Needed changes

Dec 17, 2010

The USDA Grain Inspection Packers and Stockyards Administration’s (GIPSA) congressional mandate to make changes to the Packers and Stockyards Act (PSA) appeared to hit a big stalling point last week. Secretary of Agriculture Tom Vilsack announced last week that the agency will perform an extensive cost/benefit analysis on the proposed GIPSA rule changes. This appears to be a drastic about-face from earlier this fall. Congress requested an economic analysis and Vilsack refused the request. Sources told us that Vilsack is now thinking that they will have to pull the proposed rules and rewrite them.

Prior to the announcement, the agency had been pretty quiet on the issue and appeared bent on finalizing the rules regardless of industry sentiment. After the massive change in the House of Representatives in November, it would seem that the political winds have changed drastically and the opportunity for GIPSA Administrator Dudley Butler to impose the rule has hopefully faded. I’m sure he was chomping at the bit to be able to define fairness in the livestock business.

Frankly, this cost/benefit analysis is great news for the folks who oppose the rule change and feel that the rule proposals will place additional regulatory burdens on livestock producers. This new process will, more than likely, take some time to accomplish and could stall any decisions to the point that the next Congress will redefine the farm bill mandate during the coming debate over the next farm bill. It’s a sure bet that Congress will make certain that GIPSA understands their directive next time.

 There is not a shred of evidence that suggests that the proposed rules will add any value to livestock or improve any marketing opportunities. However, there are plenty of reasons to suggest that the additional regulations will add costs to livestock production and processing, which, more than likely, will be paid by producers. 

Congress may want to open up the PSA in the next farm bill for other reasons after the Eastern Livestock Co. debacle showed us how vulnerable the industry can be when a big operator fails. The bonding levels for livestock dealers are remarkably low considering the dollar values many livestock transactions have reached. We have been told that there has been some industry discussion about developing a livestock dealer trust that would insure payments of feeder cattle similar to the Packer Poultry Dealer Trust that is currently mandated by PSA. This trust was bandied about in the late 1970s and early 1980s, the last time PSA was amended.

The Packer Poultry Dealers Trust is a provision that offers an extra level of protection to producers. If a meat packer or a live poultry dealer fails to pay for purchases, the receivables, inventories and proceeds derived from those purchases in cash sales or by poultry growing arrangements become trust assets under the law. These assets are to be held by the meat packer or live poultry dealer for the benefit of all unpaid cash sellers. Cash sellers and contacted poultry growers are legally in a priority payment position in bankruptcy or in claims against trust assets in the event of a business failure.

The PSA may need some adjustments, but certainly not for perceived competition, fairness and contracting reasons. Assuring payment to livestock producers is a greater issue than providing producers with the ability to file a competition lawsuit with out any real proof of harm. The proposed GIPSA rules could have been called the Dudley Butler Supplemental Income Act. The rules, if approved,  would certainly make Butler the go-to guy for any lawsuit levied against the meat processing industry after he returns to his private practice where he made his name suing poultry companies. They would also make it much easier for him to do damage to the entire livestock industry.

 The Eastern Livestock debacle was unfortunate and  has left around 750 cattlemen, both large and small, with a major financial crisis on their hands. Some will be forced out of the industry through no fault of their own. The business has changed, and the value of livestock has changed since PSA was last amended.

This may be a bit idealistic, but if the act is opened and amended, it should be done to provide producers with financial protections that won’t add any regulatory burdens to this industry. It can’t be about subjective fairness issues. It will be better if the new bunch of conservative legislators deal with it, I think. I would be expecting a bit more common sense with the 112th Congress than we have experienced recently. I expect them to start acting like rational adults. — PETE CROW