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39–808 PDF 2008

REVIEW OF THE MARKET STRUCTURE 

OF THE LIVESTOCK INDUSTRY

HEARING

BEFORE THE

SUBCOMMITTEE ON LIVESTOCK, DAIRY, 

AND POULTRY

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 17, 2007

Serial No. 110–10

(

Printed for the use of the Committee on Agriculture 

www.agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania 

Vice Chairman 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH, South Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLEY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia 

Ranking Minority Member 

TERRY EVERETT,Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘Randy’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN MCCARTHY, California 

TIM WALBERG, Michigan 

PROFESSIONAL STAFF

ROB LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

WILLIAM E. O’CONNER, JR., Minority Staff Director

SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY

LEONARD L. BOSWELL, Iowa, Chairman 

KIRSTEN E. GILLIBRAND, New York 

TIM HOLDEN, Pennsylvania 

JOE BACA, California 

DENNIS A. CARDOZA, California 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

JIM COSTA, California 

TIM MAHONEY, Florida 

ROBIN HAYES, North Carolina 

Ranking Minority Member 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

TIM WALBERG, Michigan 

CHANDLER GOULE, Subcommittee Staff Director

(II) 

(III)

C O N T E N T S 

Page 

Boswell, Hon. Leonard L., a Representative in Congress from the State of 

Iowa, opening statement ...................................................................................... 1

Prepared statement .......................................................................................... 48

Hayes, Hon. Robin, a Representative in Congress from the State of North 

Carolina, opening statement ............................................................................... 3

Prepared statement .......................................................................................... 51

Walz, Hon. Timothy J., a Representative in Congress from the State of 

Minnesota, prepared statement .......................................................................... 53

Peterson, Hon. Collin C., a Representative in Congress from the State of 

Minnesota, prepared statement .......................................................................... 55

WITNESSES

Link, Administrator James E., Grain Inspection, Packers and Stockyards 

Administration, United States Department of Agriculture, Washington, 

D.C. ........................................................................................................................ 4

Prepared statement .......................................................................................... 59

Muth, Ms. Mary, Program Director for Food and Agricultural Policy Research, 

RTI International, Research Triangle Park, North Carolina ........................... 6

Prepared statement .......................................................................................... 67

Doby, Ms. Kay, Poultry Grower, on behalf of Campaign for Contract Agriculture Reform, Cameron, North Carolina ........................................................ 14

Prepared statement .......................................................................................... 76

Crabtree, Mr. John, Development and Outreach Officer, Center for Rural 

Affairs, Lyons, Nebraska ..................................................................................... 16

Prepared statement .......................................................................................... 91

Buis, Mr. Tom, President, National Farmers Union, Washington, D.C. ............ 17

Prepared statement .......................................................................................... 95

Stallman, Mr. Bob, President, American Farm Bureau Federation, Washington, D.C. ........................................................................................................... 19

Prepared statement .......................................................................................... 115

Taylor, Mr. Robert, Alfa Eminent Scholar, Auburn University, Auburn, Alabama ...................................................................................................................... 21

Prepared statement .......................................................................................... 119

Philippi, Ms. Joy, Pork Producer, on behalf of National Pork Producers Council, Bruning, Nebraska ......................................................................................... 33

Prepared statement .......................................................................................... 129

Roenigk, Mr. William P., Senior Vice President, National Chicken Council, 

Washington, D.C. ................................................................................................. 35

Prepared statement .......................................................................................... 139

Queen, Mr. John, President, National Cattleman’s Beef Association, 

Waynesville, North Carolina ............................................................................... 36

Prepared statement .......................................................................................... 144

Boyle, Mr. J. Patrick, President and CEO, American Meat Institute, Washington, D.C. ........................................................................................................... 38

Prepared statement .......................................................................................... 152

SUBMITTED MATERIAL

Sents, Mr. Allan, Director, United States Cattlemen’s Association, Immediate 

Past President, Kansas Cattlemen’s Association .............................................. 165

Stevenson, Mr. Randy, Director, Ranchers-Cattlemen Action Legal Fund (RCALF USA), United Stockgrowers of America, Wheatland, Wyoming ............ 168

National Association of State Deparments of Agriculture, Washington, D.C. ... 191

Buis, Mr. Tom, President, National Farmers Union, Washington, D.C. ............ 195

Page

IV

Muth, Ms. Mary, Program Director for Food and Agricultural Policy Research, 

RTI International, Research Triangle Park, North Carolina ........................... 197

Boyle, Mr. J. Patrick, President and CEO, American Meat Institute, Washington, D.C. ........................................................................................................... Contained in Committee Files 

(1)

HEARING TO REVIEW THE MARKET 

STRUCTURE OF THE LIVESTOCK INDUSTRY 

TUESDAY, APRIL 17, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY

COMMITTEE ON AGRICULTURE

Washington, DC. 

The Subcommittee met, pursuant to call, at 11:00 a.m., in Room 

1300 of the Longworth House Office Building, Hon. Leonard Boswell [Chairman of the Subcommittee] presiding. 

Members present: Representatives Boswell, Gillibrand, Kagen, 

Baca, Costa, Hayes, Rogers, King, Smith, and Walberg. 

Staff present: Chandler Goule, Scott Kuschmider, John Riley, 

Sharon Rusnak, Debbie Smith, Kristin Sosanie, John Goldberg, 

Alise Kowalski, Pam Miller, Pete Thomson, and Jamie Weyer. 

STATEMENT OF HON. LEONARD BOSWELL, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA 

Mr. BOSWELL. We will call the meeting to order, and we thank 

you for coming and the interest and the presence here today. We 

appreciate you joining us, Mr. Hayes and myself. I would like to 

give a special thanks to our witnesses for the preparation you have 

made and for testifying before us today to offer insight into the 

market structure of the livestock industry. I appreciate this opportunity to hear what the current issues facing the market structure 

of the livestock industry are and how those issues are affecting producers across our country. The overarching issues that I hope this 

hearing does not forget is that we, as the agricultural community, 

must ensure that we have a safe and plentiful food supply. We 

need assurances that producers can make a living, while the processors and packers have enough product available to provide consumers in the United States with a reliable and safe food supply. 

With land prices at record numbers, the livestock industry is one 

of the last sectors of the agricultural industry that young, first-time 

farmers are able to get involved in. We need to ensure that there 

is adequate market access for those producers to make a living. 

The livestock industry has been extremely beneficial to rural development. I see this all over my home State of Iowa. We must ensure 

that the livestock industry stays strong and continues to contribute 

to rural communities. 

Over the last 20 years, the livestock industry has become more 

and more consolidated. A prime example is in the poultry industry. 

This concentration in the livestock industry raises many concerns 

on what the future may hold for independent producers. UnfortuVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
2

nately, this is not a cut-and-dry issue. There are many factors that 

contribute to the structure of the livestock market, and today I 

hope this hearing will address many of those. We will hear testimony today that the packing industry not only influences the livestock market, but dominates it with over 80 percent of beef, 60 percent of swine and almost 60 percent of the poultry markets, dominated by four packers. After reading through the testimony submitted today, many argue that there is adequate competition in the 

livestock industry. But when 60 to 80 percent of the respective livestock industries are dominated by four packers, when is this concentration cause for concern? Now or when it hits 90 percent? 

Independent livestock producers often contend that the lack of 

buyers of their livestock and the use of captive supplies for packers 

has a negative impact on the price they ultimately receive for their 

animals. Because packers can utilize their own animals for daily 

slaughter needs, they purchase fewer animals on the spot market. 

Some contend the reported price for livestock does not accurately 

reflect prices paid to the producers. A concern I hear over and over 

again from producers in my district is that large packers can control market prices using the packer ownership. Let us say a packer 

owns tens of thousands of heads of cattle. That packer buys on the 

open market for four days, but when the prices get too high, they 

go and slaughter the cattle that they own, thus depressing market 

prices. How is this not manipulation in the open market? And how 

do we as an industry regulate this? 

We also looked at study done by USDA to review the issue. RTI 

International was contracted to study the market structure of the 

livestock industry and recently published their Livestock and Meat 

Marketing Study. I am interested to hear what RTI has to say and 

was very interested in the results of the study. I also look forward 

to hearing what our producer panels have to say. I understand this 

is a difficult issue to discuss, especially when the industry is extremely concentrated, but I appreciate your willingness to share 

your story and your candor. 

After reading through the testimony for this hearing, two issues 

grabbed my attention, animal identification and country of origin 

labeling. There are various opinions out there about both of those 

topics and some discussion has centered on merging the two together. This is a new approach in attempting to address these 

issues and we welcome discussion on this issue. One thing that 

many of the witnesses focused on in their written testimony was 

alternative marketing arrangements (AMA), such as forward contracts, making alliances between packer ownership. I have concern 

if these AMAs actually help the market or suppress the market 

price. I welcome conversation about these issues and their problems and concerns of, or lack thereof, regarding these issues. 

As we started this farm bill discussion, there has been much talk 

if there will be a competition title in the farm bill. I welcome the 

opportunity to further that discussion with varying opinions. 

Thank you again for joining us here today. At this time, I would 

like to turn it over to my friend and colleague, Mr. Hayes, from 

North Carolina, for opening remarks he would like to make. 

3

STATEMENT OF HON. ROBIN HAYES, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF NORTH CAROLINA 

Mr. HAYES. Thank you very much, Mr. Chairman. We are friends 

and it is a pleasure to work and serve with you, particularly on behalf of agriculture and the livestock segment that we are looking 

at this morning. Chairman Boswell has called today’s hearing to 

discuss the structure of the livestock and poultry industry. We will 

hear from the US Department of Agriculture’s Grain Inspection, 

Packers and Stockyards Administration, GIPSA, whose role is to 

regulate and maintain fair competition among the livestock industry. Also joining USDA is RTI International, based in Research Triangle Park, North Carolina, who conducted an extensive study on 

livestock and meat marketing. Our other two panels consist of producer groups and various associations interested in the economics 

of the livestock sector, who will share their perspective on these 

issues. 

Let me start off by assuring all of those present, and listening 

today, that I support the full and rigorous enforcement of all laws 

intended to ensure a fair, orderly and transparent livestock market 

function. While we may differ about the future shape of policy in 

the area of market structure, I know of no disagreement about the 

fundamental need for strict enforcement of the authority under the 

Packers and Stockyard Act. 

After resisting the temptation in the last farm bill to further insert the Federal government into the structure of livestock markets, Congress made a commitment in the conference report to look 

into this matter further. For this reason, in June of 2003, I took 

this subcommittee to Grand Island, Nebraska to examine this 

topic. While most of the testimony that day centered on the specific 

idea of banning packer-owned livestock, discussions ranged across 

virtually all the ideas regarding industry structure and we had a 

very informative hearing. For me, the most important impression 

from that hearing was a wide divergence of views held by the witnesses. We had testimony from both producers and packers from 

Nebraska and my home State of North Carolina, and while all witnesses shared a common desire for a profitable livestock production 

sector, with an orderly market operation, there was virtually no 

consensus along any lines about whether the proposed changes 

would improve conditions or harm those they were intended to 

help. In 2003, Congress has recently appropriated $4.5 million in 

funding to produce GIPSA’s Livestock and Meat Marketing Study, 

which was just published on February the 16th by RTI International. We did not have the benefit of this report at our hearing 

in Nebraska and I look forward to today’s testimony on the study’s 

findings. 

