Commentary: Battle of the ban

For many congressional watchers, the bill is a non-issue.

Rep. Bruce Braley (D-Iowa), introduced legislation late last month that would make it unlawful for meatpackers to own or feed livestock intended for slaughter. According to Braley’s office, the proposed legislation, offered as an amendment to the Packers and Stockyards Act, is aimed at counteracting the trend of vertical integration in the livestock industry, which he claimed promotes anti-competitive behavior and hurts smaller family farmers and producers in Iowa.

The bill is similar to one introduced in the Senate last month by Iowa’s two senators, Republican Chuck Grassley and Democrat Tom Harkin.

“This bill is about protecting Iowa family farms,” Braley said in a statement. “The increasing consolidation of the meatpacking industry has put downward pressure on livestock prices, which in turn hurts Iowa farmers. Now, meatpackers have been looking toward vertical integration to stifle competition.”

Looking to vertical integration? In case Rep. Braley hasn’t been paying attention, vertical integration is a strategy that every industry has been “looking toward” for at least the last three decades. The question at hand is whether vertical integration has been overall a positive for industry, and whether there is, or ought to be, any limits to its ultimate conclusion: dominant control over an entire industry by a handful of mega-operators.

To be fair, Braley’s bill excludes packers so small they’re not required to participate in the Mandatory Price Reporting Program and exempts farmer-owned co-ops in which the members own, feed or control their own livestock.

More importantly, although I’m no legal expert, the bill appears to exempt forward contracting from the proposed new rules, as well. To quote from the bill:

“It is unlawful for a packer to own or feed livestock directly, through a subsidiary, or through an arrangement that gives the packer operational, managerial, or supervisory control over the livestock, or over the farming operation that produces the livestock, to such an extent that the producer is no longer materially participating in the management of the operation with respect to the production of the livestock.”

Agreeing to a forward contract obligating both parties to a pre-priced, pre-arranged sale doesn’t seem to fall under Braley’s proposed ban, as least as I read it.

That’s critical, because forward contracting has proven to be an important tool for both processors and packers. When earlier congressional efforts to restrict that option surfaced, the argument against it was simple and elegant: It takes both parties to agree to a contract. If it’s harmful to producers (or packers), then don’t sign the papers!

A deeper question to ponder

Predictably, NPPC officials took exception to Braley’s attempt to paint his bill as “a common sense step to protect free market competition.”

“There’s nothing common sense about the federal government telling pork producers they can’t enter into contracts to sell their hogs to meat packers,” said R.C. Hunt, president of the National Pork Producers Council and a Wilson, N.C., pork producer. “We are surprised that someone who represents one of the country’s top pork-producing districts would introduce such a bill.”

According to Hunt, a ban on packer ownership would increase transactions costs and risks, which would increase production costs. “That likely would put some producers out of business, decreasing competition and increasing vertical integration of the industry.”

Which seems to suggest that unbridled vertical integration would ultimately be detrimental to the pork industry.

I agree, but at the end of the day, arguments over the Braley bill are probably moot. It’s highly unlikely this measure will become law anytime soon—certainly not in an election year.

But that debate raises the question of how best to accomplish a worthy goal: Protecting prosperity in animal agriculture, while at the same time promoting a development that broadly benefits all production sectors: the diversity of operations and decentralization of processing infrastructure.

It’s more than merely an intriguing debate topic. It’s like asking: How do we achieve the highest levels of traffic safety? How, as a society, do we reduce the carnage—and the death toll—on our nation’s highways?

Does government push for investment in auto safety technology (coupled with highway engineering improvements), or should its efforts focus on strict law enforcement of speed limits and driving rules?

I’d like to think a mixture of both strategies would be most effective.

The trick is getting the proper balance, and it’s much the same challenge in agriculture.

We all benefit from greater diversity and decentralization of both production and processing of livestock, while at the same time, top-down imposition of blanket bans on legitimate commercial collaboration would be counter-productive.

How to best achieve a balance between the two is the hard part.

The opinions expressed in this commentary are solely those of Dan Murphy, a veteran food-industry journalist and commentator.

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