle
in my region grade over 80 percent choice. This compares to
less than 13 percent from Texas, Oklahoma, and the New Mexico
region.
Midwest cattle producers are hurting. They see everyone in
the supply chain making large profits while they are losing
anywhere from $100 to $150 a head. Fairness and transparency
creates a sustainable agriculture supply chain, which is
critical to our producers.
The processing of cattle is mostly operated by four packers
that control nearly 85 percent of the market. This market share
lets them control the price through contracts, manage the
amount of animals being slaughtered through line speeds, and
the control of supply livestock to their satisfaction. The
system is set up where the packers will never see a loss,
creating massive guaranteed profits while rural farmers lose
their livelihoods.
We noted this earlier with one of the witnesses, Don
Schiefelbein, saying that several months ago in Arizona four of
the large meatpackers agreed to provide information to a
cattlemen's organization for a producer-led initiative to
achieve 75 percent of the negotiated trade needed for robust
price discovery in each reporting region. Feeders made an
effort to meet this voluntary threshold, but the initiative
failed due to the lack of packer participation. Packers can
manipulate the regional supply of cattle by simply shifting
their captive supply from one region to the next. Without more
transparency in the market, we will continue to see these
downfalls.
Senator Grassley said it best yesterday in their hearing in
the U.S. Senate. In order to have a sustainable supply of meat,
we need transparency in the marketplace and to protect the
market from collapsing when there are supply chain disruptions.
My producers in Iowa are constantly telling me that there is a
lack of competition, an argument I often hear about the
alternative marketing agreements increase efficiency. With the
packers and the corporate feedyards that--they have
relationships with only one, and that benefits them. The small
producers don't, and certainly the consumers don't either.
I want to be very clear. Efficiency is not an excuse for
exploitation, and what is happening right now is the
exploitation of smaller independent producers for the benefit
of the big four.
I taught economics at Dordt University. I am a strong
champion of a fierce, competitive free market. However, open
markets need free entry. It is clear that the cattle market is
insufficient because there is no one that has access to the
same information. It is because of this that I am a supporter
of my Senate colleagues, Senator Grassley and Senator Fischer's
Cattle Price Discovery and Transparency Act (S. 4030), and I
intend to lead this bill with Congresswoman Axne to get it to
the House Floor. The legislation has 19 bipartisan cosponsors
in the Senate, and I am hopeful that we will receive the same
support in the House.
We all agree that cattle production is one of the most
important agricultural industries in the United States,
consisting of over 700,000 farms with more than 90 percent
being family-owned or operated. Any manipulation of the markets
that would threaten this must come to light. As the voice of
our country's producers, it is our job and our responsibility
and our duty to expose any inequity. Iowa's small independent
producers deserve a level playing field, and it is time for the
big packers to play by the rules that were set long ago.
With that, I yield back.
The Chairman. Thank you very much, Mr. Feenstra. And let me
just say we come to the end of our first panel, and I just want
to thank you, each of you, Mr. Young, Mr. Stockton, Mr.
Schiefelbein. I hope I got that right. This has been just so
revealing. It has been helpful to open our minds and our eyes
to much of what we have been only dimly aware. And that is why
I wanted to have the ranchers here. And you spoke for them. And
this helps us tremendously.
And now what I want to do, Mr. Young, Mr. Stockton, and Mr.
Schiefelbein, is just to let you know that we are determined to
bring some corrections so we can make sure that we don't have
our cattle farmers not being able to make a profit in 4 years.
We want to reverse the trend of them selling their farms, of
their next generation, their children not being able to even go
into the business.
The meatpackers and the farmers, the beginning of our beef
supply line, and here at the end and then our consumers, these
are the main features that this Committee is vitally concerned
about. But at the heart of it are you all who produce the
cattle, put the time in, the years in, and we have listened
carefully and we understand what we need to do. And you all
have been very helpful. God bless you, and you have inspired
this Committee to respond and join with our next panel because
we can't come to this solution without the meatpackers. We are
all partners in this. We are the greatest agriculture system in
the world, and you all have given us the information to correct
this imbalance. So I thank you.
And right now, we are going to take a 5 minute break, get
our other panel in of our CEOs while you all remove yourselves,
and we will re-adjourn in 5 minutes. Thank you once again.
[Recess.]
The Chairman. Our hearing will now come to order. Thank you
all. We now are going to start our second panel with the Chief
Executive Officers of the four meatpacking companies. And I
certainly want to--I see my good friend Senator Chuck Grassley
has joined us in the back. Welcome, my friend. As I mentioned a
little earlier ago, the Senator called me awhile back, came
over and met with me in my office, shared the bill. So I think
it is very important because we are moving both in the Senate
and in the House to try to make sure that we bring together an
effective piece of legislation to address this issue, to make
sure that our ranchers are getting equity, to make sure that
the next generation of farmers who are family members remain in
the business. So we are going to address that right now, and
thank you. Nice having you, Senator Grassley.
And right now, we are going to introduce our panelists. And
our first witness for our second panel today is Mr. David
MacLennan, who is the Chief Executive Officer of Cargill,
Incorporated. Our second witness is Mr. Tim Schellpeper, the
Chief Executive Officer of JBS USA Holdings, Incorporated. Our
third witness is Mr. Tim Klein, the Chief Executive Officer of
National Beef Packing Company, LLC. And our fourth and final
witness today is Mr. Donnie King, the Chief Executive Officer
of Tyson Foods.
And first, what I want to do is to ask our witnesses to
please raise your right hand and please jointly state your name
for the record.
Mr. MacLennan. David MacLennan.
The Chairman. Oh, you may need to unmute.
Mr. MacLennan. I am unmuted.
The Chairman. All right.
Mr. MacLennan. Can you hear me?
The Chairman. Yes, I can. And you are?
Mr. MacLennan. I am David MacLennan of Cargill.
The Chairman. Okay.
All right. Thank you. Mr. Schellpeper? You might want to
unmute. Please state your name.
Mr. Schellpeper. Tim Schellpeper.
The Chairman. Thank you. This was very important, this
hearing. Our final witness is Mr. Donnie King. Please state
your name, the chief executive officer of Tyson.
Mr. King. Donnie King.
The Chairman. Great. It is important to have your names
stated because we will now swear you in. Again, will all
witnesses please raise your right hand?
Now, do you solemnly swear that this testimony you are
about to give today before this Committee in the matters under
consideration is the truth, the whole truth, and nothing but
the truth?
Mr. MacLennan. Yes.
Mr. Schellpeper. Yes.
Mr. Klein. Yes.
Mr. King. Yes.
The Chairman. Thank you very much. I want to, first of all,
express my deep appreciation for the CEOs to join us today
because we cannot come together with solutions to deal with
this important issue without the input and the discussion with
the Chief Executive Officers. And so I want to thank you for
taking the time to come and help us solve the issues that will
be presented here today.
And so with that, let's get right to it. Mr. MacLennan, we
will start with you. Please begin when you are ready.
TESTIMONY OF DAVID W. MacLENNAN, BOARD CHAIR,
PRESIDENT, AND CHIEF EXECUTIVE OFFICER, CARGILL, INC., WAYZATA,
MN
Mr. MacLennan. Thank you, Chairman Scott, Ranking Member
Thompson, and Members of the Committee, and thank you all for
inviting me here today to discuss the food system, the shared
challenges we face to ensure that food is produced and
delivered safely, responsibly, and reliably in the United
States, as well as around the world.
The food system has been remarkably resilient through the
challenges of the last 2 years. We've faced an ongoing
pandemic, extreme weather conditions, and global disruptions.
Still, food shortages have been rare, and we've maintained good
supplies due to the essential work of those in the sector.
My name is Dave MacLennan, and I am the CEO of Cargill.
Cargill is 155,000 people working across the globe to nourish
the world in a safe, responsible, and sustainable way. Our
operations are broad. We bring together people, ideas, and
resources to deliver products, technology, and ways of
operating that build successful businesses in communities. We
produce a range of edible oils used in restaurant and home
cooking, as well as ingredients for food and beverage
companies. We provide biobased solutions across industries,
including construction materials, paints, and beauty products.
We support better animal health and nutrition with feed and
premix options. We help farmers finance their operations,
manage risk, and improve their soil. And we process beef,
turkey, value-added meats, and egg products for retail, food
service, and processing customers. We also innovate by
producing alternative proteins, including plant-based proteins.
Today, I am here to talk about North American protein, one
of Cargill's many businesses. It is headquartered in Wichita,
Kansas, and it employs more than 28,000 people in 19 states. We
operate facilities, distribution centers, feed mills, and
hatcheries in rural communities across the U.S.
The jobs that Cargill employees do every day in these
facilities put protein on the family table for millions of
Americans. We recognize their contributions with competitive
compensation and benefits like onsite medical care, nearby
wellness clinics, and housing support. We increased base pay
significantly over the past 2 years to recognize the critical
role that they play during COVID and as frontline workers.
We acknowledge that the rising price of many goods,
including food, poses significant challenges for consumers
worldwide. The price for meat is not immune to the global
factors that are causing inflation. Supply and demand, labor
constraints, transportation challenges, and rising feed costs
add even greater pressure, and it all leads to increased prices
at retail.
Meatpacking is a complex and cyclical business. The size
and scale of our operations provides the agility to help
mitigate volatility and ensure that food is efficiently brought
from farm to table. We are providing a consistent food supply
and strengthening the resilience of the food system to mitigate
disruptions. We are actively hiring to reduce labor shortages,
increasing wages, and benefits for employees and investing in
our plants so that they are run as efficiently and as safely as
possible.
We welcome competition to the industry and support the
dynamics of a free market. We believe in price transparency and
fair, open markets. In our North American protein business, for
example, Cargill consistently purchases \1/3\ of our cattle on
a cash basis. We are also committed to empowering and improving
the livelihoods of the people who grow and raise our food. Our
partnerships with farmers and ranchers are critical in
delivering quality, affordable protein to groceries and
consumers across the U.S. We know how hard and cyclical the
cattle industry is. It is critical to all of us that ranchers
sustain their operations and navigate market volatility.
Mr. Chairman and Ranking Member Thompson, we appreciate the
work you and the Members of this Committee do to support
America's farmers and ranchers. Cargill is a proud American
company founded in 1865 in the farming community of Conover,
Iowa, with the goal of providing markets for farmers. And from
that day on we've known that if producers aren't successful,
our company won't be. Thank you for the opportunity to address
the Members of this Committee, and I look forward to answering
your questions.
[The prepared testimony of Mr. MacLennan follows:]
Prepared Testimony of David W. MacLennan, Board Chair, President, and
Chief Executive Officer, Cargill, Inc., Wayzata, MN
Chairman Scott, Ranking Member Thompson, Members of the Committee:
Thank you for inviting me here today to discuss the food system and
the shared challenges we face to ensure food is produced and delivered
safely, responsibly and reliably in the United States and around the
world.
The food system has been remarkably resilient through the
challenges of the last 2 years. We've faced an ongoing pandemic,
extreme weather conditions and global disruptions. Still, food
shortages have been rare and we have maintained good supplies due to
the essential work of those in the sector.
My name is Dave MacLennan and I am the CEO of Cargill.
Cargill is 155,000 people working across the globe to nourish the
world in a safe, responsible and sustainable way.
Our operations are broad. We bring together people, ideas and
resources to deliver products, technology and ways of operating that
build successful businesses and communities.
We produce a range of edible oils used in restaurants and home
cooking, as well as ingredients for food and beverage manufacturers and
food service companies.
We provide biobased solutions across industries, including
construction materials, paints and beauty products.
We support better animal health and nutrition with feed and premix
options.
We help farmers finance their operations, manage risk and improve
their soil.
And we process beef, turkey, value-added meats and egg products for
retail, food service and processing customers. We also innovate by
producing alternative proteins, including plant-based.
My understanding is that today's hearing is focused on North
America protein, one of Cargill's many businesses. Cargill Meat
Solutions Corporation is headquartered in Wichita, Kansas, and employs
more than 28,000 people in 19 states. It operates facilities,
distribution centers, feed mills and hatcheries in rural communities
across the U.S.
The jobs Cargill employees do every day in these facilities put
protein on the table for millions of Americans. We recognize their
contributions with competitive compensation and benefits like onsite
medical care, nearby wellness clinics and housing support. We increased
base pay significantly over the past 2 years to recognize the critical
role they play as frontline workers.
We acknowledge that the rising cost of most goods--including food--
poses significant challenges for consumers worldwide. The price for
meat is not immune to the global factors impacting inflation. Supply
and demand, labor constraints, transportation challenges and rising
feed costs add even greater pressure on supply chains and are resulting
in increased prices at retail.
Meatpacking is a complex and cyclical business. The size and scale
of our operations provides the agility to help mitigate volatility and
ensure food is efficiently brought from farm to table.
We are providing a consistent food supply and strengthening the
resilience of the food system to mitigate disruptions. We are actively
hiring to reduce labor shortages, increasing wages and benefits for
employees and investing in our plants so that they are run as
efficiently and as safely as possible.
We also welcome competition to the industry and support the
dynamics of a free market.
We believe in price transparency and fair, open markets. In our
North America protein business, for example, Cargill consistently
purchases a third of our cattle on a cash basis.
We also are committed to empowering and improving the livelihoods
of the people who grow and raise our food. Our partnerships with
farmers and ranchers are critical in delivering quality, affordable
protein to groceries and consumers across the U.S.
We know how hard and cyclical the cattle industry is. It is
critical to all of us that ranchers sustain their operations and
withstand market volatility.
Mr. Chairman and Ranking Member Thompson, we appreciate the work
you and the Members of this Committee do to support America's farmers
and ranchers. Cargill was started in 1865 in the farming community of
Conover, Iowa, with the goal of providing markets for farmers. From
that day on, we've known that if producers aren't successful, our
company won't be.
Thank you for the opportunity to address the Members of this
Committee. I look forward to answering your questions.
The Chairman. Thank you, Mr. MacLennan.
And now Mr. Schellpeper, please begin when you are ready.
TESTIMONY OF TIMOTHY O. SCHELLPEPER, CHIEF EXECUTIVE OFFICER,
JBS USA FOOD COMPANY, GREELEY, CO
Mr. Schellpeper. Good afternoon, Chairman Scott, Ranking
Member Thompson, and Members of the Committee. Thank you for
having me. My name is Tim Schellpeper. I've been part of the
U.S. beef, food, and agriculture industry for more than 35
years, dating back to my first job out of college in 1987. I
joined JBS in 2017, and I became CEO of JBS USA this past
January.
I'm also a proud fourth-generation farmer. My wife of 31
years and I operate the farm that I grew up on, which my great-
grandfather originally settled in Nebraska in 1887. Our land
sits in the heart of cattle country surrounded by farms and
feedlots, many of which supply cattle to JBS. I am both a
friend and a customer to many of my neighbors.
JBS USA [holds a majority interest in] Pilgrim's Pride, the
second-largest poultry producer in the United States. We employ
67,000 team members, mostly unionized across the country, and
we contribute millions of dollars each day to local economies
through purchases of livestock, poultry, and plant supplies.
At JBS we strive to create a better future. Our success has
allowed us to strengthen many small towns and give back to our
rural communities. We are investing $100 million to support
local projects through our Hometown Strong Program. We are
building new recreation centers, improving access to affordable
housing, and refurbishing schools and parks. We care about our
team members and their families. We offer full benefits and
recently dedicated more than $150 million in annualized wage
increases to our employees in our beef division alone. Our
average facility wages are nearly $24 per hour with starting
wages at or above $20 per hour. We've increased wages by more
than 40 percent since 2017 and on average our wages are 25 to
50 percent higher than many local businesses. We provide up-
front free community college tuition for our team members and
their dependents with the goal for our program to become the
largest privately funded free community college initiative in
America.
JBS is dedicated to improving the sustainability of our
operations. We've committed to achieve net-zero greenhouse gas
emissions by 2040 and will invest $1 billion to reduce
emissions from our facilities. By 2030 we will invest $100
million in on-farm research to help producers reduce their
emissions. In recent months we've contributed $1.3 million in
climate change research projects in partnerships with NGOs and
universities, including a $700,000 contribution to the
University of Nebraska-Lincoln to help build a new Feedlot
Innovation Center.
Now, I understand that one of the topics that this
Committee would like to address today is the pricing in the
cattle and beef industries. Historically, cattle were sold in
lots, and every animal on the lot received the same average
price. To achieve a better return on their investment,
cattlemen created alternative marketing arrangements, or AMAs,
with processors. AMAs allowed producers to realize premium
prices for their investments in genetics, animal health,
management, and marketing. They also help ensure consistent
supply of quality cattle, which result in a consistent supply
of high-quality beef for consumers.
For our part, JBS purchases from cattle feeders and
producers of all sizes in cash markets, auction barns, video
auctions, and under AMAs. We are active in the cash market
every day, and we will compete for quality cattle in the market
wherever and however producers wish to sell them.
As for the prices paid by consumers, inflation is a
significant concern across the entire U.S. economy. The prices
for beef are no exception. It is important to note, however,
that we do not--at JBS we do not control retail prices for
beef. We instead sell our products to wholesale groceries--
wholesale prices to grocery stores, food service operators, and
other intermediaries, and those prices have decreased this past
year.
Nonetheless, despite increases in the cost of labor,
transportation materials since the beginning of the pandemic,
as well as increased costs, our facilities have largely
returned to pre-pandemic processing levels. This has created
higher returns for producers and lower wholesale beef prices as
cattle supply and processing demand come closer in balance.
JBS is committed to supporting innovation, transparency,
and enhancing incentives to keep the U.S. cattle industry
competitive for all participants. We will continue to invest in
our people, our facilities, and our communities to help ensure
a sustainable, affordable, and resilient beef supply. Thank you
for the opportunity to speak with you, and I look forward to
your questions.
[The prepared testimony of Mr. Schellpeper follows:]
Prepared Testimony of Timothy O. Schellpeper, Chief Executive Officer,
JBS USA Food Company, Greeley, CO
Introduction
Good afternoon, Chairman Scott, Ranking Member Thompson, and
Members of the Committee. Thank you for having me.
My name is Tim Schellpeper. I have been part of the U.S. food and
agriculture industry for more than 35 years, dating back to my first
job out of college in 1987. I joined JBS in 2017, and I became CEO of
JBS USA this past January.
I am a proud fourth generation farmer. My wife of 31 years and I
operate the farm I grew up on, which my great-grandfather originally
settled in Nebraska in 1887. Our land sits in the heart of cattle
country, surrounded by farms and feedlots, many of which supply cattle
to JBS. I am both a friend and customer to many of my neighbors.
JBS USA Food Company
JBS USA produces beef and pork, and we hold a majority interest in
Pilgrim's Pride, the second largest poultry producer in the U.S. We
employ more than 67,000 team members across the country and contribute
millions of dollars each day to local economies through purchases of
livestock, poultry, and plant supplies.
At JBS, we strive to create a better future. Our success has
allowed us to strengthen many small towns and give back to our rural
communities. We are investing $100 million to support local projects
through our Hometown Strong program--building new recreation centers,
improving access to affordable housing, and refurbishing schools and
parks.
We care about our team members and their families. We recently
dedicated more than $150 million in annualized wage increases to
employees in our beef division alone. Our average beef facility wages
are nearly $24 per hour, with starting wages at or above $20 per hour.
We've increased wages by more than 40% since 2017 and, on average, our
wages are 25-50% higher than other local businesses. We provide up-
front, free community college tuition for our team members and their
dependents, with a goal for our program to become the largest,
privately-funded, free community college initiative in rural America.
JBS is dedicated to improving the sustainability of our operations.
We've committed to achieve net-zero greenhouse gas emissions by 2040,
and will invest $1 billion to reduce emissions in our facilities. By
2030, we will invest $100 million in on-farm research to help producers
reduce their emissions. In recent months, we've contributed $1.3
million to climate change research projects in partnership with NGOs
and universities, including a $700,000 contribution to the University
of Nebraska-Lincoln to help build a new Feedlot Innovation Center.
Cattle Industry
I understand that one of the topics the Committee would like to
address today is pricing in the cattle and beef industries.
Historically, cattle were sold in lots and every animal in the lot
received the same average price. To get a better return on their
investments, cattlemen created alternative marketing arrangements, or
`AMAs,' with processors. AMAs allow producers to realize premium prices
for their investments in genetics, animal health, management and
marketing. They also help ensure a consistent supply of high-quality
cattle, which results in a consistent supply of high-quality beef for
consumers.
For our part, JBS purchases cattle from cattle feeders and
producers of all sizes, in cash markets, auction barns, video auctions,
and under AMAs. JBS is active in the cash cattle market every day, and
we will compete for quality cattle in the market wherever and however
producers wish to sell them.
Inflation
As for the prices paid by consumers, inflation is a significant
concern across the entire U.S. economy. The prices for beef are no
exception. It is important to note, however, that we at JBS do not
control the retail prices that consumers pay for beef. We instead sell
our products at wholesale prices to grocery stores, food service
operators and other intermediaries, and those prices have decreased
since last year.
Nonetheless, despite increases in the cost of labor,
transportation, and materials since the beginning of the pandemic, as
well as recent increases in costs, our facilities have largely returned
to pre-pandemic processing levels. This has created higher returns for
producers and lower wholesale beef prices, as cattle supply and
processing demand come closer into balance.
Conclusion
JBS is committed to supporting innovation, transparency, and
enhancing incentives to keep the U.S. cattle industry competitive for
all participants. We will continue to invest in our people, our
facilities, and our communities to help ensure a sustainable,
affordable and resilient food supply.
Thank you for the opportunity to speak with you today, and I look
forward to your questions.
The Chairman. Thank you, Mr. Schellpeper. And now Mr.
Klein, please begin when you are ready.
TESTIMONY OF TIM KLEIN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL BEEF PACKING COMPANY, LLC, KANSAS
CITY, MO
Mr. Klein. Chairman Scott, Ranking Member Thompson, and
Members of the Committee, I'm the CEO and one of the owners of
National Beef. We are the fourth-largest packer with a market
share of 14 percent. I'm happy to be here today to answer your
questions and tell you about our company. I believe our story
is a great example of what the current Administration and
others are encouraging to create additional competition in the
beef packing industry.
First, I would like to provide a background of myself. I
grew up in northwest Iowa and worked with hogs and cattle
before going to college. I started my career in the industry in
1980. In 1992 I had the opportunity to team up with others to
buy a small, outdated plant in Dodge City, Kansas, that
accounted for one percent of the industry capacity. The plant
was going to be shut down. We knew that to succeed in a highly
competitive, low-margin business we had to develop a business
model different from that of our larger competitors. Our vision
was to create a unique alliance with cattle producers and link
them with our customers who wanted a consistent supply of high-
quality beef.
At the time, cattle were bought and sold in the cash market
and brought the same price regardless of quality. There was no
economic incentive for cattle producers to invest in genetics
or to improve their feeding regimen to enhance the taste and
tenderness of the beef. We developed a pricing grid that paid
premiums to cattle producers who could deliver a higher quality
animal than what we could buy in the cash market. Our business
model worked. Although we were a smaller company with higher
operating costs, we could compete effectively with the larger
packers.
In 1997 we were approached by U.S. Premium, a group that
today represents a network of 2,400 cattle ranchers, farmers,
and feedlot owners across 38 states. Their vision was aligned
with ours, and they became a partner in the ownership of
National Beef. Over time, using cattle performance, data
provided by us, their members improved the quality of the
cattle they produced. Today, U.S. Premium beef provides us with
over one million head of cattle per year, putting a premium on
those cattle, and also sharing in the profits of National Beef.
The beef industry in the United States consists of four
segments, the cow-calf ranchers, the backgrounders, the
feedlots, and the packers. Profitability in each segment varies
based on the timing of the cattle cycle and each segment's
unique supply and demand dynamics.
The cattle industry is a commodity business in a free
market system. Our objective is no different than that of the
other segments. We strive to maximize our profits within the
constraints of a competitive marketplace.
For more than 30 years, cattle supplies in the U.S. have
been declining. Beef packing capacity has also been declining,
although at a slower rate. As a result of overcapacity, beef
packer profits have historically averaged only 2 for every
dollar in revenue. The imbalance became most severe in 2014 and
2015 when cattle supplies declined to the lowest level in 60
years. Cattle prices rose to record levels, and industry
capacity utilization dropped almost 80 percent. In the case of
National Beef, we experienced record losses.
In 2016, cattle supplies began increasing cyclically, and
by 2019, capacity utilization had risen to 95 percent, a level
of efficiency not seen in this industry for decades. Profits
also increased, just as the laws of supply and demand would
predict. In the summer of 2019, a fire at a large beef plant
temporarily reduced industry capacity. Then in the spring of
2020, COVID-related disruptions further reduced capacity by as
much as 50 percent for several weeks. These events resulted in
a backlog of almost one million head of cattle that were
carried forward to the second half of 2020 and most of 2021.
The excess supply has allowed National Beef to operate at 100
percent of capacity for the last 2 years.
On the demand side, COVID caused a change in consumer
dining habits. Consumers made a choice of what protein they buy
and what they were willing to pay for it. As they transitioned
to eating more at home, their desire for beef increased and
prices increased. When restaurants reopened in 2021, additional
demand from food service buyers increased as they replenished
their beef inventories, further adding upward price pressure.
The combination of excess cattle supplies and unprecedented
demand for beef resulted in record profits in 2020 and 2021.
Those dynamics are now changing, just as they have in
previous cattle cycles. USDA data indicates that fed cattle
supplies are peaking and will continue to decline over the next
several years. There have also been indications of additional
capacity being built, including our announcement of a new beef
plant in Iowa. History teaches us that as cattle supplies
decline cyclically and new capacity comes online, there will be
a shift in profits to the cattle production segments of the
industry.
Today, U.S. beef enjoys a reputation as the highest-quality
beef in the world. Demand continues to grow both in the U.S.
and globally. The opportunity for profit across all segments
has never been better. Thank you for inviting me today, and I
look forward to your questions.
[The prepared testimony of Mr. Klein follows:]
Prepared Testimony of Tim Klein, President and Chief Executive Officer,
National Beef Packing Company, LLC, Kansas City, MO
Chairman Scott, Ranking Member Thompson, and Members of the
Committee, thank you for inviting me to join the discussion today. I
have been working in the beef packing industry since 1980. I was one of
the founding partners of National Beef in 1992 and have been Chief
Executive Officer since 2009. As CEO, I am actively engaged in the day-
to-day management of National Beef and lead a team of industry veterans
that procure more than 3.5 million head of fed cattle and produce and
sell more than 4.5 billion pounds of beef and beef byproducts annually.
The U.S. beef industry enjoys the reputation of producing the
highest quality beef in the world and demand for U.S. beef continues to
grow both domestically and across the globe.
Profitability in the beef industry is cyclical and highly dependent
upon the cattle cycle and the resulting availability of fed cattle. For
the reasons described below, in recent years National Beef has
experienced exceptional financial results. We are pleased with our
success and look forward to future opportunities to grow and improve
our business. Our financial success directly benefits our employees,
cattle suppliers, vendors, and the communities where we operate.
National Beef Background
National Beef was founded in 1992 by three partners, including me.
Our vision was to develop a niche by creating a unique alliance with
cattle producers and linking them with beef customers to provide a
consistent supply of the highest quality beef available. Until that
time, most cattle were traded in the cash market and brought the same
price, regardless of quality. There was no clear economic incentive for
cattle producers to invest in genetics or to change their feeding
regimen to improve the taste and tenderness of beef. To compete against
larger beef packers, we aligned our beef packing, marketing, sales, and
distribution expertise with progressive cattle producers who were
interested in earning a premium price for high quality cattle. Our
strategy has proven successful. National Beef has grown from a small
single-shift plant harvesting 1,500 cattle per day, which accounted for
less than 1% of the total U.S. industry slaughter in 1992, to a
diversified beef processing company with more than 9,500 employees. We
process more than 13,000 head per workday in three plants, accounting
for approximately 14% of the U.S. fed cattle market. We also operate
further processing plants, a leather tannery, and a refrigerated and
livestock trucking fleet. Our facilities are located in Kansas, Iowa,
Missouri, Pennsylvania, Georgia, Ohio, and Texas.
The ownership group of National Beef includes me, U.S. Premium
Beef, LLC and Marfrig Global Foods, SA, a publicly traded company.
U.S. Premium Beef, LLC (USPB) became our partner in the ownership
of National Beef in 1997. Its membership includes more than 2,400
cattle ranchers, farmers, and feedlot owners across 38 states.
Over time, using data provided by us and our customers, USPB
members have steadily improved the quality of their cattle. Today, USPB
members provide National Beef with over one million head per year of
the highest quality cattle in the U.S., earning a premium for those
cattle and sharing in the profits of National Beef.
Since USPB partnered with National Beef in 1997, we have paid more
than $1.6 billion in profit distributions and $650 million in cattle-
quality premiums to USPB and its cattle producer members.
Beef Industry Segments
The infographic below shows that the cattle and beef production
industry begins with the cow-calf sector. This is where key decisions
regarding herd size expansion or contraction, quality genetics, and
animal health are made by hundreds of thousands of individual farmers
and ranchers. According to USDA data, in 2021 there were approximately
30.1 million beef cows in the U.S. held in more than 700,000 herds; the
average size of a cow herd was about 43 cows.
Figure 1: The Beef and Cattle Industry from Animal Breeding to
Consumption
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: GAO analysis of U.S. Department of Agriculture and
industry information. D GAO-18-296.
After calves are weaned from the cow, they are typically sold to a
cattle producer that grows the calves on pasture or other high-roughage
feeds before selling them to a feedyard where they are fed a high-
energy diet for approximately 180 days. When the cattle are finished
and ready for slaughter, the feedyard sells the fed cattle to a packer.
Cattle often change ownership multiple times throughout the process.
Except for the cow-calf producer, all parts of the production chain
derive their profitability from the margin difference between the
buying cost and the selling price less the cost to produce.
As shown in the following chart, the profitability of each part of
the cattle and beef production chain fluctuates cyclically. As one
considers the relationship between cattle prices, beef prices and
relative profitability it is important to note that the supply and
demand dynamics are different for each segment of the industry. While
the key raw material for the beef packing segment, fed cattle are not
the only input--labor, packaging, transportation, technology,
regulatory compliance, capital, and risk are all required to convert
fed cattle into beef and beef byproducts products.
Historical Margins per Head by Sector
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Sterling Marketing, Inc.
Each head of cattle processed in our plants yields over 100
different beef cuts and beef byproducts. Wholesale prices fluctuate
daily based on each product's unique supply and demand dynamic and move
independently of each other. Each day, beef packers are required to
report selling prices to the USDA for many beef and beef byproduct
items. In turn, the USDA reports aggregated pricing data daily.
The prices that consumers pay for beef items at the retail level
are determined by the retailer, not by the National Beef. Retail prices
tend to be less volatile than wholesale prices. As shown in the
following chart, most of the total retail value of beef flows to the
cattle production and retail sectors, in contrast to the packing sector
which gleans a significantly smaller percentage of the total value.
Share of Consumer Beef Dollar
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA ERS.
Beef Cattle Cycle
Beef cattle production is a cyclical business similar to other
boom-and-bust production agricultural enterprises. The number of beef
cows tends to increase when there is ample pasture availability and
good profitability and tends to decline when profits lessen or when
drought leads to less abundance of pasture and roughage feeds.
As shown in the chart below, the cattle cycle tends to run about 10
to 12 years from peak to peak and trough to trough. While this periodic
cycle has been persistent for more than a generation, each cycle high
has been lower than the previous cycle's high. This shows that the U.S.
cattle herd has been declining for many years. The decline in cattle
production and historically low profitability in the beef packing
segment explains why there has been no meaningful amount of new beef
packing capacity added to the industry for many years.
U.S. Cattle Inventory
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Peak inventories from the current cattle cycle are in, and
declining supplies will be a key factor in driving higher
prices for calves, feeder cattle and fed cattle over the next 2
to 3 years.
Source: Sterling Marketing, Inc.
Due to reproductive biology and production constraints, the
availability of fed cattle harvested and processed into beef lags the
beef cow cycle by about 3 to 4 years. Therefore, the peak in cow herd
numbers that occurred in 2017 was expected to result in a peak in fed
cattle numbers in 2020-21. The subsequent decline in beef cow numbers
that began in 2018 and is continuing at an accelerating pace today will
result in fewer fed cattle being available for harvest for the next
several years until the cow-calf segment halts liquidation and begins
rebuilding the herd.
Beef Packing Segment Profitability
The U.S. beef packing industry has at least 30 participants
operating more than 50 cattle slaughter and processing facilities. This
number does not include the many very small ``locker plants'' operating
under state inspection. As the fourth largest participant, National
Beef operates approximately 14% of the total fed cattle slaughter
capacity.
In 1998, the five largest beef packers accounted for 86% of fed
cattle slaughter capacity compared to 84% today. Thus, any discussion
about beef packer concentration and its impact on prices or
profitability should be framed by the fact that the beef packing
industry has been operating at about the same degree of concentration
for more than 20 years. As shown in the below table, during this
period, beef packing profits have varied based on the cattle cycle and
have averaged 2% of revenue. All else being equal, when more fed cattle
are available for harvest, National Beef's profits tend to be higher;
when fewer cattle are available, our profits tend to be lower.
Beef Packing Indicative Profit Margin vs. S&P 500 Profit Margin
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: NBP management estimate of industry average beef
packing net income margin versus net income margin of S&P 500
companies; based on internal and publicly available
information.
As described above, the U.S. cattle inventory has been trending
lower for more than 40 years. Beef packing capacity has also been
declining, although at a slower rate. For many years, industry capacity
has exceeded the number of cattle available for slaughter. As a result
of this excess capacity and the overall decline in the cattle
inventory, the packing segment has been a historically low-margin
business, typically earning about 2 for every dollar of revenue
generated. The imbalance in processing capacity versus cattle
availability became particularly severe in 2014 and 2015 when fed
cattle supplies dropped to the lowest level in 60 years--even lower
than expected due to back-to-back widespread droughts that impacted the
key cattle growing areas of the United States. Fed cattle and calf
prices rose to record levels, and capacity utilization in the beef
packing industry dropped to nearly 80%. Several poorly located and
inefficient plants were closed. In the case of National Beef, we
experienced record losses and closed our Brawley, California plant.
Since 2016, fed cattle supplies have increased sharply while processing
capacity in the industry increased only slightly. At the same time,
customer demand for beef has been improving, both in the U.S. and in
key export markets. By early 2019, capacity utilization had increased
to more than 95%, an efficiency level not seen in the beef packing
industry for decades. As cattle supply and beef demand increased,
National Beef's profits increased accordingly, just as the laws of
supply and demand would predict.
Fed Cattle Availability vs. Industry-wide Weekly Capacity
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: NBP estimate based on estimated 6 day week capacity;
adjusted for disruptions and inefficiencies related to 2019
fire and COVID-19 pandemic.
The demand for fed cattle and the supply of beef was abruptly
disrupted in August 2019 when one of the nation's largest beef
slaughter and processing facilities, accounting for approximately 5% of
total industry capacity, suffered a major fire that resulted in that
plant going offline until early 2020.
Because of the fire, there was an immediate reduction in demand for
fed cattle, but the available supply of cattle did not change. As would
be predicted by a simple supply/demand equation, this resulted in a
significant drop in fed cattle prices. At the same time, the supply of
beef immediately declined while the short-term demand for beef
increased as wholesale buyers scrambled to secure their product needs.
This resulted in a significant increase in beef prices. Lower cattle
prices and higher beef prices led to a temporary upward spike in
National Beef's profits.
The coronavirus pandemic in March 2020 further disrupted the supply
and demand balance for fed cattle and beef. But instead of just one
plant, the entire industry that was impacted. In April and May 2020
many beef packing plants were closed or running at severely reduced
capacity due to workforce absenteeism. The supply and demand dynamics
were much the same as with the 2019 fire, but the overall impact was
significantly greater and lasted longer.
As a result of coronavirus-related reductions to the labor force,
industry capacity was significantly reduced, thereby lowering the
demand for fed cattle, resulting in lower cattle prices. At the same
time, overall consumer demand for beef increased--while restaurant
demand declined, retail grocery demand surged and prices for typical
retail cuts like ground beef and roasts reached record highs as
consumers increased their at-home dining.
The production cutbacks resulted in a backlog of approximately one
million head of fed cattle. These extra cattle negatively impacted
cattle prices in 2020 and for much of 2021 before being cleared from
the supply pipeline late last year.
Beef Quality
It is important to understand the basics of beef quality because it
is fundamental to why National Beef has been successful and why
Alternative Marketing Agreements--often called ``grids''--have been so
important to the product quality improvements made by the U.S. beef
industry over the past 15+ years.