Mr. Chairman, as you and other members of the committee, the 

industry structure issues invoke passion and long-held beliefs from 

livestock producers across the country. What producers in the 8th 

District of North Carolina want, and what producers in the 3rd 

District of Iowa want, can be two completely different things. I personally believe the complexity and intricate details of marketing 

and competition issues deserve more than one hearing before any 

decisions are made. I do not believe these issues should be considered as part of any farm bill discussion, as the laws governing the 

4

industry structure are completely separate from that of the farm 

bill and should be kept that way. These issues should be considered 

in their form and given the proper attention they deserve. And I 

appreciate all of the witnesses for here today to discuss this important issue and I appreciate the chairman calling the hearing. 

Mr. BOSWELL. Thank you, Mr. Hayes. And I would request that, 

I see we have Mr. Smith here, any statements you want to be included for the record? We will proceed on to get on to our testimony. So thank you very much. I would now turn to the panel. I 

would like to remind our witnesses that you have five minutes for 

your oral testimony, and due to the number of witnesses and other 

time constraints, it will be important that we try to stay within 

those guidelines. I think we have—down there ready to take care 

of the timing, so we don’t have to worry about that, and then we 

want to get to our questions. So we would like to welcome our first 

panel to the table. Administrator James Link, Grain Inspection, 

Packers and Stockyards Administration, the Department of Agriculture, along with Ms. Mary Muth, Program Director for Food and 

Agricultural Policy Research, RTI International, Research Triangle 

Park, North Carolina. Administrator Link, we would be happy to 

hear what you have got to share with us. Thank you for being here, 

just hit your button there. 

STATEMENT OF JAMES E. LINK, GRAIN INSPECTION, PACKERS 

AND STOCKYARDS ADMINISTRATION, UNITED STATES DEPARTMENT OF AGRICULTURE 

Mr. LINK. Mr. Chairman and members of the subcommittee, good 

morning. My testimony will provide an overview of trends in the 

critical components of the US livestock market and changes that 

GIPSA has made. Although I am relatively new to Washington, DC 

and the US Department of Agriculture, I am certainly no stranger 

to the agriculture industry. Growing up on a farm and devoting my 

entire professional career to agriculture has given me a rich and 

diverse background from which I speak to you today. Shortly after 

my arrival at GIPSA, I was briefed on an ongoing audit from the 

Office of the Inspector General. In response to that audit, over the 

past year we have worked extensively to enhance GIPSA’s ability 

to regulate livestock marketing and procurement practices. Now I 

would like to discuss the current market trends that we are monitoring. 

In the beef cattle, the four largest steer and heifer slaughter 

firms have accounted for 82 percent of the total annual slaughter 

in the year of 2006. In pork, the four largest slaughter firms account for about 64 percent of the total slaughter. Sheep and poultry 

are relatively constant at 70 percent and 53 percent, respectively. 

Let me share with you the current marketing tools used in the livestock industry. Producers and packers use multiple marketing 

methods to market the livestock for slaughter, but the methods 

commonly fall within two categories: cash sales or spot market, and 

committed procurement or alternative marketing arrangements, 

which include the variations of formula pricing, forward contracts 

and packer ownership. 

In 2006, the four largest firms that slaughter fed cattle purchased 70 percent of their supply on the cash market and 30 perVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
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cent through alternative marketing arrangements. In the same 

time period, approximately 10 percent of hogs were sold on the spot 

market, 20 percent was packer owned and 70 percent were through 

forward contracts and alternative marketing arrangements. In the 

poultry industry, the spot market is virtually nonexistent. Now 

that you have had a brief summary of the livestock industry, I 

want to give you an overview of the improvements we have made 

to better ensure farmers and ranchers are protected. 

We have taken positive steps to change and improve our organization. At headquarters, we have eliminated a complete layer of 

management in the Packers and Stockyard Program by dissolving 

the Regional Operations Division and having our regional managers report directly to our deputy administrator. We established 

a unit called Management Shared Services to eliminate duplication 

and improve our efficiency. In the past year, we have undertaken 

a top-to-bottom review of all of our regulations and policies. As a 

result, several regulatory work plans affecting the livestock and 

poultry industries have been developed for public comment. We 

have also issued over 40 internal directives and policies, which provide instructions and guidance to our employees. We are sending 

all of our investigators to the Federal Law Enforcement Training 

Center for basic investigative and interviewing training. We have 

made this course available to several attorneys from the Office of 

the General Counsel. We are also working on additional training 

activities with the Department of Justice to be conducted later this 

year. 

We have developed a new business plan and we have laid out 

four primary goals and 33 strategic activities with related measurable outcomes to evaluate the results. An example of our business 

plan includes inspecting scales and carcass evaluation devices in all 

packing plants that kill over 1,000 head of livestock per year. In 

April of this year, we implemented the new standard operating procedures nationwide. Investigations are our top priority. For example, in the year 2005, there were 37 cases referred to the Office of 

General Counsel. In 2006, we referred 75 cases and in the first six 

months of this year, we have referred 53 cases. As our efficiency 

is improved, I expect the case numbers to continue to increase. 

There are significant cases that we are working on currently. 

Five open investigations are on manipulation of cash prices and we 

are working with the Department of Justice on one of the investigations. There are two open investigations involving allegations 

from cattle sellers using formula or non-cash market arrangements 

that were not paid properly. We have three open investigations focusing on allegations of unfair and discriminatory behavior. We 

will continue to adjust our regulatory efforts to more efficiently and 

effectively monitor the regulated industries as the industry 

changes. 

I am proud to serve as the administrator for GIPSA in a time 

where not only the industry, but also the organization, is being 

evaluated, assessed and improved. It is exciting to be part of these 

such fundamental changes. With the continued work and efforts of 

individuals within GIPSA, we will look forward to improving and 

becoming even better. Mr. Chairman, thank you again for the opVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
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portunity to appear before you today, and I will be happy to answer 

any questions that the members might have. 

Mr. BOSWELL. Thank you for your introduction and comments. 

Before it comes to questions, we would first like to hear from Ms. 

Muth. 

STATEMENT OF MARY MUTH, PROGRAM DIRECTOR FOR FOOD 

AND AGRICULTURAL POLICY RESEARCH, RTI INTERNATIONAL 

Ms. MUTH. Good morning, Chairman Boswell and members of 

the subcommittee. My name is Mary Muth and I am Director of the 

Food and Agricultural Policy Research Program at RTI International, an independent, not-for-profit research organization in 

North Carolina. I was the project manager for the congressionallyfunded GIPSA Livestock and Meat Marketing Study that was completed earlier this year. I am an agricultural economist and have 

a Ph.D. in economics from North Carolina State University. I have 

been conducting analyses of the livestock and meat industries for 

almost 15 years. In addition, my husband’s family owns a cow/calf 

operation in western Kentucky. I am pleased to be here and thank 

you for the opportunity to provide an overview of the findings of 

the Livestock and Meat Marketing Study. 

The study was conducted from July 2004 through January 2007 

by a team of researchers at RTI International, Iowa State, North 

Carolina State, Montana State and Colorado State Universities and 

the Wharton School. The study addresses the economic effects that 

alternative marketing arrangements have on the livestock and 

meat industries. As you know, the cash for spot market includes 

auctions, direct trade and use of dealers and brokers. In contrast, 

alternative marketing arrangements include all other marketing 

methods, such as marketing agreements, marketing and production 

contracts, packer ownership and forward contracts. 

In the final report for the study, we analyzed the extent of use 

and price differences of marketing arrangements and the effects of 

using alternative marketing arrangements on cash market prices, 

the costs and benefits of various marketing arrangements, particularly as they relate to product quality, cost of production and risk, 

and finally, the implications of using marketing arrangements on 

livestock producers, meat packers and meat consumers. We used 

state-of-the-art economic modeling and statistical analysis methods 

to address the requirements of the study, using industry survey 

data, transactions data and profit and loss statements from packers, industry interviews and publicly-reported USDA data, including mandatory price reporting data. 

In general, the study found that use of alternative marketing arrangements provides benefits, not only to meat packers, but also to 

livestock producers and meat consumers. Therefore, restricting 

their use would have negative economic consequences on most segments of the industry. However, the cash market serves an important role in the industry, particularly for smaller producers and 

packers. Next, I would like to give a broad overview of the specific 

results of the study. 

First, regarding the volumes and prices of livestock under different types of marketing arrangements. Based on the data available for the study, we estimate that alternative marketing arrangeVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
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ments represent 38 percent of the volume for fed cattle, 89 percent 

for finished hogs and 44 percent for fed lambs sold to packers. Furthermore, we estimate that packer ownership volumes represent 

less than five percent of fed cattle and fed lamb volumes, and 20 

to 30 percent for finished hogs. Based on the industry surveys and 

interviews we conducted, we expect the use of alternative marketing arrangements in the beef and pork industries to remain 

similar to past use but to increase somewhat in the lamb industry. 

In the beef industry, prices for fed cattle are similar for direct 

trade and marketing agreements, higher for the small percentage 

of auction barn cattle and lower for the small percentage of forward 

contract cattle. We found that a reduction in the volume of spot 

market transactions, assuming that volume is shifted into alternative marketing arrangements, results in an extremely small decrease in the spot market price. In the pork industry, prices for finished hogs are higher for marketing contracts and lower for packerowned hogs, relative to the cash market, and we found that there 

would be a relatively large effect of further increases in the use of 

alternative marketing arrangements on cash market prices for 

hogs. 

Second, regarding the costs and benefits of alternative marketing 

arrangements related to cost of production in the beef industry, 

procurement of cattle through alternative marketing arrangements 

is associated with lower production costs per head than through 

cash markets, but this result does not hold for all packing plants 

in the data set. In the pork industry, procurement of hogs through 

alternative marketing arrangements is associated with a small decrease in production costs at the packer level. Related to quality of 

beef and pork in the beef industry, we found that cattle sold 

through marketing agreements were higher quality and had less 

variation in quality than cattle sold through direct trade. Similarly 

in the pork industry, we found that hogs sold through marketing 

contracts were higher quality than hogs sold through direct trade. 

Related to market access and price risk across all species, we found 

that alternative marketing arrangements offer some guaranteed 

market access for both livestock producers and meat packers. And 

furthermore, the alternative marketing arrangements generally reduce price or income risk for cattle and hog producers. 

Third and finally, regarding implications of the use alternative 

marketing arrangements, we conduct simulations of various hypothetical scenarios in which alternative marketing arrangements 

were restricted. Across all species, the results for economic modeling simulations indicate losses to livestock producers, meat packers and consumers due to losses in efficiencies in the market. These 

losses in efficiencies translate into higher prices for consumers purchasing meat, and lower prices for producers selling livestock. 

Mr. Chairman, I would like to enter into the record Volume I of 

the report for the Livestock and Meat Marketing Study. This volume contains the executive summary and the overview for the 

study. Thank you. I would be happy to answer any questions. 

Mr. BOSWELL. Thank you for your testimony and your submitted 

testimony that we received. With no objections, we will enter it into 

the record. We will turn to our questions now for a little bit. I will 

start off addressing you, Mr. Link. Stated in your written testiVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
8

mony, you mentioned that marketing agreements account for 24 

percent of the total procurement in 2006 by the four largest steer 

and heifer slaughter firms. Do you know the number or percent of 

grid cattle and Canadian cattle imported by packers? 

Mr. LINK. No, sir, I do not have a breakdown of that. I can get 

that information for you and return it, but I don’t have a breakdown. We lumped all of the alternative marketing arrangements 

into the one percentage figure and I don’t have a breakdown of it. 

