American Meat Institute Says Ban on Packer Ownership of Livestock "Detrimental to Entire Livestock Sector"

Washington, D.C., April 19, 2007 – “The strength of the livestock marketing system in the U.S. is the flexibility it provides to producers, packers/processors and retailers in responding to market signals and offering increasing variety of alternatives for the producer through to the consumer,” said AMI President J. Patrick Boyle today in written testimony submitted to the Senate Committee on Agriculture, Nutrition and Forestry. Boyle thanked the committee for the opportunity to submit written testimony, but noted the irony of holding a hearing on the issue of livestock industry structure without a single meat packer or processor present to offer verbal testimony or respond to members’ questions. “Holding a hearing on livestock marketing agreements without inviting meat packers or processors to participate is like holding a forum on competitive bicycling without inviting Lance Armstrong,” he said.

Boyle noted that AMI’s support for the many forms of voluntary marketing agreements is supported by the findings of two recently released studies – both mandated by Congress – which affirm AMI’s assessment that these optional agreements are beneficial to producers and consumers alike. “These measures aid a livestock producer’s ability to manage price and weather risks, access credit, and participate in value-added, branded product lines,” he said.

According to Boyle, producer options include: spot market transactions, production contracts, cooperatives, bargaining associations, marketing agreements, and other choices that allow them to align themselves with consumer demands through contractual arrangements to manage risk and produce a desired product. He noted that these agreements are market driven and offer many benefits to those who choose to use them. “We believe that the most appropriate government role in today's livestock marketing system is to enforce the existing laws and regulations that ensure fair and nondiscriminatory business practices among producers and packers, while allowing producers the freedom of choice on how best to market their livestock.”

Boyle told committee members that the many marketing options provide producers the ability to diversify or concentrate their livestock marketing plan to best match their skills, experiences, capital base, or tolerance of weather and price risks. One of the more common reasons producers and packers enter arrangements is to manage price risks to aid in the access of credit and capital, he said. “Producers and packers recognize that managing this volatility is critical to their long-term economic well-being and livelihood. This is true across agriculture, where more than 40 percent of all agricultural goods are produced via contracts or related agreements,” he said.

Boyle noted that these agreements are also benefiting consumers. For example, according to the Bureau of Labor and Statistics, since 1984, ground beef has consistently lagged behind the larger consumer price index increases, thereby, consistently improving the value returned to consumers for their food dollar relative to all other expenditures. Further, the amount of income that consumers spend on all meat and poultry products has shrunk to less than two percent of income. “Attempts to limit packers’ and producers’ abilities to engage in contracts, marketing agreements, and strategic mergers reduce capacity to respond to consumers and pursue economic, social, and environmental goals in rural America,” he said.

Boyle said that the recently completed four year, $4.5 million analysis, “Livestock and Meat Marketing Study,” – conducted by USDA in cooperation with the Department of Justice, the Federal Trade Commission and the Commodity Futures Trading Commission – is the most comprehensive and far reaching study that has ever been conducted on livestock and meat marketing. The report found that contractual, marketing arrangements between livestock producers and meat packers increase the economic efficiency of the cattle, hog, and lamb markets, and that these economic benefits are distributed to consumers, as well as to producers and packers. Conversely, the study concluded that restrictions on the use of these contractual arrangements, such as the legislative proposals that I have previously discussed, would have negative economic effects on livestock producers, meat packers, and consumers.

A second multi-year, Congressionally-mandated report from the bipartisan Antitrust Modernization Commission was released earlier this month. It concludes that “government should not displace free market competition absent extensive careful analysis and strong evidence that a market failure requires the regulation of prices, costs, and entry in place of competition.”

“These are but two recent studies, in a long line of similar studies over the past twenty years that have reached the same conclusions about the legality and vibrancy of the livestock marketing system,” Boyle concluded. “And they have all – every one of them, without exception – reached the same conclusions as the two studies I have sighted in my testimony: That the livestock and meatpacking market is competitive and that current oversight and enforcement are effective.”