July 29, 2011
This week Representative Cynthia Lummis (R-WY) introduced the Livestock Marketing Fairness Act (H.R. 2631) with Representative Marcy Kaptur (D-OH) as a co-sponsor. The Act is a companion bill to Senate Bill 1026 introduced earlier this year. That bill also had the bipartisan of Senators Mike Enzi (R-WY), Chuck Grassley (D-IA), Tim Johnson (D-SD), and Jon Tester (D-MT) at its introduction.
The bill would prohibit meatpackers from removing live cattle or other livestock from the competitive marketplace without first negotiating a firm base price for the livestock. Increasingly, meatpackers gain an anti-competitive advantage over farmers and ranchers through un-priced formula contracts. These contracts do not include a firm, specific price for the livestock. A large number of livestock are removed from the negotiated or cash markets, which serve as the price discovery market for the entire cattle industry. Ultimately, the prices paid by meatpackers under the un-priced formula contracts reflect the prices offered in these thin open markets. With only a few meatpacking firms controlling much of the processing capacity in the U.S., many farmers and ranchers can be forced to accept the un-priced contracts or lose access to processing facilities.
The Livestock Marketing Fairness Act would:
• Require marketing agreements to have a firm base price derived from an external source. This guarantees that local contract prices are not subject to manipulation by packer-owned herds.
• Require future forward contracts for livestock (cattle, hogs, and lambs) to be traded in public markets where buyers and sellers can witness bids and make their own offers. This openness ensures market competition through multiple offers.
• Exempt producer-owned cooperatives, packers with low volumes, and packers who own only one processing plant from the above requirements. This exemption targets the source of price manipulation. It ensures that the business practices of small family-owned processors, which are not conducive to manipulating prices, are not impacted by the law.
• Guarantee that trading is done in quantities that provide market access for both small and large livestock producers.
Categories: Competition & Anti-trust