Mr. BOSWELL. Okay. Do you have any comments you would want 

to make about it? Although, we will be happy to receive any further 

information. Do you have any comments you want to make on that 

issue? 

Mr. LINK. Well, it would be pretty dangerous for me to speculate 

on it. I would assume that the larger volume would be the livestock 

that are sold on some type of a formula basis, but I would hate to 

venture a figure on to that. 

Mr. BOSWELL. We will look forward to get that information. You 

recognized the enforcement of the Packers and Stockyards Administration. In your testimony, you briefly mention having complaints 

from producers. What is currently going on to address these things. 

Where are you at in that process? 

Mr. LINK. We have what we refer to as a rapid response team 

that is available. Any time a producer calls in with a specific complaint, we initiate a rapid response to that complaint to look into 

it to see if it is valid and whether it warrants a follow-up investigation. 

Mr. BOSWELL. So you are satisfied with how it is working out, 

or do you have any——

Mr. LINK. As we develop more confidence in our producers, we 

will probably have more complaints. Now, we have a 24-hour hotline plus all of our regional field offices that operate on normal 

hours and I am a little bit surprised that we don’t have more complaints come in directly to us that we can respond to. 

Mr. BOSWELL. Okay. Thank you. I may come back to you in a 

minute, but I would like to direct a question or two to Ms. Muth. 

Thank you for your testimony. In my opening statement, I mentioned a reoccurring concern I hear from producers, not only in my 

State, but across the country. Large packers can control market 

prices using packer ownership. Let us say a packer owns tens of 

thousands of heads of cattle. The packer buys on the open market 

for three days, but when prices go too high, they go out and slaughter their own, the cattle that they own, which of course would depress market prices. Is this not manipulation of the open market? 

Is it in your opinion? 

Ms. MUTH. Well, based on what we looked at for our study, we 

conducted statistical analyses to look at what the effects are of use 

of alternative marketing arrangements on cash market prices, and 

what we found in the beef industry is that the packer ownership 

actually represents a fairly small percentage of the volume of cattle 

that are purchased and that the effects of that packer ownership 

is actually relatively small, in a statistical sense, in the cash market. 

Mr. BOSWELL. What percentage would that be? 

9

Ms. MUTH. Based on the data that we have for the study, approximately a 10-percent increase, additional increase, in the use 

of alternative marketing arrangements would depress cash market 

prices by about 0.1 percent. 

Mr. BOSWELL. Okay. I am just kind of hip shooting here, but on 

your methodology, how you went out to get that data, is that available for us to look at? 

Ms. MUTH. The data that we collected for the study was collected 

under CIPC, which means that it is protected data, that it can only 

be used for statistical purposes. And so we have followed very strict 

data security protocols in using that data. 

Mr. BOSWELL. What percentage do you think of all the market 

data out there did you actually look at then? 

Ms. MUTH. For the beef cattle industry, our estimate is that the 

data represents probably around 90 percent of the volume of transactions that occurred over the 2 1/2 year period. For hogs, the data 

that we looked at represented about 75 percent of the volume of 

the transactions. 

Mr. BOSWELL. I may come back to that. Well, I think I will stop 

here and defer to Mr. Hayes, then I will come back. Mr. Hayes. 

Mr. HAYES. Mr. Link, in your statement, you suggest that larger 

packers have lower operating income due to them paying a higher 

average price for livestock. With the buying power they have, why 

would these packers pay more for livestock? 

Mr. LINK. Well, basically, it gets down to being able to better utilize their facilities. You have a set fixed cost on any kind of a processing plant and the more they can run that at its optimum operational standpoint, the less their production cost is going to be 

overall and so they are able to pay more for the livestock to make 

sure that they stay up at that optimum level of production. 

Mr. HAYES. Ms. Muth, as I understand your study, you generally 

assert that alternative marketing arrangements, on balance, benefit the livestock sector. What I want to clear up is this. Do these 

benefits go solely to those who participate in arrangements, or do 

others in the production sector benefit as well? 

Ms. MUTH. Well, based on the analysis that we conducted, we 

were looking at the aggregate effects of the use of these alternative 

marketing arrangements, and because packers can realize efficiencies in using alternative marketing arrangements, that can 

benefit producers that also do not participate, because it helps the 

functioning of the packing plant itself. 

Mr. HAYES. So it is across the board. How does one reconcile the 

often-heard assertion that packers manipulate the market with the 

fact that cattle and hog prices move up and down? 

Ms. MUTH. I am sorry. Could you repeat that? 

Mr. HAYES. Often you hear the assertion that packers are manipulating the market. The fact that cattle and hog prices move up 

and down, how do you reconcile——

Ms. MUTH. Right. For the analyses that we conducted, we were 

looking at the relationships in the data. We did not look at the intent. There isn’t a way for us to analyze what the intention of people are when they are making their buying and selling decisions. 

We assume that they are operating in an economically efficient 

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ers. And so in terms of manipulation and saying whether particular 

individuals were doing things to manipulate the market, that goes 

beyond what we looked at in our study, which focuses on the statistical and economic relationships in the data. 

Mr. HAYES. Thank you, Mr. Chairman. I have no further questions for this panel. 

Mr. BOSWELL. Okay, thank you. The chair at this time would recognize the gentleman from Nebraska, Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. When I meet with representatives from the livestock production sector, specifically producers, we ask about the status of the regulatory process to implement the reauthorization of mandatory price reporting. Mr. Link, 

could you update the subcommittee on that subject? 

Mr. LINK. I can just give you a ballpark update, because that is 

really through the Agricultural Marketing Service. It is in the process of going through the steps that it has to be for reauthorization 

and I can’t tell you exactly where they are in it. I would assume 

that, you know, it is in the channel, but I couldn’t give you a date 

as to when that will be completed. 

Mr. SMITH. Okay, thank you. Let me see what hasn’t been covered already. I think that is good for now. Thank you. 

Mr. BOSWELL. Thank you. The chair would recognize the gentleman from Wisconsin, Mr. Kagen. 

Mr. KAGEN. Thank you. It is nice to be here in this wonderful 

new room. Administrator Link, we are all familiar with the decision in Pickett v. Tyson, which the jury ruled that the packer was 

guilty of price manipulation and assessed a fine of $1.2 billion. 

Even though it has been tossed out, how has GIPSA responded to 

the price manipulation and prevented it from occurring in the future? 

Mr. LINK. Well, as I mentioned earlier, we are monitoring the 

market basically on a daily basis. We are utilizing Agricultural 

Marketing Service price reporting data. We are also monitoring the 

different prices that are available in different regions and we look 

for any anomaly that may appear from there. And of course, if 

there is any kind of complaint that comes in, we instantly respond 

to that. But we are really basing it by looking at economic analyses 

of the information that we receive to see if there is any anomalies 

that would warrant an investigation into it. 

Mr. KAGEN. So with the Pickett v. Tyson case being the only 

antitrust case in the past 80 years, being that I am from Green 

Bay Packerland and Packerland had a great deal to do with the 

naming of our football team, how can our packers and our producers have confidence that your bill will ensure a fair marketplace 

for them? One case in 80 years? 

Mr. LINK. Well, sir, that wasn’t a case that GIPSA brought forth. 

That was a private individual case against a packer and we really 

weren’t involved in it. 

Mr. KAGEN. So you are monitoring the situation? 

Mr. LINK. Yes, sir. 

Mr. KAGEN. Do you feel that mandatory arbitration is an equal 

arrangement for both the packer and the producer? 

Mr. LINK. I am not familiar with that, sir. I can’t give you an 

intelligent answer. 

11

Mr. KAGEN. All right, we can get back on that. 

Mr. LINK. Yes. 

Mr. KAGEN. Thank you very much, Mr. Chairman. 

Mr. BOSWELL. Thank you. The chair would recognize Mr. 

Walberg from Minnesota. 

Mr. WALBERG. Thank you, Mr. Chairman. I hail from Michigan 

and I don’t want to——

Mr. BOSWELL. Oh, excuse me. 

Mr. WALBERG. —put an aspiration on Minnesota because of me. 

Mr. BOSWELL. I stand corrected and we welcome the gentleman 

from Michigan. 

Mr. WALBERG. Being a freshman, I expect those mistakes occasionally, so no problem at all. Let me ask, Dr. Muth, a two-point 

question. What impact has consumer demand had on the usage of 

alternative marketing agreements? And secondly, what potential 

impacts would the consumer face if alternative marketing agreements were limited? 

Ms. MUTH. I guess, related to your second question, based on the 

simulations that we conducted from our models, if alternative marketing arrangements were restricted, consumers would actually be 

faced with higher meat prices and probably also reduced quality of 

meat products, that there would be much more variability in the 

quality of products. And I am sorry, what was your first question 

again? 

Mr. WALBERG. What impact has consumer demand had on the 

usage of alternative marketing agreements? 

Ms. MUTH. Okay. In terms of the effect of consumer demand on 

use of alternative marketing arrangements, it is our understanding, based on looking at the relationships in the data, that in 

order to supply sufficient quality of livestock to meet consumer demand, that packers use alternative marketing arrangements to ensure that they can supply the quality that consumers would like to 

buy in their grocery store. 

Mr. WALBERG. Okay. So you say it is better for the consumer all 

along the process? 

Ms. MUTH. Right, consumers do benefit. And when we conducted 

simulations of our economic models, where you put a hypothetical 

restriction on the use of alternative marketing arrangements, we 

did find that consumers would lose under those scenarios. 

Mr. WALBERG. Okay, okay. Again, customers frequently want to 

buy meat that has a certain characteristic, such as grade or antibiotic free or organically produced. 

Ms. MUTH. Right. 

Mr. WALBERG. Packers frequently use marketing agreements to 

draw out the appropriate product from the producers. If these 

methods are curtailed, how would a packer ensure that they have 

a supply of cattle that meets their customers’ specifications? 

Ms. MUTH. I guess, based on what we looked at for our study, 

it would be much more difficult for packers to ensure that they 

could go out into the cash market and buy the animals of the specified quality that they need to meet those requirements, if they 

could not have an agreement with the producer that specifies those 

as requirements. 

12

Mr. WALBERG. So you contend that it leaves it up in the air, that 

it is debatable whether there would be those specialty opportunities for consumers, then? 

Ms. MUTH. Yes, it is my understanding, from what we looked at 

in the study, that it would reduce those opportunities for the packer. 

Mr. WALBERG. Okay. Okay, thank you. Mr. Link, based on your 

experience and knowledge of this industry, what would be the economic costs or benefits to cattle producers if Congress were to prohibit packer ownership? 

Mr. LINK. Well, I will speak from the cattle industry more than 

the pork because I am more familiar with that. With the small percentage that packers actually own in the cattle industry, I think it 

would be very insignificant. I think it would be more harmful if the 

alternative marketing arrangements were eliminated, because it 

would get more of a variability of quality of livestock on to the market. 

Mr. WALBERG. Now that, again, is just based upon the limited activity at present in the cattle industry, but you can’t use a crystal 

ball to infer what would be if it moved in the future to more aggressive action with packers being involved. I mean, it would 

just——

Mr. LINK. Well, it would be a tremendous business psychology 

change for most of them, because it would take a tremendous capital investment that they currently are not involved with to get to 

extend out very much into the actual raw material purchasing and 

ownership of them, and that would take a significant capital investment. You would have to ask the packers whether they are 

willing to make that type of an investment or not. 

