KAYS korner

Jul 2, 2010


Industry´s dangerous divisions

How unfortunate that two issues have again divided the beef industry just when it needs all its focus on improving demand and making beef affordable to Americans. The two issues are the attempt by the National Cattlemen’s Beef Association (NCBA) to revamp its governance structure and USDA’s proposed rule on fairness in the marketing of livestock and poultry.

Both issues have been widely reported on in recent weeks, so I won’t repeat the details. But it’s apparent that both issues reflect the chasm between those people that somehow feel “disadvantaged” and the rest of the industry. It’s no coincidence that some of the groups that expressed disquiet about NCBA’s plan also lobbied USDA strongly over the marketing fairness issue. One of the industry’s strengths is its diversity, especially at the production level. But it is also its greatest weakness. Reaching consensus on important industry issues among various state and national producer groups is sometimes next to impossible.

In this context, some issues never die. This is the crux of people’s concerns about NCBA’s closeness to the beef checkoff. These concerns reveal that the deep wounds inflicted over the merger in 1996 of the National Cattlemen’s Association and the National Live Stock and Meat Board never really healed. These wounds reopened in an unsuccessful bid to declare the checkoff unconstitutional. NCBA has now inadvertently rubbed further salt into the wounds with its governance plan.

Polls indicate that a majority of cattle producers consistently support the checkoff. But quite a few are unhappy that NCBA, as the largest producer group, is too close to the bodies that administer the checkoff and decide how the money is spent. It doesn’t help that NCBA wins the lion’s share of checkoff dollars. But it has the staff to conduct the work and other industry groups often choose not to contract for projects.

NCBA took to heart concerns expressed in March by six groups and in May by USDA. It unveiled in early June three big changes to its proposed governance plan that attempted to lay the concerns to rest. But this wasn’t enough. The executive committee of the Cattlemen´s Beef Board now says it wants even more separation between it and NCBA. The latter’s response the week before last was to suspend its plan to change its governance.

As the issue began to heat up a few weeks ago, I asked several prominent retired industry officials whether they thought a “de-merger” of NCBA and the old Meat Board might occur. They all ruled it out. Now it appears a strong possibility. There’s a precedent for such action. USDA ordered the National Pork Producers Council (NPPC) to become entirely separate from the National Pork Board (which administers the pork checkoff).

NPPC went from having a large staff to having a handful, as most of its staff transferred to the Pork Board.

NCBA might well be facing that reality.

As for USDA’s proposed rule, I can’t imagine the department sought any input from mainstream livestock or poultry groups. They all would have told USDA there was ample legal protection for producers and growers, and that the marketing practices that USDA was looking to restrict or prohibit have been widely used for years. They would have told USDA that disputes over poultry contracts have been thoroughly tested in the courts.

A read of USDA’s proposal also suggests it ignored numerous studies costing millions of dollars, including its own massive study, that address cattle industry concerns over packer concentration and competition, socalled captive supply, marketing agreements, price transparency and so on.

Even worse, USDA justified its proposed sweeping restrictions by citing several unsubstantiated concerns about standard marketing practices. I’ve never seen a weaker justification for a federal government agency to restrict how an industry does business. USDA should be required to provide factual evidence of these concerns, and allow all parties that might have been involved to present their view of what took place.

Supporters of USDA’s proposals are jubilant. But if they believe further restrictions will lead to higher prices for their livestock, they are sadly mistaken. These same people, especially in the cattle business, thought mandatory price reporting would uncover all kinds of secret deals between feedlots and packers, and mean higher prices for their livestock. Nothing of the kind occurred. Livestock prices are largely determined by supply and demand fundamentals. Cattle supplies are currently tight. That’s why fed cattle prices are currently above $90 per cwt.

That’s why calf and yearling prices are so much higher than last year. If USDA had listened to economic, not just emotive arguments, it would have found no need to publish its proposed rule.

By far the biggest issue facing the beef industry in the past 30 years has been beef demand. The industry made great strides to stabilize and then improve demand, starting in the late 1990s. This was partly due to effective use of beef checkoff dollars. The Great Recession has again knocked the stuffing out of demand. It will take all the industry’s energy to strengthen demand, at the same time keeping beef competitive with pork and chicken. These other proteins are the industry’s real enemy. Yet the industry once again has become divided over issues that should have been laid to rest years ago. — Steve Kay

(Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)