Battling for the Packer Ban
As with auto companies buying up steel plants or office supply companies owning lumber outfits, vertical integration and mass conglomeration are quickly becoming the name of the game in the meatpacking industry. It used to be that large meat packers such as Tyson and IBP would purchase hogs and cattle on an open market from producers of various sizes, including many small farmers with only a few hundred head of livestock.
Today, more and more often the meatpacking companies are owning and raising their own livestock or making deals with certain large farmers in which they essentially have control of an animal throughout its life and after its slaughter. This means that packers now keep the money that they otherwise would have paid to livestock producers for their animals, creating a domino effect on small communities since producers no longer have that money to spend in their communities.
Nolan Jungclaus, a Minnesota livestock and grain farmer, testified at a Senate Agricultural Committee meeting on July 16 about the effect of packer ownership on farmers and whole communities.
"I have witnessed ever-increasing vertical integration in the livestock industry," Jungclaus said. "This shift in the economic balance from the rural sector to the corporate headquarters of the very large and monopolized packing industry is sucking the lifeblood out of our rural communities. The number of sows owned by packers has tripled since 1996. I don't believe it is coincidental that the hog farmer's share of the pork retail dollar has plummeted from 42 and a half cents in 1996 to 30 cents in 2001 -- a drop of 29 percent. That is money taken out of my pockets, money that is not circulating in my community, and it is hurting us severely."
The increased profit for packers has not been passed on to or shared with consumers in terms of lower prices. For small and medium-sized farmers, this trend is devastating, causing a huge shrinkage of the available open competitive market for livestock and forcing them to compete with the huge packer operations who have access to preferential price deals with their few chosen mega-farms.
And farmers aren't the only ones being hurt. The meatpacking companies almost always raise animals in huge factory-farm style operations, which are much more harmful to the environment than typical family farms and are also usually considered less humane for both the animals and workers. Packer "captive supply" of livestock has been quickly increasing in the past decade.
Captive supply refers to either outright ownership in which animals are raised in feedlots owned by packers, or arrangements in which packers sign contracts with certain producers so that animals can only be sold to the given packer at a predetermined price, rather than sold on the open market.
The Northern Plains Resource Council (NPRC) and Western Organization of Resource Councils (WORC) say the use of captive supply buying doubled between 1997 and 2000, costing farmers over a billion dollars per year in lost profits. A 1999 study by the U.S. Department of Agriculture found that a 1 percent increase in the use of captive supply correlated to an 8 cent per hundredweight decrease in cattle prices -- coming out to about $48 per head, or $1.44 billion for the approximately 30 million cattle slaughtered each year.
A USDA study also found that in 1999 the four largest packers held 32 percent of the country's cattle in captive supply. "Over the past decade and a half, an explosion of mergers, acquisitions and anti-competitive practices has raised concentration in American agriculture to record levels," says a press release from Sen. Paul Wellstone (D-Minn.), who along with Senators Tom Harkin (D-IA), Charles Grassley (R-IA) and Tim Johnson (D-SD) tried to pass a ban on packer ownership as part of the Farm Bill last winter.
NPRC member Gilles Stockton noted that in 2000, even when beef demand and prices were up, the prices farmers were getting for a head of cattle were still on average 10 cents below the break-even price, a fact he attributes to the growth of packer ownership.
"When farmers have fewer buyers to choose from, they have less leverage to get a good price," said Wellstone in a release. "Anybody who has been to an auction knows that you get a better price when you have more bidders. Moreover, when farmers have fewer buyers to choose from, agribusiness can more easily dictate the conditions that farmers have to meet."
The Campaign For Family Farms, which includes the Missouri Rural Crisis Center, Iowa Citizens For Community improvement, the Illinois Stewardship Alliance and the Land Stewardship Project, led a multi-state grassroots effort to push the packer ban through the U.S. Senate.
At the behest of grassroots farming groups and the sponsoring senators, the bill passed comfortably in two separate votes. On Dec. 13, 2001 the packer ban was introduced as an amended part of the Farm Bill and passed the Senate 51-46. That version of the bill prevented packers from owning, feeding or controlling livestock more than 14 days before slaughter, with exceptions for packers with less than 2 percent of the national market. It also mandated packers buy at least 25 percent of their kill on the open market.
In early 2002 the ban, also known as the Johnson Amendment, was further clarified to prevent arrangements giving packers operational, supervisory or other control over the livestock "to such an extent that the producer is no longer materially participating in the management of the operation."
This amendment also passed 53-46 on Feb. 12. But then, members of the farm groups say, large meatpacking companies with their full lobbying war chests stepped in. The National Cattlemen's Beef Association (NCBA) and the American Meat Institute, representing large meatpacking and selling companies, railed against the ban.
Among the lobbyists working for the American Meat Institute was Vin Weber, former Second District Congressman in Minnesota, who in that role had represented many small farmers supporting the ban.