Mr. WALBERG. Okay, okay. Thank you. 

Mr. BOSWELL. Thank you, Mr. Walberg. And I think that completes our first round. We will take you in a moment. I don’t want 

to be disrespectful to the second panel, but just a couple things. 

Mr. Link, has the Department of Justice supplied enough staff to 

take care of the cases that you have referred to them? What is your 

status there? 

Mr. LINK. Well, sir, most of our cases go through the Office of 

General Counsel. There are a few cases that get forwarded up to 

the Department of Justice and then they obviously have enough for 

our demand, because we don’t have that many that go before the 

Department of Justice. Most of our active cases are handled by the 

Office of General Counsel. 

Mr. BOSWELL. So you are getting all of the support from the 

DOJ, then? 

Mr. LINK. Currently, yes, sir. 

Mr. BOSWELL. Ms. Muth, maybe give us an estimate or an evaluation, if you could, of the use and value of mandatory price reporting. Who gains the most? 

Ms. MUTH. Well, I am not certain if I can respond to exactly who 

gains the most, but I can tell you that mandatory price reporting 

is pretty crucial for the industry, that it increases the transparency 

of prices. A lot of the data that we looked at, formula prices, under 

lots of different types of marketing arrangements, including both 

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13

ments, depend on mandatory price reporting as the base for the 

formula. So mandatory price reporting is crucial for the functioning 

of the market. 

Mr. BOSWELL. So you evaluated that it is very important. And 

your final question is, you found that putting restrictions on alternative marketing arrangements of beef would affect the producer, 

packer and consumer negatively. But in pork, it would only affect 

the producer and the consumer, but it would cause a slight increase in economic surplus for the pork packer. Why is there such 

a difference and why would the packers see a slight increase? 

Ms. MUTH. Right. Well, one of the things you have to consider 

when you are looking at the pork industry is that the volume of 

alternative marketing arrangements is already extremely high. It 

is 89 percent. So when you look at further increases beyond that 

point, the packer is already realizing the benefits that they would 

receive from using alternative marketing arrangements. So in the 

simulations that we conducted, if you restrict alternative marketing arrangements in the pork industry, the packers will gain in 

the short run, but in the long run, we actually don’t really see any 

advantage to them one way or another. And that is looking at comparing it from current levels. And so it is important to consider 

that the structure of the market is very different for the pork industry versus the beef industry and that is why you see differences 

in those results. 

Mr. BOSWELL. All right, thank you. We touched on this earlier, 

but where would someone go to review the data and statistical information used by the RTI study? 

Ms. MUTH. The data that we have will be turned over to GIPSA 

by the end of May. The data is currently kept in a secure room. 

It is encrypted data, data sets. We will be giving them to GIPSA 

and at that point, then it is their determination of how that data 

will be used. 

Mr. BOSWELL. Mr. Hayes, do you have any further questions? 

Mr. HAYES. No, sir. 

Mr. BOSWELL. Any other members of the committee have any 

other questions? Yes, Mr. Walberg. 

Mr. WALBERG. Thank you, Mr. Chairman. I would like to ask Dr. 

Muth a final question here. As I am sure you know, individual producers have different production practices and market goals with 

respect to the animals they raise. Your testimony talks about the 

price differences across marketing arrangements. In your view, do 

these slight price differences occur because of the given marketing 

arrangement itself, or does it reflect the nature of the livestock 

that finds its way to a particular marketing arrangement? 

Ms. MUTH. I think, in general, it does reflect differences in the 

quality of the animals that are coming through different types of 

marketing arrangements, but you do still see, even after you make 

the adjustments for differences in quality, that there are still slight 

differences, that prices for animals that are purchased through 

marketing contracts in the hog industry are through marketing 

agreements, and the beef industry has slightly higher prices than 

cash market prices. 

Mr. WALBERG. Okay, okay. Thank you. 

14

Mr. BOSWELL. Thank you. Well, thanks to Mr. Link and Ms. 

Muth. Am I pronouncing it correctly? 

Ms. MUTH. Yes. 

Mr. BOSWELL. Thank you. Thank you for coming and sharing 

with us. There is a chance you will hear some more from us, so we 

will be in contact with you and we appreciate your presentation 

here today. We would like to excuse you at this moment and we 

ask the second panel to take their place. We are sorry for the 

delay. I thank you very much for your patience. We appreciate your 

presence with us today and so we will just take your testimonies 

and we will probably start with Kay and start right down the line 

and hear what you have to say. Then we will have some questions 

for you. So Ms. Doby, you have the floor. 

STATEMENT OF KAY DOBY, POULTRY GROWER, ON BEHALF 

OF CAMPAIGN FOR CONTRACT AGRICULTURE REFORM, RAFI 

Ms. DOBY. Chairman Boswell, Ranking Member Hayes, Members 

of the subcommittee, my name is Kay Doby and I am a poultry 

grower from North Carolina, Cameron. Thank you for this opportunity to present this testimony. 

The structure of US agriculture is rapidly changing and the focus 

of the farm bill should be broadened to keep pace with that change. 

Unfortunately, farmers are rapidly losing their independence, as 

one-sided contractual arrangements between farmers and vertical 

integrators became more common. For example, a potential grower 

must take out a loan of over $200,000 per poultry house to have 

houses built to the company’s specifications, but the grower is the 

one that borrows the money to build them. When a grower goes 

into the debt to this extent, they must often put their farm up as 

collateral for the loan. Poultry growers sign the first contract thinking that it is good for the length of the loan, until one day a new 

one is presented that must be signed before the next flock is delivered. This contract can have a mandatory arbitration clause added. 

Also, the length of the contract can go from years to a flock-to-flock 

contract, which means no guarantee beyond one week flock. Talk 

about job security. 

As a grower, you get the message very quickly. With your livelihood on the line and the future of your business controlled completely by the company, it is not a surprise that growers are reluctant to speak out about their circumstances. Plain and simple, they 

fear retaliation. Growers are ranked against each other for their 

pay. Basically, this means who can grow the heaviest bird on the 

least amount of feed. This is called your feed conversion. The company controls all the inputs that determine your success in adding 

weight to the bird, the quality of the chickens and the feed and the 

length of time you keep your birds before they go to processing. 

The difference in being at the top of the ranking versus the bottom 

of the ranking for one flock is thousands of dollars. It puts growers 

in a position not to want to rock the boat, because the company can 

directly influence where you fall in this ranking. The grower works 

for the day that he will have the loan paid off, but the grower will 

never get to that day because the company wants new or upgraded 

equipment in the houses or they will cut you off. So the grower has 

two choices, go back even deeper in debt or just sell your farm and 

15

salvage what you can. Growers must upgrade or companies threaten to not bring them any more birds. 

Poultry houses are single-use structures and currently there is 

nothing else that can generate the revenue to equal poultry growing. You are completely at the company’s demands. I personally 

know growers that have been cut off. Others have given in and borrowed the money to do the upgrades and are struggling under the 

additional debt to the point of bankruptcy. The small additional 

pay that the companies offer you to convert these houses does not 

even pay for the interest on the loans. 

A question often asked is, if returns are so low, why are people 

lined up to become contract producers? Well, there are few other 

job opportunities in the areas where poultry operations are located. 

Information presented to potential producers by some integrators is 

deceptive, in that not all costs are shown or they are underestimated. Many potential producers feel that they can be above average and they will never be below that, because they don’t understand how little control they have over their ranking. The growers 

don’t want anything that they are not entitled to, but they want 

things to be fair. I have a few suggestions in that regard. 

1) The Packers and Stockyards Act needs to be updated to give 

USDA Grain Inspection, Packers and Stockyards Agency full authority, like in the red meat sector, to crack down on unfair, deceptive trade practices. Their authority is very limited to poultry and 

excludes any authority to provide protections for breeder hen and 

pullet growers. 

2) Pass legislation to prohibit certain abusive contract clauses. 

Arbitration should be voluntary for both parties, not something 

forced on growers by the company. Companies should be required 

to bargain in good faith with grower associations instead of dealing 

with growers individually. This could be done at the national level 

by changing the Agricultural Fair Practice Act to require good-faith 

bargaining in contract negotiations. 

If large agribusinesses are allowed to control the terms of these 

take-it-or-leave-it contracts, companies will continue to shift the 

poultry model into other parts of agriculture, as we have already 

seen in many other commodities, like hogs, tobacco, identity-preserved grains and peanuts. In January of this year, over 200 organizations wrote to the House Agriculture Committee to support 

eight legislative initiatives to help restore competition to agriculture markets, to benefit of producers and consumers alike. A 

copy of that is attached to my written testimony. 

It is my hope that the committee will see fit to include a broad 

competition title in its version of the 2007 Farm Bill. I would like 

to thank you for your time and willingness to listen to what is 

going on with today’s poultry growers. The contract producer has 

been transferred into a mere servant of a corporation or, as some 

have said, contract producers are serfs with a mortgage. Thank 

you. 

Mr. BOSWELL. I appreciate your testimony. Mr. Crabtree, you 

have five minutes. 

16

STATEMENT OF JOHN CRABTREE, DEVELOPMENT AND 

OUTREACH OFFICER, CENTER FOR RURAL AFFAIRS 

Mr. CRABTREE. Mr. Chairman, Ranking Member Hayes and 

members of the committee, my name is John Crabtree. I represent 

the Center for Rural Affairs in Lyons, Nebraska. Beginning in 

1996, I led our work on livestock market structure and I just want 

to thank you for holding this hearing on these really important 

issues. 

As a livestock sector has become increasingly concentrated and 

integrated, packers and processors increasingly control production 

at all stages. In many rural places where livestock are raised, there 

are only a few or even just one packer or processor for a given livestock species. At the same time, there has been a dramatic increase 

in the use of production marketing contracts to further diminish 

the bargaining power of farmers and ranchers. Currently over 80 

percent of hogs, for example, are either owned outright by packers 

or tightly controlled through various contracting devices, and many 

farmers and ranchers face price discrimination and severely limited 

market access as a result. 

The USDA has demonstrated nearly complete inability to enforce 

the Packers and Stockyards Act and other livestock market competition laws. The audit of the Packers and Stockyards Administration performed by USDA’s Office of the Inspector General that was 

released in February 2006, revealed that the Packers and Stockyards Administration has utterly failed to enforce the law, the very 

law that gives the agency a reason to exist. Over 1800 so-called investigations were documented between 1999 and 2005, and according to the Inspector General’s audit, 1739 of those so-called investigations could not be traced to a specific complaint, producer or 

packer. That is why Congress should act to define the rules of livestock market competition and provide clear direction for USDA’s 

enforcement. Congress should not let another farm bill go by without making changes in the Packers and Stockyards Act and the Agricultural Fair Practices Act that are necessary to breathe some life 

and competition back into livestock markets. 

Specifically, a couple provisions we would recommend. The Packers and Stockyards Act should be amended to prohibit packer ownership of livestock more than seven days prior to slaughter; to prohibit the use of production contracts that do not fix base prices 

with adjustments or quality, grade or other factors outside of packer control at the point of sale; and to require the Secretary to write 

regulations defining the statutory term on reasonable preference or 

advantage, to ensure that small and midsized farmers and ranchers are not forced to accepted volume-based price discrimination. 