National Beef introduced grids in the 1990s. Before that time, fed
cattle were bought using pricing methods whereby fed cattle purchased
on a given date, regardless of quality, were obtained at the same
approximate price. This method of selling cattle provided no economic
incentive for a cow-calf producer to invest in improved genetics or for
a feedyard operator to invest in a more robust feeding regimen that
could be expected to increase the percentage of cattle that would grade
Choice or Prime. Thus, beef quality was stagnant, contributing to a
decline in consumer demand for beef.
The amount of marbling (intramuscular fat) in beef is the primary
determinant of taste and tenderness. USDA graders inspect each carcass
and assign a quality grade based on the amount of marbling visible in
the meat.
Increased marbling leads to higher quality grades, improved taste
and tenderness, and higher product value. The highest USDA grade is
USDA Prime, followed by USDA Choice, then USDA Select. Cattle carcasses
that grade Prime and Choice have a higher value and command premium
prices from packer buyers versus those carcasses that grade Select.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Beef quality is driven by genetic choices made at the cow-calf
level and feeding choices made throughout the life cycle of the animal.
Certain beef breeds, such as Angus, tend to have higher marbling than
other breeds, and the decision to feed a steer on a corn-based high-
energy diet will produce beef with more marbling than from a similar
steer fed a low-energy grass-fed diet. Different cultures prefer
different degrees of marbling--the dominant preference in the U.S. and
its key export markets is for a grain-finished high Choice or Prime
graded product.
National Beef's strategy was, and still is, to provide economic
incentives to cattle producers to invest in genetics, feed programs and
other tools to increase the quality of their cattle. Our grids provide
that incentive. Cattle producers who choose to sell their cattle to
National Beef on a quality grid earn premium prices for their cattle
that meet the quality specifications aligned with consumer preferences
for premium beef. This quality-grid approach has become widespread
across the industry. It has enabled professional, motivated cattle
producers to create value and improve their profitability by earning
higher than average prices when selling their cattle.
The chart below shows that quality incentives have also resulted in
the average percentage of beef carcasses grading Prime or Choice
increasing from 55% to 85% over the past 20 years. This dramatic
improvement in quality has enabled a resurgence in beef demand in the
U.S. and in our key export markets. Using current USDA-reported price
data, this increase in grade is worth approximately $1.4 billion in
additional value to the U.S. beef industry each year.
USDA Choice & Higher Quality Grade %--Steers & Heifers
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA.
Summary
The U.S. beef packing industry is considered by many to be
concentrated. This concentration is partly due to the historic low
profitability that has forced weaker, inefficient participants out of
business, and has discouraged new entrants. It is also a byproduct of
the scale that results in significant efficiencies in slaughtering,
processing, and marketing globally, the beef and beef byproducts that
come from the more than 25 million head of fed cattle that American
ranchers and farmers produce for slaughter each year. At National Beef,
our unique business model and our scale has enabled us to access the
capital necessary to invest in the people, equipment, and expertise
needed to successfully navigate the intense requirements of our cattle
suppliers, customers, and regulators.
Notwithstanding this concentration, beef packing remains a highly
competitive business--every day National Beef seeks to outmaneuver its
competitors to buy the best cattle, hire the best employees, and
satisfy the most desirable customers. Our historically narrow profit
margins are a testament to the highly competitive nature of the beef
packing industry.
National Beef has benefited from increased profitability in recent
years. This increased profitability has been driven by the cattle cycle
and the continued growth and improvement in our operations. In the two
most recent years, our increased profitability was due, in part, to
powerful and unexpected external disruptions to the supply and demand
of fed cattle and the distinctly separate supply and demand dynamics
for many beef and beef byproducts. A significant portion of our profits
is being reinvested in expanding our beef processing capacity, which
will benefit the entire industry going forward.
I appreciate the effort to understand the reasons for the recent
increase in beef packing profitability and I respect the different
points of view on this topic. The increase, however, should be viewed
in the context of the history and the future of the cattle and beef
industry.
Since 2016, we have been in an increasingly favorable part of the
cattle cycle which was coming to a peak around 2020. Then, just as our
margins were nearing cycle highs, the industry was impacted by the
August 2019 fire and the 2020 coronavirus pandemic--both of which
created supply/demand dynamics that favorably impacted and extended the
peak in our profitability.
USDA data shows that fed cattle supplies have peaked and will
continue to decline over the next several years. The cattle cycle has
turned in favor of the cattle production sectors. Fed cattle prices are
15% higher than 1 year ago while wholesale boxed beef prices are 5%
lower. We expect cattle prices to trend higher, beef prices to moderate
and return to a more normal seasonal trend, and National Beef's profit
margins to compress.
We also believe that because of the improved quality of U.S. beef
cattle and the growth in demand for U.S. beef and beef byproducts,
profits across all segments of the industry will settle into a higher
range than in previous cycles.
While National Beef's expected profits are not as attractive as
those available in many other industries, they are sufficient to entice
us to invest in additional new capacity. Last year, we announced the
construction of a new beef packing and processing facility in Tama,
Iowa. That project is underway with an expected completion date in
2025. Once operational, this new facility will have the capacity to
harvest 2,500 head per day and will replace the much smaller, older
facility that we currently operate in Iowa.
In addition to our new Iowa plant, several other groups have
announced plans to build additional capacity. We believe this is an
encouraging sign for the future of the U.S. beef industry.
The Chairman. Thank you, Mr. Klein. And now Mr. King,
please begin when you are ready. Mr. King, you may need to
unmute. Mr. King?
Mr. King. Can you hear me, Chairman Scott?
The Chairman. Yes, we can hear you now, loud and clear.
Welcome.
Mr. King. My apologies, Chairman Scott, and to the
Committee.
The Chairman. No problem.
TESTIMONY OF DONNIE KING, CHIEF EXECUTIVE OFFICER, TYSON FOODS,
SPRINGDALE, AR
Mr. King. Chairman Scott, Ranking Member Thompson, Members
of the House Agriculture Committee, I do appreciate this
opportunity to discuss the economics of our business. My name
is Donnie King, and I've been a Tyson team member for almost 40
years. I started in Pine Bluff, Arkansas, as an hourly team
member on the production floor and now proudly serve as
President and Chief Executive Officer.
In our business, unprecedented market shocks have created
an extraordinary strain across our operations and the global
supply chain. This has reduced our ability to produce beef at
sufficient quantities to meet record-high consumer demand.
Starting in early 2020, the pandemic impacted our ability
to operate production facilities at full capacity. This was due
in part to protocols we put in place to keep team members safe.
We required our team members to stay home with pay if they were
sick, tested positive, or were close contacts. We also had team
members who stayed home to take care of their children and
loved ones. In our beef business, these factors made it
difficult to process all the cattle available on the market.
This drove down the demand and prices for live cattle. At the
same time, demand for beef skyrocketed as restaurants closed
and Americans started cooking more meals at home. Simply put,
production could not meet the consistently strong demand.
Economists have agreed with this assessment, which
underscores that the market, not Tyson, sets the price for
cattle and beef. When a product is in oversupply in this case
live cattle, the law of supply and demand drives down the
prices for that product. And when a product is in strong
demand, in this case beef, the same law of supply and demand
drives up prices for that product. Today, the situation is
deepened by geopolitical issues which are creating shortages of
essential inputs such as grain. This results in higher costs,
which is reflected in the prices American families pay at the
grocery store.
Some incorrectly suggest that the rise in beef prices is
due to the consolidation of the beef industry, but the data
doesn't support this claim. The concentration of the industry
for commercial cattle among the four processors here today is
69 percent and has been virtually unchanged over the past 30
years. And in most of those 30 years the profit margins of
ranchers and cattle producers have been much higher than the
low single-digit margins we made as beef processors. In fact,
in several years ranchers made a historic profit on live cattle
while Tyson either lost money or barely broke even. This, too,
is the market at work.
It is important to note that Tyson returns are not solely
the result of prices customers pay. Other factors contribute,
including the mix of products we sell, the cost associated with
regulations, operating more sustainably, and our efforts to
compete for labor.
Today, Americans are demanding higher quality and variety,
as well as convenience, and our customers are willing to pay
for these across the food chain, benefiting both cattle
producers and beef processors. We're also working hard to
become a more efficient business by investing in automation and
innovation. This not only results in a safer workplace but also
drives down operational costs, which in turn allows us to keep
costs down for our customers and further invest in our team
members and our business.
In places like Bowling Green, Kentucky; Macon, Georgia; and
Humboldt, Tennessee, we're increasing production capacity and
creating thousands of new jobs. Today, these jobs pay an
average of $24 an hour, including full retirement and medical
benefits, or approximately $50,000 a year. Today, Tyson Foods
operates in communities spanning 30 states. In these
communities we invest more than $15 billion every year with
over 11,000 independent farmers and ranchers who supply us with
the cattle, pigs, chickens, and turkeys that we need. I want to
say to them and all who work so hard to keep food on America's
table, thank you.
For many, including myself, Tyson has provided more than
just a paycheck. Our company helps its team members and their
families achieve their own dreams by giving them access to
opportunity. I started at Tyson nearly 4 decades ago because I
wanted a job. I stayed because of the company we are, the
values we hold, and the important work we are privileged to do.
Again, I appreciate this opportunity, and I welcome your
questions.
[The prepared testimony of Mr. King follows:]
Prepared Testimony of Donnie King, Chief Executive Officer, Tyson
Foods, Springdale, AR
Chairman Scott, Ranking Member Thompson, Members of the House
Agriculture Committee, I appreciate this opportunity to discuss the
economics of our business with you today. My name is Donnie King, and I
serve as Tyson Foods' President and Chief Executive Officer.
Tyson Foods is an American company providing opportunities across our
country, including in rural communities
Tyson Foods was founded nearly a century ago, during the Great
Depression, in Springdale, Arkansas, by John W. Tyson. It is an
American success story: a company started by a young man looking to
provide for his family, with a single truck and a plan--to get food to
where people needed it. At the time, this meant transporting food from
Arkansas to places like St. Louis and Chicago. Today, as a fourth-
generation family business, Tyson continues to provide food where
people need it, here at home and in many other communities around the
world, while also providing jobs and opportunities to nearly 140,000
Tyson team members.
Tyson's home is still Springdale, but our team members live and
work all across America. With facilities in 30 states, Tyson produces
quality food in places like San Lorenzo, California; Joslin, Illinois;
Storm Lake, Iowa; Forest, Mississippi; Amherst, Ohio; and Pasco,
Washington. Tyson's economic impact in the communities we operate is
more than $27 billion annually, including $638 million in Georgia, $455
million in North Carolina, and $167 million in Virginia. And every
year, we invest more than $15 billion with more than 11,000 independent
producers who supply us with live cattle, pigs, chickens, and turkeys--
many of whom have supplied Tyson for multiple generations.
In the United States, our team members come from diverse
backgrounds, many different countries, and speak more than 50
languages. We are an integral part of the communities where we live and
work, and Tyson provides opportunities to our team members so they can
better access the promise of America.
At an average compensation of $24 per hour, including medical,
retirement, and other benefits, or what amounts to an average of
$50,000 per year in total compensation, Tyson provides our team members
with not only a good job, but a career. In fact, that's how I started
at Tyson--as an hourly team member on the production floor at our Pine
Bluff, Arkansas, chicken plant.
For many of our team members, Tyson represents an opportunity to
not only earn a good living, but to do so while attaining practical
life skills, high school equivalency, English as a second language
education, financial and digital literacy, and other career development
training through Tyson's on-site education programs, Upward Academy and
Upward Pathways. For others, Tyson gives team members and their
families a path to achieving their own American dream, with Tyson
paying for team members' citizenship fees and providing legal and other
support to those who take citizenship classes. We also provide a second
chance to those who need it, with rehabilitation programs that support
team members as they overcome substance abuse or reenter society after
incarceration. There are so many inspiring stories at Tyson, but not
all of them told because it's just who we are as a company.
Because Tyson is part of the communities where we live and work--
our charitable impact focuses on the places that we call home. From
anti-hunger drives, to disaster relief efforts, to community
fundraising, to support for public schools. Last year alone, Tyson and
our team members donated 64 million meals to help those in need, and we
will continue to provide such community support this year and in the
future.
I want to thank our many communities who support our business, and
I want to thank the 11,000 independent ranchers, farmers, and growers
who have been incredible partners, especially during these critical
times. And most of all, I want to thank our team members for the work
they do for this country every day. We are a diverse team of dedicated
people working together to overcome difficult challenges, including
sometimes personal ones, as we do our best to keep food on the tables
of our own families, our neighbors' families, and all the families in
the communities we serve across the nation and the world.
Basic market forces set prices
Although my testimony will focus on Tyson's beef business,
inflation is not limited to beef nor is it limited to Tyson. Across all
of Tyson's businesses, we are seeing significant increases to our input
costs. So too are other manufacturers--from other food companies to
manufacturers of appliance, furniture, automobile, and building
materials, to name a few.\1\
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\1\ See, e.g., ``Supply Chain, Rising Raw Material Costs and
Workforce Shortages Top Concerns for Manufacturers'' March 17, 2022,
National Association of Manufacturers. available at: https://
www.nam.org/supply-chain-rising-raw-material-costs-and-workforce-
shortages-top-concerns-for-manufacturers-17080/.
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It's also important to note that Tyson does not set the prices for
either cattle that we buy or beef that our customers purchase. These
prices are set by straightforward market forces, namely available
supply and consumer demand. These market forces mean that there are
times when the commodity business cycle favors one party over another.
For example, in 2015, these market forces worked against us when our
beef business lost $66 million because the supply of live cattle was at
its lowest. At the same time, cattle producers and feeders were making
record margins. In fact, the beef and cattle markets are some of the
most transparent in the world. For over 2 decades Tyson and other
producers have been required by law to electronically report to the
USDA, twice per day, the prices we pay for all cattle and all prices at
which we sell our beef. This mandatory price reporting--industry-wide
pricing data--is publicly available at the USDA website.
Recently, the business cycle for beef has experienced an extreme
swing between the price of live cattle and the price of finished beef
due to the confluence of a number of unforeseeable factors that
constrained the supply of beef while at the same time increasing its
demand. Chief among these were the unprecedented shocks caused by and
which continue to be caused by the COVID-19 pandemic.
When the COVID-19 pandemic led states and municipalities to enact
shelter-in-place orders and require businesses to close, Tyson remained
operational as part of the nation's critical infrastructure to ensure
continued availability of food. We went to extraordinary lengths to
implement promptly protocols to keep our team members protected against
the virus. We installed barriers, implemented physical distancing,
monitored temperatures, provided personal protective equipment,
initiated more frequent deep cleaning of our facilities, held mass
testing events--and later, vaccination events. All of these and other
necessary actions required us to slow or idle our operations.
We also required team members who felt sick or were displaying
symptoms of COVID-19 to stay home, with pay. Likewise, we required team
members who tested positive for COVID-19, including those who were
asymptomatic and identified through our testing programs, to stay home,
with pay. Other employees remained home for a number of other reasons,
including to care for children due to school and daycare facility
closures.
The collective effect of these factors led to an extremely
constrained pool of labor available to operate our facilities at full
capacity. Simply put, we just didn't have enough people to fully staff
our plants. This lack of available labor resulted in too many live
animals ready for processing and too few facilities staffed to properly
process those animals. This sudden and swift rise in oversupply of
cattle led to a corresponding sharp and swift drop in the market price
for them.
While COVID-19 significantly impacted numerous industries, the
impact on the cattle industry was pronounced for a number of reasons.
First, the cattle industry is the least agile of the three major
proteins because it takes years to raise cattle for harvest, as
compared to weeks for chickens and months for pigs. Second, cattle are
expensive to feed and have a limited age and weight range for
processing due to the impact larger, heavier animals have on
transportation logistics, team member safety, plant equipment and
customer specifications. Third, these market shocks occurred when the
supply of live cattle was at its peak. When the pandemic began, there
were six million more head of cattle on the market than there were at
the bottom of the cycle in 2014. Basic economics tells us that when
there is an unexpected and significant oversupply of live cattle, the
price of those cattle should fall, which is precisely what happened.
And, as the markets work through the impacts of COVID-19, we are
already seeing live cattle prices rising to more normalized pre-
pandemic levels.
At the same time cattle prices were falling, the price for finished
beef--the beef that consumers buy at grocery stores--was rising, driven
by skyrocketing consumer demand due to the uncertainty caused by the
pandemic as well as shelter-in-place and restaurant closure orders,
which meant that people were overwhelmingly cooking meals at home.
These factors were not unique to Tyson or its beef business. Processing
plants across the nation continued to manage without available labor
and were either idled or running at severely reduced capacities,
meaning that production of chicken, turkey, pork, and beef could not
keep pace with overwhelming consumer demand. Demand for beef and other
animal protein was rising while supplies were falling. Again, basic
economics holds that when demand is high and supply is low, prices will
rise, which is precisely what they did.
The situation has been deepened by geopolitical issues, which are
exacerbating the access to and shortages of essential inputs and
ingredients such as grain and cooking oil, resulting in higher costs.
To put it in perspective, each head of cattle consumes about 7,000
pounds of grain feed in the 7 months before processing. Today, the cost
of gain has increased 75%, from $0.80 per pound to over $1.40 per
pound. This dramatic rise in input costs is reflected in the prices
American families pay at the grocery store.
Recent price shifts have nothing to do with industry consolidation
Concentration in the beef processing industry has remained constant
during the last 30 years. Over that time, data shows that ranchers
more-often-than-not achieve higher profit margins than beef processors.
And in most of those thirty years, the profit margins of ranchers and
cattle producers have been much higher than the low, single-digit
margins we made as beef processors. In fact, in several years, ranchers
made historic profits on live cattle while beef processors either lost
money or barely broke even, as is illustrated in the chart below. This
too, is the market at work.
Historical Margins per Head by Sector versus Packer Four Firm
Concentration Ratio
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Packers and Stockyards Division (concentration).
Sterling Marketing (margin.)
Tyson produces quality food at market prices
Despite the market shocks brought by COVID-19 and global unrest,
America's food system remains among the world's safest, most resilient
and affordable.
According to the USDA, the ``share of disposable personal income
spent on total food has trended downward since 1960 . . . .'' \2\ As
illustrated in the chart below and noted by the USDA, ``[i]n 2020, U.S.
consumers spent an average of 8.6 percent of their disposable personal
income on food.'' \3\ Twenty years prior, that number was nearly 12%.
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\2\ https://www.ers.usda.gov/data-products/ag-and-food-statistics-
charting-the-essentials/food-prices-and-spending/ (last visited July
26, 2021).
\3\ Id.
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[Historical] Share of Disposable Personal Income Spent on Food in the
United States, 1960-2020
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA ERS, Food Expenditure Series.
Today, in part because of continuous improvement in how we operate
our business, beef is more affordable, available, and accessible for
more Americans than ever. And, with advancements in how we source
cattle and improvements in modern cattle production, the beef we
produce today is consistently higher quality. For example, choice and
prime beef grades have increased from 60 percent in 2000 to 85 percent
in 2020. Today, Americans are demanding higher-quality, convenience and
variety--all of which customers are willing to pay for across the food
chain, benefiting both cattle producers and beef processors. There is
also a growing demand for higher-valued products across the world,
including specialty products which are in far less demand in the United
States, like organ meats. Such demand raises the value of the whole
animal, which benefits ranchers, feeders, and producers.
Tyson's returns are also strengthened by our efforts to become a
more agile and efficient company through innovation and automation.
This means that we are able to run our business more safely and at a
lower cost, with higher capacity utilization. These savings will help
to keep costs to consumers lower, enable us to pay our team members
more, and allow us to further reinvest in our business.
Economists and government regulators agree: American businesses are not
to blame for inflation
Today, as the Committee knows well, prices are up for nearly every
product Americans buy, as inflation rates climb to the highest level in
generations. As of this testimony, gas is up 25%; labor costs are up
20%; and the agricultural commodities we require to operate are up
across the board. Since March 2020, the cost of corn is up 127%,
soybeans are up 90%, and soybean meal is up 54%. Year over year, soy
crush plant margins are up 168% with key fertilizers like nitrogen,
potassium and phosphorus going up between 115% to 246% in that
timeframe.\4\ Freight transportation costs are likewise rising, with
international shipping container rates up 68% and diesel fuel up 104%
year over year.
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\4\ Agrus, Goldman Sachs Global Investment Research as of 3/31/
2022.
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Experts, policymakers, and government regulators understand that
the cause of the current inflationary environment is some combination
of constrained supply, high consumer demand, and continued unforeseen
disruptions to the global supply chains caused by COVID-19 and
exacerbated by geopolitical unrest.
In February 2022, the U.S. Department of Justice recognized that
``[e]conomies across the globe have faced significant challenges caused
by supply chain disruptions resulting from the COVID-19 global
pandemic'' and that ``[t]ransportation constraints, disruptions to
routine business operations and difficulty in obtaining raw materials
have all led to increased costs of production and shipment, which in
turn have resulted in higher prices for consumers'' in a variety of
industries, including agriculture.\5\ To state the obvious, these
rising input costs are not set by Tyson.
---------------------------------------------------------------------------
\5\ Press Release, U.S. Department of Justice (Feb. 17, 2022).
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Lawrence Summers, the former Treasury Secretary, observed that
``[r]ising demand, with capacity and labor constraints, are fully
sufficient to account for what we observe in meatpacking.'' \6\ Earlier
this year, the U.S. Chamber of Commerce similarly found that ``[l]ike
so many other products, the factors driving meat prices higher include
increased demand, COVID-related supply chain disruptions, and increased
input costs, especially higher energy and labor costs.'' \7\
``Consumers are buying beef,'' said David Anderson, a livestock
economist at Texas A&M University.\8\ ``What we're seeing with prices,
I would argue as an economist, that's exactly what we should see given
this bottleneck.'' \9\
---------------------------------------------------------------------------
\6\ Lawrence H. Summers, former U.S. Treasury Secretary, Twitter
(Dec. 26, 2021); see also Washington Post Editorial Board Opinion (Jan.
10, 2022) (``Inflation, which was relatively low for years, did not
suddenly rise in recent months because businesses decided now was the
ideal time to squeeze their customers. What actually happened is that
demand soared for many products as the economy recovered. Often, there
were not enough products to meet it, thanks to supply chain hiccups and
labor shortages, so prices went up.''); Wall Street Journal Editorial
Board Opinion (Jan. 7, 2022) (``Like so much else . . . meat prices
have soared amid surging demand, rising production costs, and
constrained supply.'').
\7\ U.S. Chamber of Commerce News Release (Jan. 3, 2022).
\8\ Reuters, ``Analysis: High U.S. meat prices: packer profiteering
or capacity crunch?'' (Jan. 19, 2022).
\9\ Id.
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Economists recently commissioned by the USDA to study the issues
surrounding fed cattle pricing agree, stating in their report:
``Fundamentally, the recent market disruptions were the result of low
demand for live cattle, some high demand for beef products, and tight
supplies of beef, all resulting from limited live cattle processing
capacity.'' \10\
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\10\ Texas A&M University Agricultural and Food Policy Center
(AFPC), The U.S. Beef Supply Chain: Issues and Challenges, at 163
(2021). In August of 2020, the House Committee on Agriculture asked the
USDA to commission a study to look into the issues surrounding fed
cattle pricing. The USDA partnered with the AFPC at Texas A&M and the
cited book is the culmination of that work. That said, the authors note
that the book should not be construed any official USDA or U.S.
Government determination or policy.
---------------------------------------------------------------------------
Tyson continues to invest in America
The returns we make allow us to invest in our team members and
business. For example, during the pandemic we implemented $500 million
in wage increases and bonuses for our hourly team members. We expanded
our childcare programs, recently breaking ground on a new onsite
childcare facility in Tennessee. We have opened free health clinics on
or near a number of our processing facilities where access to medical
care is challenging. And, most recently, we announced the expansion of
educational opportunities from technical skills to upper-level degrees
that will be offered to our team members for free.
We also invest back in our business, including product and process
innovation and opening new facilities to increase capacity, meet
consumer demand and stay competitive with the rest of the world. For
example, since 2019 Tyson has opened several new processing plants,
including beef, chicken and pork further processing facilities,
distribution centers, feed mills, and hatcheries. We have also
increased capacity in a number of our facilities by adding additional
production lines. Each of these facilities means more demand for
farmers' and ranchers' products and more job opportunities for
Americans.
Notably, during the pandemic, Tyson began operations at its new
$425 million, 370,000 square foot poultry complex in Humboldt,
Tennessee, which is expected to employ 1,500 team members by 2023. In
August 2021, we announced a $300 million investment to build a new
325,000\2\ fully-cooked chicken plant in Danville, Virginia. This new
facility is expected to create nearly 400 jobs when production begins
in spring 2023. Also in 2021, Tyson opened two new facilities to
support growth in case ready beef and pork products in Eagle Mountain,
Utah, and Columbia, South Carolina. These facilities are expected to
add approximately 270 million pounds per year of additional capacity.
And we recently broke ground on a new $355 million bacon plant in
Bowling Green, Kentucky, which is expected to employ 450 people and
meet the growing demand for Tyson's products.
These investments are good for our company and the country,
providing additional jobs and opportunities for those in the
communities where our facilities are located and adding additional
capacity and resiliency to the country's food supply chain.
Conclusion
As I said earlier, I started at Tyson, nearly 4 decades ago,
because I wanted a job. I stayed because of the company we are, the
values we hold and the important work we are privileged to do.
Our company was founded by a man who found a better way to feed
people. Today, all 140,000 Tyson team members honor that legacy by
continuing to find better ways to feed America and the world. What we
do is critical to this nation's food security, and I invite all Members
of the Committee to visit us, anytime, so you can see for yourself why
we are so proud of the company we work for.
I appreciate this opportunity to share our perspective.
The Chairman. Thank you very much, Mr. King. And thank all
four of you for your excellent testimonies.
And now at this time we will go right into our questions.
Members will be recognized for questions in order of seniority,
alternating between Majority and Minority. And you will be
recognized for 5 minutes each in order to allow us to get in as
many questions as possible. And once again, please, please keep
your microphones muted until you are recognized in order to
minimize noise. And now I will start the questions.
And this is such an urgent hearing, as we just previously
heard, the real challenges that our ranchers are facing. I
don't know if you all as the CEOs were watching, but it was
very impactful and effective. And our ranchers and those who
form the first phase of our food supply line, our beef supply
line are facing critical issues.
And I appreciate deeply you CEOs coming and participating
because we will not be able to find the right solution to help
this first part of the supply chain, which you critically need
because without the meat, there are no meatpackers.
With that, I want to start with recognizing the three major
components of our hearing. First, our consumers; second, our
ranchers; and third, our packers. And we are going to be
examining questions about supply, about price, about
affordability, and also about whether our ranchers, who produce
the cattle, can afford to farm to stay in business. As we heard
from the panel today, the pressures are so great that there
have been efforts of suicide. When that happens, you know we
have to move to correct this imbalance.
First, let me just say a few words about our first part,
consumers. Right now, the consumers' cost for beef is $7 per
pound right now at the grocery store. The price of beef has
climbed 18 percent so far in this year, making it very hard for
parents to afford beef for their children, for their families.
Next, the ranchers. Our ranchers, our precious ranchers,
our Committee heard earlier today from some of our nation's
ranchers who, while putting in their heart and soul--I grew up
on a farm. Farming is heart and soul year after year, and
nowhere is that more expressive than with the raising of cattle
from the calves spending time in all manner of weather, taking
care of them, free from disease so that they can make it for
the 4 or 5 years it takes to get them to you, our that beef
packers.
And yet while our grocery bills and our ranchers are being
forced to sell their cattle at a loss, our four meatpacking
companies are making record profits. In fact, your companies
reported over $15 billion in profits in this last year alone.
And I don't argue with the ability to earn profits. I am a
businessman myself. That is why you are in business.
The third component of this equation is about the four
packers. Now, Mr. King, in your testimony you discuss the labor
shortages caused by COVID-19, which resulted in a reduction of
facility capacity and an oversupply of cattle, which caused the
swift drop in market price that you paid for cattle. So my
question to you, Mr. King, is it correct then to say that labor
shortages caused by COVID-19 were responsible for the prices in
the beef and cattle markets and your record profits? Mr. King?
Is it correct then to say that labor shortages caused by COVID-
19 were responsible for the prices in the beef and cattle
markets and also responsible for your record profits?
Mr. King. Chairman Scott, I hope you can hear me at this
point.
The Chairman. Yes, I can.
Mr. King. So thank you for that question, and I'm sorry for
the technical difficulties that we continue to have. But let
me--what I testified in my opening statement I stand by. The
unforeseen shocks of the pandemic that we saw was--you know, it
was a significant issue for us. It was--and for all industry.
Many businesses closed or idled or reduced capacity, and many
sheltered in place, stay at home. As was testified by one of my
competitors earlier, we were also at the top of the cattle
cycle, and my memory is that we had about six million head more
cattle at the top of the cycle when the pandemic hit----
The Chairman. Mr. King, I want to get to the crux of the
matter here. But these factors that you have given, they really
don't tell the full truth here because from my own research
your profits are largely determined by what is called the meat
margin. And the meat margin is the difference between the
prices your four packing companies pay for cattle and then the
prices that you charge for beef.
Now, I would like to display a chart if we can look at the
board there. This chart is based upon USDA data that shows that
your meat margin has been raising steadily since 2015. Twenty-
fifteen, Mr. King, is 5 years before the pandemic began in 2020
and well before the supply chain disruption. In 2015, the year
your meat margins started to soar, allegations were made
against you that your four companies entered into an agreement
to reduce supply and push profits up. And I think we all know
that he who controls supply, controls the price. So let me ask
you to respond to that.
[The chart referred to is located on p. 135.]
Mr. King. Chairman Scott, thank you for the question. There
are a number of things if I could unpack that for you. From
2015 until the pandemic hit, in 2015 we were coming off the
trough of the most recent bottom of the cycle where herd
liquidation and drought in 2013 created that situation. So the
supply of cattle were very tight. So you're starting to see
herd rebuild, and you're starting to see capacity utilization
go up in plants. And at the same time, the quality of beef
expected by consumers continued to change as well.
The Chairman. Allow me because I wanted to get to the
point. My time is sort of running down. And I wanted to ask
before my time gets down. I want to ask each of you so we can
get 100 percent clear on this issue. This is a primary issue
here that we need to clear up, and that is this. Is there or
was there ever an agreement between your four companies to
cooperate together on issues impacting supply or pricing? And I
need a yes or no. And also let me remind you that you are
testifying under oath. I need to know if there ever was an
agreement with you to set this up. Because the chart clearly
states that it was 2015 and there was an abrupt, immediate
charge up. And when you look at this chart, it explains why
questions are being raised. How can this jettison up? And it
started well before the COVID-19 of which you say caused the
problem or caused the record amount of profits. So I want to
get the yes or no and whether or not you all had agreement on
pricing.
Mr. Klein. No.
Mr. MacLennan. No.
Mr. Schellpeper. No, not that I am aware of.
Mr. King. No.
The Chairman. All right. Each of you have said that--no.
And you all deny that you acted improperly or illegally, but
none of you has been able to explain this meat margin chart and
why your shares kept rising since 2015.
Now, it is very important that we get a correct and honest
answer here because this is the crux of the issue. And let me
tell you, this can't possibly happen in a competitive market. I
have studied antitrust behavior at the Wharton School of
Finance at the University of Pennsylvania, so I can tell you
that this is exactly the type of activity that has caused many
others on both sides of the aisle to raise these questions. And
so I wanted to get that out of the way and make sure that you
have answered it under oath to answer those allegations.
So with that, I will now yield to the Ranking Member for
questions--or the gentleman from Arkansas, Mr. Crawford.
Mr. Crawford. Thank you, Mr. Chairman.
The Chairman. You are now recognized----
Mr. Crawford. Will I be allotted 10 minutes for my
questioning? Just curious.
The Chairman. Yes, you may.
Mr. Crawford. Ten minutes?
The Chairman. Yes.
Mr. Crawford. Ten, all right, thank you.
I will start with Mr. King. Concentration in the meat
industry has stayed relatively constant for more than 25 years,
and over that period, meat prices have moved up and they have
moved down. Despite that fact, the Biden Administration has
been falsely blaming packers for recent skyrocketing inflation.
Even Larry Summers, the Secretary of the Treasury for President
Clinton and the Director of the National Economic Council for
President Obama, recently tweeted, ``Rising demand with
capacity and labor constraints are fully sufficient to account
for what we observe in meatpacking, the Administration claims
notwithstanding,'' end quote. Mr. King, your thoughts on that
statement?
Mr. King. Thank you, Congressman, a great question. Very
simply, experts, policymakers, government regulators agree. The
combination of supply, consumer demand, pandemic disruptions
and geopolitical unrest is reason enough for the inflation. And
you referenced Larry Summers, former Treasury Secretary, but we
also have the testimony of U.S. Chamber of Commerce, we have
David Anderson, a livestock economist at Texas A&M University.
They all agree that what we're seeing from the sudden shocks to
the economy is expected.
Mr. Crawford. Thank you, Mr. King. I appreciate your
insights there. I want to switch gears just a little bit,
direct this question to Mr. David MacLennan, Cargill CEO. Do
you believe it is okay to discriminate against an individual--
based upon their race, color, creed, or national origin?
Mr. MacLennan. No.
Mr. Crawford. You don't? I have in my possession some
communication from Cargill that indicates otherwise. It says,
``Working together with Cargill has developed a supply chain to
better connect Black cotton producers with key markets and
suppliers. This initiative was borne out of comments we
gathered in listening sessions with Black producers and
supports ongoing work around Black farmer equity. Through this
program, we're able to pay participating farmers a premium with
no additional discounts for quality. We moved cotton from the
farm to our customers who are key suppliers for Target. It has
been a successful program, but we continue to scale.'' Now, how
do you square that with your position that you don't
discriminate based on an individual's race, color, creed,
national origin?
Mr. MacLennan. Congressman, you're referring to our Black
Farmer Equity Initiative, something that Cargill is very proud
of. As you likely know, less than roughly \1/2\ percent of
farmers in this country are Black, and so as part of our
diversity-equity-inclusion efforts, we're supporters of our
Black Farmer Equity Initiative----
Mr. Crawford. Are you including Hispanic farmers, are you
including Asian American farmers or just targeting Black
farmers in this case? Are you including other commodities? You
had a laundry list of commodities that you process that you
mentioned in your testimony. Are all of those going to be paid
premiums as well, and are all minority farmers going to be
included or just Black farmers? Are we also including women
farmers?
Mr. MacLennan. Well, it depends on the country. If you're
talking about in the United States, we certainly will consider
other focuses like the Black Farmer Equity Initiative, again,
something we're proud of and, I would add, that it is something
that our customer Target has asked for and that their consumers
are asking for in terms of more diversity in their supply
chains. And with such an underrepresented minority such as
Black Americans being involved in farming, we feel this is the
right thing to do.
Mr. Crawford. What about underrepresented minorities, for
example, Hispanic farmers or women farmers? Has there been any
desire from, say, companies like Target to improve outcomes for
other minority farmers?
Mr. MacLennan. Over half of the world's farmers are women,
so if you're referring to the United States, we certainly will
consider----
Mr. Crawford. What does this policy extend to? Is it
African American farmers? Is this Black American farmers that
you are extending this policy to? So in that case, what is the
ratio of women to men farmers? What is the ratio of Hispanic to
non-Hispanic farmers? What is the ratio of Asian American
farmers to non-Asian American farmers? Are we really going
after diversity and equity or are we going after one specific
demographic or does this include everybody?
Mr. MacLennan. At this point, it's one specific
demographic. It's less than 1 year old, and it is part of our
DEI focus. So to expand it to other ethnic or gender-based
groups, certainly that's something that we'll consider. I don't
have the statistics----
Mr. Crawford. Well, I have another concern in this
statement that says that you are not making any discounts for
quality, so that is almost an incentive to produce lower
quality. And then further on you say you plan to scale that
program. Can you elaborate on that, how you are going to not
pay a discount or deduct a discount for lower quality, you are
paying a premium to the market, and then you plan to scale
this. Do you not think that is going to have some impact on the
market?
Mr. MacLennan. I think the integrity of the farmers that we
deal with will show that they'll not only produce equal or
better quality from what they have or what the market is
producing, so I have confidence in the farmers that we're
dealing with that quality will not suffer.
Mr. Crawford. Thank you, Mr. Chairman. My time has expired.
I have used my 5 minutes.
The Chairman. The gentlewoman from North Carolina, Ms.
Adams, who is also the Vice Chair of the Committee on
Agriculture is recognized for 5 minutes.
