WORC comments to USDA and DOJ
December 30, 2009
The Western Organization of Resource
Councils (WORC) is a regional network of seven grassroots community
organizations that include 10,000 members and 45 local chapters in
Colorado, Idaho, Montana,
North Dakota, Oregon, South Dakota, and
Wyoming. WORC members are farmers, ranchers,
other working people, and consumers.
Our members and their communities are all negatively impacted by a
concentrated livestock industry.
WORC would like to thank you for the
opportunity to comment about these very important workshops you will be holding
throughout the spring and summer of 2010.
The following are the main concerns we have about concentration in the
livestock industry. We have also
provided solutions for you to consider as you move forward in this
We also look forward to working with you as
you develop these workshops and their scope more fully and are available to
answer any questions you may have or provide additional information. For more information, please contact
Jeri Lynn Bakken, WORC’s Regional Organizer for Agricultural Issues at
701-376-3333 or by email at firstname.lastname@example.org.
Brief History of the WORC Rule, 1989-2009:
In 1989, WORC organized our
members and ranchers across the country to bring national attention to the
problems of captive supplies.
Captive supplies are 1) cattle and hogs that packers actually own in
feedlots and confinements and 2) cattle and hogs the packers procure through
In the past 20 years, WORC
leaders and our allies moved diligently forward seeking administrative and
legislative remedies to this price manipulation that drives producers out of
business and in turn destroys their rural communities.
Since bringing the issue forward,
WORC leaders have had dozens of meetings with the U.S. Department of Justice
(DOJ) and the U.S. Department of Agriculture (USDA) seeking enforcement of the
Packers and Stockyards Act (P&SA).
In 1996 WORC submitted a Petition for Rulemaking to USDA with the
endorsement of over 100 state and national organizations. The proposed rule was then published in
the Federal Register in 1997 and became known as the “WORC Rule.” However, no
action has been taken by USDA and 12 years later, WORC’s Petition for Rulemaking
remains on the Agriculture Secretary’s desk awaiting action.
WORC’s Petition for rulemaking
would amend the P&S Act to
prohibit packers from procuring cattle for slaughter through the
use of a forward contract, unless the contract contains a firm base price that
can be equated to a fixed dollar amount on the day the contract is signed and
the forward contract is offered or bid in an open, public manner and;
prohibit packers from owning and feeding cattle, unless the cattle
are sold for slaughter in an open, public market.
A copy of that petition for
rulemaking is attached.
Unfortunately, in the past 12
years, no action has been taken to stop the concentration and market power of
the top four multi-national meat packers.
The problems faced by producers have worsened as the livestock sector of
the food industry have become even more concentrated and prices further
A Brief History of Packer Concentration
1921 to today:
When the P&SA was implemented
in 1921, five companies controlled about 75% of all interstate slaughter of
cattle. At this time,
forward-thinking congressmen saw the problems created when only a few companies
controlled so much of the market share, and implemented the most comprehensive
anti-trust legislation ever enacted in the United
However, throughout the nearly 90
years since its passage, federal agencies in Washington have not enforced the law as
intended. This has resulted in a packer cartel of today exceeding concentration
levels of those when the law was enacted.
The last comprehensive study of
concentration numbers in agriculture was issued in 2007 by Dr. Bill Heffernan
and Dr. Mary Hendricks of Missouri State University. Their study reported a four firm
concentration of 83.5% in 2005. At
that time the top four firms included, in order, Tyson, Cargill, Swift & Co.
and National Beef. In the four
short years since that study, one new packer to the country, JBS, based out of
Brazil, has acquired Swift & Co.
making them the largest livestock packer in the country and the world. This purchase bumped the concentration
numbers up significantly.
Today, we believe the four
multi-national meat packers slaughter and process nearly 90% of the heifers and
steers sold for slaughter. Unfortunately, that concentration number
cannot be reported more accurately, because of the lack of transparency in
Just this year, DOJ stopped the
purchase of the third largest meat packer, National Beef, by JBS. This was a relief to the livestock
producers who are desperately looking for a move towards more competition in the
marketplace. However, DOJ did allow
JBS to purchase the largest cattle feedlot in the U.S.,
giving them even more captive supply power over cattle producers.
It is clear that such a
concentrated market system cannot work for the cow/calf producer. It is no surprise that the fewer packers
there are to procure cattle, the more control they have over the markets and the
greater their ability to drive down prices through captive supplies. In such a concentrated market, buyers
(the packers) can—and do—use captive supplies to manipulate markets.
The Problem of Captive
Meat packers acquire 50% to 100%
of all cattle and hogs they slaughter through captive supplies. Captive supplies
are livestock that packers own or control through contracts with farmers,
ranchers and feedlot owners. By calling on captive supplies to fill slaughter
needs, packers do not have to bid for cattle in an open, public manner. A false
period of low demand is created and prices are driven even lower.