Likewise, the Agricultural Fair Practices Act should be amended 

to make it unlawful for any firm to refuse to deal with a producer 

for belonging to a producers association or cooperative, prohibit the 

use of binding mandatory arbitration clauses, and expand prohibition on confidentiality clauses to cover all agricultural marketing 

and production contracts, not just those in livestock and poultry. 

And finally, an amendment to the Ag Fair Practices Act that requires a contract to include clear disclosure of producer risks. 

Just to highlight a couple of these provisions, major meat packers use packer-owned livestock as a major tool for exerting market 

17

power over farmers and ranchers. This practices fosters concentration in industrialized livestock production, and packer-owned livestock artificially lowers farm gate prices to farmers and ranchers 

while consumer food prices continue to rise, as demonstrated repeatedly by USDA land grant and nonprofit research analysis, 

most recently the GIPSA livestock and meat marketing or RTI 

study. And despite their support for vertical integration, the researchers that conducted that report concluded that the use of captive supplies is associated with lower cash market prices. 

The packers and processors claim that vertical integration increases production efficiency, but it is simply not true. Small and 

midsized farms and ranches have demonstrated, time and again, 

they can match or beat the costs of production of the packers industrial facilities. Prohibiting packer ownership dramatically reduces the ability of packers to manipulate livestock markets and 

helps secure increased market access for small and midsized family 

farms and ranches. Access is often severely limited today by the 

levels of vertical integration, particularly in hog production. 

In the end, it comes down to this: in a nation where packers and 

processors own and control all of the livestock, what need is there 

of farmers and ranchers? And what hope do we have for revitalizing family farming and ranching in rural communities if we have 

no hope of revitalizing family farm and ranch livestock production? 

What hope if we cannot breathe some life and competition back 

into the livestock markets? My father always told me to say what 

you mean and mean what you say. If we hope to create a farm bill 

that can be held up as a solution to some of the challenges that 

family farmers face, then we should all support a Federal ban on 

packer ownership of livestock and a comprehensive competition 

title in this Farm Bill. In other words, we should mean what we 

say. Thank you. 

Mr. BOSWELL. Thank you, Mr. Crabtree. We would like now to 

give five minutes to Mr. Buis of the National Farmers Union. 

STATEMENT OF TOM BUIS, PRESIDENT, NATIONAL FARMERS 

UNION 

Mr. BUIS. Thank you, Chairman Boswell and Ranking Member 

Hayes and members of the subcommittee. It is great to have the 

opportunity to be here today. The National Farmers Union represents family farmers, ranchers and family fishermen around the 

country, with a mission of protecting and enhancing the economic 

wellbeing and quality of life for rural America. 

First, I would recommend, as you move into the new farm bill, 

to keep the focus on creating a structure to help farmers and 

ranchers receive a profit from the marketplace. It is the key component that is often missing. Farm bills tend to focus on the symptoms and not on the cause. The two most promising economic opportunities in rural America that I hear about as I travel the country are the production of renewable energy and the second related 

to the food industry and that is the increasing consumer demand 

for source-verified, direct-from-the-farm fresh foods. The latter is 

something that I hope this subcommittee will address as we debate 

the future structure of our livestock industry. 

18

Yesterday, the National Farmers Union released our updated 

concentration tables for the top four firms in each sector. This report continues to show an increase of consolidation in most agriculture sectors. The top four beef packers dominate almost 84 percent of the market. The four pork packers control 66 percent of hog 

processing. The top four poultry companies, roughly 60 percent of 

the broiler industry. However, ethanol production is the only agriculture sector in which concentration has steadily decreased. Ten 

years ago, the top four companies owned 73 percent of the ethanol 

market. Today, the top four companies control 31 1/2 percent of the 

ethanol produced. Farmer-owned ethanol plants account for the 

single largest production of ethanol, 39 percent. That has been 

driven by public policy, Federal policy. So for those who say concentration is inevitable, we might as well get used to it, everyone 

is going to get bigger, the market is more concentrated, I think the 

renewable energy experience that we have had in the country is 

clearly a win for rural America and clearly shows that we can 

make a difference. 

And if we also look at the farmers’ share of the food dollar, and 

I think I distributed both a chart on that and one on the concentration levels of the livestock industry going up and the ethanol industry coming down that you can look at, but if we look at that farmers’ share of the food dollar in each of these concentrated sectors, 

it clearly shows farmers are getting less of the food dollar in the 

concentrated markets, and more of the total amount spent on food 

and feed and fiber in the ethanol and renewable energy sector. 

Competition is clearly the key to profitability for farmers and for 

rural communities. Those profits are retained in those communities, they are invested in those communities and it creates a tax 

base and jobs, as well as it is the only communities in rural America where you really see the storefronts, the boards coming off the 

storefronts instead of going back up. So we need to replicate this 

policy in the livestock industry. 

This study that we have been funding since 1999, unfortunately, 

will probably be our last, because the data and the information 

from the companies involved is getting more difficult to obtain. 

However, this information is important for policymakers to know. 

It just shouldn’t be retained with private groups that do studies, 

it shouldn’t be retained outside of the policymaking arena, and we 

would urge that this Congress, in the farm bill, direct USDA and 

the Department of Justice to start obtaining this information so 

you can make good policy decisions to ensure fair and open markets. 

Second, we recommend that the farm bill include a new title to 

help restore competition. A noncompetitive marketplace is just another way of saying farmers and ranchers are not being paid a fair 

price. Many cite the free market as a basis for not taking action. 

Yet I ask, how can you have a free market when there is little or 

no competition? How can we rely upon a free market without recognizing when it needs fixing? We believe the competition title should 

include most of the same items that Mr. Crabtree just mentioned, 

but a couple others. I think we have to immediately implement 

mandatory country of origin labeling. We are opposed to merging 

country of origin labeling with Animal ID, because I think Animal 

19

ID, certainly in the countryside, farmers and ranchers aren’t there 

yet. It is very controversial, it is very confusing and it is very expensive. There is a lot of fear. That is going to take quite some 

time to ever fix. 

We also believe that the Mandatory Price Reporting Act should 

be reformed, and the enforcement and the oversight suggested by 

the GAO should be implemented. And we feel that you should end 

the ban on interstate shipment of meat to increase competition in 

the economic marketing and trade opportunities for rural America. 

And finally, I think the one other thing in the competition that I 

would add to what Tom mentioned is to prohibit forward contracting of dairy products, within the Federal Milk Marketing 

Order system. 

In summary, Mr. Chairman, I would again urge you to keep the 

focus of the new farm bill on profitability for producers. As we have 

seen with ethanol, competition leads to profitability on the farm 

and economic opportunities in our rural communities. Thank you, 

Mr. Chairman. 

Mr. BOSWELL. Thank you, Mr. Buis. We would now like to recognize Mr. Stallman from the Farm Bureau. 

STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN 

FARM BUREAU FEDERATION 

Mr. STALLMAN. Mr. Chairman and Ranking Member Hayes and 

members of the committee, thank you. We appreciate the opportunity to provide comments on the changing market structure of 

the livestock industry. Our organization represents over six million 

member families with many cow/calf operators, hog farmers, sheep 

and goat producers and poultry growers. I, myself, am a rice and 

cattle producer from Texas. 

Increasing producer competitiveness and access to a transparent 

marketplace is vital to sustaining domestic production agriculture 

for farmers and ranchers. The landscape has changed for both crop 

and livestock producers in recent decades, both in purchasing inputs and in marketing finished livestock, grain and fiber. I won’t 

reiterate the concentration figures that Administration Link provided, because ours are the same numbers from USDA, but it does 

point out that the degree of concentration that exists, particularly 

in the livestock sector. 

The story is really the same with input providers and I will give 

you two quick examples. The three largest soybean processors control more that 70 percent of the US market in 2003. The four largest ag chemical companies had 62 percent of the total world market 

share, based on 2004 data. The Grain Inspection, Packers and 

Stockyards Administration’s recently released Livestock and Meat 

Marketing Study revealed significant information specific about the 

use of alternative marketing arrangements in the beef and pork 

processing sectors. During late 2002 through 2005, the use of 

AMAs were estimated to cover 38 percent of fed cattle volume, 44 

percent of the fed lamb volume, and 89 percent of the finished hog 

market. Packer ownership accounted for only five percent of fed 

cattle and lamb volume, but between 20 and 30 percent of fed pork 

volume. 

20

It is also important to recognize that, while AMAs are voluntary, 

we question whether they are truly voluntary in every region of the 

country, for every packer or for every species. Our producers often 

strongly remind us that one cannot just look at concentration in 

the aggregate for the entire country. A region-by-region review of 

AMAs would likely yield some different results. 

AFBF supports the following changes to enhance competition of 

the current livestock marketplace: we support enhancing USDA’s 

oversight of the Packers and Stockyards Act. GIPSA investigations 

need to include more legal expertise within USDA to enhance anticompetitive analysis on mergers. USDA, in conjunction with the 

Department of Justice, should closely investigate all mergers, ownership changes, or other trends in the meat packing industry, for 

actions that limit the availability of a competitive market for livestock producers. We would also support establishing an office of 

special counsel for competition at USDA. We support amending the 

Packers and Stockyards Act to grant USDA jurisdiction and enforcement over the marketing of poultry, meat and eggs, as already 

exists for livestock. This includes breeder hen and pullet operations 

so they are treated the same as broiler operations. We support efforts to provide contract protections to ensure that the production 

contract clearly spells out what is required of the producer. In addition, we support prohibiting confidentiality clauses in contracts so 

that producers are free to share the contract with family members 

or an outside advisor, like a lawyer or a lender. We support legislation to prohibit mandatory arbitration clauses in contracts. Farmers and ranchers should be able to choose between arbitration, mediation or a civil trial in disputes. We support establishing GIPSA 

as the lead authority over livestock contracts. 

I want to note that we appreciate the work by the House Ag 

Committee to reauthorize mandatory price reporting last fall. This 

program has worked well for our producers in providing increased 

price and market information. There are additional issues that are 

indirectly related to competition and the changing market structure. Farm Bureau has long supported allowing meat and poultry 

inspected under State programs, which are equal to Federal inspection and approved by USDA, to move in interstate commerce. All 

other products, such as milk, dairy products, fruit, vegetables, fish, 

shellfish and canned projects, which are inspected under State jurisdiction, are allowed to be marketed freely throughout the United 

States. Movement of these products across State lines will increase 

marketing opportunities and provide more of a competitive marketplace for our farmers and ranchers. 

Farm Bureau supports voluntary country of origin labeling. The 

cost associated with implementing a mandatory program, especially 

for meat products, would create a competitive disadvantage for our 

producers. We also support the establishment and implementation 

of a voluntary national Animal ID system capable of providing support for animal disease control and eradication. Any program put 

into place must adequately address the cost, confidentiality and liability concerns of our producers. 

Thank you for the opportunity to discuss our views on these 

issues and I look forward to answering questions. 

21

Mr. BOSWELL. Thank you, Mr. Stallman. We would like to recognize Dr. Taylor from Auburn. Mr. Taylor. 

STATEMENT OF ROBERT TAYLOR, ALFA EMINENT SCHOLAR, 

AUBURN UNIVERSITY 

Mr. TAYLOR. Thank you, Mr. Chairman and members of the committee. I am an agricultural economist at Auburn University and 

today I am going to restrict my remarks to fed cattle marketing alternatives. 

I would like to identify four options for marketing: Option one, 

AMAs, as they have been used and structured in the past 10 or 15 

years; Option two, cash on the hoof, the old way of doing business; 

Option three, require that all transactions be on a cash basis and 

moreover, that there be a negotiated quality grid; Option four, prohibit AMAs tied to a cash market or to the futures market, but do 

not prohibit all AMAs. 

