Aug 262010
 
Authors: Robyn Scherer

Livestock producers are facing a giant hurdle, one that could drastically change the beef industry: A new rule proposed by the United State Department of Agricultural (USDA) Grain Inspection, Packers and Stockyards Administration (GIPSA).

The rule would change a couple of keys features in the industry. The first is that this rule would make it easier for cattle producers to sue the packing plants if that producer feels something is unfair.

Right now, packers offer premiums to producers who produce certain characteristics, such as higher quality animals. The rule won’t take away premiums but will certainly scare packers into scaling back.

Packers will have to be able to justify every premium or discount they give. It would be impossible to justify every animal because of the time involved and the cost. This will just open the door for frivolous lawsuits.

This will result in packers potentially giving everyone the same price for cattle, regardless of what they are like. The producer who has good genetics, and who expertly cares for his or her calves, will receive the same price as the person with poor quality and poorly managed animals.

How does that seem fair? If you produce a better product, you should be paid more for it. What do you think BMW would think if the government made a law that said a Kia and a BMW should be sold for the same price because they are both cars? It’s ridiculous.

The second key point relates to the first. If packers are afraid to pay producers for these value-added products, the producers will stop trying to hit that target market. This means that prime steak you love may be harder and harder to find, and will be more expensive.

Another key point is the ban of packer-to-packer sales. A smaller packer in Colorado could not sell their beef to one of the larger packing plants. In this day, it is virtually impossible for a producer to have a calf from birth to processing and market that product to the retail stores because of the time invested and costs involved.

This will increase costs because some animals will have to travel farther, and it’s not the consumers who will see the cost increase but the producers. Feedlots that are located far from their parent company’s processing facilities may shut down, which would result in hundreds of job lost in that area.

This could potentially displace cattle markets in the areas where packers are because they buy beef from local producers to keep the facility running. If they can only process their own beef, they will no longer be able to buy from area producers. This rule will actually hurt the same people it is trying to help.

According to Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF, USA), in a meeting held in Delta on Aug. 2, “In 2009, for every $1 a consumer spent on beef at the grocery store, 43 cents was returned to the producer, compared to about 60 cents in 1990.”

He blamed this decrease in profit on the packers. What he failed to tell people was that a lot of that change is not due to the packers making more money but to the added costs in marketing and advertising, which is on the retailing side.

It’s interesting how people don’t use science anymore to back up facts. According professor Steven Koontz in the Agricultural Economics Department at CSU, “Research shows that the packer-margin, or how much money the packers make on each animal, has stayed stable and are very competitive.”

What this rule does is take away the marketing options that cattle producers have. It takes away the incentives for the innovators: The people who are trying to produce a better animal. It is important that these options exist.

The bottom line is that this ruling is only going to help one group of people make money, and that is the lawyers. The producers will suffer. Agricultural markets are complex and a simple rule change is not going to fix anything. It’s time to let the industry work through this, not the government.

Robyn Scherer is a graduate student studying integrated resource management. Her column appears Fridays in the Collegian. Letters and feedback can be sent to news@collegian.com.

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