Ms. Adams. Thank you, Chairman Scott and Ranking Member
Thompson, and thank you as well. And to the witnesses, thank
you for being here.
I do want to ask the witnesses about your workforce, the
people who work in your plants to provide food for America and
the world. I understand that there are worker shortages that
are exacerbating production, and it is one part of the puzzle
that needs to be addressed. As you may know, I am Chair of the
House Education and Labor Workforce Protection Subcommittee,
and so as we continue to navigate this pandemic, I want to know
what specifically each of you are doing to protect the workers
who work on your assembly lines. So can you tell the Committee,
again, and if you could be specific, I would appreciate that,
what benefits are available to these workers, and were they
enhanced during COVID and are they still enhanced, and you can
talk about the healthcare, 401(k) plans, paid time off, et
cetera. So, Mr. MacLennan, let's start with you.
Mr. MacLennan. Hi, Representative Adams. As I mentioned in
my opening statement, we have significantly expanded the
benefits that we paid to our line workers. The food supply of
this country would not have survived if it weren't for the
workers in our plants throughout the country. We have enhanced
our 401(k) benefits. We have enhanced our healthcare benefits,
and we were one of the first companies to take decisive action
when COVID broke out in early 2020 to make sure that--to move
quickly to close down facilities if we had to or put in
protective measures, for example, plastic screens between
workers on the line or even plastic screens at the lunch
tables, which was a place prior to COVID that was very social
for our workers.
And I would also quote Marc Perrone, who is the President
of the UFCW, and he testified in front of the House Committee
on Oversight and Reform in 2020. And he said some responsible
employers like Cargill have done what is right. It's one of our
core values, and we are committed to the workers in our plants
not only in the meat industry in the U.S. but around the world.
Ms. Adams. Okay. Can we move on to Mr. Schellpeper?
Mr. Schellpeper. Yes, thank you, Congresswoman, for the
question. So I'm very proud of our workforce because we went
through that very difficult time. And we had three goals at
JBS. First and foremost was protect our workforce. Second, was
to recognize our role in the nation's food supply, and third
was to maintain employment and benefits for all of our
employees.
We put through several measures that--to keep our workforce
safe, beginning with screening at our plants, dividers in our
workstations, air filtration systems, upgraded air filtration
systems that we put inside of the common areas of our plants,
cafeterias, and locker rooms if you will. We had--also had
bonuses that we paid out to our team members that were not tied
to attendance. And then just last year we put through two
sizable wage increases for our employees, and we believe that
we are in a leading position on wages for our workers.
Ms. Adams. Great. Yes, I would like to ask Mr. Klein and
Mr. King as well, and I don't want my time to run out, so if we
can move on, I would appreciate that. And I apologize. So, Mr.
Klein, what about you?
Mr. Klein. Yes. We instituted several measures the same as
others have done. We put workplace partitions in our production
floor and in our breakrooms. We instituted screening for
employees coming into the plant. We also provided testing
facilities at all our locations so that employees could be
tested. The results of that were the positive rate among our
employees 18 and over was almost half of what it was in the
communities where our plants are, so we feel like we've been
very effective----
Ms. Adams. Great. Thank you. Mr. King, can you tell me a
little bit about what you have been doing?
Mr. King. Congresswoman, in terms of our team members,
their safety, their health, and their families are our highest
priority, has always been highest priority. We have 140,000 of
them across Tyson, and we--my colleagues here have talked a lot
about all of the things and measures and protocols. In fact, my
testimony earlier talked about the fact that capacity
utilization was negatively impacted because of the protocols we
put in place, barriers, social distancing, temperature
checking, testing, and then most recently the vaccine mandate
that we put in place.
But in addition to that, we realized that team members can
work wherever they want to work, and we have to give them a
reason to work for Tyson. And over the last year we've been
working to that end. We've done pay increases as well. We are
$24 an hour, which is about $50,000 a year, which is very
similar to that of a college graduate of $55,000 a year. We
think we provide good jobs, and we've recently announced some
of the things we're doing around immigration and paying for
legal fees and trying to help those get legal status and try to
help with life skills for team members, things like English and
math and how to do a family budget----
The Chairman. Mr. Klein, the gentlelady's time has expired.
We want to get as many members in as possible.
So now I recognize the gentleman from Tennessee, Mr.
DesJarlais, for 5 minutes.
Mr. DesJarlais. Thank you, Chairman Scott. And thank you to
our witnesses for appearing today.
The cow-calf producers in my district are frustrated from
astronomically rising input costs to labor shortage to supply-
chain constraints and an Administration that seems more focused
on climate change and increasing overburdensome regulations.
Our cattle ranchers and farmers are hurting. Family farmers are
shuttering across the country as they face diminishing margins
in an already difficult economy. While cattle markets are
increasingly complex and incredibly complex, I don't need to
tell you all that any disruptions at the packing sector impact
cattle prices. We have seen price disparities between boxed
beef and live cattle facing several black swan events. And
while I believe there are many factors at play here, including
record levels of inflation that this Administration is doing
nothing about, I do want to discuss cattle markets.
After conferring with Tennessee Cattlemen and Charles Hord,
we want to know what steps have you taken as an industry to
minimize the impact of market disruptions, whether those be
from fires, pandemic like COVID-19, which at its peak took
roughly 40 percent of the processing capacity offline, or other
unforeseen factors that impact cattle producers and
profitability. And I will open that any of you who would like
to comment.
Mr. Klein. Thank you for the question. In terms of the
steps that we've taken--well, first of all, with the fire in
the Holcomb plant, the rest of the industry made up a lot of
that lost production by running extra hours, Saturday hours
when normally we would have given our employees time off. That
was a big factor.
In terms of the pandemic, there was not a lot we could do.
We ran as many cattle as we could. We shut down one of our
plants for 2 weeks during that time period and opened it back
as soon as we were able to. But our other plants in Kansas, we
had weeks where we were running 50 percent of capacity and
contemplated shutting down one shift. So when we have these
events, there's not the ability to completely mitigate it. And
it happened across the whole industry.
Mr. DesJarlais. And things like this will happen again, and
so I guess what are we doing to mitigate that in the future?
Would anyone else likes to comment?
Mr. King. Congressman, Donnie King with Tyson Foods. As a
company, we have often--annually do risk assessments where we
assess what risk we face and what are those mitigation steps. I
got to tell you, in conjunction with our board and leadership
team, we did not anticipate the pandemic, so there have been a
number of key learnings from that. It's an opportunity to go
and to get better but--and we have, but we're assessing this
and future risk similar to this--these black swan events to try
to protect our company.
Mr. DesJarlais. We are hearing suggestions from the
producers on our first panel, but I would like to hear from you
all now. What steps do all think can be taken to ensure
profitability for all sectors of the cattle industry, including
cow-calf producers?
Mr. Klein. Thank you for the question. I'd like to answer
that. I believe we have to look at the situation today in the
context of history. And if you go back before 2016, the packing
segment was the smallest profit margin of any segment of the
industry mainly because of overcapacity in the industry. In
2016 forward, capacity had already been taken out. We saw a
dramatic increase in the supply of cattle. As a result of that,
margin structure shifted to our segment. But historically, it
was--resided--the cow-calf producers had the biggest share of
the profit pie so to speak prior to 2016.
Mr. DesJarlais. Okay. Because I have just got 50 seconds,
Mr. Klein, I want to ask you one more question. Some of the
folks continually are pushing for an increase in diversified
slaughter capacity across the country. They're also pushing for
government-mandated levels of cash trades by packers. Your
testimony mentions the importance of alternative marketing
agreements and allowing your company to grow and compete with
the largest packers. Do you think the AMA will be vital to new
slaughter facilities coming online across the country?
Mr. Klein. I think for a new facility to survive, they've
got to offer something different. And one of those attributes
is quality. The demand for quality beef is very high, and AMAs
are a very important piece of that.
In terms of the cash market question, more cash trade today
will not help the producer. Today, many of the cattle that are
brought in on AMAs or other agreements are because the producer
wants a guaranteed home for their cattle.
Mr. DesJarlais. Okay. My time has expired. I yield back,
Mr. Chairman.
The Chairman. Thank you. The gentleman from California, Mr.
Khanna, is recognized for 5 minutes.
Mr. Khanna. Thank you, Mr. Chairman.
I wanted to start briefly by going over Mr. Crawford's
exchange with Mr. MacLennan. I was a little bit surprised that
he was criticizing you, Mr. MacLennan, for having a program to
seek Black farmers. As you know in the 1920s, 14 percent of
farmers in this country were Black. That is almost down to one
percent today. And there is a simple reason why that is the
case is because the United States Department of Agriculture
discriminated against Black farmers. Mr. MacLennan, can you
explain to this Committee the history in this country with
Black farmers and why it is perfectly appropriate for your
company to be working with Black farmers, given that history?
Mr. MacLennan. Well, Representative, you cited I think the
most powerful components of that story of Black farmers of this
country over the last 100 years from 14 percent to it's less
than one percent. And I think we're all very well-versed in the
aspects of history and the aspects of our culture, which have
contributed to various aspects of the farming industry. But our
belief and our commitment to diversity, equity, and inclusion
is not just within the walls of our company but it is also in
our supply chains. And, as I said to the Representative who
posed the question originally, this is what our customers want.
We believe this is what our consumers want, and basically, it's
the right thing to do to support the Black farmer community,
which has shrunk dramatically over that period of time, and to
give them support so that they can grow their ranks and frankly
provide more jobs within that--within the farming community,
not to mention the Black farming community.
Mr. Khanna. Well, Mr. MacLennan, we may have our
disagreements on some of the issues here, but I want to applaud
you for that and applaud your commitment to that. I think that
is the right thing to do as Americans. And I for one am glad
that you are doing that.
Mr. MacLennan. Thank you.
Mr. Khanna. I want to turn to the issue of intimidation by
meatpackers towards producers. Senator Fischer entered a letter
into the record just yesterday from Nebraska Cattlemen saying,
quote, ``None of our producer members were encouraged to
testify or willing to put themselves out front for fear of
possible retribution by other market participants.'' I assume
all of you, all the CEOs I am hoping will commit today to
encourage producers to openly share their stories about
industry and meat production in general without any fear of
retaliation. It can be a simple yes or no. Mr. MacLennan, we
can start with you. Would you commit to that?
Mr. MacLennan. Yes. I can't imagine anything that would
happen that would discourage the exchange of information.
Mr. Khanna. Go to the other--could the other CEOs just go--
--
Mr. Schellpeper. Yes, of course.
Mr. Khanna. Anyone----
Mr. King. Absolutely.
Mr. Khanna. I appreciate that.
Mr. Klein. Yes.
Mr. Khanna. The one other issue I want to get to, as you
know, a lot of livestock producers are working under contracts.
The grower takes on a lot of the environmental liability for
the operation. However, many of your companies are actually
dictating or working with the producers on how to grow the
animal, how to feed them. And right now, the farmer basically
gets all the risk for the environmental permits and the
companies don't. One way forward could be if each of your
companies would support legislation requiring co-permitting
with these producers or farmers on a contract. Would you be
open to a co-permitting framework. Mr. Klein?
Mr. Klein. Thank you for the question. First of all, we
don't deal directly with the cow-calf segment of the industry
and there where the permits are important. We are two steps
away from that. So in terms of your question whether we would
support it, I'd need to know more about it to understand it
better.
Mr. Khanna. Anyone else want to jump in and possibly
supporting co-permitting?
Mr. King. I would echo what Mr. Klein had to say and that
we'd need to know more about it, but we tend to buy a large
percentage of our cattle through feeders as well.
Mr. Khanna. Well, I would appreciate if we can consider
something like that. I think it would go a long way in helping
farmers. Thank you, Mr. Chairman.
The Chairman. Thank you, Mr. Khanna, and I just want to say
I agree with you in complementing Cargill for their help of
Black farmers. Thank you for that.
Now, the gentlelady from Missouri, Mrs. Hartzler, is
recognized for 5 minutes.
Mrs. Hartzler. Thank you, Mr. Chairman, and thank you all
for being here, a very, very important topic.
In the last panel we heard testimony that \1/2\ million
ranchers have gone out of business over the last few years,
that is an average of 17,000 cattle operations a year, 40
cattle operations every day. So I would like to hear your
thoughts really on what is your vision for the cattle industry
in the years to come? Many of the other segments for the
agriculture have gone to vertical integration with poultry
operations, pork operations where some of you own the whole
thing, you own the animals from the beginning till slaughter.
Is that what you envision eventually is going to happen in the
cattle market? Or what would you like to see as far as the
cattle industry looking like 10, 15 years from now? So since
Mr. Klein is the only one here in person, maybe we could start
with you.
Mr. Klein. Thank you for the question. I believe that the
future of the beef industry is--it's very important that all
segments work together. The cattle numbers, ranches have
dropped, cattle numbers have dropped since 1980, but it was
really as a result of reduction in demand for beef across the
globe due to health issues at the time and also ranchers'
decisions to repurpose land. At the same time, we saw an
improvement in the efficiency at the ranches, being able to put
more pounds on cattle than ever before.
So as I look forward, I believe that we're on the right
track in terms of creating a quality product that is demanded
across the globe. The profit opportunity today in--across all
segments is greater than it's ever been, and that's because of
the quality of beef we have in the system and the demand growth
that we've seen as--particularly in the last 2 years.
Mrs. Hartzler. So you believe the current model of cow-calf
operations owned by individual family farmers will continue 10,
15 years from now, and that is what you would like to see?
Mr. Klein. Yes, the average herd size today is 43 head
ranch size, so it's very small, and they're not going to make a
living on just that, so they've got to do something else. But
it's a very nonintegrated industry, and I believe it's going to
stay that way. I don't see packers owning ranches, so I think
what--the model that's in place today is a good model. The
profits will shift back and forth. In 2014 and 2015, all the
profits went to the cow-calf segment and we were losing money.
So these are the cycles that we deal with every day.
Mrs. Hartzler. Mr. Schellpeper, what are your thoughts
about the vision for the future?
Mr. Schellpeper. Again, thank you, Congresswoman. This is a
cyclical business, and we're coming now into a cycle where
perhaps profitability will switch in the chain. Our model at
JBS is we buy not from the ranchers but we buy from the cattle
feeders and we buy the cattle how they want to sell them,
whether that's on a cash market, whether that's on an AMA,
whatever that might look like. We will follow their lead in
those discussions.
Relative to JBS owning ranches, particularly towards your
question, no, I don't anticipate that happening in the future.
Mrs. Hartzler. I would like to hear from the others but I
want to move to the second part of my question. What can you do
to help producers stay profitable? Or do you believe it is
hands off, the market will just work its way out and you have
no role in that? So I guess we will go to Mr. MacLennan.
Mr. MacLennan. Yes, thanks, Congresswoman. We will continue
to provide markets for the ranchers to sell their cattle. I do
believe that the markets, as several witnesses from the last
panel as well as this panel have testified, that the
cyclicality of this industry is starting to turn. One of the
witnesses from the prior panel talked about an 8 to 10 year
cycle, and we are starting to see that the market--the supply
and demand components and the prices in the cattle market are
starting to change.
We can't survive as an industry--this country can't feed
itself without the small family ranchers and farms that we
depend on. Cargill was--is a family-owned company founded in
1865, so we need family farmers and family ranchers in the
industry, and we consider them our partners.
Mrs. Hartzler. Thank you very much. My time is out, but I
appreciate what you do and hope that we will be able to keep
the cattlemen viable for years to come. Thank you. I yield
back.
The Chairman. Thank you. And now the gentleman from
California, Mr. Panetta, is now recognized for 5 minutes.
Mr. Panetta. Great, thank you, Mr. Chairman, and thanks to
our witnesses for participating in this hearing today and
appreciate your testimony and information that you are
providing.
I hail from the Central Coast of California. We don't have
that many cattle, we don't have that much pork, we don't have
that many chickens, but I can tell you we have a lot of
specialty crops. And I think you know as well as I do that our
issues are still similar. And one of the most pressing issues
that I think we have is the labor or I should say the lack of
labor. And so I would like to kind of start off by focusing on
that.
And, Mr. King, I will go ahead and start with you.
Obviously, we have heard a lot about labor availability
problems in packing plants even before COVID hit. How did labor
availability affect you during the last 2 years, and what is
your labor situation today? And I think I have my
recommendations as to what Congress can do or what this
Administration could do. What do you think we can do here in
Washington, D.C., to alleviate packing plant labor shortages?
Mr. King. Thank you, Congressman, and there--you know, to
be honest with you, there's not a lot more important than being
able to attract and retain great talent. And so we talk about
that so much here at Tyson. We realize today that those who
choose to work for us have options. They can work just about
anywhere they want to work today and make a life. And so what
we have made a concerted effort to do is to give them a reason
to work for us through pay and benefits, if they are--you know,
we've got people from 160 different countries speaking 50+
languages across our company, and so we do things like teach
basic life skills. But we recently announced investing in
education from life skills all the way to upper-level degrees
in college where we would pay that. And, we've also done that
in conjunction with historically Black colleges and
universities as well.
So we're proud of that and investing in it, but very
simply, what we have to do is to create a more attractive place
to work. And we recently invested in and broke ground on our
newest childcare facilities in Humboldt, Tennessee. I was there
with the Governor of Tennessee when we did that. And team
members in some subsets are telling us that's critical to be
able to get them back in the workplace. So we're investing in
that, and it's a great--to your question, it is a great example
of the private- and public-sector working together to solve a
problem, and so we're piloting that. We're expecting really
great things from that, but that's just one of the tools that
we're using to try to create a better place to work.
We're also doing things like creating flexible work
schedules for team members so that we can find when they want
to work, what works around their life and everybody's in
different stages of life and so we try to accommodate those. To
be real candid, we've had to become far more flexible than at
any other time in my near 40 years in the business, and just
the diversity of the workforce that we have, I mean, we're
proud of that and we're proud of what that brings to the whole
Tyson team.
And so a lot of good is coming out of the last couple of
years. We're better--we are a better company as a result of
that. It's been extremely challenging, but we--we'll be better
going forward from having gone through this and having to deal
with these issues.
Mr. Panetta. Understandable. I want to hit one more area,
and that is obviously supply chain issues especially with your
exports. And how have they been impacted due to the delays that
I think all of our industries have experienced? And obviously,
you are familiar with the Ocean Shipping Reform Act (H.R.
4996). That is something you would support, I imagine?
Mr. King. Congressman, yes, we do support that, and I would
just thank those on this Committee and Members for supporting
that. That was extremely helpful and timely. It was a large
issue. But to your prior question around exports, in the
Shanghai Port today we are seeing ships back up. And if I get
into the details behind that from what I'm--from our team on
the ground, it has less to do with the ability to unload a ship
but has more to do with the ability to get trucks that can
move--get in country with those goods and services.
And so how has it impacted us specifically? We've had to
sell products into other markets for a period of time so--until
that cleans up, until the lockdown is over, until those
problems are solved.
Mr. Panetta. Great. I am out of time. Thank you. Thanks to
all of you. I yield back, Mr. Chairman. Thank you.
The Chairman. Thank you. And now I recognize the gentleman
from California, Mr. LaMalfa.
Mr. LaMalfa. Thank you, Mr. Chairman. I want to go to Mr.
MacLennan. I was out of the Committee for a while, so pardon me
if this has been done, but I want to emphasize ranchers and
being able to continue to operate. I mean, that is just the
plus or minus question these days is like are they even going
to be around much longer with the cost of everything, cost of
energy being up and down, the ability to deliver their stock to
farther and farther distances with consolidation.
So earlier, we had producers speak that didn't seem to
believe that the business was going to work to help to sustain
the growers much longer, withstand market volatility, et
cetera. So you, Mr. MacLennan, or others on the panel, I would
love to hear what your thoughts are on how the growers are
actually going to be able to sustain--and I don't want to hear,
oh, it is just cyclical because this is the worst cycle maybe
ever right now with what they are facing and all the things are
lined up against them politically and costs. So how are you
going to have any growers left after another couple of years?
Mr. MacLennan. Yes.
Mr. LaMalfa. We faced drought in the West, feed prices,
lack of feed, whatever. Please.
Mr. MacLennan. Yes, Congressman LaMalfa, I mentioned and
perhaps you were out of the room, but this industry and--can't
survive without the ranchers and farmers supporting it. And the
American food supply has proven to be--system has proven to be
incredibly resilient, as we saw in the last 2\1/2\ years. But I
think some of it is the cyclicality, which you alluded to, and
one of the witnesses at this morning's panel alluded to the
fact that the cycle is almost predictably 8 to 10 years and
that we are at the--almost exactly at 10 years and we are
seeing evidence that economics are starting to shift. And we
saw economics in the inverse relationship in 2013 and 2014.
I think innovation is another theme in terms of creating
efficient feed solutions for our ranchers and for our cow-calf
producers to help them increase yields, but we all have a
vested interest in the beef supply chain to ensure----
Mr. LaMalfa. I am sorry. My time is limited because it is
existential for them right now. There are many that are not
going to--we are talking about five generation ranches and such
that they are up against the edge on this. So I want to know
what is the processing side of the industry going to do to help
them be there because we know if they are not growing, then you
don't have anything to process. As a farmer myself, I get that
the processors always have to have something to run through,
yet we are always the ones that get paid last at the farm gate.
So what is the plan that is going to--you know, you say
innovation. Well, that is down the road. I am talking right
now. These guys are going to be gone soon with everything they
are facing. What are we doing right now?
Mr. MacLennan. I think we are continuing to provide markets
for their products. We are continuing to--I think innovation
isn't down the road. I think it's here. And as I said in my
opening statement, we are anywhere from 30 to 35 percent buyers
in the cash markets, which I know is something that many people
have been speaking about.
Mr. LaMalfa. Others on the panel?
Mr. Klein. Yes, let me comment on that. The cow-calf
segment--again, we don't deal directly with them, but they are
a vital part of the whole system and they have to be healthy.
They do have the opportunity to retain ownership of that calf
all the way through the system, all the way through processing
and onto the customer. So that opportunity exists today.
As I said earlier, the profit through--across all segments
has never been higher. It's at least $300 or $400 a head higher
than it was even 5 years ago. And I--as we go forward as a
profit shift back to the production segments, the cow-calf
segment is going to benefit from that certainly.
Mr. LaMalfa. The profit is not there this year. There are
auctions fixing to happen for a lot of our longtime ranching
families. So what do you say about this year?
Mr. Klein. 2022 cattle prices are going up, which means
calf prices will go up. So the cow-calf producer will get more
for his product going forward than he has in the last few
years.
Mr. LaMalfa. All right. Is Mr. Schellpeper still online
here?
Mr. Schellpeper. Yes, I am. Congressman, to answer your
question, thank you, the best thing that we can do is to run
our plants at capacity or add capacity. And at JBS we are
adding capacity to our Grand Island, Nebraska, plant. We're
also adding capacity to our Omaha, Nebraska, plant. And we've
have taken some very aggressive steps that I can walk you and
the group through at some point in time of what we have done to
staff our facilities.
Mr. LaMalfa. How about the distance involved for--you know,
Nebraska is a long way from many, many ranchers. How are we
doing that? We need to close that transportation gap, anybody?
Mr. Schellpeper. Well, Congressman, I'll speak for JBS. We
operate plants from Arizona all the way through to
Pennsylvania, so we believe that we have opportunities directly
to our plants, but we are in several hundred sale barns every
single year buying cattle.
Mr. LaMalfa. Okay, thank you. Mr. Chairman, I will yield
back. I appreciate it.
The Chairman. Thank you. And now I recognize our Ranking
Member, the gentleman from Pennsylvania, Mr. Thompson.
Mr. Thompson. Mr. Chairman, thank you so much. Gentlemen,
thank you all for being here and your testimony on this second
panel.
Mr. Klein, as your testimony points out, fed cattle are not
the only input for the beef packing industry. Labor, packaging,
transportation, regulatory compliance, and capital are all
necessary parts of the process as well. Can you talk us through
which of those inputs are currently having the biggest impact
on your bottom line and the ultimate price of beef?
Mr. Klein. Transportation costs have gone up 40 percent in
the last year. Labor costs have gone up 30 percent in the last
year. That's $82 a head that we've got to pass through to the
consumer or back to the price of cattle that we pay for cattle.
Those are the two single biggest cost components that we have
and the most that affect our business and has the biggest
impact today.
Mr. Thompson. Well, thank you. Any of the--Mr. Schellpeper,
Mr. King, Mr. MacLennan, would any of you care to weigh in with
your thoughts on that?
Mr. Schellpeper. For JBS, transportation has been a
significant cost increase as well. I will leave it at that,
Congressman.
Mr. King. Congressman, in terms of Tyson, virtually
everything in the supply chain has increased. We've seen
inflation like we've not seen in generations. And--but if I
look at specifically grain, for example, corn is up 127
percent, soybeans are up 90 percent, diesel is up 104 percent,
and even shipping containers are up 68 percent. So there's a
lot there that have gone up, and I can list more, but it might
be easier to give you a list of things that haven't gone up.
Mr. Thompson. Yes, unfortunately, I would agree with you.
That would be a shorter list.
Frankly, I am very concerned with the Biden
Administration's regulatory agenda from bowing down to unions
on time-tested lines speed regulations to rushing ahead with
decades-old packers and stockyards regulations that have been
misleadingly touted as the solution to everything from volatile
prices to industry consolidation. I am particularly concerned
that this heavy-handed regulatory approach may discourage the
development and use of innovative industry solutions that could
unlock not only price efficiencies but a number of other
benefits related to food safety, the climate, employee
wellness, even animal welfare.
To any of the panelists who are willing to engage, how
important is innovation to keeping your companies competitive,
and are you concerned with our current regulatory trajectory
and how that may negatively impact the ability to innovate?
Mr. King. Congressman, I would--I will start and try to
make a few comments around that. Innovation and supply chain is
going to be critical going forward, and a number of people this
morning testified that on their farm or ranch it's not their--
it's not the same as it was for their dad or their granddad or
those who started it.
And I think we have to start with the consumer and work our
way back through the supply chain. Those consumer preferences
are changing almost daily. If you look at the data like choice
and prime grades are--you know, 20 years ago were like 65
percent and today they're 85 percent. And that's because
consumers are demanding a better quality beef and a better
eating experience. And you're going to see that with other
attributes like natural and even sustainability. And as you
well know, an area for innovation could be around greenhouse
gas emissions, particularly as it relates to cattle and having
incentives there to have innovation and to do things
differently and to make a difference. We as packers and
ultimately for the consumer need to find ways to incent
ranchers and producers to be able to do the things necessary to
provide that end product as desired by the consumer.
Mr. Thompson. Anyone else in terms of your ability to
innovate under the current regulatory trajectory?
Mr. Klein. Let me make a comment on that. Regulation, if
it's done right is good. It's good for everybody. But there are
some regulations that have unintended consequences, and those
are the ones that I think we have to be careful of and
understand. We spend about $20 million year on regulatory
issues, not a big amount but it's significant. We certainly
don't want to see that get out of hand.
Mr. Thompson. Very good. Thank you, Mr. Chairman.
The Chairman. And now I recognize the gentleman from
California, Mr. Costa, who is also the Chairman of the
Subcommittee on Livestock and Foreign Agriculture, is
recognized for 5 minutes.
Mr. Costa. Thank you very much again, Mr. Chairman. And I
think today's hearing certainly has provided a lot of insight
as to, as you noted, the potential legislation that we're
looking at and concerns that people have about impacts of
prices and the supply chain. I think we all recognize that with
this COVID, this horrific COVID and the closure of schools and
restaurants, we took a very complicated, complex food supply
chain and we really turned it upside down and in ways that we
could not have anticipated 2\1/2\ years ago.
Mr. King, in your testimony when COVID hit in March 2020
the industry was almost closed overnight. I learned in the pork
industry that 70 percent of bacon and pork bellies are consumed
in restaurants and we had to do euthanasia in that part of the
protein industry. I have heard that food service accounts for
roughly 50 percent of the beef sales. How did the shift from
food service to retail impact your business?
Mr. King. Congressman, great question. One of the
advantages to having scale is having the ability to move across
all points of distribution or channels. And we were able to do
that fairly quickly. For example, move from lay-flat bacon that
is often used at--by food service operators to more of a stack
pack or an L-board or tux-type product in bacon. So we were
able to really quickly adjust our production capabilities to be
able to address this--you know, this sudden shift from a--in
our markets about 50 percent retail and food service to almost
100 percent retail almost overnight. So it was--it took a great
deal of effort by the team, but we were able to do that in
fairly quick order.
Mr. Costa. Yes, I think for a number of the CEOs that have
testified here, there has been a bit talked about the workers
who are essential workers, as we know, and whether it is any
strain of agriculture, farmworkers or workers in processing
facilities, they are essential workers. With the impact of the
vaccine, what attempt has been made to really try to protect
their health and safety as it relates to--and of course we are
still trying to gear back up in terms of the employment issue.
Mr. Klein, would you care to comment?
Mr. Klein. Yes. We continue to make every effort possible
to keep our employees safe when they come into our facilities
starting with screening and testing when they come in. We've
maintained the workplace partitions both in our production
floors and in the break rooms. So as we look at it today, our
employees are safer than they've ever been inside of our
facilities.
Mr. Costa. Do any of the other witnesses care to comment?
Mr. Schellpeper. Yes, on behalf of JBS, we had so many
interventions in place in our plants back then but really
starting about a year ago we really started to pivot towards
vaccination. And we've made a lot of effort inside of all of
our facilities, including closing down facilities for
vaccination days----
Mr. Costa. Well, and that is very important to make that
available not only to the workers but to their families as
well. We have had some instances--we have a Cargill plant in
Fresno, and of course we have other facilities in the area
where they have made that available for their employees and I
think that is very important.
Mr. Costa. Mr. Stockton on the previous panel testified
that he has not really seen real enforcement in the Stockyards
and Packers Act since the 1980s, and I'm wondering--and cites
that as part of the reason in the price disparity between the
cow-calf operator and the prices that American consumers are
seeing in the grocery store. I know there are a lot of factors
that impact the prices of protein when you go from the calf-cow
operation or the dairy operation to the ultimate purchaser of
that product that puts food on America's dinner table every
night, and we know that that is a national security issue. I am
wondering if any of you would care to comment on those factors,
on the impacts of these cost increases.
Mr. King. Well, I would--Congressman, I would just simply
say that, as I testified earlier, virtually every input in the
supply chain has gone up. And typically when you see a minor
increase, companies tend to absorb that, but the rate of
inflation and costs have gone up so dramatically that some of
that had to be ultimately passed on to the consumer. And we've
done that as well. But, this beef business is a cyclical
business, and while we've seen the trough, I think it was like
June of 2020 in terms of the price of fed cattle, if you look
at it today, it's about $145 and based on futures will continue
to move up, as Mr. Klein commented earlier.
I agree with that assessment, and this 10 year cattle cycle
that was testified about earlier, I would certainly expect,
while everyone is making more money in the supply chain, I
would expect that to flip some to the feeder and----
Mr. Costa. Well, my time has expired, but if you could give
the Committee a breakdown of those input costs so we can better
understand it, I think that would be helpful. Thank you, Mr.
Chairman.
[The information referred to is located on p. 150.]
The Chairman. The gentleman from Georgia, Mr. Allen, is now
recognized for 5 minutes.
Mr. Allen. Thank you, Mr. Chairman. And I want to thank all
of our CEOs for being here today and participating in this
hearing. Obviously, what we are talking about is--well, let me
tell you what I am hearing about it my district. It is the
price of food, the price of gas, I mean, everything. And of
course, I understand that certainly when you have a war on
fossil fuels and you decrease your supply and demand is still
there, the price is going up, and that drives everything else,
which has put us in a terrible predicament all across
agriculture and everything and really all the essentials that
we require in this country.
And of course we are zeroing in here on, okay, what is
actually driving it as far as meat pricing and availability?
And of course we have factors like the drought, we have factors
like, the big word up here is equity where we are paying more
to certain farmers for different products than we are paying
other farmers, and, boy, that is dangerous. And so, what has
that got to do with pricing and that sort of thing?
So I am going to start here, Mr. Klein, with you. The
Administration has tied inflation to a lack of competition. And
in his State of the Union address, President Biden implied that
concentration in the meatpacking industry is the reason for
higher prices at retail. Now, I don't agree with that, maybe
some, but I don't agree with his statement there. Do you agree
with the President, and please explain and others on the panel
please feel free to weigh in as far as what you think about the
President's statement there, what is actually driving prices.
Mr. Klein. Thank you for the question. I believe that the
prices of beef today at the retail or at the restaurant level
are dictated by--in the retail by the retailer itself. They set
the price for beef. We don't set the price. We set the
wholesale price. And we react to supply and demand.
The beef industry is the most purest form of capitalism in
this country, I believe. Every day we're negotiating prices. As
demand goes up, price goes up. If demand goes down, price goes
down. And what's happened in our industry if you look back 30
years, the concentration has remained the same, and the packer
margins were very, very slim. So it's not concentration that's
causing the high price of beef. It's demand for beef and then
the inflationary factors of all of our input costs have gone up
and we've got to pass that along.
Mr. Allen. Okay. Anyone else care to weigh in on that?
Okay.
Mr. Klein, your testimony pointed out the current beef
processing industry consolidation levels are actually slightly
lower today than they were back in 1998 and that overall levels
of consolidation have been relatively steady for decades. If
that is the case, why do you think there is suddenly such a
fixation on consolidation levels by this Administration?
Mr. Klein. If we go back to COVID time period, we weren't
talking about inflation in general, but what we did see because
of the cutbacks in our industry, prices rose dramatically and
the consumers were paying more for beef. So it made the
headlines from that point forward. As we go forward and
inflation became an even bigger factor, beef is part of that as
well.
Mr. Allen. So--and again, if you look at history, for
example, obviously when there is a drought supply immediately
increases but then it drops off. I mean, it is a fluctuating
business. So we had to end up--you know, a lot more meatpackers
back in--well, when I grew up we had one in our town and we
took the cow in and that is how we ate. But the bottom line is,
I mean, what happened in this industry? I mean, was it the
government? And obviously, the regulatory environment has
increased, correct?
Mr. Klein. Yes.
Mr. Allen. Inspections and that sort of thing. What can
this government do to return competition in your industry?
Mr. Klein. First of all, the reason that there's not as
much competition today is because the industry was forced to
become much more efficient. The plants today are the most
efficient plants in the world. They're processing 5,000 or
6,000 head of cattle per day in each of these facilities. The
cost is lower. We've got a single shift plant in Iowa. Our
costs in that plant are $120 a head higher than they are at our
big plants. So if you have many, many small plants with that
kind of a penalty, cost penalty, that has to get passed along
to the consumer or passed back to the feeder.
Mr. Allen. Yes. All right. Well, thank you, Mr. Klein. Mr.
Chairman, I yield back.
The Chairman. Thank you. And now the gentlewoman from Iowa,
Mrs. Axne, is now recognized for 5 minutes.
Mrs. Axne. Thank you, Chairman Scott, and thank you to our
witnesses for being here on this really important topic.
You all hold tremendous power in the cattle industry,
together accounting for over 80 percent of the market. And as
your market share has risen over the last 50 years going from
25 percent in 1977--that is back when my grandparents had a
farm and I remember the cattle on my grandparents' farm--you
now have over 80 percent of the market share. My grandfather no
longer has a farm. It is not in our family. The industry has
also seen a lot of disturbing trends in addition to farmers
leaving. Since 1980, roughly 17,000 cattle producers have gone
out of business every year, every year. Producers were
receiving 60 of every dollar spent by consumers on beef, now
that is under 40 . So now our producers are getting 30 for
every dollar spent for their beef.
And over the last 20 years cattle traded on a cash market
has decreased from more than \1/2\ to only 20 percent of the
overall market. I am not seeing any good numbers here. And this
consolidation has led to many of the major packing facilities
closing in rural communities, costing us jobs and economic
opportunity while exposing the entire industry to more risk
caused by market disruption.
Today, consumers are literally paying more for their beef,
producers are receiving less for their cattle, and yet your
four companies' net incomes have reached record highs. And it
is not just because of the recent spike in costs for inputs. I
will recognize that. But let's go back decades of how we have
seen our rural communities be impacted by this consolidation.
So this is simply not sustainable for producers or consumers.
And I have heard from far too many in Iowa who are worried
about their ability just to stay in operation to be able to
pass it down to the next generation. And these are family
farmers that I grew up with. And just like their parents did
before them, I want to make sure that they have that
opportunity. So something has to change.
And my first question, Mr. Schellpeper, can you respond to
these trends? And are you worried about the fact that we are
literally losing 17,000 cattle producers every single year?
