[Federal Register Volume 68, Number 104 (Friday, May 30, 2003)]
[Notices]
[Pages 32455-32458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13517]


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DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration


Livestock and Meat Marketing Study

AGENCY: Grain Inspection, Packers and Stockyards Administration, USDA.

ACTION: Notice and request for comments.

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SUMMARY: The Grain Inspection, Packers and Stockyards Administration 
will be conducting a broad study of marketing methods used in the 
livestock and red meat industries, as mandated by Congress. The purpose 
of this notice is to solicit comments on the scope and approach of the 
study, the names of persons to be considered for involvement in peer 
reviews, and the names of organizations that might be interested in 
bidding on the study.

DATES: Comments will be considered if received by June 30, 2003.

ADDRESSES: Send comments via electronic mail to 
[email protected]. Send hardcopy written comments to Tess Butler, 
GIPSA, USDA, 1400 Independence Avenue, SW., Room 1647-S, Washington, DC 
20250-3604, or fax to (202) 690-2755. All comments should make 
reference to the date and page number of this issue of the Federal 
Register, and will be available for public inspection in the above 
office during regular business hours (7 CFR 1.27(b)).

[[Page 32456]]


FOR FURTHER INFORMATION CONTACT: Gerald E. Grinnell, Director, Economic 
and Statistical Support Staff, Grain Inspection, Packers and Stockyards 
Administration, Room 1644-S, STOP 3647, 1400 Independence Ave. SW., 
Washington, DC 20250-3647 or e-mail to [email protected].

SUPPLEMENTARY INFORMATION: The Grain Inspection, Packers and Stockyards 
Administration (GIPSA) of the U.S. Department of Agriculture (USDA) 
administers the Packers and Stockyards Act of 1921, as amended and 
supplemented (7 U.S.C. 181-229) (P&S Act). The P&S Act prohibits 
unfair, deceptive, and fraudulent practices by market agencies, 
dealers, stockyards, packers, swine contractors, and live poultry 
dealers in the livestock, meatpacking, and poultry industries. During 
the development of the 2002 Farm Bill, the Senate considered an 
amendment to the P&S Act that would make it unlawful for a packer to 
own, control, or feed livestock intended for slaughter. After much 
debate, the proposed amendment was dropped in conference.
    The issue of packer ownership of livestock is highly contentious 
among livestock industry members. Some industry participants are 
concerned that packer ownership of livestock before they are ready for 
slaughter and other advance procurement arrangements (some of which are 
referred to as captive supplies \1\), may enable packers to reduce spot 
market prices, and that the arrangements may threaten the future of 
spot markets or reduce market opportunities for small producers. Others 
believe that advance marketing arrangements (both procurement and 
sales) increase efficiency, quality of products, responsiveness to 
changing consumer preferences, and competitiveness with other meats.
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    \1\ GIPSA defines captive supplies as livestock that are owned 
or fed by a packer more than 14 days prior to slaughter; livestock 
that are procured by a packer through a contract or marketing 
agreement that has been in place for more than 14 days prior to 
slaughter; and livestock that are otherwise committed to a packer 
more than 14 days prior to slaughter.
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    Issues surrounding packer ownership of livestock for slaughter are 
part of a larger set of issues relating to concentration and vertical 
coordination in the livestock and meat system. Many questions remain 
unanswered about these issues. The effects of the ownership of 
livestock by packers and its impacts on the livestock and meat 
marketing industries needs to be better understood before it can be 
determined whether legislative action may be appropriate. In the fiscal 
year 2003 budget (Pub. L. 108-7), Congress specified that $4.5 million 
of the GIPSA budget is to be used for a packer concentration study. 
Congress specified that the study should address ``issues surrounding a 
ban on packer ownership'' (Congressional Record, February 12, 2003, 
page H870).
    Packer ownership is one of a broad range of alternative marketing 
arrangements that have emerged in the cattle, hog, lamb, and meat 
industries to coordinate activities between and within stages of the 
livestock and meat system. It is difficult to make important decisions 
about these practices in the absence of sound analyses of their use and 
implications. The planned study will contribute to better understanding 
of the role of alternative marketing arrangements, the extent of their 
use, reasons why firms enter into them, and their implications.
    Since captive supplies, packer ownership, and other advance 
marketing arrangements are interrelated throughout the livestock and 
red meat industries, we plan to study marketing methods from the farm 
level to the retail, export, and foodservice levels. The planned study 
will examine the use and economic effects of various methods for 
transferring cattle, hogs, lambs, and meat between successive stages of 
the livestock and meat marketing system. It will examine marketing 
arrangements from the first-producer (for example, cow-calf producers 
and hog farrowing operations) to the procurement of meat and meat 
products by retail establishments, exporters, and the hotel, 
restaurant, and institutional trades.
    We established an interagency working group with representatives 
from USDA and other federal agencies to provide advice on the study. 
The working group includes representatives from the Office of the Chief 
Economist, Economic Research Service, Agricultural Marketing Service, 
National Agricultural Statistics Service, Office of Budget and Program 
Analysis, and Grain Inspection, Packers and Stockyards Administration 
in USDA plus the Department of Justice, Federal Trade Commission, and 
Commodity Futures Trading Commission.
    We believe that we have appropriately defined the scope and 
identified the research steps necessary to complete the study. We have 
identified 10 specific objectives for the study. We then grouped the 10 
objectives into 5 parts or phases. Each part represents a unique block 
of work, usually involving common data collection requirements or 
similar types of analyses. Each part and its associated objectives are 
specified in the following table:

