USDA ACTIONS ON CONCENTRATION 
                                           Release No. 0155.99 

Backgrounder
                                
                 USDA ACTIONS ON CONCENTRATION

"It would be simplistic to say that consolidation, on the whole, is a good
thing or a bad thing.  Consolidation can lead to more efficient, lower-cost
production.  But competition is the lifeblood of the free enterprise system,
and the fewer options available in the marketplace, the less innovative the
economy.  What's more, we should all be concerned when the trend toward larger
and fewer agricultural operations threatens to drive the small operator out of
business.  We can't allow a system of agricultural Darwinism to prevail, with
 the survival of the fittest becoming survival of the largest."
                                
                Agriculture Secretary Dan Glickman
                       February 22, 1999
                                
                                
There is high concentration in the meatpacking industry and it is growing. 
The four largest packers' share of steer and heifer slaughter rose from 36
percent in 1980 to 80 percent in 1997.  Concentration in hog slaughter is
lower, but also on the rise, increasing from 32 percent in 1980 to 54 percent
in 1997.  It is estimated that more than half of all hogs are now sold through
some type of forward sales agreement.  Secretary Glickman has joined many
small- and medium-sized producers in expressing concerns about concentration. 

                                
USDA has been actively studying the issue of concentration and moving quickly
to ensure adequate oversight of current practices as well as enforcement of
current law.  

Enforcing the Law

    USDA filed a complaint charging Excel Corporation with "unfair trade"
  practices in violation of the Packers and Stockyards Act.
    
    After USDA filed a complaint, a Judicial Officer ordered IBP  to stop
  entering into agreements that contain a right of first refusal, under which
  IBP may obtain livestock by matching the highest previous bid rather than
  increasing the bid to purchase livestock. 

    A recent USDA-Department of Justice bid rigging investigation resulted in
  the conviction of two people for violations of the Sherman Anti-Trust Act
  and federal mail fraud statutes.  

Strengthening Oversight

    Secretary Glickman has restructured the Grain Inspection, Packers and
  Stockyards Administration's (GIPSA) Packers and Stockyards Program.  He has
  beefed up economic and legal expertise to enhance USDA's ability to monitor
  and investigate the increasingly complex and sophisticated financial
  transactions in the livestock sector.  

                                 
Investigating Procurement and Pricing Practices

    GIPSA is investigating packer competition for retail sales in light of
  record farm to retail price spreads.  Another investigation will carefully
  scrutinize recent plant closings and changes in kill capacity in recent
  years.

    USDA completed and released a major study of concentration in the red
  meatpacking industry.  

    GIPSA conducted a broad investigation of fed steer and heifer procurement
  in the Texas Panhandle, including an analysis of the effects of forward
  sales agreements by beef packers.  

    In 1996, Secretary Glickman formed an Advisory Committee on Agricultural
  Concentration, and, in 1997, he established a National Commission on Small
  Farms.  Recommendations from these bodies include stepped-up reporting of
  information on prices, exports and imports, more aggressive use of forward
  purchase arrangements and other market information by producers, and
  tougher enforcement of the Packers and Stockyards Act.  USDA is currently
  implementing these changes.                                      

    An initial GIPSA investigation of hog procurement by 12 major slaughter
  plants found that larger sellers generally had higher quality hogs and
  received higher prices.  It also found that publicly reported live hog
  prices did not accurately reflect net prices paid.  As a result, GIPSA
  began investigating hog procurement contracts and marketing agreements to
  assess the reasons for price differences among producers.  

    In January 1999, USDA began a series of public meetings with hog producers
  across the country to discuss the recent hog procurement investigation and
  its potential implications for producers, changes in Market News reports,
  alternative marketing opportunities for hog producers, restructuring credit
  programs, and small hog operation payments.  

    GIPSA will conduct a one-year price reporting investigation to determine
  whether publicly reported price information accurately reflects transaction
  prices and the market's full range.   
                                 
Providing More Information for Producers

    USDA initiated a weekly report of premiums and discounts being offered for
  cattle in the upcoming week by meat packers.  All major packers are
  participating and feedlots are using this information to verify
  transactional information.

    USDA now reports on the numbers of hogs produced under contract by large
  hog operations, the number of cattle produced under contract for future
  delivery, and some beef grading data.

    USDA extended coverage of boxed beef sale commitments to cover the upcoming
  15 business days, rather than the previous coverage of only 10 business
  days.                                                            

    USDA is seeking comment on a regulation that would make it illegal to
  purchase or sell livestock on the condition that the price not be publicly
  reported.