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Dec 16, 2016

Pete Crow

I suppose we had fair warning that we were going to get new Grain Inspection, Packers and Stockyards Administration (GIPSA) changes, otherwise known as the Farmer’s Fair Practices Rules, from the USDA. The cattle industry really isn’t affected all that much by the proposed rules, which have a 60-day comment period to work through. Most observers are calling it just more midnight rule-making from the outgoing administration. The rules are costly, will move livestock marketing backwards and create a panacea for trial lawyers. I just don’t understand why some of the proponents of these rules want to add more costly layers of regulation to the livestock industry.

These rules have the potential to take us back in time, just when the industry has developed functioning supply chains and everyone is focused on producing a better beef product. Then we get these lousy rules that are nothing more than regulation to create work for bureaucrats and lawyers.

How can you say that removing the burden of proving competitive injury is constructive to the livestock industry? If these rules go through, producers will be able to sue livestock dealers and processors at the drop of a hat, on a whim or a hunch.

If you have a contract and can show harm or damages, you can use the existing legal system to resolve the dispute. We don’t need more regs.

GIPSA uses the logic that if a producer is able to seek legal remedies, then their contract is easier to enforce. This will incentivize packers, swine contractors and poultry integrators to avoid exploitation of market power and asymmetric information, as well as behaviors that result in the market failure of hold-up (a chicken thing). The result will be improved efficiency in the livestock and poultry markets. I don’t think this has anything to do with markets and more to do with a perceived lack of fairness.

Informa Economics estimated that the rules would cost $880 million due to efficiency losses and $460 million due to reduced demand caused by a reduction in meat quality resulting from fewer Alternative Marketing Agreements.

The rules would require: poultry and hog dealers to maintain records justifying price differences; prohibit packers from buying livestock from other packers; and require packers to offer the same terms to small producers as they do large producers if they can collectively produce the same volume. Packers will be forbidden from entering into exclusive agreements with livestock dealers, and packers and poultry dealers will be required to submit sample contracts to GIPSA for public posting. What is to be gained in these new regulations?

What will this do for the host of branded products the beef industry offers? Packers routinely contract with feeders for cattle fed and grown under specific protocols. It seems to me that these new rules will create new risk to producers rather than reduce risk. This means that many large feeders would have to end their arrangements with major packers. These regulations aren’t going to improve the market for anyone.

The National Pork Producers Council (NPPC) was quick to comment on the GIPSA rules, calling them an apparent attack on rural America for its role in helping elect Donald Trump as President. They say the proposed rules would lead to consolidation of the livestock industry, put farmers out of business and increase consumer prices. “I can’t imagine a more devastating regulation on an industry,” said Neil Dierks, CEO of the NPPC.

Tracy Bruner at National Cattlemen’s Beef Association said, “If USDA was interested in real solutions rather than increased government regulation, they wouldn’t have rushed these rules out the door at the very close of the administration’s term. Cattlemen and women don’t appreciate Secretary [Tom] Vilsack throwing a grenade in the building as he abandons it.”

Again, it’s political. The have always been controversial and most in the livestock industry don’t want them. The real damaging portion of the rules is the legal aspect where a farmer can sue without showing damages or competitive harm. USDA attempts to define harm but, as usual, the language is quite vague and would be a lawyer’s dream. The industry needs to make some noise for the Trump administration on these rules.— PETE CROW

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