At press time, the Senate Agriculture Committee had just included language that would place a ban on packer ownership of livestock in the Senate version of the farm bill. The measure was still to be debated in the Senate.
Banning packers from owning or feeding livestock except for 14 days prior to slaughter doesn't seem that earth shattering at first blush. But all one has to do is look at some of the organizations supporting it to grasp how dramatically it would affect the industry.
While Tyson has been a huge integrator in poultry, it has abandoned that model on the pork side and never embraced it on the cattle side. Instead, it preferred to leverage its market clout. Obviously, until very recently, Smithfield, Cargill and Swift embraced owning cattle as a way to protect themselves against IBP/Tyson's obvious size advantages.
A packer ban would be a huge benefit for packers that don't own feedyards, as it would require the others to totally adjust their business models and leave them at a distinct competitive disadvantage.
On the production side, large feeding complexes and small feeders alike have embraced forward contracting to reduce pricing risk. Meanwhile, all shapes and sizes of cow-calf operators, feeders and packers have embraced various forms of grid pricing, alliances and branded programs, most of which would become illegal under the law.
Set aside for a moment all the economic studies on packer market power that have shown beef has one of the most open and competitive markets of any industry — one that has enabled our industry to increase efficiencies and value. It's simply amazing to think that America — “the great free-market, capitalistic society” — could embrace socialism at such a level, without even a whimper, to boot.
It would be a terrible law because it would negatively affect our competitiveness and limit producers' ability to market their products as they see fit. It would devastate the value-based revolution that's enabled our industry to do a better job of meeting consumer demands.
But the true danger is the precedent it would set. Not only will a business not be allowed to own any of its raw materials/supply, we as producers will have less ability to manage our risk. This would lead to more price volatility and a dramatic acceleration of industry consolidation, while having given up even more control of our business to the government in the process.
I don't look forward to telling my children that I sat by when the government began to mandate how and to whom we could market our product, and how we could produce it. Plus, we even gave up our ability to create new and innovative business models to meet consumer demand. And for what? In the hopes we could legislate away economic realities in order to preserve a status quo?
Hopefully, I'm wrong and the slippery slope isn't really that slippery. But history tells us the invisible hand of the market is always superior to government control, and that preparing to succeed is a better alternative than avoiding the rigors of competition.
Not the first
We're not the first industry that's struggled with adapting our business to succeed in a changing and increasingly competitive environment. What makes us unique is that in other industries, individual firms/operations make decisions on how to proceed, then live with the consequences of those decisions.
These proposed solutions are different. Those who want to return the industry to the models of 30 years ago know they can't do it through individual choice. They simply couldn't compete with these business models on a large scale if they are allowed to continue (efficiency and value still drives demand). So they must take away the rights of others to avoid having to change themselves.
Their logic is correct — for steam engines to have prevailed, combustion engines would have to have been outlawed. For wood to remain the fuel of choice, coal, gas, oil and nuclear energy would have had to be made illegal.
Then, we could isolate ourselves from those countries that adopted the more effective form of energy and transportation. We could then close our borders and refuse to compete with them. But history tells us what the future holds in such a scenario — it quickly evolves from a situation of choosing not to compete to one of being unable to compete.
Troy Marshall is a weekly contributor to BEEF Cow-Calf Weekly, a free weekly newsletter delivered by e-mail every Friday afternoon. To subscribe, visit www.beefmagazine.com.