CME: GIPSA Files Complaint Against JBS Swift

US - USDA’s Grain Inspection Packers and Stockyards Administration (GIPSA) is in the news again, this time filing a complaint against JBS United for underpaying for hogs purchased from 1 January 2007 through 30 November 2007, write Steve Meyer and Len Steiner.
calendar icon 15 October 2010
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Part of GIPSA’s long-standing responsibility has been to make sure scales and other measurement devices at livestock auctions and packing plants are accurate. They check scales, carcass measurement devices and packers’ computations regularly to make sure measurements and payments are accurate.

This complaint centers on JBS Swift’s use of a Fat-O-Meater to measure the fat thickness and loin depth on hog carcasses. Swift uses these measurements, along with carcass weight, to predict the percent lean in the carcass. Percent lean and carcass weight then determine the level of premiums or discounts applied to the base price to determine the net price paid to the producer. The Fat-O-Meater is an optic probe device made in Denmark and widely used in pork slaughter plants in the US and around the world. The machine is a practical and accurate tool but is not foolproof. Measurements of some carcasses are not recorded — some due to machine error, some due to operator error, some due to carcasses just being missed.

GIPSA alleges that JBS Swift plugged in 49 per cent lean for all “missed” carcasses, a leanness level that resulted in a discount. The complaint cites 16 lots of pigs in which and actual percent lean estimate was missing on a total of 375 head. Had those pigs been paid based on the average of their respective lot (a normal practice in the industry), the 16 lots would have been paid a total of $3735.97 more, an average of $9.96 per head. GIPSA alleges that this practice resulted in a total under-payment of $350,000 to suppliers to JBS Swift’s three plants (Worthington, MN, Marshalltown, IA and Louisville, KY) during the 11 months covered by the complaint.

At least one group supportive of USDA’s proposed rule to “enhance enforcement of the Packers and Stockyards Act” (published back in June) cited this action as proof that the new rule is needed. That group also claimed that the complaint covers 16 producers who were shorted an average of $21,875 each. Their first claim may be true but either their math or their reading of the complaint regarding the number of underpayments is quite suspect.

It should be noted that this is only a complaint. JBS Swift has 20 days to respond to the it. If they do so, USDA will then hold a hearing, the result of which can be appealed to an Administrative Law Judge and then to federal courts. Beyond an injunction against the alleged practice, JBS Swift could be subject to civil penalties of up to $11,000 per occurrence.

JBS Swift is the nation’s 3rd largest pork slaughtering firm. The table below shows the top 20 firms and their estimated capacity at the beginning of 2010. Smithfield’s plants include its plants in Virginia and North Carolina as well as plants operating as John Morrell, Farmland Foods and Premium Standard Farms — all companies that Smithfield has acquired over the years. The five companies whose capacity figures are bolded are either primarily or solely sow and cull boar processors. The top 20 packers held the exact same percentage of total packing capacity in 2010 as they did in 2000 — 94 per cent. The 2010 capacity, though, is nearly 30,000 head per day higher than it was ten years ago.

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