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Ranchers call for immediate steps to limit captive supply

DENVER>>Farmers Union and other representatives of independent livestock producers pressed their call for new restrictions over meatpacker control of live animal supplies during a U.S. Department of Agriculture-sponsored forum here Thursday.

“A prohibition on captive supply would require processors to be active bidders on the open market,” said Dave Carter, president of the Rocky Mountain Farmers Union. “Prohibiting packer-ownership would send the correct market signals to producers and allow the market price to fluctuate according to supply and demand.”

Carter, who participated on behalf of the National Farmers Union, joined with representatives from other rural organizations to call upon Agriculture Secretary Dan Glickman to implement new federal rules that would sharply limit the ability of packers to own or otherwise control supplies of live animals. Agriculture Secretary Dan Glickman called the hearing in response to ongoing pressure by ranchers to implement new regulations to limit “captive supplies” and other practices utilized by the large packing companies.

“Concentration in the livestock market is not the result of inevitable market forces,” said Shane Kolb of the Western Organization of Resource Councils (WORC). “The use of captive supplies has led to uncompetitive markets.”

A formal petition filed by WORC three years ago was the catalyst for the Thursday forum. That petition requested that the USDA’s Grain Packers & Stockyards Administration implement a formal federal regulation that would prohibit meatpacking companies to own live cattle supplies. The proposal would also limit the ability of packers to utilize certain types of forward contract practices to procure supplies from producers.

The Department of Agriculture has the ability to implement such a rule under the provisions of the Packers & Stockyards Act of 1921. USDA Marketing Undersecretary Michael Dunn, who presided over the Denver forum, stressed that the agency has received insufficient data necessary to implement the proposed rule.

“I have heard a lot of anecdotal concerns. I have heard a lot of emotional concerns. But the Secretary (of Agriculture) needs to hear hard, cold facts,” Dunn told forum presenters at the outset of the hearing.

Representatives of ranching and farming organizations cited several studies to support claims for the proposed rulemaking.

Carter cited an ongoing study that had tracked a correlation between high utilization of captive supplies and lower market prices. That study was based upon a rolling four-week average price tabulated since January 1994.

“Packer feeding has resulted in independent producers being relegated to the role of a residual supplier. In addition, formula contract with prices pegged to the day of delivery are susceptible to manipulation when there are thin markets of cash cattle.”

Carter noted that packer-owned cattle and livestock sold under formula contracts account for more than 90 percent of the weekly supply in major feeding regions.

George Hall, president of the National Cattlemen’s Beef Association, disputed the negative impact of captive supply, saying, “Repeated investigations by Packers & Stockyards, and by the Justice Department, have not uncovered any illegal antitrust practices. Change in the beef industry, like the rest of industry, is a reality.”

Dr. Wayne Purcell, an agricultural economist from Virginia Tech, said the meat packing industry has turned to captive supply techniques to address “a failed price discovery system.” He said packer ownership of cattle and formula contract acquisition practices allow the large companies to control costs, reduce risks, and to value beneficial market traits.” Carter noted that industry consolidation has not resulted in more benefits to consumers. Citing the historic consolidation in the poultry industry, Carter pointed out that many large retail outlets now carry no more than two brands of fresh poultry. “That same trend is underway in the beef industry,” he said.