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67–852 2011

REGULATORY INJURY: HOW USDA’S PROPOSED 

GIPSA RULE HURTS AMERICA’S SMALL BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON AGRICULTURE, ENERGY AND 

TRADE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 7, 2011 

Small Business Committee Document Number 112–026 

Available via the GPO Website: www.fdsys.gov/house 


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(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

Page 

OPENING STATEMENTS 

Tipton, Hon. Scott .................................................................................................... 1 

Critz, Hon. Mark ...................................................................................................... 2 

WITNESSES 

The Honorable Edward Avalos, Under Secretary, Marketing and Regulatory 

Programs, United States Department of Agriculture, Washington, DC .......... 4 

Ms. Robbie LeValley, LeValley Ranch, Hotchkiss, CO ......................................... 22 

Mr. Gary Malenke, Sioux-Preme Pork Products, Sioux City, IA ......................... 20 

Mr. Joel Brandenberger, President, National Turkey Federation, Washington, 

DC .......................................................................................................................... 23

Mr. Bob Junk, Fay-Penn Economic Development Council, Uniontown, PA ....... 25 

APPENDIX 

Prepared Statements: 

The Honorable Edward Avalos, Under Secretary, Marketing and Regulatory Programs, United States Department of Agriculture, Washington, DC ..................................................................................................... 36 

Ms. Robbie LeValley, LeValley Ranch, Hotchkiss, CO .................................. 38 

Mr. Gary Malenke, Sioux-Preme Pork Products, Sioux City, IA .................. 42 

Mr. Joel Brandenberger, President, National Turkey Federation, Washington, DC ..................................................................................................... 44 

Mr. Bob Junk, Fay-Penn Economic Development Council, Uniontown, 

PA ................................................................................................................... 49 

Statements for the Record: 

Dan & Janet King, Owners/Operators, Zenda Poultry LLC and Zenda 

View Farm LLC Rockingham County, Virginia ......................................... 58 


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REGULATORY INJURY: HOW USDA’S PROPOSED GIPSA RULE HURTS AMERICA’S 

SMALL BUSINESSES 

THURSDAY, JULY 7, 2011 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in room 

2360, Rayburn House Office Building. Hon. Scott Tipton (chairman 

of the subcommittee) presiding. 

Present: Representatives Tipton, Bartlett, King, Ellmers, Landry, 

Critz, Cicilline. 

Chairman TIPTON. Well, good morning, everyone, and thank you 

for joining us. The hearing will now come to order. 

I would like to thank our witnesses for taking the time to be here 

today as well. We do look forward to your testimony. 

One of the greatest barriers that job creation has today is regulatory uncertainty. Small businesses already bear a heavy regulatory burden. Overreaching new proposed regulations are having 

a chilling effect, prolonging the economic downturn that we are experiencing in our country. Today we will examine the U.S. Department of Agriculture’s Proposed Grain Inspection, Packers and 

Stockyards Administration or the GIPSA Rule and the potential 

ramifications it will have on America’s small businesses. 

I would like to extend special thanks to each of our witnesses 

today for taking the time out of your busy schedules to be here. 

And I would like to especially thank the folks from the USDA and 

Under Secretary Avalos for being here. I also want to extend a 

warm welcome to Robbie LeValley, a constituent of mine from 

Hotchkiss, Colorado who we will hear testimony from later, along 

with other representatives for small businesses within the beef, 

pork, and poultry industries. 

Just over a year ago the USDA announced a proposed rule that 

would significantly alter livestock marketing practices and further 

inject the government into small businesses’ marketing and business decisions. If implemented, as proposed, this overreaching new 

rule would hurt thousands of small businesses in the livestock industry and cost our country thousands of jobs. The GIPSA Rule 

would create uncertainty for livestock producers and open the door 

for frivolous lawsuits based on nothing more than accusations of 

competitive injury. Further, although the rule was prompted by the 


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2008 Farm Bill, I believe what was proposed by the USDA went 

far beyond the intent of Congress. 

The proposed rule has raised concerns for many in the agricultural community. During the public comment period, the USDA received more than 61,000 comments from stakeholders in the beef, 

pork, and poultry industries. Despite the proposed rule’s potential 

for having far-reaching impacts on small businesses, no comprehensive cost-benefit analysis was performed. 

Chairman Graves and I found the USDA’s disregard for the Regulatory Flexibility Act extremely troubling. As a result, last month 

we sent a letter to USDA Secretary Tom Vilsack, expressing our 

concerns and calling for, among other things, a revised regulatory 

flexibility analysis. To ensure that the USDA fully understands the 

private sector costs of regulations and its imposing these new rules 

on small businesses. Independent studies estimate that the proposed rule would deal a $1.5 billion blow to our nation’s economy 

and directly cause the loss of 23,000 jobs. Clearly, our country cannot afford further economic injury of this magnitude. 

I look forward to hearing from our witnesses as they provide testimony and seek to prevent regulatory injuries that will likely result by the implementation of the existing proposed rule. I also look 

forward to hearing from Under Secretary Avalos on the current 

status of the proposed rule. It is my hope that if the USDA moves 

forward on the proposed rule it will do so only after significantly 

revising the rule to address concerns raised here today and to incorporate the suggestions from those who commented on the rule. 

I would also encourage the USDA to consider and include in the 

record the letter that Chairman Graves and I sent to Secretary 

Vilsack on June 13, addressing inadequacies of the Agency’s initial 

regulatory flexibility analysis and the potential ramifications on 

small businesses. 

Again, I would like to thank all of you for taking the time to be 

here today and I will now yield to Ranking Member Critz for his 

opening statement. 

Mr. CRITZ. Thank you, Mr. Chairman. Mr. Secretary, Mr. Christian, thank you for being here. 

Over the past 60 years, technological improvements and scientific 

breakthroughs have enabled our farms to become the most productive in the world. However, the dramatic expansion of industrial 

agriculture has also made it increasingly challenging for small family farms to thrive. One area that has factored into this trend has 

been consolidation and vertical integration of the meat and poultry 

industry. Compared to 20 years ago, the cattle industry is roughly 

40 percent more concentrated. The modern poultry industry is 67 

percent more concentrated than two decades ago. These trends 

have profoundly affected how small farms operate. As industry consolidation reduced the number of outlets for agricultural products, 

many family farms have shifted toward contract production. 

In addition, market forces have strained the bottom-line of many 

farmers. Congress recognized this and took steps to address these 

concerns in the 2008 Farm Bill. That measure contains provisions 

to improve marketing practices, including new rules for production 

contracts. The bill required the Grain Inspection Packers and 

Stockyards Administration (GIPSA) to define anti-competitive pracVerDate Mar 15 2010 08:54 Sep 02, 2011 Jkt 067852 PO 00000 Frm 00006 Fmt 6633 Sfmt 6602 E:\HR\OC\67852.XXX 67852

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tices with the goal of improving oversighting compliance. Last 

June, GIPSA published its proposed rule intended to bring transparency to the industry and help small family farms compete. 

Today we will examine how effective this proposal is in restoring 

the competitive balance to the meat and poultry industries. This 

Subcommittee will also be investigating the economic costs on 

small- and medium-size farms. I look forward to any suggestions 

our witnesses may have for improving the regulation before the 

USDA issues its final rule. 

While the goal of the rulemaking is to help level the playing 

field, it is imperative that USDA properly weigh any adverse economic impact and explore less burdensome alternatives. I am confident after this hearing the USDA will continue to proceed in a 

transparent manner that allows public comments to the proposal, 

as well as the pending economic analysis. This input must be fully 

considered before a final rule is issued. 

Independent family farms play a vital role in rural economies. In 

addition to providing jobs, family farmers also help support small 

businesses by purchasing goods and services within their communities. Without them, rural areas are left with higher rates of unemployment and little opportunity for economic growth. It is vitally 

important that farms who will be directly impacted by the changes 

are heard. 

In advance of the testimony, I want to thank all of the witnesses 

who traveled here today, including Bob Junk from my Congressional District, for their participation and insights into this important topic. 

Thank you, Mr. Chairman. I yield back. 

Chairman TIPTON. Thank you, Ranking Member Critz. And I 

would ask if Committee members have a statement that they submit it for the record. 

Gentlemen, you are probably familiar with it but if I may take 

a moment to explain our lighting system. You will have five minutes for your testimony. When the light turns yellow you have one 

minute left. If you exceed that a little bit, if you would wrap up 

your comments as quickly as possible and we can proceed on with 

questions from the Committee, we would appreciate it. 

Our first panel today, we will hear testimony from the Honorable 

Edward Avalos, Under Secretary for Marketing and Regulatory 

Programs for the USDA. Mr. Secretary, I want to certainly let you 

know that we do appreciate your having reached out to our office 

and I know the other members as well. 

Mr. Avalos provides leadership and oversight for the Animal and 

Plant Health Inspection Services which addresses animal and plant 

pests and diseases. The Agricultural Marketing Service, which provides standardization testing and marketing of commodities and 

specialty crops, and Grain Inspection Packers and Stockyards Administration, which promotes marketing of livestock, cereals, and 

meats, as well as fair trade practices. Mr. Avalos grew up in a family farm in Mesilla Valley of Southern New Mexico. Mr. Avalos is 

joined by Mr. Alan Christian, Deputy Administrator for Grain Inspection Packers and Stockyards Administration (GIPSA) and I 

would like to thank you gentlemen for taking the time to be here 

today. 


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Mr. Avalos, if you would begin with your testimony. Thank you. 

STATEMENT OF UNDER SECRETARY EDWARD AVALOS, MARKETING AND REGULATORY PROGRAMS, U.S. DEPARTMENT 

OF AGRICULTURE 

STATEMENT OF EDWARD AVALOS 

Mr. AVALOS. Chairman Tipton, Ranking Member Critz, members 

of the Subcommittee. Thank you for the opportunity to appear before you today to discuss the proposed rule issued by the Grain Inspection Packers and Stockyards Administration, better known as 

GIPSA, on June 22, 2010. 

While I am looking forward to getting to the important small 

business perspectives from members of this committee, I am limited by the Administrative Procedures Act and USDA’s ex parte 

guidelines of what I can discuss at this stage of the rulemaking. 

Before we talk about the proposed rule, let me provide some context. It is very appropriate for the Small Business Committee to decide to focus on this hearing a small business in the livestock and 

poultry industries. The vast majority of farmers in general, and 

specifically livestock and poultry producers are small businesses. 

There are currently 70,000 hog producers in this country, almost 

a million cattle ranchers in the country, and nearly 20,000 poultry 

growers. The majority of these individuals are family-owned small 

businesses. 

I think the point that farmers, ranchers, livestock producers, and 

poultry growers are small businesses is important to note. And as 

you all know, small businesses are the lifeblood of our economy and 

where jobs are created and where new ideas are developed. The 

secretary and I have long recognized the importance of farmers, 

ranchers, and producers to rural communities. Our livestock and 

poultry producers benefit rural communities because they also support other small local businesses such as the local hardware store, 

the feed store, local restaurants, the local tractor and farm equipment dealers. 

The primary mission of GIPSA, and in particular the Packers 

and Stockyards program, is to make sure that the marketplace is 

fair and transparent, and ensuring small businesses get a fair 

shake. Decades before the Small Business Administration was 

formed and the importance of small business was really fully recognized, the predecessor of GIPSA was created by Congress through 

the Packers and Stockyards Act of 1921. This was largely done to 

protect small businesses in the form of livestock producers and 

ranchers, against abuses of market powered by large meat packers. 

