Meat Industry Should be Permitted to Operate like Other U.S. Businesses

Sioux Falls, SD - Meat packers should be permitted to use the same types of vertical integration and strategic alliances as other American industries, according to the American Meat Institute (AMI). Efforts to ban the ability to own livestock are an unfair intrusion into business practices. AMI Senior Vice President of Legislative and Public Affairs Sara J. Lilygren said the Institute would fight efforts to ban packers’ ability to own and control livestock when she delivered testimony today at a field hearing of the Senate Committee on Judiciary.

Lilygren told the Committee that the business practices of meat packers are governed nationally not only by the Sherman Act, the Clayton Act, the Robinson-Patman Act and the Uniform Commercial Code, but also by the Packers and Stockyards Act, a statute unique to the meat industry that prohibits meat packers from engaging in unfair or deceptive business practices that disadvantage their livestock suppliers.

“To my knowledge, there is no other sector of the U.S. manufacturing or service economy in which the federal government plays such a watchdog role with respect to raw material suppliers. Yet, ironically, as the meat and poultry industry operates with this additional, daily, government oversight of our business transactions with livestock producers, we are here today to discuss whether meat packers should receive additional scrutiny, enforcement or business restrictions in order to protect or benefit livestock producers,” Lilygren said. “While some suggest our laws and enforcement of them are inadequate, I would suggest another theory: perhaps we haven't done a good job of pinpointing some of the real problems and coming up with constructive solutions that benefit everyone.”

Lilygren described how livestock producers have raised and spent hundreds of millions of dollars over the past decade through check off programs designed to build consumer demand for beef and pork. A large part of these efforts has been to send clear signals from the consuming public back to producers, so that producers can deliver the type of livestock that will yield the meat products most in demand.

“These efforts have had many benefits, including improved communications throughout the meat chain among retailers, packers and producers. This, too, has led to vertical integration,” she said.

In order to create the foods people want to buy, meat companies have increased their coordination with livestock producers, retail and foodservice customers. This increased coordination has led to increased vertical integration, which has sometimes included complete or partial ownership of some of each packer’s livestock supply. Two significant positive outcomes of this integration include increased coordination include leaner beef and pork for consumers and improved risk management options for producers.

Working together, meat packers and livestock producers have achieved a an average 27 percent fat reduction in a serving of beef and a 31 percent fat reduction in a serving of pork since the 1980s, she said. Coordination through contracting also has reduced the volatility inherent to farming and ranching, according to Lilygren.

“The benefits to farmers were perhaps most vivid during the hog market crash of 1998, when spot market prices for an unanticipated over-supply of hogs dropped to as low as $9 per cwt. Those hog farmers with contracts had locked into much higher prices for their hogs - generally $35 and more per cwt. - and were protected from the low market prices,” Lilygren said. “Packers with contracts, on the other hand, were obviously paying far over the market value for their hogs at the time. Both parties to the contract, however, benefited from the certainty provided by a steady, consistently priced, contracted supply of hogs.”

Finally, Lilygren noted that vertical integration and coordination throughout the supply, production and distribution chain is a trend throughout many industries and that successful companies like Wal-Mart, Iowa-based Maytag and Winnebago, Home Depot and McDonald’s have proven that the models work. She also noted that the proposed ban on packers’ ability to own livestock would not affect the vertically integrated poultry industry, which will make it more difficult for the meat industry to compete with poultry companies for a share of the consumer’s dollar.

“I hope you can understand why the American Meat Institute strongly opposes efforts that would make it illegal for meat manufacturers to do what the rest of the global business community is doing, which is to form relationships with suppliers of raw materials in order to produce consistent quality, lowest priced products that consumers will buy,” she concluded.

A complete copy of the testimony is available at http:://www.meatami.com.

AMI represents the interests of packers and processors of beef, pork, lamb, veal and turkey products and their suppliers throughout North America. Together, AMI's members produce 95 percent of the beef, pork, lamb and veal products and 70 percent of the turkey products in the U.S. Headquartered in Washington, DC, the Institute provides legislative, regulatory, public relations, technical, scientific and educational services to the industry. Its affiliate, the AMI Foundation, is a separate 501(c)3 organization that conducts research, education and information projects for the industry.