SPEAKERS CONTENTS INSERTS
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00–000 CC
1999
1999
MANDATORY PRICE REPORTING FOR LIVESTOCK
HEARING
BEFORE THE
SUBCOMMITTEE ON
LIVESTOCK AND HORTICULTURE
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
APRIL 29, 1999
Serial No. 106–17
Printed for the use of the Committee on Agriculture
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COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
Vice Chairman
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
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MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
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LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on Livestock and Horticulture
RICHARD W. POMBO, California, Chairman
JOHN A. BOEHNER, Ohio,
Vice Chairman
BOB GOODLATTE, Virginia
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
BOB SCHAFFER, Colorado
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
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BOB RILEY, Alabama
COLLIN C. PETERSON, Minnesota,
Ranking Minority Member
TIM HOLDEN, California
GARY A. CONDIT, Pennsylvania
CALVIN M. DOOLEY, California
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
LEONARD L. BOSWELL, Iowa
KEN LUCAS, Kentucky
(ii)
C O N T E N T S
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, prepared statement
Boswell, Hon. Leonard L., a Representative in Congress from the State of Iowa, opening statement
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Minge, Hon. David, a Representative in Congress from the State of Minnesota, opening statement
Moran, Hon. Jerry, a Representative in Congress from the State of Kansas, prepared statement
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Peterson, Hon. Collin C., a Representative in Congress from the State of Minnesota, opening statement
Pombo, Hon. Richard W., a Representative in Congress from the State of California, opening statement
Stenholm, Hon. Charles W. a Representative in Congress from the State of Texas, prepared statement
Thune, Hon. John R., a Representative in Congress from the State of South Dakota, prepared statement
Witnesses
Bull, Ken, vice-president for procurement, Excel Corp.
Prepared statement
Danielson, Nancy, senior policy analyst, National Farmers Union, substituting for Leland Swenson
Prepared statement
Evans, Gary, executive vice-president, and president, refrigerated foods, Farmland Industries
Prepared statement
Kleckner, Dean, president, American Farm Bureau Federation
Prepared statement
McNutt, John, president, National Pork Producers Association
Prepared statement
Siddoway, Cindy, vice-president, American Sheep Industry Association
Prepared statement
Swan, George, president, National Cattlemen's Beef Association
Prepared statement
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Willms, Don, vice-president, live cattle procurement, Monfort
Prepared statement
MANDATORY PRICE REPORTING FOR LIVESTOCK
THURSDAY, APRIL 29, 1999
House of Representatives,
Subcommittee on Livestock and Horticulture,
Committee on Agriculture,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Richard W. Pombo (chairman of the subcommittee) presiding.
Present: Representatives Boehner, Everett, Lucas of Oklahoma, Chenoweth, Schaffer, Gutknecht, Combest [ex officio], Peterson, Dooley, Berry, Boswell, Lucas of Kentucky, and Stenholm [ex officio].
Also present: Representatives Barrett, Moran, Thune, Latham, and Minge.
Staff present: William E. O'Conner, Jr., staff director; Christopher D'Arcy, Brent Gattis, Pete Thomson, Callista Bisek, Wanda Worsham, clerk; Andy Baker, and Howard Conley.
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. POMBO. Good morning. This meeting of the Subcommittee on Livestock and Horticulture will come to order.
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Today, this subcommittee is here to examine the issue of mandatory price reporting for livestock. This matter, much like that of country-of-origin labeling that we addressed here yesterday, is often misunderstood with more rhetoric than understanding. I hope this morning that we can get beyond some of the noise and emotion and try to fashion some workable commonsense solutions.
For the last several weeks, key representatives of both the producers and the packer communities have been meeting, trying to hammer out just such solutions, at the urgent urging of Chairman Combest and Ranking Member Stenholm. Hopefully, everyone at the table understands that an agreement pounded out among themselves is certainly preferable to any solution that Congress would impose on them. Currently, they now have ownership of the process. They are breaking down the barriers of suspicion and mistrust, and are examining and evaluating what legitimate needs of the producer community are, and how the packers can reasonably accommodate them.
In the end, just by putting this issue behind them each side will be better off. I want to commend all parties involved for their progress that has already been made and to offer any assistance and encouragement I can to finish that job.
I hope to hear from our witnesses about the concerns and positions of both the producer and packer in the understanding that, whether it is a happy marriage or not, it is a marriage that they are stuck in. If this dialog gives each interest more of an appreciation for the legitimate needs of the other, then the process will accomplish a lot. I am looking forward to hearing from our witnesses today, and I welcome them here.
I will now recognize Ranking Member Peterson for any opening statement that he may wish to make.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
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Mr. PETERSON. Mr. Chairman, thank you for holding this hearing to provide the subcommittee an opportunity to address the question of livestock market transparency.
We all know that low livestock prices have placed tremendous stress on families throughout farm country. This stress is particularly troubling for livestock producers who recently saw their prices drop while wholesale and retail prices remained strong. This leaves us with a lot of questions, for which I hope this hearing may provide answers. In particular, I hope that this hearing will let us openly discuss and consider the pros and cons associated with mandatory reporting of livestock prices. I also hope that the testimony of these witnesses will help to clear up some of the confusion and conflicting information about this issue.
For example, we need to understand what is and what isn't proprietary information for meat packers. We need to consider how various price reporting schemes might impact our competitiveness in overseas markets. We also need to understand why, if our markets are working properly, that the spread between farm and retail prices has gotten so wide. In addition, knowing that our producers need good, timely market information, we have to consider what information will be most helpful without generating a flood of information that nobody wants.
When we get past all of the rhetoric, I hope that most of us in this room agree that we just want to see a healthy market for livestock, where producers get a fair price and packers can turn an honest profit. If that is what all of us have in mind today, then this should be a helpful hearing. So, thank you for holding it, and I look forward to the testimony.
Mr. POMBO. Thank you. I would like to recognize the chairman of the full committee, Mr. Combest.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
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The CHAIRMAN. Thank you, Mr. Chairman. I would like to thank you, Mr. Pombo, for calling today's hearing on mandatory livestock price reporting. Along with yesterday's hearing on country-of-origin labeling and an upcoming hearing on dairy policy, he has shown considerable leadership with the matters within his subcommittee's jurisdiction.
Many of you know that the committee had a hearing on February 10 on the subject of livestock prices. What many of you do not know is that the hearing also served as a catalyst for much of what we will hear about today. During informal conversations among witnesses from both the packer and producer communities, there were discussions about what role improving price reporting might play in enhancing price discovery and transparency in livestock markets. I think both sides were surprised about how much in common that there were about what might help.
The committee's ranking member, Mr. Stenholm, joined with me in issuing a statement calling on both packers and livestock producers to sit down and explore the possibility that a workable solution could be achieved. The logic was simple: Nobody is more qualified to know better what will work than the affected parties themselves. Individual working groups have met together or talked on conference calls many times since then. This process has led to a better understanding of each others' needs and concerns. I suspect the process has also helped each side refine their own goals as well. Although their work is not yet concluded, they deserve credit for their efforts that have been made to date and encouragement to continue.
Today's hearing will provide an opportunity to hear a progress report about the ongoing discussions, and I look forward to the testimony of today's witnesses. Thank you, Mr. Chairman.
Mr. POMBO. Thank you. Mr. Minge.
OPENING STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
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Mr. MINGE. Thank you, Mr. Chairman. Although I am not a member of this subcommittee, I am a member of the full Agriculture Committee, and I appreciate the opportunity to join you for a few moments this morning.
I have worked very closely with my colleague on the committee, Mr. Thune of South Dakota, and also with the National Pork Producers and the Cattlemen. We have introduced H.R. 697, which is a mandatory price reporting bill. We would like to see legislation move in this Congress because we have gone through a tragic time in livestock sales. It has perhaps been so dramatic with respect to hogs that we will never forget the Christmas tragedy of 1998 for our farmers that are raising hogs.
And I think that the sooner that we can assure the farmers and the ranchers in this country that there actually will be transparency with respect to the sale of livestock, especially when most of the contracts are based on a reported market price or claimed market price, the better our livestock industry will be. And I really appreciate you holding this hearing this morning and look forward to our making progress on this type of legislation.
Mr. POMBO. Thank you. Mr. Boswell.
OPENING STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA
Mr. BOSWELL. Thank you, Mr. Chairman. I want to thank you and Ranking Member Peterson for holding this hearing, and I appreciate that our chairman, Mr. Combest, has joined us today and was able to spend some time to show his concerns and interest, and I appreciate that very much.
I think there is some momentum driving this issue that is actually coming out of our State legislatures. I think this is important for us to take note of. I know in my State of Iowa they have just passed a mandatory price reporting bill last week, and they have sent it to the Governor for his signature.
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Many of the people that voted for the bill in Iowa allegedly admitted that it wasn't as strong of a bill that they would like for it to be, but they wanted to send a message to us regarding the importance that they place on this issue. I can't tell you how much I appreciate we are moving forward here. We on the subcommittee should heed this message and work to pass a meaningful mandatory price reporting bill. I am hopeful that today's hearing will help shape a livestock price reporting bill that will level the playing field, level the playing field for all producers and give them the best price possible for their livestock.
As we continue on, I will have some questions, but thank you for this opportunity, Mr. Chairman.
Mr. POMBO. Thank you.
If there are any statements for the record, they may be entered at this time.
[The prepared statements of Members follow:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Thank you, Mr. Chairman for again allowing me to participate in your subcommittee's hearing on livestock issues. I'm particularly pleased to be here today to review mandatory price reporting.
It's obvious producers need better market information. Information is a powerful tool. It can make producers more competitive with neighbors, processors, and ultimately producers in other countries. The time has come to review how and what kind of information is being reported.
In February, I joined Chairman Combest and Ranking Member Stenholm in urging producer representatives and meat packing companies to reach a consensus on how to improve price reporting and market information. I'm pleased many conversations have taken place and an agreement is in the works.
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I've long urged Congress to resist the urge to act too quickly on mandatory price reporting. The potential to hurt producers with too much irrelevant information by passing broadly written price reporting laws is real. The potential to hurt packers and processors by forcing them to reveal their unique business strategies by passing broadly written price reporting laws also is real.
I don't want these negative results. I want better information and a system that works. I believe the discussion now underway will provide the balance we need. It will be worth it to wait a couple more weeks or months for an agreement that meets everyone's need and everyone can support.
PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM OF THE STATE OF TEXAS
Chairman Pombo, thank you for holding this timely hearing. Those of us involved in production agriculture understand that low livestock prices have had a devastating impact on the Nation's farms, ranches and rural communities. In this context, the issues of market transparency and fair pricing have become even more critical.
Producers need to be able to trust that the price they receive in the marketplace reflects the actual value of their product, however there is some question as to whether this is currently the case. Increasing concentration and structural changes in the livestock industry have significantly ''thinned'' the spot (or cash) markets. In light of these concerns, legislation has been introduced to mandate new livestock price reporting requirements.
I do not support ''one-size-fits-all'' regulations and couple of months ago it looked like things were moving in that direction. For this reason, I was glad to join with Chairman Combest in calling for an alternative solution to this problem. Together, we issued a call for producers and packers to sit down and work this issue out among themselves, and I am pleased to learn that many of you have actually been doing just that.
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Let me commend you for working together to find common-ground solutions to the price reporting issue. While this probably hasn't been easy, it must be preferable to a ''one-size-fits-all'' directive from Washington.
Mr. Chairman, it will be good to receive an update on the progress
that has been made, and I look forward to an informative hearing.
PREPARED STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS
Mr. Chairman, I first want to thank you and Mr. Combest for your time and attention given to this important topic. The livestock industry, and particularly the beef industry, is the largest component of the Kansas agricultural economy with annual receipts of over $4 billion. With 7.3 million head of cattle processed every year in Kansas: 20 percent of this Nation's beef is packed in the Sunflower State. Maintaining the economic health of this sector of the economy is extremely important.
Mandatory price reporting has become a divisive issue across the State of Kansas. This issue has split the cattle industry, spawned the creation of a new beef organization, and been brought into the spotlight in this period of low beef prices.
Clearly, producers must have access to price information. The information must be objective, timely, and produced in a manner that provides enough detail as to accurately reflect the true market situation throughout the beef industry. In addition, the collection and reporting of this information should not place an expensive burden on the industry. History has shown us that if there is an increased cost, it will likely be placed on those least able to afford it, the small producer.
Mr. Chairman, I am eager to hear the witnesses testify today. I appreciate the willingness of the Chair to allow me to participate in this hearing and look forward to further addressing this issue.
PREPARED STATEMENT OF HON. JOHN R. THUNE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA
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Mr. Chairman, Ranking Member Peterson, thank you for holding this hearing on an issue of such importance not only to the producers in my state of South Dakota but across the United States. Thank you also for the opportunity to join you and the others members of the Livestock and Horticulture Subcommittee today on the dais.
The issue of concentration in the packing industry is not new. Neither is the concern that such concentration translates into lower prices for those producers who sell their livestock in open markets. The U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, in a February 1996, report entitled ''Concentration in the Red Meat Packing Industry'' stated that:
''There is a long history of concern about the impacts of concentration in the meat packing industry. The Sherman Antitrust Act (July 2, 1890, ch. 647, 26 Stat. 209) was passed partly because of farmers' concerns over concentration . . . The role of public markets (auctions and terminals), where the terms of trade are openly visible to all, has been waning for several years as packers have moved to purchasing livestock directly from producers. Recently, packers have increased their use of vertical integration and vertical coordination arrangements that further reduce the role of public markets.''
In fact, according to the Department of Rural Sociology at the University of Missouri, the top four packers in the United States controlled 72 percent of the industry in 1990, 76 percent in 1995, and 79 percent in 1998. Increasing concentration in the packing industry means fewer and fewer options for producers when it comes time to sell their livestock. Furthermore, increasing concentration disrupts the only true price discovery mechanism available to producers—the open market.
The USDA/GIPSA report concluded, in part:
''The study found that pricing and procurement arrangements (including captive supplies) and structural characteristics affect conduct and performance in the meat packing industry . . . Given the importance and persistence of these issues, there is a continuing need to monitor and analyze behavior and structural changes in the industry, and to take corrective action when necessary under existing authority and to request additional authority if needed . . . Sustained monitoring and analysis provide the best opportunity to obtain timely, meaningful information as the industry evolves and market conditions change.'' [Emphasis added.]
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The logical conclusion of increasing concentration is that too few firms control the elements of price discovery. This conclusion is but one justification of increased monitoring and analysis of the market.
In addition to disrupting price discovery mechanisms, concentration in the industry also has the effect of reducing producers' access to essential information regarding market demand. In a June, 1996, report entitled Concentration in Agriculture, the U.S. Department of Agriculture Advisory Committee on Agricultural Concentration found that:
''It is widely agreed that equal and accurate market information improves the price discovery and determination process. Poor information can lead to unnecessary price volatility or slow adjustment to changing supply and demand conditions. Inadequate or uneven information can cause some market players to be disadvantaged relative to others, and some suggest that price levels could be biased for an extended period.''
I think it goes without saying that the more information to which a producer has access regarding market demands, the better he can produce to those demands and maximize his profit.
Sustained monitoring and analysis, price discovery, and access to essential information regarding market demand can be achieved through mandatory price reporting. To that end, on February 10 of this year, I, together with Representatives David Minge of Minnesota and Leonard Boswell of Iowa, introduced H.R. 693, the Livestock Industry Fairness and Equity (LIFE) Act.
The LIFE Act requires meat packers that buy, manufacture, prepare, or market more than 5 percent, by daily volume, of all cattle, sheep, hogs, or livestock products in the United States, to report to USDA by the next business day the prices they pay for live cattle, hogs, and sheep, as well as for boxed beef, boxed lamb, and any value-added product derived from pork. Meat packers must report information, as determined by the Secretary of Agriculture, relating to the prices, volume, and terms of sale, including any current or future contract offered by the packer. Such terms of sale include base price, premium and discount price factors, formula-based pricing systems, and quality characteristics, such as percent lean and carcass weight. Meat packers must also separately report domestic and imported livestock and livestock products. This information must be made available to the public in a timely manner to permit its use while the information is still relevant.
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I recognize the bill is not perfect. However, it does address the fundamental concerns of producers. Furthermore, this bill will serve as a means to initiate meaningful discussion in the Congress regarding concentration in the packing industry and its effects on individual producers. Part of that discussion is taking place here today in this subcommittee.
Since this issue was last considered by the House Agriculture Committee 11 weeks ago, significant progress has been made toward enacting price reporting legislation in this Congress. Many of the individual states have considered adopting their own price reporting legislation. In fact, my own state of South Dakota is the first such state to do so. Senate Bill 95 was adopted by the South Dakota Legislature and signed by Governor Janklow earlier this year. Also, I am heartened that Chairman Combest and Ranking Member Stenholm have requested the various producer groups and the packers to come together in an effort to find common ground on the issue of mandatory price reporting. It is my understanding that some progress is being made, and I hope this Congress will pass mandatory price reporting legislation that satisfies all interested parties. Too often, Congress passes mandates for which affected industries are not prepared. In the case of mandatory price reporting, Congress has an opportunity to adopt legislation on which the affected parties have had ample opportunity to comment.
Mr. POMBO. I would like to welcome our first panel of witnesses: Mr. George Swan, Mr. Dean Kleckner, Ms. Nancy Danielson, Mr. Don Willms, Ms. Cindy Siddoway, Mr. Ken Bull, Mr. Gary Evans, and Mr. John McNutt, if you could join us at the witness table, please.
Good morning. I know you are all familiar with the lights and the time constraints. Your entire written testimonies will be included in the record. If you could hold your oral presentation to the 5 minutes, it would be appreciated.
Mr. Swan, welcome back. It has been a long time.
