[Congressional Record Volume 153, Number 54 (Wednesday, March 28, 2007)]
[Senate]
[Pages S4058-S4059]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCONNELL (for Mr. Enzi (for himself, Mr. Dorgan, Mr. 
        Grassley, Mr. Thomas, and Mr. Conrad)):
  S. 1017. A bill to amend the Packers and Stockyards Act, 1921, to 
prohibit the use of certain anti-competitive forward contracts; to the 
Committee on Agriculture, Nutrition, and Forestry.
  Mr. ENZI. Mr. President, Wyoming's late, great country music star 
Chris LeDoux has a song Some Things Never Change. I wish that were the 
case for Wyoming's hardworking livestock producers. As production 
agriculture has evolved and improved in the United States, producers in 
Wyoming continue to be held hostage to a regulatory nightmare and bound 
by the chains of unfair and manipulative marketing contracts. It is 
this regulatory nightmare that must be addressed. That is why I am 
reintroducing legislation today to break the chains and require 
livestock contracts to contain a fixed base price and be traded in 
open, public markets.
  From Kaycee to Kansas City, captive supply is destroying the health 
of our family ranches. Many of these small businesses have operated for 
generations. Unfortunately, a handshake and an honest day's labor 
cannot compete with deceptive business practices. Captive supply is a 
business practice not well known to those outside of the industry, but 
a practice that has had a tremendous impact on the ranchers of the 
West.
  I go back to Wyoming almost every weekend. Because Wyoming is such a 
large State, my travels take me to a different section of the State on 
each trip. Throughout Wyoming I hear the same concerns from my 
constituents. They are all clamoring for attention and relief so they 
can continue the work that so many in their families have done for so 
many years. These concerns are not unique to Wyoming. Captive supply is 
an industry-wide problem.
  So what is captive supply--and how is it harming our Nation's 
ranchers to such an extent? Simply put, captive supply refers to the 
ownership by meat packers of cattle or the contracts they issue to 
purchase livestock. It is done to ensure that packers will always have 
a consistent supply of livestock on the kill floor which keeps 
slaughterhouses in perpetual operation.
  The original goal of captive supply makes good business sense. All 
businesses want to maintain a steady supply of animals to ensure a 
constant stream of production and control costs.
  But captive supply allows packers to go beyond good organization and 
business performance--to market manipulation--and this is where the 
problem lies.
  The packing industry is highly concentrated. Using captive supply and 
the market power of concentration, packers can purposefully drive down 
the prices by refusing to buy in the open market. This deflates all 
livestock prices and limits the market access of producers that have 
not aligned with specific packers.
  We made an attempt to address the problem of captive supply on the 
Senate floor during the 2002 Farm Bill debate, but the amendment to ban 
packer ownership of livestock more than 14 days before slaughter did 
not survive the conference committee deliberation. I look forward to 
working with my colleagues on the reauthorization of the Farm Bill this 
year. I will press this issue during the drafting of the Competition 
Title of the Farm Bill with my congressional colleagues.
  The problems caused by captive supply are alive and well, just as 
Wyoming producers have testified to me in the phone calls, letters, 
faxes and emails I receive from them. Although I supported the packer 
ban and have cosponsored it again this Congress, I do not think that 
banning packer ownership of livestock will solve the entire captive 
supply problem. Packers are using numerous methods beyond direct 
ownership to control cattle and other livestock.
  Currently, packers maintain captive supply through various means 
including direct ownership, forward contracts, and marketing 
agreements. The difference between the three is subtle, so let me take 
a moment to describe how they differ. Direct ownership refers to 
livestock owned by the packer. In forward contracts, producers agree to 
the delivery of cattle one week or more before slaughter with the price 
determined before slaughter. Forward contracts are typically fixed, 
meaning the base price is set.
  As with forward contracts, marketing agreements also call for the 
delivery of livestock more than one week before slaughter, but the 
price is determined at or after slaughter. A formula pricing method is 
commonly used for cattle sold under marketing agreements. In formula 
pricing, instead of a fixed base price, an external reference price, 
such as the average price paid for cattle at a certain packing plant 
during one week, is used to determine the base price of the cattle. I 
find this very disturbing because the packer has the ability to 
manipulate the weekly average at a packing plant by refusing to buy in 
the open market. Unfortunately, marketing agreements and formula 
pricing are much more common than forward contracts.