The Packers and Stockyards Act, which is the basis for GIPSA’s 

enforcement authority and the livestock and poultry industry is 90 

years old this year. These industries have changed dramatically 

over this time. For example, stockyards are virtually non-existent 

today. This longevity means the regulations and the act itself need 

to be updated periodically. Congress realized this in the 2008 Farm 

Bill by making some changes in the Act and directing USDA to 

propose specific regulations. Combined with a handful of additional 

areas that USDA felt deserved closer attention and needed input 


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from stakeholders, this was the genesis of the rulemaking that is 

the subject of this hearing today. 

The purpose of the proposed rule was to make the markets more 

fair and transparent, which was intended to benefit livestock producers and poultry growers, the vast majority which are familyowned businesses. This is in no way to minimize concerns about potential unintended consequences of the proposed rule, either generally or related to small businesses. For example, I know there are 

various concerns that have been raised about the rule hindering 

value-added and other market activities. I want to make clear to 

Mr. Chairman and the Committee that our intent and the intent 

of the secretary and myself, that we are very strong supporters of 

these marketing arrangements. These arrangements that often provide premiums to farmers and ranchers at the same time meet consumer demand. 

We received over 61,000 comments. These comments were comprehensive, thoughtful, and educational. We view these comments 

as tools that will guide us on our path to make the appropriate and 

needed reforms. It is important to us to have a workable and common sense rule. These comments will assist the Department to determine if all factors have been properly considered. The comments 

will also aid us to develop a more rigorous, cost-benefit analysis 

and other related analyses, such as a small business analysis. 

While it would not be appropriate to go into detail on specific 

modifications, I can assure you that the Department will take careful account with the public comments. We ask that everyone have 

patience as we carefully work through the comments and we ask 

that we not prejudge the outcome. 

Thank you again for the opportunity to appear before you today 

to talk about this proposed rule and share our support for small 

businesses in rural America. I welcome your questions and your 

comments. 

[The statement of Mr. Avalos follows on page 36.] 

Chairman TIPTON. Thank you, Mr. Secretary. And we will now 

proceed with the questioning for Secretary Avalos. And I will begin. 

I think it is important to probably note, and I think you brought 

up a very important word in ‘‘intent.’’ You know, we have seen 

some good, cooperative work with the USDA, of course, and I am 

encouraged to hear that you are taking into consideration the 

61,000 comments that came into play, particularly as it gets down 

to some of the cost-benefit analysis. 

Mr. Secretary, in recent testimony before the Senate Agricultural 

Committee, the USDA Chief Economist Joe Glauber stated that the 

Department’s economic analysis of the rule is difficult given how 

the regulations could affect behavior by packers and interrogators 

in how they do business. Given that the Department has now admitted that the rule would have a significant economic impact, will 

the findings of the economic analysis result in the Department undertaking a new regulatory flexibility analysis? 

Mr. AVALOS. Congressman, first I want to—I am sorry, Mr. 

Chairman. First, I want to say that this administration is strongly 

committed to helping small business and we strongly support 

transparency, fairness, and equity in the marketplace. This is really very important to us. The comments that we received on the proVerDate Mar 15 2010 08:54 Sep 02, 2011 Jkt 067852 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\67852.XXX 67852

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posed rule, they bring up some of these concerns that we just 

talked about on the small business analysis that Dr. Glauber was 

talking about. 

And I guess once again what I am asking is that we have patience to let the time tested rulemaking process continue. And I 

can assure you that we are going to listen to these comments, the 

comments on the cost analysis that was in the proposed rule, the 

comments that were on the small business analysis and I can assure you, Mr. Chairman and members of the Committee that Dr. 

Glauber, the chief economist, first of all, will lead the team to develop the cost benefit analysis because this is important. He will 

have considerable input on how this impacts small business. 

Chairman TIPTON. One question I guess that I am curious about, 

Mr. Secretary, is once we have taken into consideration those 

61,000 comments and we have that patience, before the rule goes 

final will there be a general review coming back to Congress? 

Mr. AVALOS. Okay. Mr. Chairman, members of the Committee, 

this process has really been tedious and it is a new process for me. 

Coming from New Mexico, I have never been exposed to something 

like this and sometimes it can really try your patience. But we received all the comments, and then we summarized them. And now 

we put them in categories as to how they impact on specific provisions of the proposed rule. And having done all that, we are now 

looking at options, at alternatives. We are looking at possible modifications and I just do not want to prejudge the rulemaking process. So I cannot tell you what the end product is going to be. I cannot tell you, you know, what kind of form the end product will have 

and I cannot tell you if we are going to have additional comments 

or not. 

Chairman TIPTON. You know, as mentioned in the comments 

from Chairman Graves and myself, the Department’s information 

gathering on small businesses appeared to be inadequate. What 

procedures will the Department have in place to better measure, 

number one, the scope of small businesses potentially being impacted and how these businesses would be impacted compared to 

their larger rivals? 

Mr. AVALOS. Mr. Chairman, once again, were you making reference to the letter that came into the secretary? 

Chairman TIPTON. Yes, sir. 

Mr. AVALOS. Well, Mr. Chairman, first of all I want to acknowledge and to appreciate the considerable thought and effort that was 

put into the letter. This is really important. But it did have some 

specific requests and recommendations that due to the Administrative Procedures Act I cannot discuss right now. But I can tell you 

this. Most of the requests that were in the letter also came up in 

the comments in the rule and are being considered. I can also tell 

you that these concerns, requests, are on my mind because of how 

they impact on small businesses, how they impact on growers and 

producers all over the country. 

And maybe I should share a story with you, Mr. Chairman. The 

reason it is on my mind, why it is important to me, in the past I 

worked a lot with the livestock industry, did a lot of work to export 

livestock in New Mexico, and I still have friends all over the 

United States. And in particular, I have an old friend from, of all 


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places, from Tulia, Texas. They called me up about the proposed 

rule. I told him, I cannot talk about it but I told him one thing. 

He was concerned about his operation, how he was getting premium for his cattle. Small operator, 300 mother cows—but because 

of the quality of his cattle he got a premium and he was concerned 

about losing that premium. So I told him, just like I said in my 

statement, Secretary Vilsack and I strongly support value-added. 

We strongly support marketing arrangements. We strongly support 

premiums to producers that producers that produce high quality 

cattle. 

So anyway, going back to your question, Mr. Chairman, no option 

is being ruled out. We are really focused on the issues and concerns. We are taking these comments very serious. And I can assure you that at the end of the day we will fully comply with the 

provisions of the Farm Bill, the provisions of the Packers-Stockyards Act, the Administrative Procedures Act, and the Regulatory 

Flexibility Act. 

Chairman TIPTON. Mr. Avalos, you and I are probably two of the 

only people in this room that know where Tulia, Texas actually is. 

Mr. AVALOS. Probably. 

Chairman TIPTON. We come from rural America. I am out of Colorado and we are actually pretty close neighbors. But during a recent Ag Committee Subcommittee meeting you had stated that you 

wanted to repopulate rural America as a result of the implementation of the proposed rule. And as I mentioned in my statement, 

independent studies estimate that the proposed rule would deal a 

$1.5 billion blow to our nation’s economy and directly cause the loss 

of about 23,000 jobs. The majority of these job losses will be found, 

obviously, in rural America given the nature of this. How is this 

going to help really repopulate rural America? 

Mr. AVALOS. Mr. Chairman, I appreciate those comments because rural America is very important, not only to me but to Secretary Vilsack and to the administration. This administration has 

made revitalizing rural America a priority, keeping farmers and 

ranchers on the farm and on the ranch a priority. The intent of this 

proposed rule was to maintain fairness, transparency, equity in the 

marketplace. The intent is not to hurt producers. 

Once again, I will refer back to the 60,000 plus comments that 

we received. A lot of these concerns were raised in the comments 

and again, we are taking these comments very serious. We are not 

leaving out any options, and as we move forward the comments 

will guide us. 

Chairman TIPTON. You know, under the proposed rule it will be 

necessary for small packers to determine and document the benefits of contractual terms in order to satisfy the recordkeeping requirements that are mandated. Is that correct? 

Mr. AVALOS. Mr. Chairman, I want to make sure we get a correct 

answer to you so I am going to defer to Mr. Christian. 

Mr. CHRISTIAN. Thank you. Mr. Chairman, I think the intent of 

the rule was to provide a fair and transparent market for producers, and in particular, small producers, that over the years we 

have heard from do not feel that they have the same access to 

those markets as some of the larger producers. And so the intent 

of that provision and others, similar to it was to provide that level 


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playing field, if you will, and some transparency so they know what 

type of mechanisms or marketing arrangements are available for 

them. 

Chairman TIPTON. When we were talking about those calculations, to whom are the benefits to be calculated? The packers? Producers? Consumers? What is kind of the matrix? 

Mr. CHRISTIAN. I beg your pardon, Mr. Chairman. The—— 

Chairman TIPTON. In terms of who are the benefits when we are 

talking about when those are going to be calculated out. Are the 

benefits going to be to the packers, the consumers, the producers? 

Mr. CHRISTIAN. In the cost benefit analysis? 

Chairman TIPTON. Yes. 

Mr. CHRISTIAN. Well, I think that it varies depending on the particular provision. Dr. Glauber, with the Chief Economist’s Office is, 

in fact, as we speak, undertaking the cost benefit analysis for the 

rule based on the comments that we received. 

Chairman TIPTON. I just have one final question here. Has 

GIPSA considered the cost for a small packer to engage separate 

packer buyers for each auction barn with which it currently does 

business? 

Mr. AVALOS. Mr. Chairman, I think that is probably getting into 

the specifics of the rule. But I do know that has been brought up 

in the comments. And once again, I am asking for your patience 

and the patience of the Committee and the stakeholders to let this 

rulemaking process continue. And let us focus on these issues and 

concerns that were brought up in the comments and let us address 

them. And I can assure you that at the end the final product, whatever form it is, will take into consideration all these very important 

comments that we received. 

Chairman TIPTON. Thank you, gentlemen. I would like to now 

yield to Ranking Member Critz for his questions. 

Mr. CRITZ. Thank you, Mr. Chairman. 

Mr. Secretary, as you mentioned in your statement and as you 

have been detailing, there has been a consolidation in livestock, in 

pork and in poultry over the last 10 to 20 years. I am new to this 

process, just elected last year so I am trying to get up to speed as 

much as possible. I have written to Secretary Vilsack about the 

economic impact of the rule. Can you detail what initially prompted 

this analysis for GIPSA? And then tell me about a timeline going 

forward as well. 

Mr. AVALOS. Okay. Congressman, Mr. Critz, your question was 

what prompted the cost benefit analysis? 

Mr. CRITZ. With the consolidation, and I guess going further, 

there is a lot of talk about loss of jobs resulting from this GIPSA 

rule. My concern is that in my part of the world, I have a lot of 

small farmers, so what has been the impact on them due to this 

consolidation over the years that prompted this revisiting of 

GIPSA? 

Mr. AVALOS. Congressman, as I mentioned in the opening statement, the Packers and Stockyards Act is 90 years old. 

Mr. CRITZ. Right. 

Mr. AVALOS. And I will go back to advice I received from my dad 

a long time ago when I was just a young man and we moved—you 

will appreciate this, Mr. Chairman. We moved from the farm to 


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town, to the city. And I was not very happy. And my dad sat me 

down and said, look, son. In this world everything is always changing. Nothing ever stays the same. You need to adjust to survive. 

I think this applies with the Packers and Stockyards Act. It is 

90 years old. The industry has changed tremendously in 90 years 

and we are having to make adjustments to the regulations to keep 

up with the industry, and to address the needs of the industry, 

whether it be the packer or the producer. 

So, this need for change, for modification, is really what prompted these changes to the Act. I am going to, just to make sure we 

answer your question, Congressman, I am going to defer to Mr. 

Christian. Maybe he can help me out a little bit. 