Mr. Schellpeper. Thank you, Congresswoman. I believe that
we operate in an extremely competitive market both on the buy
side and then on the sell side, right? At JBS we participate
relative to cattle procurement in the markets how producers
will buy the cattle how producers want us to buy them, again,
whether that's on a cash basis, whether that's on a video
auction, whether that's on a--on some type of AMA.
In your home State of Iowa, we are participating in
numerous sale barns. We have 14 sale barns I believe in the
State of Iowa. We have company employees participating in those
sales. There's numerous other ones that we have some type of a
[inaudible] type of a buyer in those sale barns. So the best
thing we can do is to continue to be active in this cash
market, and we are active in it every single day, and that's
how--what we're doing to try to support these producers.
Mrs. Axne. Well, I appreciate those efforts, and I would
like to see those actually increase because the number is still
correct. We have 17,000 cattle producers leaving the market
every single year, so you have to be doing more when you are
controlling 80 percent of the market. You have an opportunity
to start leveling the playing field here and making things
right by us Iowa farmers in Iowa.
So I just want to move on now though. I know we saw supply
chain disruptions across the economy over the last couple of
years, we mentioned that, and prices went up during that
period. However, producers didn't get the benefits of those
higher prices. Why are cattle producers struggling to get by
when beef prices are high and your companies are making record
profits?
Mr. Schellpeper. Is that for me, Congresswoman?
Mrs. Axne. Yes.
Mr. Schellpeper. Okay. Excuse me. So, again, we talked
before about this being a cyclical business, and we are now at
the point in time where cattle markets are starting to turn. In
fact, if you look at USDA what we call the five area cattle
market, what it averaged for the first quarter of this year is
actually the third-highest quarterly average price that we've
seen in the last 13 years other than those 2 record years I
believe it was of 2014 and 2015. So again, we talk about a
cyclical business here. I believe we're on the backside of the
cycle and things are starting to turn.
Mrs. Axne. Well, that is great. Just let me rephrase that.
What can you do differently to help level the playing field so
that all cattle producers can have an opportunity for more
income, not just the ones you are currently working with?
Mr. Schellpeper. The best thing that we can do, again, is
to increase our capacity, which we're doing, running our
plants. And again, as I've said before, we're very active in
the cash market. Additionally, we have numerous cattle barns
across the country, employees and type of order buyers active
in the cash market. We have a cash bid every single day.
Mrs. Axne. Well, I will look to see how much you are doing,
and I appreciate you being here for this important
conversation. My time is up. Thank you.
The Chairman. I now recognize the gentleman from Ohio, Mr.
Balderson, for 5 minutes.
Mr. Balderson. Thank you, Mr. Chairman, and thank you,
first of all, to the panel that is here today.
As you know, cattle markets are some of the most complex in
the world, and there are a lot of factors that go into the
price of beef, some of which you all have mentioned in your
testimonies. A major factor is the historic levels of inflation
and rising costs that we have seen over the past year. Can you
explain the impact that these inflationary pressures are having
on your businesses and how it is impacting the price of cattle
and beef? And everyone from the panel can jump in and answer
that if you would like, please.
Mr. Klein. Thank you for the question. I'll comment on that
first. As I said earlier, the biggest impact we've seen in the
last year has been transportation costs and labor costs. That's
about $80 a head, which is a significant jump. That means that
cattle prices either got to go down by that much or consumer
prices have to go up, wholesale prices, in order for us to
maintain the same profit margin.
The biggest single factor we're dealing with right now is
where we're at in the cattle cycle. There is simply more cattle
available every week than there is demand and capacity to
process those cattle.
Mr. Balderson. Would anybody else like to jump in? All
good? Okay. My next question is for Mr. King.
Mr. King, you mentioned in your testimony that beef and
cattle markets are some of the most transparent in the world,
and you go on to mention that packers are required by law to
share market information with USDA twice a day. Can anyone or
can you and anyone on this panel elaborate on what information
you are required to share and what USDA does with this
information?
Mr. King. Thank you, Congressman. Very specifically, we
report the price that we pay for cattle and what we sell beef
for twice a day. You can go to the USDA website and AMS and you
can find that for a particular day, week, month, or any period
of time in which you would select.
Mr. Balderson. Okay. To follow up with that, to your
knowledge, are you aware of any other industries that are
subject to this kind of reporting and scrutiny?
Mr. King. Congressman, not to my knowledge. Very well could
be, but not to my knowledge.
Mr. Balderson. All right. Thank you very much. I appreciate
that. My last question is for Mr. Klein. Mr. Klein, many
economists would argue that the volatility in the cattle and
beef sector can be explained by supply and demand dynamics. My
first question would be do you agree with that?
Mr. Klein. Yes, I agree with that.
Mr. Balderson. Please explain your answer.
Mr. Klein. As I said earlier, this is a--the purest
capitalist--capitalism in our industry of any industry. We
negotiate prices hour by hour with the products we sell and
with the cattle we buy. So whenever we have disruptions in the
system like a fire, like COVID, it's going to result in a
pretty dramatic adjustment in volatility in the price of the
products that we buy and sell. And that has been the single
biggest factor. But this is a very dynamic industry operating
in a free market system, and volatility is part of the
business, always has been.
Mr. Balderson. Mr. Klein, thank you very much for your
answer. Mr. Chairman, I yield back my remaining time. Thank you
very much, everyone.
The Chairman. Thank you. And now the gentleman from Iowa,
Mr. Feenstra, is recognized for 5 minutes.
Mr. Feenstra. Thank you, Chairman Scott. And I want to
thank the packers for participating today. And I always want to
remind everyone that putting protein on the table starts with
the family producer, and it's the process where it all starts
is on the family farm. So I have a question for each one of you
hopefully. I will start with Mr. King.
Mr. King, I have been told that the four largest
meatpackers agreed to provide information to the cattlemen's
organization for a producer-led initiative to achieve 75
percent of negotiated trade needed for robust price discovery
in each reporting region. The feeders made the effort to meet
this voluntary threshold, but the initiative failed to due to
lack of packer participation. Could you explain why this
failed?
Mr. King. Congressman, I'm not familiar with that. I would
be happy to get the necessary information and get it to you and
to this Committee.
[The information referred to is located on p. 153.]
Mr. Feenstra. Okay, thank you. If some packers are allowed
to not participate in the cash markets, would they not be able
to manipulate the regional supply of cattle by simply shifting
their captive supply from one region to the next? And the
reason I bring this up is there was a study done by my
university, Iowa State University, that notes this practice.
Are you aware of this practice, Mr. King?
Mr. King. Congressman, I'm not aware of it. I am certainly
willing to go explore it and understand and try to understand
what you're speaking of.
Mr. Feenstra. Okay. Mr. MacLennan, in my eyes here is this
fundamental problem. Here you have the big four packers that
control the large packer capacity, up to maybe 80, 85 percent.
You are able to determine how many animals are harvested and
how much meat is offered. The market share lets you control the
price through contracts, managing the amount being slaughtered
through line speeds, and control the supply of livestock. So my
question is how do we get to transparency when some of these
things are happening? And this is--you know, I would like you
to look--you know, what are your thoughts on this?
Mr. MacLennan. Well, Representative Feenstra, number one
is, as I've stated, Cargill purchases between 30 and 35 percent
of our cattle in the cash markets. Number two is our job is to
provide a market for the ranchers who are bringing their cattle
to market. So to the extent that we have constrained capacity
because of labor issues or because of--you know, whether we
closed down because of COVID, then there would be a backlog in
the supply chain. But our job is to be there every day for the
ranchers for a place for them to bring their cattle----
Mr. Feenstra. Thank you. Thank you. I fully understand what
you are saying. I will contest that there is a control on the
markets through line speeds and the amount being slaughtered
that can manipulate the markets.
Mr. Schellpeper, the Iowa and Minnesota region has the
highest quality of grade cattle in the U.S. I am not sure if
you knew that, but since we are told the AMAs drive quality,
can you explain how cattle producers in Iowa and Minnesota are
able to raise some of the best cattle in the nation without
AMAs?
Mr. Schellpeper. Thank you, Congressman. And I would agree,
there are some very good quality cattle in Iowa, and we buy
them. We take them to several different plants. Relative to how
they do that, frankly, I'm not a cattle feeder, Congressman. I
would defer to someone in the--in Iowa that could probably be
better prepared to answer that question that I can.
Mr. Feenstra. Sure. So here is a question. There is a lot
of alternative marketing agreements that reward quantity over
quality, and some studies indicate that around 25 percent had
nothing to do with the quality and that these are traded at a
premium only because they have made a deal to guarantee supply
for the packer. This data is obviously hard to come by, but you
think about turn-in cattle--I am not sure if you know what that
is--but how does this relate to price discovery, Mr.
Schellpeper, if you can talk about that a little bit?
Mr. Schellpeper. Sure. Congressman, we're involved with
price discovery. We are in the cash market every day. We are
active participants. Especially in your home State of Iowa we
are active participants in the cash market. So that's the best
way that I can answer that relative to AMAs, but we are very,
very active in the cash market.
Mr. Feenstra. So doesn't the link between the AMAs and the
cash market give the packers an incentive to lower the cash
market price as doing so would lower the base price for all
cattle committed to that packer under that AMA? Would that be a
fair statement?
Mr. Schellpeper. Well, I think it's important to note that
even an AMA is a negotiation, what the--what that base is,
what--any premiums or discounts. It's all a negotiation.
Mr. Feenstra. Okay. I am out of time. I thank you and I
yield back.
The Chairman. Thank you. And now the gentleman from
Alabama, Mr. Moore, is recognized for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman. And I want to thank all
the panelists for participating today.
Mr. Klein, this is a question for you. You mentioned
regulatory compliance as an input cost. Can you briefly walk us
through the regulatory regimes that your business is subject
to? Are there current regulatory and legislative proposals that
you worry will significantly increase your regulatory burden?
And others on the panel, you all feel free to participate.
Mr. Klein. The single biggest areas where we're regulated
are inspection, grading, and environmental. And for the most
part those regulations are good regulations. It keeps our
products safe going to the consumers. As we look at what's
coming down the road, some of the proposals, legislation and
regulation, although the intent is good, the outcome may not be
desirable, particularly for the producer segment.
Mr. Moore. Would any others like to answer, any input on
what regulatory concerns you have, going forward, something we
might head off and make it a little bit less burdensome for the
industry?
Mr. King. Congressman, there's just a couple of things. I
mean, there are number of things that we do support, for
example, reasonable and thoughtful policy where costs and
impact are considered. We support that. We support incentives
around innovation. We support policy that would help team
members around things like education and childcare, for
example. We support transparency, for example, the Contract
Library that we've seen. Ranchers would need to understand the
proper confidentiality and so forth.
But the things that we're not for is when we add regulation
on top of regulation and it's duplicative. And, for example,
the Fischer-Grassley bill as it relates to a special
investigator, we believe that USDA and Department of Justice
already have this power to do that and they are engaged in
this. And I think one of the panelists from the earlier session
today talked about that, that the framework is already there,
so if there are bad actors in here, then we need to enforce the
regulations that we already have.
Mr. Moore. And, Mr. King, and by the way, I am an ag
science guy and have a poultry background. I understand you
started off on the floor yourself back in the day.
Mr. King. Yes, sir, Congressman, I did.
Mr. Moore. Very good. Anybody else? I know Ronald Reagan
always said the government's idea on the economy is when it's
moving, we tax it. If it keeps moving, you regulate it. If it
fails, you subsidize it. And so often I worry about taxes and
regulations. Any other input on that? If not, I could yield
back, Mr. Chairman.
Okay. I will yield back. Thank you, Mr. Chairman.
The Chairman. Yes, now I recognize the gentlewoman from
Virginia, Ms. Spanberger. She is also the Chair of the
Subcommittee on Conservation and Forestry. You are recognized
for 5 minutes.
Ms. Spanberger. Thank you, Mr. Chairman. And thank you to
the Ranking Member as well. I want to thank the witnesses for
being here to lend your perspective.
A few months ago I was proud to host USDA leaders in Orange
County, Virginia, to meet with the Virginia Cattlemen's
Association and Virginia cattle producers, folks I represent
who are a vital and integral part of our community. And I know
that many cattle producers in our district have been in the
cattle industry for generations, and they are proud to share
the lessons and the expertise that their families have
developed over decades. They have shared how the industry has
changed and frankly how anti-competitive practices by other
entities in the supply chain, specifically larger packers, have
stacked the hand against cattle producers and consumers,
particularly smaller family farms like those that I represent
in Virginia. Producers feel that as they work sunup to sundown,
consumers feel this at the grocery store and it is glaringly
obvious in the data.
So I want to just talk about the data. We know that the
cattle producers share of retail value for beef has decreased
from 51.5 percent in 2015 to 36.8 percent in 2021. Right, that
is just a couple years difference. And at the same time JBS,
your beef division, saw a record net revenue of 101 percent on
the previous year. Meat prices are up 13 percent for consumers
over last year with families struggling to afford a nutritious
diet and at the same time Tyson saw double-digit increases in
profits and sales in the last quarter. Since 1980, 40 percent
of cattle producers have gone out of business, and at the same
time, Cargill has reported its biggest profit in its 156 year
history and National Beef's parent company profits more than
doubled in the third quarter of 2021.
And I want to mention that Mr. Coy Young, who testified in
the first portion of today's hearing, spoke about the family
farmers that are going out of business, 40.27 family cattle
farms per day call it quits, and farmers contemplate taking
their lives because the generations of work that went into
creating their family farms are slipping out of their fingers.
And so I want to talk about what it means for these family
farmers. The Packers and Stockyards Act, it exists to prevent
undue preferences and advantages for any particular person. We
also know that there are financing arrangements and
alternatives marketing arrangements, AMAs, that so many of my
colleagues have asked about that packers have with feedlots
that allow for substantial control over the supply of live
cattle.
So, Mr. MacLennan, you mentioned in your opening testimony
that Cargill does finance producer inputs, and I would open the
question to anyone else who might want to address it. But, Mr.
MacLennan, beginning with you, does your company help finance
any producer inputs such as feed, pen space, or other inputs as
part of AMAs or otherwise?
Mr. MacLennan. As part of--Congresswoman, as part of the
AMAs directly, no, and I would add that the AMAs and our cash
market participation, which is very strong, over 30 percent,
are--and it's been referenced several times that these are what
the producers want to achieve. But in terms of farmer financing
or farmer education relative to regenerative agriculture, we've
got something called beef up sustainability to educate farmers
and to provide financing alternatives. But so--yes is my answer
to your question that we can't be successful without them.
Ms. Spanberger. And so these financing agreements, is it
your assessment that they do follow the spirit and the intent
of the Packers and Stockyards Act, specifically a law that
exists to prevent undue preference and advantage?
Mr. MacLennan. I'm--we abide by the law, so if it's
embedded in the Packers and Stockyards Act, then we will follow
that law. Whether they are embedded in specific AMAs, I don't
have access to that information right now, but we certainly can
follow up.
Ms. Spanberger. Well, and certainly when it comes to
acknowledging, understanding, and abiding the law, I think it
is certainly past time for the Federal Government to look
carefully at the anticompetitive behaviors that really are
driving the stunning statistics that I mentioned. That is why I
introduced the Meat and Poultry Special Investigators Act (H.R.
4103) that was referenced earlier, alongside Congresswoman
Miller-Meeks with our Senate companion sponsored by Senators
Tester and Rounds. This legislation would create an office at
USDA titled the Office of Special Investigator for Competition
Matters. And to just counter the point that one of our
witnesses made earlier, the purpose here is to ensure that the
folks who know this industry, USDA, that they are the ones
leading the investigations into what is happening. I appreciate
the comments related to it is taken care of, it is within the
Department of Justice, but indeed that is just not good enough
to look out for the needs for the farmers and producers back
home in Virginia.
Thank you very much, Mr. Chairman. I yield back.
The Chairman. The gentleman from Kansas, Mr. Mann, is
recognized for 5 minutes.
Mr. Mann. Well, thank you, Mr. Chairman. And similar
comments and remarks as we get started here and questions to
what I asked our previous panel. First off, on behalf of the
farmers, ranchers, and agriculture producers in the First
District of Kansas, thank you for participating in today's full
Committee hearing regarding beef markets.
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. I cut my teeth growing up on a
preconditioning feedyard, a couple thousand head in Gove
County, spent thousands of hours riding pens and doctoring sick
calves.
The Big First ranks number one in the country for the value
of sales of cattle and calves at more than $9 billion every
year. 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 supply chain in the Big First from cow-calf producers to
cattle feeders to packers. More broadly, the beef sector
supports grain producers, manufacturers, veterinarians, and
many other small businesses that populate rural towns across
Kansas and the country.
In a competitive cattle market, it is vital for producers
to be able to differentiate their product to eventually suit
the taste of the consumer. As seen by the growing demand for
beef both here in the U.S. and around the world, 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.
Across the country, cattle producers continue to face
challenging market dynamics, including historically wide gaps
between wholesale beef prices and fed cattle prices, packing
capacity and regulation, and more. I have talked to hundreds of
cattle producers in Kansas, ranging from small cow-calf
operations to some of the country's largest feedyards.
Overwhelmingly, I have heard that we need to increase price
discovery in the cash market, make sure the producers benefit
when they provide a superior product, refuse to let the
government interfere in the free market, and acknowledge
regional differences.
There is currently discussion in Washington around the
Federal Government mandating a certain percentage of cash or
spot transactions between the feeder and the packer, limiting
the number of allowable alternative marketing agreements. AMAs
are popular across the Big First and are used by many because
they cut costs, increase efficiencies, and reward producers for
a higher quality of product.
A few questions here for you, Mr. Klein. Do you feel that
legislation proposed to limit the use of AMAs would negatively
impact the beef market? And what do you anticipate would be the
impact to the beef quality in this country?
Mr. Klein. The biggest impact would be to the quality. The
quality would definitely go down if we were paying the same
price for cattle and not able to offer a premium for better
cattle. So certainly, that would impact that.
The other impact, cash trade versus AMAs, most of the AMAs
that we have, and others are the same that we know about, the
producer wants that ability to offer product cattle to us to
get a premium for those cattle, and to have a guaranteed
shackle space for the cattle, especially in the South where
there's--they operate like hotels. Cattle move in and cattle
move out every week. They have to have a home for those cattle.
We design our AMAs so that--the type of cattle that we need and
that we can grow our business with.
In the current environment, the current part of the cattle
cycle, more cash trade would not be to the producers' benefit
simply because there would be too many cash trade--there's more
cattle available today than we have ability to process.
Mr. Mann. So you think more cash would actually reduce the
price that most producers are receiving for their cattle today?
Mr. Klein. Right. That's what I believe, yes.
Mr. Mann. Could you, Mr. Klein, then, kind of with that--
briefly just talk us through the recent fed cattle and beef
price trends and any predictions moving forward?
Mr. Klein. Yes.
Mr. Mann. I know you addressed it in your testimony if you
would be willing to kind of give us a picture or a snapshot of
April 2022 kind of where we are at in the cycle and what you
anticipate occurring.
Mr. Klein. Yes, well, cattle prices today are up 45 percent
from where they were in the depth of COVID. Beef prices are
down about 60 percent from the same time period. So we had that
anomaly during COVID that drove this, but the biggest factor we
have today is oversupply of cattle relative to industry
capacity. But that's changing, and we're already seeing a
change. As we look forward from here, we're going to see cattle
prices go up and we're going to see the beef profit for packers
go down. The profit is going to shift back to the cattle
production segments.
Mr. Mann. And as you see the market, when do you anticipate
that begins to occur?
Mr. Klein. The peak is occurring as we speak. It would have
already occurred--the peak would have occurred in 2020 had it
not been for the backlog of cattle that were not processed
during COVID.
Mr. Mann. Great. I see my time has expired. I thank you,
Mr. Chairman. With that, I yield back.
The Chairman. The gentlelady from Florida, Mrs. Cammack, is
recognized for 5 minutes.
Mrs. Cammack. Well, thank you, Mr. Chairman, Ranking Member
Thompson. I have been waiting for 16 months for a real hearing
on production agriculture, so please forgive the fact that I
have a lot to say.
Now, we spoke to this on the previous panel, and I would
just like to reiterate, I echo the views of my district's
livestock producers, as well as the views of those on this
Committee that believe in equal opportunity, not equal outcome.
This Administration has dismissed the most basic principles of
economics and instead has chosen to demonize our nation's
packers, which in my opinion is a low, lazy, and simple
narrative.
I am personally appalled that in the midst of a myriad of
crises, be it the skyrocketing cost of inputs, something that
has continually been ignored by this Administration and this
Committee for that matter, or the sting of historic inflation,
also conveniently ignored or blamed on the previous
Administration, or the geopolitical uncertainty, and let us not
forget the labor crisis that we are experiencing. Just take
your pick. Instead, the Majority here at one of the most
important committees in the U.S. House of Representatives and,
by extension, this Administration has chosen political theater
over a meaningful discussion and solutions to major issues
pressing our livestock industry.
I heard many years ago that anger without action is nothing
more than political theater. Well, here we are with a long list
of complaints from a Majority and Administration about an
industry that they themselves helped decimate. Overregulation,
paying people to stay home and not work, withholding
permitting, forced unionization, I could go on and on. The
irony is not lost on me, nor my constituents and producers back
home, that the Majority here today is essentially scolding
themselves.
I am starting to suspect quite honestly that the reason
that the Majority deliberately chose not to have an economist
testify before us here today because, God forbid, we actually
contemplate the realities of supply and demand and other basic
economic forces that could lead us astray from this political
theater production that we have going here.
And, I am deeply concerned by the Majority's complete
disregard of the data and upholding sensationalized claims to
push a political narrative. Just earlier in this hearing we saw
meat market data from 2015 to 2020, but 2010 to 2015 was
missing. I wonder why. Hmm. Maybe it was because this data
showed that really the facts don't fit the political narrative
and instead illustrated the cyclical realities of the livestock
industry.
As someone who grew up in the cattle industry on a small
cow-calf operation and also happens to have a minor in
economics, I can tell you that there is a litany of issues that
producers face, many of them out of their control and due to an
overreaching government. Quite frankly, sometimes speaking with
my midsize processors and cow-calf producers, I think that USDA
is doing more to try to justify their existence rather than
help the industry.
Take for example this new grant money that the USDA is so
proud of that is supposed help build small- and midsize
processing plants. At any plant handling between 525 head a
week, the cost of construction alone is upwards of $35 million.
And that is in a good economy. That does not figure in the
operational costs and the compliance costs, also conveniently
omitted from the conversation here today. In short for the
layperson, the government here is promising ponies and they are
delivering us stick horses. That is what is happening here.
For all the attempts today to make the livestock industry
the scapegoat for all of Biden's failed policies, let the
record reflect that a few on this Committee are at the table
with real solutions. Recognizing that the livestock industry is
much like any other commodity market and by very nature
cyclical, sometimes the price in store does not reflect the
price on the hoof and vice versa. Anyone in this industry, like
myself, knows that, but for those in the back, I am going to
kick it to Mr. Klein.
Mr. Klein, regarding our processors large and small, we
have heard from a host of economists in front of other
committees that the volatility in the cattle and beef sector
are explainable by supply-and-demand dynamics, along with an
overly aggressive regulatory environment. Do you agree with
that?
Mr. Klein. Yes, I agree.
Mrs. Cammack. And, Mr. King, you have mentioned the
constrained labor pool at the height of the pandemic. To what
degree have those shortages been resolved?
Mr. King. Congresswoman, we are largely staffed at this
point. We still deal with a great deal of absenteeism.
Mrs. Cammack. But during the pandemic, Mr. King, can you
explain the labor pool situation at the height of the pandemic?
Mr. King. Absolutely. We were constrained. For example, we
would be operating--if the plant was operating at all, we'd be
operating 30, 40 percent in the earliest of days. And, just a
year ago we were no better than 75 or 80 percent of capacity.
Mrs. Cammack. I think my point here has been made. With
that, Mr. Chairman, I yield back.
The Chairman. The gentleman from North Carolina, Mr.
Rouzer, is recognized for 5 minutes.
Mr. Rouzer. Well, thank you, Mr. Chairman. And I have a
gazillion thoughts on my mind so let me try to narrow this down
a little bit.
First, I want to mention--I have a small processor in my
district. Their business took off during the pandemic. They
used Facebook, social media platforms. People like the fact
that they can get their protein locally. Their biggest problem
in expansion is dealing with the rules and regulations. And it
strikes me that--and this is across all industries--the more
rules and regulation you have, the greater the cost, the
greater the cost, the greater the drive for efficiency partly,
and therefore, the greater the natural occurrence of
concentration.
So if you want to add all these new rules and regulations,
new GIPSA rules, well, for example, which I want to focus on
one in a minute, you are just adding that much more cost, that
much more uncertainty, which really a lot of what is proposed
actually goes against what is trying to be achieved.
In June of 2021, USDA issued its spring regulatory agenda
that included three proposed rules surrounding the PSA. The
proposed rule clarification of scope of the Packers and
Stockyards Act looks to address the harm to competition
standard under PSA. And although we have not seen the text of
the proposed rule, it is generally accepted it is probably
going to be pretty similar if not exact to the 2016 rule posted
a month prior to the end of the Obama Administration.
Can you all speak to--any of the panelists or all--if
finalized in similar fashion, the economic impact of that
proposed GIPSA rule pertaining to the harm to competition
standard? Anyone want to comment on that?
Well, hearing none, Mr. Chairman, I have a letter I want to
make sure is submitted for the record, and this is switching
topics slightly. This is a letter addressed to Senator Schumer
signed by a number of organizations that I would say are pretty
anti-agriculture, including one that was a witness on the
previous panel. And I hate I didn't get the opportunity to
bring this up then, but I had to leave to meet some other
commitments, the Northern Plains Resource Council. And this is
an organization that is listed with other groups that have
specifically said in referring to concentrated animal feeding
operations that they are, quote, ``a tool of environmental
racism and injustice.''
I think we are at a point where we need to focus on
production agriculture, what is good for the whole, what is
good for the country. The longer you pick at a scab, it never
heals. We need to pull together and look forward and work
together. Packers need producers. Producers need packers. We
need each other. And I want to highlight and submit this letter
for the record just so everybody knows who is aligned with who.
The Chairman. Without objection.
[The letter referred to is located on p. 144.]
Mr. Rouzer. Thank you, Mr. Chairman.
In my final minute here I would like to give the heads of
these companies the opportunity to share any comments that they
might have as it relates to regulation and then the evolution
of things in this industry because there are cycles. And we
don't need to be antagonizing each other. We need to be working
together and coming together with new solutions for all of
agriculture.
I will turn it over to the panel. I have 30 seconds left.
Mr. Klein. Yes, this--thank you for the question. What I'd
like to say is that our industry has been vilified for many
years. As long as I've been in this business, the packer has
always been the bad guy. Yet if you look at the history, our
profit margins have been razor thin. And up until the last few
years, that was the case. You put more cost on the system
through regulation at any level, it just means our costs go up,
the cost to the consumer goes up, or the price we pay for
cattle goes down.
Mr. Rouzer. Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman from South Dakota, Mr. Johnson,
is recognized for 5 minutes.
Mr. Johnson. Thanks, Mr. Chairman. And, too often it seems
like Congressional attention is drawn to the brightest light, I
suppose like moths to the flame, and so it wasn't that
surprising that in April 2020 when cattle prices bottomed out
and when people couldn't get the steak they wanted at their
meat counter, then, lo and behold, all of a sudden, everybody,
including the city folk, had their attention on this space.
They began to understand the weaknesses in the supply chain. I
think they began to appreciate the deficiencies in the cattle
market.
At that time, Members across this body understood that this
stuff matters. And in that environment we were able to get real
progress done on my Cattle Contract Library and on the
Spanberger-Johnson Butcher Block Act. But this stuff matters,
Mr. Chairman, all the time. As you so often say, we cannot do
without food. And that means we can't let attention just drift
away because we have had a bit of a rally on the fed cattle
prices. We can't afford to let our attention drift away just
because we are between black swan events.
In an earlier panel today we talked a lot about marketplace
concentration, we talked about efficiency, efficiency,
efficiency, and we talked about a chokepoint at a particular
part of the supply chain. That is the meat processing part of
the supply chain, the part that our witnesses today in this
panel can speak to.
And as I think about that, we talk a lot about the big
four, and that is appropriate. But I think we also want to talk
about the big 30 or the big 12. What do I mean by that? Well,
between 85 and 90 percent of the beef processing in this
country is done at just 30 plants, just 30 physical locations.
And in fact 12 plants do more than half of all the beef
processing. To me, that seems like a lot of vulnerability. That
seems like a lot of eggs in a very small number of baskets.
Because when black swan events happen, whether they are
cybersecurity or they are the Holcomb fire or they are COVID,
we know that when those black swan events attack that
chokepoint, that hurts producers, that hurts consumers. We know
another black swan event is coming, whatever it is. I don't
know what it is and I don't know when it is going to be, but we
know it is coming.
And so I am going to tell you what I think, gentlemen, and
you can tell me what you think. I think that this drive for
efficiency has left our country with too little slack, with too
little cushion. I think this tightness leaves us exposed to
unforeseen disruptions, and that creates a lot of risk, a lot
of vulnerability to the American cattle producers. So my
questions, and we can start with Mr. Schellpeper from JBS;
first, am I wrong about that vulnerability about that risk? And
second, if unfortunately I am right, what do we do about it?
Mr. Schellpeper. Thank you, Congressman. I'll speak to JBS.
So we operate nine plants across the United States. We operate
some very large plants, we operate some very large plants. We
operate plants in very different parts of the country with a
network of buyers to buy those cattle and a distribution
network that frankly is very robust. So from my perspective--
and I can only speak for the JBS business--I think our model
offers a degree of resiliency already.
Mr. Johnson. And I don't know--and listen, I am not
insinuating that all of the cost of additional cushion within
the system should be borne by any particular set of
shareholders, but it seems to me that when we say that one
company or the marketplace has enough cushion that you think
you are diverse enough, I mean, we just don't see that, right,
sir? I mean, when we have one issue attack one plant, don't we
see a massive price swing to both the producers and the
consumers? What am I getting wrong here?
Mr. Schellpeper. Well, from a market standpoint, what's
happened over the last couple years is well-documented. And
again, I go back to--as we went through COVID, we had a number
of goals at our company, and one of them was recognizing and
taking on the responsibility of our role in the food supply.
And that doesn't end with COVID, that--we carry that forward
with us every single day. And so whether that's things we
should be doing inside of our facilities, whether that's other
risk mitigation strategies that we should have, we continually
work on those even today.
Mr. Johnson. Well, thank you, sir. Mr. Chairman, I would
just close by noting this. I mean, I don't think everything is
okay. I do think we have a vulnerability in the American food
supply system that I know we can work in a bipartisan way to
address. But the big 12, the big 30, the big four, this is a
problem for the availability and security of American food.
Thank you.
The Chairman. Point well-spoken, Mr. Johnson.
And now the gentleman from Georgia, Mr. Austin Scott, is
recognized for 5 minutes.
Mr. Austin Scott of Georgia. Thank you, Chairman Scott.
And, Mr. MacLennan, I know my colleague Rick Crawford spoke
with you a little bit about this, but I have a couple of
questions I would like to follow up with. Do you pay a
different price in cattle markets based on the race of the
farmer?
Mr. MacLennan. No.
Mr. Austin Scott of Georgia. Mr. MacLennan?
Mr. MacLennan. Did you--I'm sorry, can you hear me,
Representative Scott?
Mr. Austin Scott of Georgia. Yes, sir. Do you pay a
different price in the cattle market based on the race of the
farmer?
Mr. MacLennan. Yes. I'm sorry, I answered but you must not
have my microphone. Anyway, no.
Mr. Austin Scott of Georgia. Okay. Do you pay a different
price in cotton markets based on the race of the farmer?
Mr. MacLennan. Yes.
Mr. Austin Scott of Georgia. Do you pay a different price
in corn markets based on the race of the farmer?
Mr. MacLennan. No.
Mr. Austin Scott of Georgia. Wheat markets?
Mr. MacLennan. No.
Mr. Austin Scott of Georgia. Any market other than cotton
do you pay a different price based on the race of the farmer
for the commodity?
Mr. MacLennan. As of today, no, but I would expect that
we'll expand our Black Farmer Equity Initiative to other
commodities.
Mr. Austin Scott of Georgia. Okay. Well, I don't mind
telling you, I hope you get sued over that. I think that is
illegal and unconstitutional. But since you have referred to it
as Black farmer equity, I want to ask you this. The definition
under USDA of socially disadvantaged farmers is Black or
African American farmers, as well as American Indian or Alaska
Native, Hispanic or Latino, Asian and Pacific Islanders, and
women. Now, one of the definitions excludes women, but how did
you determine to discriminate against the other classes who are
defined as socially disadvantaged farmers by the USDA?
Mr. MacLennan. As I mentioned, this is a new program for
us, and we have several DEI programs and initiatives. We are
also members of----
Mr. Austin Scott of Georgia. Sir, how did you determine to
discriminate against Hispanic farmers and pay African American
farmers more than you pay Hispanic farmers or your
discrimination against Asian farmers and pay them less than you
pay African American farmers for the same product?
Mr. MacLennan. We've chosen to----
Mr. Austin Scott of Georgia. How did you determine which
races to discriminate against?
Mr. MacLennan. We've chosen to begin our program with Black
farmers who are significantly underrepresented. And I believe
that we will expand our program to include other ethnic groups.
Mr. Austin Scott of Georgia. Do you intend to include women
in that?
Mr. MacLennan. Yes.
Mr. Austin Scott of Georgia. Women of all races?
Mr. MacLennan. Yes.
Mr. Austin Scott of Georgia. So you will include White
women in it then?
Mr. MacLennan. Yes.
Mr. Austin Scott of Georgia. What about White men?
Mr. MacLennan. It--I don't think White men are
underrepresented in the farming industry today.
Mr. Austin Scott of Georgia. So you are going to pay--by
definition, you are engaging in racism and discrimination, and
you are going to pay White men less than you are going to pay
everybody else?
Mr. MacLennan. I believe we are engaging----
Mr. Austin Scott of Georgia. That is your testimony?
Mr. MacLennan. I believe we're engaging in support of a
historically underrepresented component of our farm community.
Less than one percent, roughly \1/2\ percent of the farming
community in the United States are Black Americans, and so for
us----
Mr. Austin Scott of Georgia. Mr. MacLennan----
Mr. MacLennan. I'm sorry.
Mr. Austin Scott of Georgia. Mr. MacLennan, if you were
doing something for beginning, young, and small where it did
not discriminate against race, you would see me going thumbs up
and absolutely and we need to help the beginning, young, and
small farmers. But to differentiate based on the color of the
farmer's skin, so you are going to give a multimillionaire who
is not White more than you will pay a 21 year old who is just
getting started farmer that is White. I mean, if you want to go
for beginning, young, and small and how we help beginning young
and small farmers, I am all for you, but discriminating and
paying somebody more because of the color of their skin or
paying somebody less because of the color of their skin, that
is inherently un-American. And so I am disappointed in you. I
am disappointed in your company. I am disappointed in Target
specifically because I believe that they are the ones that have
driven this initiative.
And so let me ask you this. Mr. Klein, do you differentiate
in price, that you pay based on the color of the farmer?
Mr. Klein. No, we do not.
Mr. Austin Scott of Georgia. Does anybody else who is
testifying differentiate in price based on the color of the
farmer?
Mr. Schellpeper. No, we do not.
Mr. Austin Scott of Georgia. Well, I----
Mr. King. No.
Mr. Austin Scott of Georgia. I appreciate you not
discriminating for or against people based on the color of
their skin with regard to the products that you purchase from
them.
With that, Mr. Chairman, I yield the remainder of my time.
The Chairman. The gentlelady from Louisiana, Ms. Letlow, is
now recognized for 5 minutes.
Ms. Letlow. Thank you, Chairman Scott, and thank you to all
the witnesses before us on both panels for participating on
this important discussion here today.
Like many of my colleagues have stressed before me, greater
transparency and competitiveness in cattle markets are the
concerns I hear most from our farmers back in my district.
Farmers are the backbone of rural America and the economic
driver of our local communities. Without them and the hope of
future generations to follow them, our nation will no longer be
the global leader in the food supply chain.
Mr. Schellpeper, your testimony mentions that the packing
facility does not set the price of retail beef paid by
consumers. Can you or anyone else on the panel walk us through
how the products from your facility makes its way to customers
at the restaurant and retail level, the changes that occur to
that product, and the various pricing determinations made along
the way?