"He took what he learned representing us and used it against us," said Paul Sobicinski, a Minnesota hog farmer with the Land Stewardship Project and the Campaign For Family Farms. The packer ban never passed the House and was dropped from the Farm Bill.
Legislators made a bipartisan decision to instead do a study on the issue, a move that Jungclaus called "a corporate-generated stalling tactic."
"I dont need a study to tell me the effect [conglomeration and vertical integration] has on Lowell Petterson who owns and operates our local hardware store, the same man who fixes our church's boiler and never sends a bill," Jungclaus told the Senate Ag Committee. " I dont need a study to see the impact that consolidation has on Bob Hall, who owns our local grocery and is forced to live on ever tightening margins as packers and large retailers work together to eliminate competition."
Though inclusion in the Farm Bill was considered a golden opportunity that is no longer available, advocates of the packer ban haven't given up. Two pieces of legislation are slated to be introduced during the next Congressional session -- the Johnson Amendment and a Senate bill regulating other captive animal agreements led by Sen. Mike Enzi (R-WY).
At the Senate Ag Committee meeting on July 16, Wellstone and others promised to go forward with the packer ban legislation and discussed their options. "Sen. Wellstone has felt for a long time that basically there is very little competition in our livestock markets," said spokesperson Allison Dobson. "There's a lot of conglomeration in the market. We need to keep open and free supply and demand. A number of people in the Senate will not let [the ban] go even though it was stripped out of the Farm Bill because of the interests of big agribusiness."
NCBA spokesman Walt Barnhart said that the organization is against the ban mainly because they oppose government regulation of the industry in general. "Our organization has always been for small government -- the less government involvement, the better off we feel our members are," he said. "We need to see a lot more information about how packer ownership affects family farmers. There are so many things that hurt family farmers -- the Endangered Species Act, the drought, the government controls on what people can and can't do. Without knowing the extent of what's happening, you don't want legislation that locks something into place."
Barnhart said he thinks the ban could flood the market with cattle, causing lower prices.
"The packers who own cattle now would have to sell them, and who would buy them?" he asked. "We don't want the cure to be worse than the disease." A study commissioned by the NCBA said that the proposed packer ban could cost the cattle and beef industry $3.5 billion.
"Over the long term, the amendment would be unlikely to benefit any sector in the domestic beef or pork industries, and especially not livestock producers who expect wider margins and greater independence," said William Motes, senior vice presidents of the Sparks Company, which carried out the study. "The end result would likely be lower producer prices, higher costs, smaller markets and diminished returns for the foreseeable future."
A study done by four midwestern law and agriculture professors in response to the Sparks study rebutted these economic arguments, however, calling them "either misleading or flatly inaccurate."
The Smithfield meatpacking company, the country's largest pork packing operation, is one conglomerate that has earned farmers' ire and fear for its captive supply activities. In 2000 the Organization for Competitive Markets and other consumer and farm groups opposed Smithfield's attempted merger with IBP, saying that it violated anti-trust laws and noting its propensity for buying up smaller operations like Dakota Pork and Farmland and closing them.
"They bought Dakota Pork and shut 'em down," said Sobicinski. "That's the kind of action we're seeing in the livestock business. Obviously something's terribly wrong when they can get into ownership and reduce the overall prices [of livestock] so much. The increasing ownership by packers means there are less and less competitive bids out there, less opportunity for farmers to sell their livestock."
Smithfield, one of the state's major employers, threatened to pull out of South Dakota if state politicians supported the packer ban. The move would have been largely symbolic, since the proposed packer ban legislation would have been federal law and applied to the whole U.S.
"They took out a full-page ad in the paper about all the jobs that would be lost in South Dakota if the packer ban happened," said Sobocinski. "They were like the big bullies coming in saying if you don't play my game, I'll pick up my ball and go. But it was encouraging to see the support we got in the Senate in the face of these financial interests we were up against."
Farmers with WORC, the NPRC, the Land Stewardship Project and Campaign for Family Farms and other groups note that the rise of packer ownership is part of the overall trend toward conglomeration and mass production that is sounding a potential death knell for family farmers and their communities.
"They're taking more and more of our food money away from us," said Sobicinski. "We need to work with farmers to keep independent producers out there. Independent producers are the best way of keeping rural communities alive."
Staffers at the Dakota Resource Council, a member organization of WORC, said they think mainstream opposition to packer ownership is in fact growing. Sobicinski thinks the wide coalition of farmers groups working together on the issue will be able to get results.
"The lobbyists have a lot of power as relates to the D.C. scene, but we have the power of the people organized," he said. "In terms of legislation, the packer ban wouldn't be a cure all but it would be a key step forward in saying that just a couple entities shouldn't have control over our food supply."
Kari Lydersen is a Chicago-based journalist who has written for many publications, including the Washington Post, Chicago Ink, the Chicago Reader and In These Times.