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Are we headed for government-run packers?

Free Market Reflections with Steve Dittmer

The more government piles on regulations, the bigger the advantage for bigger operators with deeper pockets leaving smaller operators disadvantaged or driven out of business.

You folks up north might remember when President Obama and the labour unions took over General Motors. People started referring to GM as Government Motors.

Well, we’ve got folks who want to turn our packers into quasi-government packing companies. After all, if the government is going to tell packers how to buy cattle, how many to buy from how many feeders and by what method each week, that’s very close to running the company. And that’s on a packing industry already very heavily regulated.

Packers already have government food safety regs, labour union regs in many plants, reams of data to furnish under the Mandatory Price Reporting law, and myriad reporting rules for publicly traded companies, etc.

There is one thing we know about regulations. The more government piles them on, the bigger the advantage for bigger operators with deeper pockets and the more the smaller operators are disadvantaged or driven out of business. One of the co-sponsors of a bill down here to force packers to buy more cattle on a negotiated cash basis actually cited a “lack of processing facilities” in his state as a reason for piling on more regulation and further hampering processors in their ability to buy cattle and sell beef.

There is no requirement for people who want to run for Congress to have any knowledge of economics and logic.

There are two bills in Congress right now that severely threaten the future of our beef industry. One (Grassley bill) would mandate each plant to buy 50 per cent of its slaughter needs each week via negotiated cash vs. contracting or any type of Alternative Marketing Arrangement (AMA). The other bill would have the government set regional percentage targets that each plant would have to hit on a weekly basis, as well as requiring a minimum number of transactions.

In other words, the government would severely limit the very tools that cattle producers themselves devised, with the help of the packers, to take the beef industry from grading a little over 50 per cent Choice just a few years ago to 80 to 90 per cent Choice and Prime today. Prime alone has gone from one or two per cent of the harvest to eight to 10 per cent, an astonishing 4X jump. Along with that, the consistency and predictability of our beef has become remarkably better.

I don’t think our industry appreciates how lucky we have been. Just in time for the COVID-19 pandemic pushing people to order beef at retail online and from restaurant takeout — all sight unseen — we’ve been in position to deliver the best beef eating experience at any time in history. Our past hard work paid off.

And the government wants to screw that up.

That’s not to say that there isn’t room for price discovery improvement. Part of the justification from members of Congress for interfering and obfuscating is transparency. But some cattle producers, dealing from a disadvantaged position in terms of size and scale, need to do some things themselves to have better information at hand when it comes time to sell finished cattle. Sometimes, it seems the smallest operators who need the most help from a consultant or data group to even the score on moving markets, foretelling the next moves and little edges that can make a difference are the last ones to pay to get that info. CanFax and CattleFax are good sources.

I’ve even suggested smaller operators form groups to consolidate finished cattle to afford marketing help and assemble bigger groups of cattle to attract packer interest.

And one of the most experienced fellows up in your country has a list of recommended refinements for cash and contract specifications as long as your arm. Harvey Dann knows the subtleties and edges that feeders should know if they are selling to packers, who already know well what little things add up.

There are times when feeders want to sell cattle on a negotiated cash basis. Some do it a lot. But they should be allowed to make their own decisions without government interference.

NCBA is working very hard to put something together on a voluntary basis to bolster cash markets and provide better price discovery for AMAs based on cash prices. They are also working hard to gather the support, commitment and information from the packers to make a system work.

The bill introduced by Senator Deb Fischer (R-Neb.) would actually require each packer to report to USDA the number of cattle scheduled to be delivered each day for the next 14 days and USDA to report that data. The bill doesn’t specify but we assume the data published will not have packers’ names attached.

But the last thing I can think of that the government could do better than the private sector was… well, even winning the Second World War happened because private industry shifted over to manufacturing weapons of war, to producing supplies of everything and regular men and women did the work.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

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