Mr. Schellpeper. Thank you, Congresswoman. So the market
that we participate in as a packer is what we call the
wholesale market. And that's the price discovery if you will,
the market that we report our mandatory price reporting to the
USDA. That's the price we work out with our customers
obviously. When a product leaves our plants, this is where our
industry becomes very, very complex. A product can go to a lot
of different places, sometimes directly to a retail or food-
service distribution center, sometimes it could go to another
processing place or it could go to a cold storage. Each one of
those steps that would be incremental will add a certain amount
of cost, perhaps adds a certain amount of value. But, again, a
very complex industry. No--there's not a one-size-fits-all
here.
Ms. Letlow. Okay. Mr. King, your testimony mentions that
geopolitical issues are compounding other challenges the
industry is facing. Obviously, the war in Ukraine is top of the
mind for all of us, so I am curious, how is that conflict
affecting your operations, and are there other geopolitical
issues this Committee should be mindful of? And anyone on the
panel is welcome to answer.
Mr. King. Thank you, Congresswoman. The war in Ukraine is
obviously a big piece of that, from a grain standpoint, from a
cooking oil standpoint, and the price associated with that.
It's a large market in terms of producing wheat, and there will
be--the plantings in both Ukraine and Russia have been slowed
or maybe not happen at all this year. So that would be the
largest.
But second, what we see with respect to the COVID lockdown
in China and the inability to unload ships and have trucks and
transportation to move inland in China, that would be another
example of that.
Ms. Letlow. Thank you. Anyone else?
Thank you, Mr. Chairman. I yield back the remainder of my
time.
The Chairman. The gentleman from Texas, Mr. Cloud, is now
recognized for 5 minutes. Mr. Cloud?
Mr. Cloud. Thank you, Mr. Chairman. I have a question
really to all the CEOs who are here and so you can all pick who
you would want. But basically when I talk to people back home,
there is certainly concern about the pricing and how it has
developed over some time. It seems to be like there is an issue
with competition when it comes to--what is your capacity, I
guess, right now, when it comes to being able to produce more
or less?
Mr. Klein. Thank you for the question. I'll start that
discussion. We are operating today at 100 percent of capacity.
All three of our facilities are operating as much as we can
possibly go through. And that is going to continue until the
cattle supply drops where there are not enough cattle available
to operate at 100 percent capacity.
Mr. Cloud. It is my understanding that is pretty systemic
of where the industry is that right now. Would you all agree?
Mr. King. Congressman, we are not at 100 percent capacity.
We're better than we've been--we're back to pre-pandemic
levels, but I would tell you that we are in the 90 percent
range at Tyson.
Mr. Cloud. Okay. When we are talking about capacity, what
would be the limits that are keeping you from expanding more
and creating more capacity? Are we talking cost of equipment,
supply-chain issues, is it people? When you are making that
evaluation, what are you looking at?
Mr. King. I think it--for us, it is a couple of things. One
is people, and then the skill level associated with those
people. We had a number of people leave the workforce, and so
the training, skilling, and up-skilling of those team members
is a component. But also just getting up line speeds back and
get this engine running at full speed is a challenge with the
inexperience level we have within our workforce. We're seeing
the light at the end of the tunnel, and we're encouraged by
that, but we still have some work to do to get all the way
right.
Mr. Cloud. Anyone else like to speak to that?
Mr. Schellpeper. Congressman, we are back to near capacity
levels at JBS, and again, as I mentioned earlier, we're
expanding our capacity as well.
Mr. Cloud. Okay. It would seem to me like one of the
biggest issues that when I am hearing when I am talking to
people in the ag community is they are concerned that there
might be a lack of competition that is leading to increased
prices. And so I guess my question is it seems like if there is
a bottleneck in the supply-chain issue right now, it is at the
packers in a sense. And my questions are just what could be
done to create a more competitive environment? What can we do
to increase capacity? What could we do to where feedlots are
more of a bargaining for price and those kind of things? Of
course, anytime we are looking at these sort of issues, the
preference should be to find ways to let the market work and
incentivize the market to work as opposed to coming in with a
price-fixing scheme or those kind of things. And so my question
is really what would be your suggestions along those lines?
Mr. King. Congressman, I would suggest that if you think
about the food supply, and protein in particular, I would tell
you it's the most affordable, most resilient, and accessible in
the world. And so I would tell you it's good. In our particular
case just getting all the way back to full speed will be
helpful, but because of some of the things, whether it be with
AMAs or just a better grading piece of meat, U.S. grain-fed
beef is the most desired in the world, and so the demand for
that is incredibly strong. I see that doing nothing but getting
stronger. So competition is great. Being able--and finding ways
to service the existing customers and those who will be new
into the marketplace is going to be a challenge for us at
Tyson, and it's one that we're embracing. But the good news is
the demand for beef, high-quality U.S. grain-fed beef has never
been stronger, has never been a greater opportunity.
Mr. Cloud. Okay. Well, thank you, and thank you, Mr.
Chairman. I yield back.
The Chairman. And thank you. And now we are at the part of
this hearing where the Ranking Member and I would like to give
some closing remarks, and then I would like to thank you, each
of our CEOs. So we will start with you, Ranking Member, then
myself, and then the thank yous.
Mr. Thompson. Well, thank you, Mr. Chairman. And thank you,
witnesses, for bearing with us as we talk about these complex
issues today. The last thing we need as we sort through these
complexities and related proposals are baseless and
sensationalized claims. So I hope that the facts, the science,
and that level heads will prevail as we move forward. So thank
you all for helping to bring that to the table today, and, Mr.
Chairman, I yield back.
The Chairman. Thank you so much. Well, I can't thank you
enough for this hearing. It is very important. And it was very
important to have the CEOs here because we need your help. We
are faced with a very serious problem and a very serious threat
to our food security. And this is why I wanted to make sure
that we had the CEOs here. We cannot go and solve this problem
without it.
We have an equation here where we are having the
meatpackers, who are making soaring profits, in the middle of
this supply chain, but we are having at the beginning of it our
farmers and ranchers, and you heard the statistics, 17,000
cattle ranchers getting out of the business every year, as Ms.
Spanberger pointed out. Our Committee is having to deal with
this, and we need your help. And this has been a plaintive plea
because of the role in the decision-making capacity.
As I outlined earlier in my remarks, the solution to this
problem rests with three components that we have to solve,
first of all, the high prices that our consumers are now paying
for the beef, and then the decreasing share of profit that our
ranchers are having. And, as you noted from just the agonizing
testimony, several have raised the issue of committing suicide.
So we have to solve this problem.
And the hearing also had to have--and this is the reason I
wanted the CEOs to make sure they were here. These accusations
of antitrust behavior, of over-competition, you know what they
are. It was very important to have the CEOs here to go on the
record that they have not had the agreements. However, we put
the chart up to show that this escalation of your huge profits
started well before COVID-19, in 2015. This is why it was
important for you all to be here.
Now the question is, going forward, what is the solution
that will lower prices for the consumers and once again allow
our cattle ranchers to earn a fair return? We have to do that.
The CEOs, I am asking us to be partners with our Committee as
we put together this bipartisan piece of legislation to address
this issue.
And I also am very appreciative of President Biden and our
American Rescue Plan (Pub. L. 117-92). They have started some
of the progress. They included $1 billion in funding to support
new independent meat processors. That is an important step. But
we have to do more.
And, as I said, as Chairman of the House Agriculture
Committee, I am working now on bipartisan legislation to
correct these market imbalances, reduce the over-concentration
of consolidation and anti-competitive market behavior, and
determine where there is any antitrust behavior. It is very
important to help you all erase this blot off your record. You
said it is not true. We need to make sure that we have the
public's confidence that it is not true so that we can also do
that other thing, make sure our families can go to their
grocery store and not see their prices of meat go up 18 percent
in a year. So that is why we want to thank you for that.
Now, here is what we need to do. I believe, first, we need
to go through a thorough investigation of the meatpacking
industry's practice with your cooperation. There have been
efforts on both sides of the political spectrum to call for
this inquiry. You heard the comments on both sides of the
Committee about this question. We have to make sure it is
answered.
My friend from Georgia, our former Agriculture Secretary,
Sonny Perdue, a good friend, he was Chairman of the Senate and
I was Chairman of our Senate Rules Committee for 10 years in
Georgia. He started the first investigation with the Justice
Department into anti-competitive practices. So this is not a
Democratic or Republican. We are all working on this together.
There has also been 11 Democratic and Republican State
Attorneys General have requested an investigation from the
Justice Department into anticompetitive practices. That is why
it is important that I had you all here because this reaches
right into your area of executive policy decisions. We had
Republican Senators who have also written letters asking the
Justice Department to investigate allegations of price-fixing
with our meatpackers. This is what is on the table before us,
not just you. We have to respond to it in Congress. But I
wanted to make sure that before we move with legislation, that
we had the ranchers and the CEOs in because you all, the two of
you have to be partners in helping us find the right
legislative solution.
I am very pleased also that President Biden's
Administration agrees and he has announced that his
Administration will be coordinating the investigations in our
U.S. Department of Agriculture and our U.S. Justice Department.
But also there is a very important role for us in Congress to
do, and that is, as you all may remember, we passed the Rescue
Plan and we were able to put that money in, but we want to do
quite a bit more.
And so I just wanted to share with you all, we are in this
together. We have a huge problem, 17,000 cattle ranchers
getting out of the business, and it is structured in a family
basis and their next generation of family, their sons, their
daughters are saying they are not going to do it. This is a
direct threat on the security of the food supply of the
greatest nation on Earth. We cannot and we must not let that
happen. We have to do it together, you the meatpackers, the
ranchers, and us here in Congress, so that our American people
will be able to afford and enjoy this bountiful agriculture
gift that God Almighty has blessed us with.
And so I thank you from the bottom of my heart for you all
coming and helping, and I look forward to working with you as
we develop the legislative fix to this great challenge. Thank
you all very much for being here. God bless you.
And, Mr. David MacLennan with Cargill, thank you. And
again, I want to compliment you on helping and addressing the
issues facing our African American farmers.
And to you, Mr. Tim Schellpeper of JBS, your comments and
your insight was very helpful.
And, Mr. Tim Klein of the National Beef Association, thank
you. And I thank you for coming in person. Thank you.
And to Mr. Donnie King with Tyson, thank you also. Thank
all of you.
And I also want to thank my great staff under the direction
of Ms. Anne Simmons and Ms. Ashley Smith. They have really put
together a tremendous hearing here. And I want also single out
Daniel Feingold and Lesley McNitt for they really helped me at
this great opportunity as Chairman of this extraordinary
Committee.
And so now I must read this. Under the Rules of the
Committee, the record of today's hearing will remain open for
10 calendar days to receive additional material and
supplementary written responses from the witnesses to any
questions posed by a Member.
And with that, this hearing of the Committee is now
adjourned. Thank you.
[Whereupon, at 3:30 p.m., the Committee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Article by Hon. David Scott, a Representative in Congress
from Georgia
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[https://www.nytimes.com/2021/12/27/business/beef-prices-cattle-
ranchers.html]
Record Beef Prices, but Ranchers Aren't Cashing In
``You're feeding America and going broke doing it'': After
years of consolidation, four companies dominate the meatpacking
industry, while many ranchers are barely hanging on.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Steve Charter on his 8,000 acre ranch on the high plains of
Montana.
Credit. Erin Schaff/The New York Times
By Peter S. Goodman,\1\ Photographs by Erin Schaff
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\1\ https://www.nytimes.com/by/peter-s-goodman.
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Published Dec. 27, 2021/Updated Dec. 29, 2021
Shepherd, Montana--Judging from the prices at supermarkets and
restaurants,\2\ this would appear to be a lucrative moment for cattle
ranchers like Steve Charter.
---------------------------------------------------------------------------
\2\ https://www.nytimes.com/2021/06/23/business/beef-prices.html.
---------------------------------------------------------------------------
America is consuming more beef than ever, while prices have climbed
by \1/5\ over the past year--a primary driver for the growing alarm
over inflation.\3\
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\3\ https://www.nytimes.com/2021/11/16/briefing/inflation-biden-
approval.html.
---------------------------------------------------------------------------
But somewhere between American dinner plates and his 8,000 acre
ranch on the high plains of Montana, Mr. Charter's share of the $66
billion beef cattle industry has gone missing.
A third-generation cattle rancher, Mr. Charter, 69, is accustomed
to working 7 days a week, 365 days a year--in winter temperatures
descending to ^40, and in summer swelter reaching 110.
On a recent morning, he rumbled up a snow-crusted dirt road in his
feed truck, delivering a mixture of grains to his herd of mother cows
and calves. They roam a landscape that seems unbounded--grassland
dotted by sagebrush, the horizons stretching beyond distant buttes.
Mr. Charter has long imagined his six grandchildren continuing his
way of life. But with no profits in 5 years, he is pondering the fate
that has befallen more than half a million other American ranchers in
recent decades: selling off his herd.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Charter preparing feed for his herd of mother cows and
calves.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Charter with Willie and Stevie Williams, his
grandchildren, on the farm.
``We are contemplating getting out,'' Mr. Charter said, his voice
catching as he choked back tears. ``We are not getting our share of the
consumer dollars.''
The distress of American cattle ranchers represents the underside
of the staggering winnings harvested by the conglomerates that dominate
the meatpacking industry--Tyson Foods and Cargill, plus a pair of
companies controlled by Brazilian corporate owners, National Beef
Packing Company and JBS.
Since the 1980s, the four largest meatpackers have used a wave of
mergers to increase their share of the market from 36 percent to 85
percent, according to the U.S. Department of Agriculture.
Their dominance has allowed them to extinguish competition and
dictate prices, exploiting how Federal authorities have weakened the
enforcement of laws enacted a century ago to tame the excesses of the
Robber Barons, say antitrust experts and advocates for the ranchers.
One landmark piece of legislation, the Packers & Stockyards Act of
1921,\4\ was adopted by Congress to ``safeguard farmers and
ranchers''--among other market participants--from ``unjustly
discriminatory and monopolistic practices.''
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\4\ https://www.ams.usda.gov/rules-regulations/packers-and-
stockyards-act.
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Today's record high beef prices are most directly reflective of
scarce stocks, another manifestation of the Great Supply Chain
Disruption \5\ accompanying the pandemic. The initial spread of the
coronavirus swept through slaughterhouses, killing scores of
workers,\6\ sickening thousands and halting production.\7\ That caused
shortages of beef.
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\5\ https://www.nytimes.com/2021/10/22/business/shortages-supply-
chain.html.
\6\ https://www.cdc.gov/mmwr/volumes/69/wr/mm6927e2.htm.
\7\ https://www.nytimes.com/2020/04/18/business/coronavirus-meat-
slaughterhouses.html.
---------------------------------------------------------------------------
But the shock landed atop decades of takeovers that closed
slaughterhouses. The basic laws of economics suggest what happens when
the packers cut their capacity to process beef: The supply is reduced,
increasing consumer prices. At the same time, fewer slaughterhouses
limits the demand for live cattle, lowering prices paid to ranchers for
their animals--an advantage for the packers.
``Their goal is to control the market so that they can control the
price,'' said Marion Nestle, a professor of food studies and public
health at New York University. ``The pandemic exposed the consequences
of the consolidation of the meat industry.''
The packers--now confronting a push from the Biden Administration
to revive antitrust enforcement \8\--maintain that the attention on
consolidation is misguided.
---------------------------------------------------------------------------
\8\ https://www.nytimes.com/2021/12/25/business/biden-
inflation.html.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Jeanie Alderson with her father, Irving Alderson. Their
family has run cattle in Montana for over a century.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Jeanie Alderson's grandfather and relatives at her family's
ranch.
JBS, the largest meatpacker in the United States, declined to
discuss the impact of consolidation on the market, instead referring
questions to a Washington lobbying organization, the North American
Meat Institute.
``Concentration has nothing to do with price,'' said a spokeswoman
for the organization, Sarah Little. ``The cattle and beef markets are
dynamic.''
As slaughterhouses work through a glut of live cattle, ranchers
have in recent weeks received rising prices for their animals, she
added.
Cassandra Fish, a former senior executive at Tyson who now runs a
beef industry consultancy, said the shuttering of slaughterhouses by
meatpackers in recent decades was prompted by the simple fact that many
were losing money.
``The packers are not masterminds,'' she said. ``The packing
industry was unprofitable for several years, so they closed plants.''
But ranchers complain that the game is rigged.
They generally raise calves, allowing them to roam across grassland
until they are big enough to be sold to so-called feedlots that
administer grains to bring them to slaughtering weight. The feedlots--
the largest concentrated in Texas, Nebraska, Kansas and Colorado--then
sell their animals to the packers.
Because the feed lots face relentless pressure from the packers for
lower prices, they in turn demand cut-rate terms from the ranchers.
``A lot of people don't understand how trapped ranchers are in this
really broken system,'' said Jeanie Alderson, whose family has run
cattle in southeastern Montana for more than a century. ``We don't have
a market.''
Billions for Meatpackers
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A truck with cattle for slaughter arrived before sunrise at
JBS's meat-processing plant in Greeley, Colo.
Many of the cattle raised in Montana are eventually hauled to
slaughterhouses run by JBS, the world's largest meat processor.
The two brothers who control the enterprise, Wesley and Joesley
Batista, possess a fortune estimated by Bloomberg News \9\ at $5.8
billion. Four years ago, they went to prison after pleading guilty to
participation in a Brazilian bribery ring that secured loans from
government-owned banks. (They have since been released.) A $20 billion
international acquisition spree put JBS in control of \1/4\ of the
American capacity for slaughtering beef.
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\9\ https://www.bloomberg.com/news/articles/2021-07-15/brazil-s-
batista-brothers-are-out-of-jail-and-worth-6-billion?sref=rWJsyGwt.
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While ranchers have been tallying losses, JBS has been celebrating
gains--revenues of $18 billion between July and September, which
represented an increase of 32 percent compared with the same quarter in
2020.
In past decades, when beef prices rose, so would payments to cattle
ranchers, who claimed over half of what consumers paid for meat. But
that relationship began to break down in 2015. Last year, cattle
ranchers received only 37 cents on every dollar spent on beef,
according to Federal data.
``You're having consumers exploited on one end of the supply chain,
cattle producers exploited on the other,'' said Bill Bullard, a former
rancher who now heads an advocacy group, the Ranchers--Cattlemen Action
Legal Fund. ``The meatpackers are making all-time record profits.''
His organization is a plaintiff in a class-action lawsuit that
accuses meatpackers of manipulating prices by sharply reducing their
purchases of cattle at so-called sale barns--open marketplaces where
animals are inspected and purchased on the spot, with the prices
disclosed publicly.
Instead, the packers now overwhelmingly rely on private contracts
with feed lots. Those contracts provide the feed lots with certainty
that the packers will buy their animals. In exchange, the feed lots
must lock into a price structure that tracks those in public auctions,
where buyers are scarce.
According to industry experts, this system allows packers to lock
up the overwhelming supply of cattle at prices they impose, under terms
hidden from public view. Given the market dominance of the four largest
packers in their regions, feed lots lack alternative places to sell
their animals once they reach slaughtering weight.
``There's no competition,'' said Ty Thompson, an auctioneer at the
public auction yards in Billings, Mont., who also operates his own feed
lots. ``We have so much supply and so little capacity, that there's no
negotiation whatsoever.''
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
At Livingston Livestock, the animals are led into the ring
for auction.
Losing the Family Legacy
In the rolling hill country of northern Missouri--a tableau of
grain farms dotted by compact towns--Coy Young, a fifth-generation
rancher, has concluded that raising cattle is pointless.
``You're feeding America and going broke doing it,'' he said. ``It
doesn't pencil out to raise cattle in this country anymore.''
Mr. Young, 38, carries credit card debts reaching $55,000. He
plowed most of that debt into artificial insemination technology aimed
at producing premium breeding cows.
His payoff was supposed to come early last year, with a sale that
Mr. Young anticipated would fetch $125,000. But the day that he trucked
his herd to a nearby auction, panic over the pandemic assailed markets.
Traders in Chicago pushed down the price of live cattle by more than
ten percent. Mr. Young received a bid of only $32,000.
It was a crushing blow, a price that seemed certain to trigger his
financial unraveling. Still, he had no choice but to take it. Cattle
are perishable goods. Holding on to them after they reach slaughtering
weight entails the costs of feeding them. They begin to add more fat
than muscle.
A week later, the bank began calling Mr. Young demanding repayment.
Sinking into despondency, he waited for his wife to drive to her
nursing job--their means of paying the bills. He planned to kill
himself, he said. When she pulled back into the driveway, having
forgotten something, he reconsidered.
``You put your heart and soul into something, and then you lose
your ass,'' he said. ``You don't see any other way out.''
He plans to sell off his herd early next year and start a barbecue
catering business.
``You're raised a farmer, and that's what you're supposed to do,''
he said. ``It's my family legacy. It's like I'm losing my image as a
man.''
What Gets Lost
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Charter is accustomed to working 7 days a week, 365 days
a year--in cold winters and hot summers.
Ever since the Reagan Administration, the Federal Government has
taken a lax approach to antitrust enforcement, investing in the popular
notion that when large and efficient companies are permitted to amass
greater scale, consumers benefit.
That notion may now be up for readjustment.
The Biden Administration and Members of Congress are pressing to
diminish the dominance of the meatpackers as inflation concerns
intensify.
The Federal Trade Commission last month opened an inquiry \10\ into
how anticompetitive practices by major companies have contributed to
supply chain problems.
---------------------------------------------------------------------------
\10\ https://www.ftc.gov/news-events/press-releases/2021/11/ftc-
launches-inquiry-supply-chain-disruptions.
---------------------------------------------------------------------------
``The meat price increases we are seeing are not just the natural
consequences of supply and demand,'' senior White House economists
recently declared in a blog post.\11\ ``They are also the result of
corporate decisions to take advantage of their market power in an
uncompetitive market, to the detriment of consumers, farmers and
ranchers, and our economy.''
---------------------------------------------------------------------------
\11\ https://www.whitehouse.gov/briefing-room/blog/2021/12/10/
recent-data-show-dominant-meat-processing-companies-are-taking-
advantage-of-market-power-to-raise-prices-and-grow-profit-margins/.
---------------------------------------------------------------------------
Last year, as the pandemic began, the Charter family recognized a
full-on market failure.
``You could see a cow across the road, and you couldn't find ground
beef in Billings, Montana,'' said Mr. Charter's daughter, Annika
Charter-Williams, 34.
As they made arrangements to sell about 120 head of cattle in March
2020, they reached out to a friend who owns a feed lot that sells
animals to a JBS plant in Utah.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
At the Alderson family's Bone Brothers ranch in Montana.
Mr. Charter was taken aback by the terms for the first load: The
slaughterhouse demanded that he commit to delivering his cattle, with
the price to be dictated by JBS.
``I wanted to tell him to go to hell,'' Mr. Charter says. ``But
what choice did I have?''
His break-even point was $1.30 a pound. ``Without any consulting or
any dealing, they just decided that they were going to pay me $1 a
pound,'' he said.
His daughter took the disaster as the impetus for creativity. She
engaged a small, local slaughterhouse to process some of their
remaining animals. Then she sold the beef directly to consumers across
Montana, marketing it on social media.
This resonated as a triumph--the successful sidestepping of the
packers.
It was also not enough.
``It looks like we're going to have to liquidate almost all the
cattle,'' Mr. Charter said.
When family ranches like his disappear, he added, so do the values
that have governed their operations for generations--a commitment to
caring for land and producing quality beef, rather than catering
exclusively to the bottom line.
``People shouldn't be worried about us because we're kind of quaint
and it's nice to have the cowboys out there,'' Mr. Charter said. ``We
need a food system that serves everyone, and not just a handful of
companies.''
Peter S. Goodman is a global economics correspondent, based
in New York. He was previously London-based European economics
correspondent and national economics correspondent during the
Great Recession. He has also worked at The Washington Post as
Shanghai bureau chief. @petersgoodman
A version of this article appears in print on Dec. 27, 2021,
Section A, Page 1 of the New York edition with the headline:
Boom in Beef, But Ranchers Can't Cash In.
______
Submitted Chart by Hon. David Scott, a Representative in Congress from
Georgia
The ``Meat Margin''
Avg. Price Paid to Beef Processors--Avg. Price Paid to Ranchers
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Monthly Beef Price Data, Cents per Pound, USDA
Economic Research Service.
______
Submitted Statement by Hon. David Scott, a Representative in Congress
from Georgia; on Behalf of Robert L. Larew, President, National Farmers
Union
Chairman Scott, Ranking Member Thompson, and Members of the
Committee:
On behalf of the family farmers, ranchers, and rural members of
National Farmers Union (NFU), thank you for holding a hearing to
address ongoing price, transparency, and market power challenges in
cattle markets. Founded in 1902, NFU is a grassroots farm organization
that represents more than 200,000 family farmers and ranchers across
the country, including many cattle ranchers.
Today, most sectors in America's farm and food system are heavily
concentrated and dominated by a small handful of multinational
corporations, and this is particularly evident in the livestock sector.
Since 1977, the share of the meatpacking market controlled by the four
largest beef packers increased from 25 percent to 85 percent.\1\ *
---------------------------------------------------------------------------
\1\ Congressional Research Service, ``Livestock Marketing and
Competition Issues,'' RL33325, January 30, 2009. https://
www.everycrsreport.com/reports/RL33325.
* Editor's note: footnotes annotated with are retained in
Committee file.
---------------------------------------------------------------------------
During NFU's annual national convention in March 2022, Farmers
Union delegates adopted a special order of business that calls for
``legislation that would strengthen antitrust laws, reverse the trend
of consolidation, and protect family farmers and ranchers from
anticompetitive practices.'' \2\ Furthermore, in 2021, NFU launched the
``Fairness for Farmers'' campaign, an effort to shed light upon the
devastating impact that monopolies have had on family farmers and
ranchers. In addition to raising awareness of these problems, the
campaign calls for legislative action including improving price
discovery and transparency, reforming the Packers and Stockyards Act
(PSA), diversifying marketing opportunities, and strengthening
antitrust enforcement.\3\
---------------------------------------------------------------------------
\2\ NFU 2022 Special Order of Business: ``Fairness for Farmers.''
https://nfu.org/policy/.
\3\ https://nfu.org/fairness-for-farmers/.
---------------------------------------------------------------------------
Farmers and ranchers need Congressional action to combat monopolies
and provide fairness in the marketplace. There are multiple strong
legislative proposals meant to address ongoing challenges in cattle
markets and growing public awareness today of the shortcomings in these
markets. I urge the Committee expedite the review and passage of these
legislative solutions.
Improving Price Discovery and Transparency in Cattle Markets
One of NFU's chief concerns regarding cattle markets is the impact
the decline in negotiated trades has on price discovery. While we
recognize the benefits of alternative marketing arrangements (AMAs) as
an option for cattle producers and packers, the cash market serves as
the basis for all cattle prices. Cattle producers also need greater
access to market information, which the implementation of a functioning
cattle contract library could provide. Additionally, truth-in-labeling
through mandatory country-of-origin labeling is needed so there is
transparency in the marketplace for consumers.
Price discovery and transparency
High levels of concentration give meatpackers incredible levels of
market power and market influence. The packers' control of the market
also gives them significantly more market information than cattle
producers. Congress passed the Livestock Mandatory Reporting Act (LMRA)
in 1999 in response to concerns about AMAs and high levels of
concentration in the meatpacking industry. LMRA resulted in mandatory
price reporting of most transactions for livestock, and it has been
renewed and amended multiple times.\4\ While LMR has been beneficial
for price discovery in general, the continued erosion of the cash
market for cattle is undermining its benefits.
---------------------------------------------------------------------------
\4\ Mathews, Brorsen, Hahn, Arnade, and Dohlman,``Mandatory Price
Reporting, Market Efficiency, and Price Discovery in Livestock
Markets,'' USDA, Economic Research Service (ERS), LPDM-254-01,
September 2015. https://www.ers.usda.gov/webdocs/outlooks/37626/
53727_ldpm-254-01.pdf?v=5345.
---------------------------------------------------------------------------
AMAs can be valuable tools for packers and producers. Packers
prefer AMAs because they can reduce procurement and transaction costs
and allow plants to operate closer to capacity more consistently. AMAs
also have benefits for livestock sellers, allowing them to lock in
prices, guarantee market access, and reduce transaction costs. However,
the cash market serves as the basis for pricing through AMAs.
Negotiated trades also provide the greatest level of price discovery in
the market. Ensuring a robust cash market is thus important for
improving and preserving price discovery in the cattle market.
In the last 15 years, the level of cash trades has declined
dramatically. Nationally, cash trades have declined from 52 percent of
all trades in 2005 to 20 percent in 2021. Over the same period, formula
trades increased from 33 percent to 61 percent.\5\ This change allows
packers greater control over the cattle supply and price discovery.
---------------------------------------------------------------------------
\5\ USDA AMS ``Annual LMR Live Cattle Purchase Type Breakdown by
Region.'' https://www.ams.usda.gov/sites/default/files/media/
LMRLiveCattleAnnualPurchaseTypeBreak
down.pdf.
---------------------------------------------------------------------------
NFU believes it is essential to establish mandatory minimums for
negotiated trades to ensure price discovery in the cattle market. The
Committee should review the amended Senate version of H.R. 5992--the
Cattle Price Discovery and Transparency Act (in the Senate, S. 4030).
This bill creates a framework for USDA to establish regional mandatory
minimum negotiated trade to address declines in price discovery in
cattle markets, in addition to other provisions to make the marketplace
more transparent.
Cattle contract library and other transparency provisions
NFU recommends the establishment and maintenance, through the
Livestock Mandatory Reporting program, of a cattle contract library,
which would provide information included in contracts between packers
and producers for the purchase of fed cattle. A contract library would
provide equal access to market information for all market participants.
A cattle contract library will give producers better information about
all the different contract elements that may be helpful or detrimental
to their operation, and thus help produces negotiate better contracts.
The concept is being piloted but needs to be made permanent.
The Committee should also consider other measures that can improve
transparency in cattle markets. One example includes expediting carcass
weight reporting and mandating reporting of cutout yield data. The
spread between boxed beef and fed cattle prices has been a major
concern among cattle producers in recent years. Following the dramatic
divergence between boxed beef and fed cattle prices in the early months
of the coronavirus pandemic, it took nearly 18 months for the spread to
fall back to 5 year average levels.\6\ Giving cattle producers greater
access to cutout yield data will improve their ability to negotiate
prices that better reflect consumer beef values.
---------------------------------------------------------------------------
\6\ Kansas State University, Livestock & Hay Charts, ``Choice-
Select Boxed Beef Spread,'' March 21, 2022. https://
www.agmanager.info/livestock-meat/livestock-marketing-charts/choice-
select-boxed-beef-spread. Editor's note: the chart is updated weekly,
as such the current version, for purposes of retention in Committee
file, is dated May 9, 2022.
---------------------------------------------------------------------------
A 14 day slaughter reporting requirement could also improve cattle
producers' negotiating position. This requirement would ensure that
cattle producers can project estimated slaughter numbers and packer
needs for cattle. This will give producers a better understanding of
supply and demand dynamics that impact the value of cattle.
Mandatory Country-of-Origin Labeling
A fair, competitive, and transparent market for beef requires
product labels that are truthful. A supply chain that contains false or
misleading product labels puts domestic producers at a competitive
disadvantage while preventing consumers from making fully informed
decisions about the products they buy. Cattle ranchers want to provide
consumers with accurate information about the origins of the beef they
buy, and Federal labeling laws should support farmers in achieving that
goal.
NFU supports the American Beef Labeling Act of 2022 (H.R. 7291) to
reinstate mandatory country-of-origin labeling (COOL) for beef. NFU
policy states that mandatory COOL ``is a valuable marketing tool for
producers, and it allows consumer to know here the meat products they
consume rare born, raised, slaughtered, and processed.'' \7\ We look
forward to working with the Committee to address the ongoing failures
of Federal labeling requirements for beef.
---------------------------------------------------------------------------
\7\ National Farmers Union, Policy of the National Farmers Union,
(March 2022). https://nfu.org/policy/.
---------------------------------------------------------------------------
Strengthening Competition and Antitrust Laws and their Enforcement
Given the high level of concentration in the marketplace, it is
imperative that our antitrust and pro-competition laws work the way
Congress intended. When the Packers and Stockyards Act, the Sherman
Act, and Clayton Act were enacted more than a hundred years ago,
Farmers Union members were strong supporters. Yet, lax enforcement in
the last few decades has left consolidation and anticompetitive
practices largely unchecked. As a result, farmers and ranchers have
been deprived of marketing choices, innovation, fair prices, and equal
treatment. NFU urges support for the Meat and Poultry Special
Investigator Act (H.R. 4103) and the swift completion of forthcoming
PSA rulemakings to strengthen competition and antirust laws and to
encourage more robust enforcement of the law.
The Meat and Poultry Special Investigator Act
The U.S. Department of Agriculture (USDA), the Department of
Justice (DOJ), and the Federal Trade Commission (FTC), need stronger
tools to enforce existing antitrust laws. The Meat and Poultry Special
Investigator Act would provide USDA the authority and resources it
needs to address anticompetitive behavior when it arises. The bill also
provides the cross-agency collaboration necessary to address
monopolistic practices within the industry.
The 2017 reorganization of USDA diminished the standing,
independence, and resources of the agency charged with enforcing the
PSA. Greater emphasis should be placed on PSA enforcement, especially
because the law has been under-enforced in recent decades.\8\ The Meat
and Poultry Special Investigator Act would help ensure that independent
farmers and ranchers have a chance to succeed by creating a special
investigator's office with subpoena power, a dedicated staff of experts
and attorneys, and the provision of resources to expose wrongdoing in
the marketplace. The special investigator's office would also promote
cross-agency collaboration, working with DOJ and FTC to closely study
and pursue actions against potential abuses. The office could also work
with the Department of Homeland Security to protect against actions
that would threaten our food supply.
---------------------------------------------------------------------------
\8\ United States Government Accountability Office (GAO), Testimony
before the Committee on Agriculture, Nutrition, and Forestry, United
States Senate, ``Packers and Stockyards Programs: Continuing Problems
with GIPSA Investigations of Competitive Practices,'' March 9, 2006.
https://www.gao.gov/assets/gao-06-532t.pdf.
---------------------------------------------------------------------------
Strengthening the Packers and Stockyards Act
The enforcement of the PSA is critical to the long-term viability
of cattle producers. NFU is heartened that President Biden's executive
order on competition reaffirms the government's commitment to the
principles that led to the passage of the PSA and specifically mentions
the need for the Secretary of Agriculture to initiative rulemakings
under the PSA ``to address the unfair treatment of farmers and improve
conditions of competition in markets for their products.'' \9\
---------------------------------------------------------------------------
\9\ Executive Order 14036 of July 9, 2021, ``Promoting Competition
in the American Economy,'' Federal Register Vol. 86, No. 132, July
14, 2021. https://www.federalregister.gov/documents/2021/07/14/2021-
15069/promoting-competition-in-the-american-economy.
---------------------------------------------------------------------------
As USDA prepares rulemaking to strengthen the PSA, the department
should ensure that it is not necessary to show a competitive injury
broadly to find an action of a packer, swine contractor, or live
poultry dealer to be unlawful under the PSA. As USDA has repeatedly
argued in court cases, the unambiguous language of section 202(a) and
(b) of the PSA does not require any proof of an adverse effect on
competition or of restraint of commerce or trade. The legislative
history of the PSA shows that Congress intended to prohibit actions
that give undue and unreasonable preferences without regard to whether
they restrain trade, create a monopoly or control prices.\10\
---------------------------------------------------------------------------
\10\ Congressional Research Service, ``USDA's GIPSA Rule' on
Livestock and Poultry Marketing Practices,'' R41673, January 7, 2016.
https://crsreports.congress.gov/product/pdf/R/R41673.
---------------------------------------------------------------------------
More generally, the update to the PSA should provide greater
clarity about what practices in the meat industries constitute unfair,
unjustly discriminatory, or deceptive practices, and thus violate the
PSA. PSA rulemaking should also institute anti-retaliation protections
that help ensure farmers' right to association and so that farmers can
speak up about unfair treatment without fear of retribution.
Supporting the growth of local and regional processing
The COVID-19 pandemic highlighted how large, seemingly efficient
systems of production can falter when there are shocks to those
systems. Local and regional food systems also faced disruptions but
were often better positioned to adapt rapidly to new conditions and
protect against shocks, given their shorter supply chains and more
direct connection to consumers.\11\ Strengthening local and regional
supply chains would promote greater competition in the cattle and beef
industries. Local and regional slaughter facilities would also create
new opportunities for ranchers.
---------------------------------------------------------------------------
\11\ Dawn Thilmany, Elizabeth Canales, Sarah A. Low, and Kathryn
Boys, ``Local Food Supply Chain Dynamics and Resilience during [COVID]-
19,'' Applied Economic Perspectives and Policy, October 26, 2020.
https://onlinelibrary.wiley.com/doi/full/10.1002/aepp.13121.