Mr. CHRISTIAN. Yes. Congressman, I think if you look over the 

last, say, 20 years, you go back to the ’90s, there has been, as you 

mentioned, a very significant decrease in the number of farmers. 

If you look at cattle, you are going from say 1.2 million to under 

a million. You had 250,000 hog producers. Now you are down to 

around, under 70,000. And even with livestock markets, you are 

going from about 1,800 livestock markets down to about 1,200 livestock markets. I am sure there are many factors that have contributed to that decline but one of the things that we hear all the time 

from small farmers, and really, the smallest of small businesses, is 

that they cannot compete in the marketplace. I mean, we have 

heard from small poultry growers that they have invested a substantial amount of money, $500,000 to a million dollars. And they 

have got a contract that they have entered into freely to raise poultry for a large integrator and then after a short period of time the 

integrator comes back and changes their contract. Maybe from a 

three year contract to a flock-to-flock contract. And the grower at 

that point really is under a contract of adhesion and has no ability 

to then bargain. We have heard those kind of issues from small 

growers. 

From small hog producers, we have heard that there are costplus contracts in the industry. There are ledger contracts in the industry. But a lot of these contracts that provide some type of financial protection are available to the large producers and are not 

available to small producers, even if the small producer can meet 

those terms. 

So we have taken those concerns into account as we have developed this proposed rule and the intent of the rule is then to provide 

at least a more transparent marketplace and a fairer marketplace 

where the small producers can at least see what is available and 

have an opportunity then to compete for those marketing arrangements. 

Mr. CRITZ. So we are looking to become more transparent to give 

the small producers a seat at the table. And I guess a fair chance 

to compete for contracts. And this comes back to, I think, the letter 

that the chairman and Chairman Graves had sent and that I 

talked about actually in a letter that I sent last year about the economic impact. And, you know, obviously in this country we like everything as cheap as possible. And I am assuming that with 

vertical integration it keeps the price compressed which dealing in 

the world of subcontracting I know that it is the guy at the bottom 

of the rung that usually feels the pinch the hardest. 


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Now, I do not know from your seat if you have seen——you 

talked about the loss of farming—farms, small producers over the 

years. What is the time, I guess I am asking—I think we have all 

asked for an economic impact of what this rule change would do. 

Where in process are we with getting an answer on the economic 

impact? 

Mr. AVALOS. Congressman, as we all know, the Secretary directed our chief economist, Dr. Glauber, to lead a team of economists at USDA to conduct a very thorough and comprehensive cost 

benefit analysis and economic analysis. I do not know exactly 

where we are in the process. I know the team has been working 

very hard on this and I know that it has taken considerable time 

because of the extent of the comments. The comments received on 

the proposal are being used as guidance in preparing this cost benefit analysis. 

So I cannot give you a timeline as to where we are but I can tell 

you that Dr. Glauber and the team are working very hard on this. 

Mr. CRITZ. Okay. That brings me to my next question. And obviously, those of us in Congress get a two-year contract every two 

years, so time is very important to us. From the testimony and 

from the information I received, the comment period ended on November 22nd, which was about 32 weeks ago. With sixty-one thousand comments, one person going through 400 comments a week on 

a five-day work week could have covered that. So if you have got 

10 people, that is only 40. So I am curious as to where we are in 

the process? You talked about putting these in silos or categorizing 

them. How close are we to coming up with some sort of guidance? 

For those of us on the Small Business Subcommittee on Agriculture, this is extremely important because we all represent small 

producers. But we also recognize the larger economy, and we have 

to figure out where the balance is. 

Mr. AVALOS. Congressman, I wish I could just give you an answer. It is a hard question to answer because I do not know when 

we are going to have a final product. As I mentioned earlier, we 

have—— 

Mr. CRITZ. Tell me how many people are working on it? 

Mr. AVALOS. I cannot but I can defer to Mr. Christian. He might 

know how many folks are working on this. 

Mr. CHRISTIAN. Yes. Thank you, Mr. Congressman. 

GIPSA is a very small organization. The Packers and Stockyards 

program is 160 people. The rules that we work on typically receive 

anywhere from, 20 to, a couple hundred comments. We have leveraged people from outside of the agency from the Animal and Plant 

Health Inspection Service to help us review these comments. We 

have been working as hard as we possibly can with the few amount 

of people that we have to get this completed. And I can assure you 

Dr. Glauber, the Chief Economist’s Office, is working very diligently to get the cost benefit analysis completed. And I think, you 

know, that is a key piece. Once we get the cost benefit analysis 

then that gives us, a lot of information to look at the options that 

are available to move forward. 

Mr. CRITZ. It has been seven months, so are we looking at within 

a year of the close, November 22, 2011? Can you even ballpark it 

that we are close, or that we have several months to go? I do not 


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mean to be pushy about this, but I think the chairman mentioned 

that it is the uncertainty that creates issues for a lot of people. At 

least if you know where you are, you know how you can compete 

or how you cannot compete. I think this is creating uncertainty 

within all levels of this marketplace. 

Mr. AVALOS. Congressmen, Mr. Chairman, I appreciate that. 

I wanted to add a little something and I will try to give you a 

more direct answer. On the comments that we received, they were 

not just for the rule, against the rule. The stakeholders that took 

time and expense to submit the comments which we greatly, greatly appreciate, were very comprehensive. They gave alternatives, 

recommendations, options. Very, very thorough. So it is not just 

you read them, say this guy is for them, this guy is against them. 

It is really a very, very time consuming, thorough process. A very 

important process. So to answer your question on the timeline, fairly soon we should have a final product. 

Mr. CRITZ.. Fairly soon. Okay. 

Mr. AVALOS. Fairly soon. 

Mr. CRITZ. Well, that is hopeful. It is summer. We will see where 

that takes us. 

One thing Mr. Christian just mentioned about the size of GIPSA; 

with this proposed rule you are talking about a more transparent 

process but you are also talking about more enforcement. What 

does that mean to your level of staffing? If you were already a 

small organization, how do you then find people to do enforcement 

of some of these issues? I think the chairman mentioned there is 

a worry about frivolous lawsuits. I think if you look at our legal 

system, anyone can find different areas where there are frivolous 

lawsuits. Hopefully, farming and livestock would be immune to it, 

but we are not that lucky. So how is this playing into the size of 

your operation? 

Mr. CHRISTIAN. Well, I think, as you know, obviously implementing new regulations requires an extra effort. I have kind of a 

theory of—I have been working in regulatory enforcement for about 

my entire career. And I have a regulatory enforcement theory related to the 80/20 Rule, and how it applies to enforcement. If you 

let folks know what the requirements are, about 80 percent will 

voluntarily comply. About two percent will never comply. And so 

you focus your efforts first on education to get the industry up to 

that 80 percent and then you focus your limited, resources on enforcement of that two percent so you can get the other 18 percent 

to understand that it would be better to comply than to not comply. 

And so that is how GIPSA really—or the Packers and Stockyards 

program is implemented. I mean, we really just spot check. We 

make sure that people understand what the rules are in the industry the best we can by getting folks out there, working with industry, and then we identify the flagrant violators because we, cannot 

look over everybody’s shoulder, and we try to take strong enforcement action against those flagrant violators to set up the deterrent 

to get that compliance rate up. And one of the areas that is of concern, because our overall goal, our measure, is compliance. If we 

can get 100 percent or 90-some percent compliance with the Packers and Stockyards Act and the regulations that were promulgated 

under it, and if it is a good law and if there are good regulations, 


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then we will have done our job. We will have protected livestock 

producers, livestock sellers. 

What we found in poultry, with the limited regulations that 

cover poultry right now, our compliance rate is still down around 

67 percent when we are looking at contract compliance. And what 

I think will happen if these rules are promulgated in a way that 

helps provide guidance to the industry as to what we consider compliance under an unfair practice or an unreasonable preference, 

that it will help the industry get that compliance rate up, to over 

80 percent and help improve the protections for poultry growers 

and the small entities that are out there. 

Mr. CRITZ. Well, Mr. Chairman, I see you have a full slate of 

folks on your side, so I will yield back so that they can get to their 

questions. Thank you very much. 

Chairman TIPTON. Thank you, Ed. 

Now I would like to recognize Mr. Bartlett for his questions. 

Mr. BARTLETT. Thank you very much. 

Mr. Christian, would you tell us why our small businesses and 

our farmers think that they are going to be hurt by this proposed 

rule? And after you have done that then I would like the secretary 

to tell us why they are wrong. 

Mr. CHRISTIAN. Congressman, you know, to look at the response 

that we have gotten to the proposed rule, the 61,000 comments will 

give you an idea of how people feel about the rule and how 

they—— 

Mr. BARTLETT. And how do they think it is going to hurt them? 

What do they think it is going to do to them? 

Mr. CHRISTIAN. Well, I mean, looking at the comments there is 

a wide range of issues that different entities of different sizes 

have—— 

Mr. BARTLETT. Tell us some of those if you would. 

Mr. CHRISTIAN. Would you like me to reiterate what some of the 

comments have indicated? 

Mr. BARTLETT. Yeah. I am sure you can categorize them, you 

know, just a few of the biggest plurality of hits. 

Mr. CHRISTIAN. Well, in the rulemaking process, the number of 

comments are not necessarily as relevant as the substantive nature 

of the comment. And so, I mean, in terms of numbers we received 

a lot of postcards. We received a lot of e-mails. I mean, we received 

probably—— 

Mr. BARTLETT. Of the substantive comments, why do you think 

this rule is going to hurt them? What will it do to them? 

Mr. CHRISTIAN. Well, in terms of cost, we have identified in the 

cost benefit analysis adjustment costs. We have identified analysis 

costs. And, you know, those were identified and expounded on in 

the comments that we received. In fact, we asked for in the comments, information on cost benefit and information on the effect on 

small business, a number of times in our preamble. 

Mr. BARTLETT. This is, I gather, an unprecedented number of responses. Am I correct? Pretty much unprecedented? 

Mr. CHRISTIAN. For GIPSA? 

Mr. BARTLETT. Yes. 

Mr. CHRISTIAN. For the Packers and Stockyards program. 


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Mr. BARTLETT. So there must be some real major concerns out 

there. I am still having some trouble understanding what those 

major concerns are. What do they think this rule is going to do to 

them? Why did 80,000 of them you say respond to you we think 

this is a bad idea? Give me just a couple of the reasons that they 

think this is going to hurt them. So far you have just given me very 

generic things that I cannot get my teeth into. 

Mr. CHRISTIAN. Well, I mean, there were a little over 60,000 comments and there were comments for the rule. There were comments 

opposed to the rule. There were comments suggesting modifications 

or changes to the rule. And we are considering every single one of 

those comments seriously as we move forward with the process. 

Mr. BARTLETT. Mr. Secretary, can you tell us some of their major 

concerns and why you think they are wrong? Or they may be right 

and you are going to fix it. 

Mr. AVALOS. Congressman, I appreciate your persistence and I 

really want to give you a direct answer but because of the ex parte 

I cannot get into the specifics of the proposed rule. But I can give 

you a perspective coming from the countryside, working with farmers and ranchers all my life. This is a proposed rule, something so 

different. We have not had a change in this law in 90 years at this 

magnitude. So there is concern. 

There is concern just because it is a new regulation coming from 

the government. They are concerned about the impact on their livelihood, on their farm and ranch operation, the future of their kids. 

So once again, I cannot give you the specifics that you can put your 

teeth in but I can assure you, Congressman, that these comments 

that we received, their concerns are expressed in those comments 

and we are taking those comments very serious. 

Mr. BARTLETT. Thank you. I am still having trouble understanding what their major concerns with the—there must have 

been enough specifics in your announcement of this proposed rule 

that really stirred them up and I am having trouble understanding 

of what those specifics were that they became so agitated you got, 

what, more than 50,000 responses. 