  Livestock producers have the same questions when they lose to the 
market pressures applied by captive supply. Captive supply gives 
packers the ability to discriminate against some producers. And those 
producers pay for it with their bottom line. At the same time, packers 
use contracts and marketing agreements to give privileged access and 
premiums to other producers regardless of the quality of their product. 
These uses of captive supply should be illegal. In fact, they are.
  Section 202 of the Packers and Stockyards Act states in (3) (a) and 
(b):
  ``It shall be unlawful for any packer with respect to livestock . . . 
to:
  ``(a) Engage in or use any unfair, unjustly discriminatory, or 
deceptive practice or device; or
  ``(b) Make or give any undue or unreasonable preference or advantage 
to any particular person or locality in any respect, or subject any 
particular person or locality to any undue or unreasonable prejudice or 
disadvantage in any respect.''
  Packers that practice price discrimination toward some producers and 
provide undue preferences to other producers are clearly in violation 
of the

[[Page S4059]]

law. But this law is not being enforced. So what we are left with are 
unenforced laws or no laws at all to protect the independent producer. 
The Packers and Stockyards Act is not being enforced and the cost of 
enforcing the law on a case-by-case basis in the courts is expensive 
and time-consuming.
  A law is not worth the paper it is printed on if it is not enforced. 
The posted speed limit is not a suggestion. Our law enforcement 
officers enforce the law when motorists fail to heed the posted sign. 
This section of the Packers and Stockyards Act is like a sign on the 
road of commerce that no one is paying attention to because the police 
are busy doing something else. The bill I am introducing today is not 
just another sign on the road. It is a speed bump. It does not just 
warn cars to go slower; it makes it much more difficult for them to 
speed.
  My bill does two things to create the speed bump. It requires that 
livestock producers have a fixed base price in their contracts. It also 
puts these contracts up for bid in the open market where they belong.
  Under this bill, forward contracts and marketing agreements must 
contain a fixed base price on the day the contract is signed. This 
prevents packers from manipulating the base price after the point of 
sale. You may hear allegations that this bill ends quality-driven 
production, but it does not prevent adjustments to the base price after 
slaughter for quality, grade or other factors outside packer control. 
It prevents packers from changing the base price based on factors that 
they do control. Contracts that are based on the futures market are 
also exempted from the bill's requirements.
  In an open market, buyers and sellers would have the opportunity to 
bid against each other for contracts and could witness bids that are 
made and accepted. Whether they take the opportunity to bid or not is 
their choice, the key here is that they have access to do so.
  My bill also limits the size of contracts to the rough equivalent of 
a load of livestock, meaning 40 cattle or 30 swine. It does not limit 
the number of contracts that can be offered by an individual. This key 
portion prevents small and medium-sized livestock producers, like those 
found in Wyoming, from being shut out of deals that contain thousands 
of livestock per contract.
  Requiring a firm base price and an open and transparent market ends 
the potential for price discrimination, price manipulation and undue 
preferences. These are not the only benefits of my bill. It also 
preserves the very useful risk management tool that contracts provide 
to livestock producers. Contracts help producers plan and prepare for 
the future. My bill makes contracts and marketing agreements an even 
better risk management tool because it solidifies the base price for 
the producer. Once the agreement is made, a producer can have 
confidence on shipping day in his ability to feed his family during the 
next year because he will know in advance how much he can expect to 
receive for his livestock.
  This bill also encourages electronic trading. An open and public 
market would function much like the stock market, where insider trading 
is prohibited. The stock market provides a solid example of how 
electronic livestock trading can work to the benefit of everyone 
involved. For example, price discovery in an open and electronic market 
is automatic.
  Captive supply is still weighing on the minds and hurting the 
pocketbooks of ranchers in Wyoming and across the United States. 
Wyoming ranchers encourage me to keep up the good fight on this issue 
on every trip I make to my home state. The economic soul of Wyoming is 
built on the foundation of small towns and small businesses. All 
livestock producers, even small and medium-sized ones, should have a 
fair chance to compete that allows them to get the best price possible 
for their product. We must do everything we can to keep our small 
producers in business.
  My bill removes one of the largest obstructions preventing livestock 
producers from competing--formula-priced contracts. I ask my colleagues 
to assist me in giving their constituents and mine the chance to 
perform on a level playing field.
  While Some Things Never Change, it is time for a sea change in the 
area of captive supply.
                                 ______