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STATEMENT OF GEORGE SWAN, PRESIDENT, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Mr. SWAN. Less than 24 hours, thank you, Mr. Chairman.
Mr. POMBO. Well, thank you for being here. You may begin.
Mr. SWAN. Thank you. Again, thank you, Chairman Pombo and Mr. Peterson, Chairman Combest, for inviting me here today. I am George Swan, president of the National Cattlemen's Beef Association. I am a fourth generation cattle rancher on the House Creek Ranch in Rogerson, ID.
The NCBA has long supported mandatory reporting to export sales and shipments and for boxed beef sales in prices and volumes. At our convention in February in Charlotte, NC our members approved expanding our policy to include mandatory reporting of procurement prices and terms of trade for slaughter cattle.
NCBA took to heart the challenge issued by Chairman Combest and the Ranking Minority Member Stenholm requesting that producers and packers compromise on price reporting. This directive helped break an ongoing stalemate between producers and packers that has restricted information flow throughout the beef marketing system and prevented price reporting from evolving to reflect changes in the way cattle are marketed.
Since March, the challenge that was issued, we have had 15 meetings as well as teleconference meetings that have occurred, which our first meeting took place on March 22. In addition to these meetings, we have included representatives from USDA, private market reporting services, and many of our affiliate State cattlemen's associations.
The near-final recommendations that are provided as an attachment to this testimony, while not unanimously acclaimed, are the consensus proposal from a large majority. Consensus agreement has been achieved regarding boxed beef and export reporting, and the group is nearing consensus regarding reporting of live cattle, with only one of the bullet points still in the final stages of negotiation. Our objective is to report to the Hill a package the first week in May.
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While these discussions have largely been between NCBA and our packing industry partners, we have also been working in keeping informed other producer coalitions such as the American Farm Bureau Federation, the American Sheep Industry Association, and the National Farmers Union to achieve this mutual goal.
Mr. Chairman, price and volume reporting are only a piece of a larger debate over wide-ranging changes that are sweeping the livestock sector and agriculture in general. Change in the beef industry, as in the rest of the economy, is a reality. A number of producers are finding innovative ways to compete in the changing beef industry, including gaining a greater share of the marketing dollar.
Much of the discussion and debate among participants in the meetings we have had has been about how to foster new marketing systems. Participants in the process have been very concerned about the ''law of unintended consequences'' as we work to develop a process that would increase information flow and market transparency without unintentionally placing new and innovative marketing systems at a competitive disadvantage. We must ensure that legislative and regulatory policies continue to encourage these types of solutions and do not limit a producer's ability to gain a greater share of the marketing dollar.
There is widespread agreement that efficient markets require greater market transparency that is achieved by the availability of accurate and timely information, especially in situations with many sellers and few buyers. Information availability helps ensure that competitive market forces exist. Fewer buyers cannot have undue leverage when market information is widely available to more dispersed sellers. As shown in the attached proposal, NCBA continues to aggressively pursue action to improve price reporting for cattle, boxed beef, imports and exports.
I want to highlight some of the consensus areas that we have agreed upon. For cattle reporting, legislative language to provide for complete mandatory reporting of prices and terms of trade for all cattle purchased for slaughter. Cattle market reports are to reflect cattle purchased in the domestic and in the export market. Prices, volumes and terms of trade for all cattle purchased in the negotiated cash or spot market will be reported twice daily by packers to USDA. Separate volume and price reports will be developed for cattle purchased on a formula or grid, for cattle for purchased on contract and for cattle owned by packer in a company-owned or commercial feedlot. The volume, basis level, and delivery month will be reported weekly for all cattle purchased on basis contracts and prices for cattle purchased on a formula or grid will be reported during the week that the seller receives payment.
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With regard to beef reporti ng, the proposals include: Packers will be required to report the negotiated price and volume for each lot of boxes sold by cut for all grade and trim specifications and meat sold on branded programs. A study will be commissioned by NCBA to analyze the effectiveness of the existing price reporting system in reflecting beef trade as it currently occurs, and to develop recommendations to further move the industry towards a value-based reporting system. The Agricultural Marketing Service would develop retail price reports based on sales volume and prices using national retail scanner data collected by national databases.
Regarding import and export reporting, under the proposal all import reporting shall be consistent with export reporting. USDA will be mandated to publish the final regulation providing for mandatory reporting of meat sales and shipments into the export market through the Foreign Agriculture Service Export Sales Reporting Program. USDA should immediately adopt and implement export sales reporting for meat. USDA shall be mandated to develop a centralized online system for issuing and reporting export certificates for all meat and meat products comparable to the system currently operational in Canada. Such a system shall be in place and operational within 12 months of the enactment of this legislation.
We are prepared to work with you and your staff to keep this process moving forward, and, again, certainly appreciate the leadership the committee has shown in addressing this tough issue of marketing transparency. Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Swan appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Kleckner.
STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN FARM BUREAU FEDERATION
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Mr. KLECKNER. Thank you, Mr. Chairman. I am Dean Kleckner. I am the elected president of American Farm Bureau Federation. I am a corn, soybean, hog producer from northern Iowa. Incidentally, our hogs from my farm, 2,000 a year, are not sold on contract. We are selling on the market, taking the price that is offered, including the low price last December, and not very good yet today.
We do appreciate this opportunity to present our position on this issue. The extremely low prices we have seen for beef and pork, and, certainly for other commodities in recent years makes this an issue that needs to be resolved for both producers and the meat industry.
The whole problem of the concentration in the agriculture industry was a topic of conversation at a meeting we held just last week. It is important in the meat sector, it is important to producers that they have access to the range of prices being paid by packers for the animals that they are buying. Since agriculture producers are normally in the position of being ''price takers,'' it becomes of the utmost importance for them to have the best, most actual information on the prices, the actual prices being paid. That is why Farm Bureau is supportive of legislation that would provide producers with that information on a timely basis. Almost all producers are favoring this. And I believe many packers are, too. They are worried about proprietary information, and that is certainly something that has to be worked on.
However, while we do want to see legislation on price reporting, we feel that this issue is too important to rush to pass just so that there is legislation. It was just a few weeks ago that this committee asked commodity groups to meet with packers and to work together to develop legislation that all can agree on. We appreciate the efforts that are being made by NCBA and NPPC. But it is important that all of the major farm organizations have input on the development of this legislation, and that takes a little time. All of the groups are trying to work together to agree on all of the factors that need to be considered in this milestone legislation.
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There are many areas that are unique to each sector of the meat industry. At the same time, there are numerous areas that overlap. And all of this needs to be discussed and debated within the industry, so that legislation that finally comes out will cover all of the aspects for the entire meat industry.
It is our hope that we can have a final product agreed upon within the next few months, if not few weeks, so that the Congress can have the full backing of every segment of the meat industry. I will just say, again, it is imperative that we have adequate time—I don't mean years, but adequate time this year to complete the task.
Our policy at Farm Bureau is very clear. We have had a long-term policy on this, quote, ''Livestock packers who process more than 5 percent of the national daily slaughter should be required to report all cash and contract prices and terms of sale to the Federal Market News Service.'' Our policy also states that we seek expanded reporting details on livestock imported into the United States, the number of animals sold under contracts and the terms of those contracts, as well as the reporting of export sales of meat and poultry products.
Since increasing numbers are sold under some form of contract, it is extremely important that information relating to volume, prices paid, and the terms of these contracts be reported to the public in an accurate and timely fashion. And George Swan indicated their position on just how often that should be. Apparently, many of these contracts are linked to cash prices reported. That fact increases the importance of having actual cash prices reported in an accurate and timely manner also.
To accomplish this, producers need to know what actual plant procurement costs are, not just the open market price being paid that day for smaller and smaller numbers. Since fewer and fewer animals are being bought on the open market system, total plant procurement costs would give producers a much better idea of what the actual value of their animals are to the packing plant. We just need to have this to make a more informed marketing decision.
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Also, related to the low pork prices experienced this last year, is a matter of developing an improved farm-to-retail price spread reporting system. Many producers felt, at minimum, let down, if not cheated, by the prices they were receiving in relation to the retail price being reported by the USDA. The fact is that no one actually knows what the real price spread was during that time. It seems to me like it was based on reported cash prices, which were terrible, but what was the total cost when you figure in the contract prices? Total cost could have been much higher and maybe the farm retail price spread wasn't as bad as I thought it was. I want to know that. It is obvious that, if a better formula or system was developed, everyone would benefit from having information that more accurately reported the farm-to-retail spread. So we think legislation should have that in it.
I believe all of the groups involved in the meat industry are concerned with this overall issue and working on developing legislation that addresses all aspects of price reporting, and can be supported by all segments of the industry.
Mr. Chairman, Chairman Combest, Mr. Stenholm, Mr. Peterson, we appreciate the support that all of you are giving to this important issue. We are going to work with you to the best of our ability to develop a good bill, one that can be supported by everyone, producers, packers, retailers, everyone. Thank you.
[The prepared statement of Mr. Kleckner appears at the conclusion of the hearing.]
Mr. POMBO. Thank you, Mr. Kleckner.
Ms. Danielson.
STATEMENT OF NANCY DANIELSON, SENIOR POLICY ANALYST, NATIONAL FARMERS UNION
Ms. DANIELSON. Good morning, Mr. Chairman, members of the committee. Thank you for holding the hearing today.
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I am Nancy Danielson; I am not Lee Swenson. We thought when we prepared the testimony that President Swenson would be delivering it and he sends his regrets that he is not able to be here early enough for the hearing this morning. However, I am a life-long member for the National Farmers Union and I have served on the national staff for the past 10 years. As part of the national staff, one of the main responsibilities that I work on is anti-trust and livestock issues.
We couldn't be more pleased with the fact that you have chosen to hold this hearing. And also, Chairman Combest, we want to tell you, too, that we are extremely encouraged by your action in holding the concentration hearings so early in the year. Our members were very pleased about that.
I would like to start by telling you that National Farmers Union supports legislation to require meat packers to electronically report to the USDA information relating to prices, volume, and terms of sale for all livestock transactions, including forward contracts and including transactions involving livestock products. The Agriculture Secretary should be required to publicly report the information the next business day or as soon as practicable after the procurement of the livestock.
In addition to that, we also support having the contracts that are being used put on file with USDA. They could be kept in a manner that makes that information confidential but available to USDA.
Probably the biggest piece of news that I can bring you today is what we did in St. Louis this week. There were 29 different agriculture organizations, national in scope, that gathered for the purpose of an agriculture summit. Once there, we broke up into four different areas, and several of the members on this panel this morning served in the concentration area. In fact, Cindy Siddoway and George Swan, and I, also as a staff member, sat in on the concentration area of discussion at the summit.
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I am extremely pleased to tell you that one of the 10 areas that we reached agreement on was mandatory price reporting. The language that they passed said that we support mandatory price and volume reporting for livestock slaughtered, processed, or marketed in the United States by large packers, processors or importers that control a significant portion of a national or regional market for a particular commodity.
It is very significant that we have reached an agreement on this because we were working by consensus. That meant we didn't take a vote to see what most people wanted to do; any group at the summit had the ability to say, ''No, this doesn't work for our group.'' If they said that, then that issue wasn't included. But this issue, even under those very rigorous constraints, was included. It is so nice to be able to come with agreement to the committee.
The biggest thing that we talked about in that group and that our members talk about is the lack of competition in the marketplace. This is at the point, because there are a small number of packers, because many of the animals are advance-contracted, very few are sold publicly or on the spot market. It has resulted in a situation where the packers have excellent price information, but the producers really have very poor price information. I think that is the reason that everyone feels so strongly about having mandatory price reporting.
Fortunately, we already have a system that has voluntary price reporting. So we are not asking for any big new bureaucratic burden here. We are talking about a system that is already in place, only we would like to have it mandatory.
In the past, some people thought that voluntary would work. But, I think the ''Hog Procurement Practices in the Western Corn Belt States,'' the report that was released by USDA last fall, shows that voluntary price reporting has produced a situation which does not have accurate prices. It is not that the prices that are reported are not accurate; it is merely that they are incomplete. In order to have an accurate reflection of the prices, we need to have complete price reporting.
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Some people have said, well, maybe this would be too big of a burden on the smallest packers. If this was a concern, we could exclude them. Some people have also said maybe we should be concerned about proprietary information, but this also could be kept confidential.
Just to finish up, the last thing that I would tell you is that we would like to repeal the study that has been ordered by Congress, and instead, replace that with this requirement for mandatory price reporting. We think the fact that so many States are taking action on price reporting right now sends a good message to Congress that the time has come. As you know, South Dakota already has a law on mandatory price reporting. States like Missouri, Nebraska, and Iowa are working on that.
Mr. Chairman, we didn't testify yesterday, but we certainly commend you for holding the hearing on labeling, and we would like to tell you that we have strongly supported country-of-origin labeling for years. We look forward to working with the committee on both labeling and price reporting. Thank you.
[The prepared statement of Ms. Danielson appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Willms.
STATEMENT OF DON WILLMS, VICE-PRESIDENT, LIVE CATTLE PROCUREMENT, MONFORT
Mr. WILLMS. Thank you, Mr. Chairman and members of the subcommittee.
My name is Don Willms, vice-president of cattle procurement for Monfort, Inc., an integrated beef processor headquartered in Greeley, CO. Monfort is wholly owned by ConAgra of Omaha, NE.
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At Monfort and ConAgra, we know that we cannot exist without producers; we believe producers benefit from our processing and marketing expertise. Together, we form a mutually-dependent economic and marketing partnership. As you may know, the Monfort packing operation was started by an extremely forward-looking cattle producer who was interested in adding value to his production. In the 38 years Monfort has been in the packing business, we have worked together with producers during vast changes brought about by the market forces of consumerism, food safety, nutrition and health controversies, and other fundamental shifts that have affected our products and marketing.
I am here today to present our views of the discussions with cattle producers on price reporting. Mr. Chairman, during the hearing on February 10, the industry was asked whether we would work with producers to solve the price reporting issue. I commend the chairman and ranking member for their leadership in this area. We indicated that we would participate and are committed to its successful completion. The process has been extremely cooperative, with both sides learning a great deal about the other side of the industry.
Because we voluntarily report to USDA all of the information they currently seek, Monfort has not opposed price reporting in the past. We believe that the majority of the issues confronting the beef and pork sectors, however, are price and, by implication, supply-and-demand driven. None of the legislative fixes currently under consideration will solve those problems.
With regard to price reporting, our meetings with the producers began with the producers informing packers that they were interested in two primary things: Number one, price reporting on all of the cattle and hogs purchased by packers, and No. 2, greater pricing information upstream to signal to producers the type of cuts and quality of beef and pork most desired by the end consumer.
In meeting the first objective, all federally-inspected packing companies must be covered by this effort. Without broad participation, regional differences will lead to gaps in the reporting data.
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On the second point, to amass the pricing information upstream, additional information must be gathered. In beef, approximately 56 percent of the food dollar is attributable to the producer and packer segments, with 44 percent occurring after the product leaves the packer's loading dock. On the pork side, 51 percent is attributable to the producer and packer segments, and 49 percent beyond. And even though the producer's share of the beef and pork dollar has declined over the past 28 years, the packer's share of the consumer's dollar has declined even more.
Even with our support, we have concerns about the effort. Our primary concern with price reporting is based in the belief that, if producers can get company specific information, so too can our competitors, and contrary to popular belief, today we know very little about the pricing practices of our competitor.
We are also concerned about legislation that would restrict a producer's business practice. Producers should be able to implement their own business plans in a manner that best suits their management style and interests, whether that involves contracting or any other method to selling their production.
We are also sensitive to the costs associated with reporting programs. Contrary to the recent hype over earnings reports, the basic high-volume, low-margin businesses are not high earners in the context of other businesses, all of whom are competing for the shareholder dollar.
Although I work on behalf of the beef side of the business, let me offer a few comments on our discussions with the Pork Producers. Our pork side has the same concerns about confidentiality of competitive information. We are also concerned about disclosing information about existing contracts with producers. Although those contracts are already in effect, we believe that it would be a breach of faith with our producer customers to release their proprietary information. If that information is important, which we doubt it is, an alternative might be to require the impacted producer to disclose the terms of his or her arrangement.
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Lastly, it is extremely important—and I underscore extremely—that Congress embrace the proposal on a national basis. We are very concerned about the patchwork of reporting mechanisms emerging from many of the State legislatures. To avoid the commercially-disruptive situations, cattle producers, and I believe pork producers, jointly recommend that this legislation preempt State reporting requirements.
Mr. Chairman, thank you for the opportunity to share our views and perspectives. I am pleased to answer any questions you or the others members might have later. Thank you.
[The prepared statement of Mr. Willms appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Ms. Siddoway.
STATEMENT OF CINDY SIDDOWAY, VICE-PRESIDENT, AMERICAN SHEEP INDUSTRY ASSOCIATION
Ms. SIDDOWAY. Thank you, Mr. Chairman and members of the subcommittee. On behalf of the Nation's sheep industry, I appreciate the subcommittee holding this series of hearings on these critical issues of price reporting and of meat labeling.
I am a fourth generation lamb producer from Terronton, ID. We run approximately 14,000 breeding ewes. I also serve as vice-president of the American Sheep Industry Association. As you know, the devastation continues in the U.S. lamb industry with depressed markets and the unprecedented surge of cheap imported lamb. The priority for the mandatory price reporting in the lamb industry, Mr. Chairman, is to secure the wholesale cut prices of imported lamb.
Nearly 30 percent of the U.S. lamb market is now controlled by imported lamb, yet we have no price reports available from this huge section of lamb trades. The domestic industry with the U.S. Department of Agriculture have requested lamb importers, since 1997, to provide weekly lamb cut price information on a voluntary basis, similar to the price information provided by domestic lamb companies. This refusal of importers to cooperate with USDA on a voluntary basis makes it imperative that a mandatory system be implemented. We believe, Mr. Chairman, that it is not healthy for a market to dismiss price discovery for such a significant share of the market.
