Congress has been calling for USDA to conduct an economic analysis on its proposed GIPSA rule (the comment period expires on Nov. 22)

November 12, 2010

3 Min Read
Shifting Beltway Mood May Bring USDA Changes

Congress has been calling for USDA to conduct an economic analysis on its proposed GIPSA rule (the comment period expires on Nov. 22) but the agency has refused. USDA has sometimes hinted that an analysis has been done but can’t share the results; other times, the agency simply says such a study isn’t needed.

So the National Cattlemen’s Beef Association, the National Meat Association, the National Pork Producers Council, and the National Turkey Federation engaged Informa Economics, Inc. to conduct an economic analysis in the wake of USDA’s refusal to do so. These trade groups are the largest producer groups in each of their respective industries – by a considerable margin; as such, the Informa study will carry a lot of weight, especially considering that it appears to be the only rigorously done document available to the public.

Surprisingly, the study didn’t spend much time looking at the effects on long-term demand and product quality, which ultimately promise to have the largest negative impact. Instead, the study focused on the aspects that are more quantifiable and easier to assign numbers to. Still, this study indicates that consumers, ranchers, and even rural America, would be adversely affected by implementation of the rule as written.

Some of the report’s larger conclusions were that the rule would cost more than 22,000 jobs, and drive an annual decline in gross domestic product (GDP) of more than $1.5 billion and an annual loss in tax revenues of greater than $350 million. The study also confirmed what everyone already knew – that the impacts of the proposed rule will take time to be felt, will persist over the long haul, and that small producers will bear the greatest impact.

Not surprisingly, restricting marketing arrangements and opportunities restricts producers’ ability to negotiate higher prices and capture the true value of their cattle. Everyone understands that increased paperwork and documentation comes with a cost. Many were surprised that the increased legal risk and uncertainty weren’t considered to be much bigger factors, but I suppose those are difficult to model with any degree of certainty. Plus, the conservative approach makes it very difficult to challenge when more would argue that the impact is being understated.

The study showed a $- billion impact on the beef industry alone. And, as is almost always the case, additional revenue and additional costs end up largely back on the cow-calf producer, whether it is for the good or the bad.

Of course, anyone tuned into the Beltway gossip is aware of the rumors circulating about changes at USDA. Not consulting industry or ignoring industry concerns by themselves probably wouldn’t affect the viability of USDA leadership, but combining that with openly defying the wishes of Congress and the powers who actually wrote the farm bill, gives the rumors credibility. As one person told me, “Nobody gets too concerned about ignoring the concerns of the livestock industry – we just don’t have many votes. But defying Congressional mandates and intentions becomes a real issue.”

Congress discovered decades ago that letting agencies interpret legislation and create rules is far more politically expedient than doing it directly, but it’s a fine line. Congress doesn’t want those agencies creating major legislation without its direction, or in defiance of it.

The thought has long been that USDA didn’t care about the economic impact or industry concerns, while sharing GIPSA Administrator J. Dudley Butler’s vision for reworking the industry. However, the recent election seems to have changed some views; the ideological heady days are being replaced with political pragmatism.
-- Troy Marshall

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