Market Crisis

21 Mar 2017

By Victoria G. Myers
Progressive Farmer Senior Editor

Imagine that all beef calves are exactly the same. There are no incentives for better carcass quality. No reasons to precondition. No specialty programs for people who want grass-fed or natural beef products.

It's one possible outcome for the beef industry, under the "Farmer Fair Practices Rules" being considered by the USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA). A comment period on this rule ends March 24, and the effective date for the interim final rule stands at April 22.

Will Bentley, a cattle producer from Thomaston, Georgia, and executive vice president of the Georgia Cattlemen's Association, said the rule, which he describes as "misnamed," will actually hurt family farms in a very real way.

"At the cow-calf level we are looking for every premium we can get. If you take away market opportunities, we will get to a situation where vertical integration is the only way to go, because everything will have the same price regardless of quality," Bentley said.

Bentley and others in the industry believe the Farmer Fair Practices Rules will essentially pervert a system of premiums, making everything from genetic improvement to simple preconditioning programs inconsequential in the eyes of buyers, from a price standpoint.

Under the rule, "competitive injury" and "likelihood of competitive injury" are re-defined and made broad enough that accusations, without economic proof, will give any individual the right to bring a lawsuit against a buyer. In other words, one cattle producer, paid less for his cattle than another, could bring litigation against the buyer. The logical response of the buyer would be to pay everyone the same to avoid possible litigation.

In a discussion of comments to the proposed rule the agency acknowledged and addressed this likelihood: "An initial increase in litigation costs is a likely result of this rule, as the industry and the courts are setting precedents for the interpretation ..."

The agency contends, however, the new rule would not prevent packers from offering quality incentives to hog or cattle feeders, and any vertical coordination among feeders and producers would be outside GIPSA's jurisdiction.

Don Close, Rabobank vice president for animal proteins, said implementation of this rule would create a very difficult situation for the beef industry, and is "counter intuitive to progress in the markets."

"We are hesitant to think it will ever be passed, but it is out there and it will be a real concern until a decision is made. It takes the burden away from an individual to prove damage to the industry, and not just damage to one individual."

The logical outcome of this rule, should it be implemented, added Close, would be a greatly damaged marketplace in terms of quality.

"We've seen the percentage of choice and prime beef in the last 10 years climb 26%. We cannot abandon all we've gained."

One program focused on selling that premium beef is Top Dollar Angus, where general manager Kenny Stauffer told DTN they are watching GIPSA closely to see what happens with this new rule. He stressed not only would the rule hinder marketing groups like his, but also those aimed at creating niche or value-added markets.

"Natural, organic, health certification programs ... they would all be gone if this is implemented. There is no need for value added in this scenario. If one person feels a packer paid more for his neighbor's cattle than his cattle, he can sue for discrimination. Packers have threatened if this goes through there will be no more grid premiums, and they will eliminate value-added programs and the premiums that go with those. They aren't willing to be sued over this."

Within five years, Stauffer believes this rule could cripple the beef industry and all that producers have worked to achieve.

"Think about it. If every animal is worth the same, who would spend money to improve genetics, or even precondition their calves?"

(SK)