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Importers indicated to USDA that rejection of voluntary price reporting was based on concerns that providing price information would invite trade action. The U.S. lamb industry was aware of the dramatic underselling of imported lamb in the market, but the actuality to the degree of the underselling, came to light recently through the International Trade Commission's investigation. It was startling. The Commission concluded that in 8 product categories, such as racks, ribs, loins, legs and shoulders, imported lamb prices undercut U.S. prices 79 percent of the time, by margins averaging 20 percent to 40 percent.
ASI has worked with the domestic feeding, packing, and processing sectors in conjunction with USDA since early 1997 to implement improvements to the lamb market reporting system. In these joint meetings, six initiatives have been identified including the need to secure import cut prices.
We applaud the subcommittee's effort through this hearing and legislation introduced, such as H.R. 693, to initiate the process for effective price reporting. We have worked with the cattle industry as well, and believe nearly all of the provisions under consideration would be workable for lamb. Carcass price reporting will be important for the lamb market.
ASI is committed to bring industry segments input and consensus to the price reporting system for lamb in the United States. We pledge our assistance and support in working with the industry, as well as the subcommittee, in crafting and securing a price reporting system.
As the subcommittee is aware from earlier hearings, including the recent field hearing in California, the priority for the lamb industry for the next 4 critical weeks is the President's implementation of effective trade relief under the section 201 case on lamb imports.
Price reporting will be an important provision to a healthy lamb industry in the United States. However, effective price reporting alone cannot address the devastating financial crisis that thousands of sheep operations continue to face. Only effective trade restriction, as proven by the industry through the U.S. International Trade Commission, can deal with the surge of cheap imported lamb that is swamping the market. Effective trade relief with your help, Mr. Chairman, paves the way in our opinion to facilitate the price reporting measures necessary for livestock producers.
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I personally want to thank you, Mr. Chairman, for your words of support for the sheep industries tarried efforts from yesterday's hearings. I applaud the subcommittee for the leadership to tackle these critical issues on behalf of the Nation's sheep producers, feeders, and companies. Thank you.
[The prepared statement of Ms. Siddoway appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Bull.
STATEMENT OF KEN BULL, VICE-PRESIDENT FOR PROCUREMENT, EXCEL CORPORATION
Mr. BULL. Thank you very much. My name is Ken Bull. I am vice-president of procurement for Excel Corporation, based in Wichita, KS. Excel operates beef processing plants in Texas, Kansas, Colorado, Nebraska, and Alberta, Canada. We also operate pork processing plants in Illinois, Iowa, and Missouri. I would also like to state that I come from a cow/calf background in central Texas, that my family still operates.
I am pleased to appear before the subcommittee today to talk about the extensive discussion on price reporting that the producer organizations and several companies have been engaged in and are very close to completing. If adopted by Congress and USDA, the proposal will greatly increase the amount of market reporting and information available to livestock producers, who will, hopefully, end up making better decisions with better information.
Several of our organizations appeared before you earlier this year and committed that we would work together with the producer organizations in finding common ground on these difficult issues. Over the past month or so, we have had very serious dialog and have come up with, what I believe, accomplishes that goal. We aimed to create more useful, complete market data that will be relatively simple to follow, and have relevance to the industry participants.
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We also wanted to be careful about our effort did not get into the area of dictating sales terms or practices. Most importantly, we wanted to make sure that the outcome did not negatively impact the processing industry or the producers who choose to market their livestock through some fairly sophisticated formula pricing programs. Under these type of programs, producers raise livestock and fit them into very tight performance requirements and are paid according to the premiums and discounts associated with those animals.
While the plan that we have worked on may not include every provision that every stakeholder in the livestock industry would have liked to have had in, it goes a very, very long way. In fact, it goes farther than the packers would like to see it go. But we support it, we have worked in this effort with our producer friends. There was extensive give and take along the way, and I think the main thing is that there was a great learning experience for everybody involved, particularly the producer segments who got a great insight into the packer business.
The proposals my friends from NCBA and NPPC have outlined for you promote significant market transparency. They provide producers with the kind of information that they would most value. Importantly, this would not create a substantial cost burden on either, the industry, or the Federal Government. The cattle proposal, for which I am most involved, not only covers the marketing of cattle, but provides a clear window in the wholesale meat market, as well as, the import and export trade.
As the committee knows, this issue was the subject of some rather contentious debate in the last congressional legislation. The processing industry opposed proposals that were offered last year because they were too broad, and in our view could cause serious harm to the industry. But circumstances are different today. We have had serious dialog and the opportunity to have very long discussions with our producers to come up with a solid, sound, reasoned approach to price reporting.
The industry has moved quickly on this venture in an effort to head off several misguided legislation and some of the State legislatures. Many of these State proposals would cause serious harm to the industry, and to producers, in particular. For instance, the State of South Dakota has now made it illegal for producers to contract their agriculture goods to processors. Yet many creditors require contracts in order for borrowers to qualify for loans. Without access to contracts, we don't know what these producers are going to do. This is extremely shortsighted, and will lock South Dakota cattle producers into the past, and out of many programs that represent the future of the beef industry.
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Incidentally, we have had calls virtually every day from South Dakota producers asking what they can do to get around their own State ban on contracting. Some have suggested opening up P.O. boxes in Nebraska and asking if that will get around their own ban. We have had producers physically moving their cattle to Nebraska to get around their own State ban. I doubt if that is what South Dakota had in mind when they passed that.
Some State legislatures would advocate complete disclosure of pricing formula arrangements and contracting terms. This, too, is a terrible mistake. These are kinds of programs that reward producers for raising the livestock that the market most desires, a pay for performance type of arrangement. These grids are highly proprietary for both packers and the individual producers. Disclosure of the terms would simply broadcast our playbook to our competition, destroying any market advantage that we and our suppliers are hoping to create and take advantage of. This would undermine the value-based marketing programs that are benefiting many producers today, and that are roadmapped to higher value, branded meat initiatives. Only through these programs will the beef and pork industries reclaim markets lost to the poultry industries in the last decades. Undermining these arrangements will return the industry to a flat-priced, generic beef business that has contributed to the decline and beef demand that has gone on for 25 years. As you can see from these examples, a single, uniform national policy is required.
An interesting outcome of these discussions has been that producers have been quick to recognize that providing packers with too much information can actually put producers at a serious disadvantage. For instance, there are times when a packer's misread of market signals can lead us pay more for cattle than we would have had to. In such a case, better information would have a negative impact on producers. I will let the producer representatives here today talk about that a little further.
In conclusion, I would like to stop here and thank the committee for their work here. We think it is a very valuable effort here today, and leave it open for any questions that you might have. Thank you very much.
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[The prepared statement of Mr. Bull appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Evans.
STATEMENT OF GARY EVANS, EXECUTIVE VICE-PRESIDENT AND PRESIDENT, REFRIGERATED FOODS, FARMLAND INDUSTRIES, INC.
Mr. EVANS. Thank you, Mr. Chairman and members of the committee, for allowing us to appear before you today. My name is Gary Evans, and I have the responsibility of the beef and pork operations at Farmland Industries.
This past February, I testified before the full committee on this critical matter. At that time, I suggested that possibly the producers and processors need to get together and resolve some of these issues and disputes that they have.
Today I appear before you to share with you some of the progress from those producer industry discussions and suggestions that we, as producers or processors of meat, have with the issues involving price reporting.
Before I proceed, I would like to commend the committee chairman Mr. Combest and Ranking Member Stenholm for their efforts on this important matter and also for their help and their statement on March 8 of this year. Their leadership is certainly greatly valued and their efforts to maintain these issues as a national matter is widely appreciated.
As the largest farmer-owned cooperative and one of the few cooperatives who processes meat, we have a moral obligation to work with our producer-owners on marketing solutions that work for them and for their operations. Our voluntary price reporting of live hog sales, announced last October with the National Pork Producers Council, is an excellent example of producers and the industry working together to provide what we hope is valuable marketing information to our producer-owners. After working closely with our producer-owners and the NPPC, we were able to develop a program that provided valuable marketing information in a timely fashion to our producer-owners. After the February 10 meeting and hearing of the full House Committee on Agriculture, we at Farmland seriously accepted the challenge to work with beef and pork producer representatives and our producer-owners for a solution to this very complex matter.
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Since then, we have had the opportunity to participate in all the producer industry meetings. We also held innumerable informal discussions with producer organizations, a lot of the State organizations, and we visited with many of our producer-owners. We have challenged many of the individuals within our own organizations to develop workable solutions and innovative ideas.
We found the meetings and information and discussions we have had to be very educational, not only for us, but also, I think, the producers, and all parties involved. I believe that both sides have learned something valuable about each other's business. We must remember, though, as producers and as processors, we are only part of the total food chain and that chain is going through the efforts of supplying consumers with the products that they demand at the grocery store or at the restaurant of their choice.
Additionally, an important element that has developed since the February hearing is the action of State legislation that seeks to regulate price disclosure and related matters on a State-by-State basis. It is critically important that the policy on this important issue be directed from the national level. The general concerns that we have as we move forward in the process can be broken down in what I feel like are four major areas for the beef and pork side of our business.
Number one, information provided should be designed to have value for producers as they develop their marketing programs and their strategies. We are committed to working with individual producers to develop marketing plans to meet needs of our consumers, as well as fitting into the scope of their operations. No. 2, disclosure should be arranged in a way to maintain a competitive domestic industry and to protect the bid-ask environment from anti-competitive behaviors. No. 3, the value-added branded products sales need to be excluded or protected in disclosure legislation.
As I indicated last time, Farmland has over 7,200 individual pork products and over 500 individual beef products. We made substantial investments in advertising and promotion, product development, market research, and would feel that it would place us in the competitive disadvantage to disclose sales information on some of our branded products. We have adopted business strategies to develop branded Farmland products in efforts to return a greater value and a greater share of our producer-owners' marketing dollar.
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We need to allow producers to continue to develop marketing strategies—and this is the fourth suggestion, or recommendation or concern—we need to allow producers to continue to develop marketing strategies, such as U.S. Premium beef, that will truly add value for producers. By producers taking an active role in the marketplace and by aligning themselves closer to consumers, producers' opportunities for success are greater. And this is all being done, we feel like, from the bottom up and that is very critical in our organization.
Again, I appreciate the opportunity to appear before the committee and share with you the concerns that we have. I think that the industry group, as well as the producer groups, are making very positive progress in this particular matter, and we look forward to the outcome of that. I think it is going to be very positive for the industry.
[The prepared statement of Mr. Evans appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. McNutt.
STATEMENT OF JOHN MCNUTT, PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
Mr. MCNUTT. Good morning. My name is John McNutt. I am president of the National Pork Producers Council. My wife and I run a family-owned farrow-to-finish hog operation that markets about 5,000 pigs per year.
To go through a little history, pork producers for many years had resisted mandatory price reporting, and we tried very hard to develop a voluntary system, in which Farmland did participate. That system, because of fairly limited participation, was not able to do what we felt was necessary. Pork producers have come to believe that to be able to make knowledge-based business decisions for the future, pork producers must have a transparent, accurate, and timely livestock market reporting system. That system is not available today.
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We believe it is time to demand real and meaningful market transparency in the livestock marketplace. This is the only way that pork producers, regardless of their size, can reestablish their position as a profit center in the pork industry. Pork producers are in agreement that USDA must institute a mandatory livestock market reporting program for meat packers, reporting prices paid, volume, and terms of sale for the procurement of domestic and imported livestock.
A change in law is necessary on livestock market reporting, and pork producers are calling on Congress to pass legislation this year mandating the following five swine-specific provisions: Mandatory livestock price reporting; mandatory swine marketing contract reporting; improved monthly retail price reporting; monthly—rather than quarterly—hogs and pigs inventory reporting; and a determination of the Secretary's jurisdiction powers, duties, and authorities.
Eight of the 65 resolutions that pork producers acted on at our recent annual meeting dealt with mandatory price reporting. Pork producers support USDA implementing a comprehensive mandatory livestock price reporting system that will again provide timely, accurate, and reliable market information to swine producers. This means daily reports must be made available by 8:00 a.m. each day of packer operations from previous days. These reports should include all by data from all swine purchased or committed to deliver to a packer the previous day. This information should be grouped by purchase type, to include all spot sales, formula contract, risk management contract, future contacts and related data, and packer-owned. The kill data should be broken out and listed on the report. Further, we believe there must also be a mid-morning and a mid-afternoon report capturing the estimated volume and the base market value for all negotiated sales—mandatory swine marketing contract reporting.
Pork producers support the grain inspection. Packers and Stockyard Administration maintains a library or a catalog for each type of marketing contract currently being offered by packers who slaughter in excess of 250 pigs per day. A contract listing should be plant-specific and should contain the price determination methods being used for the swine being covered by the contract, including non-carcass meat premiums, such as time and delivery. Copies of such contracts should be made available to swine producers and other persons, either by mail or electronically via the Internet.
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Pork producers support USDA compiling and publishing an approved monthly report on retail sales of meat products that includes total sales volumes in pounds and dollars. Pork producers support USDA implementing a new, simplified monthly hog and pig inventory reporting system in the 17 leading hog-producing States through the use of modern technology, such as the Internet, with the goal of improving the accuracy of pig crop estimates. USDA should continue to maintain and publish the current quarterly report for a period of not less than 8 quarters.
Pork producers support a new report by the General Accounting Office, or another objective, respected entity, setting forth the Secretary's jurisdiction, powers, duties, and authorities, as set forth in the Packers and Stockyards Act of 1921, and all other relevant laws and precedents, such as the Federal Trade Commission Act.
The National Pork Producers Council is anxious to work with Congress and to pass meaningful and effective price mandatory reporting legislation this year, ensuring the accuracy and the timely information is available to assist pork producers in making the market decisions appropriate for their hog operation. Information and knowledge are power in today's marketplace. Their disclosure is critical to pork producers' ability to grow, be profitable, and to compete globally in the 21st century.
We intend to make available to this committee in a very few days, probably mid-next week, the suggested legislative language to carry out the provisions that I have talked to you about today. We have worked well over a year, probably longer than that, and we—with your committee suggestion—have worked very diligently with the packer community in developing this legislation.
I think it is also very important that we be very careful about what we end up creating, to make sure that what we create is something that actually does good for producers, and does not set an arbitrary ceiling, that we do not take away the ability to have creativity and innovation in our marketing arrangements. Marketing contracts are a very important risk management ability that we all need to deal with. Pork producers are very skeptical on a whole, and they want to be sure that what we end up with is very prescriptive and very pertinent to the pork industry.
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We urge, too, that this legislation be approved with the Agricultural Marketing Service for the collection and analysis of the data, and the Packers and Stockyards with compliance and enforcement. And, again, to reiterate what you heard from here, it needs to preempt State regulations because this needs to be a national bill.
Thank you very much.
[The prepared statement of Mr. McNutt appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. McNutt, I take it from your testimony that you believe that there is a necessity for a legislative fix, that it has to be a legislative fix in order to achieve what you need or what your industry needs?
Mr. MCNUTT. That is correct. We tried a voluntary system. We worked hard at it. We did a lot of discussions, but it just did not seem to work.
Mr. POMBO. Mr. Swan, I wanted to ask you the same question. Do you believe that it is necessary to have a legislative fix or that the agreement that you are currently working on is going to necessitate a legislative fix?
Mr. SWAN. Mr. Chairman, you know we have tried to incorporate a voluntary system for the beef industry, and producers here in our country feel like we have got to go through a legislative process to bring this to a decision. If there is a way that we could solve the problem, I would like to think that we could do it, but right now it looks like we are headed down the legislative track.
Mr. MCNUTT. If I could also add to that—I mean, if you look at all the stuff that is happening at the State levels, I think it is imperative that we have a national position.
Mr. POMBO. Let me ask Mr. Swan the same question then, or to respond to what Mr. McNutt said. Because of what is happening State by State, do the cattlemen feel it is necessary that there be a uniform national policy?
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Mr. SWAN. Well, I think it was pointed out by Mr. Bull that there are some inconsistencies occurring within some of the State legislation that may have an adverse reaction to some of the producers, because of contract situations. Even though I am not an individual who likes a lot of Federal mandates, and I believe in things occurring at the State level, I also realize that to have some consistency and some harmony within the industry, that maybe some Federal mandates are necessary at this time.
Mr. POMBO. Mr. Swan, one of the concerns that I have, or questions I have, is on mandatory reporting and the impact on, if you require it on every single federally-inspected packer and how that impacts the really small packer. How does your organization feel about extending it to everybody versus the larger ones? Or I don't know exactly what the breaking point would be to differentiate between the large one and a very, very small packer.
Mr. SWAN. Mr. Chairman, our policy at National Cattlemen's Beef Association called for any federally-inspected plant processing 5 percent or more of the daily kill.
When we sat down with the packers to discuss this, looking at the major packers who are probably processing approximately 80 percent of the cattle, they said, well, are we really going to be getting the data that needs to be going out to the producers at all levels? So that point, with basically agreement with the producers within the room and the packers, we said, well, let's go for all those that are federally-inspected, make a clean sweep of it.
And I know it has been testified here today of the 5 percent. Here again, we know that, through our negotiating process, that what becomes a legislative reality is something that we are willing to continue to work on. But we felt that, with a 20 percent void there, that maybe the information that a lot of the producers wanted out there would be missing maybe a link to bring it to a total picture.
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Mr. POMBO. Let me ask it this way: I have a very small packer in my district that may do 50 to 100 head a week. Do you think it is necessary to include someone of that size?
Mr. SWAN. Here, again, our policy was not including that, and if it comes down to this legislation to that point, our policy calls for those that kill over 5 percent. So, NCBA's policy would say, yes, we could go back and readdress that and exclude some of those packing plants.
