August 24, 2012
This week, USDA issued a Final Rule that requires meatpackers to report information on wholesale pork transactions under the Livestock Mandatory Reporting Act. The rule is set to take effect on January 7, 2013, but USDA will have an additional four months to train meatpackers in meeting the requirements of the reporting program.
As enacted in 1999, the Act established requirements for the mandatory reporting of information on the marketing of cattle, swine, lambs and the products of these livestock. The intent of the Act is to improve the price and supply reporting of USDA, provide marketing information that can be readily understood by producers, and encourage competition in the marketplace for livestock and livestock products.
The 2008 Farm Bill directed the USDA Secretary to conduct a study to determine drawbacks and advantages of requiring mandatory reporting of information on wholesale pork transactions. The report, which recommended inclusion of these transactions under the Act, was delivered to Congress in March 2010. When the Act was reauthorized for an additional five years in September 2010, it included a new directive to USDA to establish a program to require meatpackers to report sales of pork at wholesale to USDA’s Agricultural Marketing Service.
The requirement for wholesale pork price reporting was prompted by an increasingly thin spot market for the sale of hogs by producers to meatpackers. By early 2010, the percent of hogs sold to meatpackers on the spot market had fallen to 5-7 percent. Approximately 25 percent of hogs were owned and processed by packers in their own plants and 70 percent of hogs were traded between seller and buyer through marketing contracts. The marketing contracts varied in duration and specifications but the transaction price was generally derived by a formula that often was base on the very thin spot market.
The requirement for the reporting of wholesale pork transactions is intended to increase the information on prices for hog producers. The final rule requires that packers submit, on a timely basis, the price of each sale, quantity of the sale, and other characteristics such as the type of sale, description of the item sold, destination, and other information.
This new regulatory provision for the reporting of wholesale pork transactions is an important but modest tool for farmers and ranchers to have price information that helps them gain a level playing field in their dealing with meatpackers. But with meatpacking concentrated into fewer and fewer corporate hands, just having price information is not enough for farmers to negotiate fair prices and terms of production.
In the hog sector, the CR4 concentration ratio, which is the percent of the market controlled by the top four packing firms, was 66 percent in 2007. Generally, when a four-firm ratio reaches 20 percent a market is considered concentrated, 40 percent highly concentrated, and when the ratio reaches 60 percent it is considered likely that firms can exercise considerable market power.
Critically important measures included in the 2008 Farm Bill that can help independent livestock and poultry farmers and those who raise animals under production contracts with poultry processors and meatpackers, are now under attack in the 2012 Farm Bill process. The House Farm Bill, approved by the House Agriculture Committee, includes an anti-farmer, anti-rancher amendment that would strike the the livestock and poultry fair competition and contract reform / provisions included in the 2008 Farm Bill. The language goes as far as to repeal contract reform regulations that USDA finalized and Congress agreed to last year.
NSAC is working to ensure that these provisions are not included in a final Farm Bill. In addition, we seek to the end limitations on full implementation of additional Packers & Stockyards Act regulations that were enacted during the FY2012 appropriations process.
Categories: Competition & Anti-trust, Farm Bill