Mr. AVALOS. Congressman, I would not say they became agitated. Because I can tell you this from the comments, and I want 

to make sure that the Committee—Mr. Chairman and the Committee knows that I did take time to read some of these comments. 

I promised—there is a gentleman here from NCBA that I visited 

with earlier—I promised the then-president of NCBA that I would 

read their comments and I did. And very thorough, very comprehensive, and very—it is pretty tough reading. And I also read 

some comments from the other groups that came in and it is tough 

reading. But they are not agitated. It is just something that is so 

different, so new, and they want to make sure that they understand what is being proposed. So they are asking questions. They 

are supplying alternatives, options. 

Keep in mind also, Congressman, that not everyone was upset or 

agitated. A lot of people were really pleased that these changes 

were being proposed. So it is a group of stakeholders that submitted some very thorough comments and made some very good 

recommendations and I will leave it at that. 

Mr. BARTLETT. Thank you. Thank you, Mr. Chairman. 


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Chairman TIPTON. Mr. King. 

Mr. KING. Thank you, Mr. Chairman. I do thank the witnesses. 

And Mr. Secretary, I appreciate your demeanor here and a little 

about your background is interesting to me, growing up in the 

country and having to make that adjustment. I think that was an 

interesting narrative. 

Can you just give me a few seconds on what the family farmer 

ranch operation was like? Did you have a family there? Brothers 

and sisters also you grew up with and you all had to be relocated 

to the city? 

Mr. AVALOS. Congressman, I can. You know, I have always said 

that I grew up on a family farm but I usually do not get the opportunity to explain the rest of the story. That family farm was not 

my family’s farm. We were the labor on that farm. I had relatives 

who owned farms nearby but my dad was injured in an accident, 

a tractor accident on the farm and we had to relocate to the city. 

And it was really, really tough, Congressman, when you grow up 

as a little kid, you run around barefooted all day long on the 

farm—you run cattle around, and all the different crops. To then 

move to a city, it is a strange world. So it was a major adjustment. 

That is what my dad always told me, that it was so different for 

me having come from a farm. 

Mr. KING. Do you have siblings also? 

Mr. AVALOS. I do. The one thing that I wanted to emphasize to 

you, Congressman and the Committee, agriculture is so important 

to me. It did not matter that we were the labor on the farm. It was 

so important to me because it gave me a work ethic. I remember 

being in town. I was a big kid, pretty athletic. I was on the football 

team, the basketball team, and I used to run the hurdles. And I 

remember all the city kids, they go lift weights and go hang out 

at the swimming pool. I go back to the farm and harvest onions all 

summer. 

Mr. KING. Thank you, Mr. Secretary. I appreciate that. I know 

that the Chair has been a little lenient with the clock or I probably 

would have focused this a little bit more. As you talk about the 

tractor accident of your father I just happen to think that as we 

sit here now there is a funeral going on for one of my neighbors 

and friends that was killed in a tractor accident and I regret I am 

not able to be there today. Those things do happen on the farm. 

It is a dangerous place to work. 

I am interested in that background because it forms you and the 

job that you do. I normally do not ask those kind of questions either. But I noticed that in both your testimony and that of Mr. 

Christian, the word fairness comes up over and over again. I mean, 

the effort in this GIPSA rule is to provide fairness. And so could 

you provide for this Committee a definition of the word ‘‘fairness’’? 

Mr. AVALOS. Well, I did not come prepared to give you a definition for fairness. 

Mr. KING. But if that is a motivator for this rule there should 

be something that is pretty clear. 

Mr. AVALOS. And I can give you my perspective, not an official 

definition. From my perspective it is in any type of transaction 

there are two sides. And I just feel that fairness is where both 

sides are treated fairly. 


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Mr. KING. Okay. But you grew up on a farm with parents and 

siblings and all of you working together. Did you ever hear any of 

them say that is not fair? 

Mr. AVALOS. Absolutely not. You are right. Absolutely. 

Mr. KING. And so does anyone that grew up in a family with two 

or more kids understand that there is no such thing as fair in a 

family like that? 

Mr. AVALOS. Well, again, fairness from what perspective? 

Mr. KING. Well, and that is right. And that is my point. And this 

is being driven—I do not know if the president is involved—being 

driven by the Secretary of Agriculture, Secretary of ILSAC. It is 

being driven by some interests out there that think they are not 

being treated fairly in contracts. And I have been involved in a lot 

of contracts over the years and I have heard people use that word 

‘‘fair’’ but it never really got us to a resolution. I see it scattered 

throughout the legal language in this Congress. It is scattered 

throughout the code of the U.S. code and through the states. And 

I will tell you I can define the state fair. I can define a county fair. 

But I cannot define fair. And if fair is our guideline here, it is in 

the perspective of whoever is advocating. And I will say from this 

perspective that if you have someone that raises a premium line of 

hogs and they go negotiate a contract to be paid that premium and 

they are producing that high quality product for a niche market 

and the packer is anticipating that load a week or whatever it is 

that they have agreed to do coming in and they get paid a premium 

on the other end, it is not fair to say to that producer and that 

packer that the government is going to intervene. Intervene in that 

contract. 

Who can determine what is fair? Can government bureaucrats 

determine if a contract is fair? Or does it turn into the government 

deciding it is not fair that someone raises a premium product and 

the other person does not and they do not get paid the same 

amount. It is about the equivalent of 4–H giving participation ribbons instead of blue and red ribbons instead. We have got to have 

competition in this marketplace. And my argument would be that 

if people think it is not fair, why do they not get in and compete 

with those. What keeps them out of that market? If they believe 

they are locked out of the market start your own packing plant. 

Start your own business. Open your own niche market. Run the 

locker plant and expand it into a franchise. Come to this Congress 

and ask us to allow them to sell meat across state lines so that people can actually penetrate into this marketplace. 

I think we are on the wrong path here. I think we are on a path 

that sets up the government to be setting prices in the terms of approving or disapproving of contracts. If the variance goes outside 

of the government’s variance, then government has to approve the 

contract? And what are they doing intervening themselves in between a producer and a packer who have two consenting adults 

have reached an agreement and now the government says well, it 

is not fair to somebody else. 

I can tell you that as a young man I delivered hogs to the packing plant for a fellow that I worked for and there might be a 300 

pounder in there. There might be a 160 pounder in there and a 220 

pounder in there in a pickup with a stock rack waiting in line with 


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pot trailers where every hog was uniform size and weight and easy 

for the packer to handle. Now, do we not know that even if I had 

one hog in that pickup truck that was the same profile I will call 

it of all those hogs on that pot trailer, is that hog worth as much 

to the trailer as the whole pack load? As a whole truckload? 

Those were the kind of things that the government is seeking to 

interject themselves into. And if we are going to be a free market 

economy, then we have to let the market settle this. And I do not 

think government can determine fairness anymore than your father, whom I know that you respect and hold in high esteem and 

raised you, could broker that and have all of the siblings agree that 

he had come down in a fair decision. I do not want the government 

to be the nanny state. And I just give you an opportunity to respond to what I said and then I yield to the chairman. I have 

abused my privilege here. I am sorry about that. 

Mr. AVALOS. Congressman, I appreciate your comments. They 

are good comments. But at the same token I cannot get into the 

detail of the proposed rule. But, those are good comments and I appreciate this and I have had similar conversations with producers 

throughout the country. 

But I just feel that we still need to let this process continue because we have to respect all those comments that came in. And 

there are comments similar to concerns that you just expressed and 

comments you just made. We are going to take those into consideration as we move forward. 

Now, I am going to ask if my partner here, Deputy Administrator 

Christian, would like to expand on this. 

Mr. CHRISTIAN. Well, Congressman, I think the issue that you 

have raised is the question that a lot of people have asked us as 

well. The Packers and Stockyards Act has included the word ‘‘unfair practices,’’ since the beginning and a lot of people have asked 

what does that mean? I think one of the things that you saw in 

this proposed rule was to try to provide some clarity as to what an 

unfair practice is to help provide that guidance to the marketplace 

to determine, okay, what is unfair and what is not. So that was 

part of the intent of the proposed rule. 

Mr. KING. Thank you, Mr. Chairman. I yield back. 

Chairman TIPTON. Mrs. Ellmers? 

Ms. ELLMERS. Thank you, Mr. Chairman. 

I have a couple of questions and thank you for coming today. And 

actually, I would like for both of you to weigh in on these. And I 

know that you have basically stated that you are not necessarily 

discussing some of the actual rule positions basically as it is. But 

I am curious again and I know this question has been asked already. I am just curious about the timeline. You know, I know you 

are still receiving comments now? 

Mr. AVALOS. Congresswoman, no, the comment period is over. 

Ms. ELLMERS. Okay. And the comments are being reviewed? 

Mr. AVALOS. Absolutely. Congresswoman, the question that we 

receive all the time is when is this process going to end? When are 

we going to have a final product? And I appreciate that very much. 

And I was pleasantly surprised, or maybe not pleasantly surprised. 

When I came to work at USDA I never realized what everyone had 


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to go through to go through the rulemaking process. This was really new to me. And it was a surprise to me. 

Ms. ELLMERS. I think you may have—this question may have already been posed. I am not sure. But how many people are working 

on this? How many USDA staff are reviewing the comments and 

coming up with kind of a—— 

Mr. AVALOS. Congresswoman, I cannot tell you exactly how many 

but we have contracted outside the agency for assistance. But I am 

not sure if you were here when a similar question was asked. You 

know, we received these 60,000 plus comments and then we summarized them and we put them in a category based on how they 

address specific provisions of the proposed rule. And then now we 

are looking at alternatives and options that have been proposed. 

And it just takes a long time. 

Ms. ELLMERS. Also, and there again, that gives me as much information as I need. I do want to ask about the economic analysis 

of the proposed rule. Will that information be released? My understanding is you have done an economic analysis. 

Mr. AVALOS. Congresswoman, in the proposed rule there was an 

economic analysis, cost benefit analysis. We have received quite a 

few comments on the costs. And as I mentioned earlier, our chief 

economist is leading the team and is preparing a very thorough 

cost benefit analysis that will be in the final product. Right now 

it is really too early to prejudge what the final product is going to 

look like. And I want to emphasize to you, Congresswoman, and to 

the Committee that based on the comments, no option is going to 

be ignored. We are going to look at any possible option. And it is 

really too early right now in the process to, one, give you a timeline 

and to tell you what final product we are going to have—— 

Ms. ELLMERS. Will you allow for public comments on that? I 

mean, we have submitted a letter. Many of my colleagues, myself 

and 146 other members as per this. 

Mr. AVALOS. Absolutely. I am real familiar with the letter. But 

on the comments, it is too early now to determine if we are going 

to have another comment period because we do not really know 

what the final product is going to look like. 

Ms. ELLMERS. Okay. Have you spoken to stakeholders about how 

the rule may impact their businesses? And if so, have you spoken 

to those in North Carolina? 

Mr. AVALOS. Congresswoman, we have not since the comment period opened and now that we are after the comment period trying 

to draft a final product, we cannot talk directly to stakeholders to 

tell them about what we might propose. However, I have spoken 

a lot with stakeholders. As part of my job I have been keynote 

speaker at different groups, cattle growers, and of course, the question always comes up on the proposed rule. And I cannot get into 

specifics with them but one thing that comes up all the time is premiums to producers and there is one thing I can say and I always 

tell them that the Secretary and I strongly support value-added. 

We strongly support marketing arrangements. We strongly support 

premiums being paid to producers. 