The RTI study only compared Option one and two. They compared eliminated AMAs to basically cash on the hoof, the old way 

of doing business. To me, this is an inappropriate comparison and 

it would be better to look eliminated AMAs, or certain features of 

AMAs, as they are now done to Option three or Option four. In the 

RTI study, ‘‘beef quality is expected to decline and decrease primary demand with AMA elimination.’’ This assumption totally ignores significant cash transactions that occur now with a quality 

grid. In fact, precisely the same quality incentives can be achieved 

in the cash market if the packers so choose. What is the net effect 

of eliminating AMAs? Assuming they were replaced by cash transactions, with a negotiated base price and a negotiated grid, all I 

can identify is 40 cents per head. That is .04 percent, not four percent, .04 percent of the value of a fed steer, not the four percent 

to 16 percent negative effects identified in the RTI study. 

Option four, let me emphasize again. Don’t prohibit AMAs all together, just prohibit tying a base contract price to either the cash 

market or to the futures market. Such ties distort buyer incentives 

in concentrated markets. If we had a very large number of buyers, 

there wouldn’t be a problem with a contract tied to cash or to futures. But with concentrated buyers, there is a problem. Theoretically in economics, this leads to inefficiency. I repeat, aggregate inefficiency, because these types of arrangements worsen the market 

power effects of size. Economists agree on the need to eliminate 

contract features that distort buyer incentives, such as the marketing agreements tied to the cash market. Economists made debate endlessly on whether the past effect has been big or small, significant or insignificant, but they are in agreement that such arrangements have the potential to distort markets and therefore 

should be prohibited. In my opinion, Option four would not destroy 

the cattle and beef industry, as suggested by the RTI comparison. 

Combine Option four with pursuit of new innovative ways of trading cattle, I think this option would actually strengthen the industry and also eliminated the more contentious features of AMAs. 

Thank you. 

Mr. BOSWELL. Thank you, Dr. Taylor. I appreciate all of your testimonies. We will move to our questions now and I will start off 

with directing a question to Ms. Doby. In your testimony, you menVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
22

tion that oftentimes your original contracts are rewritten before 

they run out and when they do rewrite them, they add a mandatory arbitration clause. Are there currently any protections for the 

producers for that not to happen? 

Ms. DOBY. No, sir, that happened in my contract. I did not have 

arbitration when I started in the poultry business and it changed. 

They brought the contract out. I had thousands of dollars left on 

a loan. So to sign that contract to continue getting birds, the arbitration was in there. The only thing in that contract that says you 

get a two-week notice for cancellation, but that is the only thing. 

They have nothing else. 

Mr. BOSWELL. I was going to follow up by asking you about how 

it works with your poultry production, but I think you just told us 

it doesn’t. It puts a lot of stress on your operation. 

Ms. DOBY. Yes, sir, it certainly does. 

Mr. BOSWELL. Okay. Well, thank you very much. Mr. Buis, attached to your testimony, you attached some charts regarding the 

concentration of agriculture markets. Can you walk through how 

those numbers were formulated? And also, can you talk about some 

of the trends that have been seen in the concentration of the industry? 

Mr. BUIS. Yes. Thank you, Mr. Chairman. Since 1999, we have 

been contracted this study and I think it was the first of its kind 

done back in 1999 by Dr. William Heffernan and Dr. Mary 

Hendrickson at the University of Missouri. We do so because oftentimes we would get these anecdotal comments about how big or 

who is controlling what and really to sort of set the plate for how 

much competition really exists in the marketplace, and that was a 

continuation of those numbers. 

The second part is that trends clearly are going up in all sectors 

of agriculture on concentration and I think the complete CR-4 tables that we put in there are charts, I think, pork, beef, broilers 

and ethanol, but that trend is throughout the industry. As Mr. 

Stallman mentioned, it is in the grain industry, the soybean processing industry, it is elsewhere, except ethanol. That is the one exception. And two years ago when we did this study, the ethanol 

number had dropped down to 40 percent and now it is down to 31 

percent and it is all a result, I think, of public policy, encouraging 

producers to get together to own these plants. The local ownership 

is really key because the profits stay there. They are retained in 

those communities, reinvest it in those communities, and I think 

it is just a perfect example that concentration is not inevitable and 

that competition leads to a fair, profitable price on farming. Ask 

any corn farmer today what is driving the increase in corn production or corn prices and that has been the increase in domestic demand, new domestic demand for corn and that has been into ethanol. It is owned by local people. I think it is a good thing, Mr. 

Chairman. 

Mr. BOSWELL. Thank you. Maybe a moment later we can talk a 

little bit about it. I have been very elated about the fact that farmers have been able to participate and cooperate together and start 

up the ethanol plants, but I know of a case or two already where 

they are being bought out by, as they refer to it, big money. 

Mr. BUIS. Yes. 

23

Mr. BOSWELL. And it is distressing and I don’t know what we can 

do about that, because I would hope that we might respond. I 

know, in my life, my father and my grandfather, we have always 

lamented about not being part of the value-added and I would 

guess that you and Mr. Stallman and all of us, we have been there 

and here is one place where we can be part of the value-added all 

the way up, if you will, and I just have a concern that it may get 

away from the people, our farmers or producers, and I don’t want 

that to happen. 

Mr. Stallman, I think you know distinguished Professor Neil 

Harl. You have heard of him before. But a fundamental concern 

that he termed ‘‘towering concentration on the input side and towering concentration on the output or product side in the agricultural sector, with producers in between, in perfect or nearly perfect 

competition. The result is vulnerability of producers as buyers, 

with regional dominance exercised their market power to reduce 

the price paid to the producers indifferent between selling to the 

local buyer, with regional dominance for shipping to the next available competitive outlet. Thus, producers become almost captive 

suppliers or their regionally dominant purchaser of products.’’ 

What would you say about that? Would you say that assertion is 

correct? Why or why not? Would you comment on that? You come 

from a lot background experience, as Mr. Harl did, so what would 

you say to that? 

Mr. STALLMAN. Well, I do have a lot of background and experience, Mr. Chairman, but I do not have a degree in economics. I 

would observe that, you know, when you look at what is happening, not with just the agriculture industry, but with all industries, you have concentration and consolidation occurring. That, in 

and of itself, is not necessarily bad. The question is, do you still 

have competition? And there again, that is where our proposals 

focus for agriculture specifically, on greater oversight of mergers 

and acquisitions, particularly within USDA and in conjunction with 

the Department of Justice. Now, farmers are their own worst enemies. You know, you talk about the middle where the producers 

are. I have told many farmers who are complaining about the market structure, well, all you have to do is get together and you have 

all the market power you want. The problem is producers are reluctant to get together and that is an inherent nature, I guess. Maybe 

it is in the genetic pool for farmers and ranchers, that we want to 

be independent. We don’t want to work with somebody else to accomplish a greater goal. And if we have any challenge or struggle 

as agriculture producers, it is that we are independent and we 

don’t want to come together into the kind of structures that we 

could come together in to gain that market power which we do not 

have, given the concentration that is occurring on the input side 

and the processing side, currently. 

Mr. BOSWELL. Thank you. I violated my own rule here by the 

time, so I am going to stop now, but Dr. Taylor, I will get back to 

you in a little bit. At this time, I would like to recognize my colleague, Mr. Hayes. 

Mr. HAYES. Thank you, Mr. Chairman. Dr. Taylor, you stated a 

number of times in your prepared testimony that economists generally agree about one point or another. In other areas, you critiVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
24

cized the work of the RTI report and the investigations and studies 

conducted by USDA regulators and market experts. Do you believe 

there is anything like a consensus among economists, livestock interest groups, or market experts, about whether or how Congress 

should intervene in the livestock market structure? 

Mr. TAYLOR. Two ways to answer that question. One is empirical, 

based on the studies and whether the effect is big or small, significant or not. A second way is theoretical. Economists do generally 

agree that with concentrated markets, tying AMAs to a cash price 

distort buyer incentives and should be prohibited. In my written 

testimony, I have cited several livestock economists who have gone 

on the record with a similar statement, going back to the mid 

1990s. 

Mr. HAYES. But in answer to the simpler question, is there a 

broad consensus either among the economists or the producers? I 

think I heard you say no. 

Mr. TAYLOR. There is a broad consensus among economists that 

tying AMAs to a cash price has the potential to distort the market 

and should be prohibited. 

Mr. HAYES. Okay. So I think I heard you say this time there is 

some consensus among economists, but you haven’t spoken to the 

livestock community. Is there consensus there, in your opinion? If 

you don’t want to get into that, that is fine. All right, let me back 

up to Mr. Stallman. Does the American Farm Bureau Federation 

support legislative efforts to prohibit packer ownership for beef, 

pork and lamb? 

Mr. STALLMAN. No, sir, we do not. We have had that policy discussion and have come down on the side of not supporting that prohibition. 

Mr. HAYES. Okay. One of the alternatives to a complete ban on 

packer ownership has been discussed, and perhaps compromised, is 

a requirement that packers purchase 25 percent of their daily 

slaughter from the cash market. What is the Farm Bureau’s position on that? 

Mr. STALLMAN. I do not think we have a specific policy position 

on that. We talked about the benefits of having more the cash, 

more product purchased in the cash market to help support that 

market. 

Mr. HAYES. Okay. All right. Mr. Buis, as I understand the National Farmers Union position, you support mandatory country of 

origin labeling and oppose mandatory Animal ID unless the government pays the entire cost. Can you reconcile how imposing the 

cost of mandatory COOL on livestock is acceptable to your members, but imposing the cost of mandatory Animal ID is not? 

Mr. BUIS. Well, we support mandatory country of origin labeling 

and we feel that the shift in consumer preference, which if you 

even used USDA’s more exaggerated cost, which we they had to revise when they first came out with the rule, it was around $4 billion, to implement COOL. If you had a one percent shift, and their 

OMB analysis said this, one percent shift in consumer preference 

towards US products, it would more than offset that $4 billion, so 

I think the market could absorb it. As far as mandatory animal ID, 

this was suggested and encouraged by the Secretary of Homeland 

Security, worried about terrorists distorting our food production or 

25

risking our food production, and if you are going to impose that 

cost on the two percent of society that produces the food to benefit 

the other 98 percent, I think it is a government cost. I do not 

think——

Mr. HAYES. Okay. Let me stop you. I have just got 30 seconds 

left. I don’t necessarily agree with you. Ms. Doby, in your testimony, you talk about the poultry companies, that there is a large 

waiting list of farmers who are interested in adding their grow-out 

capacity and the question that comes to that, if the current system 

were not favorable, would the waiting list exist year after year and 

decade after decade? 

Ms. DOBY. Well, I am not sure there is a long waiting list, but 

I have heard people to say there is a waiting list of people to build 

poultry houses and that is one of the things that I pointed out. A 

lot of people don’t understand the business when they are getting 

into it. They may be somebody that is up north and they come 

down and buy some land and they want to be a farmer. Sometimes 

they think, okay, all I have got to do is do these chicken houses 

and they don’t understand that I have got to buy a tractor with a 

front-end loader. I have got to have a spreader truck. I have got 

to have the land to put the litter on. They don’t understand all of 

these things until they get so far deep in debt that, I have got to 

get out of this somehow or another. 

