The packer lobby is fighting to derail the proposed competition rule (GIPSA rule) issued by the Grain Inspection, Packers and Stockyards Administration (GIPSA). They are making outrageous claims that misrepresent the purpose and effect of the GIPSA rule. Unfortunately, very few people understand how the fed cattle market functions, where it is broken, and why the GIPSA rule is urgently needed as a first step to begin restoring competition to the U.S. cattle industry.
Cattle producers are encouraged to send comments to GIPSA in support of the GIPSA rule, contact their members of Congress to urge them to fully support GIPSA's effort to restore competition, and visit with their members of Congress about the importance of the GIPSA rule while they are in their districts from now until after the election.
What is needed to restore competition to our cattle market is for actual cattle producers to explain in their comments to GIPSA and to members of Congress how the specific provisions in the GIPSA rule will benefit them. To help in this effort, below are the provisions contained in the GIPSA rule along with some ideas you can use to explain how your cattle operation will benefit when the GIPSA rule is finalized. You can use any of these ideas to write your comments to GIPSA and your letters to each of your congressional members (see addresses below).
What the GIPSA rule does and how it benefits U.S. cattle producers:
1. The GIPSA rule clarifies that when a packer engages in unfair, unjustly discriminatory or deceptive practices against a cattle feeder, the cattle feeder can file a complaint with GIPSA to stop the packer's unlawful actions without first having to prove that the packer's actions also harmed the competitiveness of the entire industry (known as "harm to competition").
This provision benefits all cattle producers by preventing packers from forcing cattle feeders out of business one cattle feeder at a time. It prohibits packers from targeting an individual cattle feeder, or a small group of cattle feeders, to make it unprofitable for them to stay in the cattle feeding business. By keeping more cattle feeders in business, cow/calf producers, backgrounders and stockers benefit because they will have more individual cattle feedlots to sell their cattle to when their cattle are ready to feed. .
2. The GIPSA rule prohibits packers from granting their preferred feedlots undue or unreasonable preferences or advantage, such as giving select feedlots more timely access to the slaughtering plant, higher premiums for quality traits, and higher prices for plain cattle.
This provision benefits all cattle producers by preventing packers from consolidating the feedlot sector of our industry, which they are accomplishing by granting preferential treatment to select feedlots. Feedlots receiving preferential treatment can remain profitable while those who do not likely will go out of business. The effect of such preferential treatment (known as "sweetheart deals") is that preferred feedlots grow ever larger while the number of total feedlots decline, thus reducing the number of competitors for feeder cattle. All cattle producers benefit when all feedlots have access to the same prices and terms for similar quality cattle (a level playing field), which will ensure that all feedlots have the same opportunity to remain profitable, thus ensuring there will continue to be numerous buyers for feeder cattle.
3. The GIPSA rule requires packers to maintain records that justify why they paid different prices or offered different terms to different cattle feeders as well as records that explain the market-based reasons premiums and/or discounts were applied to the standard price of cattle.
This provision benefits all cattle producers because it requires packers to make their cattle procurement practices transparent, thus ending the secret deals that packers have with select feedlots that commit hundreds of thousands of cattle to a packer without any disclosure of price or terms. Such transparency will enable GIPSA to determine if the different prices paid and different terms offered to different cattle feeders are market-based (based on quality differences, for example) or if they are based on a packer's unlawful practice of granting preferential treatment to preferred feedlots or discriminating against other feedlots. Such transparency also is necessary to enable GIPSA to determine if a packer's use of premiums and discounts is based on legitimate market forces or if the packer is unlawfully giving more premiums and less discounts to preferred feedlots than are accorded to all other cattle feeders. All cattle producers benefit when the marketplace for fed cattle is sufficiently transparent to ensure that prices, marketing terms, and premiums and discounts are based on legitimate market forces, not on factors such as the granting of preferences or discrimination. Such a properly functioning fed cattle market is important to all producers because the present value of feeder cattle is tied to the expected future value of fed cattle.
4. The GIPSA rule requires packers to submit to GIPSA samples of each unique type of contract or agreement the packers uses to procure cattle (including forward contracts, formula contracts, production contracts or other marketing agreements). GIPSA would then post the sample contracts on its website.
This provision benefits all cattle producers because it improves market transparency by providing information regarding marketing terms and conditions offered by each packer and the type of cattle and the quality traits that each packer is seeking. This information can be used by cattle producers to determine which packer is seeking the type and quality of cattle he/she has to sell, or to make breeding and purchasing decisions so he/she is producing/purchasing the type and quality of cattle likely to be sought after by one or more packers. All cattle producers benefit when available marketing terms and conditions are disclosed and when the sought-after cattle types and quality traits are known long before cattle are ready to market.
5. The GIPSA rule prohibits a packer from selling cattle directly to another packer.
This provision benefits all cattle producers because it prevents packers from obtaining some of their weekly cattle supply needs from each other, thus enabling them to avoid making bids in the fed cattle market when they run short of supplies. Obviously, when packers purchase cattle from another packer (whom also has no desire to cause cattle prices to increase) they avoid creating a demand for cattle in the fed cattle market, which forces fed cattle prices lower and translates into lower prices for feeder cattle. All cattle producers benefit when a packers' only source for cattle is from cattle producers whose economic interest is to maximize the selling price of live cattle.
6. The GIPSA rule prohibits two or more packers from sharing one packer buyer.
This provision benefits all cattle producers because it prohibits two or more packers from eliminating competition by sharing a single packer buyer. This provision corrects the known problem where two or more cow/bull packers joined together to share a singly buyer, a practice that has eliminated competition for cows and bulls in auction yards across the country. All cattle producers that sell cull cows and bulls benefit when packers are required to continue to compete with each other for available slaughter cattle.