KAYS korner

Jun 3, 2011

Another out-of-control agency

Cattle producers know only too well that a federal agency with an activist agenda can wreak a lot of havoc.

Think EPA and CAFO regulations for starters (that’s the Environmental Protection Agency and concentrated animal feeding operations). Think EPA and its absurd proposals on dust. Think EPA and its decision to raise the blending requirement for biofuels in gasoline to 15 percent, and the subsequent impact on corn prices.

Now think of USDA’s GIP- SA (Grain Inspection, Packers & Stockyards Administration) and its proposed rule that would change the way cattle and other livestock are marketed. The rule has its supporters, including Ag Secretary Tom Vilsack. But virtually every mainstream group in the U.S. livestock and meat industry, plus a growing number of members of Congress, think the rule is a terrible overreach and potentially devastating to the industry. An unprecedented 147 members of the House of Representatives, including 25 Democrats, recently urged Vilsack to withdraw the rule.

Until recently, the Justice Department (DOJ) largely left the U.S. meat and poultry industry alone. In fact, it was criticized by some for allowing concentration to occur in the mid-1980s to 1990s in the meatpacking industry. However, DOJ had those critics cheering in October 2008 when it filed a civil antitrust lawsuit to block JBS SA from acquiring National Beef Packing. Rather than fight the suit, JBS terminated the deal the following February.

Now DOJ is showing an absurd kind of overreach similar to that of EPA. It has filed an antitrust lawsuit in federal court in Virginia to undo a sale by Tyson Foods of a small poultry processing plant in the Shenandoah Valley. The plant had lost more than $10 million over the past three years and was operating substantially below capacity. But rather than close the plant and put 500 people out of work, Tyson agreed to sell the plant to George’s, Inc., another poultry processor.

George’s says it bought the plant and felt it could run it profitably because it would be able to share the plant’s costs with a plant George’s has nearby. It even felt it could increase production at the Tyson plant, which would add jobs and benefit chicken growers in the valley. By the way, George’s agreed before the sale was even completed that it would honor all 121 grower contracts entered into by Tyson.

None of this mattered to the antitrust zealots at DOJ. They concluded the sale was illegal, which both companies strongly deny, and was detrimental to local grow ers.

So DOJ filed a lawsuit to undo the sale. Should that happen, it’s almost certain that Tyson would close the plant and 500 jobs would be lost. In addition, contracts with the 121 growers would be terminated. That’s definitely detrimental to the growers, although not in the way DOJ thought.

Another disturbing aspect is that a very small group of growers appears to have convinced DOJ to act against the interests of the majority. George’s says 90 percent of the contract chicken growers connected with the plant support its purchase and are deeply concerned that DOJ’s lawsuit may jeopardize their livelihoods. All this is eerily similar to how a small group of livestock and poultry producers managed to persuade GIPSA to write a proposed rule that threatens an entire industry.

Just like with the GIPSA rule, lawmakers (seven state legislators) have united in attacking DOJ’s action and have urged it to withdraw the suit. Even the Harrisonburg City Council, where the plant is located, has asked DOJ to withdraw it. Meanwhile, a federal judge agreed with a request by George’s to set an early trial date, Aug. 22. It will be interesting to see if DOJ pulls the suit or, conversely, pleads for more time to build its non-existent case.

Either way, DOJ’s actions to date provide a chilling example to all in agriculture of a huge, powerful federal agency abusing its power. I have no idea why DOJ chose to take this action. What kind of message did it want to convey? To me, its action says: “We don’t care about the facts; we don’t care about jobs. We want to flex our judicial muscles.”

Whatever happens regarding the lawsuit, the fact is that it is getting harder and harder to be in business in the U.S. This country was founded on entrepreneurship, hard work, inspiration and a capitalist, free enterprise system that created and continues to create this country’s incredible wealth. However, the federal government, through increasing regulation and over-reaching actions, threatens that wealth rather than nurtures it.

Contrast this with what occurs in Brazil, where the Brazilian National Development Bank (known as BNDES) invests tens of billions of dollars annually in numerous industries, including agriculture. BNDES will soon own 31 percent of JBS SA. That’s a primary reason why JBS is the world’s largest meat and poultry company. The U.S. government, in contrast, seems determined to put people out of business and jobs. — 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.)