USDAs chief economist says industry costs economically significant

News
Jul 1, 2011

USDA’s chief economist found himself on the spot last Tuesday trying to defend USDA’s controversial livestock marketing rule, which senators argued oversteps USDA’s authority and will cost the livestock industry dearly.

Three major issues were raised repeatedly at a hearing on livestock held by the Senate Agriculture Committee: the USDA livestock marketing rule, ethanol subsidies, and trade agreements.

The livestock marketing rule was proposed a year ago by the Grain Inspection, Packers and Stockyards Administration and is typically called the GIPSA rule.

An extended comment period generated more than 60,000 comments and forced USDA officials to conduct a more extensive cost-benefit analysis.

Agriculture Committee Ranking Member Pat Roberts, R-KS, set the tone early, lashing out at the Environmental Protection Agency and USDA for a regulatory attack on animal agriculture, particularly with the GIPSA rule. Roberts was the first of several senators to quiz USDA Chief Economist Joe Glauber.

“The exact proposals in the proposed rule were debated in the 2008 farm bill and we rejected them all, in some cases by a very substantial vote margin,” Roberts said. “So much for congressional intent.”

A lot of groups have clamored for the analysis. Glauber told senators the study was more complex than normal analysis done by his office. “Much more difficult, particularly in the case of this rule, are the effects of the regulation itself on packers, integrators, et cetera, that is that the regulations could potentially affect the way that they do business,” Glauber said.

Glauber later added that one of the issues related to the analysis was litigation: packers fear they would be sued by livestock producers who do not think they got a fair price for their cattle compared to someone else. Roberts asked if Glauber was trying to quantify the potential costs of litigation.

“A lot of it does hinge on what the perceived risk of litigation is and if that impact affects behavior,” Glauber said.

When asked when the economic analysis would be completed, Glauber said “when the rule is done.”

A major USDA study released during the Bush administration cited the benefits livestock producers receive from marketing agreements.

One of the early problems in releasing the GIPSA rule was that it was not designated as “economically significant” to the industry by the Obama administration. Yet, several privately-funded studies by opponents of the rule cite hundreds of millions, if not billions, of dollars in lost revenue. One study by the packing industry stated potentially 104,000 lost jobs. Glauber said USDA has changed its view and does consider the GIPSA rule economically significant to the industry.

“There is no doubt, particularly with the comments that were raised, (it) would suggest that the rule has a larger impact” than previously thought, Glauber said.

Sen. Mike Johanns, R- NE, a former agriculture secretary, followed up that line of questioning by saying he and Glauber had several conversations in the past about the need for solid economic analysis of proposed rules.

“From my standpoint, certainly looking at the costs, we certainly see this in the comments, in particular that have been raised by the people who have written, show significant costs on the order of billions of dollars, so I think there is no question the designation on this rule will change to be economically significant.”

Johanns tried to get Glauber to say USDA has gone beyond the intent of Congress, though Glauber said he was only focusing on the economic questions.

“I think I know USDA well enough to know there has to be a raging debate going on over whether US- DA has exceeded its authority,” Johanns said.

Agriculture Committee Chairwoman Debbie Stabenow, D-MI, said early in the hearing that she realized a lot of people are concerned about the GIPSA rule and the complexity for different geographical regions, market structures and species.

She said the committee will work with USDA and stake holders “to find a workable solution that doesn’t hinder economic development and innovation.”

Most of the industry witnesses were opposed to the rule as well. Steven Hunt, CEO of U.S. Premium Beef LLC, which owns National Beef, said the rule increases the risks to packers that they will be sued, so premiums and various marketing arrangements will go by the wayside as a result.

“The plain and simple facts are for those of us who have worked hard in the interests of our consumers ... our costs will go up and our risks will go up,” Hunt said.

The key question will be how aggressive proponents of the rule will be in swinging open the gates of litigation, he said.

Still, Dennis Jones, a pork producer from the South Dakota Farmers Union, told senators the rule will help farmers and ranchers ensure transparency and bargaining rights. Jones said the rule was a vastly-needed upgrade to the eight-decadeold Packers and Stockyards Act.

“The rule is more important today than it was 80 years ago,” he said. “The GIPSA rule will reduce litigation in the industry by clarifying” contract agreements.

Ethanol was also raised at the hearing, as livestock producers said corn prices hinge on the ethanol blenders’ credit, import tariff and the Renewable Fuels Standard. Those have combined to hurt margins for producers who can’t afford the high-priced grain. Still, ethanol had its defenders at the hearing as Sen. Charles Grassley, R-IA, told the livestock panel they were misinformed and no one can afford to produce corn at $2.50 a bushel.

Livestock producers also cited the importance of getting pending free-trade agreements (FTAs) passed to expand markets. Senate Finance Committee Chairman Max Baucus, D-MT, also said last Tuesday his committee would hold a “mock” markup last Thurs day on the pending FTAs on Colombia, Panama and South Korea. During the Agriculture hearing, Baucus said those FTAs would boost beef exports. He cautioned, however, that the FTAs won’t pass unless provisions for people who may lose their jobs due to trade— known as Trade Assistance Authority—are part of the FTAs.

“They will pass only if the Trade Assistance Authority is also passed,” Baucus said. “It’s all or nothing.”

U.S. exports of livestock, poultry and dairy products are expected to hit a record $26.5 billion in fiscal-year 2011, up $5 billion from 2010. — Chris Clayton, DTN

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