Mr. MCNUTT. If I could make a comment on that. We did do 250 head per day. We intentionally went to that level because, as our industry changes and evolves and we try to get closer and closer to our consumers around the world, we are seeing the development of niche markets, and very targeted markets, and very specific things. We know that value is being created sometimes at the smaller and more reactive plants. So, we wanted to be able to pick up and capture that value at that size plant.
Mr. BULL. I think, also, our discussions were about federally-inspected plants, and so someone that is only killing 50 head a week is most likely not federally inspected and would be precluded from this.
Mr. SWAN. Mr. Chairman, I would like to comment on that, too. If we included those that killed 50,000 head per year, we would then achieve probably a 95 percent reporting rate. So if you look at that on number of working days it would probably exclude that particular plant that you were referring to.
Mr. POMBO. Ms. Danielson.
Ms. DANIELSON. Thank you, Mr. Chairman.
The 5 percent of market share makes sense for our members, too. The one thing that you might want to look at, in addition to that, is market share within a region. And people say, well, how do you figure out a region? Maybe even look at a State. And if a packer had, for example, 30 percent of the market within a State, then they should also be included in the reporting requirement, even if they did not meet a 5 percent national level, because the regional concentration situation is also a concern.
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Mr. POMBO. Mr. Willms, did you want to respond to that?
Mr. WILLMS. I guess I would agree with Ms. Danielson. There are certain pockets in this country that do not have a large packer located in the region, and to exclude those small packers that operate within those areas would not be giving the type of information to the producers in all the States that we need.
Mr. POMBO. Could you agree that there would be some breaking point or do you think it is necessary that every federally-inspected plant be included?
Mr. WILLMS. Personally, I would like to see every plant report. Any breaking point would be strictly arbitrary, and I would like to see them all report.
Mr. POMBO. All right, thank you. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman.
I commend everybody for working together on this. My question is, is USDA involved in this process? Are they sitting in on these negotiations, or whatever is going on?
Mr. SWAN. Mr. Peterson, I would like to address that. Mr. John VanDyke from AMS has been involved in, I think, almost every one of our calls that we have had, and here again, we have had over 15 meetings or calls since the 22nd of March.
Mr. PETERSON. Now if we have a bill in this area, have you gotten to the point of thinking about whether you are going to ask us to write the parameters pretty tightly or whether we are going to do what we normally do and make it pretty open-ended and let the Department write the program? Have there been discussions to that level of how this would work?
Mr. SWAN. Are you addressing me, Mr. Peterson?
Mr. PETERSON. Whoever wants to answer it.
Mr. SWAN. I guess I could start first.
We feel that we are printing some sideboards on the negotiations that we have been doing with the packers. We would like to see those sideboards put in place, so that it will not give some of the latitude. We know that, when some of the rules and regulations are being written, they have to see how they are going to work into. We have been drawing up examples—how would this work under the present situation, the system that is in place today? We do not want to create a situation where additional cost is involved. There is some funding available for different areas, but we want to set the sideboards through the negotiations that we have had, so there won't be the latitude under other legislative procedures.
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Mr. PETERSON. So, in another words, if you come to an agreement, you would like us to put that into the legislation, so it is actually in the law? Is that what you are saying?
Mr. SWAN. That is basically what we are saying.
Mr. MCNUTT. Yes, the pork industry is also writing a bill that is very prescriptive, and we are in constant dialog and discussion with the packing community about those things. So when that comes forth before you, it will be prescriptive.
Mr. PETERSON. Do you think everybody will be on board with that type of idea? I mean, we have been through this with some of these other issues, and if you got everybody on board, we would probably legislate it, but if you got some people that are outside the tent, you may end up screwing up the whole deal.
Do you think you are going to get to a point where you have got everybody on board, so you can actually legislate specifically what you are going to do?
Mr. KLECKNER. I think your point is well taken, and I know I pointed out in my oral testimony that we all ought to be onboard on this. And I don't think that we all ought to try to write the law exactly. Maybe some of us will try, but we ought to have general agreement about what the parameters ought to be, the sideboards, as George Swan said. And when that happens, I think this committee—you folks can write the law and we all ought to be able to say, yes, you are right, and be supportive and get it done.
Mr. PETERSON. Maybe you don't know the answer to this, but is USDA comfortable with that kind of a procedure that we would write—because generally that is not the way it works—this so that their hands are tied? Are they OK with that?
Mr. SWAN. Mr. Peterson, we understand that there will be some necessity for latitude for the Secretary in some areas here. But, here again, the process that was initiated by Chairman Combest and Mr. Stenholm was for us to sit down and try to hammer out some of these situations, and we know that we are not the ones that sit down and write the rules, but we are trying to, as Mr. Kleckner said, set those parameters so that we can work within that framework. And I know that is a little bit out of the ordinary, but we realize there should be some latitude available to the Secretary in writing some of the rules and regulations.
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Mr. PETERSON. This next question I am not sure if I should ask this, let's make an observation that I think it is somewhat curious that we have beef and cattle and sheep here, and we don't have turkeys and chickens. I don't know exactly what that says. But what I would like to know is the economics of this or how this would actually work in the real world. If we pass a bill, whatever, what is this going to do to affect the economics for the producer?
I don't know if I understand—the fact that they have all this information, are we sure that that is going to raise the price for producers? Or could it lower the price? I mean, I think what my producers want is they want better prices for their products and they don't really trust the system. I understand that. But, if we pass legislation, what guarantee is there that this is going to produce any better pricing situation? Is there any information that says that will happen? Any studies been done that guarantee that we are going to have higher prices?
Ms. DANIELSON. Mr. Peterson, I would like to answer that. Our producers are so concerned that currently there is not enough competition, and from a practical standpoint, it seems like this can be done fairly easily. People call in and do daily reporting. It is announced three times a day, the price. They can get some of that information now, but they can't enough information. And what they just want is better market information, so that they know when they go to sell their cattle, OK, if you are offering me this amount, but I know that you just offered this amount to other people, they want to know that. And they feel that competition will fuel innovation and that this will give them the best possible information. If there is one time maybe when they don't get as much, that's not the concern. The concern is overall that they don't have the information. When people use the New York Stock Exchange, they have all that information, and producers want that same information.
Mr. PETERSON. I understand that, but the stock market goes up and the stock market goes down. And I think I understand where they are coming from, but my question is, are we absolutely sure this is always going to be an up-side situation? I mean, I think more information could possibly cause there to be more competition, could cause them to get less money for their products. Has anybody looked at that?
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Mr. MCNUTT. If I can make a comment—yes, very much so. There is really three components of this. We are talking about timely transferring and accurate information, but that doesn't say anything about what is the value of the animal. So we are doing a second component, which is really we are looking at: How was value determined on the animal? How do we know what the animals really should be worth? That is really outside of this issue that we are talking about. This is an extremely important leg of the whole system, but it is not the only one.
And the third part of that is position. Where are producers positioned in the market. Are they positioned in the right place to be able to capture the value they are creating or to capture their fair share of that value? So it is a very complex issue, and you are absolutely right; this by itself is not going to suddenly make everybody have more money in their pocket, but it will give them the information, that they know what is going on in the marketplace.
Mr. KLECKNER. Mr. Peterson, I would agree with that. There is no way you can guarantee it is going to make higher prices for producers. Four of us at this table are producers. Nancy Danielson represents a lot of producers. I cannot see the down side of it either. You said, will it bring lower prices? I just can't see how that would happen.
But let me tell you, as a pork producer—and I presume, George, beef producers and lamb producers are the same—I just like to know what are the prices being paid that day. In December, prices for hogs got down to $7. I think was the lowest price per 100. Probably prices that day that were quoted were $7 to $10. Luckily, we did not sell any that week. The lowest we got was $17. With the premiums that were offered, base price was $13; we got $17.
But the rumors in the country were, but look at all those guys; they have got them under contract and they are getting $40 a 100, selling the same day I did. I doubt if there were any contracts at $40, but there were probably some at $35 or $36 that same day. In the absence of facts, rumors prevail, and farmers and rumors, we always look at the darkest side and we blast the packers and the retailers for the blankety-blank prices that they are paying to somebody and they are charging consumers, and we are not getting it.
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What's wrong with simply having the ranges paid that day, so that we know, and that in itself—where I might not get any more if I didn't contract, at least I would know what the actual facts were, and not the rumors that are always assumed are worse than what the actual facts would be.
Mr. SWAN. Mr. Peterson, may I comment on that also? I agree with Dean. You know, many times the producers in the beef industry are price-takers. We have got to take what they offer to us. What this is doing is giving some transparency to the market that will give that educated choice, the producers, if they so desire to use it in maybe negotiating the price for their cattle. This is what it does.
Also, in today's market we are seeing a change in our industry of the value being added to those animals, and the premiums and discounts. It gives them an opportunity to know exactly what they are doing with their cattle and how they can best market their cattle. And so, this is an opportunity for them to be, rather just than price-takers, they might be able to be part of the price-setting, you might say.
Mr. PETERSON. I understand that and I appreciate that, and I think we all agree we are trying to get there. But one of the things that concerned me with the discussion, and it was not so much in my area, but unless I heard it wrong, is that there were people that were blaming folks that were contracting for the problem. And it just seems to me that those people went out and protected their risk and maybe in a way gave up some of the up-side to protect themselves, and then these guys that didn't do, that were playing for the higher prices, all of a sudden it collapsed, and then they turned around and blamed the guys that, some would argue, made the best business decision. So, that is part of what I was concerned about.
Mr. MCNUTT. Mr. Peterson, you are absolutely right. When people were getting $10 and $8, there were people getting $40, but they had priced to put those hogs on contract, even up to a year in advance of that.
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Mr. PETERSON. Right. They didn't get it that day.
Mr. MCNUTT. And they did it for $40, instead of $50, and they are going to take $40 when hogs go to $60; they are still going to get 40 bucks. And it was a risk management decision.
Mr. PETERSON. Right.
Mr. MCNUTT. But the current system we have doesn't reflect that. And in the absence of that, there is a lot of innuendo; there is a lot of bogeyman out there. We have to have a system that gives the people knowledge, so they know what is actually happening out there. So they have knowledge to understand how the market is working.
Mr. PETERSON. Well, I appreciate that, and I think that some of that information is there already and these people still go after bogeymen, you know.
Mr. SWAN. Mr. Peterson, may I comment again on that? You know, we believe in the free market system here in this country, and so what we are asking for is price reporting. We are not trying to take away the ability for anyone to market their cattle the way that they want to market them. We don't want to decide for them how they can or cannot market their cattle. We just want to be able to have the price reporting coming back.
Mr. POMBO. Mr. Combest.
The CHAIRMAN. Thank you, Mr. Chairman.
According to figures that we had had put together, in today's market, a 5 percent share of the market would be about 18,000 hogs and 7,000 head of cattle a day. Ms. Danielson is correct in that there are a number of States that would have no packers reporting, if you used that threshold. If that is a regional market, then anybody that sells hogs or cattle in their regional market would not have transparency.
And so, as we proceed with this, the discussion about how we reach—in fact, if there is—a threshold, maybe on a regional basis a percentage within a region or State or something might possibly be necessary. Because it takes a fairly good size operation to be killing 7,000 head of cattle a day. And again, there would be a number of States that would have no reporting at all. So we might want to be sure we look at that.
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Mr. Kleckner, in your statement you said this issue is too important to rush to finish just so there is legislation, and I totally agree. That is why this committee has been so active on this issue and the country-of-origin labeling issue. We don't want to lose control of this. We don't want this just to be stuck somewhere on a bill down the line that we don't really have any grasp over it. And what we want to make for sure is that, in the end, this thing is done right. And so I think that again that is why there has been a great deal of activity.
I would ask to you, Mr. Kleckner, and to Ms. Danielson, primarily this question: As you are aware—and let me, first of all, before I ask this question, commend everybody for all of the great effort that has been gone on in this. This is exactly where I think we wanted to try to get with this issue at some point, and in the end, hopefully, it will be something that is agreed to unanimously.
But, as you are aware there have been these discussions going on between the producers and the packers, and it is my understanding that both of your farm groups have been briefed about the discussions. Could you both tell me sort of where you are at this point in terms of those discussions that are ongoing and how you generally view those?
Mr. KLECKNER. Mr. Chairman, excellent question. Our staff here in Washington and our main office in Park Ridge, IL have been involved in the general issue. I don't know that we have been involved in the direct discussions or not—we have not. But I am not at all upset about that; I think we need to be. Our members—and I am sure Nancy Danielson will say the same thing of NFU members—our members are largely the members of the NCBA and NPPC, and leadership often is past or present. So while we are not directly involved, we have been kept informed. I just think, as it moves forward, though, certainly from Farm Bureau—and I will let NFU speak for themselves—I think we need to be a bit more directly involved, but no reason that I think we won't be. I think the opportunity will be there for us to be involved. I am not critical when I make this statement.
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Ms. DANIELSON. I think we are pleased, too, that the discussions are moving forward because this is such an important area. The bottom line is what we end up with needs to be something that gives producers good information on price, volume, terms of sale. We want to include information about imports and exports. And we want to know information on formula pricing, what kind of prices are being paid for that. So if we end up with legislation that can do that for us, we will be very pleased.
We have been sent some drafts, as people are working, and I assume that will continue. And we just appreciate that is moving forward. Like Mr. Kleckner said, we would like to be more involved as we get closer to reaching the final ''Okay, here is what works for people.''
The CHAIRMAN. Thank you. Thank you, Mr. Chairman.
Mr. POMBO. Mr. Stenholm.
Mr. STENHOLM. I, too, commend all of you at the table for the spirit in which you have undertaken to deal with this issue, and to deal with it as you are doing, I think we will come the closest to getting the end result that everybody has testified to today. For that, I hope you will continue and will give the guidance.
I have got one question, but I want to make one comment, and if you haven't done this as yet, perhaps you may want to look into another marketing system that is working very successfully for cotton. It started in 1975 in Texas. It is called the CalCot System. I believe California has a CalCot. I believe other regions of the country have similar computerized trading systems.
The first reaction to producers at that time was negative, because many producers felt like they really didn't want the buyer to know what they were willing to sell their cotton for. And it was an interesting discussion as we got into it, but today I think you will find overwhelming support. Perhaps it is one of the better reporting systems that we have got for any commodity. Because, on any given day, any cotton producer in any of the gins participating, both cooperative and independent, you can sit at a computer screen and witness who is selling what, total quality, everything that you need to know about the particular lot.
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You also have a system called the firm offer, in which producers will offer their cotton at a firm offer, and everybody can see it. There is no such thing as proprietary concerns. And that is one thing that bothers me when I hear many on the processing side of agriculture worry about proprietorship. That is fine, I understand that, but when you are talking about a market system, there is a certain loss in that that is what we are trying to address today. When a contract is offered, when someone buys it, it immediately shows on the screen that that lot of cotton sold and at what price it sold.
That is what I hear producers asking for, and that is what I hear those of you from Farmland and from Monfort and all have said you are willing to do. You are willing to voluntarily to do it.
But the interesting thing about the comment on contracting, been there, done that. That is a perfectly legitimate business decision that was made by those that made that decision. It should not be held against them, and I cannot imagine the logic of anybody wanting to make that against the law, particularly in this area that we are now moving into.
But 50 buyers right now today on cotton have complete access to every bale of cotton yet to be sold on these systems. And I do believe that there could very well be interchanges going on between different systems; in fact I know it is, at least from the buying standpoint.
But I think, in the light of the debate of the testimony this morning, the discussion, the good-faith efforts that are being made, that is very achievable. That is something that can be done in this modern computer age, in which you can have open and honest reporting of pricing.
And, Mr. Willms, regarding the lamb and import question, I think that is absolutely critical that we have open, honest pricing, not only for lamb, knowing the significance there, but for any products coming in. The idea of proprietorship in which somebody should have a secret bothers me tremendously. I think that if, in fact, we can't, through proposed legislation or proposed administrative changes, come up with a better system—and a better system being, again, defined to me as a cotton producer, I can sit down at any moment of any day and see exactly how many bales traded. I can find out who bought them. I can find out what price they pay. It is right there in front of me. I don't have to go ask anybody. I think that is good.
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To those who import into this country, I think they should be absolutely willing to put that information down, so that we know the price that is being paid by those who are buying it in the same way in which we ask our domestic processors. Those of you who deal with it on a domestic, I would hope that you would want and ask for and insist on the same kind of reporting.
My question is this: I want to be sure I understand. So far in the discussions, are we looking at the need of legislation or are we looking at administrative changes, and in your discussions has USDA been involved with you to this point? To those of you who have been participating in these discussions.
Mr. MCNUTT. Yes, USDA and Packers and Stockyards have been involved in every one of our general discussions. Yes, we are looking at a legislative system. It seems to fit.
To go back to your first comment, we talked about that, the three legs, the things that we have to do. It is important to understand the value, what you are talking about is a lot, and how you determine what value is. We are actually working on a system toward that end.
Mr. SWAN. Mr. Stenholm, yes, USDA has been involved on every one of our meetings. Mr. John VanDyke from AMS has been involved. Here again, our policy at NCBA is calling for legislation. They think mandatory is what they have got to do, and so that is where we are moving at this point. So, that is why we are here today.
Mr. STENHOLM. I assume everyone else at the table concurs with those two answers to this date.
Thank you very much.
Mr. POMBO. Mrs. Chenoweth.
Mrs. CHENOWETH. Thank you, Mr. Chairman.
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Mr. Chairman, again I wanted to welcome the two witnesses from Idaho. I am very proud of their leadership and very pleased that they are here today.
I learned a lot from your testimony, and I do want to say that, as you move through these negotiations, there are some things that I have jotted down that I am going to be watching for. And I think it is only fair, since you are in this set of circumstances, that I let you know what we are going to be watching for here. I know that the courts will be dealing with some of the class actions issues that are maturing.
