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Potential Impacts of the Proposed Ban on Packer Ownership and Feeding of Livestock

by 5m Editor
20 March 2002, at 12:00am

By Sparks Companies, Inc. - The Livestock Packer Ban amendment plans to make it unlawful for meatpackers to own, feed or control livestock for more than 14 days prior to slaughter. Cooperatives, or entities owned by them, would be exempt if a majority of the ownership interest in the cooperative is held by active cooperative members who own, feed or control livestock and provide them to the cooperative for slaughter. The amendment also would exempt packers who slaughter less than two percent of annual slaughter of each type of livestock. This is a study of the potential impacts of this Amendment, and our article provides a (very) brief overview of the findings and a link to the full report.

Amendment Background

The amendment to the farm bill Packers and Stockyards Act (PSA) was put forward last December by Senator Johnson (D-SD) (the "Johnson Amendment"). Subsequently, Senators Grassley (R-IA) and Harkin (D-IA) have offered a second-degree amendment to further define the wording of the initial amendment. At this time, the revised amendment is included in S. 1731, passed February 13, 2002. The House farm bill contains no such amendment.

Study Methodology

This is a study of the potential impacts of the Johnson Amendment. It examines how the various segments of the hog/pork and cattle/beef industries would be affected by a ban on packer ownership, and the short and long-term impacts. The study is based on extensive reviews of economic statistics, studies and reports and interviews across the major industry sectors by experts with first-hand knowledge of the beef and pork industries

The study was commissioned by the National Cattlemen's Beef Association (NCBA) and the National Pork Producers Council (NPPC) to be an objective evaluation of both the source of the current structural change in the red meat industry, and likely impacts of the Amendment.

Sparks Companies, Inc.

Sparks Companies, Inc., is the world leader in broad-based agricultural and commodity market research, analysis and consulting. Founded in 1977, the company now serves more than 750 firms and institutions worldwide from our headquarters in Memphis, Tennessee, our Washington, D.C. office and a far-reaching network of offices overseas.

92 Page Report

The full 92 page pdf report (opens in new browser) can be accessed by Clicking Here

As the Executive summary is 11 pages long and the general summary and conclusions is nearly 30 pages long we have only highlighted below the first section of the executive summary and the list of Intermediate Term Impacts the report says will impact the industry.

To get a full understanding of the reports contents we recommend you at least read the 11 page Executive Summary at the front of the report.

Study Findings
The Johnson Amendment likely would result in immediate and long-term negative impacts for all sectors of the US pork and beef industries, from independent producers to packers. No segment can expect to benefit, and each would likely face significant losses.
  • The Amendment assumes that packers use livestock ownership and marketing arrangements to exert market power at the expense of independent producers, and would outlaw many common management tools, primarily packer ownership of livestock.
  • This intervention would strike at the heart of recent industry advances, reducing efficiency and raising costs at all levels of production and processing. And, it could undercut recent increases in consumer demand and export sales.
  • The costs of such interventions would be felt immediately, and some costs would continue indefinitely.
Intermediate Term Impacts
The intermediate impacts of the Amendment likely would be extensive and entirely negative. They would likely include:
  • A higher-cost, less efficient meat packing industry in the future with smaller capacity to produce and process cattle and hogs. Costs would be increased by increased costs of capital, reduced plant utilization, higher price volatility and risk and reduced revenues from livestock production. The higher costs would reduce margins and lead to reduced bids for livestock. at the farm level.
  • Reduced packer-processor investment at both ends of the value chain, in genetics and livestock management and in branded products and market development. This likely would reduce competitiveness of red meat products in competition for US consumers' dollar, and in export markets. It likely also would mean a reversal of current growing market shares in both markets.
  • Higher-cost, less efficient feeding and breeding industries in response to higher capital costs for livestock feeders and breeders, reducing margins for both types of investment.
  • A smaller meat packing industry as lower margins cause less-efficient packers to cease operations and reduce industry capacity. The higher costs would make US packers less efficient in competing with poultry at the consumer level and less efficient in competing with the Danes, Canadians and Brazilians for foreign markets.
  • Smaller breeding and feeding industries as higher capital costs and weaker returns lead to reduced investment in livestock feeding and breeding, and reduce industry production capacity. The smaller industry would be more dependent on both imported livestock for slaughter and imported meats and meat products.
  • Increased vulnerability for producers in isolated production areas as packers access to tools to manage supply flows and plant utilization are constrained.
  • Continuing advantage for poultry in the competition for domestic and international consumers' dollars as investment in quality by the red meat sectors decline. The poultry industry would be in a position to continue to invest in quality and market development efforts while investment and development by red meat producers/processors would decline.