Mr. HAYES. Thank you, ma’am. Is that the doctors or lawyers 

that do that? Excuse me. I couldn’t resist, Mr. Chairman. I yield 

back. 

Mr. BOSWELL. You are forgiven. 

Mr. HAYES. I will be back in just a minute. 

Mr. BOSWELL. The chair recognizes the gentleman from Wisconsin, Mr. Kagen. 

Mr. KAGEN. Thank you, Mr. Chairman. And since you brought up 

the reference to doctors, being one myself, I have to say this session has been a bit distressing to hear the reference to the AMA 

that way, Dr. Taylor. Do you want to get rid of the AMA? That is 

a different committee. You are in the wrong place. Well, I am not 

a farmer but I know how to listen and it seems to me that there 

is a tremendous amount of concentration and vertical integration 

in the agriculture business, and I guess the question has to do with 

how can we in Congress, in the 2007 Farm Bill, reduce vertical integration without increasing costs to consumers for the price of 

food? And I will throw that straightway to Mr. Buis. 

Mr. BUIS. Thank you, Congressman. I think you can take a number of positive steps. One is the competition title to address some 

of these structural barriers to having fair, open, competitive markets. But the other thing, sort of on the positive front, that I think 

this committee could really serve a huge role in helping rural 

America is the consumer demand for fresh, source-verified, direct, 

natural organic products straight from farmers. It has a long way 

in improving the income of farmers and ranchers, because their 

then allowed to price their product based on quality, not walk in 

there on a wounded knew to a concentrated market and say, what 

will you give me for this commodity? And I think addressing some 

of those structural barriers to distribution and marketing, that it 

is not reinventing the wheel, it is kind of going back to the way 

26

food used to be distributed before we insisted on everything looking 

the same, tasting the same, costing the same and lasting for a lifetime on the shelf. But consumers are willing to pay for that 

freshness and that quality and I think that is a home run waiting 

to happen. 

Mr. KAGEN. Along those same lines, I am very interested in your 

opinion about a meat packer locally in the State of Wisconsin being 

allowed to ship his or her product across the State line. Don’t you 

think it is time that if a local producer could put together some salami and bologna that meets Federal standards, is State inspected, 

shouldn’t that small company be allowed to transport something 

across the State line? 

Mr. BUIS. Absolutely. We have supported that for a number of 

years. I think it increases competition with the big concentrated 

markets that currently control it. And you know, the products are 

safe. They are inspected under the same standards. It is just this 

sort of carved-out market and some are refusing to want to compete with those people and I think it would be a great thing. 

Mr. KAGEN. Since your microphone is on, you mentioned that 

your organization is opposed to forward contracting, but isn’t that 

a way for a local farmer to guarantee a steady stream of revenue, 

that he has some security, he is going to get paid some money to 

pay for his cost of living? 

Mr. BUIS. We are opposed to adding forward contracting for dairy 

and part of the reason is some of the experiences in the past and 

allowing those markets to become further concentrated, and I think 

rather than just piecemealing in this dairy provision or that dairy 

provision, we need to take a total holistic look at all of dairy and 

how we can help this hard-working people receive a profit from the 

marketplace. 

Mr. KAGEN. Thank you very much. Now about mandatory arbitration, a few moments ago, maybe a half-hour ago, the Administrator really failed to give me an adequate answer about the concept of mandatory arbitration. Would anybody at the panel like to 

comment about those clauses and contracts? 

Mr. BUIS. Congressman, I would just say that mandatory arbitration, I am originally from Indiana. That is where I grew up and 

on basketball, we always wanted the home court advantage, and a 

mandatory arbitration clause is like giving the company a home 

court advantage because they write the arbitration clauses and 

stick them in there. I don’t see how that benefits producers at all. 

Mr. KAGEN. Thank you very much and I yield back my time. 

Thank you, Chairman. 

Mr. BOSWELL. Thanks, Mr. Kagen. The chair would now recognize the gentleman from Nebraska, Mr. Smith. He stepped out. Let 

us see who we got in the next order here. It would be Mr. Walberg 

from Michigan. 

Mr. WALBERG. Thank you, Mr. Chairman. Mr. Crabtree, in your 

testimony, I read a statement here that says the Packers and 

Stockyards Administration has become anything but an enforcer of 

competition in livestock markets. Later, you state that USDA has 

proven, again, that they lack the wherewithal, courage and political 

will to effectively enforce the Packers and Stockyards Act, and they 

certainly cannot be trusted to use the considerable authority vested 

27

in the Packers and Stockyards. With these two statements, you yet 

recommend expanding their statutory authority. If you believe this 

agency cannot perform its mission, then why do you want them to 

have more responsibility? 

Mr. CRABTREE. Thank you for the question. Actually, I would 

argue that what we recommended is that we help them define their 

statutory authority. The Packers and Stockyards Act provides the 

agency a rather expansive authority, which they have not used, 

and this is not a current thing. I mean, we have seen studies, 

USDA studies that go back to the red meat study in the early 

1990s, the National Commission on Small Farms, two GAO studies, the recent Inspector General’s audit, which have all said that 

the Packers and Stockyards Administration is not fully utilizing 

their authority. So what we have suggested is to help them define 

and clarify and to have a little better record in the courts, where 

they have not done well, and that is certainly not their fault, either. Very specifically, clarifying what is meant, the statutory language, by undue preference is, I think, crucial. Packers use unjustified preferential deals. To really gain a lot of economic power, they 

give sweetheart deals to very large producers and it gives them a 

lot of market power over small and midsized family farms and 

ranches. What we have suggested here is that those preferential 

pricing structures should be based only on real differences in product value or actual and quantifiable differences in transaction costs 

and not just based on a volume premium. So I think what my testimony is to you and my suggestion to the committee is that let us 

help them do their job better by clarifying and defining the statutory authority that they have and help the Administrator move forward in better enforcing the Act. 

Mr. WALBERG. Okay. Thank you for clarifying. Mr. Taylor, it is 

all well and good to assert that Congress could legislate solutions 

to the problems you cite. Specifically, how would Congress dictate 

the law in three different ways, one, an index that is superior to 

cash prices for use in alternative marketing arrangements, or two, 

the provision of perfect market knowledge for buyers and sellers, 

and three, a mechanism for managing the duration of the market’s 

open trading window? 

Mr. TAYLOR. Well, I am not sure if this should be done through 

legislation or under Packers and Stockyards Act, through regulatory action. But to me, it would be to simply prohibit tying any 

AMA to a cash market or to the futures market. On the second 

point, there are 2 broad sources of market power and one of those 

is based on size alone. There is no—that 81 percent concentration 

is too much and 79 is okay. A second broad category of market 

power deals with deception, asymmetric information and market 

failure. The asymmetric or one-sided information is the second 

point and MPR, mandatory price reporting, has, in my opinion, 

partially leveled up the information that both sides have. But 

under the 70/30 rule, large transactions are not required to be reported. It is large transactions that move market cash or future 

and in cattle markets, it is akin to insider trading not being reported, and insider trading must be reported for stock market 

transactions and the legislation there might be a model to apply to 

cattle markets. 

28

Mr. WALBERG. Thank you. I see my time has ended. 

Mr. BOSWELL. Thank you. The chair would recognize the gentleman from California. 

Mr. COSTA. Thank you very much, Mr. Chairman. To Mr. Buis. 

In your testimony, you spoke of public support for COOL, for the 

country of origin labeling efforts and this has been something that 

I think is much discussed about in the agriculture community and 

obviously there are different schools of thought on this. The opponents have noted that there currently is not restriction on labeling 

food products and there is therefore no need for the USDA to implement the legislation that was passed, so I would like to get your 

response on that, please. 

Mr. BUIS. Well, if you just look at who has the market controlled 

and concentrated, and then if you look at what kind of products 

come into the country and who is bringing them in and the benefits 

that are derived by bringing these products into the country and 

putting the USDA inspection sticker and a USDA grade stamp on 

it so that the consumer assumes it is a US product, it is more like 

following the money. They are probably not going to do it because 

they are not going to make the revenues they could off of bringing 

in less expensive product, and duping the consumer into believing 

that it is a US product. 

Mr. COSTA. The grocers have often argued that it is time consuming and costly. My experience has been that these kind of 

things, the costs have a way of being passed on. Some of us have 

visited Europe and other places where labeling is not only required 

but it is a value-added because consumers want to know. Your reaction? 

Mr. BUIS. It doesn’t need to be that way. I mean, obviously, in 

my opinion, the Department of Agriculture wanted to do everything 

they could to make this as ugly a program and distasteful as possible when they rolled out the rule. 

Mr. COSTA. Do you think they succeeded? 

Mr. BUIS. And they succeeded. But we can work out the problems 

with the retailers, and the State of Florida has a good program. 

The sky didn’t fall there. Forty-eight other developed countries 

have labeling. 

Mr. COSTA. Do you think there should be an exception for hamburger? 

Mr. BUIS. Pardon me? 

Mr. COSTA. Do you think there should be an exception for hamburger? They have talked about blending meats. 

Mr. BUIS. There should not be an exception. 

Mr. COSTA. There should not be any exception? 

Mr. BUIS. No. 

Mr. COSTA. Okay. Mr. Stallman, you have heard the response by 

the gentleman sitting next to you. You take on the mandatory efforts. I think it is a significant part of the marketing issues. I 

thought I understood, and maybe I was incorrect, you had indicated that it should be voluntary? I would like you to elaborate. I 

mean, it just seems to me, and we have had experiences in California, that if it is voluntary, you have no program, per se, outside 

of those who are maybe using it as a marketing tool for higher-end 

products for niche consumers. And please elaborate. 

29

Mr. STALLMAN. This is one of the most debated issues we have 

had internally, probably throughout the history of the organization. 

Mr. COSTA. I expect you have heard a lot about it within your 

house of delegates and so forth. 

Mr. STALLMAN. But our producers come back to determining our 

position based on does it provide more income back to the producer. 

There are three criteria and all three have to be met before that 

can happen with a mandatory country of origin labeling program. 

The first criteria is, is that a consumer, for an equal-quality product, has to be willing to pay more just because of the label that is 

on it. The second criteria that has to be met is that that extra price 

paid for by the consumer has to be greater than the cost of implementation. Now, we can argue about what those costs are, but 

there will be some cost. Then the third thing that has to happen, 

if there is a net return from the difference between what the consumer is willing to pay and the cost of implementation, then that 

has to get all the way back to the producer. So all three of those 

criteria have to be met. 

Mr. COSTA. Before my time runs out, where do the grocers mix 

in all of this? 

Mr. STALLMAN. Well, they would be in the position of having to 

work at implementation, but not just the grocers, the whole chain. 

Mr. COSTA. Obviously. Clearly. You don’t think the costs ultimately get passed on to the consumer? 

Mr. STALLMAN. In my experience, the cost will ultimately be 

pushed down to the producer, one way or the other. 

Mr. COSTA. Up and down? 

Mr. STALLMAN. Probably down more than up. 

Mr. COSTA. I don’t think the grocers will absorb those costs. 

Mr. STALLMAN. No, I don’t think they will, either. 

Mr. COSTA. My time has run out. Thank you very much, Mr. 

Chairman. 

Mr. BOSWELL. Thank you. The chair now recognizes Mr. Rogers 

from Alabama. 

Mr. ROGERS. Thank you, Mr. Chairman. I want to start with Mr. 

Buis. You made a reference a little while ago that an arbitration 

clause would give one party a home field advantage or a home 

court advantage. Tell me how. 