I also want to say that the Congress, when they feel the need, must move ahead and pass legislation that will free this situation up that we find ourselves in. But, I guess I am really looking to see that we address the issue in areas where the rubber really meets the road. I mean, how are we going to make this thing work?
One of the concerns that I have is that meat packers already computerize prices and volumes and quality data from each and every purchase for internal management purposes. A relatively simple development of software could uplink the pricing and the quality data, unconnected to privileged corporate information, for use on the Internet. This would make the system self-executing and reliable and inexpensive. I think it is something that could work, and I hope that you will be addressing those very basic things.
This would eliminate the problem with the farmers and ranchers receiving only historic information, because it would be closer to the real world of real information in a timely fashion. This is the same system that already applies to the futures market, to the options market, the bond market, and the equities markets, where it is unquestionable that the market structure must provide full and relevant information to both the buyers and the sellers. Because historically the auction markets were the primary price discovery mechanisms. They were of course usurped, as you know, by the direct cash market, and that resulted in USDA reporting only that market.
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Now, I know that in Idaho and every place else, the forward contracting has eclipsed the cash market as the primary flow of livestock transactions. And so, it is essential that we address full information, not only in cash markets, but in forward contract markets, to modernize and open up our livestock markets and pursue full information and efficiency. It is important to report relevant wholesale meat transactions, to provide real pictures, like farmgate prices and wholesale meat prices and future prices.
Now one other thing that I would like to address that I am going to be watching is that right now the only so-called confidential data that must be disclosed under mandatory pricing is the packer-to-packer trades. All meat packers, of course, admit that they sell livestock to each other for various reasons. But we need to protect the packers from the potential of collusion through packer-to-packer trades and an ongoing struggle and conflict here, because such transactions must be specifically identified and separated from the bulk of the market information. And I think where the rubber really meets the road and where our goal is, is the transactions must be relevant to the supply and demand between producers and packers.
So these are the things that I am going to be watching for in terms of how we move from the concepts, and what we all agree are great goals, to the real working of fair market pricing.
Mr. Swan, do you have any comments on that? Or Mr. Kleckner, or anyone who would like to comment?
Mr. SWAN. Well, thank you, Mrs. Chenoweth. I concur with what you are saying. We will be looking at these as we are continuing our negotiations. We wanted to explore all avenues, so that we accomplish and make sure that we are getting a true and fair picture, an honest picture of price reporting. So we will be addressing those.
Mr. KLECKNER. Real quickly, Mrs. Chenoweth, excellent question—or comments and question. Your comment about packer-to-packer trading—and I am not aware of figures on that; I am sure they are available and I just don't know. But anything like that, it seems to me, could skew the average, and I think that is what you were saying. I think we have to be careful that doesn't skew what we are trying to do.
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What we need is the honest reporting of what producers are being paid on a daily basis, the range or the averages, or some combination. So that producers will know—it will give them, I think George Swan or someone said, a better chance to market, to know what is going on. And that is what we can then play off of, and as I said, not to rumors that are pervasive industry today, especially in low-price times.
Ms. DANIELSON. I would like to comment, too. I think our members would love to have the kind of information that you are talking about, and particularly to have the packer-to-packer trade information separated out. I think they would feel like that was exactly the information that they need.
Mr. EVANS. I would like to ask just a point of clarification as to what we are talking about as far as packer-to-packer trade.
Mrs. CHENOWETH. Well, there are times when packers move their own supply from one packer to the another. I think one of the companies represented here just recently, within the last few months, moved a large supply of their captive supply to another packer. While we are aware of it, we are also aware that it can skew the demand part of the market dynamics. So that is why we like to make sure that that is included in the data; plus, forward contracting, because right now one of my concerns is there are only certain people who are contracting and there can be other cooperative efforts, or so forth, for contracting that may not now find themselves able to enter into that market. So, that is why I brought those concerns up.
Mr. BULL. Just maybe a point of clarification: There is roughly 25 million head of fed cattle traded in a year, and at Excel we have never bought cattle from our competitors nor sold to them. And in the last year there may have been the one trade of 7,000 head that may have traded from packer to packer. So, just a point of clarification, that there is not a lot of daily, or weekly, or even monthly trade going on between packers. That was a one limited example that occurred in the past.
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Mrs. CHENOWETH. Mr. Chairman, I would be happy to supply information to the committee, should you wish for negotiations.
Mr. EVANS. I would have to agree with Ken. Of all the cattle that we slaughter and all the hogs that we slaughter, we certainly don't buy from our competition and we don't supply our competition.
Mrs. CHENOWETH. Mr. Chairman, I am aware that this has occurred, though, and is occurring. So there might not be anything—there isn't anything wrong with it, so long as it is reported, so others can have a fair entry into the marketplace.
Mr. POMBO. Mr. Dooley.
Mr. DOOLEY. Thank you. I really want to commend, as many of my colleagues did, the work of people who have been trying to resolve this very difficult issue by the discussions that have occurred over the past few months.
I guess, though, that I want to step back. The foundation for this legislation is, I guess from my perspective, that there is a market imperfection, and that producers feel that the marketplace in some respects is breaking down because there is not enough information. But if you do accept that, then there should also then be able to be developed studies and analysis which would show a deviation from prices that would deviate from what normal market, supply-and-demand situations would dictate. And that if you also argue that this is needed more today in an environment where we are seeing more concentrations, that there should also be a deviation from expectations, based on what was happening 10 years ago versus today.
So my question, primarily to the advocates to this legislation, is: Do you have any studies that can demonstrate that we are seeing market prices that are, in fact, deviating from supply and demand, what we would normally expect under the supply-and-demand situations that we have seen? Mr. Swan.
Mr. SWAN. Yes, Mr. Dooley. We have been tracking the retail and the farm spread right now. We have seen a widening of that occurring today.
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Mr. DOOLEY. I don't disagree with that, and there is a lot of different things that can contribute to that, but at the producer price level, have you—I mean, that is where we are headed and a lot of this information is at the producer price level and the pack level. Are there any studies out there?
Mr. SWAN. I don't know if we have got any studies other than the fact what we are tracking at this point.
Mr. DOOLEY. It is the difference between the retail spread? There has been some change there.
Mr. SWAN Right.
Mr. DOOLEY. Which could be attributed to factors other than it could be value-added and a whole host of things, cost of marketing, advertising. Where I think, though, there would be a great deal of more similarities is on the producer side. That is where I am really interested in.
If this information is needed and we are trying to address a real problem, that there is in fact a market imperfection here of some type, then we ought to be building this need for this legislation upon real data that has demonstrated a real deviation from what should be expected under market conditions.
Mr. DANIELSON. Mr. Dooley, the most recent study that I am aware of is this one that USDA did, ''The Hog Procurement Practices in the western Corn Belt States.'' And that study did show that the reported prices were not accurately reflective of the actual market prices. I think that is the closest thing to being on point to what I can think of.
The other thing is that, when Robert Taylor, the economist from Auburn University, testified at the concentration hearing, he also testified that the difference between the retail spread and what the farmers were getting, and the big difference that has occurred in recent years could not be attributed to the value-added process; that it was bigger than that, and that it looked like the real reason for that probably was market concentration and the greater ability within the market, because of the increased market power that had not been there in earlier times.
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Mr. DOOLEY. I guess, then, the issue though is, how will price reporting data that we are asking for have any impact on the retail spread? I don't understand—what is the correlation here between retail spread and this price reporting data?
Ms. DANIELSON. All it does is make the market more competitive, because if everyone knows what everyone else is paying——
Mr. DOOLEY. So the producer is going to have more influence over that spread because they know what those prices are?
Ms. DANIELSON. The producer has the opportunity to go to the person who is paying the best price, and right now he cannot necessarily do that because he does not know what the other ones are paying.
Mr. DOOLEY. Yes, Dean?
Mr. KLECKNER. Mr. Dooley, I have thought a lot about this. I don't know of any studies—there have been retail price spread studies done, but I am just thinking the criticism that I heard last December, at the most, was over the very low hog prices and the fact that the retail prices were still high. As I thought about this, it seems to me that those $7 to $10 hogs that we were hearing about daily was not the average price that was being paid with the contracts in. So, if we would have known what the average price was, it would not have made farmers any happier probably, but it might have made the consumers a bit happier, or the retailers perhaps.
We ought to know honestly, was that retail price spread as bad at it appeared to be, when the only thing we were looking at was the reported cash price, which in my view was not the right prices. They were higher than that. I didn't get any higher, but many farmers were getting $30, $40. So the average might have been $18 or $20, not $7 or $8. But we don't know. So we are speculating.
Mr. DOOLEY. I guess I am not convinced yet that this mandatory price reporting, even if producers know that price spread, I don't know how producers are going to have any influence on that. They might have more to complain about, but I still don't get what the influence will be there. And I guess that is where my concern is: Do we need a voluntary or mandatory, do we need government mandating this, again? Because even in the cotton pricing situation that Mr. Stenholm was talking about, I think that is a voluntary program. There is not a government mandate that we do this in the cotton industry, which I would benefit from. And it would be my hope that in the meat industry we can do the same thing, because when I look at this, there are always two parties to a transaction.
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Mr. Swan, when I look at the cattle industry, you have got ever producers out there that knows exactly how much he is getting paid for his live cattle he is selling to a packer. I mean, I don't understand why the cattlemen cannot put together a web page, an Internet site, and have each one of them report the price they receive, and you have got the live cattle price that you can put together pretty quickly. And I guess I don't know why we necessarily need to—I guess I am not convinced that we need this mandatory approach, another government mandate here.
Ms. SIDDOWAY. I would like to respond, if I may, on behalf of the sheep industry. We have tried voluntary and it doesn't work for us, because the only way that we can get the data from the imported product, which is 30 percent of our market, is to have it done mandatorily. And that information is very valuable.
Mr. DOOLEY. On the export side?
Ms. SIDDOWAY. Yes.
Mr. DOOLEY. I think that is a legitimate point.
The other thing—and this is a little bit of a libertarian streak coming out in me, a little bit—Mr. Kleckner, you make the decision to participate in the spot market, as I understand, in your hog operation. Yet, other people are making a voluntary decision to contract. You know, I enter into on my farm some contracts. I guess I have a hard time believing that that private contract that I entered into is anyone's business other than my own. And you are making the voluntary decision to go the other way. Is this something we ought to be mandating, that government get involved in private contracts?
Mr. KLECKNER. Mr. Dooley, I am not saying that we ought to eliminate contracting. We may do it in the future. We made a conscious decision not to do it. It didn't look very good in December, but when hogs hit $55 or $60 and the contracts are getting $40, I am going to like it. So, I think that is the individual decision.
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I think all we are saying here is that the range of prices being paid, the top or bottom or the average or something, ought to be reported. Then that would allow producers to recognize what is going on and replace the rumors that are so prevalent. If it could be done voluntarily, and if it would be done voluntarily, that is the way to go.
The sheep industry said what their problem is with the imports not being reported; that is a valid point, as you said. But, frankly, for 10,000, 50,000, 100,000 producers, to expect them to report daily or weekly what they got, first of all, they would not do it; they would not have time, and would it be accurate?
I think the thing to do is do it on the packers side. But you don't need to tell me the terms of the contract. I would like to know, I am curious about it, but am not so sure it is any of my business. Let me negotiate my own.
Mr. DOOLEY. OK. And if I can just ask one final question—and, again, I think that in order to get enough information to get a true indication of the market, it doesn't take a 100 percent. It doesn't take 50 percent of the market in order to get that, where the real market is at.
But is there a consensus—and Farmland brought this up—in terms of their concern with the mandatory reporting of prices on value-added and branded products? Do the producer groups agree that that should not be a part of any mandatory price reporting?
Mr. SWAN. Mr. Dooley, basically that is what we are saying in our negotiations, and we know—well, I think there was quoted 700 different hog branded products and 500 beef, and the difficulty that would be to accomplish that task. So, yes, we are basically in agreement there on that.
Here again, back to one of your previous questions, though, remember, we have got States out there that are starting going ahead with mandatory price reporting within the States, which is causing some great confusion, and there is going to be some hardships if we don't do something maybe on a Federal level. And again, I am not an advocate of Federal mandates. I am a person that believes that less-beltway-activity-is-better-type situation. That is my belief.
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And here again, as we are looking at the values that we are seeing, and we are better tracking with the data we have at the retail level, so that can better understand those prices at the retail level all the way back down to the packers—so we can see where is there justification for that spread, and if there is that big spread, we have more of a chip going in saying, ''Hey, we don't want to be just a price-taker here, to whatever packer it is; we want to be a price-setter here. We know what the spreads are occurring right now because we have this information.'' If we don't have it, then we don't have any kind of negotiation whatsoever. We are then a price-taker again.
Mr. DOOLEY. My only concern here is Harris Ranch, out in my area, is a big beef producer, and they have done some innovative things, which the Cattlemen honored them for their pot roast that they have ready to eat in the bag type of deal. You know, I am just worried about a mandatory pricing situation that would require them to disclose, what I would consider, proprietary information in terms of additional profit margins that they could be achieving on a product such as that, which would then increase competition from some other source, because they could see, OK, someone is doing something interesting here; they are making this amount of money, so maybe we ought to get into it. And that is my concern on the value-added, which I think is what Farmland has indicated. And I am really concerned about this price reporting going down that path.
Mr. MCNUTT. If I could respond to a couple of your questions here—we do have AMS data, which is actually Pork Board checkoff collection information, which is probably the best data that we currently have about what is actually happening out there in the real world. We are seeing very large variations across the country on prices being received by producers. With some of that, we can back out and say, this is why that difference is there, but some of it we cannot. So there is some cause for concern.
We have seen such massive change in our industry. You know, we didn't have contracting, it was not a fundamental part of our industry just as little as 5 to 10 years ago, and now it is a very large portion of our industry. We have a very small number of hogs that are actually pricing all the rest of the hogs. And again, so, the activity that is going on in that very small number. we have to make sure that that is a very valid system.
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To go to your last question about the values, and so forth, we are asking for that to be reported, but we are asking that to be reported as aggregated data, data by type, so we can identify what that is. So, producers understand what are the signals coming from consumers; what is happening in the marketplace. We are not asking for information that would give an unfair disadvantage to a given packer over another. We want to know what is actually happening out there in the real world.
Mr. SWAN. Mr. Dooley, we do concur with that also, what Mr. McNutt said. AMS has assured us that marketing of those branded type products would not be disclosed. So, that has been the helpful thing about having AMS involved in our negotiations, to bring this to bear.
Ms. DANIELSON. Mr. Dooley, just to add, we think that the reporting should include the grade, because it is important for producers to be able to measure the quality and to separate out the quality for what is being sold. I think a lot of it gets lumped into the no-roll category. And to have that grade information would be an important part of it.
Mr. POMBO. Mr. Schaffer.
Mr. SCHAFFER. Thank you, Mr. Chairman.
It is a delight to see Mr. Willms here from Colorado and, of course, Excel has quite a presence in my congressional district in the Ft. Morgan area.
Mr. Willms, I am sorry I missed your testimony, but I have read it, that which you have submitted. The information he has provided the committee, the data from the U.S. Department of Agriculture on the share of the food dollar, pork and beef both show the traumatic increase since 1970 to now. Without question, it is a gigantic increase in the wholesale and retail share.
Mr. Kleckner, in his testimony—which I have also read; sorry I missed hearing it accurately summed up that any price reporting legislation must contain provisions that will lead to the development of a better farm-to-retail price series, and I think that is an appropriate statement as well. But their representatives are not here, and I don't know whether the wholesale and retail component to this have been a part of the negotiation. I don't know, maybe I am wrong. Have they been a part of these discussions that you have had?
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Mr. SWAN. No.
Mr. SCHAFFER. Well, in order to get a complete picture of accurate information that is going to allow for any long-term marketing and planning, it seems that at some point is going to be a necessary component. And since they are not at the table right now, I would suspect that their interest in the reporting data is going to be higher than anyone here.
I am just curious whether anyone has given any thought to the impact of up-to-date reporting on a day-by-day basis, as Mr. Kleckner has suggested. Trust me, I see the value in reporting from a producers standpoint and I understand that completely. What is it going to do to prices long term if retail and wholesale are not a part of this reporting equation, if they are just the beneficiaries of the data, rather than supplying anything from their side?
Mr. SWAN. Mr. Schaffer, may I address that, please?
Mr. SCHAFFER. Sure.
Mr. SWAN. We are looking at the database at the retail level so that we can track that. So we are putting that equation into it, that we will know what is happening at the retail level; that that is being gathered. So we will have that opportunity to use that, also.
Mr. SCHAFFER. Again, from your perspective, I see how that is helpful from a day-to-day planning perspective, just having some confidence that you are getting the best market price you can on any given day, but are you not concerned somewhat about the impact that it actually has on the price target for you? I find great consistency in thought with Mr. Dooley as well. Any purchasing agent is going to be reviewing these numbers on a daily basis, as well as the stockholders of all these companies wanting to know why they might be paying the highest price that day, and these purchasing agents are going to have to answer to somebody. It could have just the opposite effect than we are all hoping for.
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Mr. MCNUTT. In the Pork Producers' bill there is a section on compiling retail data. There are some very good third-party sources out there for that information now on a voluntary basis, but we do need to have that reported. We do need to understand that as producers. The National Pork Producers Council does have a retail action force committee, which is composed of all the major retailers in the United States. And we do work a lot with them, in trying to understand all this relationship as part of that whole picture. So you are absolutely right. This is an important component.
Mr. SCHAFFER. The other issue I have is with respect to them right now, but there seems to be somewhat of a trend established this year. Yet, preempting State law strikes against the grain of most of us here, and from market management planning perspective, there is always a value and consistency across the country. But what are the prospects that we would see State legislators themselves and governors being willing to take a step back, in deference to a national strategy?