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                       Part                                                   Objective
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Part 1: Identify and classify spot and alternative  Objective 1: Identify various spot and alternative
 marketing arrangements into appropriate             arrangements for transferring livestock and meat between
 categories for examining alternative methods of     successive stages of the livestock and meat system from
 vertical coordination.                              farmers to retailers, and classify the arrangements by type
                                                     of marketing method.
Part 2: Survey firms to learn about the terms of    Objective 2: Describe the terms of the arrangements (for
 various spot and alternative marketing              example, written or oral, length of agreements, quantity
 arrangements and examine why firms use them.        requirements, which party controls delivery timing, how
                                                     animal or meat quality is determined, how prices are
                                                     determined when formulas are used, termination options,
                                                     dispute resolution mechanisms, whether prices are reported
                                                     to the Agricultural Marketing Service or other market news
                                                     organization), and describe arrangements that cover more
                                                     than two stages in the supply chain.
                                                    Objective 3: Determine the availability of alternative
                                                     marketing arrangements to market participants (for example,
                                                     producers, feedyards, packers, distributors, retailers) of
                                                     various sizes and in different geographic regions.
                                                    Objective 4: Determine reasons why producers, feedlots,
                                                     packers, distributors, and retailers enter into these spot
                                                     and alternative marketing arrangements (for example, cost
                                                     savings, risk reduction, access to financing, access to
                                                     improved genetics, access to management expertise).

[[Page 32457]]