---------------------------------------------------------------------------
Increasing local and regional slaughter capacity will create
opportunities for cow-calf producers to add value to their cattle on
their own operations. Thankfully, action is being taken on this front.
USDA has made $1 billion available through loan guarantees, gap
financing, and technical assistance to support new and expanding local
and regional slaughter facilities. USDA has also provided various
programs to help small and very small processing facilities weather the
challenges they faced during the COVID-19 pandemic.
Beyond increased capacity, it is also important that regulatory
frameworks provide reasonable flexibility to small and very small
processing facilities. Federal inspector requirements and fees can be
burdensome for small facilities, causing many to operate under
federally approved state inspection programs. However, even though
state inspection programs must meet a standard of at least equal to
Federal inspection standards, state-inspected meat is not allowed to be
sold across state lines. We support allowing interstate sales of state-
inspected meat and providing appropriate regulatory flexibility that
reflects the operating conditions in small and very small facilities.
Conclusion
Thank you for holding this hearing today and for your attention to
price, transparency, and other market challenges facing cattle markets.
NFU stands ready to work with the Committee to address these issues and
we would be happy to answer any questions you may have.
______
Submitted Letter by Hon. Cynthia Axne, a Representative in Congress
from Iowa; on Behalf of Bob Noble, President, Iowa Cattlemen's
Association
April 25, 2022
Hon. David Scott, Hon. Glenn Thompson,
Chairman, Ranking Minority Member,
House Committee on Agriculture, House Committee on Agriculture,
Washington, D.C.; Washington, D.C.
Re: An Examination of Price Discrepancies, Transparency, and Alleged
Unfair Practices in Cattle Markets
Dear Chairman Scott, Ranking Member Thompson, and Members of the
House Agriculture Committee:
The Iowa Cattlemen's Association (ICA) is a grassroots organization
representing nearly 8,000 cattle producers and stakeholders affiliated
with the cattle industry. As the definitive voice of Iowa's beef
business, we have a responsibility to amplify messages from our members
to key decision makers. The commitment of our members to improve the
state of the fed cattle market has led us to forge our own path despite
pushback from major meatpackers, economists, and corporate feedyards.
For several years, we've asked Congress to enact legislation that
would help level the playing field between meatpackers and producers.
We've expressed the need to address the following primary challenges:
lack of price discovery and transparency, meatpacking industry
consolidation leading to fewer competitors, captive supply, and price
manipulation. We've also called on the U.S. Department of Agriculture
and the Department of Justice (DOJ) to investigate meatpackers for
collusion, price manipulation, and market disruptions.
Various Members of Congress, including Reps. Cindy Axne (IA-03) and
Randy Feenstra (IA-04), have responded by introducing legislation and
holding various hearings, yet nothing has come to fruition. The DOJ
initiated an investigation of the four largest meatpackers in June
2020, yet we've received no updates. These concerns even reached the
[White House], which resulted in the President of the U.S. convening a
producer roundtable to discuss the need for greater competition in beef
processing.
In July 2021, ICA member Jon Schaben testified as a witness before
the Senate Judiciary Committee.\1\ * The sentiment of the testimony we
submitted 9 months ago is unchanged; it is time for Congress to support
a transparent and competitive marketplace with action.
---------------------------------------------------------------------------
\1\ ``Written Testimony of the Iowa Cattlemen's Association.''
Iowa Cattlemen's Association, 28 July 2021, [https://
www.judiciary.senate.gov/download/mr-jon-schaben-728-testimony].
* Editor's note: footnotes annotated with are retained in
Committee file.
---------------------------------------------------------------------------
We encourage Members of the House Agriculture Committee to support
the following bipartisan and bicameral bills:
1. Cattle Price Discovery and Transparency Act of 2022--to prevent
further erosion of negotiated trade and price discovery,
improve transparency, and level the playing field between
meatpackers and producers with access to information;
2. Meat Packing Special Investigator Act--to address anticompetitive
practices in the meat industry by better enforcing the
Packers and Stockyards Act; and
3. A-PLUS Act--to increase meat processing capacity by allowing
livestock auction market investment in small and regional
packing facilities.
Additionally, we ask this Committee to request a long overdue
update from the DOJ regarding the antitrust investigation of Cargill,
JBS, National Beef, and Tyson Foods. We're quickly approaching the 2
year mark since the civil investigative demands were issued. While
we've been waiting for results from the DOJ, the packers have been
busy. Despite claiming no wrongdoing, JBS recently agreed to pony up
$52.5 million in a price-fixing lawsuit.\2\
---------------------------------------------------------------------------
\2\ ``Beef giant JBS to pay $52.5 million to settle price-fixing
lawsuit.'' Des Moines Register, 4 February 2022, https://
www.desmoinesregister.com/story/news/2022/02/04/jbs-settles-lawsuit-
millions-price-fixing-beef-processors-meatpacking/6664089001/.
---------------------------------------------------------------------------
The naysayer rhetoric is strong; we've been told that nothing is
wrong with the fed cattle market, alternative marketing arrangements
have improved quality, and no research has been conducted to determine
thresholds for robust price discovery. We've also been informed that
``voluntary, industry-driven'' efforts are working; know that will
certainly change if Congress does not require meatpackers to procure a
portion of their cattle via negotiated means. The aforementioned
opinions merely protect the interests of meatpackers and corporate
feeders who benefit from lucrative formula contracts.
Our beef supply chain starts on our nation's farms and ranches. If
cattle producers are unable to mitigate risk or use market signals to
make informed business decisions, how can we expect them to stay in the
black on their balance sheets? When will Congress address the problems
they have allowed to develop over the past century?
Cattle producers know and understand the meaning of the saying
``All hat and no cattle.'' It's not a phrase of endearment. We've made
our elected and agency officials aware of the challenges we face as
producers, yet the circumstances remain unchanged. Now is the time for
Congress to act.
Questions related to this letter may be directed to Cora Fox,
director of government relations, at [Redacted] or at [Redacted].
Respectfully,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Bob Noble,
President, Iowa Cattlemen's Association.
______
Submitted Statement by Hon. Cynthia Axne, a Representative in Congress
from Iowa; on Behalf of Iowa Cattlemen's Association
The Iowa Cattlemen's Association appreciated the opportunity to
share our perspective with this Committee. We are grateful for the
support from Congresswoman Axne and Congressman Feenstra, however, it
is worth noting that we do not have an Iowa producer here to testify
today. In a Senate Ag Committee hearing yesterday, Sen. Deb Fischer of
Nebraska shared how difficult it is to find cattle producers that are
willing to testify in Congressional hearings opposite from meatpackers.
Let us be clear: While Congress cannot protect cattle producers and
their businesses from being shunned by packers for testifying, Members
of this Committee certainly shouldn't facilitate or allow packers to
intimidate witnesses prior to a hearing.
______
Submitted Letter by Hon. Glenn Thompson, a Representative in Congress
from Pennsylvania; on Behalf of Neil L. Bradley, Executive Vice
President, Chief Policy Officer, and Head of Strategic Advocacy, U.S.
Chamber of Commerce
April 27, 2022
Hon. David Scott, Hon. Glenn Thompson,
Chairman, Ranking Minority Member,
House Committee on Agriculture, House Committee on Agriculture,
Washington, D.C.; Washington, D.C.
Dear Chairman Scott and Ranking Member Thompson:
Thank you for your interest in cattle markets and meat prices. I
write today regarding your April 27 hearing. As price increases hit
American consumers, the Committee should focus on the real underlying
causes, namely, macroeconomic trends that include supply and demand
shocks and monetary policies, rather than the strawmen of industry
concentration or unfair business practices. Moreover, the Committee
should examine constructive fiscal, regulatory, and labor policies to
increase supply and reduce prices. The Chamber stands ready to work
with you and the entire Congress to address these issues.
Market Forces Are Driving Prices
Earlier this year, the Chamber explained the causes of higher meat
prices:
Like so many other products, the factors driving meat prices
higher include increased demand, COVID-related supply chain
disruptions, and increased input costs, especially higher
energy and labor costs.
One has to ask, if, as the Administration asserts,
consolidation in meat and other industries has been a problem
for years and it is also driving the current surge in prices,
then why didn't it drive prices higher before? It is pretty
clear that the Administration is attempting to use higher
prices to justify their preexisting agenda to overturn decades
of bipartisan consensus around antitrust and competition policy
in favor of a `government-knows-best' regulatory approach. That
isn't economics, it is politics and sadly, such government
intervention would likely further constrain supply and push
prices even higher.\1\ *
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\1\ See Chamber statement, at https://www.uschamber.com/security/
supply-chain/u-s-chamber-objects-to-misguided-administration-efforts-
to-address-meat-prices. See also Recording of US Chamber Food
Inflation Event (https://www.youtube.com/watch?v=vTCLL7w78lM) Virtual
Panel: Understanding Inflation Trends in Food and Related Industries.
* Editor's note: footnotes annotated with are retained in
Committee file.
These causes are readily apparent to the American public. As the
Washington Post's Editorial Board recently explained in a piece titled,
``The White House once again offers a bizarre message on inflation,''
---------------------------------------------------------------------------
the business community is not to blame for higher prices:
President Biden is facing mounting criticism for inflation's
rise to its highest level since 1982. Unfortunately, the White
House's latest response is to blame greedy businesses.
Economists across the political spectrum are rightly calling
out the White House for this foolishness. Even some within the
White House are questioning this approach.
Inflation, which was relatively low for years, did not
suddenly rise in recent months because businesses decided now
was the ideal time to squeeze their customers. What actually
happened is that demand soared for many products as the economy
recovered. Often, there were not enough products to meet it,
thanks to supply chain hiccups and labor shortages, so prices
went up. In a surprise to many, consumers kept buying goods
such as cars and washing machines even at higher prices.
Indeed, the Post specifically refuted the President's narrative
that industry concentration causes higher food prices: ``pinning the
current inflation problems on corporate greed is a flimsy argument that
won't stop Americans from beefing about inflation.'' \2\
---------------------------------------------------------------------------
\2\ See https://www.washingtonpost.com/opinions/2022/01/10/white-
house-again-offers-bizarre-message-inflation/.
---------------------------------------------------------------------------
Industrial Concentration is Not Causing Higher Prices
Contrary to the assumptions of many in Congress, the U.S. economy
is not becoming more concentrated. In an exhaustive analysis of all
available economic census data from the past 2 decades, Dr. Robert
Kulick finds that since 2002, U.S. economic concentration has remained
flat.\3\ In fact, since 2007, in both the manufacturing sector and the
broader economy, the economy became less concentrated.
---------------------------------------------------------------------------
\3\ Robert Kulick and Andrew Card, Industrial Concentration in the
United States: 2002-2017 (March 2022) (``Kulick study''), at https://
www.uschamber.com/finance/antitrust/industrial-concentration-in-the-
united-states-2002-2017.
---------------------------------------------------------------------------
In terms of meat specifically, the four-firm packer concentration
ratios in beef and pork packing is monitored by the Packers and
Stockyards Division (P&S) of the Agricultural Marketing Service (AMS).
P&S data show the four-firm concentration ratio in fed cattle beef
packing has not changed meaningfully in more than 25 years.\4\
---------------------------------------------------------------------------
\4\ See https://www.meatinstitute.org/ht/a/GetDocumentAction/i/
194719.
---------------------------------------------------------------------------
The Attempt to Blame Business Is Driven by Politics, Not Facts
Perhaps most troubling, recent efforts by the Administration to
blame high prices on market concentration are reportedly driven by
political advisors and are not supported by the economic evidence. On
January 10, 2022, the Washington Post reported:
In November and December, at least four Democratic polling
experts told senior White House officials that they needed to
find a new approach as public frustration over price hikes
became widespread and highly damaging to Biden's popularity,
according to three people with knowledge of the private
conversations.
``What we said is, `You need a villain or an explanation for
this. If you don't provide one, voters will fill one in. The
right is providing an explanation, which is that you're
spending too much,' '' one Democratic pollster who, like the
others, spoke on the condition of anonymity to reflect private
conversations, told The Washington Post. ``That point finally
became convincing to people in the White House.'' \5\
---------------------------------------------------------------------------
\5\ See https://www.washingtonpost.com/us-policy/2022/01/10/white-
house-inflation-strategy/.
---------------------------------------------------------------------------
The same article noted:
Senior officials at the Treasury Department, for instance,
have been unsettled by the White House's attempts to blame some
large corporations for inflation, skeptical of that explanation
for the recent rise in prices, according to four people with
knowledge of internal administration dynamics.
Indeed, in connection with this hearing, Ranking Member Thompson
has warned against using this hearing as a ``political charade.'' \6\
---------------------------------------------------------------------------
\6\ See https://directory.politicopro.com/congress/member/66884.
---------------------------------------------------------------------------
Macroeconomic Trends Explain Higher Prices
Instead of blaming the business community, the Committee should
explore macroeconomic trends. Former Secretary of the Treasury Lawrence
Summers, a senior official in both the Clinton and Obama
Administrations, recently wrote the following:
We have a serious inflation problem whatever the precise CPI
[consumer price index] reading. Inflation is running well ahead
of anything seen during the guns and butter Vietnam episode and
50 percent above where it was when Pres Nixon imposed wage
price controls.\7\
---------------------------------------------------------------------------
\7\ See https://twitter.com/LHSummers/status/
1481241779508846599?cxt=HHwWjoC94Z3jto4
pAAAA.
In recent months, Japan, China, and Germany all reported their
highest inflation in more than a decade.\8\ Macroeconomic trends
explain these high prices:
---------------------------------------------------------------------------
\8\ See https://www.washingtonpost.com/opinions/2021/11/15/
inflation-its-past-time-team-transitory-stand-down/.
---------------------------------------------------------------------------
Oil Prices. The price of oil, ``the most important global
determinant of inflation,'' is very high and not expected to decline
rapidly.\9\ The war in Ukraine has already exacerbated this trend.
---------------------------------------------------------------------------
\9\ Id.
---------------------------------------------------------------------------
Supply and Demand. As a whole, American consumers have excess
savings as a result of government pandemic relief. At the same time,
the pandemic has caused many Americans to change their spending
patterns. Since February 2020, spending on goods has grown six-fold
compared to spending on services. Spending on goods is up almost 30%
while services spending is up only 5%. When demand rises faster than
supply can keep up, prices rise.\10\
---------------------------------------------------------------------------
\10\ See https://www.washingtonpost.com/opinions/2022/01/10/white-
house-again-offers-bizarre-message-inflation/.
---------------------------------------------------------------------------
In terms of meat specifically, agricultural economists agree meat
demand, exacerbated by the pandemic, has exposed a shortage of
slaughterhouse capacity, a supply-chain problem similar to those of
other industries.\11\
---------------------------------------------------------------------------
\11\ See https://www.reuters.com/business/retail-consumer/high-us-
meat-prices-packer-profiteering-or-capacity-crunch-2022-01-19/.
---------------------------------------------------------------------------
Even President Biden's own Department of Agriculture (USDA),
through its Economic Research Service (ERS), recognizes that
macroeconomic trends, rather than industrial concentration or other
business practices, explain high prices: ``High feed costs, increased
demand, and changes in the supply chain have driven up prices for
wholesale beef and dairy.'' \12\ In a separate report, ERS identified
the causes of inflation: ``2020 was a year of high food price inflation
due to shifts in consumption patterns and supply chain disruptions
resulting from the coronavirus pandemic.'' \13\
---------------------------------------------------------------------------
\12\ See https://www.ers.usda.gov/data-products/food-price-outlook/
summary-findings/.
\13\ See https://www.ers.usda.gov/data-products/ag-and-food-
statistics-charting-the-essentials/food-prices-and-spending/.
---------------------------------------------------------------------------
Supply Chain Problems. Supply is in large part constrained because
global supply chains have not healed from lockdowns and from shifting
consumer patterns, including increased demand for goods. Supply chain
problems are pushing prices higher because consumers have to pay more
for scarce goods and businesses have to pay more for the inputs they
need to produce these goods.
Worker Shortages. In the U.S., there are 4.6 million more job
openings than workers to fill them. Businesses cannot make their
products or provide their services at the levels necessary to meet
demand without the appropriate number of workers. Additionally,
businesses are having to pay workers substantially more to come to
work, which is increasing their operating costs. As Secretary Summers
points out, workers who switch jobs are receiving double-digit pay
increases, costs that ultimately are passed along to consumers.
Monetary Policy. The Federal Reserve has put approximately $5
trillion into the financial system since the beginning of the COVID-19
pandemic. This enormous sum is slowly trickling from the financial
economy into the real economy, which is pushing up the price of goods
and services.
Rather than blame the business community, policymakers should
explore other avenues to encourage competition and lower prices for
consumers. As former Secretary Summers explained, policymakers should
work to reduce tariffs, raise supplies of fossil fuels, and relax
regulations. All of these tools would allow the business community to
serve the needs of consumers more efficiently and at lower prices.
Finally, monetary policy remains the best tool for fighting inflation.
Thank you for the opportunity to share our views.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Neil L. Bradley,
Executive Vice President, Chief Policy Officer, and Head of Strategic
Advocacy,
U.S. Chamber of Commerce.
CC: Members of the House Committee on Agriculture.
______
Submitted Letter by Hon. Rodney Davis, a Representative in Congress
from Illinois
April 18, 2022
Hon. David Scott,
Chairman,
House Agriculture Committee,
Washington, D.C.
Dear Chairman Scott,
We are writing to you regarding the beef pricing hearing you
announced for Wednesday, April 27, 2022, and our desire for the hearing
to include witnesses with knowledge of the entire spectrum of pricing
dynamics from farm to table.
In the statement announcing the hearing you raised the important
issue of consumer beef prices, but as you are aware, beef packers do
not sell to consumers, nor do they set retail prices. Rather, packers
primarily sell to processors, distributors, retailers, or food service
operators. For the Committee to have a comprehensive dialogue about
consumer prices, it is critical that the hearing include an expert
economist or market analyst knowledgeable about the transactions and
market dynamics that occur and affect prices between the packing house
and the consumer's house. Too much of the policy debate around beef
markets has focused on producers and packers, ignoring other components
of the industry's multi-faceted, highly complex supply chain. There are
many other factors reflected in the ultimate retail value of beef,
including input costs, labor, logistics, inventories, and more.
We respectfully request that you work with us to identify a witness
that can address the retail and food service dimension of the beef
supply chain after beef leaves the packing plant. We believe a
collaborative effort will result in a more productive hearing. Thank
you for your consideration.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Hon. Rodney Davis, Hon. Jimmy Panetta,
Member of Congress Member of Congress
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Hon. Dusty Johnson, Hon. Jim Costa,
Member of Congress Member of Congress
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Hon. Eric A. ``Rick'' Crawford, Hon. Stacey E. Plaskett,
Member of Congress Member of Congress
______
Submitted Letter by Hon. David Rouzer, a Representative in Congress
from North Carolina
Hon. Charles Schumer,
Senate Majority Leader,
United States Senate,
Washington D.C.
Dear Senator Schumer,
The undersigned organizations wish to express their deep concern
about the factory farm incentives included in the Build Back Better
Act, and urge you to reject the manure digester and Concentrated Animal
Feeding Operation (CAFO) incentives outlined below in the final Bill
and to prioritize funding farm practices that build healthy soils.
CAFOs are an extractive, exploitative, and unsustainable model for
American agriculture. Already, factory farms receive immense financial
support through government subsidies and enjoy a lack of regulatory
oversight. CAFOs and factory farms are not part of the climate solution
and have no place in the Build Back Better Act. CAFOs pollute our
climate and the environment, threaten public health, and
disproportionately harm BIPOC communities. If the majority is to be the
party of working-class families and revitalizing the U.S. economy,
advocating for incentives that would exacerbate the harms caused by
CAFOs and other factory farms would be grossly misguided.
CAFOs fuel the climate crisis. The Build Back Better Act that
passed the House of Representatives would substantially incentivize
building CAFO methane digesters. A CAFO houses thousands of animals and
collects their urine and manure in large pits located either under the
CAFO building or in a nearby lagoon. The liquid waste releases methane
as it decomposes, which is then burned for energy. This type of methane
capture is falsely labeled as a ``renewable energy'' source as liquid
manure emits more methane than solid manure in a dry lot or on
pasture.\1\ Methane, a greenhouse gas, is 84 times more potent than
carbon dioxide over a twenty year time frame. Manure digesters require
a scale of thousands of animals to operate, causing further expansion
of CAFOs \2\ and their greenhouse gas emissions, as well as
displacement of small and medium-sized farmers across the nation. For
example, manure digesters for dairies require thousands of animals to
operate efficiently. Investing in manure digesters comes with the
unacceptable trade-off of harming the surrounding communities by
expanding the factory farms that are destroying their quality of life.
---------------------------------------------------------------------------
\1\ https://www.epa.gov/sites/default/files/2021-04/documents/us-
ghg-inventory-2021-main-text.pdf.
\2\ https://www.thegazette.com/agriculture/nine-iowa-dairies-get-
digester-permits-since-new-law-seven-plan-expansion/.
---------------------------------------------------------------------------
Congress should be finding solutions that reduce reliance on a
supply chain that creates liquid manure and methane, not patching
together harmful remedies that prop up factory farms. The Build Back
Better Act prioritizes building resilient human infrastructure and
combating the climate crisis--CAFOs are antithetical to both.
CAFOs are extremely detrimental to local air and water quality, as
well as the broader environment. While methane may seem like an
abstract threat, your friends, neighbors, and constituents suffer
directly from the many other polluting impacts of CAFOs. Drinking
water,\3\ especially in rural areas, is likely to be contaminated with
nitrates and bacteria from CAFO-sourced manure after running off from
fields and into local waterways and drinking wells. The Environmental
Protection Agency has long cautioned that CAFOs are a leading
contributor to dangerously high levels of toxic particles in water,\4\
leading to fish kills and polluted drinking water.
---------------------------------------------------------------------------
\3\ https://prospect.org/environment/new-york-dairy-farms-skirt-
clean-water-act-requirements/.
\4\ https://www3.epa.gov/npdes/pubs/cafo_proposed_env_assess_ch1-
3.pdf.
---------------------------------------------------------------------------
CAFOs and factory farms jeopardize public health. In 2019, the
American Public Health Association called for a precautionary
moratorium on new and expanding CAFOs.\5\ Workers and neighboring
residents of CAFOs are at a higher risk of developing asthma,
allergies, and decreased lung function \6\ than those who do not live
by CAFOs. Over 150 pathogens can be found in manure from CAFOs \7\
causing serious diseases in humans, such as Anthrax, Leptospirosis,
Listeriosis, Salmonella poisoning, Giardiasis, and many others. Health
risks are greater for children and those who are immunocompromised. The
World Health Organization,\8\ Centers for Disease Control \9\ and Food
and Agricultural Organization of the United Nations \10\ have warned
that humans are also at ever-higher health risks because CAFOs create
superbugs by increasingly relying on antibiotics to control diseases in
animals, so much so that the microbes being controlled develop immunity
to the drugs and mutate. As such, CAFOs create microbes that infect
humans, and are resistant to life-saving antibiotics used by medical
professionals.
---------------------------------------------------------------------------
\5\ https://www.apha.org/Policies-and-Advocacy/Public-Health-
Policy-Statements/Policy-Database/2020/01/13/Precautionary-Moratorium-
on-New-and-Expanding-Concentrated-Animal-Feeding-Operations.
\6\ https://docs.google.com/document/d/1JIPeE_KGecUnIpTYh53Nlr0b-K-
b9BXjE01gvE5
6NSo/edit.
\7\ https://www.cdc.gov/nceh/ehs/docs/
understanding_cafos_nalboh.pdf.
\8\ https://www.who.int/news/item/07-11-2017-stop-using-
antibiotics-in-healthy-animals-to-prevent-the-spread-of-antibiotic-
resistance.
\9\ https://www.cdc.gov/drugresistance/threat-report-2013/pdf/ar-
threats-2013-508.pdf#page=6.
\10\ https://www.un.org/pga/71/2016/09/21/press-release-hl-meeting-
on-antimicrobial-resistance/.
---------------------------------------------------------------------------
CAFOs are a tool of environmental racism and injustice. CAFOs tend
to be built in and around communities with the least financial and
political resources to fight back against the extractive operations. In
many parts of the country, this tends to be in Black communities with
histories of enslaved labor and sharecropping. In North Carolina, CAFOs
were five times more likely to be located in majority non-white
communities and seven times more likely in high-poverty areas.\11\
Workers in CAFOs tend to be immigrants and face grueling working
conditions.\12\ Communities of all affluence levels tend to oppose
proposed CAFO sites, so the intentional placement in BIPOC and low-
wealth communities is an environmental injustice that must be ended--
not perpetuated by the Build Back Better Act.
---------------------------------------------------------------------------
\11\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1637958/.
\12\ https://moenvironment.org/cafo-toolkit/.
---------------------------------------------------------------------------
CAFOs are a driving factor of an unjust food system that pollutes
the environment, threatens human health, and perpetuates systemic
racism and inequity. They have no role in the Build Back Better Act.
CAFO operators already enjoy many incentives and do not need another
program built from funds meant to support working families. Furthermore
as written the bill would allow factory farms to stack incentives
essentially encouraging a CAFO boom across the country. The House-
passed BBB includes the following incentives:
A set-aside for ``underutilized technology'' (which is
likely to primarily fund manure digesters) in new grant funding
for the Rural Energy for America Program (REAP);
Expanded eligibility for the 30% renewable energy tax credit
to offset up-front costs associated with building digester
systems, including manure digesters; and
An additional $9 Billion in funds for USDA's Environmental
Quality Incentives Program without proper guardrails to
restrict this funding from going to support manure digesters
for CAFOs instead of other more beneficial practices that would
contribute to diversified and equitable climate-friendly food
production.
Further incentivizing CAFOs would be misguided and firmly against
the best interests of Americans. In 2019, the Center for Livable Future
at Johns Hopkins University published poll results of likely voters
\12\ in heavy CAFO states who strongly favored moratoriums on new
CAFOs. Factory farms would not be viable without the Federal subsidies
they rely on, the lack of regulatory oversight they enjoy , and the
political power of the corporations that profit from them. CAFOs are
not the first choice of voters, farmers, consumers, or even the free
market--but rather the product of corporate food giants that make their
money from exploitation, often aided by government support.
---------------------------------------------------------------------------
\12\ https://clf.jhsph.edu/projects/food-citizen/cafo-moratorium-
poll-results-2019.
---------------------------------------------------------------------------
We, the undersigned organizations, urge that you reject any new
CAFO incentives in the forthcoming draft of the Build Back Better Act
to be voted on in the Senate.
Sincerely,
350 Eugene Friends of Family Planetary CARE
Farmers
350 Hawaii Gladney Farm Planetphilia
350 Seattle Good Omand Farm Plant Powered Metro
New York
350 Triangle Good Stewards PlantPure Communities
350 Wenatchee Government Princeton Student
50by40 Accountability Project Climate Initiative
Food Integrity ProVeg International
Campaign
ActionAid USA Grassroots ProVeg USA
Environmental
Education
Advancing Collective Green Education and PSR Arizona
Equity Legal Fund
ADVOCACY COLLABORATIVE Green Sanctuary Public Justice
Agrarian Food Web LLC committee of the RapidShift Network
Unitarian-Universalist
Church of Silver
Spring
Alaska Community Action Green State Solutions Reach Out America
on Toxics
All Together Now Green Village Real Food Media
Pennsylvania Communications
Alliance of Nurses for Greenpeace USA Regenerative Organic
Healthy Environments Alliance
American Grassfed Grow For Food Regenerative Rising
Association
American Sustainable Gulf Coast Center for ReKaivery Inc.
Business Network Law & Policy
Animal Legal Defense Hawai`i Alliance for Renewable Rikers
Fund Progressive Action
(HAPA)
Animal Legal Defense Hebbard Fence, LLC Representing myself
Legislative Fund
Animal Legal Society Hedgerow Hill Farm, LLC Residents Allied for
(VLS) the Future of Tioga
(RAFT)
Animals Are Sentient Hip Hop is Green Resource Renewal
Beings, Inc Institute
Applecroft Farm Hudson Varick Resourcs River Guardian
Foundation
Arkansas Ozark Humane Society Rockland Farm Alliance
Waterkeeper International
Assateague Coastal Humane Society Rural Coalition
Trust Legislative Fund
Balanced Humane Society of the Rx4vida
United States
Be Well with Brialle Humane Society Santa Cruz Climate
and The Black Women's Veterinary Medical Action Network
Healing Haven Association Savory Institute
Hungry Bear Farm
Beyond Pesticides I-70 Citizens Advisory SCCAN
Group
Big Reuse Indigenous Science and
Environmental Network Environmental Health
Network
Bionutrient Food Indivisible Ambassadors SEE-LA (Social Eco
Association Education)
Black Veg Society Institute for SEED: Strategies for
Black VegFest Agriculture and Trade Ethical and
Policy Environmental
Iowa Citizens for Development, Inc.
Community Improvement
Bothered Earth, LLC Jefferson County Seeding Sovereignty
Farmers & Neighbors,
Inc.
Breakthrough Strategies Johns Hopkins Center Sierra Harvest
and Solutions for a Livable Future
Bright Building LLC JSA Sustainable Wealth Slow Food USA
Management
Brighter Green Just Transition Slow Food Youth
Alliance Network USA
Broad Riverkeeper Kickapoo Peace Circle Small Business
Alliance
Buffalo River Watershed Kitchen Dwellers, LLC Socially Responsible
Alliance Agriculture Project
Businesses for a Kitchen Sync Strategies Sonoma Hot Sauce
Livable Climate
CA Businesses for a Land Stewardship STEAM URBAN
Livable Climate Project
Call to Action Colorado LEAD for Pollinators, Stone Soup Garden
Inc.
Campaign for Family Lean and Green Kids Stonewall farm
Farms and the
Environment
CatholicNetwork US Let's Green CA! Stop SPOT & Gulflink
Catskill Mountainkeeper Locust Point Community Stop the Algonquin
Garden Pipeline Expansion
(SAPE)
Center for Arkansas Long Beach Alliance for StopCricketValley.org
Farms and Food Clean Energy
Center for Biological Los Jardines Institute Stray Dog Institute
Diversity
Center for Food Safety Loudoun Climate Project Sunrise Hunterdon
County
Centralas Wine LLC Maryland Pesticide System Change Not
[Education] Network Climate Change
Chicago Food Policy Mercy For Animals Temple Beth Zion
Action Council Brookline
Chilis on Wheels MiCCA Terra Advocati
Clean and Healthy New Michigan Organic Food The Compassion Project
York and Farm Alliance
CleanAirNow Mid-Ohio Valley Climate The Green House
Action Connection Center
Climate Hawks Vote Milwaukee Riverkeeper The Planetary Health
Collective
Climate Justice Montbello Neighborhood The Pollination
Alliance Improvement Project
Association
Climate Reality Project MOSA Certified Organic The Raven Corps
Silicon Valley
CO Businesses for a MountainTrue TIAA--Divest! From
Livable Climate Climate Destruction
Coming Clean National Family Farm Toxic Free North
Coalition Carolina
Compassion in World National Farm to School True Health Initiative
Farming USA Network
Concerned citizen National Farm Worker Tufts University
Ministry
Dakota Rural Action National Latino Farmers U.S. PIRG
DC Greens & Ranchers Trade Unite North Metro
Association Denver
Earth Action, Inc. Navitas Organics Until Justice Data
Partners, Inc.
Eating Animals Causes NC Climate Justice Utah Physicians for a
Pandemics Collective Healthy Environment
Encompass NC Clinicians for Vegan Activist
Climate Action Alliance (VAA)
Environment America Neighboring Food Co-op Vilicus Farms
Association
Environmental Justice Non Toxic Communities VitalBeeBuds
Ministry Cedar Lane North Range Concerned Voters for Animal
Unitarian Universalist Citizens Rights
Church
Extinction Rebellion Northeast Organic Dairy Walk Your Talk
San Francisco Bay Area Producers Alliance Productions
Factory Farming Northeast Organic Wall of Women
Awareness Coalition Farming Association of
New York
Fair World Project Northeast Organic Wally Farms
Farming Association of
Vermont
Family Farm Action Northeast Organic Water Climate Trust
Family Farm Defenders Farming Association- Waterkeeper Alliance
Interstate Council
Farm Aid Northern Plains West End
Resource Council Revitalization
Association WERA
Farm Forward NWI Food Council WildEarth Guardians
Farmworker Association NYCLASS (New Yorkers Wisconsin Health
of Florida for Clean, Livable, Professionals for
Food & Water Watch and Safe Streets) Climate Action
Women Food and
Agriculture Network
(WFAN)
Food Animal Concerns Ohio Ecological Food Womxn from the
Trust and Farm Association Mountain
Food as Medicine Organic Seed Growers World Animal
Nutrition Counseling and Trade Association Protection US
Food Revolution Network Our Climate world citizen
Friends of the Earth Our Climate Education Zero Hour
Fund
Pasture Raised Foods PDA Arizona People & Pollinators
Action Network
Pesticide Action
Network
CC:
Chairwoman Stabenow, Chairman Sanders.
______
Submitted Letter by Hon. Don Bacon, a Representative in Congress from
Nebraska; on Behalf of Brenda Masek, President, Nebraska Cattlemen
April 26, 2022
Hon. David Scott,
Chairman
Hon. Glenn Thompson,
Ranking Minority Member
House Agriculture Committee
Washington, D.C.
RE: An Examination of Price Discrepancies, Transparency, and Alleged
Unfair Practices in Cattle Markets
Dear Chairman Scott, Ranking Member Thompson and Members of the
Committee:
Nebraska Cattlemen is grateful for the opportunity to share our
member's concerns regarding price discrepancies, beef cattle market
transparency, and alleged unfair practices in cattle markets. 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.
Our beef cattle producer members and their livelihoods are directly
impacted by the beef 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 profit margins in the beef
supply chain passed onto cattle producers remains disproportionally
low.
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 is broken. For the greater part of a decade, this
has been a headline issue for members of our organization. More
recently, COVID-19's impact on the cattle market has reignited concerns
that surfaced following a 2019 beef packing plant fire in Holcomb, KS.
These concerns continue to focus on extreme market deteriorations that
repeatedly take place for the production segments of the beef industry
that are closely followed by rapid increases in boxed beef values. The
repeat nature of these market reactions emphasizes how the production
sector of the industry is exposed to the highest potential for risk
with little to no leverage to change that risk position. Sharp
increases in profits for meatpackers after repeated black swan events
less than 7 months apart within the cattle market highlight and
emphasize this issue. Cattle producers pride themselves as being
independent business entities. As the packing and processing industry
repeatedly takes advantage of these independent cattle producers,
placing undue pressure on the production sector of the beef cattle
industry, we fear a shift to market practices that mirror other
livestock protein industries could be inevitable. The shift couldn't be
further from the goals of current stakeholders in the industry.
Where we are today is not a result of an evil plot to purposely
stifle ranchers' livelihoods. Instead 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 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 the 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 use 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, the
industry could continue this downward trend until there is little to no
negotiated trade left and price determination will need to rely on
other outside markets. Data to support this claim can be found attached
to this testimony in a report titled Annual LMR Live Cattle Purchase
Type Breakdown by Region.
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. 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. We fully realize and
acknowledge that a ``mandatory minimum'' for the purpose of compelling
price discovery for cattle market participants is a concern for some
cattle industry participants, yet there has not been an entity or
organization that has identified an effective alternative to achieve
the goal of compelling price discovery.
An additional source of frustration for our members is the
continued perception that all AMAs reward carcass merit and therefore
lead to the production of higher quality cattle. Last summer, 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 USDA-LMR reports. Specifically, Nebraska Cattlemen
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. However, still 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,
five-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 paid by the
buyer is essentially 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. A copy of this report can be found attached to this testimony
titled Highlights of the Evaluation of Formula Based Cattle Purchases.
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, but 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.
Another key component to price discovery and price determination is
market transparency. There have been efforts in both the house and the
Senate to answer the call for increasing price discovery and expanding
market transparency, specifically the adoption of a beef contract
library and 14 day slaughter reporting window.
