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Voluntary checkoff will be more accountable

By John Stencel

Rocky Mountain Farmers Union is pleased with the July 8 U.S. Federal Circuit Court of Appeals decision that the mandatory beef checkoff is not constitutional. It is the second court that has made this ruling.

The plaintiffs, including the Livestock Marketing Association, the Western Organization of Resource Councils and individual producers are to be applauded for taking the issue to court.

Despite Farmers Union’s support of this court ruling, I think the concept of producers joining together to promote their products is a good concept. Rocky Mountain Farmers Union’s Cooperative Development Center is actively involved in assisting producers who wish to band together to jointly process and market their commodities. The difference between a value-added marketing co-op and a checkoff program is that joining a co-op is optional, whereas, paying a commodity checkoff was not.

While “Beef, It’s What’s for Dinner,” celebrities wearing milk mustaches and dancing raisins have raised the awareness of these products to the American consumer, there is little evidence those footing the bill for the promotions—rank and file producers—have benefited financially from the advertising. As I write this column, milk prices are the lowest they have been in nearly three decades. It should be noted that less than a year ago, ice cream makers were exposed for shrinking their half-gallon cartons to smaller sizes, while charging the same price as when the ice cream came in complete half-gallon containers. When asked by consumer groups about the deception, ice cream makers’ only defense was that the price of cream had gone up. Now that milk prices have dropped precipitously, the laws of economics seem to suggest that carton sizes would increase or the price on less-than-a-half-gallon carton of ice cream would go down.

Producer beef prices have strengthened slightly over the past several months, but better prices have much more to do with the ban on Canadian beef than on beef advertising and other promotions.

Most checkoff organizations have produced some very professional promotions and nationwide advertising campaigns. Producers felt good when they saw their products professionally and prominently displayed on national television. Unfortunately, the swell in their breasts was probably the only benefit derived from their investment.

Surveys demonstrate that these campaigns have increased sales of the products advertised. However, what the surveys usually don’t demonstrate is that the increased sales resulted in higher commodity prices paid to producers.

Some checkoff boards have attempted to use supply-demand economic models to demonstrate the difference between actual farm gate prices and what prices would have been had the additional products not been sold to consumers. Given the monopoly control on the United States food processing and marketing system at present, supply and demand economics do not apply. If they did, premium ice cream today would be much lower priced than it was a year ago.

The reality is that prices paid to producers for their commodities have little relation to the grocery shelf price paid by consumers. This, in turn, is the reason commodity checkoffs have succeeded in selling more product but have failed in providing returns to producer investors.

Unfortunately, it took producers two decades to realize this.

The circuit court decision on the beef checkoff will likely result in the dismantling of many, if not all, mandatory producer checkoff programs. It is a good time for producers to have an honest discussion about the future of their industries. I hope the dialog will begin with leaders in our sector examining new promotional structures with different criteria. Who will benefit from the money spent on promotion and how will the program impact the producer’s bottomline should be asked first. Let’s not wait twenty years to ask these crucial questions.