Ms. ELLMERS. I have one more question and I ask the chairman 

if—I know I am about ready to run out of time here—if that would 

be all right. And I will direct this to Mr. Christian. It is a specific 


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question. In the proposed rule, GIPSA is attempting to overturn 

numerous judicial decisions by providing that a finding—and I am 

going to—this is a quote. ‘‘Finding that the challenged act or practice adversely affects or is likely to adversely affect competition is 

not necessary in all cases.’’ 

Basically, the way that I interpret that is that the plaintiff would 

now not necessarily have to show actual harm when challenging a 

packer activity. Is this correct? Is this basically the interpretation 

of that? 

Mr. CHRISTIAN. That is somewhat correct. The Department’s 

longstanding position is that to prove a violation of the two sections 

of the Packers and Stockyards Act that apply to packers and swine 

contractors, that would be 202A and 202B, the unfair practice section and the unreasonable preference section, that in some cases 

you do not need to show competitive harm to prove a violation. An 

example might be if someone is fraudulently weighing your livestock at the packing plant, you as an individual packer, as an individual producer, when GIPSA brings that case against the packer 

for weighing your livestock incorrectly, we bring that administratively for livestock and can assess a penalty and we do not have 

to show competitive injury. 

So that is the Department’s longstanding position. There are 

some cases where you do have to show competitive injury. Some 

cases of unfair practices and that may be a situation where a packer is working also as a dealer. And there is a lack of competition 

in that practice. So that is the longstanding position. And then the 

intent of this rule was to clarify that longstanding position. 

Ms. ELLMERS. Thank you. I yield back. 

Chairman TIPTON. Thank you, Mrs. Ellmers. And we would like 

to thank the Secretary for taking the time to be here. You, as well, 

Mr. Christiansen [sic]. 

If the Committee members have any other questions, if you 

would submit them I am sure the secretary will be happy to answer some of those. 

Mr. AVALOS. Mr. Chairman, would I be allowed to just make a 

few closing remarks? 

Chairman TIPTON. Yes, sir. 

Mr. AVALOS. Mr. Chairman, members of the Committee, I just 

wanted to emphasize that this administration is committed to helping small businesses. We strongly support transparency, fairness, 

and equity in the marketplace. 

The proposed rule that we discussed today, it is a starting point. 

We received over 60,000 comments and I want everyone to know 

that we are listening. We are taking these comments very seriously. No option is being ruled out and we will let these comments 

guide us to develop the final product. And I want to emphasize to 

you, Mr. Chairman, and the Committee that I have spent a career 

working with small businesses. After leaving the farm I had the opportunity to work with many farmers, many ranchers, all family 

operations, to develop markets in Mexico for cattle and sheep. To 

develop markets in China for pecans. Develop domestic markets in 

28 different states with chili peppers and onions. So I really, really 

feel connected to small businessmen and feel connected to farmers 

and ranchers. 


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And I just want to thank you, Mr. Chairman, members of the 

Committee, for all the work that you do for small businesses, for 

your commitment to small businesses. And thank you for allowing 

us to be here today and present to you. Thank you very much. 

Chairman TIPTON. Thank you, Mr. Secretary. And we will have 

our second panel start in just a moment. Thanks. 

[Recess.] 

Chairman TIPTON. I would now like to yield to Congressman 

King for an introduction. 

Mr. KING. Thank you, Mr. Chairman. I appreciate your deference. I have a markup going on in another Committee and I am 

afraid I have to slip out. 

But I wanted to have the opportunity to introduce Mr. Gary 

Malenke, who is a constituent of mine from Sioux Center, Iowa, 

and also the center of the number one pork producing congressional 

district in America. He is the CEO of Natural Food Holdings, 

which was formerly known as the Sioux-Preme Packing Company. 

And that is also located in Sioux Center, Iowa. 

Gary graduated from Northwest Iowa Technical College in 1985 

with an Associate degree in Agribusiness. After two years in a livestock and feed business and one year at Iowa Beef Packers, Gary 

joined the Sioux-Preme Packing Company. And while at the company he held positions starting with hog buyer, then head of livestock procurement and community sales. And in 2001, he became 

the president of the company and he is currently serving as chairman of the North American Meat Packers Association and his business is also an active member of the U.S. Meat Export Federation 

and the National Meat Association. Mr. Malenke’s company is a 

prime example of a kind of a small packing plant that is so important to local communities and small businesses that we have been 

talking about in the earlier panel. And the overall industry competitiveness is reflected by his company. 

It is important that we think about these businesses, Mr. Chairman, especially because when they deal with specialty and niche 

markets, it is not just large companies. We evaluate rules and see 

how they affect the small companies as well. 

So I want to thank Mr. Malenke and the other witnesses for 

being here to testify today. And I think it is important we turn our 

ear to the interests of the industry and I point out also that Mr. 

Malenke’s company is again from the number one pork producing 

congressional district in America. I could not leave that commercial 

out, Mr. Chairman. I welcome all the witnesses. I thank you for 

your indulgence and I yield back the balance of my time. 

Chairman TIPTON. Mr. Malenke, if you would like to go ahead. 


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STATEMENTS OF GARY MALENKE, PRESIDENT AND CEO, NATURAL FOOD HOLDINGS; ROBBIE LEVALLEY, LEVALLEY 

RANCH; JOEL BRANDENBERGER, PRESIDENT, NATIONAL 

TURKEY FEDERATION; BOB JUNK, FAY PENN ECONOMIC DEVELOPMENT COUNCIL 

STATEMENT OF GARY MALENKE 

Mr. MALENKE. Good morning, Chairman Tipton. Sorry. That is 

better. Good morning, Chairman Tipton and Ranking Member 

Critz. I appreciate this opportunity. 

As Congressman King said, we are up in Sioux Center, Iowa. 

Our firm is not large enough to be classified in the top 10 hog 

slaughters plants, but nevertheless, we have been in business for 

over 40 years and I have had the privilege of being in the meat industry for over 20 years myself. 

We are proud to have arrangements with a number of producers 

to bring us hogs that fit various niche markets with whom we have 

marketing agreements under various brands. And to do this we are 

looking for very specific hogs that require growers to follow very 

specific protocols. Our producers are then paid a premium for meeting these expectations, and these products are then sold into markets and restaurants, that differentiate our products to create an 

enhanced value. To accomplish this, we work with well over 500 

growers, many of which are small family farmers. And we do this 

to really produce a consistent supply of product to our customers. 

I am sensitive to the feelings in the countryside that producers 

are not getting a fair deal. And I and my senior staff are involved 

in industry organizations to give a little and to gain a lot in terms 

of advice and resources to better help us as business leaders. And 

indeed, I happen to be the chairman of one of those associations at 

this time. 

At a recent meeting that I attended, I visited with a young man 

who inspired me to reach back to producers and to give back to the 

men and women, families, who produce hogs for a business. I want 

these producers to know as much about fixing a fair price for pork 

as they do about the business of raising hogs. 

A couple of suggestions I might have in the ways that we can 

work together. 

Meeting consumer expectations for pork, at retail and/or at the 

center of the plate is critical. I, and my organizations, can develop 

better programs to help producers better understand how we can 

work together. Working together every week of the year for the 

long haul and better share and communicate with each other what 

it takes for these programs to be successful in meeting consumer 

expectations. 

There is already a great deal of information in the marketplace 

about the price for hogs and for pig meat. And I will agree that this 

can be very complicated. It is not always as accessible and could 

perhaps use some improvement. But nevertheless, I am committed 

to working with the organizations I belong to to enhance transparency and information that would be useful to producers. I believe that the enhancement set forth in current legislation would 

also be helpful. I also know that one of the organizations in which 

we hold membership has been meeting with USDA’s marketing ofVerDate Mar 15 2010 08:54 Sep 02, 2011 Jkt 067852 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\67852.XXX 67852

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ficials to improve the information for specifically pork price reporting. I expect these efforts to be useful in improving the flow of information. 

I grew up on a small farm myself some 30 years ago and have 

witnessed firsthand the changes to rural America. There is no 

longer a hardware store and grocery store in small towns. Numerous school districts have merged and the economies of scale have 

been driven by the Wal-Marts of the world. This trend is not to 

fault the big business. It is driven by the changing consumer. Folks 

like Wal-Mart have done a great job of attracting customers. Face 

it. Thousands of people shop there every day because they choose 

to do so. As much as I desire to look back with nostalgia, the realities of the economic forces today are very strong. GIPSA’s attempt 

to regulate the future by returning the way things used to be will 

be a bad economic decision and will not succeed. 

In the summer of 2009, our business was not very good and we 

were not profitable. Fortunately, this year we are doing much better. I know it is because of both domestic demand and improved exports. In 2009, the price of hogs were some 30 to 35 percent lower 

than in 2010 and we lost money. In 2010, we had this improved 

demand and we did much better because of the market conditions. 

And even in light of the fact that the price of the livestock was 

higher. 

My point is really this. The primary influence of the price of livestock is the demand for the finished products we produce. It is customers coming in the door and buying the product. 

This is a tough business. It is a tough business for producers and 

for packers. Working together in partnership and cooperation will 

give us the opportunity to be successful together. I am not here to 

cry about the large firms. Their very largeness really denies them 

the flexibility that we enjoy at Natural Food Holdings. We do not 

need GIPSA, a government regulatory agency, in our business plan. 

Enhancing our partnerships with producers for the mutual benefit 

is a much better solution. 

I thank you for allowing me to testify. I would be happy to take 

any questions. 

[The statement of Mr. Malenke follows on page 42.] 

Chairman TIPTON. Thank you, Mr. Malenke. 

As a reminder, just in terms of the lights that we have, you have 

five minutes for your testimony and when it gets down to the final 

minute the yellow light will come on and then the red light. And 

if you could summarize after that. 

I would also like to have the privilege of introducing one of my 

constituents, Ms. Robbie LeValley from Hotchkiss, Colorado. And I 

am sorry the secretary left because we could talk about Tulia and 

Hotchkiss. A lot of folks do not know where these communities are. 

But Ms. LeValley is a beef producer who is past president of the 

Colorado Cattlemen’s Association and a board member of the National Cattlemen’s Beef Association. She received her Bachelor’s 

and Master of Science in animal science from Colorado State University. I would certainly like to thank you, Robbie, for being here 

and taking the time to be here. And I look forward to your testimony. 


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STATEMENT OF ROBBIE LeVALLEY 

Ms. LEVALLEY. Thank you, Mr. Chairman, Ranking Member 

Critz. 

My name is Robbie LeValley and I have been a beef producer all 

of my life and my two boys represent the fourth generation on our 

ranch. In addition to our ranch, my family and I are co-owners of 

Homestead Meats, a direct beef marketing business that has been 

in operation since 1995. There are six ranching families who coown this small business and we have 13 full-time employees. To 

enhance our direct marketing beef business, Homestead Meats 

owns and operates a packing plant regulated by USDA. Therefore, 

we are producers, feeders, and packers. 

The proposed GIPSA rule will significantly hinder our small 

business model, cripple our ability to market our cattle the way we 

want, and limit consumer choices. As I said, I am a producer on 

the cow-calf side and our business is built on relationships and alliances. Throughout the beef chain, for years we have successfully 

marketed our calves through an alliance with a packer. That alliance has created a relationship that provides feedback from the 

packer on the quality of our cattle, quality for which we get paid 

a premium for. I strongly believe in the fundamental American 

business tenet of a willing seller and a willing buyer being able to 

enter into a private business transaction because it protects my 

pricing and marketing mechanism. 

Our cattle marketing contracts are the heart of our small business, the incentive to manage for the future, and the stability for 

our banking partner. And it does not warrant being posted on the 

Internet or receiving additional government intervention and oversight or being subject to potential litigation. 