 
Part 3: Examine sales and procurement transactions  Objective 5: Measure the extent to which alternative
 records to measure the number of animals and        marketing arrangements are used in the cattle, hog, lamb,
 quantity of meat traded through various spot and    and meat industries.
 alternative marketing arrangements, examine price  Objective 6: Examine price differences among spot and
 premiums and discounts associated with the          alternative marketing arrangements and the effects that
 different marketing methods, and examine short-     alternative marketing arrangements have on spot market
 run price effects of captive supplies.              prices in the short run.
Part 4: Measure and compare costs and benefits      Objective 7: Determine what effects spot and alternative
 associated with the various spot and alternative    marketing arrangements have on firms' operating costs and
 marketing methods.                                  efficiency, animal and meat quality, level and distribution
                                                     of risks among market participants, and consumer demand for
                                                     livestock and meat. Measure potential size economies and
                                                     their sources (for example, procurement costs, operating
                                                     costs, selling costs, by type of resource, such as labor
                                                     costs or capital costs).
Part 5: Summarize the findings of the four parts    Objective 8: Examine the implications of alternative
 described above and address issues associated       marketing arrangements on price discovery in cattle, hog,
 with price discovery, thin markets, long run        lamb, and meat markets. Assess how prices are likely to be
 effects on costs and prices, competitiveness with   determined if spot markets become thinner as use of
 other meats, structural change, and market power    alternative marketing arrangements increases.
 dimensions.                                        Objective 9: Examine what effects spot and alternative
                                                     marketing arrangements have on long run costs and prices,
                                                     and their implications for competitiveness with other
                                                     meats, structure of the livestock industry, and structure
                                                     of the meatpacking industry.
                                                    Objective 10: Examine the implications of spot and
                                                     alternative marketing arrangements on barriers to entry,
                                                     industry concentration, and other factors that have the
                                                     potential to increase market power in livestock production,
                                                     meatpacking, and retailing.
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    We request comments from interested persons on the plan for the 
study as outlined above.
    We anticipate that both voluntary submissions of data and data 
collected under GIPSA's authorities will be required for the study. As 
the information collection requirements are identified, we will follow 
the standard procedure for notice, comment, and request for approval 
from the Office of Management and Budget.
    We plan to enter into contract(s) for the performance of most of 
the work involved in the study. GIPSA, through USDA's Animal and Plant 
Health Inspection Service, will solicit and award one or more contracts 
competitively for the study in accordance with Federal procurement 
procedures. Specifically, GIPSA plans to solicit research proposals 
through a formal request process. Individual contracts may cover 
several parts of the study. For example, one contract may cover cattle, 
another hogs, and a third sheep and lambs; or some other combination of 
the study's parts may be used. We anticipate that consulting firms and 
university departments of agricultural economics, economics, and 
business may have a particular interest in bidding on the work. 
Collaborative research relationships among institutions may be needed 
to assemble all of the expertise needed for different parts of the 
study.
    We also intend to establish a five-to seven-member academic peer 
review group having outstanding research credentials in this area of 
research to review the researchers' technical work. We request the 
public to submit names of highly qualified academicians to serve as 
peer reviewers.

Conclusion

    GIPSA will use $4.5 million dollars of its 2003 fiscal year budget 
appropriation to conduct a study of livestock and meat marketing, 
addressing issues ``surrounding a ban on packer ownership'' of 
livestock. Some economic studies have been conducted on the effects of 
captive supplies on spot market prices of fed cattle. These studies 
have shown a correlation between the captive supplies and lower spot 
market prices, but have not shown that the captive supplies cause lower 
prices. There has been little research on the effects of packer feeding 
and other alternative marketing arrangements of hogs or other types of 
livestock. A few studies have surveyed hog market participants to learn 
why they entered into alternative marketing arrangements. Studies have 
not examined the role of wholesalers and retailers in alternative 
marketing arrangements, nor such critical issues as the long-run 
effects of alternative marketing arrangements on prices, efficiencies, 
and other economic and market factors.
    We intend to address these issues in the livestock and meat 
marketing study described in this Notice. The GIPSA study will serve 
several purposes:
    [sbull] It will give producers better information on which to base 
their decisions about whether to participate in non-traditional 
marketing arrangements and, if so, which types of arrangements are best 
suited to their needs.
    [sbull] It will contribute to better public understanding of the 
role of alternative marketing arrangements, the extent of their use, 
reasons why firms enter into them, and the implications of such 
arrangements.
    [sbull] It will help identify emerging marketing information needs 
of livestock producers and other market participants.
    [sbull] It will make an important contribution to USDA and Congress 
in deciding whether restrictions on use of captive supplies are 
warranted.
    [sbull] It will assist GIPSA in enforcing the Packers and 
Stockyards Act by contributing to the Agency's understanding of 
changing marketing practices and by identifying areas that the Agency 
may need to include in its investigation plans.
    To provide members of the livestock and meat marketing industries 
as well as other interested persons with an opportunity to comment on 
the study, we published this Notice in the Federal Register. We 
encourage all interested persons to submit comments on the plans for 
the study, including its scope and objectives, and methodology; submit 
names and contact information for highly qualified academicians to be 
peer reviewers; and submit names and contact information for 
organizations that may be interested in receiving information to bid on 
the study when we begin the procurement process.

    Authority: Pub. L. 108-7, 117 Stat. 22.


[[Page 32458]]


    Dated: May 27, 2003.
Donna Reifschneider,
Administrator, Grain Inspection, Packers and Stockyards Administration.
[FR Doc. 03-13517 Filed 5-29-03; 8:45 am]
BILLING CODE 3410-EN-P