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Packer ownership ban would hinder marketing system

by 5m Editor
18 May 2007, at 3:16am

US - A staunch proponent of a free market system, Milton Friedman has stressed the advantages of the marketplace and the disadvantages of government intervention. His adamant support for capitalism suggests that he would be critical of proposals that are being considered for the 2007 Farm Bill. The debate is underway regarding the Competition Title of the new farm bill, which could have a dramatic impact on alternative marketing arrangements.

Five years ago during debate on the 2002 Farm Bill, a proposal was offered that would have banned packers from owning, feeding or controlling livestock more than 14 days prior to slaughter.

A proponent of banning packer ownership, Iowa Sen. Charles Grassley says, “Outlawing packer ownership of livestock would make sure the forces of the marketplace would work for the benefit of the farmer just as much as it does for the slaughterhouse. You could even say that packer ownership of livestock frustrates and compromises the marketplace, so the farmer doesn’t get a fair price.”

Grassley’s comments, however, run contrary to the results of various studies into pricing in the livestock sector. The most recent of those studies, the $4.5 million Congress-mandated “GIPSA Livestock and Meat Marketing Study” was conducted by RTI International.

In testimony before the U.S. House of Representatives Committee on Agriculture’s Subcommittee on Livestock, Dairy and Poultry last month, RTI’s Mary K. Muth, said, “In general, the study found that the use of alternative marketing arrangements in the livestock and meat industries provides benefits not only to meat packers but also to livestock producers and meat consumers. Therefore, restricting their use would have negative economic consequences on most segments of the industry.”

Muth also told the committee that across all species, alternative marketing arrangements offer some guarantee of market access, for both livestock producers and meat packers. “That is, alternative marketing arrangements ensure that producers can sell livestock and meat packers can purchase livestock when they need to for their business operations.” Read the full report (PDF format).

In the five years since the ban on packer ownership was first proposed, alternative marketing arrangements have grown. Those arrangements have encouraged ranchers to improve the quality of their cattle and rewarded them for doing so. To many, such marketing arrangements amount to nothing more than captive supplies for packers. But Virginia Tech agricultural economist Wayne Purcell believes marketing arrangements and non-negotiated price contract systems have encouraged packers to invest more money in new products and product-enhancing technologies.

“This was not being accomplished by the pricing system, with its outdated and inadequate quality grades and average selling prices on all cattle, that did not allow pricing signals to encourage changing the genetics to match consumer needs,” Purcell said.

Source: Drovers

5m Editor