Mr. MCNUTT. From the pork industry standpoint, we have been in constant communication with our State organizations and those State bodies. I cannot speak for everybody, but there is certainly a willingness to say we have got the State legislation, in case it doesn't develop a national legislation. But we would prefer—in many cases, there is a very good understanding that this is coming down the pike, and that this is very important to go with the Federal. So my answer to you is I think there is a willingness, at least from the people that we have talked to.
Mr. SCHAFFER. Let me just say at the end, I have held a number of town meetings, held three agriculture forums out in my district over the Easter break, and I have been there when you see the producers, and I have heard the producers just railing on the market concentration, packer concentration, and the impact that it has. I have sensed the great suspicion that there are four packers who are controlling 80 percent of the market and they must meet on Wednesdays and decide what the price is going to be, and so on.
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But I think that the discussions taking place have really diffused some of those suspicions somewhat, and particularly this data on the share of the food dollar is one that I think ought to suggest for producers, packers, and everyone in the red meat industry in general, that this is a little bigger and deeper than just the relationship between those two stages.
I commend you all for participating in that process. I think this is the right way, under the leadership and advice and direction of the chairman and ranking member, who deserve certain amount of credit for inspiring this perhaps, but to you all to conduct these meetings and it has resulted in excellent testimony and research, and so on. It has been very helpful to the committee, and I think in the long run it will result much better public policy than perhaps might have been established without your leadership.
Mr. MCNUTT. I would just like to add a little bit on the States, too. I mean the sense, too, there is, if we don't produce something real and of real value to producers, then they still have their State laws to fall back on. So that holds us to the fire to make sure we come up with something meaningful.
Mr. SCHAFFER. Thank you, Mr. Chairman.
Mr. POMBO. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman.
I, too, take some appreciation that this distinguished panel would come here and tell us that they are working together on this and making the efforts they are. I also take some appreciation that, at least four of us here in the room and probably more, when we go home, we will return to Iowa, and Mr. Kleckner and John, and my colleague, Mr. Latham, when we go home, we go home to Iowa to farm. So I thought I would just share that little piece of trivia with you there, Mr. Chairman.
I think we are taking a step in the right direction. I wish Mr. Dooley was still here; I could just share with him—I can tell you, with the efforts made in our legislature these last few weeks, there is a message there that our producers want the information that all of you have expressed. And I don't think they are going to be satisfied, Mr. Chairman, until they get it. So, if it can happen on a voluntary basis, great, but if it can't, I don't think they are going to back off. I think if there is a groundswell out there that they really want and feel they need this information. And so, that is what we are confronted with when we go back to our districts and live amongst our people. So I am really pleased about this.
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I am concerned with what somebody somebody said earlier, that it has got to be timely, and it has has got to be accurate, or we don't have anything. And, also, I continue to be concerned who is going to pay for it, and I think the producers' backs right now are pretty heavily laden and would hope that—in our society, of course, the consumers always pay for everything. But there is probably going to be some cost here.
So, anyway, I appreciate what you are doing. I would be remiss if I didn't say so. As Mr. Swan knows, I am a cattleman myself and a member of the organization. We are doing the right thing. I commend you for the effort you are making.
Do you have any feel who is going to pay whatever cost? Anybody? Is this going cost something? Who is going to pay for it? Dean?
Mr. KLECKNER. Mr. Boswell, you are right; in the end, consumers pay for everything. It seems to me that before we get to the end, though, producers often pay.
Mr. BOSWELL. That is my concern.
Mr. KLECKNER. Yes. But is this going to be that costly? Obviously there is going to be some cost to it, but in the total context of the meat business, it seems to me that it should not be that costly. I don't know whether it is going to be tax dollars that will pay for the inspection to make sure everybody is doing it right. The packers will have to do the reporting. That is going to be some paperwork and some bookkeeping and some computer time for them, however it is finally decided upon. The producers will react and say, ''Yeah, you are just going to pay us that much less because of your added cost,'' but in the end the people that buy the meat will bear the cost. Because I buy beef and I buy pork, even though we produce pork, and buy lamb also, Ms. Siddoway. I don't know what the cost will be.
Mr. Boswell, let me come back to the issue that you raised first—and Mr. Schaffer is still here—about the reporting requirements in State by State. It just seems to me that what is happening is the feeling in the country is so strong that States are acting; Iowa, other States are acting. In my State, in Iowa, they said, until we get Federal legislation, Mr. Boswell, or something like that, recognizing that is it being talked about, what I am fearful of will be happening is if it is not acted upon nationally, and nobody is more critical of over overt and over-Federal action than Farm Bureau. It ought to be close to the people, but in some cases you need it to be national, and this is a case.
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Because it seems to be that, eventually, if States do it and have different requirements, that is going to affect the market. Packers will react as to where they modernize their plants or build, hopefully, a new plant, as: What are the reporting requirements in this State? What will be our costs?
So I think to negate the impact on what should be truly market decisions—in this case there should be a national reporting requirement, not State by State.
Mr. BOSWELL. Thank you for those comments.
Mr. SWAN. Mr. Boswell, yes. Much of the data is coming in today to USDA. So when you talk about costs, I don't have a definite figure; we don't have a definite figure. But some of those costs are already coming in, reporting today. Let us do it and just make it mandatory in setting up how they will be reported. So, until we really look at it, I don't know that we can put a cost figure on it, what additional costs would be. I would think that it would not be that much in addition.
Ms. DANIELSON. I agree with the voluntary system already in place. The last thing I would mention, if 21 attorneys general have already written in urging legislation, just think if we had 21 different systems out there, that would be much more costly and very burdensome, frankly, for the packers who are trying to comply with all these different reporting requirements. So, I think costwise it is a much better deal to just do it at the Federal level.
Mr. BOSWELL. Well, you are all responding. I think I made the point that we have got to watch this, Mr. Chairman, and knowing you, I think that you will.
Mr. POMBO. I will do my best.
Mr. BOSWELL. But, anyway, my compliments to you for having this hearing and for the participants. I think it has been one of the better ones I have been at. Thank you.
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Mr. POMBO. Thank you. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. I have got a statement I would like to submit, too.
But let me just begin by saying that there has been some reference to South Dakota on this particular issue, and I think that there were drafting problems with that legislation, but, in my judgment, the value in it is that it has gotten people to the table. I think it sent a message from producers that we need a Federal solution to this problem, and I hope that we will be able to.
I want to credit—I think it is great that the industry is coming together to find common ground on this issue. I hope that those discussions will yield some meaningful results. I believe our producers who rely on open-cash markets need greater access to price discovery and market demand information. So I look forward to working with—I have a bill that I have introduced, which I hope we can work from and make some of the adjustments and changes that have been proposed here.
Just a couple of questions, if I might: One, the packers have expressed concerns that certain information required to be reported under various pending legislation may be detrimental, not helpful, to producers. I guess I am curious as to whether you could elaborate on just what that information might be.
Mr. BULL. Well, first of all, I think it is important for the committee to understand that price reporting, and basically the cattle trade is in an evolution. We have been trading cattle essentially the same way for a long time, and we are in the process of moving to a value-based marketing system that is supported by, I think, all participants, that we pay a producer for the value he brings to the table, but we are not there yet. Nobody knows where the process is going to take. So, between packers and suppliers, today we are working on different arrangements to try and figure out where they avenue is going to lead us. None of us know.
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The particular deal is I think it is important that we understand that, first of all, we have a couple of arrangements we could not possibly put all producers on today. It is very experimental; it is very time-consuming. We don't have the mechanisms to do that today. And it may not even be the right direction. So that it one part, that if all the details are laid out in front of everybody and somebody raises their hand and says, ''I would like to be on that,'' we don't have the ability to put any more on that. And, again, it may not be the right direction. Those are the type of details I think you have to be concerned about.
We are developing, and the meat packing industry, as Mr. Evans has mentioned, is starting to develop a lot of value-added branded products. There is a lot of money that goes into those products. A lot of time is consumed in developing those products. We have to have the supply of cattle to support those products or we can't sell them. We get somebody committed to be on those products with us; then we have go to make sure we supply that consumer every day that they want to buy that product.
We have some arrangements to try to encourage producers to produce those type of animals. There is potentially a limited demand for that type of product during the inception of it. And so, if you are to open that wide open to everybody, all producers would start trying to produce that; the value of that would go down to zero. And that producer that was trying to create that value, and work with us in that creation, would then get eliminated from profiting from his ventures.
So, I think more it is the concern not that we don't have good market reporting information—we believe in that and we believe in price discovery. Those things have to take place. What you can't do is discourage entrepreneurialism. You cannot discourage us from trying to work with producers in this evolution of moving to value-based marketing.
Take, for example, one State would like to require the packer that, on each and every trade that has a different price paid to a producer, we would have to fill out a form on every trade. Excel kills 7 million head of cattle a year. Conceptually, every trade could be different, and the work that would go into trying to report that would be astronomical. The information would be confusing, and it would lead packers to say, ''We can't do that; we just got to go back to paying one price for every animal,'' and that is destructive.
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So those are the concerns that we have; that we are not in a mature industry from the standpoint of this evolution in pricing of cattle. It is starting to evolve and change, and it is moving at a positive direction that can help us produce better product to get consumer demand back. But we are not there yet. So, if you throttle that, you throw us right back into the old way of trading cattle, and that is our concern.
Mr. THUNE. One question, if I might direct to Mr. Willms, too, and that is, in your testimony you expressed concerns about legislative restrictions on business practices. I don't believe that the legislation that I have introduced, H.R. 693, contains those types of restrictions. I am curious to know what your thoughts or opinions are. Am I mistaken in that?
Mr. WILLMS. That was in reference to contracting by the producers. In their best interest to protect themselves from a price slide, they should be given the opportunity to contract. There are some State laws that specifically state that contracting should not be legal. They want to declare all contracting outside the purviews of what is considered legal.
Mr. THUNE. There is no such prohibition in our bill.
Mr. WILLMS. Yes.
Mr. THUNE. Well, and I hope that, as we move this process forward, we can develop something. Again, I want to say thank you to the panelists for being here, and to the industry for working with producer groups to try and fashion a solution, I think, that is acceptable to all of us. But I do believe it is important that we move this process forward, because, otherwise, you will see, I think, States begin to develop solutions that will be piecemeal. I think that if we can work together to structure something that would be a workable solution, that it would be in everybody's best interest.
I thank the chairman and my time is expired.
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Mr. POMBO. Mr. Latham.
Mr. LATHAM. Thank you very much for the chance to be here, and I think we have about 2 minutes left on the vote on the floor. So I am not going to really ask any questions.
I very much appreciate the fact that you are working together, trying to come to a consensus agreement; that is extraordinarily important. My producers need to have confidence in the marketplace, and that is really what it is all about, that they are getting a fair price, comparable price to what their neighbors are for similar product.
My concerns would be, number one, that we do not do any harm, and that means risk management tools such as contracting that are, in fact, risk management tools that we have brought on because of credit concerns from bankers, but going back to the 1980's, that they have to finance their cashflow and this is a way of guaranteeing it. We cannot get in the way or we are going to have producers not be able to have any credit out there.
I also have real concerns about the hodgepodge as far as the State laws being put into affect. It has got to be on a Federal level. And I could ask you, maybe the packers here, to submit for the record what they would see as effects on their business in the State of Iowa or other States that, in fact, enact legislation on a State-by-State basis, for the record.
I am very, very hopeful, and am going to work very hard to see to we get a reasonable legislation which can pass quickly. And passing is the key to it, because if we get a bunch of extraneous things in this bill, it is not going to pass on the floor. That is the thing that we have to be aware of. We have got to pass it, and do it quickly, because the confidence in the marketplace is at stake.
Thank you very much, Mr. Chairman.
Mr. POMBO. I thank Mr. Latham, Mr. Thune, and others for their work on this issue and participating in this hearing.
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I want to thank the panel for your testimony, for answering the questions. If there are additional questions, they will be submitted to you in writing.
The subcommitte stands adjourned.
[Whereupon, at 12:16 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Gary E. Evans
Thank you, Mr. Chairman, and members of the committee for the opportunity to appear before you today. My name is Gary Evans. I am currently the executive vice-president and president of the Refrigerated Foods and Livestock Production Group for Farmland Industries, Inc. Farmland Industries' producer-owned meats group includes two beef slaughtering facilities in Kansas, four pork slaughtering facilities in Nebraska, Illinois, and Iowa, and a catfish processing facility in Arkansas. Additionally, we have meat processing facilities in Minnesota, Kansas, Ohio, Iowa, and Massachusetts.
Farmland is the largest farmer-owned cooperative in North America. We are owned by 1,700 local cooperatives, which in turn are owned by more than 600,000 independent family farmers. It is these independent producers and their local cooperatives throughout North America that Farmland has been in business to serve since 1929.
This past February, I testified before the full House Committee on Agriculture on issues involving price reporting and suggested a meeting of producers and processors to help resolve many of the issues in dispute. Today, I appear before you to share with you some of the progress from those producer-industry discussions and suggestions that Farmland, as a producer-owned processor of meat have with issues involving price reporting. Also before I proceed, I would like to commend full committee Chairman Combest and Ranking Member Stenholm for their efforts on this important matter and also for their statements on March 8 of this year. Their leadership is valued greatly. Their efforts to maintain these issues as a national matter is widely appreciated.
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PRODUCER-OWNED SOLUTIONS
As the largest farmer-owned cooperative and one of the few cooperatives that process meat, we have a moral obligation to work with our producer-owners on marketing solutions that work for them and their operation. Our voluntary price reporting of live hog sales announced last October with the National Pork Producers Council (NPPC) is an excellent example of producers and industry working together to provide what we hope is valuable marketing information to our producer-owners. After working closely with our producer-owners and the NPPC, we were able to develop a program that provided valuable marketing information in a timely fashion to our producer-owners.
After the February 10 hearing of the full House Committee on Agriculture, we at Farmland Industries seriously accepted the challenge to work with the beef and pork producer representatives and our producer-owners for a solution to this very complex matter. Since then, we participated in all the producer-industry meetings, held innumerable informal discussions with producer organizations, visited with many of our producer-owners, and challenged many individuals within our own organization to develop workable solutions. We continue to find the meetings and informal discussions are educational, informative, and generally helped us develop a better understanding of each party's concerns. I believe that both sides may have learned something valuable about each other's business. We must remember as a producer or a processor we are only a part of the total food chain. The consumers of our products benefit the greatest when we work together to provide the best overall product.
Additionally, an important element that has developed since the February hearing is the promulgation of state legislation that seeks to regulate price disclosure and related matters on a state by state basis. It is critically important that the policy on this important issue be directed from the national level.
PRICE REPORTING
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Unique to our industry, Farmland Industries has experience with real-time reporting of prices paid to producers and wide disclosure of marketing options. Farmland's live hog price reporting system provides timely and valuable marketing information to producers. Our voluntary Internet-based system allows us the flexibility to respond to producers request for information which may assist them in making their marketing decisions. Our experience in this area provides us with the appreciation of the flexibility contained within a voluntary-based system.
While we are proud of our price reporting system for live hogs, we share concerns about the disclosure of certain proprietary information on our branded products. Disclosure of specific sales and volumes may limit our competitive ability to capture premiums on branded products and it also may disproportionately provide greater leverage to the purchasers of our products.
The general concerns we have as we move forward in this process and continue to discuss can be broken down into four major areas for both beef and pork.
(1) Information provided should be designed to have value for producers as they develop their marketing program and strategies. We are committed to working with individual producers develop marketing plans to meet the needs of our consumers as well as fitting into the scope of their operation.
(2) Disclosure should be arranged in a way to maintain a competitive domestic industry and to protect the bid/ask environment from anti-competitive behaviors.
(3) Value-added and branded product sales need to be excluded or protected in disclosure legislation. Farmland has more than 7,200 branded pork products and more than 500 branded beef products. We have made substantial investment in advertising, product development, and market research, and would feel that it would place us in a competitive disadvantage to disclose sales information of branded products. We have adopted business strategies to develop branded Farmland products in effort to return a greater share of our producer-owners' marketing dollar.
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(4) We need to allow producers to continue to develop marketing strategies, such as Farmland -U.S. Premium Beef that will truly add value for producers. By taking an active role in the marketplace and aligning themselves closer to the consumer, producers are better positioning themselves for future success from the bottom up.
VALUE-ADDED AND MARKET CHANGES
Changes in the world protein market as a whole has greatly transformed producer-industry relationships. Strategic alliances between various segments of the industry can increase the producers and processors returns through working together to produce a product that will receive a premium in the grocery store. An excellent example of this is our international customer base, many of whom have specific requirements of the product and the production of that product. By providing market signals through our grid and contract systems, we can develop a supply of trait specific products that will earn a premium from a customer, and that premium is returned either immediately through a grid or annually in a patronage refund check.
In additional, the growth of the middle-class throughout the United States and the world. This growth has provided a pool of consumers that are very demanding and can change buying habits rapidly and regularly. As a food industry that is committed to being competitive in years to come, we need to have a marketing plan and a food system that is capable of meeting their demands. As a processor, we are only one segment of the food industry. We need to work with producers and all parties involved to address these changes.
As a producer-owned organization, we work each day to develop new and innovative strategies for producers to market their products and gain a greater share of their marketing dollar. Farmland will continue to work with producers, consumers, industry, retailers, and the USDA to identify areas where we may help independent producers better market their products. We will be persistent and thorough in our efforts to identify additional strategies to benefit livestock producers on all fronts—from production and processing to retail and consumer sales. Our intention is to help producers, whatever way we can. If we succeed in doing that, we've done our job as a producer-owned company.
