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**AGRICULTURAL CONCENTRATION**

***Background***

USDA monitors trends in concentration in livestock production and meat
processing and considers its implications for agriculture and rural
America. The Packers and Stockyards Act of 1921 (P&S Act) prohibits
anticompetitive behavior and unfair trade practices in the marketing and
procurement of livestock and poultry and provides for financial
protection for livestock sellers. Although evidence of high levels of
concentration is not a violation of the P&S Act, high concentration
indicates a high level of market power in a few firms, and indicates
that monitoring for anticompetitive behavior is warranted. USDA's Grain
Inspection, Packers and Stockyards Administration (GIPSA) administers
the P&S Act.

Although concentration among the industries that procure slaughter
livestock has increased in the last 25 years, it has remained relatively
stable in recent years. Four-firm concentration in steer and heifer
procurement rose from 36 percent in 1980 to 81 percent in 1993, but
since 1993 has remained fairly constant. Four-firm concentration in hog
procurement rose from 34 percent in 1980 to 55 percent in 1996,
remaining at about that level until moving to 64 percent in 2003 and
2004. Four-firm concentration in sheep and lamb procurement rose from 56
percent in 1980 to 77 percent in 1988, but decreased to 57 percent in
2004.

Four-Firm Concentration Ratio for Select Years.

  ------------------------------ ------------- ------------- -------------
  **Industry**                   **1995 (%)**  **2003 (%)**  **2004 (%)**

  Steer and heifer slaughter     81            80            80

  Hog slaughter                  46            64            64

  Sheep and lamb slaughter       72            65            57
  ------------------------------ ------------- ------------- -------------

Concentration may increase because of mergers among independent firms,
or because plants become larger. Over the last 25 years, large plants
have become vastly more important in slaughter industries, as evidenced
by two different measurement bases. GIPSA data sort cattle slaughter
plants by size; the largest plants slaughter more than half a million
cattle in a year, while large hog plants slaughter more than a million.
The definition of "large" can change over time; the agency did not
separately report cattle plants that slaughtered more than a million
animals until 1987; by 1997, 14 plants were in that newly established
category.

The increase in large slaughter plants is significant. In 1977,
approximately 84 percent of all steer and heifer slaughter occurred in
plants that slaughtered less than half a million a year. By 1997, plants
in that category saw their share drop to 20 percent, while 63 percent of
slaughter occurred in plants that slaughtered more than a million steers
and heifers. In hog slaughter, large plants handled 38 percent of all
slaughter in 1977, but 88 percent by 1997.

GIPSA's enforcement of the P&S Act addresses concerns related to
concentration fostering fair and competitive marketing in livestock and
in meat and poultry as well as guarding against deceptive and fraudulent
practices affecting the movement and price of meat animals and their
products. The agency's work aims to protect consumers and members of the
livestock, meat, and poultry industries from unfair business practices
that can unduly affect meat and poultry distribution and prices.

The Department of Justice (DOJ) and the Federal Trade Commission (FTC)
have primary responsibility for enforcing the antitrust statutes that
directly address concentration, including the Sherman Act and the
Clayton Act. USDA works with DOJ and FTC in their investigations of
proposed mergers affecting agriculture.

USDA also establishes programs that enhance the competitiveness of
markets for agricultural products. For example, the Department has a
large market news reporting program to provide producers with current
prices and other current market conditions. USDA also establishes grades
and standards and provides grading and inspection services that enhance
market effectiveness.

***General Opinions Expressed***

-   Many thought that factory farms should not be subsidized (or
    subsidies to these firms should be reduced), and that they should be
    taxed heavily. These commenters also stated that maximum payment
    limits to corporate farms should be enforced. These participants
    also expressed the belief that current policies encourage corporate
    growth.

-   Many people stated that factory farms should be eliminated (or more
    strictly regulated) and small farms should be promoted. These
    respondents stated that factory farms degrade the environment, end
    in serious health consequences, and treat animals poorly.

-   Participants generally expressed the view that corporate farms are
    growing too rapidly and farm consolidation is a challenge to new
    farmers and ranchers. These commenters want the Government to help
    put small farms on a level playing field with corporate farms.

-   Participants generally stated that too many young farmers and
    farmers with small farms are being forced to work for these larger
    conglomerates. These commenters suggested that young farmers cannot
    compete against big business. Some of these participants also
    stressed that large corporate farms are acquiring large amounts of
    land, which drives up land rental rates and land values.

-   Many commenters asserted that USDA should promote small farms in the
    belief that they can operate more efficiently than factory farms.

-   Others suggested that USDA should not discriminate against large
    corporate farms. Family farms are now commonly also corporate farms.
    These commenters asked that the Government not penalize farmers for
    growing.