Thank you for the opportunity to share the thoughts and concerns of
Nebraska Cattlemen members. As we continue to work towards finding
solutions to increase fed cattle market transparency and expand price
discovery to robust levels, we look forward to being at the table to
talk through solutions and take actions to protect our members' family
legacies
Best,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Brenda Masek,
President,
Nebraska Cattlemen
CC:
Representative Don Bacon
addendum: annual lmr live cattle purchase type breakdown by region &
highlights of the evaluation of formula based cattle purchases
Annual LMR Live Cattle Purchase Type Breakdown by Region
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 52.1% 49.4% 47.3% 42.6% 38.8% 37.4% 32.6% 26.0%19.5% 23.1% 23.1% 21.3% 25.6% 25.7% 25.5% 20.9% 23.4%
Formula 33.2% 34.3% 37.4% 39.1% 43.7% 43.1% 47.4% 54.8%61.0% 59.8% 56.8% 57.0% 57.6% 57.2% 61.1% 64.8% 62.7%
Forward Contract 4.8% 7.2% 6.8% 11.2% 9.5% 11.9% 13.2% 12.0%10.9% 10.8% 15.8% 17.5% 12.7% 13.0% 9.6% 11.0% 8.9%
Negotiated Grid 9.9% 9.0% 8.5% 7.1% 8.0% 7.6% 6.7% 7.2% 8.6% 6.3% 4.3% 4.2% 4.1% 4.1% 3.8% 3.3% 5.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5-Area
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 20122021 2013 2014 2015 2016 2017 2018 2019 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 55.8% 52.0% 49.8% 45.3% 43.2% 42.4% 36.8% 27.8%19.4% 24.1% 24.0% 21.3% 26.3% 26.8% 26.1% 20.5% 23.3%
Formula 31.9% 33.3% 35.9% 38.1% 42.3% 42.2% 46.5% 56.2%64.7% 61.8% 58.7% 58.8% 59.4% 59.5% 64.2% 69.6% 67.0%
Forward Contract 4.6% 7.1% 6.8% 10.4% 8.1% 9.9% 10.9% 10.0% 7.7% 8.6% 13.7% 16.7% 11.2% 10.8% 7.0% 7.6% 5.4%
Negotiated Grid 7.7% 7.7% 7.5% 6.3% 6.4% 5.5% 5.7% 5.9% 8.2% 5.4% 3.6% 3.2% 3.1% 2.9% 2.7% 2.3% 4.3%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Texas-Oklahoma-New Mexico
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 20122021 2013 2014 2015 2016 2017 2018 2019 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 47.2% 42.5% 36.7% 31.5% 26.4% 21.5% 17.0% 10.2% 7.4% 6.1% 3.0% 2.6% 6.4% 9.3% 6.2% 5.4% 10.1%
Formula 42.2% 42.2% 48.4% 53.3% 60.4% 66.9% 72.7% 76.0%80.8% 83.0% 84.6% 85.9% 82.4% 81.8% 86.2% 87.9% 84.2%
Forward Contract 3.1% 5.0% 4.4% 5.8% 5.4% 4.9% 4.4% 5.4% 5.0% 4.0% 7.4% 9.3% 7.0% 6.2% 4.9% 5.3% 4.3%
Negotiated Grid 7.5% 10.3% 10.5% 9.3% 7.8% 6.7% 5.9% 8.4% 6.8% 6.9% 5.1% 2.1% 4.2% 2.6% 2.7% 1.6% 1.4%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Kansas
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 20122021 2013 2014 2015 2016 2017 2018 2019 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 50.6% 47.3% 44.8% 41.7% 39.9% 41.0% 36.9% 27.4%12.5% 21.0% 15.6% 12.5% 23.0% 21.9% 19.3% 16.2% 18.2%
Formula 44.8% 46.0% 48.5% 48.0% 52.1% 51.6% 54.1% 63.6%74.4% 68.5% 69.5% 64.8% 67.3% 70.7% 76.4% 81.6% 76.7%
Forward Contract 2.8% 5.4% 5.4% 7.8% 7.0% 6.3% 7.1% 5.7% 3.8% 6.5% 14.3% 22.2% 9.3% 7.0% 3.9% 1.7% 1.4%
Negotiated Grid 1.8% 1.3% 1.3% 2.4% 1.0% 1.0% 2.0% 3.4% 9.3% 4.0% 0.7% 0.6% 0.4% 0.4% 0.4% 0.5% 3.7%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nebraska
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 20122021 2013 2014 2015 2016 2017 2018 2019 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 64.6% 63.7% 64.7% 61.0% 60.4% 55.8% 48.3% 38.9%31.1% 36.4% 38.3% 32.6% 42.1% 41.3% 43.0% 32.9% 36.1%
Formula 18.3% 16.8% 17.8% 17.8% 22.6% 23.4% 28.7% 41.0%52.1% 48.4% 42.6% 44.4% 42.0% 41.0% 45.2% 52.4% 54.0%
Forward Contract 5.8% 9.7% 7.8% 14.7% 9.0% 14.0% 15.6% 14.8% 8.8% 10.2% 14.7% 17.7% 12.7% 13.5% 8.5% 11.7% 4.6%
Negotiated Grid 11.3% 9.8% 9.6% 6.5% 8.0% 6.7% 7.4% 5.3% 8.0% 5.0% 4.4% 5.3% 3.2% 4.2% 3.3% 3.0% 5.3%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Colorado
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012021 ** 2013 2014 2015 2016 2017 2018 * 2019 ** 2020 **
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 51.8% 40.7% 39.6% 28.5% 28.8% 19.7% 17.9% 12.5% N/A 10.6% 11.2% 8.3% 13.8% 16.0% 13.5% N/A N/A
Formula 30.1% 46.7% 46.3% 54.5% 57.9% 64.0% 64.1% 69.1% N/A 71.4% 64.1% 70.8% 73.4% 69.4% 74.5% N/A N/A
Forward Contract 8.6% 7.3% 7.5% 13.3% 10.5% 14.4% 16.0% 16.8% N/A 16.8% 24.1% 20.3% 12.2% 14.1% 10.9% N/A N/A
Negotiated Grid 9.5% 5.3% 6.6% 3.8% 2.7% 1.9% 2.0% 1.6% N/A 1.2% 0.6% 0.6% 0.6% 0.5% 1.1% N/A N/A
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Iowa-Minnesota
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 20122021 2013 2014 2015 2016 2017 2018 2019 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash 73.9% 68.8% 68.8% 66.7% 63.9% 65.6% 61.8% 56.4%47.5% 54.6% 57.0% 56.7% 50.9% 51.0% 57.1% 50.0% 51.2%
Formula 7.2% 8.4% 8.2% 9.0% 10.3% 11.2% 10.9% 20.5%24.9% 23.2% 20.3% 20.2% 21.1% 21.3% 22.3% 25.3% 24.7%
Forward Contract 7.1% 10.2% 13.3% 16.7% 13.2% 13.9% 17.1% 13.2%17.4% 13.8% 17.1% 16.1% 20.1% 19.8% 13.6% 17.8% 15.6%
Negotiated Grid 11.8% 12.6% 9.7% 7.6% 12.6% 9.3% 10.2% 9.9%10.2% 8.4% 5.7% 7.0% 7.9% 7.9% 7.0% 6.9% 8.5%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USDA AMS Livestock, Poultry & Grain Market News.
* Dataset has a minimum of one quarter removed due to 3/70/20 confidentiality guidelines.
** Entire dataset removed due to 3/70/20 confidentiality guidelines.
Highlights of the Evaluation of Formula Based Cattle Purchases
Formula purchase arrangements of fed cattle use an agreed to
methodology of calculating the net price. The final net price for some
formula purchases may include the application of any premiums or
discounts associated with carcass performance as specified in the
transaction agreement. In response to the cattle industry's desire for
more transparency in the formula slaughter cattle market, AMS conducted
an evaluation of formula-based cattle purchases reported under the
requirements of the Livestock Mandatory Reporting Act and regulation to
learn more about the makeup of these purchases. More specifically, AMS
analyzed formula net price data for slaughter cattle purchases reported
between January 4, 2021 and May 31, 2021, to evaluate the proportion of
these formula purchases with no premium or discount applied and
therefore likely priced from data referenced on another AMS report;
versus similar formula cattle purchases that also included at least one
premium or discount for quality, yield, weight, or other factor.
Further, AMS evaluated this on a regional basis to see if there were
any marketing differences among the states across the five-area region.
Here are a few of the highlights found from this evaluation:
Despite some variations among the five regions, a solid
majority of formula purchases in all areas do have at least one
premium or discount applied.
The northern regions of Nebraska and Iowa/Minnesota
exhibited the highest proportion of transactions with no
premium or discount applied.
While the proportion of cattle in which no premium or
discount was applied likely represents formula transactions
limited strictly to price reference methodology, it's also
possible that some of these cattle simply met baseline
specifications in which no premium or discount thresholds were
triggered. A complete determination cannot be made under the
current LMR reporting requirements.
LMR Formula Net Premium/Discount Application Percentages Jan.-May 2021
----------------------------------------------------------------------------------------------------------------
National 5-Area TX/OK/NM KS NE CO IA/MN
----------------------------------------------------------------------------------------------------------------
At least 1 Premium or 82% 82% 86% 85% 74% 84% 65%
Discount was Applied
No Premium or 18% 18% 14% 15% 26% 16% 35%
Discount Applied....
----------------------------------------------------------------------------------------------------------------
* Five-Area--Texas, New Mexico, Oklahoma, Kansas, Colorado, Nebraska, Iowa, Minnesota.
TX/OK/NM--Texas, Oklahoma, New Mexico; KS--Kansas; NE--Nebraska; CO--Colorado; IA/MN--Iowa, Minnesota.
______
Supplementary Material Submitted by Donnie King, Chief Executive
Officer, Tyson Foods
Insert 1
Mr. Costa. Mr. Stockton on the previous panel testified that
he has not really seen real enforcement in the Stockyards and
Packers Act since the 1980s, and I'm wondering--and cites that
as part of the reason in the price disparity between the cow-
calf operator and the prices that American consumers are seeing
in the grocery store. I know there are a lot of factors that
impact the prices of protein when you go from the calf-cow
operation or the dairy operation to the ultimate purchaser of
that product that puts food on America's dinner table every
night, and we know that that is a national security issue. I am
wondering if any of you would care to comment on those factors,
on the impacts of these cost increases.
Mr. King. Well, I would--Congressman, I would just simply say
that, as I testified earlier, virtually every input in the
supply chain has gone up. And typically when you see a minor
increase, companies tend to absorb that, but the rate of
inflation and costs have gone up so dramatically that some of
that had to be ultimately passed on to the consumer. And we've
done that as well. But, this beef business is a cyclical
business, and while we've seen the trough, I think it was like
June of 2020 in terms of the price of fed cattle, if you look
at it today, it's about $145 and based on futures will continue
to move up, as Mr. Klein commented earlier.
I agree with that assessment, and this 10 year cattle cycle
that was testified about earlier, I would certainly expect,
while everyone is making more money in the supply chain, I
would expect that to flip some to the feeder and----
Mr. Costa. Well, my time has expired, but if you could give
the Committee a breakdown of those input costs so we can better
understand it, I think that would be helpful. Thank you, Mr.
Chairman.
Thank you for the question, Congressman Costa. Input costs
represent the largest component of what a consumer pays at the grocery
store or restaurant and fluctuate continuously based on many factors.
At Tyson, we believe it is helpful to think about those costs broken
down into several categories based on an operator's position in the
supply chain. First, feeder cattle coming in the feed yard are
purchased from a variety of sources including auction markets, stocker
operators, backgrounders, livestock dealers and direct from ranchers.
These operators incur the cost of feed, fuel, fertilizer, labor,
interest, equipment, insurance, animal health, transportation, and
taxes. Second, feed yards incur the cost of the animal at purchase,
feed ingredients, feed milling, labor, fuel, transportation, equipment,
animal health, regulatory compliance, insurance, taxes, and interest.
Packers incur the cost of the live animal, labor, energy, packaging,
storage, equipment, transportation, regulatory compliance, interest,
taxes, insurance, and corporate overhead. Last, retailers and food
service operators incur the cost of transportation, labor, energy,
packaging, equipment, markdowns, interest, insurance, taxes, and
corporate overhead. All these costs factor into the price consumers pay
at the grocery store or restaurant, and these costs have been
increasing at alarming rates across the board due to supply chain
challenges, increased cost of fuel, transportation bottlenecks at
railyards and ports, overseas hostilities, and scarcity in the labor
markets, to name a few. To illustrate trendlines in some of these input
costs, I submit to the Committee the graphics below.
Trendlines of Major Input Costs
Kansas State shows a long-term trend of just cost of gain in the
feed yard (grain and ration costs). This is up nearly 65% year over
year.
Cost of Grain, K-State Focus on Feedlots
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Feeder Cattle Index--Cost of Cattle coming into feedyard is
up almost 40% since 2019. This also shows revenue coming off
ranch.
CME Fdr Index
Weekly Average Price
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
USDA Five-Area Fed Cattle Cash Steer Price represents the
cost of cattle coming to packing plant. This also shows revenue
to feed yard. This input is up nearly 30% since 2020. (YTD was
as of APR 22).
Annual Average Five Area Cash Steer Price--$/cwt
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Hourly compensation for Packing sector compensation is up
over 20% since 2018.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Insert 2
Mr. Feenstra. . . .
Mr. King, I have been told that the four largest meatpackers
agreed to provide information to the cattlemen's organization
for a producer-led initiative to achieve 75 percent of
negotiated trade needed for robust price discovery in each
reporting region. The feeders made the effort to meet this
voluntary threshold, but the initiative failed to due to lack
of packer participation. Could you explain why this failed?
Mr. King. Congressman, I'm not familiar with that. I would be
happy to get the necessary information and get it to you and to
this Committee.
Thank you for the question, Congressman Feenstra. In 2020, members
from various affiliates of an internal working group of the National
Cattlemen's Beef Association agreed on a ``triggers framework'' to help
determine acceptable levels of negotiated trades by region, from their
perspective. This agreement was silent on packer participation, and
Tyson Foods was not asked to participate in the discussions surrounding
the framework or the resulting voluntary agreement. As part of the
agreement, the producer groups hired Dr. Stephen Koontz of Colorado
State University to conduct research on the levels of negotiated
trades. During the pendency of Dr. Koontz's research, Tyson voluntarily
provided data to inform his work until such point as Dr. Koontz
informed Tyson our data was no longer required. Tyson has not seen the
results of this study, and, to our knowledge, the results have never
been published or otherwise made public.
______
Submitted Statement by Hon. Ilhan Omar, a Representative in Congress
from Minnesota
(1) Big Ag Monopoly & Monopsony Concerns Across the Globe
A few big agricultural corporations (Big Ag) and multinational food
corporations have pushed out, shuttered, and exploited many small local
farms to gain vast control of agricultural markets here and abroad.
As the sole sellers of basic goods, these major companies have the
freedom to artificially inflate their high prices and engage in
predatory contracting practices to exploit small farmers who need those
materials to run their family businesses. Small farmers are typically
not able to negotiate these prices or pursue legal claims, since forced
arbitration clauses and other unfair labor tactics are common in these
contract agreements. This monopolistic behavior has also resulted in
some of the recent price-gouging that we're seeing now, as more
agricultural corporations continue to take advantage of inflation to
pass costs not only onto suppliers but also consumers.
As the sole buyers of local labor, these industrial meatpacking
companies are also able to artificially set low wages for small
producers and farm workers. Small suppliers and processing workers have
suffered lower payer and worse working conditions while consumers pay
higher prices for lower-quality food. This monopsonistic behavior has
contributed to a steady rise in U.S. farm (debt) bankruptcies and the
prevalence of farmer suicides since the 1980s, primarily due to
financial stress.
The increase in both monopoly and monopsony powers by these food
corporations are connected in explaining the current plight facing many
farmers in the United States and around the world. Corporate mergers,
takeovers, and collusion have left family farmers and independent
ranchers with fewer buyers for their essential goods, like livestock,
and fewer suppliers of basic inputs, like fertilizer and feed. U.S.
small farms are completely at the whims of Big Ag and their precarious
price- and wage-setting practices. It's clear that Congress must take
action to return power to our critical workforce that feeds and
supports American communities every day.
However, immediate Federal reform is needed not only to build
resiliency in our own domestic food supply but also to strengthen
international food production as well. Four agricultural biotech
companies control more than \2/3\ of the world's seed market and four
other transnational corporations control about \3/4\ of the world's
grain trade. The corporate consolidation of our global food markets
will only serve to benefit the profit margins of a select few at the
cost of deepening poverty and food insecurity for the rest of humanity.
This structural crisis of our global food system will not prepare us
for humanitarian crises--caused by war, famine and climate change--and
it will not help us combat the worsening hunger crisis due to the
COVID-19 pandemic and current regional conflicts.
______
Submitted Statement by 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, DC, and its 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 over
350 meat packing and processing companies, large and small, and account
for over 95 percent of the United States' output of meat and 70 percent
of turkey production.
Executive Summary
This testimony provides a comprehensive picture of the uniquely
complex, dynamic, integrated, and competitive markets in which cow-calf
producers, stockers, backgrounders, cattle feeders, beef packers,
processors, distributors, wholesalers, retailers, food service
operators, and others operate.
The testimony begins with a summary of the complex cattle and beef
markets, followed by an examination of the supply and demand
fundamentals driving the markets. U.S. Department of Agriculture (USDA)
data show record beef production in 2019, 2020, and 2021, despite
capacity constraints at packing and processing plants. Data also show
cattle prices rebounded as packing capacity came into balance with the
cattle supply, highlighted by cattle prices reaching their third-
highest January price in the last decade during January 2022.
The testimony also rebuts claims that industry concentration has
led to inflation. The four-firm concentration ratio for fed cattle
slaughter has not changed appreciably in nearly 30 years; today's
skyrocketing inflation across the economy results from supply chain
issues and high demand, not industry concentration.
The testimony addresses proposed legislation and regulation. The
cattle cash market mandate proposed by Senators Chuck Grassley and Deb
Fischer would increase costs for producers and consumers at a time of
high input costs and crippling inflation. Moreover, the mandate would
have regional disparities: the Texas-Oklahoma-New Mexico region,
Kansas, and Nebraska would shoulder the vast majority of the costs,
while the Iowa-Minnesota region would escape relatively unscathed. For
these and other reasons, lawmakers should oppose inserting the Federal
Government into the free market.
Finally, USDA is promulgating new proposed rules to regulate
packers, which are likely to have far reaching, unintended
consequences. At the same time, Congress is considering establishing a
politically appointed Special Investigator within USDA to add to the
Department's existing enforcement personnel, duplicating resources.
With the promulgation of the new rules, the Special Investigator (and
staff) would be compelled to bring cases to test the legal limits of
the new rules, even if those cases are not warranted. The resulting
legal uncertainty and chaos will accelerate changes in livestock and
poultry marketing that will up-end the supply chain, adding costs to
producers, consumers, and packers.
Congress and USDA should resist making radical changes to the
cattle and beef markets.
Overview of the Highly Complex and Dynamic Cattle and Beef Markets
Too often, the policy debate around the cattle and beef industry is
an overly-simplified discussion limited to cattle producers versus beef
packers. In discussions on these topics, it is imperative policy makers
remember: packers don't buy fed cattle from cow-calf producers; nor do
packers sell beef to consumers.
As Dr. Dustin Aherin testified before the House Agriculture
Committee's Livestock and Foreign Agriculture Subcommittee last summer:
. . . [C]attle 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.\1\ *
---------------------------------------------------------------------------
\1\ Aherin, Testimony (https://docs.house.gov/meetings/AG/AG29/
20210728/113973/HHRG-117-AG29-Wstate-AherinD-20210728.pdf) before the
House Agriculture Livestock and Foreign Agriculture Subcommittee, July
28, 2021.
* Editor's note: footnotes annotated with are retained in
Committee file.
The policy debate should be focused on a much broader context
encompassing the dynamics across the whole value chain. For example, a
recent paper published by the Federal Reserve Bank of Kansas City notes
that one animal--and the beef produced from it--``could be sold as many
as six times before it finally reaches the consumer.'' \2\
---------------------------------------------------------------------------
\2\ Cowley, C. Long-Term Pressures and Prospects for the U.S.
Cattle Industry, Kansas City Federal Reserve Bank Economic Review,
December 17, 2021.
---------------------------------------------------------------------------
Cattle change hands before they get to the slaughter plant, and for
beef, each step in the post-slaughter process that are carried out by a
variety of entities, is taken to add value and supply specific products
for specific uses in various consumer markets.
Though the fundamentals of supply and demand that drive cattle and
beef markets are relatively straightforward, the markets themselves are
extremely complex. Although highly integrated, cattle markets and beef
markets have their own supply and demand factors.
Derrell S. Peel, Ph.D., the Charles Breedlove Professor of
Agribusiness in the Department of Agricultural Economics at Oklahoma
State University, provides context in Chapter 1 of a must-read research
paper for policymakers, The U.S. Beef Supply Chain: Issues and
Challenges, published by The Agricultural and Food Policy Center, Texas
A&M University.
Dr. Peel emphasizes the sheer complexity and magnitude of the
cattle and beef market.
It is reasonable to ask why the beef cattle industry should
be plagued with so many contentious issues that have persisted
for so long. Much of the reason is attributable to the fact
that the U.S. cattle and beef industry may well be the most
complex set of markets in existence. In its entirety, the
cattle and beef industry represents an extraordinarily
complicated set of cattle production and marketing activities
which provide the source of a massive set of beef products
marketed through a diverse set of final markets and all
coordinated by a multitude of inter-related market
transactions. (p. 3, emphasis added)
Looking at the cattle market first, from the ranch to the slaughter
plant, live cattle typically change ownership two to three times--Dr.
Peel describes ``multiple distinct and separate'' cattle production
sectors.\3\ Cow-calf producers market their calves to cattle feeders,
or to backgrounders who in turn sell those cattle to feeders. While
calves are an output for a cow-calf producer, they are an input for
backgrounders and feedlots who also operate in the cattle market.
---------------------------------------------------------------------------
\3\ See The U.S. Beef Supply Chain: Issues and Challenges,
(https://www.afpc.tamu.edu/research/publications/710/cattle.pdf) p. 3-
4.
---------------------------------------------------------------------------
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 at a given point in time. In other words, the price is
determined by supply of cattle to sell from one segment and the demand
to buy 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 such moves can be
dramatic.
But that's just the cattle production side. Once a fed steer or
heifer is finished at the feedlot, it is sold to a packer: a feeder's
output and one of a packer's inputs are fed cattle. That animal is
slaughtered and processed into various primal cuts. Those primal cuts
are fabricated by the packers and/or further processors into numerous
products, from muscle cuts like steaks, to hamburger or processed beef
products. Dr. Peel also shines a light on the complexity and diversity
of the processing, retail, and food service sectors:
Packers fabricate to specific product specifications for
various retail grocery customers, further processing and food
service customers, and a variety of export markets. As a
result, the major packers produce several thousand different
products from a basic fabrication process that begins with
several hundred carcass products and byproducts of slaughter
and fabrication. Some packing facilities in certain locations
have some or all packing capacity dedicated to value-added
programs that operate as sole-source for upstream suppliers and
downstream markets. (p. 23)
* * * * *
The COVID-19 pandemic revealed, somewhat to the shock and
surprise of both consumers and producers, that the supply
chains for retail grocery and food service are largely
separate, very specialized, and quite complex. Not only are
various beef cuts often used in different supply chains or used
differently, but products like ground beef for retail grocery
and for food service originate in very different supply chains
(Peel, 2021). (p. 24)
That was a lesson learned during COVID: as beef demand skyrocketed
but packers' operational capacity to slaughter cattle was constrained,
beef prices increased. This was seen across the beef supply chain, from
the largest packers down to the local custom slaughter ``locker
plant.''
Supply and Demand Fundamentals at Work in the Beef Industry during
COVID
Last summer, testifying before the Senate Committee on Agriculture,
Nutrition, and Forestry, Dr. Glynn Tonsor of Kansas State University
highlighted the relationship between cattle prices and the size of the
cattle herd, which has too often been forgotten or conveniently ignored
during cattle market policy discussions. Dr. Tonsor testified:
Perhaps no relationship is currently more central to economic
discussions in the U.S. beef-cattle industry than the
relationship of fed cattle inventories to processor
capacity.\4\
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\4\ Tonsor, Testimony (https://www.agriculture.senate.gov/
hearings/examining-markets-transparency-and-prices-from-cattle-
producer-to-consumer) before the Senate Committee on Agriculture,
Nutrition, and Forestry, June 23, 2021.
Cattle herd size must remain top-of-mind during any discussion of
cattle prices. USDA released its annual cattle inventory report
[1] on January 31, 2022, which provides a snapshot of the
total cattle herd in the U.S. as of January 1. Compared to a year
earlier, the report showed a reduction at every level in the U.S. beef
cattle herd:
---------------------------------------------------------------------------
\[1]\ https://downloads.usda.library.cornell.edu/usda-esmis/files/
h702q636h/pn89f870n/jw828f69f/catl0122.pdf.
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Beef cows for breeding down two percent;
Replacement heifers for breeding down three percent;
Calf crop born in 2021 down one percent;
Expected calf crop in 2022 down three percent; and
Feeder steers and heifers for beef harvest down three
percent.
This, combined with strong beef demand continuing from 2021,
suggests that 2022 will be a bullish year for cattle producers. This is
especially the case as the supply of fed cattle becomes more aligned
with the operational capacity of the packing industry's ability to
harvest and process the available supply of cattle.
Indeed, after 5 years of growth in the cattle supply, combined with
the impact that COVID, insufficient labor, and supply chain disruptions
had on the packing industry, cattle supply and demand were out of
balance.
Cattle prices hit record highs in 2014 and 2015, when the overall
cattle herd was at its smallest since 1952 (for context, that was
during the Truman Administration). Those record prices incentivized
rapid herd expansion among producers.
Cash Receipts for Cattle Versus Herd Size
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA AMS.
While the beginning-of-the-year cattle inventory in the U.S. hit
its peak in 2019, given the time needed to raise a calf to market
weight, the supply of feeder cattle in the herd on the first of the
year did not peak until January 2020. Total feeder cattle supply began
2020 at the highest level in more than a decade.
Total Feeder Cattle as of January 1
(combined cattle on feed and feeder cattle outside feedlots)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA January 1 Cattle Inventory reports.
Two and a half months later, in March 2020, COVID hit. Slaughter
plants were idled beginning in April. By the week ending May 1, 2020,
weekly slaughter dropped by 40 percent and didn't recover until late
June, but still lagged behind what would have been normal volumes
during the season.
2020 Weekly Cattle Slaughter
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA AMS.
This situation--more cattle and constrained ability to process
them--created a backlog of cattle inventory already in feedlots. That
can be measured by the number of cattle on feed for 150 days or more.
These ``long fed'' cattle make up the supply of cattle closest to being
ready to be marketed to packers for slaughter and processed into beef.
The backlogged oversupply resulted in low prices for fed cattle, even
as consumer and export demand for beef remained high and resulted in
increased wholesale beef prices.
Monthly Cattle on Feed 150 Days or More
(feedlots of 1,000 head+ capacity)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA NASS.
But in the face of the many challenges, the beef packing sector
proved resilient. Total beef production in 2020 was a record 27.24
billion pounds, slightly larger than the previous record of 27.22
billion pounds in 2019. The increased volume was based on heavier
slaughter weights. As expected, cattle weights increased because of the
bottleneck of cattle on feed. Total head of commercial slaughter in
2020 was only down two percent from 2019, despite the dramatic
disruption to the cattle harvest during the second quarter of 2020 due
to the pandemic.
The supply of cattle remained large in 2021. USDA reports that in
2021, the cattle-on-feed inventory reached the second highest monthly
total on record for 7 months, each month from February through June,
and then again in September and October.
Throughout 2021, even as the comprehensive COVID-19 protections
instituted by the meat industry since the spring of 2020 successfully
lowered transmission among meatpacking workers and held case rates
lower than case rates in the general U.S. population, worker shortages
persisted. Through 2021, the Meat Institute regularly heard from member
companies having up to 20 percent absenteeism on any day.
However, packers worked their way through the supply of market
ready cattle last year, primarily by adding Saturday shifts, especially
during the first half of the year. Total Saturday slaughter during
January through July 2021 was up 30 percent over 2020 and 33 percent
over 2019.
Total Saturday Cattle Slaughter
(January through June)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA AMS.
In 2021, beef production and cattle slaughter both were up three
percent from 2020, making 2021 another record year for beef production
at 28 billion pounds. As slaughter rates recovered, and the industry
worked through the backlog of cattle, supply and demand balance was
restored. As a result, in January 2022, fed cattle prices rebounded to
the highest January price since 2015, and the third highest January
price in the past decade.
January Feeder Cattle Supply vs. Fed Cattle Prices
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: ERS Domestic Livestock and Meat Data (3/29/22).
For 2022, based on the supply and demand trends for fed cattle, the
outlook for cattle prices is bullish across the board. On January 1,
2022, the total number of cattle on feed on all sizes of feedlots was
14.7 million head. That is the same inventory as 2021 and tied for the
highest in more than a decade.
However, unlike 2021, the inventory of feeder cattle outside of
feedlots to be placed on feed during the year is smaller. Based on the
numbers of steers, heifers not intended for cow replacement, and calves
under 500 pounds, the beginning of the year supply of feeder cattle
outside of feedlots is at its lowest since 2015 when fed cattle prices
were at their historical peak.
Feeder Cattle Outside Feedlots
(as of 1 January)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA NASS.
The beginning of the year supply of feeder cattle outside of
feedlots is a reliable indicator of a strong cattle market through 2022
into 2023. Operational capacity at packing plants has increased. In
February, cattle slaughter was 2.69 million head, which was a six
percent increase over February 2021. Beef production was an all-time
record for the month of February.
In addition to 7 year highs for the January average fed cattle
price, February, March, and April average fed cattle prices are also at
their monthly high since 2015. In short, supply and demand fundamentals
continue to drive the cattle and beef markets, as they did throughout
the pandemic.
COVID-19 hit as the feeder cattle supply peaked at a point higher
than it had been in the previous decade; packers and processors
navigated changing markets (far less food service/far more retail),
labor shortages, and other supply chain disruptions; all while beef
demand boomed. But beef production met the challenge, with record
production in 2019, 2020, and 2021.
Today, with the cattle herd contracting, meaning supply is
tightening, and operational slaughter capacity increasing, meaning
demand is expanding, cattle prices are rising. It is the cattle cycle
in action. Policymakers should not intervene and attempt to control the
free market fundamentals.
Misplaced Claims about Increasing Consolidation and Concentration
Members of the Meat Institute--and the entire industry supply
chain--benefit from, and depend on, a fair, transparent, and
competitive market.
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 nearly 30 years. According to the Agricultural
Marketing Service's (AMS) Packers and Stockyards Division (P&S
Division), 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.
The P&S Division 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. 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 half 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 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 nearly 30 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 more
than 25 year timeline, the cow-calf sector suffered negative margins
the fewest number of years of the three as the chart below shows.
Historical Margins Per Head by Sector versus Packer Four Firm
Concentration Ratio
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Packers and Stockyards Division (concentration);
Sterling Marketing (margin).
Beef Pricing and Inflation
Despite claims by the Biden Administration, meat industry
concentration is not the cause of inflation. As Larry Summers,
Secretary of the Treasury for President Clinton, the Director of the
National Economic Council for President Obama, and Charles W. Eliot
Professor and President Emeritus at Harvard University tweeted:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Again, the four firm concentration ratio in beef packing hasn't
changed appreciably in nearly 3 decades, yet meat price inflation has
varied from year to year.
Four Firm Concentration versus Beef Price CPI and All Items CPI
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Packers and Stockyards Division (concentration);
BLS (% change in CPI).
Further, packers do not set retail prices: packers receive
wholesale prices. Retailers, and the prices for which they sell beef to
consumers, are affected by all the supply chain issues and input costs
facing the broader economy, from trucking availability and diesel
prices, to warehousing, labor, and product demand, which all affect
their segment of the value chain.
Wholesale vs. Retail Beef Prices
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Meat Price Spreads.
Last year, wholesale beef prices peaked as would be expected during
the heavy demand period for beef from Memorial Day to Labor Day. Those
higher prices resulted from still limited supply in the face of strong
demand. The slower pace of slaughter--for the reasons discussed above--
constrained the beef supply even as retailers demanded more beef to
meet consumers' demand. With limited production and supply relative to
demand, wholesale prices rose during the seasonal high demand period.
Monthly Cattle Slaughter vs. Monthly Average Wholesale Beef Price
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Economic Research Service.
Per capita beef consumption during 2021 was above 2020 consumption
by \1/2\ pound, and more than \3/4\ pound above per capita consumption
during 2019.
Consumer demand for beef was high based largely on increased
consumer income. According to the Bureau of Economic Analysis (BEA),
personal expenditures increased in June, July, August, and September
2021, as personal income (from all sources, not just wages and
salaries, but including government social benefits including pandemic-
related payments) grew--even compared to 2020.
In March 2021, Congress enacted additional COVID relief that
included child tax credits, direct payments of $1,400, an increase in
nutrition assistance (which supports retail purchases), and extended
unemployment benefits. This added $4.232 trillion in government relief
payments in addition to that which was paid in 2020. Coupled with
economic and job recovery, this added an additional $21 trillion in
personal income in 2021, compared to 2020.
Much of the additional personal income was spent on food, and of
that, spending focused on beef. Beef is the protein that is most
sensitive to economic changes--consumption increases with higher income
and decreases with lower income relative to other proteins. Also,
during that time restaurants continued to re-open--increasing demand
for wholesale beef. According to BEA spending on food service
(restaurant demand) increased through 2021.
The bottom line is neither beef nor industry concentration has
driven the record inflation we've experienced. In the calculation of
the Consumer Price Index, beef accounts for 0.546%, so even at a 12
month increase of beef prices from January 2021 to January 2022 of 16%,
beef added 0.08% inflation to the economy.
Finally, in the 627 months beginning January 1970 through March
2022, packers have received the smallest share of the consumer beef
dollar in all months but May 2020, at the peak of the COVID related
shutdowns on slaughter which reduced beef supplies.
Share of Consumer Beef Dollar
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: USDA Meat Price Spreads Report.
As of last month, the USDA reported the retail value of Choice beef
at $7.685 per pound. The packer share of the retail beef dollar in
March was 12 percent.
March 2022: Share of Consumer Beef Dollar
(USDA Meat Price Spreads data released 12 April)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
On January 10, the Washington Post's editorial board [2]
rightly called out the Administration's attempts to blame inflation on
businesses:
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\[2]\ https://www.washingtonpost.com/opinions/2022/01/10/white-
house-again-offers-bizarre-message-inflation/.
President Biden is facing mounting criticism for inflation's
rise to its highest level since 1982. Unfortunately, the White
House's latest response is to blame greedy
businesses.[3]
---------------------------------------------------------------------------
\[3]\ https://www.washingtonpost.com/us-policy/2022/01/10/white-
house-inflation-strategy/?itid=lk_inline_manual_2.
---------------------------------------------------------------------------
Economists across the political spectrum are rightly calling
out the White House [4] for this foolishness. Even
some within the White House are questioning this approach, The
Post reports.[5]
---------------------------------------------------------------------------
\[4]\ https://twitter.com/LHSummers/status/
1475230223985786889?s=20.
\[5]\ https://www.washingtonpost.com/us-policy/2022/01/10/white-
house-inflation-strategy/?itid=lk_inline_manual_3.
---------------------------------------------------------------------------
Inflation, which was relatively low for years, did not
suddenly rise in recent months because businesses decided now
was the ideal time to squeeze their customers. What actually
happened is that demand soared for many products as the economy
recovered. Often, there were not enough products to meet it,
thanks to supply chain hiccups and labor shortages, so prices
went up. In a surprise to many, consumers kept buying goods
such as cars and washing machines even at higher prices.
As explained above, we could add beef to the list of highly
demanded products that consumers kept buying at higher prices.
Legislating and Regulating to ``Fix the Problem.''
There have been several proposals 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, or ``negotiated'' basis. These
proposals, however, threaten the industry with numerous adverse and
unintended consequences.
Innovation via formula and contract sales--collectively known as
alternative marketing arrangements (AMAs)--originated with cattle
feeders attempting to capture value associated with improved quality
cattle.
Turning back to Dr. Peel, he describes the advent of AMAs and
value-based marketing that shifted packers away from buying cattle on
the average:
Until the 1990s most fed cattle were priced on averages, at
the pen level and even entire showlists. Very little quality
differentiation meant that high quality cattle were
undervalued, and low-quality cattle usually received the
average price. Packers had little incentive to differentiate
cattle quality since they had to process all the cattle anyway.
All that was important to packers was to get the average
correct. The lack of quality signals meant that producers had
little incentive to improve cattle. The problem was apparent;
quality grading was low and beef demand was declining. This led
to a major push in the industry for ``value-based marketing,''
which aimed to differentiate and value cattle according to
quality differences. (p. 32)
The resulting shift towards AMAs and value-based marketing
corresponded to an improvement in beef grade quality and has helped
drive increased consumer demand.