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Statement of George Swan
Thank you Chairman Pombo, Mr. Peterson and members of the committee for holding this hearing to discuss mandatory reporting for price and volume reporting in the meat industry. NCBA commends your leadership and continuing efforts to examine the issues and concerns of interest to cattlemen and women, and for working with us to find ways to improve our ability to more effectively market U.S. beef. I am George Swan, President of the National Cattlemen's Beef Association. I am a fourth generation rancher on the House Creek Ranch, Rogerson, ID.
NCBA encourages open and honest discussion of all issues facing the cattle industry, such as is being provided by today's hearing. Such debate is vital to the democratic policy development process—both within NCBA and to the Nation at large. NCBA has long supported mandatory reporting for export sales and shipments and for boxed beef sales prices and volumes, and during our Convention in February, our members approved expanding our policy to include mandatory reporting of procurement prices and terms of trade for slaughter cattle.
NCBA took to heart the challenge issued by House Agriculture Committee Chairman Combest and Ranking Minority Member Stenholm in their joint statement of March 8, 1999, which called on producers and the big packers to sit down together and work out a compromise on livestock market reporting. This directive helped break an ongoing stalemate between producers and packers that has restricted information flow throughout the beef marketing system and prevented price reporting from evolving to reflect changes in the way cattle are marketed.
The first meeting between NCBA leadership and packer representatives took place March 22 in Washington, DC. The group has communicated weekly by teleconference since the initial meeting. In addition, weekly meetings at the staff level have taken place between the teleconferences, and in all, approximately 15 meetings and teleconferences have occurred since our initial meeting took place. In addition to NCBA leadership and representatives from the packing companies, these meetings have included representatives from USDA, private market reporting services and many of our affiliate state cattlemen's associations.
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The meetings have been very educational for all parties—I believe both sides have learned from these discussions and gained a better understanding of what we are seeking and how to best achieve those goals without harming producers. The near-final recommendations that are provided as an attachment to this testimony, while not unanimously acclaimed, are the consensus proposal from a large majority.
Just as important, consensus agreement has been achieved regarding boxed beef and export reporting and the group is nearing consensus regarding reporting of live cattle, with only one of the bullet points still in the final stages of negotiation. NCBA has retained legal counsel—Fred Clark who formerly served as Chief Counsel to the Committee—to draft the consensus points into legislative language. Our objective is to deliver draft language to the Hill during the first week in May.
While these discussions have largely been between NCBA and our packing industry partners, we also have been working within a producer coalition that includes the American Farm Bureau Federation, the American Sheep Industry Association and the National Farmers Union to achieve our mutual goals. Discussions and updates have also been held with these coalition partners and with House and Senate staff, including the House and Senate Agriculture Committees.
A Changing Industry: Price and volume reporting are only a piece of a larger debate over wide-ranging changes that are sweeping the livestock sector and agriculture in general. There is a broad range of opinions among beef producers about the effects of international trade agreements, packer concentration and improvements in price discovery and market reporting on the beef industry.
The structural changes taking place in the beef industry have coincided with international economic crises, changes in supply, declining demand and weather-influenced volatility in feed grain and forage prices. How these factors are inter-related is the basis for heated debates, emotional arguments and general consternation by some individuals within the beef industry. Some producers have embraced new marketing techniques for their own advantage, while others believe structural changes are, at least in part, the cause of recent price declines.
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There is a perception among some in the beef industry that regulatory action is warranted. Packers and Stockyards Administration data show that the four largest packers slaughter approximately 80 percent of all steers and heifers marketed and the percentage has not changed appreciably during the 1990's. NCBA policy supports close monitoring of mergers and acquisitions and enforcement of antitrust laws and regulations. Close evaluation of price movements and sector margins are also requested to assure that price changes are the result of market signals and not the exercise of market power or illegal pricing activities.
At the same time, the industry must remain pragmatic. Change in the beef industry, as in the rest of the economy, is a reality. The global market is a reality and has necessitated changes by companies to maintain competitiveness in the international marketplace. Contrast beef industry conditions to the much-publicized anti-trust case involving Microsoft where one company controls approximately 90 percent of the global computer software market and one can see why regulatory enforcement agencies are often perplexed by the ongoing concern in the beef industry.
New Marketing Systems: In addition to increasing concentration, there has been a trend toward alignment between packers and feeders through contracts, marketing agreements and custom feeding of packer-owned cattle. NCBA policy is specific regarding these emerging business relationships.
NCBA will not recommend the limitation of any method of marketing fed cattle.
NCBA supports a free market system.
No action is to be taken to alter or halt current trends toward private business arrangements among operators in the various sectors of the beef industry.
NCBA is to encourage producers—individually and through cooperative efforts—to take advantage of opportunities to increase profits through new marketing strategies, coordination, risk management and retained ownership.
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A number of producers are finding innovative ways to compete in the changing beef industry including gaining a greater share of the marketing dollar. For example, U.S. Premium Beef, Ltd. is a closed beef marketing cooperative formed on July 1, 1996, and based in Kansas City. On December 1, 1997, U.S. Premium Beef, consisting of more than 600 cattle producers in 26 states, bought an ownership interest in Farmland's National Beef Packing Company.
U.S. Premium Beef members and shareholders are long-term professional cattlemen who came together to address the concerns of the beef industry in a proactive way by developing a bold new marketing strategy. No longer are these producers' energies consumed by concerns about market structure. Their efforts revolve around producing a better beef product that is marketed through their own beef company. As owners, these cattlemen receive rewards from a value-based pricing system, individual carcass data and earnings from the company at year-end. We commend both the Agricultural Committee and your House colleagues for including provisions in the 1996 farm bill that helped facilitate this initiative.
NCBA and the beef industry must ensure that legislative and regulatory policies continue to encourage these types of solutions and do not limit a producer's ability to gain a greater share of the marketing dollar. Much of the discussion and debate among participants in the meetings we have had, consistent with the directive from Chairman Combest and Mr. Stenholm, has been about how to foster new marketing systems. Participants in the process have been very concerned about the ''law of unintended consequences'' as we worked to develop a process that would increase information flow and market transparency without unintentionally placing new and innovative marketing systems at a competitive disadvantage.
While the beef industry continues to debate concentration and marketing system issues, there is widespread agreement that efficient markets require greater market transparency that is achieved by the availability of accurate and timely information—especially in situations with many sellers and few buyers. Information availability helps ensure that competitive market forces exist. Fewer buyers cannot have undue leverage when market information is widely available to more dispersed sellers. As shown in the attached proposal, NCBA continues to aggressively pursue action to improve price reporting for cattle, boxed beef, imports and exports.
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BEEF INDUSTRY PRICE REPORTING PROPOSAL CATTLE REPORTING
Legislative language will provide for complete mandatory reporting of prices and terms of trade for all cattle purchased for slaughter.
Cattle market reports are to reflect cattle purchased in the domestic and in the export market.
Prices, volumes and terms of trade for all cattle purchased in the negotiated cash or ''spot'' market will be reported twice daily by packers to USDA.
Separate volume reports will be developed for cattle purchased on a formula or grid, for cattle purchased on contract and for cattle owned by a packer in a company-owned or commercial feedlot.
The volume, basis level, and delivery month will be reported weekly for all cattle purchased on ''basis contracts'' and prices for cattle purchased on a formula or grid will be reported during the week that the seller receives payment.
Beef Reporting:
Packers will be required to report the negotiated price and volume for each lot of boxes sold by cut for all grade and trim specifications and meat sold on branded programs.
A study will be commissioned by NCBA to analyze the effectiveness of the existing price reporting system in reflecting beef trade as it currently occurs—and to develop recommendations to further move the industry towards a value-based reporting system.
AMS will develop retail price reports based on sales volume and prices using national retail scanner data collected by national retail scanner databases.
Import/Export Reporting: NCBA has long supported improving timeliness of export and import information. Generally, USDA and the Commerce Department have provided accurate and reasonably timely information regarding cattle and beef imports. USDA/APHIS provides live cattle import numbers every other week from Canada and weekly from Mexico. The Commerce/Customs Department issues its (import) Quota Threshold Status report on a weekly basis. Under the proposal all import reporting shall be consistent with export reporting.
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While Commerce Department data regarding beef exports is generally accepted as accurate, it is nearly 90 days old when issued. USDA has a much more timely system in place for reporting most agricultural commodities. Congress mandated export sales reporting for most of the major grains and oilseeds during the mid–1970's to ensure that all parties involved in the production and export of U.S. grain have access to up-to-date export information. The system has since been expanded to include hides, but not meat. More than two years ago, USDA published an advanced notice of rule-making requesting public comments on a proposal to require mandatory reporting of export sales of meat and meat products. The final rule still has not been published.
USDA will be mandated to publish the final regulation providing for mandatory reporting of meat sales and shipments into the export market through the Foreign Agriculture Service Export Sales Reporting program. NCBA and others who developed this proposal believe that this rule is long past due. USDA should immediately adopt and implement export sales reporting for meat.
USDA shall be mandated to develop a centralized on-line system for issuing and reporting export certificates for all meat and meat products comparable to the system currently operational in Canada. Such a system shall be in place and operational within 12 months of the enactment of this legislation.
As stated at the outset, the process of developing the beef industry price reporting proposal has been interesting and educational. Over the past month, NCBA has appreciated the high degree of cooperation from the packers and other industry participants as we wrestled with this important issue. We are prepared to work with you and your staff to keep this process moving forward, and, again, certainly appreciate the leadership the Committee has shown in addressing the tough issue of market transparency.
Thank you for the opportunity to present this information.
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ATTACHMENT: BEEF INDUSTRY PRICE REPORTING PROPOSAL
Cattle Reporting:
(1) All of the following live cattle reports will be segregated into prices and volumes of cattle purchased in the domestic market and imported cattle purchased in foreign markets.
(2) Corporate offices, or officially designated representatives, of all federally Inspected cattle processing plants shall report to USDA Market News Service all spot (cash) market purchases of cattle purchased live or on a dressed weight basis turned in since their last report to USDA. USDA will contact packers no less than twice per day, once in the morning, and once in the afternoon, and report this information to the public three times per day.
(3) Reports of spot market purchases may be aggregated, but only for each price level at which cattle are purchased. Each price level reported must include a range of estimated live weights, estimated percent Choice or better and any premiums or discounts associated with weight, grade and yield or grid and/or formula purchases.
(a) Reports shall designate whether such livestock are comprised of fed steers, fed heifers, Holsteins, cows, bulls or other bovine for slaughter.
(4) All federally Inspected processors must report for the ''National Carcass Premiums and Discounts for Slaughter Steers and Heifers'' report.
(5)All federally Inspected processors that purchase cattle on a non-spot formula or grid must electronically transmit copies of summarized settlement sheets to USDA/AMS in acceptable spreadsheet format within 24 hours after settlement. USDA is instructed to create and publish a national aggregate report—regional or state reports when appropriate under USDA aggregation guidelines—each Friday that includes all cattle paid for that week. (Note: consensus on this section is in the final stages of negotiation).
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(6)All federally Inspected processors must report the volume of all non-spot commitments to the USDA on Friday of each week. The report will include separate volumes for contract, formula, and packer-owned cattle scheduled for slaughter during the current week. USDA will collect the information every Friday morning, create a national aggregate, and publish the aggregate report on the same Friday.
(7) Corporate offices, or officially designated representatives, of all federally Inspected cattle processing plants will report weekly to USDA the volume, basis level, and delivery month for all cattle purchased on ''basis contracts'' agreed to that week. This information will be aggregated by USDA and reported in the weekly ''Forward Contract Slaughter Cattle Summary Report''.
(8) This legislation preempts state legislation implementing mandatory livestock price reporting programs.
(9) This legislation is subject to a 3-year reauthorization.
(10) No Federal user fees will be assessed for market reporting.
(11) Price reporting studies authorized in the 1999 Omnibus Appropriations legislation will be repealed.
Marketing Policy: It shall be considered a violation of the law for any Corporate office to intentionally delay reporting of any type of fed cattle purchase, or for any buyer or seller to request non-reporting or mis-reporting of the sale as a condition of trade.
Beef Reporting:
(1) Packers will be required to report to AMS the negotiated price and volume for each lot of boxes sold by cut for all grade and trim specifications and meat sold on branded programs.
(2) Boxed beef buyers are required to confirm sales if contacted by AMS
(3) A study will be commissioned by NCBA to analyze the effectiveness of the existing price reporting system in reflecting beef trade as it actually occurs and to develop recommendations for improvements to the existing system to move the industry towards a value-based reporting system.
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(4) AMS is directed to utilize national retail scanner data collected by Information Resources Inc., (IRI) or other national retail scanner databases to develop retail price reports based on sales volume and prices.
Export/Import Reporting:
(1) USDA shall immediately publish the pending regulation to add meat (beef, pork—chicken if possible) to the list of commodities subject to FAS Export Sales Reporting requirements. This regulation is provided for under discretionary authority granted to the Secretary—See Part 20, Section 602, (c) of the Agricultural Act of 1978—to add ''any other agricultural commodity the Secretary may designate'' subject to export sales reporting. With respect to beef such export reports would be subject to the following provisions:
(a) Mandatory weekly reports by packers of U.S. origin sales, optional origin sales and exports for the exporter's own account subject to and consistent with provisions, penalties and definitions contained in Section 602, 20.1–20.12.
(b) FAS reports are volume only for each country of destination, if known. Volume reports will be in metric tons rounded to the nearest half-metric ton.
(c) Two classes of product will be reported: 1. All beef (including fresh, frozen and cooked beef but excluding further processed products containing beef as an ingredient, for example, stews and frozen meals) and 2. Beef variety meats.
(d) Sales and shipments of both product classes as provided in Part 20, Section 602 for a marketing year of January 1 through December 31.
(e) Maintain funding at $250,000 for streamlined electronic reporting systems for export sales reporting.
(2) USDA shall be mandated to develop a centralized on-line system for issuing and reporting export certificates for all meat and meat products comparable to the system currently operational in Canada. Such a system shall be in place and operational within 12 months of the enactment of this legislation.
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(3) Import reporting shall be consistent with export reporting.
Statement of Dean Kleckner
The American Farm Bureau, the largest general farm organization in the United States, appreciates this opportunity to present to you our position on an issue that is extremely important to our livestock members. The extremely low prices we have seen for both pork and beef in the past two years makes this an issue that needs to be resolved, for both producers and the meat industry.
The problem of concentration in the meat packing industry has been at the forefront of Farm Bureau policy for the past several years. In fact, just this past week Farm Bureau held a conference where concentration in the agricultural sector was one of the main topics of discussion. We are very concerned that producers be able to have access to packers within a reasonable location. It is also important to producers that they have access to the prices being paid by these packers for the animals that they are buying. Since agricultural producers are usually put in the position of being ''price takers,'' it becomes of utmost importance for them to have the best information possible on the actual prices being paid. That is why Farm Bureau is so supportive of legislation that would provide producers with accurate and timely price reporting.
However, while we do want to see legislation on price reporting, we feel that this issue is too important to rush to finish just so that there is legislation on the issue. It was just a few weeks ago that this committee asked commodity groups to meet with packers and to work together to develop legislation that all can agree on. We appreciate the efforts that have been put forth since that time by both the National Cattlemen's Beef Association and the National Pork Producers Council. But at the same time, it is important that all of the major farm organizations have input on the development of this legislation. That takes time. All of the groups are trying to work together to highlight all of the factors that need to be considered in this important milestone in the meat industry.
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There are many factors that are unique to each sector of the meat industry. At the same time, there are numerous factors that overlap. First we have to work out the details involving each sector of this industry and then we need to put all of this together so that the legislation that is finally put forth will cover all of the aspects of the entire meat industry. While it is our hope that we can have a final product within the next few months so that Congress can have the full backing of every segment of the meat industry, it is of utmost importance that we have time to complete the task.
Farm Bureau policy is clear on the price reporting issue. ''Livestock packers who process more than 5 percent of the national daily slaughter should be required to report all cash and contract prices and terms of sale to the Federal Market News Service.'' Our policy also states that we seek expanded reporting details on livestock imported into the U.S., the number of animals sold under contracts and the terms of those contracts, and reporting of export sales of meat and poultry products.
Since an increasing number of livestock, both beef and pork, are sold under some form of contract, it is extremely important to us that information related to volume, prices paid, and the terms of these contracts be reported to the public in an accurate and timely fashion. At the same time, most of these contracts are linked to cash prices reported. That fact belies the importance of having proper cash prices reported in an accurate and timely manner also. To accomplish this, producers need to know what actual plant procurement costs are, not just the open market price being paid that day. Since fewer and fewer animals are being bought on the open market system, plant procurement costs would give producers a much better idea what the actual value of their animals are to the packing plant. By having this information producers will be able to make a much more informed marketing decision.
Also related to the low pork prices experienced this past fall is the matter of having an improved farm-to-retail price spread developed. Many producers felt cheated by the prices they were receiving in relation to the retail price being reported by USDA. The fact is that no one actually knows what the real price spread was during this time. But it was obvious that if a better formula was developed that everyone—producers, processors, and consumers—would benefit from having information that more accurately reported the farm-to-retail spread prices. Therefore, any price reporting legislation must contain provisions that will lead to the development of a better farm-to-retail price series.
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As indicated above, all of thee groups involved in the meat industry are concerned with this issue and are working on developing legislation that not only addresses all aspects of price reporting, but that can be supported by all segments of the meat industry.
We appreciate the leadership you and your committee have given on this important issue. We also appreciate the time you have given us today to make our views known on a topic that affects a vast number of our membership on a daily basis.
Statement of Leland Swenson
Thank you for calling this hearing on mandatory price reporting. I am Leland Swenson, president of the National Farmers Union and I am testifying on behalf of the 300,000 families who are members of the National Farmers Union. We strongly support mandatory price reporting and have for several years. It is one of the top legislative priorities for our organization.
