Beef Magazine is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Packer-Ownership Ban Survives Senate Committee

The Senate Ag Committee included language that would place a ban on packer ownership of livestock in the Senate version of the farm bill. While it still must be debated in the Senate, if passed it goes to conference (the House version didn't include a packer ban).

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 understand how dramatically it would affect the industry.

While Tyson was a huge integrator in poultry, it has abandoned that model on the pork side and never embraced it on the cattle side. Instead, it has 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 sparked by concern over packer market power that have shown that beef has one of the most open and competitive markets of any industry -- one that has enabled our industry to 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 was involved 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?

I would be ashamed to say I watched us give away the future competitiveness of our industry in order to avoid today's competitive pressures, and in the process sacrificed the industry's greatest principles for short-term electoral power plays.

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.

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, it's been individual firms/operations making decisions on how to proceed and living 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 have been 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.