Cattle producers’ beef

By Dave Carter

Traveling by commercial airline became a major effort this summer.

Flight delays and cancellations stranded thousands of travelers across the country over the past few months. The situation grew so bad that U.S. Sen. Wayne Allard, R-Colo., recommended immediate action to break up the regional monopolies within the airline industry. Sen. Allard noted that the industry consolidation has left travelers with fewer and fewer alternatives when it comes to traveling by air.

He’s right, of course. Travel plans are at risk as the airline industry consolidates into a centralized system dominated by a few large carriers flying into a handful of hubs. Too many people, including a few U.S. Senators have been stranded at the boarding gate by cancelled flights.

The airline industry isn’t unique.

Consolidation in the airline industry bears a grim resemblance to the trend lines within the beef industry over the past three decades.

Beef packing, for example, has consolidated into a few processing hubs such as Greeley and Garden City, Kansas. The large “carriers” — IBP, ConAgra and Excel –dominate those hubs. Independent producers, meanwhile, are the stranded travelers simply trying to catch a ride. These independent cattle producers increasingly find themselves stuck at the boarding gate by the packers’ use of captive supplies. In short, captive supply refers to cattle that are either owned or otherwise controlled by the packing company at least two weeks prior to slaughter. Packers will draw on their own supplies first, thus leaving the independent rancher and feeder at the back of the line.

Pressure has been mounting on the U.S. Department of Agriculture (USDA) for the past several years to address the anticompetitive impact of captive supplies. In 1997, the Western Organization of Resource Councils filed a formal petition asking the Secretary of Agriculture to utilize his authority under the Packers & Stockyards Act to severely limit the use of captive supply by the major packing companies. Nearly 1,700 public comments urged the Secretary to implement that petition.

After three years of inaction on the petition, the USDA conducted a forum in Denver in September to gather evidence regarding the issue of captive supply. According to the officials conducting the forum, USDA is still looking for “empirical evidence” documenting the problem of captive supplies.

Ranchers and feeders know that captive supply is a major problem. They know it because they have been pushed to the end of the line when the packing companies process their captive supplies. They know it because they call up the livestock reporting services, only to be informed that 92 percent of the cattle moving through the region in a given week are “formula” cattle. They know it because they experience the declines in the cash market prices in the weeks when captive supply percentages are the highest. They know it because they see that competitive cash markets recede as the large packers consolidate their grip on the market.

Missing a flight because of consolidation in the airline industry is a major inconvenience for many travelers. Missing a marketing opportunity because packing plants are processing their own cattle is more than a major inconvenience for producers; it can mean the difference between profit and loss.

Livestock producers have waited patiently as federal regulators have “watched” and “monitored” and “studied” concentration throughout the livestock sector. That patience is wearing thin.

It’s time to act. Between now and the end of the year, the Secretary of Agriculture should utilize his authority to limit packers’ use of captive supply. Then, when Congress convenes next year, lawmakers must begin to develop additional enforcement tools to preserve the competitive markets now being lost as the food processing and marketing industry consolidates.

Independent poultry producers were left behind three decades ago as the chicken business consolidated around Tyson, Purdue, and a few other processors. More recently, independent pork producers were stranded this past decade when the industry compressed into the dominant players of Smithfield and Seaboard.

Independent cattle producers are now waiting at the gate. And waiting. They cannot wait any longer.