National Farmers Union supports legislation to require meat packers to electronically report to USDA information relating to prices, volume, and terms of sale for all livestock transactions, including forward contracts and including transactions involving livestock products. The agriculture secretary should be required to publicly report the information the next business day or as soon as practicable after the procurement of the livestock.
We also support requiring packers to submit a copy of their contracts to USDA, where they would be made publicly available in a manner that preserves the confidentiality of the parties to the contract.
Improving market information has broad support among farmers and ranchers. I have just come from St. Louis, where leaders from 29 farm organizations representing most farmers from across the country met this week for an agricultural summit. One of the four areas of discussion included concentration in agriculture. Participants started with the premise that competition was good for farmers, ranchers and consumers. They then unanimously agreed to support mandatory price and volume reporting for all livestock slaughtered, processed or marketed in the U.S. by large packers, processors or importers that control a significant portion of a national or regional market for a particular commodity.
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One of the biggest challenges in agriculture today is lack of competition in the livestock market. This situation is compounded by the fact that animals are often advance-contracted, leaving only a small number of animals to be sold on the open or spot market. The small number of packers, coupled with the small percentage of animals sold publicly, have created a situation where packers know precisely what the going price is, while producers are left in the dark. While price reporting alone may not increase the number of buyers, it will at least provide farmers and ranchers with essential price information to help market their livestock.
Mandatory price reporting is not difficult to implement. The United States already has a system for voluntary price reporting, thus no new bureaucracy is necessary. Currently, some feeders and processors voluntarily call USDA daily to provide price information. However, because the system is voluntary, some prices are not reported. This is particularly true for livestock sold through formula or open-ended contract pricing.
Last fall, USDA released a report entitled ''Hog Procurement Practices in the Western Cornbelt States.'' Among other information, the report documented that the reported prices did not accurately reflect the market price on the whole. This does not mean that the reporting was false—merely incomplete. In fact, price premiums are sometimes paid, with the stipulation that the price must not be reported. As a result, the average reported price may be lower than the actual average market price.
A concern that is sometimes raised on price reporting is that it may be too burdensome for a small business. However, this concern can be remedied by excluding small packers from the reporting requirement.
A second concern that has been raised is that the reporting may force businesses to disclose proprietary information. However, this concern can be addressed by keeping information from a specific firm confidential, and disclosing only prices from the industry as a whole.
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Last fall, Congress enacted legislation calling for an 18-month investigation and study of price reporting, designating 12 months for collecting information and six months for analyzing the information. We do not need any more studies on price reporting. We need action! Congress should repeal the study and enact mandatory price reporting immediately.
Across the country, States are beginning to adopt state laws to fill the void of mandatory price reporting. Recently, South Dakota became the first state to enact legislation calling for mandatory price reporting for livestock sales taking place within the state. Other states, including Missouri, Nebraska, Iowa, and others are considering legislation regarding this issue.
Finally, we commend the chairman and the subcommittee for holding the hearing yesterday on country of origin labeling. National Farmers Union has been a strong advocate of country of origin labeling for agricultural products for many years and whole-heartedly support legislation to accomplish this.
Thank you for the opportunity to testify. We look forward to working with you on these critical issues.
Statement of Cindy Siddoway
Mr. Chairman and members of the Subcommittee, on behalf of the Nation's sheep industry I appreciate your holding this series of hearings on the critical issues of price reporting and meat labeling.
I am a lamb producer from Terronton, ID where we raise 12,000 ewes. I also serve as vice president of the American Sheep Industry Association. As you know, the devastation continues in the U.S. lamb industry with depressed markets and the unprecedented surge of cheap imported lamb. The priority for mandatory price reporting in the lamb industry Mr. Chairman is to secure the wholesale cut prices of imported lamb.
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Nearly 30 percent of the U.S. lamb market is now controlled by imported lamb yet we have not price reports available from this huge section of lamb trades. The domestic industry and the U.S. Department of Agriculture have requested lamb importers since 1997 to provide weekly lamb cut price information on a voluntary basis similar to the price information provided by domestic lamb companies. This refusal of importers to cooperate with USDA on a voluntary basis makes it imperative that a mandatory system must be implemented. We believe Mr. Chairman that it is not healthy for a market to dismiss price discovery for such a significant share of the market.
Importers indicated to USDA that rejection of voluntary price reporting was based on concerns that providing price information would invite trade action. The U.S. lamb industry was aware of the dramatic underselling of imported lamb in the market but in actuality the degree of the underselling provided by the recent U.S. International Trade Commission investigation was startling. The Commission concluded that in eight product categories; such as racks, ribs, loins, legs and shoulders, imported lamb prices undercut U.S. prices 79 percent of the time by margins averaging 20 percent to 40 percent.
ASI has worked with the domestic feeding, packing and processing sectors in conjunction with USDA since early 1997 to implement improvements to the lamb market reporting system. In these joint meetings, six initiatives have been identified including the need to secure import cut prices.
We applaud the subcommittee's effort through this hearing and legislation introduced such as HR 693 to initiate the process for effective price reporting. We have worked with the cattle industry as well and believe nearly all of the provisions under consideration would be workable for lamb. Carcass price reporting will be important for the lamb market.
ASI is committed to bring industry segments input and consensus to the price reporting system for lamb in the United States.
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We pledge our assistance and support in working with the industry as well as the subcommittee in crafting and securing a price reporting system.
As the subcommittee is aware from earlier hearings including the recent field hearing in California, the priority for the lamb industry for the next four critical weeks is the President's implementation of effective trade relief under the Section 201 case on lamb imports.
Price reporting will be an important provision to a healthy lamb industry in the U.S. however, effective price reporting alone cannot address the devastating financial crisis that thousands for sheep operations continue to face. Only effective trade restriction as proven by the industry through the U.S. International Trade Commission can deal with the surge of cheap imported lamb that is swamping the market. Effective trade relief with your help Mr. Chairman paves the way in our opinion to facilitate the price reporting measures necessary for livestock producers.
I applaud the subcommittee for the leadership to tackle these critical issues on behalf of the nations sheep producers, feeders and companies.
Statement of Ken Bull
I am Ken Bull, vice-president for cattle procurement with Excel Corporation, headquartered in Wichita, KS. Excel operates beef processing plants in Colorado, Kansas, Nebraska, Texas and Alberta, Canada. We operate pork processing plants in Illinois, Iowa, and Missouri.
I am pleased to appear before the subcommittee today to talk about the extensive discussion on price reporting the producer organizations and several companies have been engaged in and are about to complete. If adopted by Congress and USDA, the proposal will greatly increase the amount of market information available to livestock producers who will hopefully end up better positioned to make the most informed marketing decisions.
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Several of our organizations appeared before you earlier this year and committed that we would work toward finding common ground on this difficult issue that has divided us for some time. Over the past month or so we have had a serious dialogue and have come up with what I believe accomplishes our goal. We aimed to create more useful, complete market data that will be relatively simple to follow, and have relevance.
We also wanted to be careful that our effort did not get into the area of dictating sales terms or practices. Most importantly, we wanted to make sure that the outcome did not negatively impact the processing industry or the producers who choose to market their livestock through some fairly sophisticated formula pricing programs. Under these kinds of programs, producers raise livestock that fit into tight performance requirements and they are paid on a scale that includes premiums and discounts above and below a base price.
This plan may not include every provision that every stakeholder wants, and some would probably say it doesn't go far enough. But it goes a long way—frankly farther than I would like to have gone—but we will support it. There was extensive give and take among the participants, and this has been a learning experience for all of us.
The proposals my friends from NCBA and NPPC have outlined for you promote significant market transparency. They provide producers with the kind of information they would most value. Importantly, this would not create a substantial cost burden on the industry or on the Federal Government. The cattle proposal, with which I have been most involved, not only covers the marketing of live cattle, but provides a clear window into wholesale meat pricing and the import and export trade.
As the committee knows, this issue was the subject of some rather contentious debate in the last Congressional session. The processing industry opposed proposals that were offered last year because they were very broad, and in our view, could cause serious harm to the industry. But circumstances are different now. We have had the opportunity to engage in a serious, thoughtful discussion that has produced a solid, reasoned approach.
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The industry has moved quickly on this venture in an effort to head off some very misguided legislation in a number of state legislatures. Many of these state proposals will cause real harm to the industry, and to producers in particular. For instance, the state of South Dakota has now made it illegal for processors to contract with farmers. Yet many creditors require contracts in order for borrowers to qualify for loans. Without access to contracts, we don't know what producers in this situation are going to do. This is extremely shortsighted, and will lock South Dakota cattle producers into the past, and out of many of the programs that represent the future of the beef industry. Incidentally, we have calls virtually every day from South Dakota producers asking what they can do to get around the state contracting ban. Some have even said they were going to get Nebraska mailing addresses to get around the state prohibition.
Some State Legislatures would advocate complete disclosure of formula pricing arrangements and contracting terms. This too is a terrible mistake. These are the kinds of programs that reward producers for raising the livestock the market most desires—a sort of pay for performance. These grids are highly proprietary for both packers and the individual producers. Disclosure of the terms would simply broadcast our playbook to the competition, destroying any marketing advantage we and our producer suppliers are trying to develop. This would undermine the value-base marketing programs that are benefiting many producers, and that are the roadmap to higher value, branded meat initiatives. Only through these programs will the beef and pork industries reclaim markets lost to poultry in the past several decades. Undermining these arrangements will return the industry to the flat-priced, generic beef market that has contributed to a 25 year slide in U.S. beef demand. As you can see from these examples, a single, uniform national policy is needed.
An interesting outcome of these discussions has been that producers have been quick to recognize that providing packers with too much information can actually put producers at a disadvantage. For instance, there are times when a packer's misread of market signals can lead us to pay more for cattle than we have to. In such as case, better information has a negative impact on producers because it will lead to a settling effect on prices. I will let the producer representatives speak more specifically to this issue.
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I will stop with this so the committee can have more time for questions on this productive, informative dialog. Again, I appreciate the opportunity to be with you today.
Statement of John McNutt
Chairman Pombo and members of the subcommittee:
My name is John McNutt and I am the President of the National Pork Producers Council (NPPC). I am here representing the NPPC, its 44 member state organizations and America's pork producers. My wife and I run a family-owned, farrow-to-finish hog operation that markets 5,000 pigs per year. We also grow corn and soybeans on our farm near Iowa City, Iowa. I very much appreciate the opportunity to appear on behalf of U.S. pork producers to express our views on livestock price reporting.
U.S. PORK INDUSTRY
According to a recent Iowa State University study conducted by Otto and Lawrence, the U.S. pork industry supports an estimated 600,000 domestic jobs and generates more than $64 billion annually in total economic activity. With almost 11 million litters being fed out annually, U.S. pork producers use 1.065 billion bushels of corn valued at $2.558 billion. Feed supplements and additives represent another $2.522 billion of purchased inputs from U.S suppliers which help U.S. soybean prices, the U.S. soybean processing industry, local elevators and transportation services based in America's rural areas.
ECONOMIC OUTLOOK
In early February, NPPC testified before the House Agriculture Committee that hog prices dropped below $10 on December 14 for the first time since 1955. Adjusted for inflation, hog prices were lower in December of 1998 than they were during the Great Depression. Pork producer financial losses were staggering in 1998. Data from the University of Missouri suggest the producer sector as a whole lost $2.6 billion in equity in 1998 and may lose another $1 billion in 1999.
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The current economic outlook is for some price improvement with expected market hog prices generally in the mid-to-upper $30s on a live weight basis this year with a few $40 hogs as seasonal supplies fall and seasonal demand picks up. A reduction in pork production in 1999 does offer us a chance for measurable price improvement in 2000.
NEW LIVESTOCK MARKET REPORTING SYSTEM
Pork producers believe that to be able to make knowledge based business decisions for the future, pork producers must have a transparent, accurate and timely livestock market reporting system. That system is not available today. We believe it is time to demand real and meaningful market transparency in the livestock marketplace. This is the only way that pork producers, regardless of size, can re-establish their position as the profit center of the pork industry.
Pork producers are in agreement that USDA must institute a mandatory livestock market reporting program for meat packers reporting prices paid, volume, and the terms of sale for the procurement of domestic and imported livestock. A change in law is necessary on livestock market reporting and pork producers are calling on Congress to pass legislation this year mandating the following five swine specific provisions.
(1) Mandatory livestock price reporting; (2) Mandatory swine marketing contracts reporting; (3) Improved monthly retail price reporting; (4) Monthly, rather than quarterly, hogs and pigs inventory reporting; (5) A determination of the Secretary's jurisdictions, powers, duties and authorities.
SWINE SPECIFIC PROVISIONS
Mr. Chairman, you scheduled this hearing to gain the producers' input regarding what components are needed in developing a new livestock market reporting system for the 21st century. I will highlight for the Subcommittee the principles behind the five swine specific provisions that pork producers believe must be included in any meaningful legislation.
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MANDATORY LIVESTOCK PRICE REPORTING
Eight of the 65 resolutions that pork producers acted on at our recent annual meeting, dealt with mandatory price reporting. Pork producers support USDA implementing a comprehensive mandatory livestock price reporting system that will provide timely, accurate and reliable market information to swine producers to help them make more informed marketing decisions. This means daily reports must be available by 8 a.m. each day of packer operations for the previous day. These reports should include all buy data for all swine purchased or committed to delivery to a packer the previous day. This information should be grouped by purchase type, to include all spot sales, formula contracts, risk managed contracts, future contracts and related data, and packer-owned kill-data should be broken out and listed on the report.
Further, we believe there must also be a mid-morning and mid-afternoon report capturing the estimated volume and base market value for all negotiated sales.
MANDATORY SWINE MARKETING CONTRACTS REPORTING
A University of Missouri study conducted this year for the National Pork Producers Council shows that for all hogs slaughtered in January, 1999, 64.2 percent were sold under some type of prearranged marketing arrangement, not on the cash price market. Conversely, 35.8 percent of all market hogs sold, were sold on the spot (cash) market. The study represented plants processing 81 percent of all market hogs going through federally inspected plants during January.
The largest share of all contracted hogs, 44.2 percent, were sold using a formula price contract, according to Glenn Grimes, Ag Economist at the University of Missouri. A formula price contract sets a sale price according to some reported price and a formula established by a previous agreement between a producer and a packer. An example would be $1 per hundredweight above a reported price.
The complete details of the hog market contract study are as follows:
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44.2 percent Formula Price. A price set by a previous agreement, Usually based on a quoted cash price.
3.4 percent Cash Contract. A fixed price set by previous agreement tied to the futures market.
2.9 percent Fixed, no ledger. This is a fixed price set by a previous agreement tied to a feed price or history with no ledger maintained.
6.9 percentFixed, ledger maintained. This is a fixed price set by a previous agreement tied to feed prices or history with a ledger maintained.
3.6 percent Window, no ledger. This is a window contract with a risk sharing deal where the packer absorbs some loss below a designated market price and the packer shares some gain with a price above a certain level. No ledger is maintained.
1.0 percent Window, ledger maintained. This is a window contract which is a risk sharing deal where the packer absorbs some of the loss below a designated market price and the packer shares some gain with a price above a certain level. A ledger is maintained.
2.3 percent Other. This includes packer-owned hogs.
35.8 percent Spot (cash) market.
Pork producers support the Grain Inspection, Packers and Stockyards Administration (GIPSA) maintaining a library or catalogue for each type of marketing contract currently being offered by packers who slaughter in excess of 250 swine per day, or 1250 swine per week. The contract listings should be plant specific and should contain the price determination method being used for the swine covered by the contract including non-carcass meat premiums. Copies of such contracts should be made available to swine producers and other persons, either by mail or electronically via the Internet.
Improved Monthly Retail Price Reporting
Pork producers support USDA compiling and publishing an improved monthly report on retail sales of meat products that includes total sales volume in pounds and dollars. In addition, USDA should continue the existing Meat Price Spreads Report for 24 months after the inception of the new monthly retail price reporting program as a phase-in effort.
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(4) Monthly Hogs and Pigs Inventory Reporting
Pork producers support USDA implementing a new simplified monthly hogs and pigs inventory reporting system in the 17 leading pork producing states through the use of modern technology, such as the Internet, with the goal of improving the accuracy of pig crop estimates. USDA should continue to maintain and publish the current quarterly Hogs and Pigs Inventory Report for a period of not less than eight quarters after the inception of the new monthly report.
(5) Report on the Secretary's Jurisdictions, Power, Duties and Authorities
Pork producers support a new report by the General Accounting Office, or another objective and respected entity, setting forth the Secretary's jurisdiction, power, duties and authorities as set forth in the Packers and Stockyards Act of 1921, and all other relevant laws and precedents, such as the Federal Trade Commission Act.
Conclusion
The National Pork Producers Council is anxious to work with Congress and pass meaningful and effective price mandatory reporting legislation this year, ensuring that accurate and timely information is available to assist pork producers in making the marketing decisions appropriate for their hog operations. Information and knowledge are power in today's marketplace. Their disclosure is critical to pork producers' ability to grow, be profitable and compete globally in the 21st century.
We intend to make available to the Committee in a very few days our suggested legislative language to carry out the provisions I have discussed with you today.
Several provisions are required in any price reporting legislation approved by the Congress.
The legislation must benefit pork producers in helping them produce for greater profits.
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It must not limit or stifle creativity or innovation in marketing arrangements.
We are drafting legislation which is very prescriptive and urge Congress to do the same since the marketing components for live hogs, cattle, and sheep are very different.
We urge legislation be approved which charges the Agricultural Marketing Service with collection and analysis of the marketing data and information and the Grain Inspection, Packers and Stockyards Administration with compliance and enforcement.
And we urge passage of federal legislation which pre-empts state market information reporting requirements as a way to insure that all livestock in a single species is sold under consistent marketing reporting conditions.
Mr. Chairman, this completes my testimony. I will be happy to respond to any questions.
"The Official Committee record contains additional material here."