When the proposed rule banks packer-to-packer sales, the six 

families and Homestead Meats may not be able to sell to other 

packers. This will substantially reduce the profitability for the rest 

of our cattle and compromises the alliance we have spent years 

building. This is a great example of how this rule truly harms producers and processors across the country. For years USDA has promoted exactly what we are doing—sell direct to the consumer, operate as a small processor in a strategic area of the country, being 

rewarded for adding value to the end product and producing local 

food. We responded to consumer demand. We followed USDA’s 

lead. Now we are being punished. This is a slap in the face to innovative businessmen and women across the U.S. 

The proposed GIPSA rule offers neither clarity nor clear definition in terminology. Elimination of the competitive injury requirement will provide a disincentive for packer premiums and valueadded contracts because of the fear of litigation. The vague definition such as unfair or reasonable person will open the door to an 

increased number of lawsuits because mere accusations without 

economic proof suffice for USDA or an individual to bring a lawsuit 

against a buyer. Who determines fairness? Does increased government intervention and litigation determine fairness? Arbitrary 

judgment by GIPSA will only increase paperwork and costs for 

small business owners like me. Who pays for this increased intervention and litigation? The beef cattle industry does. 


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When cost increase for the packer, the trickle-down effect is to 

decrease the price paid to ranchers, this will be a trial lawyer’s 

dream and will devastate small businesses such as mine. What will 

be the consequence when the cost to defending prices paid for my 

cattle and complying with this rule add to the operating cost? What 

happens to every other industry when litigation increases? No one 

takes a risk or sticks their neck out or pays a premium for fear of 

reprisal. This ends creativity, partnerships, and the desire to take 

a chance, which is the very basis of the entrepreneurial spirit of 

the American small business owner. Do we truly want that for the 

beef industry? 

The rule requires buyers of my cattle to justify paying a premium for my livestock. What will be the standard for that justification? Who will set it? One size does not fit all. The regulation 

seems to infer that it is the role of big government, and I strongly 

oppose the government setting or justifying the premiums paid. 

This will roll back the clock 30 years and take us back to commodity beef which consumers have told us they do not want. 

Value-based marketing has given our family business the opportunity to compete for market share at the highest level. As a result, 

we have been able to build a small business that supports the local 

economy and provide consumers with the products they want. We 

do not need big government setting up shop on our farms and 

ranches, and government intrusion into the private marketplace is 

not the answer. 

I urge the Committee to help stop this rule from being finalized 

as it is detrimental to ranchers, consumers, and the entire U.S. 

economy. Thank you. 

[The statement of Ms. LeValley follows on page 38.] 

Chairman TIPTON. Thank you. 

Next we have Mr. Joel Brandenberger, president of the National 

Turkey Federation. Mr. Brandenberger joined NTF in 1991 as the 

Federation’s director of public affairs and served in a variety of positions, most recently as senior vice president for legislative affairs, 

before being appointed to his current post in December of 2006. 

Thank you for being here today, Mr. Brandenberger. 

STATEMENT OF JOEL BRANDENBERGER 

Mr. BRANDENBERGER. Thank you, Chairman Tipton, Ranking 

Member Critz, members of the Subcommittee. 

The National Turkey Federation represents all segments of the 

turkey industry, including growers, processors, breeders, hatchery 

owners, and allied industry. NTF appreciates the opportunity to 

testify because our members believe GIPSA’s proposed marketing 

rule will harm the many small businesses that play a vital role in 

producing more than five billion pounds of ready to cook turkey 

meat in the United States. 

A decade ago, our leadership recognized the need to develop comprehensive policy on legislation and regulation that could affect the 

grower-processor relationship. We formed a special committee of 

growers and processers and spent six months developing policy 

that was unanimously approved by our board of directors. The policy calls on NTF to support legislation or regulation that helps all 

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ing into. We supported the 2009 GIPSA rule that enhanced transparency in contracts and permitted growers to discuss a proposed 

contract with financial and legal advisors, as well as business partners. But NTF strongly objects to any proposed law or rule that 

would insert the government into the negotiating process by dictating specific terms of compensation or excessively limiting the 

ability of either party to manage their financial risk. Our members 

believe this is exactly what the current GIPSA rule would do. 

The rule fails to grasp the diversity of today’s turkey industry. 

Turkeys are processed by family-owned companies, grower-owned 

cooperatives, and large diversified international companies. Ten of 

the 25 turkey processors in the country meet SBA’s definition of a 

small business, but small business plays a bigger role in the industry as well. A significant percentage of the more than 8,000 family 

farms that raise turkeys are, in fact, small businesses employing 

staffs in some cases as large as 250 people. Some of these familyowned small businesses are also part of the seven grower-owned cooperatives that produce turkey in this country. All of them understand the critical importance of maintaining a strong business relationship between growers and processers. 

About 80 percent of the turkeys today are produced under the 

traditional production contract where the company owns the turkeys, provides the feed, the veterinary care, and the grower provides the housing and their expertise. Another 10 percent are produced under marketing contracts where the grower owns the birds, 

provides the feed, the veterinary care, as well as the housing and 

expertise, and sells to the processor at a previously contracted 

price. In both of those cases, growers’ compensation can vary according to specific terms in the contract. The remaining 10 percent 

of turkeys are raised on company-owned farms. 

I want to highlight three aspects of the rule that create an enormous potential problem for today’s industry. The first is the competitive injury provision that has been talked about quite a bit 

here. The second is the provision that would require processors to 

virtually guarantee a grower can recoup 80 percent of their capital 

investments, and the third is a series of provisions which the previous witness discussed that would discourage competitive contracts and reduce the premiums or deductions that growers can receive based on the performance of the birds in their care. Taken together these provisions create significant new legal and regulatory 

risk for turkey processors. 

And as processors seek to manage that risk there could be serious, unintended consequences. The most obvious is the contracts 

will become less competitive and compensation more uniform. 

Those farmers, large and small, who are doing an outstanding job 

in receiving premiums will justifiably feel cheated as the new regulation forces everyone to a lower common denominator. 

The bigger impact may come later. As processors seek to minimize their risk, one conceivable option would be to grow more turkeys on fewer farms, eliminating or reducing production on all but 

the best performing farms. Processors could also increase the number of turkeys grown on company-owned farms. An excellent example of unintended consequences comes from a grower-member who 

testified last week before the Senate Agriculture Committee. His 


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family farm is one of 16 that owns a processing cooperative in the 

upper Midwest. This co-op is hoping to expand over the next few 

years. Some of the expansion can be covered by increasing the 

number of turkeys grown on the existing farms, but ultimately they 

believe that contracting with other farmers may be the only route 

they have to the expansion they envision. They have said if this 

rule takes effect they believe the risk will be too large and it will 

limit their expansion. 

So the irony in this is rich. We have growers who feel that a rule 

allegedly designed to empower them will, in fact, ultimately stifle 

their ability to grow and create new jobs. What is especially frustrating is what has been discussed here already at length. USDA 

proposed this rule without conducting an adequate assessment of 

its economic impact. A study funded by NTF found an economic impact of $360 million to our industry alone. Others have shown impacts in other industries as large as one billion dollars over five 

years and a $14 billion reduction in the gross domestic product. 

USDA now has agreed to conduct an economic assessment as we 

have heard, but as we have also heard, there is no commitment yet 

to open it for comment after it is completed. In order for there to 

be any level of confidence that this final rule really is going to promote the best interest of family farmers and their small businesses, 

it is essential that this economic analysis be submitted for public 

comment before the rule is finalized. 

Thank you again for the opportunity to be here. I look forward 

to answering your questions. 

Chairman TIPTON. Thank you, sir. 

I would like to yield now to Ranking Member Critz to introduce 

our next witness. 

[The statement of Mr. Brandenberger follows on page 44.] 

Mr. CRITZ. Thank you, Mr. Chairman. 

It is my pleasure to introduce Mr. Bob Junk. Mr. Junk is a local 

economy manager for Fay Penn Economic Development Council, a 

nonprofit organization aimed at increasing jobs and quality of life 

in Fayette County, Pennsylvania, which ranks usually either the 

second or third, or first poorest county in Pennsylvania. 

As the local economy manager, he develops marketing plans to 

bring awareness to surrounding farms and build regional business 

networks. Bob has a degree in business agriculture from Penn 

State University and has extensive experience with farm operations. He once owned a 10-acre strawberry farm with 15 employees and has managed a large dairy operation in Uniontown. Mr. 

Junk also has 40-plus years of working on sustainable farm policy 

at the state and federal level. He has served as the State President 

of the Pennsylvania Farmers Union for 10 years, and has served 

on numerous committees and boards representing the interests of 

small farmers. 

Welcome, Mr. Junk. 

STATEMENT OF BOB JUNK 

Mr. JUNK. Thank you very much, Congressman Critz. It is my 

honor to be here today and I thank you for the opportunity to bring 

testimony here in support of GIPSA’s proposed rules. 


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Chairman Tipton, Ranking Member Critz, and Subcommittee 

members, my name is Bob Junk. As the congressman mentioned, 

I am the local economy manager for Fay Penn Economic Development Council. 

I am going to summarize my testimony in lieu of time because 

there is no way I know because of all the issues that we are supporting and that these proposed rules are addressing. I would like 

to start out though by stating that our mission at Fay Penn is to 

maintain and increase employment opportunities/jobs in Fayette 

County in an effort to improve the quality of life for all of its residents. And again, it is all of our residents that we are focused on. 

And agriculture is a main part of our local economy. 

So with that, today we have heard a lot of information and a lot 

of numbers thrown around. And I would really like to start out 

with the fact that to date we have lost 1.5 million beef and hog producers over the last 30 years. So I think we have a problem when 

we are looking at losing that many producers that are small business owners out of our local economy. They are reinvesting those 

dollars locally. They are creating the opportunity for small business 

entrepreneurs. They are also creating the opportunity for local reinvestment into the neighborhoods, communities, and also into our 

public schools and so on. 

So with that, you know, we talk a lot about regulation, government. You know, we do not want big government. But when we 

take a look at really what the GIPSA rules are geared to, and we 

can go right back to the Farm Bill, and it was a directive through 

the Farm Bill and we all had an opportunity to debate and negotiate and vote on the Farm Bill which was approved three years 

ago, that this regulation is to be looked at to look how we can bring 

balance to the market for the producers. For many, many years, 

producers have been faced with a number of challenges. Being a 

producer a number of years ago, those challenges have not changed 

much. I am from a small rural community. We have lost a lot of 

our stockyards, our local packers because of consolidation and 

mergers and it has created even more of a hindrance to get access. 

But what I am going to talk about a little bit now at this point 

in time is the fact that a lot of our producers today are being forced 

to do certain upgrades to their operations to be able to receive contracts. And a lot of times these contracts, and especially in poultry, 

are only six to eight weeks long. But at the same time they are 

forced into taking a 30-year mortgage to be able to do these upgrades. Knowing that, again, farmers have limited ability to access 

credit and they are not usually able to access the same type of 

credit that normal small business operations have, they are sometimes forced into taking alternative credit measures. And it forces 

them to be then relying on hopefully getting new contracts. This 

proposal will actually give the producers some compensation as 

long as they continue to meet those obligations with the processors. 

Contract terminations, we have a serious problem with processors being able to just eliminate contracts with producers. This 

proposal would give the opportunity for those producers to capture 

at least 80 percent of their investment from those individuals and 

those processors. 


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The other issue I would like to talk about, and it is really key, 

is the issue of the ranking payment system and base assumption 

that all growers are provided comparable inputs in varieties of performance as a result in farm management. A lot of times what will 

happen today is farmers are just there for the management and the 

building as you heard from a previous witness and they are carrying the risk and there is really no way of them being able to 

make that relationship to what they are being paid and how they 

can truly balance the price that they are actually being paid by 

those companies. 

