AMI sees a “lot to dislike” in proposed new livestock rules

Oct 15, 2010

An attorney for the American Meat Institute (AMI) says the proposed new livestock marketing rule by USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) is, “at its core,” not about competition in the packing industry but about a segment of livestock producers who want to limit the marketing and selling arrangements other producers can use.

“I think the goal of this is for some producers to eliminate the ability of their competitors to sell their livestock” the way they want to, said Mark Dopp, senior vice president of regulatory affairs and general counsel for AMI.

Marketing agreements between producers and packers are going to go away because of fear of litigation, Dopp said. Not only could lawsuits be brought by producers who don’t get contracts, but also those who are unhappy with the cash markets and blame those prices on contracts between packers and other producers, Dopp said.

“They are going to say you are depressing prices,” Dopp said. “A case can be brought by somebody who has nothing to do with an arrangement. What are you going to do as a packer? You are going to stop using those arrangements.”

Dopp, who has served in his current role at AMI since 1999, has a long history of working on packer issues in livestock cases. He also served as an attorney for USDA’s Office of General Counsel in the 1980s. A lot to dislike in rules From Dopp’s view, there is a lot to dislike in the livestock rules proposed last month by GIPSA, but one main grievance is GIPSA’s attempt “to do a regulatory end-run” around the precedents of eight federal courts of appeals regarding whether a plaintiff has to show “injury to competition” for a Packers and Stockyards case.

USDA has long held that a producer need not show harm to competition, but federal judges have looked at the issue and consistently ruled that a plaintiff must show such harm.

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“It´s actually going to end up with less competition at some of these auction barns if that goes into effect.”

“I understand that has been their position, but it has been rejected by eight different appellate courts going back to before the first Bush administration,” Dopp said.

Most recently, the 6thCir cuit Court of Appeals in May ruled that a Tennessee poultry producer had failed to show harm to competition in a lawsuit against Tyson Foods. One of the key statements in that ruling was that “a tide has become a tidal wave” in listing consistency of federal rulings on the issue. Dopp said that happened six weeks before USDA issued its proposed rule, yet the case wasn’t cited in the Federal Register preamble to the rule.

“It doesn’t make sense,” Dopp said. “Our system of government isn’t structured so the executive branch can ignore what the courts have said.”

USDA also has either participated as a party in some of the earlier cases or through filing friend-of-thecourt briefs in some of the most recent cases, Dopp said. “And in every case, the court has rejected their position, so if something needs to be changed, it ought to be changed by the Congress. It shouldn’t be done by bureaucratic fiat.”

Could affect cases against packers If a plaintiff no longer has to show injury to competition, then producers who largely sell on the cash market also could much more easily bring cases against packers over marketing agreements with other livestock producers. That was at the crux of the Pickett vs. Tyson case, a $1.2 billion jury verdict overturned by the district judge. What happens without the harmto-competition clause?

“Well, in that circumstance, then one could make a pretty good argument that Pickett would have won the case,” Dopp said, “which means those marketing agreements that Tyson has with a whole host of producers, who I might add voluntarily enter into them ... If you are a company exposed to the kind of damages levied in Pickett to the tune of $1.2 billion, what are you going to do if you’re a company? You’re going to stop using them.”

Dopp said producers compete and market to get the best price. But producers who don’t like agreements and want packers to buy on-the-spot market are limiting the marketing options of other producers, he said.

“They are limiting their competitors to the way they want to do things,” Dopp said. Questions if more transparency Further, Dopp questions the idea there will be more transparency. A packer may have several reasons for offering a better price. The rule describes a packer having to show revenue cost and justification. “How do you expect that to be done perfectly, every day, day-in, dayout?” he asked.

Dopp said the rules could expose a packer to a lawsuit if the packer has a dozen guys out in the country who buy cattle on a given day, and one feeder negotiates a better deal for his cattle than other feeders, or has invested more in genetics and quality. There will be no dealing, he said. “There’s going to be one price. Here it is. Here’s the formula.”

Dopp noted members of National Cattlemen’s Beef Association and National Pork Producers Council— who are more supportive of packer-producer contracts— are unhappy over the proposed rule. “That should tell you something. This isn’t just the packers who think it’s a bad idea. You have got a lot of people in the producer community who think

it’s a bad idea, too.” Proposal to ban packer-to-packer sales Another area in the rule that Dopp thinks is ill-conceived is the proposal to ban packer-to-packer sales. Dopp pointed to one smaller packer in Washington state who also owns a Kansas feedlot. It doesn’t make sense for that packer to have to ship its Kansas cattle all the way back to the Pacific Northwest. Further, several hog producers also own packing plants in St. Joseph, MO. Those producers could be prevented from selling their hogs to other packers as well.

“And what do you do about cull animals? Cull sows that Smithfield, Seaboard or anyone who owns some of their own animals, they sell those cull sows ... Seaboard and Smithfield don’t kill sows, it’s the Bob Evans, the Odoms the Johnsonvilles that kill cull sows and make whole-hog sausage. Well, now they can’t do that.”

Instead, packers would have to sell to third parties, who then in turn could sell to the other packer-processors, Dopp said. That introduces inefficiency into the system. “All you are doing is introducing a middle man that didn’t have to be there ... You gotta say, what’s the point?” Another provision would also prevent someone from buying for more than one packer. Dopp said every packer can’t afford to send someone to every sale barn across the country. So some buyer-dealers will lose business and a lot of sale barns could have fewer selling options, he said.

“It’s actually going to end up with less competition at some of these auction barns if that goes into effect.” — Chris Clayton, DTN