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Packer ownership raises beef producers’ emotions

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Published: February 21, 2002

DENVER, Colo. – The debate over whether packers should be allowed to

own livestock turned emotional during the National Cattlemen’s Beef

Association convention.

In the middle of the debate was a Senate amendment to the U.S. farm

bill that would prohibit packers from owning cattle for more than 14

days before slaughter.

The real issue, however, may be consolidation among packers, in which

four major firms control 80 percent of the nation’s kill.

“Banning packers from owning cattle or feeding cattle will not stop

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concentration,” said Keith Bales of Montana, who presented the

resolution calling for a study.

“The feeders have gone through a blood bath since Sept. 11. Do they

have the money to buy the cattle the packers are buying?” he asked.

“We should not endorse an amendment that was never discussed or known

about until it hit the floor of the Senate.”

NCBA policy adviser Chandler Keys said the issue was not debated well

in Congress. Support for the amendment could lead to other problems

later.

“You should not take this lightly. This is about whether you want the

federal government involved in your business on the marketing side,” he

told the feeder council meeting during the convention.

“It is very easy for the federal government to get into your business.

It is very difficult to get them out.”

Cattle producers who support senator Tim Johnson’s amendment fear their

industry could go the way of the chicken business, where large

processors own and contract the bird production from conception to

consumer. A similar situation is evolving in the hog industry.

Others said the ownership issue could kill the progress made in

value-based marketing arrangements and contracts set up between packers

and producers.

According to the U.S. Department of Agriculture’s marketing service,

packers own six percent of the available cattle. Forward contracts

account for four percent of the total, 37 percent are sold through

negotiated live sales and 53 percent are sold through a formula

agreement.

“Captive supply statistics are sometimes viewed with misperception,”

said John Van Dyke of the agricultural marketing service.

A producer may have an agreement with a packer through a value-added

contract, but the producer still owns the cattle.

These agreements can be confusing for those attempting to learn the

cash value of their live cattle.

Joann Waterfield of the Packers and Stockyards Administration said the

law permits packers to enter alliances, offer grid pricing or feeding

arrangements.

Part of the debate is linked to different opinions over definitions.

For example, it’s not clear what captive supply means.

Under this system, packers know what they are to receive in advance of

slaughter.

“It is very important that when we start talking about captive

supplies, that we are talking about the same thing,” she said.

Economist Wayne Purcell of Virginia Tech university said a ban on

packer ownership is not going to improve prices paid to primary

producers.

Heavier packer interest in partnerships has led to the development of

490 new beef products in the retail meat case in less than 10 years.

This value-added impetus is credited for the increased beef demand of

the last two years.

Another voice against the legislation came from lender Gordon Arnold of

Rabobank International.

The company finances six of the 15 major feedlots in the U.S. and is

involved with five of the top packers.

He said eliminating packers as owners could cause a drain on equity

within the cattle industry.

About $300 million US in equity would have to be replaced if they

pulled out. Feeders would have to come up with that money, which could

be difficult during a period of near-record losses for that sector.

“When you take that large chunk out of the market, you’re going to

create volatility,” he said.

In the end, cattle producers requested further study of the issue.

About the author

Barbara Duckworth

Barbara Duckworth

Barbara Duckworth has covered many livestock shows and conferences across the continent since 1988. Duckworth had graduated from Lethbridge College’s journalism program in 1974, later earning a degree in communications from the University of Calgary. Duckworth won many awards from the Canadian Farm Writers Association, American Agricultural Editors Association, the North American Agricultural Journalists and the International Agriculture Journalists Association.

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