And then the other issue I would like to also bring up is, in relationship to that, the company can still pay bonuses on top of what 

they pay to the producers. This does not restrict them from being 

able to pay premiums to performance. This is not in any way restricting niche markets to be able to pay a farmer for any of the 

added premiums that then could be passed on or that the consumers are requesting from the marketplace. I want to make that 

perfectly clear that there is no restriction from that. 

With that I want to thank you for the opportunity to testify here 

and I will be ready for any questions. Thank you. 

[The statement of Mr. Junk followson page 49.] 

Chairman TIPTON. Thank you, sir. We will now begin our questioning. I would like to start with Ms. LeValley. 

Under the proposed rule with packer-to-packer affiliates there 

would be a ban in terms of selling. In your case that would be very 

problematic obviously since you have a producer-owned packaging 

plant and also produce livestock. Therefore, you would not be able 

to sell livestock to your own packing plant. What would that mean 

for your business? 

Ms. LEVALLEY. Well, we could continue to sell to our own packing plant. We just are six families and market about a third of the 

cattle through the Homestead Meats, through the packing plant 

that we own. But what it would hinder is our ability to sell to another packer. That is what it would hinder. So our other two-thirds 

of all the families of the six families would then be restricted in 

who they could market their cattle to. It takes buyers out of the 

market. And again, that would be a detriment to producers across 

the economy, especially us and other packing cooperatives. Premium beef, Oregon country beef, all of those that are in a similar 

situation. 

Chairman TIPTON. You know, you mentioned in your testimony 

that this is going to create new paperwork and increase costs. Do 

you have any idea how much this is going to increase your costs? 

Ms. LEVALLEY. When we have looked at the proposed regulation, 

again, we have 13 employees. Now, that does not consider the six 

families. Certainly, that is a great question. We have not done an 

in-depth analysis to say that it is going to cost us another $2 a 

hundredweight or anything like that. We do know that it would 

take another half-time person to comply with this regulation. That 

is approximately, you know, $30,000 to $40,000 additional to our 

operating cost for our packing plant. And we only, again, have 13 

employees to begin with. 

Chairman TIPTON. So you are a wealthy small business. You can 

afford that, surely. 


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Ms. LEVALLEY. We operate on a pretty slim margin. 

Chairman TIPTON. I know you do. 

You know, as you pointed out in your testimony, Ms. LeValley, 

for years the Federal government has pushed farmers and livestock 

operators to become more actively involved in value-added downstream economic activities as a means of being extremely—it seems 

to be problematic since you are a producer-owned packing plant 

and also produce livestock. Really when—sorry. I got lost in my 

paper here. In terms of going downstream, are you going to be able 

to maximize the value of your business? Is this going to be hitting 

you in the pocketbook and possibly creating job loss for you if this 

rule goes through? 

Ms. LEVALLEY. Again, when I look at the in-depth analysis of 

this proposed regulation, and Mr. Chairman, I look at the unintended consequences. And yes, it has an impact on our business. 

Yes, it has an impact on our six families and our six ranches. But 

it also has a huge impact on the beef industry across—whether just 

our area or across the country. Again, increased government intervention, increased potential litigation. All of these factors have a 

trickle-down effect to where there is a reduction in the price and 

an increase in the operating cost. And again, in this era of very 

slim margin, increased cost and decreased revenue is never good 

for any producer of any size, whether it is small, medium, or large. 

Chairman TIPTON. Great. Thank you. 

Mr. Malenke, you mentioned in your testimony that you have arrangements with a number of producers that raise hogs for niche 

markets which requires producers to follow a very specific growing 

protocol. If the GIPSA rule is implemented as written, do you feel 

that an incentive exists for these producers to undertake the added 

expense in following these protocols and if they are not guaranteed 

a premium or the added value? 

Mr. MALENKE. Clearly, these growers are not going to raise pigs 

with the protocol that really ultimately these consumers have set 

forth. In other words, it is the consumer saying, hey, this is what 

we want and this is why we want it. So it is flowing backwards. 

And if they are not assured of a premium, they simply will not do 

it. 

Chairman TIPTON. Do you feel that by guaranteeing every producer base pay that the quality of livestock available to consumers, 

that will decrease? Is that what I am hearing? 

Mr. MALENKE. I believe it would be that case, definitely. 

Chairman TIPTON. Great. 

Mr. Brandenberger, you mentioned in your testimony a provision 

in the proposed rule that would allow a grower to recover 80 percent of the cost of the required capital investment. Do you think 

given the margin small integrators may find it difficult to make 

such assurances? 

Mr. BRANDENBERGER. I think that is a potential problem. In reality, in the overwhelming majority of the cases, that investment 

in our industry at least is going to be recouped and then some. It 

is going to happen. Usually for new growers, fairly long-term contracts are offered. We have relatively small turnover rates among 

our growers. It is the problem of once you put that risk in writing, 

you know, on the line. You assume that risk by guaranteeing it in 


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essence. That is part of your contracts. How do the lenders, you 

know, how do the people that help finance the companies in our industry—how are they going to look at that? How is that going to 

affect their ability, their willingness to make some investments 

that are going to be important? And for our companies at that 

point if you are going to offer these guarantees in writing, that is 

part of our business obligation, which growers are you going to 

choose to do that with? And do you start making some very hard 

decisions that may affect some growers whose performance is far 

from poor but who may not meet the criteria necessary to survive 

in this new, higher risk world. 

Chairman TIPTON. So it will impact smaller growers? 

Mr. BRANDENBERGER. Smaller growers or, yeah, and growers 

that, you know, for whom the investment might be a bigger stretch 

it may have a little bit larger risk because of a variety of factors. 

Yes. That is what concerns growers a little bit is what is going to 

happen when my contract is renewed. They want to make this investment. If this is a guarantee, where am I going to fall in that 

new world? 

Chairman TIPTON. And Mr. Junk, in your testimony it indicates 

that you agree with GIPSA in their proposal to remove the tournament pay system for poultry contractors. Smaller growers raise 

their flocks to meet certain requirements using different diet formulas and creating a niche market for their unique birds. If the 

growers know that they are going to be receiving the same base 

pay as another grower that does not follow the same requirements, 

these birds could be of a lesser quality. Where is the incentive for 

growers to continue to grow and produce these consumer-driven 

birds? 

Mr. JUNK. Well, like I was saying, number one, they can be— 

well, first off, the contractors can still pay premiums for better 

quality or better performing animals. I am sorry. I just lost my 

train of thought. Could you repeat the last part of that question 

that you asked? 

Chairman TIPTON. Yes. What it is, where is the incentive for 

growers to continue to produce consumer-driven birds? 

Mr. JUNK. Well, right now as far as the small producer, because 

I think you were making a relationship to the smaller producers 

at the same time, right now the smaller producer does not have a 

lot of options in the first place because he is already being penalized. Secondly, in the poultry industry, most of the birds and the 

feed is already owned by the contractor. The farmer is basically 

providing the building which the birds are housed in. 

Chairman TIPTON. But they are all receiving the same base pay. 

Mr. JUNK. Yes. And so what I am trying to do is defend or define 

why we are supporting a base pay structure versus, you know, 

whatever the contractor wants to pay. I mean, the bottom-line right 

now is it is a take it or leave it contract. If you, as the poultry 

grower, are sitting there with a 30–year mortgage after you made 

the improvements and then all of a sudden you are sitting there 

saying okay, it is time to renew the contract and here is what we 

are going to pay for the birds or for your production on the birds 

but you do not have the opportunity to negotiate the price, who is 

setting the market then? And that comes back to, you know, what 


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is the real value of that bird? And how does the producer have the 

opportunity to determine that without being able to negotiate with 

that contractor in a good, faithful way. Any other contracts, we 

have the opportunities to, if we feel that we have been unduly 

judged as far as fairness or whatnot, the ability to negotiate. 

Chairman TIPTON. Do you see? I guess the point I am trying to 

get at is where you have the same base pay that is going to be put 

into place, I am having a hard time really understanding that distinction. Should there not be—— 

Mr. JUNK. There is still value to that bird. I mean, just like in 

the cattle industry. I may have a different size hog or a heavier hog 

versus an ideal hog. I could have a steer that is the ideal weight 

and the ideal size and it might be the ideal breed that does not 

have the big bone where you are going to have a lot of waste. But 

that animal is still valued at the same base price. It is at the same 

starting number. It is still there. It still has that value. That is 

what we are trying to say. Make it more balanced on that base 

price. If it is a higher quality animal, pay the premium. Nobody is 

saying that they cannot but we want to know as a grower what is 

that base price going to be when we are starting to enter into these 

contracts. You know, and it should not be pinning one producer 

against another producer. 

Chairman TIPTON. Okay. Mr. Brandenberger, do you have some 

comments maybe? 

Mr. BRANDENBERGER. Well, there is one thing that is mentioned 

a lot and I know Mr. Junk hears it a lot from the people he talks 

to, is the question of inputs. And you sometimes hear talk about 

the poults which are baby turkeys or chicks that they receive of 

varying qualities. Now, a live animal is not something you can 

rubberstamp, but in the turkey industry at least an important 

thing to know is that the genetic lines are managed almost entirely 

by two primary breeders that operate in the United States. They 

are the ones that produce the genetic lines that the processors use. 

They spend tens of millions of dollars to create as much uniformity 

between each poult that is delivered as through the hatchery owners who hatch the poults and get them out there. Their businesses 

suffer if the processors start seeing that any percentage of these 

poults are substandard, are not performing. And there is no percentage in sending substandard poults on to any farm because with 

the high feed costs we have today—we could talk about other government policies but we will let it go for this point—with the high 

feed costs we have today, you know, no processor is going to continue buying and sourcing poults and sending them to growers if 

they are not getting maximum feed efficiency off of that bird. So 

there is already an enormous economic disincentive for any substandard poult to be delivered to any farm with any degree of regularity. 

Chairman TIPTON. Great. Just follow up one other question 

there, Mr. Junk. In terms of your organization, do you have any 

fears that the competitive injury provisions in the rule, along with 

provisions banning the use of tournament systems to rank growers 

and the requirements that growers recoup their investment in new 

barns and housing will lead to some processors restricting all their 

future contract buying only to the most successful growers or even 


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doing all of their own growing in-house, reducing the number of opportunities for other growers, including beginning growers? 

Mr. JUNK. Were you saying fares? 

Chairman TIPTON. Yeah. No, when we are talking about the competitive injury provisions in the rule, is this going to be restricting 

some of these opportunities for growers to be able to develop and 

actually closing down the market? 

Mr. JUNK. Myself personally? No. I do not think it will. If anything, it gives, again, the producers the opportunity to have an opportunity to identify and be able to access justice for their probable 

cause. And so, no, I do not see this causing any problems within 

the industry. 

As far as the producers, again, for the last, you know, I was 

president of Pennsylvania Farmers Union back in the late ’80s and 

’90s, and these are some of the same problems that we had back 

then that we have been trying to address and bring concerns to. 

The consolidation of the industry today has been growing bigger 

and bigger, and our concern is no different than any other industry’s concern. When does it get too big to fail? And right now what 

we are looking at is make sure we have a fair balance opportunity 

to access the market and provide competitive pricing. 

Chairman TIPTON. Okay. Thank you. 

I would like now to yield to Ranking Member Critz for his questions. 

Mr. CRITZ. Thank you, Mr. Chairman. Because time is running 

short I only have one question, but now I have a second question 

because you, Mr. Malenke, or you, Mrs. LeValley, talked about one 

size fits all. At the federal level, we do two things very well. One 

size fits all, and two, mandate. We do a lot of mandating, and push 

it down to states which then have to figure out how to pay for it. 