The use of captive supplies in a
highly concentrated market has led to uncompetitive conditions in the markets
for fed cattle. The dysfunctional
nature of today’s cattle markets is made evident by extremely thin cash markets;
small market windows; a failure to reward quality in production; and the lack of
innovation in the meat processing industry, as well as lowering safety
Contracting cattle for future
delivery, in itself, can be a good thing. However, packers are using a contract
method known as “formula pricing” in which feeders are enticed to contract their
cattle basing the contract price on the cash market on a delivery date, rather than a firm bid
price. For example, a packer might offer the feeder 50 cents per hundred-weight
over the cash market price on the day of delivery. Meanwhile, packers have
enough cattle committed through captive supply so they do not need to buy on the
cash market, driving down the cash price more than the premium offered the
The first part of the solution is
for the Secretary of Agriculture to adopt the WORC Rule, a move which will
benefit the department, the public and the economy.
The WORC rule would provide an open
public market with true price transparency that would benefit all buyers and
sellers in the market. It would
provide the opportunity for smaller producers and packers to benefit and compete
for forward contracts, while they may otherwise be blocked from the market by
the large packers and feeders. The
rule could encourage more value-based pricing by affording more producers the
opportunity to participate in publicly traded contracts, which are likely to
include grade quality and other value-based premiums. The rule would allow forward contracting
to continue, a practice that packers argue is necessary in order to coordinate
In this time of economic struggle
for family farmers and ranchers, their communities and our country, it is vital
that the solutions we provide be economically feasible. This rule would ensure that packers
cannot pay discriminatory prices or give undue preferences to one producer of
like quality cattle over another.
It eliminates the potential of the use of captive supplies by packers to
manipulate prices, without prohibiting the use of forward contracts or marketing
agreements. This rule effectively increases buyer competition in fed cattle
markets without resorting to breaking up the packers through forced divestiture
while increasing the number of buyers.
And it eliminates the price-manipulative effect of imported, captive
cattle from Canada and other countries, since
both imported and domestic cattle under contracts would be acquired only through
open public markets, without banning or restricting imports.
USDA would benefit on a number of
levels. By requiring open, public
markets the agency can more easily prevent price discrimination and identify
undue preference violation, instead of using expensive and intrusive
case-by-case investigation of individual contracts after the fact. The rule would also provide the industry
with a clear statement of policy with regard to captive supplies, while
affording the packers the information necessary to ensure their own compliance
without huge expenditures of USDA resources in monitoring and investigating all
captive supply procurement transactions.
It would reduce the time and resources USDA expends on monitoring and
reporting cattle prices and captive supply information. Finally, adoption of the WORC the rule
would provide incentives for the development of private electronic markets for
cattle trading. As greater numbers
of cattle are traded through such markets, timely captive supply and price
information will become accessible to both buyers and sellers of cattle at all
Overall this rule would solve the
problems of price discrimination and provide price transparency so desperately
needed in our livestock and other agriculture markets today.
The second part of the solution
lies within the Department of Justice.
In 20 short years, we have seen
the four-firm concentration in steer and heifer slaughter increased from about
35% to nearly 90%. Many of the same
companies like Tyson, Cargill/Excel, and most recently JBS have excessive market
power in a number of different agricultural sectors. This results in an even more
concentrated food system, harming not only farmers and ranchers, but consumers
Traditionally, the DOJ has
reviewed these mergers on a case by case basis, looking at the impact to
consumers and the immediate sector of agriculture of the merging companies. The rapid rate of consolidation in all
agriculture sectors has moved more quickly than the government’s ability to
adjust laws and regulations to address these new problems.
Therefore, WORC requests a
moratorium on any mergers and acquisitions by any companies with four-firm
concentration of 50% or greater in any agricultural sector until the laws and
regulations can be adequately updated to meet the needs of a changing climate in
corporate agriculture and the agency has the resources in place to enforce those
laws and rules.
Furthermore, both USDA and DOJ
should consider the following criteria when determining new laws and regulations
to ensure a competitive marketplace.
Evaluate whether common practices developed over the years by packers
and poultry processors have the potential to create undue preferences violating
the Packers and Stockyards Act and/or are an antitrust violation;
Establish detailed and specific criteria to ensure that under certain
factual scenarios a finding of a violation will be made;
Develop separate criteria addressing each
sector of the poultry, hog and cattle industries; and
Create different sets of criteria for
analyzing different aspects of the relationships between packers/processors and
livestock producers/poultry growers.
would like you to consider a number of experts and ranchers to address these
issues at the workshop to be held in Ft. Collins, Colorado.
Lynn Hayes—Legal Council at Farmers Legal
Action Group (FLAG)
Dr. Bill Heffernan—Rural Sociologist with
Gilles Stockton—Rancher from Grass Range, MT and long time WORC leader
Dr. Peter Carstenson—Law Professor at the
Dr. Robert Taylor—Agricultural Economist
WORC Livestock Committee Chair
Also submitted on behalf of:
Dakota Rural Action—South Dakota
Northern Plains Resource
Basin Resource Council—Wyoming