-   Many discussed concentration of market power by major agribusiness
    firms in meats, poultry, grain, feedstuffs, and food
    processing---leading to a loss of transparency in the market,
    manipulation of prices, and concentrated political power.

-   Some mentioned that agribusiness corporations have too much
    influence over the farm bill process compared to producers and
    producer groups.

-   Some asked for elimination of trade negotiations that are whittling
    away at U.S. competitive advantage and serving the international
    corporate interest.

-   Some mentioned the importance of reinstating the Mandatory Price
    Reporting Act.

-   Many asked for a national ban on packer ownership of livestock.

-   Others opposed a packer ownership ban because it would limit or
    eliminate grid and formula pricing.

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-   Some suggested the farm bill needs a title to address competition
    and fair business practice issues in the domestic livestock market.

-   Some expressed the view that captive supplies push price instability
    risk onto producers and hold down prices.

-   Many were concerned that consolidation of processors, packers, and
    large retailers diminished farmers' bargaining power. These
    participants also thought that the government should provide for
    fair profits for both producer *and* processors.

-   Many stated that the trend of vertical integration in animal
    agriculture, combined with unfair contractual relationships
    (especially in livestock), has resulted in financial losses for
    farmers.

-   Others commented that contract growing in poultry had actually saved
    their family farm operation.

-   Some asked for better enforcement of anti-trust laws and the P&S Act
    to reduce the influence of market concentration. Some asked for
    greater power and funding to be given to GIPSA to police the
    livestock industry. These commenters expressed the view that food
    distribution and marketing monopolies are the top obstacle to
    competitive agriculture.

-   Many asked for four specific protections:

(a) Producer Protection Act---This legislation would include minimum
    standards for contract fairness including clear disclosure of
    producer risks, a prohibition on confidentiality clauses, a
    prohibition of binding mandatory arbitration in contracts of
    adhesion, recapture of capital investment so that contracts that
    require a significant capital investment by the producer cannot be
    capriciously canceled without compensation, and a ban on unfair
    trade practices including tournament or ranking system payment.

(b) Legislation closing poultry loopholes in the P&S Act---USDA should
    have authority over poultry dealers, similar to its current
    authority over packers and livestock dealers. This authority should
    cover not only broiler operations, but also growers raising pullet
    or breeder hens.

(c) Bargaining rights for contract farmers---Loopholes should be closed
    in the Agricultural Fair Practices Act of 1967---require processors
    to bargain in good faith with producers' organizations; promote
    bargaining rights; and prevent processor retaliation.

(d) Captive Supply Reform Act---This legislation would require captive
    supply contracts to be traded in open, public markets to which all
    buyers and sellers have access.

***Detailed Suggestions Expressed***

-   Sponsor the rebuilding of processing plants and mill/elevators that
    have been disappearing in the last 10 years.

-   By supporting local slaughterhouses in each county, local
    distribution issues would be helped.

-   Agribusinesses should be broken up and their resources redistributed
    among small, family farm operations.

-   Give assistance to create more cooperatives so multiple farmers can
    own portions of these enterprises.

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-   The U.S. farm economy needs a viable supply management structure,
    much like that in Canada.

-   Eliminate the use of mandatory arbitration in contracts for the
    livestock industry.

-   Restrict a packing entity from having more than 25 percent of its
    slaughter mix from captive supplies on a per plant, per day basis.

-   Packers should only be able to own cattle 1 week prior to slaughter,
    which is enough time to secure adequate supply.

-   Guarantee bargaining rights for contract farmers.

-   Conduct in-depth antitrust investigations into large multinational
    corporations that control a larger percentage at any level of any
    given agricultural product, through incorporation of a Competition
    Title in the farm bill.

-   The Competition Title of the farm bill should address prohibition of
    discriminatory pricing by outlawing any transaction containing an
    unreasonable preference or advantage in the procurement of products,
    when terms are offered to one producer and denied to another.

-   Enact reforms to protect producers in contracts by requiring
    contracts be written in plain language (including producers' risks,
    duration, termination, renewal, and payment factors), prohibit
    termination of a contract if done as retribution, improve
    arbitration clauses, and make unenforceable any provision in a
    contract that would waive the rights of the producers.

-   GIPSA, DOJ, and FTC need to work together to aggressively scrutinize
    mergers and acquisitions in the livestock industry and pursue a
    proactive strategy for remedying anticompetitive practices.

-   GIPSA should regularly report to Congress on cases referred,
    pursued, and prosecuted, and on the establishment of market
    consolidation thresholds that trigger enforcement action.

-   To strengthen the livestock sector, an initiative should be
    announced to federally fund pilot projects on mini-packing
    facilities.

-   To increase competitiveness, current law should be reformed to allow
    for the interstate shipment of State-inspected meat.