U.S. Beef Quality Grade vs. Type of Cattle Sale
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The success behind value-based marketing and AMAs is based on
transmitting market signals about consumers' preferences to producers.
The results include increased choices for consumers and premiums and
certainty for producers. Yet the black swan events of the past 3 years
have brought calls for change from some producers--even though
regulating the terms of fed cattle sales would not have resulted in a
fundamental change in the cattle market over that period. The volume of
cash market sales is roughly the same today as it was during the record
cattle price years of 2014 and 2015.
Again, Dr. Peel:
Indeed, the emotions, anger and frustration accompanying
recent events such as the Holcomb packing plant fire in 2019,
the ongoing COVID-19 pandemic beginning in 2020, and the winter
storm of February 2021 have fueled demands for an array of
potential legislative actions that attempt to jump to a
solution without addressing the complex structural and
behavioral issues that brought the industry to the current
situation. The risk is that these overly simplistic solutions
will have long term detrimental impacts on cattle producers,
the industry, and consumers, and jeopardize the ability of the
industry to compete in dynamic global protein markets for a
successful future. (p. 2) (emphasis added)
Cattle Price Discovery and Transparency Act
Senators Chuck Grassley and Deb Fischer have introduced the Cattle
Price Discovery and Transparency Act. The Grassley-Fischer bill
mandates cattle feeders sell and packers buy a certain percentage of
cattle on the negotiated, spot market, restricting the use of AMAs. In
other words, some cattle producers who want to market their cattle
through AMAs would be prohibited from doing so, by government fiat.
The Grassley-Fischer bill requires the Secretary of Agriculture to
establish minimum thresholds below which negotiated trade volumes
cannot fall. Those minimums would vary by region, cannot be less than
the average percent of negotiated sales and negotiated grid sales in
each region made during the 2 year period between January 1, 2020, and
January 1, 2022--a period when cattle markets were most disrupted by
COVID, labor shortages, and supply chain issues.
As expert witnesses have testified, even if 100 percent of fed
cattle were sold on the cash market, prices for cattle producers would
not have been any higher than what the market allowed in 2020 and the
first half of 2021.
Interestingly, under this plan, no region may have a mandatory
minimum of negotiated sales that exceeds 50 percent. According to an
analysis of the legislation released last week by Texas A&M
University's Agriculture and Food Policy Center (AFPC),\5\ the upper
limit for the mandate in the legislation--50 percent cash sales--would
only affect the Iowa-Minnesota region. Iowa-Minnesota is the only
region in which the mandatory minimum would be set below the actual
market. The 24 month average of negotiated sales in that region during
the 2020-2022 baseline period established in the legislation was 51.3
percent. In short, this bill could reduce--albeit marginally--the
percent of cash negotiated sales in Iowa and Minnesota, while forcing
dramatic increases elsewhere.
---------------------------------------------------------------------------
\5\ Benavidez, J., Anderson, D., Fischer, B., Outlaw, J., Analysis
of S. 4030--Cattle Price Discovery and Transparency Act of 2022
(https://www.afpc.tamu.edu/research/publications/files/715/BP-22-4-
Cattle-Market-Transparency.pdf) Briefing Paper 22-04, Texas A&M AFPC,
April 2022.
---------------------------------------------------------------------------
Producers and feeders in Texas, Oklahoma, New Mexico and Kansas,
have the most to lose. According to Texas A&M, based on the formula in
the legislation, 53 percent of the weekly cattle marketings in 2020-
2022 would not meet the mandatory minimum established. In the Texas,
Oklahoma and New Mexico region, based on 2020-2022 actual cattle
marketings, the proposed minimum would not be met 98 percent of the
time. Moreover, the legislation gives the Secretary of Agriculture
authority to set the mandatory minimum as high as 50 percent. In that
scenario, the Texas A&M briefing paper projects the number of
negotiated sales to ``explode, increasing from roughly 1.7 million head
. . . to more than 12 million head from 2022 to 2026,'' which would
make the cost estimates ``far greater than the estimates in this
report.'' \6\
---------------------------------------------------------------------------
\6\ Ibid. at p. 6.
---------------------------------------------------------------------------
At the 2022 American Farm Bureau Federation Annual Convention in
Atlanta, Dr. Stephen R. Koontz, professor in the Department of
Agricultural and Resource Economics at Colorado State University said,
``Mandated cash trade is not going to get you better price discovery.
It's going to put a $50 cost on calves impacted.''
A January analysis \7\ by Texas A&M of an earlier version of the
Grassley Fischer bill concludes:
---------------------------------------------------------------------------
\7\ Benavidez, J., Anderson, D., Fischer, B., Outlaw, J., Analysis
of S. 3229--Cattle Price Discovery and Transparency Act of 2022
(https://www.afpc.tamu.edu/research/publications/files/712/BP-22-
Cattle-Market-Transparency.pdf) Briefing Paper 22-02, Texas A&M AFPC,
January 2022.
Mandated levels of negotiated trade are expected to have
negative effects on cattle and calf prices. That is to say that
the mandate will result in lower short term fed cattle prices
due to the increase in the costs of the feeder-packer cattle
sale transaction. Research has shown there is a value to AMAs
in the form of lower costs, improved logistics, and reduced
risk. Mandating higher levels of negotiated trade will result
in higher transaction costs. The higher transaction costs will
result in lower cattle and calf prices and higher wholesale and
retail beef prices. Lower prices will have the long-term effect
of reducing cattle and beef production resulting in higher
prices. We would suggest that fed cattle and feeder calf prices
would increase back to their long-term expected levels, but not
necessarily increase to higher levels. The long run price
reversion back to earlier equilibrium levels is driven by the
reduction in cattle and beef production. Based on this, one
---------------------------------------------------------------------------
might argue that the industry will be smaller.
That paper analyzed the cost of cash market mandates projected over
the next 5 years at the $50 per head cost calculated by Dr. Koontz.
While that specific proposal is no longer on the table, a look at the
regional disruption and inequity is apt. The Texas-Oklahoma-New Mexico
region, at $50 per head cost, stood to lose $123.9 million, followed by
Kansas at $102.9 million. Nebraska would have fared better at ``only''
$75.3 million in losses. As for Iowa, the aggregate 5 year cost was
projected at a mere $52,520.
Under the revised Grassley Fischer bill, Texas A&M estimates that
in the Five Area region, the mandatory minimum if enacted now, would be
expected to subject 2.252 million head of fed cattle to the $50 per
head loss under the mandatory negotiated sales minimum. Again, the
regional inequity is instructive, as shown in the chart below.
2022-26 Aggregate Losses by Region under S. 4030
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Based on Texas A&M analysis and estimates.
The legislation could have far wider adverse impacts that are yet
unknown and currently impossible to analyze. The proposal directs the
Secretary to establish five to seven contiguous regions that encompass
the entire continental U.S.--from Maine to Arizona, Washington to
Florida--that reflect ``similar fed cattle purchasing practices.'' A
tall order. This effectively would cause regulatory gerrymandering for
no other reason than to impose unnecessary and costly mandatory
minimums for negotiated fed cattle sales.
Now, as cattle markets return to balance, is not the time to
disrupt the cattle market with a sweeping new government mandate. At
the end of 2021, cattle prices were at a 5 year high. In the first
quarter of 2022, cattle prices were at 7 year highs. And, as discussed
below, USDA is drafting proposed regulatory changes under the Packers
and Stockyards Act.
Proposals to implement a mandatory minimum volume of negotiated
cash sales go far beyond the purported objective of market transparency
and price discovery and instead would directly regulate the terms of
sale in a private transaction between two businesses, the producers and
packers. A cash market mandate would 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 Livestock Mandatory Reporting (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, combined and balanced 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.
The Grassley-Fischer bill contains a Sense of the Senate that
begins:
Sense of the Senate.--It is the sense of the Senate that--
(1) all participants in the fed cattle market have a
responsibility to contribute to sufficient levels of
negotiated trade of fed cattle in all cattle feeding
regions in order to achieve competitive bidding and
maximum transparency in all relevant markets and robust
price discovery for the benefit of all market
participants . . . (emphasis added)
Despite the rhetoric, the latest version of the Grassley-Fischer
cash market mandate targets the mandate so it only applies to the
largest beef packers. The reduction in the scope of the mandate is
illuminating. On one hand, it confirms the benefits and importance of
AMAs for producers, packers, and consumers: if the cash market provided
the same benefits as AMAs, there would have been no need scale-back the
mandate.
But applying the cash market mandate to only the largest packers
reveals the proposed mandate for what it is: a punitive tool. Under the
latest version of the bill, if a beef packer gets too large, they will
be forced to buy a certain percentage of cattle on the cash market. But
per the analysis discussed above, it will be the producers supplying
these packers who will pay much of the price. Gone is the illusion that
the cash market is somehow more virtuous than other means of marketing
cattle; gone is the argument that the cash market is necessary for
transparency and price discovery. Instead, the cash market mandate is
just that: a government mandate designed to punish the largest
companies and their suppliers. In this sense, the mandate is an
antitrust tool that could be used in any industry. If a company gets
too large, it will be punished with a government mandate directing how
the company can purchase inputs. Such a government mandate should
elicit opposition from anyone interested in protecting the free market.
The Grassley-Fischer cash mandate is rooted in the belief that a
government-managed market is preferable to the free market; in the
belief that legislators know the best way for cattle producers to
market cattle; in the belief that when black swan events occur, the
government, with an inflexible, prescriptive mandate, will be better
situated to respond than the resilient free market.
Ultimately, all cattle are purchased by a packer. The packer will
buy cattle by whichever method producers want to market them. If cattle
marketing become less efficient and transaction costs go up, the packer
will spread those costs elsewhere. As Dr. Peel noted, when cattle were
purchased on the average, high quality cattle were undervalued, and
low-quality cattle were overvalued, receiving the average price.
Packers have little incentive to differentiate cattle quality since
they have to process all the cattle anyway. All that will be important
to packers is to get the average right to generate a margin.
Market Transparency
Despite claims to the contrary, 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, and other species. Under LMR, packers must report to AMS daily
the prices they pay to procure cattle, and 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.
Few if any other industries have this magnitude of transparency via
mandatory reporting of detailed price and product data on an on-going,
daily basis, published for all other market participants--including up-
stream sellers, downstream buyers, and direct competitors--to view,
analyze, and use strategically.
Meat and Poultry Special Investigator Act
The Meat and Poultry Special Investigator Act duplicates existing
regulatory enforcement authority and is unnecessary.
The Agricultural Marketing Service's P&S Division currently
investigates [6] allegations of impropriety and brings
administrative cases and levies fines when warranted. Under certain
circumstances, the P&S Division takes civil action working through the
Department of Justice (DOJ). Penalties for violations of the Packers
and Stockyards Act (P&S Act) can include civil penalties, permanent
injunctions, fines, and even jail sentences.
---------------------------------------------------------------------------
\[6]\ https://www.ams.usda.gov/services/enforcement/psd.
---------------------------------------------------------------------------
The bill, however, would create a new office led by a political
appointee with the same responsibilities for enforcing the same
authority, the P&S Act, as the current P&S Division has. A duplicative
regulatory office is wasteful and unnecessary, and a political
appointee leading a regulatory enforcement office such as this would
have to respond to the political whims of the Administration.
Just this year, USDA established a complaint portal [7]
for producers to use to submit allegations of P&S Act violations to
USDA and DOJ. The new tool provides producers and the P&S Division
another resource for submitting, evaluating, and, if necessary,
prosecuting violations. If the P&S Division staff are not doing their
jobs, there are other ways to address it than by adding a political
appointee into the regulatory and enforcement mix.
---------------------------------------------------------------------------
\[7]\ https://www.usda.gov/farmerfairness.
---------------------------------------------------------------------------
USDA is promulgating new proposed rules under the P&S Act,
discussed further below, which are likely to have far reaching,
unintended consequences. Establishing a politically appointed Special
Investigator at the same time is a regulatory time-bomb. The Special
Investigator (and staff) would feel emboldened and obligated to bring
as many cases as possible, whether warranted or not, to test the legal
limits of the new rules. The resulting legal uncertainty and chaos will
accelerate changes in livestock and poultry marketing that will likely
add cost to producers and packers and up-end the supply chain.
The Special Investigator Act is a solution in search of a problem,
and would result in a politically-driven, substantial expansion of
USDA's regulatory regime.
Proposed Regulatory Actions by USDA Under the Packers and Stockyards
Act will Adversely Affect Producers and Packers.
In June 2021, USDA announced plans to propose rules to ``strengthen
enforcement'' of the Packers and Stockyards Act (PSA).\8\ The expected
proposed regulations would be problematic for several reasons,
including their impact on livestock producers' options to market their
cattle, as described.
---------------------------------------------------------------------------
\8\ 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.'' \9\ 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.
---------------------------------------------------------------------------
\9\ Ibid.
---------------------------------------------------------------------------
One unintended consequence so far overlooked could come in the form
of compromising the livestock and meat industry's significant gains and
ambitious goals for improving sustainability.
Today, the industry produces more than twice as much beef with
roughly the same number of cattle as in 1959, and 18 percent more beef
than when the U.S. cattle herd hit its largest size in 1975. Farmers
and ranchers produce beef using 33% less land, 12% less water, and with
a 16% smaller carbon footprint in 2007 compared to 1977.\10\ That is an
astounding sustainability success story.
---------------------------------------------------------------------------
\10\ Neumeier and Mitloehner doi:10.2527/af.2013-0022.
---------------------------------------------------------------------------
Productivity in Sustainable Beef Production
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The U.S. meat industry cannot continue to build on this remarkable
sustainable productivity growth and meet consumer expectations if the
government restricts interactions between packers and producers. By
design, USDA's proposed rules will discourage the use of AMAs--the very
tools that have improved efficiency, productivity, and risk management
over the past 2 decades and allowed the sector to meet consumer
expectations for increased beef quality and sustainably produced cattle
and beef.
As multiple agricultural economists \11\ and cattle producers \12\
have explained, AMAs increase market efficiency by transmitting market
signals about consumers' preferences to producers. Restaurants,
retailers, food service customers, and investors are moving rapidly to
align their product and financial portfolios with environmental, social
and corporate governance goals. This realignment--driven by consumers--
will not be achieved by eliminating value-based marketing and turning
back the clock to the days of commodity cattle purchased on the
average.
---------------------------------------------------------------------------
\11\ See the following: The U.S. Beef Supply Chain: Issues and
Challenges, Proceedings of a Workshop on Cattle Markets, Agriculture
and Food Policy Center, Texas A&M University, 2021, cattle.pdf
(tamu.edu) (https://www.afpc.tamu.edu/research/publications/710/
cattle.pdf); Anderson, et al., Univ. of Arkansas, 2022, https://cpb-us-
e1.wpmucdn.com/wordpressua.uark.edu/dist/6/907/files/2022/01/CPDTA-
analysis-01.18.22.pdf; Koontz, S., Costs and Benefits of Mandatory
Negotiated Cash Participation in Fed Cattle Markets, 2022; Glynn
Tonsor, Ph.D., Professor, Department of Agricultural Economics, Kansas
State University, testimony before the Senate Agriculture Committee,
June 23, 2021, https://www.agriculture.senate.gov/imo/media/doc/
Testimony_Tonsor%2006.23.211.pdf.
\12\ See Gardiner, Testimony (https://www.agriculture.senate.gov/
hearings/examining-markets-transparency-and-prices-from-cattle-
producer-to-consumer) before the Senate Committee on Agriculture,
Nutrition, and Forestry, June 23, 2021.
---------------------------------------------------------------------------
In his testimony before the House Agriculture Committee's Livestock
and Foreign Agriculture Subcommittee, Dr. Jayson Lusk stated:
[S]trengthening of consumer demand for beef over the past
several 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.\13\
---------------------------------------------------------------------------
\13\ Jayson Lusk, Ph.D., Distinguished Professor and Head,
Department of Economics, Perdue University, testimony before the House
Agriculture Subcommittee on Livestock and Foreign Agriculture, July 28,
2021, https://docs.house.gov/meetings/AG/AG29/20210728/113973/HHRG-117-
AG29-Wstate-LuskJ-20210728.pdf.
---------------------------------------------------------------------------
Conclusion
The discussion above demonstrates the complexity of the cattle and
beef markets that defy overly simplistic policy prescriptions. Market
fundamentals drive the cattle and beef markets, and what we saw before
and during the course of the pandemic was to be expected. Indeed,
cattle and beef markets were not the only sectors of the economy
adversely impacted in the past 2 years. Congress and USDA should not
make radical changes to the cattle and beef markets: such changes will
up-end the markets, increase costs for the entire supply chain,
including for consumers during this time of record inflation, and bring
unintended consequences.
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.
______
Submitted Questions
Response from David W. MacLennan, Board Chair, President, and Chief
Executive Officer, Cargill, Inc.
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. My question, Mr. Chairman, has to do with our HBCUs and
specifically our 1890 Land-Grant Universities who specialize in
agriculture and farming. As you know, in no small part, these
institutions and our Black farmers, have helped feed their communities
for decades. But these farmers also have lost their farms due to
decades of discrimination by banks and actions by our very own USDA. I
know that Cargill has taken a first step by investing $1 million over 3
years in scholarships and fellowships at Tuskegee University and Alcorn
University, each.
However, if Cargill were a publicly traded company, it would rank
at near the top of Fortune 500 corporations. So, what else can you be
doing, and I'd like to also hear from Tyson, JBS and National Beef what
each of you are doing with HBCUs?
And I'd like each of you to follow up in writing specifically what
collaboration you have with non-HBCU Universities so we can see what is
also possible?
Answer. Thank you for mentioning the Cargill University THRIVE
Program. Many college students face barriers to success, from affording
tuition to accessing promising career paths when stepping into the job
market. The program was created to address this challenge, working with
university partners to ensure more equitable access for women and
minority students in Science, Technology, Engineering and Mathematics
(STEM), as well as agriculture and business. Focused on universities
serving minority students, the THRIVE program provides financial
support through scholarships and expands further to encourage long-term
academic success through mentoring, development programming and career
coaching. The goal is to help participating students convert their
education into meaningful careers.
The THRIVE program was initially offered at Alcorn State University
and Tuskegee University (both Historically Black College &
Universities), Texas A&M University (a Hispanic-Serving Institution)
and long-standing Cargill partner institutions including Iowa State
University; Kansas State University; University of Minnesota;
Minorities in Agriculture, Natural Resources and Related Sciences
(MANRRS); and the Association of Latino Professionals for America
(ALPFA).
Cargill is also the first company to sponsor an 1890 Universities
Foundation Congressional Fellow, who is currently in his first year
with the House Committee on Agriculture.
Attracting and retaining great talent is extremely important to
Cargill. We realize that those who choose to work for us have options.
We have increased pay and benefits to better compete in today's
employment environment. Because we employ people from 160 different
countries, speaking 50+ languages, we recently announced investments in
education, from ESL courses to basic life skills all the way to tuition
reimbursement for college degrees.
In addition to the THRIVE program, we provide students and recent
graduates from many diverse education institutions many amazing
opportunities to learn from the best our industry has to offer. Through
our internship program, we engage students in 12 week hands on learning
programs. Cargill Internships are typically paid, and in some
countries, we offer relocation reimbursement and housing assistance for
those who qualify.
Our U.S. co-op programs are 8 month, paid terms running from
January to August or May to December. Available roles are based on
current and future business needs at Cargill and pull from universities
and colleges across the U.S. Our co-ops may require relocation; we
provide housing assistance and relocation reimbursement for those who
qualify.
The Cargill Global Scholars Program (CGSP) is a distinctive, 2 year
scholarship program that provides financial support to undergraduate
students in Brazil, China, India, Indonesia, and the United States. The
CGSP offers leadership development opportunities through seminars,
networking events and a one-on-one mentoring program facilitated by
Cargill volunteers globally, and an alumni network that will help them
keep connected with past, current, and future scholars.
The students selected are those who demonstrate exemplary academic
achievement and leadership potential and study in a field relevant to
Cargill's world of food, agriculture and risk management. We believe
these students will become leaders in industries and fields that will
have an impact on Cargill's businesses in the future.
Question 2. I know some folks enjoy a good hamburger or a good cut
of steak. However, we cannot ignore the truth that the agriculture
industry is a major polluter with annual emissions equivalent to 143
million cars. The emissions produced by the livestock industry alone
are larger than Exxon Mobil, Shell, and BP.
The stakes for future generations could not be higher. And so, I
pose this question to all of you. What will the industry do to foster a
better working relationship to produce a cleaner environment that our
country and world desperately needs?
Answer. Thanks to the hard work of ranchers, the North American
beef supply chain is already the most sustainable in the world. But we
will never rest with the status quo. In our beef business, we are
working with partners and directly with producers to continue to reduce
the climate impact of America's beef production.
For decades, Cargill has been working with thousands of family
farmers, ranchers and producers to increase the efficiency of beef
production. We are a founding member of the Global Roundtable for
Sustainable Beef and are helping lead efforts with the Canadian
Roundtable for Sustainable Beef and U.S. Roundtable for Sustainable
beef. We collaborate with industry partners and customers to improve
the sustainability and transparency of the beef supply chain.
We also continue to improve livestock feed efficiency. Over the
last 15 years we have seen an overall trend in reducing the volume of
feed for each pound of beef produced. We focus on developing more
sustainable ways to manufacture feed and improve the nutritional and
feed conversion value of feed. We participate in the Canadian
Roundtable for Sustainable Crops, whose work also includes a focus on
sustainable feed.
We are partnering with U.S. cattle ranchers, NGOs such as the
National Fish and Wildlife Foundation; the World Wildlife Fund; The
Nature Conservancy, and with some of the largest consumer food brands
in the U.S. including McDonald's and Burger King to continue advancing
the sustainability of beef production.
Together we will achieve a 30% greenhouse gas (GHG) reduction
across the North American beef supply chain by 2030. This equates to
removing two million cars from U.S. highways for a year.
Question Submitted by Hon. J. Luis Correa, a Representative in Congress
from California
Question. Mr. MacLennan, your company is active in agriculture
around the world, and Cargill recently testified before the
subcommittee I chair on the Homeland Security Committee, where we
discussed ways your company is working to address the root causes of
migration and create jobs and economic opportunity in Central America.
I want to commend you for your company's investment in the region and
thank you for your continued work in this area.
We've heard today how labor shortages have impacted the meat and
cattle markets; can you help us understand who immigration reform would
help to address some of the issues we're discussing today?
Answer. Cargill is proud to be a U.S.-based company with 40,000
U.S. employees and we continue to invest in the United States. Like
many American businesses, we are trying our best to contend with a
nearly unprecedented labor shortage. Cargill is averaging approximately
10% fewer workers in our beef plants--that's nearly 220 employees short
in every plant, due to labor constraints.
The recent increase in illegal migration and domestic labor
shortages has prompted a renewed focus on the need for an enhanced U.S.
immigration policy--an immigration policy that works. Cargill supports
comprehensive immigration policy that addresses more than just
enforcement. Specifically, we need clearer, faster access to year-round
work visas, especially for industries like food manufacturing that are
facing these extreme labor shortages.
And at the same time, it is critical that we bring economic
opportunities to vulnerable populations in the communities in which we
operate, which is why we are also investing in the Partnership for
Central America. By investing in our communities through our business
and our partnerships, we can help them to become thriving and
prosperous.
Cargill's businesses in Central America have benefited American
farmers and workers by creating new export markets and increasing the
purchasing power of those in the region. Our investments provide jobs,
grow local businesses, and raise living standards. This has enabled
more people in the region to purchase more American products--directly
supporting American farmers and workers.
Response from Timothy O. Schellpeper, Chief Executive Officer, JBS USA
Food Company
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. My question, Mr. Chairman, has to do with our HBCUs and
specifically our 1890 Land-Grant Universities who specialize in
agriculture and farming. As you know, in no small part, these
institutions and our Black farmers, have helped feed their communities
for decades. But these farmers also have lost their farms due to
decades of discrimination by banks and actions by our very own USDA. I
know that Cargill has taken a first step by investing $1 million over 3
years in scholarships and fellowships at Tuskegee University and Alcorn
University, each.
However, if Cargill were a publicly traded company, it would rank
at near the top of Fortune 500 corporations. So, what else can you be
doing, and I'd like to also hear from Tyson, JBS and National Beef what
each of you are doing with HBCUs?
And I'd like each of you to follow up in writing specifically what
collaboration you have with non-HBCU Universities so we can see what is
also possible?
Answer. Congresswoman Adams,
Thank you for your question regarding our collaboration and
interaction with HBCUs. At JBS USA, we have several partnerships with
HBCUs and non-HBCUs to promote agriculture as a viable career option
for the next generation of future leaders.
JBS USA and Pilgrim's has engaged with Historically Black Colleges
and Universities as a part of the company's broader recruiting strategy
for many years, with the most robust strategy being between 2015 and
2022. Universities that we have regularly engaged with during this
timeframe are Tuskegee University, North Carolina A&T, Florida A&M,
Alabama A&M, and more recently, Prairie View A&M.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Although in-person engagement is preferred, the COVID-19 pandemic
significantly changed the landscape of recruiting, driving the company
to use virtual platforms--specifically, Handshake--to reach and recruit
students. Fortunately, this shift also dramatically increased the
number of schools and students we were able to engage with.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Today, we post positions at 35 HBCU Schools on Handshake--of those,
19 have prominent agriculture programs that we regularly engage with
via campaigns and virtual career fairs. Every year, Handshake provides
the company with a summary of our efforts and in the 2021-2022
recruiting season, we have shown at 16.2 percent year over year
improvement in our engagement with black students. This year, JBS and
Pilgrim's ranked number 15 of 23,000 food companies on the platform in
our ability to attract students from underrepresented groups.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In comparison to our peers, which include Smithfield Foods, Conagra
Brands, Tyson Foods, Nestle, and Cargill, we are tied for our ability
to convert black applicants to apply to our postings (24 percent).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Looking forward into the 2022-2023 recruiting season, JBS and
Pilgrim's will continue to engage with Black students attending HBCU
schools and non-HBCU schools in order to increase applications from
qualified and diverse individuals for our training programs. Regarding
in-person engagement, the company will resume campus visits at five
prominent HBCU schools with agriculture programs in states where we
have operations.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
JBS and Pilgrim's will continue our work to increase our
interactions with black students across the country by engaging with
HBCU schools, which will help us to ensure that we maintain a diverse
candidate pipeline as we attract, select, and retain talented
individuals for our opportunities.
Question 2. I know some folks enjoy a good hamburger or a good cut
of steak. However, we cannot ignore the truth that the agriculture
industry is a major polluter with annual emissions equivalent to 143
million cars. The emissions produced by the livestock industry alone
are larger than Exxon Mobil, Shell, and BP.
The stakes for future generations could not be higher. And so, I
pose this question to all of you. What will the industry do to foster a
better working relationship to produce a cleaner environment that our
country and world desperately needs?
Answer. At JBS USA, we care about our role in the world and embrace
our responsibility as a global food company. That's why we were the
first global meat and poultry company to commit to achieve net-zero
greenhouse gas emissions by 2040. We believe that agriculture can and
must be a part of the global climate solution.
JBS USA's net zero ambition reflects our goal to meet the health
and nutritional needs of the growing global population in a sustainable
manner that preserves the planet's resources for future generations. As
part of its commitment, JBS USA has signed on to the United Nations
Global Compact's Business Ambition for 1.5C initiative, which aligns
with the most ambitious aim of the Paris Agreement to limit global
warming.
We are currently developing GHG emission reduction targets across
our global operations and value chains in South America, North America,
Europe, the UK, Australia and New Zealand. We will provide a time-bound
roadmap that provides interim targets consistent with the criteria set
forth by the Science Based Targets initiative for a 1.5C trajectory.
JBS USA will also provide annual updates on progress to ensure
transparency.
To accomplish our net-zero goal, we have adopted several strategies
to achieve reductions in emissions, including:
Reducing direct emissions in our facilities: JBS will reduce
our global scope 1 and 2 emission intensity by at least 30% by
2030 against base year 2019.
Investing in the future: JBS will invest more than $1
billion in incremental capital expenditures over the next
decade in emission reduction projects.
Fostering innovation with farmers and ranchers: JBS is
investing $100 million by 2030 in research and development
projects to assist producer efforts to strengthen and scale
regenerative farming practices, including carbon sequestration
and on-farm emission mitigation technologies. This investment
will contribute to reducing scope 3 emissions across the value
chain, in our efforts toward net zero.
Ensuring accountability: Across the company, performance
against environmental goals, including GHG emission reduction
targets, will be part of senior executive compensation
considerations.
Response from Tim Klein, President and Chief Executive Officer,
National Beef Packing Company, LLC
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. My question, Mr. Chairman, has to do with our HBCUs and
specifically our 1890 Land-Grant Universities who specialize in
agriculture and farming. As you know, in no small part, these
institutions and our Black farmers, have helped feed their communities
for decades. But these farmers also have lost their farms due to
decades of discrimination by banks and actions by our very own USDA. I
know that Cargill has taken a first step by investing $1 million over 3
years in scholarships and fellowships at Tuskegee University and Alcorn
University, each.
However, if Cargill were a publicly traded company, it would rank
at near the top of Fortune 500 corporations. So, what else can you be
doing, and I'd like to also hear from Tyson, JBS and National Beef what
each of you are doing with HBCUs?
And I'd like each of you to follow up in writing specifically what
collaboration you have with non-HBCU Universities so we can see what is
also possible?
Answer. July 6, 2022
Hon. David Scott,
Chairman,
House Agriculture Committee,
Washington, D.C.;
Hon. Glenn Thompson,
Ranking Minority Member,
House Agriculture Committee,
Washington, D.C.
Re: Responses to Questions for the Record from House Committee on
Agriculture Public Hearing Entitled ``An Examination of
Price Discrepancies, Transparency, and Alleged Unfair
Practices in Cattle Markets''
Dear Chairman Scott and Ranking Member Thompson:
On behalf of National Beef Packing Company, LLC, enclosed please
find responses to Congresswoman Alma Adams' Questions for Record,
following the House Committee on Agriculture's April 27, 2022, Public
Hearing entitled, ``An Examination of Price Discrepancies,
Transparency, and Alleged Unfair Practices in Cattle Markets.''
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Tim Klein,
President and Chief Executive Officer.
National Beef collaborates at times with land-grant colleges and
universities on business-related topics such as food safety and
sustainability. In addition, National Beef sponsors an annual award
given to two food-science students attending a local land-grant
university. Each year, National Beef hires as summer interns students
who are pursuing agricultural-related degrees at various colleges and
universities. These internship opportunities, as well as our open
degree-required positions, are posted on our website and any qualified
applicant may apply. We do not currently have any collaborative
relationships with any HBCU.
Question 2. I know some folks enjoy a good hamburger or a good cut
of steak. However, we cannot ignore the truth that the agriculture
industry is a major polluter with annual emissions equivalent to 143
million cars. The emissions produced by the livestock industry alone
are larger than Exxon Mobil, Shell, and BP.
The stakes for future generations could not be higher. And so, I
pose this question to all of you. What will the industry do to foster a
better working relationship to produce a cleaner environment that our
country and world desperately needs?
Answer. National Beef is committed to producing safe, quality
products that feed U.S. families in a manner that optimizes efficiency
while minimizing waste. Accordingly, National Beef will always look for
new ways in which science, technology, and innovation may help further
reduce the environmental footprint of our world-class beef operations.
Response from Donnie King, Chief Executive Officer, Tyson Foods
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. My question, Mr. Chairman, has to do with our HBCUs and
specifically our 1890 Land-Grant Universities who specialize in
agriculture and farming. As you know, in no small part, these
institutions and our Black farmers, have helped feed their communities
for decades. But these farmers also have lost their farms due to
decades of discrimination by banks and actions by our very own USDA. I
know that Cargill has taken a first step by investing $1 million over 3
years in scholarships and fellowships at Tuskegee University and Alcorn
University, each.
However, if Cargill were a publicly traded company, it would rank
at near the top of Fortune 500 corporations. So, what else can you be
doing, and I'd like to also hear from Tyson, JBS and National Beef what
each of you are doing with HBCUs?
And I'd like each of you to follow up in writing specifically what
collaboration you have with non-HBCU Universities so we can see what is
also possible?
Answer. Rep. Adams, thank you for your question on Tyson's
collaborations with Historically Black Colleges and Universities
(HBCU's). Tyson's currently has several meaningful collaborations with
HBCU's that we hope to build on in the coming years. As you may know,
earlier this spring Tyson's signed on as the first ever, 3 year title
sponsor of the Black College World Series, which features student-
athletes from HBCU's in NCAA Division II and the NAIA. In addition, our
African Ancestry Alliance Business Resource Group has initiated a
speaker series at North Carolina A&T to engage with students in
conversation related to their professional growth and development.
Furthermore, we are finalizing strategic recruiting partnerships with
eight HBCU's in addition to finalizing a partnership with a third-party
organization that has recruiting relationships across diverse
universities, including HBCU's, Hispanic Serving Institutions, and
Asian American Pacific Islander Serving Institutions. Last, our newest
Team Member education benefit--Upward Academy Online--is a partnership
with Guild Education to provide access to over 175 flexible academic
programs, including college degrees, to all Tyson Team Members. The
cost of the education is 100% covered by Tyson and includes degrees and
certificate programs at several HBCU's, including North Carolina A&T.
We will look to build on and expand these partnerships in coming years.
Question 2. I know some folks enjoy a good hamburger or a good cut
of steak. However, we cannot ignore the truth that the agriculture
industry is a major polluter with annual emissions equivalent to 143
million cars. The emissions produced by the livestock industry alone
are larger than Exxon Mobil, Shell, and BP.
The stakes for future generations could not be higher. And so, I
pose this question to all of you. What will the industry do to foster a
better working relationship to produce a cleaner environment that our
country and world desperately needs?
Answer. By 2050, we anticipate the world will need to find a way to
feed an additional two billion people. It's critical that we find
solutions that support an equitable and resilient food system--one that
supports all people and sustains our planet. Tyson has invested in
research and new technologies to protect our planet and provide high
quality, affordable food.
We recently announced our ambition of achieving net-zero greenhouse
gas emissions, including scope 1, 2, and 3 emissions, by 2050. To
reduce greenhouse gas emissions, we have, for example, developed a
beef-focused greenhouse gas emissions accounting framework to capture
cradle-to-gate emissions and verify emission reductions from producers'
use of more sustainable agricultural practices. We are also working
alongside universities, conservation specialists, and technical
experts, such as the Environmental Defense Fund and Farmers Business
Network, to find innovative ways to increase food production while also
maximizing positive environmental outcomes. To continually innovate in
this area, Tyson Ventures has exceeded $100M in total investments to
support startups and other companies focused on emerging proteins, new
technologies for food and worker safety, and sustainable food
production.
We are also looking beyond emissions and towards good environmental
stewardship. One way we are doing this is through a Zero Waste to
Landfill initiative, which Tyson launched as pilot projects at three
production facilities in 2020. In the first year, we diverted almost
5.2 million pounds of waste from landfills, a 60% increase from the
previous year. We've since achieved Zero Waste to Landfill gold-level
validation at six U.S. plants where 95-99% of certain waste streams has
been diverted from landfills. We are now applying learnings from these
pilots and validation achievements to inform an enterprise waste and
recycling strategy, as well as set future goals. We are also working to
reduce packaging waste by piloting sustainable packaging solutions for
several products and testing the validation of new recyclable, pulp
fiber trays to replace traditional trays made of foam. Finally, Tyson
is tackling water use reduction at our processing facilities, and we
are proud to share that three of our U.S. plants have received Alliance
for Water Stewardship verification.
As the world grows and changes, we are committed to working with
Congress, the Administration, researchers, startups, and nonprofit
organizations to find innovative ways to feed people responsibly.
Question Submitted by Hon. J. Luis Correa, a Representative in Congress
from California
Question. Mr. King, can you share Tyson's perspective on how
immigration reform can address labor shortages?
Answer. Rep. Correa thank you for your question on immigration
reform. As you know, labor shortages have been one of the most
significant challenges facing the industry over the last several years.
Tyson Foods has been an advocate for comprehensive immigration reform
for many years. A bipartisan solution that addresses border security,
the undocumented individuals currently living in the U.S., an updated
employer verification system, and a plan for future flow that takes
business needs into consideration would have a direct positive impact
on labor shortages. Additionally, providing a pathway for citizenship
for individuals currently in the United States with Deferred Action
Childhood Arrival (DACA) status, Temporary Protective Status (TPS) and
Humanitarian Parolee status would provide stability to both the
affected individuals and the business community.
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