You talked about the packer-to-backer sales. I understand in 

reading that there is a possibility that packer-to-packer sales are 

being used to effect prices. That is why they are talking about it. 

I am curious if there is a solution to protect against using packerto-packer sales to influence pricing and not impact what you are 

doing at a smaller level? Is there a way to exempt smaller packers 

from this rule, or is there something that you see as a possible solution? Both of either one of you can answer. 

Mr. MALENKE. Just from the pork side, today the pork industry 

operates under mandatory reporting of live animals. And packerto-packer sales are reported there but they are in a separate bucket. In other words, they are clearly defined separate from other 

livestock. 

Mr. CRITZ. Okay. 

Mr. MALENKE. And, you know, my experience as a packer, buying 

hogs from another packer is, hey, the only reason I bought them 

was because it was the most attractive deal I could get. Purely a 

pure business decision. 

Ms. LEVALLEY. And again, similar for beef. One size fits all again 

does not take into account the inherent variation across whether 

you are Utah or Colorado or the East. It does not take in that inherent variation or the significant difference, the significant miles 

between markets. All of that. The weight variation, the different 

environments, the operating, all of that. So to say that we could 


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make a size threshold and again try to put that on industry will 

have the same trickle-down effect of decreasing the actual price 

paid to the rancher as you have mentioned earlier that is the person at the bottom of the ladder and all the way up through the beef 

chain. So, similar to the pork as far as the reporting. Size threshold 

would have a similar impact of ratcheting down the price paid. 

Mr. CRITZ. I lack knowledge about your industries and I am trying to learn this so we can work together to come up with a stand 

when we are talking to USDA about what is the best way forward. 

Mr. Malenke, you made a comment about Wal-Mart being successful. So you know where I stand, I do not buy into the Wal-Mart 

model—and I am going to give you a very specific example of why 

not. There have been several times when my wife has gone to WalMart, because I live in a rural part of Pennsylvania and there are 

no other stores left. They have driven pretty much everyone else 

out of business, so you go to Wal-Mart. My wife goes to buy the 

thing that she wants and Wal-Mart does not carry it anymore because they demanded a price from the producer and the producer 

cannot meet that price, so they drop them from their shelves. So 

I have just a little bit of heartburn about how that operates; I 

think you are limiting your choices. 

The other hat I wear in this Congress is I am on the Armed 

Services Committee, and we have seen a consolidation of industry. 

Consolidation is not always good because if you have a problem, 

and you only have one company, or two companies which can handle it, you have got some issues. So you know where I stand, many 

times people come into our Congressional offices and say they have 

a problem; you need to fix it. So then we push back, and that is 

what happened with this Farm Bill and with GIPSA; people were 

coming in saying there is a problem. So I am going to ask every 

one of you to answer this question and we will go right—your left 

to right, my right to left. What do you think drove this ruling, this 

revisiting of the GIPSA rule; what do you think caused that? Is it 

just bellyaching by some small farmers and that people are letting 

off some steam? Is there a real issue out there? Is this revision not 

the answer? Do you have any ideas? I am sure your industries have 

sent comments. At 60,000 comments, obviously, producers and the 

industries have commented; what do you think the solution might 

be? Or do you think there really is not a problem and that we 

should just leave it as is? That is my only question, Mr. Chairman. 

So Mrs. LeValley, if you would start and then we will just work 

across. 

Ms. LEVALLEY. Thank you, Mr. Critz. 

You bring up an interesting question, and it is a question that 

we have thought about. You heard over and over the age on this 

rule and that the industry has evolved. When you look at the proposed regulation though and you look back at what you put forward in the 2008 Farm Bill, this regulation has overreach and it 

went beyond the 2008 Farm Bill. And so, again, the unintended 

consequences, the not having the clear economic analysis that has 

been fully vetted and looked at by USDA, and I know that they 

said they are continuing to work on it—— 

Mr. CRITZ. I am going to interrupt you for one second. I do not 

want to know what you think about what USDA is doing. What I 


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want to know is do you think there is an issue, and is there something that USDA should be doing to address it? 

Ms. LEVALLEY. Again, as I was starting to say, when you look 

at the unintended consequences of this proposed regulation, this 

does not address—this does not put more ranchers back in rural 

America. This does not put more sale barns back in small towns. 

So, no, this regulation, this proposed regulation does not take us 

where they want us to be. And no, this regulation should be 

shelved. Go back to the 2008. But this regulation should be 

shelved. 

Mr. MALENKE. No, I do not believe that—the issue comes down 

to economics. You know, as I mentioned in my testimony, I mean, 

I grew up on a small farm. I love the small farm atmosphere, et 

cetera. But the forces of economics are simply against smallness. 

You know, smallness, you literally have to differentiate yourself in 

order to be competitive because, you know, like I say, those economic forces are huge. Face it, that is the way the world has become. You know, and I used Wal-Mart as that example. You know, 

is there anything USDA can really do about it? I do not know. I 

do not know what it would be. You know, encouraging producers 

to differentiate themselves, get into different markets or, you know, 

you have to, you know, what is the old saying? If you cannot beat 

them you have got to join them. Not great choices in some cases. 

I fully understand and I sympathize for those that are faced with 

those decisions but that is the world we are in. 

Mr. BRANDENBERGER. It is a very good question. And I would say 

a couple of things. One, in any business relationship, you know, it 

is not always going to be smooth sailing. You know, I have got 

three people who work for me in here and they might not always 

say the best things about me. You know, there are concerns. There 

are grumbles that occur from time to time. But in our industry it 

would be hard to see how the growers would feel that they do not 

have an opportunity for empowerment. Four of the last five new 

business entities to enter the processing in the turkey industry 

have been grower-owned cooperatives. They have been able to empower themselves. In fact, two of them would tell you the biggest 

problem they had was the paperwork at USDA to get a loan guarantee that they needed for their financing. 

Another situation in your home state, about five or six years ago 

a group of growers were not happy with the deal they had from the 

processor closest to them. They formed a cooperative. They decided 

not to go into the processing end of the business but with this cooperative they went to a processor in another state which was still 

close enough for the transportation to make sense and cut a better 

deal for themselves. I think they felt very empowered by what they 

were able to do for themselves as a group. So, you know, in terms 

of what we would recommend about will the rule have reach, I 

think if GIPSA started just by going back and adhering more closely to what was in the last Farm Bill that would probably be, you 

know, an important step forward. 

Mr. JUNK. Of course, you know, I support the proposed rules. 

And I support moving forward into the process. We all know that 

there have been over 60-some thousand comments being made and 

we do not know what all those comments mean and how USDA is 


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going to respond to it. So right now we are to comment on a proposed rule that is not a final rule and we believe that in order to 

really see what USDA is really going to implement, without going 

to the final rule part of that procedure, we do not know. 

When I say we, we are members of NSAC, have developed a letter and sent it to each of the members and it is attached to my testimony of an additional 143 other organizations from all over the 

country supporting moving this into the next level. Because we do 

not know what the actual outcome is going to be here. Yeah, we 

had comments. We submitted comments also. So we do not know 

what those comments—what comments are going to get picked up, 

what is not going to be picked up. 

Also, American Farm Bureau, National Farmers Union both 

have submitted letters saying let us take it to the final rulemaking. 

Let us see what, you know, just to throw the baby out with the 

bathwater at this point in time, the Farm Bill directed both the 

president, the Senate, and the House, all of those chambers approved the Farm Bill. It is in the Farm Bill. And this was approved 

under the Bush administration. So let us finish it out. Let us get 

the final rule out and let us see what actually is going to be the 

end result. A lot of these comments, 60,000 comments are coming 

from producers. It is coming from producer groups. It is coming 

from producer groups. It is coming from co-ops. It is coming from 

general farm organizations. It is coming from processors. So let us 

take it to the next level. Let us continue to process and let us see 

what the final rules are going to be like. 

Mr. CRITZ. Thank you very much. I appreciate that this is all 

about perspective, and I appreciate you offering that. And with 

that I yield back. 

Chairman TIPTON. Thank you. I would now like to recognize Mrs. 

Ellmers. 

Ms. ELLMERS. Thank you, Mr. Chairman. And thank our panelists for being here today and discussing this very important issue. 

Mr. Malenke, I have a question for you in regard to the USDA, 

the rule basically, and the approval of the contract terms after a 

sale has actually been completed. And I am wondering if you have 

concerns in relation to that. Obviously, that puts a little more cost 

and difficulty to you because you are having to deal with that upfront. Do you think that there may be a chance that packers will 

withhold part of their contract payment until they get the contract 

approved by USDA? Is that a possibility? Or what are your 

thoughts on that? 

Mr. MALENKE. We are regulated under Packers and Stockyards 

today to make payments within 24 hours or the next business day. 

Okay? You know, how packers may look at those contracts in the 

future, you know, it is a little hard to tell. Face it, I can only assume that they are not going to want to take on extra burden or 

feel as if, gee, you know, I had this potential bull’s-eye after me because I know I am in this contract. So there may likely be incentive 

to do less contracting. 

Ms. ELLMERS. If some of the portion of the payment was withheld, what would that do to your business and your cash flow? 

Mr. MALENKE. Well, obviously, I do not own the livestock. I am 

paying for the livestock. And, you know, face it. Paying for it withVerDate Mar 15 2010 08:54 Sep 02, 2011 Jkt 067852 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HR\OC\67852.XXX 67852

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in 24 hours from the time of delivery or from the time of processing, my money turns really fast. So—— 

Ms. ELLMERS. It would just extend everything out? 

Mr. MALENKE. Well, basically, I would get to use someone else’s 

cash, which I do not think that is—I do not really think that is the 

intent. 

Ms. ELLMERS. Okay. Well, thank you. And Mr. Junk, I have a 

question for you, too. You state in your testimony that the GIPSA 

proposed rule will also help hog producers. Can you elaborate on 

that further? How do you feel in particular that this will help our 

hog farmers? 

Mr. JUNK. Part of it is under the ranking. It will give them also 

the opportunity to be able to get a base price off of the—sorry, out 

of the contractor. The other issue, it would also give them the opportunity to be able to, if they feel that they have not been treated 

right within the contract, the ability to go to litigation and be able 

to have an opportunity to have a trial by jury hearing if so desired. 

Ms. ELLMERS. Do you feel that the hog producers will benefit 

from every provision that is being put forward in the proposed rule 

that has the effects on all of the swine industry? 

Mr. JUNK. I do not think—across the board different provisions 

will have different impacts in different livestock segments. So all 

the provisions that are being proposed, will they have an impact 

in hog production or hog producer? No. But will there be some benefits? Yes. 

Ms. ELLMERS. What would you say in your assessment would be 

some of the negative effects that might occur? 

Mr. JUNK. Negative? I could not honestly tell you at this point 

in time. 

Ms. ELLMERS. Thank you, Mr. Chairman. I yield back the rest 

of my time. 

Chairman TIPTON. Thank you, Congresswoman Ellmers. And I 

would like to thank all of you for taking the time to be able to participate today. 

As this Subcommittee continues to focus on burdensome regulations that affect small businesses, I would like to once again encourage the USDA to take into consideration all of the testimony 

and questions that we have heard here today as they work through 

their economic analysis. I would also like to encourage the USDA 

to revise their analysis on small businesses as part of the more detailed economic analysis currently underway. After that, the USDA 

should publish the new regulatory flexibility analysis for comment 

to ensure small businesses that they can have input and can inform the agency on its effects on their businesses. 

Again, thanks to all of our witnesses for being here today, and 

I ask unanimous consent that members have five legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. This hearing is now adjourned. 

[Whereupon, at 12:09 p.m., the Subcommittee hearing was adjourned.] 


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