Mr. BUIS. Often, they are written into the contracts and if the 

person offering the contract writes the arbitration clause, obviously, they have the advantage. I call it the home court advantage. 

But if the clause is being written by the person you are signing the 

contract with——

Mr. ROGERS. By clause you mean the requirement that a dispute 

has to be resolved by arbitration? 

Mr. BUIS. The dispute has to be resolved and what the parameters of that resolution can entail. When you take away the person’s right to seek legal recourse, then I think you are putting all 

your faith in that company. 

Mr. ROGERS. Well, as a plaintiff’s attorney in my former life, it 

has been my experience, and my colleagues would probably consider this heresy, but it has been a pretty equitable means of dispute resolution and usually results in lower litigation expenses and 

more timely dispute resolution, and I have yet to see an arbitration 

30

clause that outlined the rules in favor of one party or the other. 

But in any event, Ms. Doby, I have a got large poultry production 

in my congressional district. I am from Alabama and it is big in 

my State and in my district and I am curious. You talked about 

subtle retaliation methods that the company might impose on 

growers. Tell me more about that. What do you mean? 

Ms. DOBY. Well, if a grower speaks out and in some instances 

just like with GIPSA, with the hotline, when you call that hotline, 

it will say, automatically, you don’t have to leave your name. Well, 

if there has not been passed down that there is retaliation somewhere or a threat of it or the thought of it, why do they even suggest you don’t have to leave your name? And it is because—and 

some growers have called me and they have said, I even went to 

speak to my representative about this to see what he would say 

and left this paper. And then my service person came out and said, 

what do you mean? You went and complained to your representative about this and so on and so forth? They are in shock. I went 

to speak to someone about my problem and then the company says, 

why do you do this? 

Mr. ROGERS. Yes. 

Ms. DOBY. And they hold that retaliation. They can hold you out 

of birds, which, personally, I have had that done to me. The service 

person made the mistake of telling me. I said, why am I being held 

out of birds? If you are held out of birds, you are not making any 

income. It is just like you being sick from your job. 

Mr. ROGERS. Yes. 

Ms. DOBY. You are not getting any money out of it and you still 

have your loan payment. The bank is still saying, okay, I don’t care 

if you were out of birds a month. This loan payment is due. Well, 

that person with the company said, yes, that is probably why you 

are being held out, because you won’t have your houses upgraded 

or something. And I said, isn’t that an unfair trade practice? She 

said, it might be, but that is the way it is. That is retaliation. 

Mr. ROGERS. Okay. Also, you said earlier today, you said that if 

growers aren’t able to continue to make a profit, that this poultry 

production is going to go elsewhere. Where else did you mean? You 

said elsewhere in the agricultural sector. I didn’t understand what 

you were talking about. Assuming growers like you ultimately say, 

enough. I am not signing that contract with that arbitration clause 

in it, or whatever provision that you don’t like. Where would that 

growing capacity gravitate to, in your view? 

Ms. DOBY. Do you mean the companies would go somewhere 

else? 

Mr. ROGERS. What you do. No, no, no. Assuming growers like you 

just stopped all over the country and just said, we are not doing 

this anymore, what would happen? Who would start growing? 

Ms. DOBY. I don’t know, but I don’t think that will ever happen 

because people are so far deep in debt. You got your farm that belonged to your grand dad. 

Mr. ROGERS. Well, you made the reference earlier, that if we 

can’t work this out and we can’t renew these contracts and be profitable, this production is going to go elsewhere in the agricultural 

sector, and I didn’t know where else you were talking about it 

would go. 

31

Ms. DOBY. I am not exactly sure. 

Mr. ROGERS. But also Mr. Hayes made the point earlier about 

waiting lists. I do have some of those folks that are on a waiting 

list, but I will tell you who mostly is on the waiting list, are other 

growers, people who are already in the sector who are wanting to 

get more chicken houses authorized and the companies won’t let 

them. Now, if they are so bad, and they have been in the business 

for years, why do they want more houses? 

Ms. DOBY. Well, one thing the company will—they will tell you 

and most companies, it used to you could build, two houses. Well, 

they are saying now, we don’t offer a contract to anyone unless you 

build four or more houses, because they are not cash flowing. 

Mr. ROGERS. Right. 

Ms. DOBY. And that is one reason I think growers, they have, 

maybe two houses and they build more houses so that the cash 

flow will be better. If I can put in——

Mr. ROGERS. But my point is I have got growers who may have 

4 or 6 houses and they are wanting to get 8 or 10 and the companies won’t let them. 

Ms. DOBY. Yes. 

Mr. ROGERS. So it just seems to me incongruent with what you 

are talking about, to say that only naive folks who don’t know what 

they are doing get into this business, when I have got established 

successful farmers who are willing to expand their operations and 

they are aggravated because the companies won’t let them have or 

authorize them to have additional houses. 

Ms. DOBY. Well, not necessarily, but I think if you also talk to 

those growers, I feel like they would agree with these things that 

I have brought out. 

Mr. ROGERS. Several things you said I have heard from them. I 

agree. 

Ms. DOBY. Yes. They would like to have those. I am not saying——

Mr. ROGERS. But I have never heard anybody talk about organizing the chicken growers in my district. I have never heard about 

that. I am sorry, Mr. Chairman. 

Mr. BOSWELL. Thank you. Well, it is the first round. I guess 

there is not too many of us left, so we may do another little round 

here very shortly. But Mr. Taylor, I noticed in your testimony, your 

footnotes, you made a reference to Peterson. 

Mr. TAYLOR. Yes, sir. 

Mr. BOSWELL. Does that reference the late Bob Peterson of IBP? 

Mr. TAYLOR. Yes. 

Mr. BOSWELL. Can you explain the quotation in more detail? 

Mr. TAYLOR. There are transcripts available of three talks he 

gave to Kansas cattlemen, one in 1988, before IBP got involved in 

captive supply, and then two in 1994, after IBP did some AMA arrangements. And he basically outlined how AMAs gave the buyer 

leverage in the marketplace and went on to say, do you think this 

will have an impact on the cash price? And he said you bet. 

Mr. BOSWELL. It kind of follows the money. 

Mr. TAYLOR. Yes. 

Mr. BOSWELL. Okay. I was curious about what you meant by 

that, so thank you for elaborating on that. I guess you were making 

32

a point that is clear. I think you said in the RTI report, you said 

it contains fundamental flaws because the study ignores about 20 

percent of cash transactions, ignores about 20 percent cash transaction that occur with a negotiated grid. So first, do you agree with 

this statement, and if so, can you elaborate on what it means and 

how it would affect the RTI’s data? 

Mr. TAYLOR. MPR has several categories for reporting cash 

transactions. One of those is on a negotiated grid, and in the last 

year or so, that has fluctuated some but been on the order of 10 

to 20 percent. In looking through the RTI study, I did not see 

where they had recognized those cash transactions with a negotiated grid; that they lumped all cash together. 

Mr. BOSWELL. Thank you. Mr. Walberg, do you have any other 

questions? 

Mr. WALBERG. I do, Mr. Chairman. A couple more if I could. I 

am aware of arguments that packers have disproportionate market 

power and therefore they are able to manipulate prices, though I 

am not aware of any study or investigations that have ever shown 

that to occur. Perhaps maybe some of our witnesses could provide 

the subcommittee with that information. But Mr. Stallman, I guess 

my question is, what prevents producers from banding together in 

cooperative arrangements and agreements to exert market power 

over packers? 

Mr. STALLMAN. Nothing. It is a matter of will and desire. You 

know, the laws regarding cooperative structures were put in place 

to help assist the producers to do that and there have been examples of producers successfully getting together in cooperative structures and they have more market power. But there are stories that 

were not quite so successful and there is a reluctance of producers 

to do what it takes to put their producing power together to get 

more market power, but there is nothing to prevent them from 

doing it. 

Mr. WALBERG. It is their choice and it is a struggle. They can 

join it or let it go. 

Mr. STALLMAN. That is correct. 

Mr. WALBERG. Okay, thank you. Mr. Taylor, you stated that 

there has been a lack of innovative effort by the USDA to identify 

new ways of doing business that are economically efficient. 

Mr. TAYLOR. Yes. 

Mr. WALBERG. Fair to both sides of the transaction and do not 

distort buyer or seller incentives and would result in beef with the 

quality attributes that the consumers desire. Let me ask you, are 

you suggesting that the government is responsible for how livestock 

in this country should be bought and sold? 

Mr. TAYLOR. No. 

Mr. WALBERG. That is what it sounds like. 

Mr. TAYLOR. The point I want to make is, over the years, there 

has been a bipolar debate, AMAs versus the cash market. 

Mr. WALBERG. Don’t get back into medicine with me or anything. 

Mr. TAYLOR. Okay. 

Mr. WALBERG. The doctor has left. 

Mr. TAYLOR. And what I am suggesting is that we need to think 

of innovative ways of handling these transactions that do not have 

objectionable features like being tied to a cash market. And there 

33

are some electronic possibilities, I think, that have not been investigated, but if we get into full electronic marketing, there could be 

antitrust issues. So I am just suggesting that all of us need to give 

more thought to innovation rather than sticking with this bipolar 

debate. 

Mr. WALBERG. Well, I am not sure it is a bipolar debate. Philosophically, there is some significance to those that would say that 

the government is expanding their power and taking control, what 

it sounds like, I don’t know if there is a mechanism without expanding it if you are going to walk away from the market. So well, 

we will agree to disagree at this point, but thank you. 

Mr. BOSWELL. I see no further questions. I want to thank the 

panel for your spending the time with us today. We appreciate it 

very much and we will look forward to talking to you in the future. 

Thank you very much. We will take a short moment here and let 

the third panel take their position. Well, I thank the panel for arriving. I see that Ms. Philippi, that you are back and it is good to 

see you again, my neighbor to the west. And we appreciate the 

time of day it is, so we will get right to business and thank you 

for your patience, being willing to come and share with us. As you 

see, these are discussion points on a lot of people’s minds, so I 

think it is good that we talk about it. So that is what we are trying 

to do and listen carefully and that is what this is, a listening session for us. So I would like to welcome the third panel, all of you, 

and we will get right down to business and we will start of with 

Ms. Philippi. Help me pronounce. I want you to pronounce your 

name, Joy. 

Ms. PHILIPPI. Philippi. 

Mr. BOSWELL. Philippi. I got it. Philippi. Okay. So we will start 

off with you for five minutes and we are happy to have you here. 

STATEMENT OF JOY PHILIPPI, PORK PRODUCER, ON BEHALF 

OF NATIONAL PORK PRODUCERS COUNCIL 

Ms. PHILIPPI. Okay, thank you. Chairman Boswell and Ranking 

Member Hayes and members of the subcommittee, I am Joy Philippi, a pork producer and row crop farmer from Bruning, Nebraska, and I am the immediate Past President of the National 

Pork Producers Council. NPPC is an association of 43 State pork 

producer organizations and represents the interests of America’s 

67,000 pork producers. 

The US pork industry has enjoyed unparalleled prosperity over 

the past three years. Average farrow-to-finish producers completed 

their 35th consecutive profitable month in December and made an 

average profit of $22.17 over that time period. New data indicates 

that the industry will remain profitable through March of this 

year, despite of near record feed costs. It is against this backdrop 

of financial success that we offer our views on market structure. 

First, we would ask, is legislation that would limit producers 

market access options a solution in search of a problem? There is 

no doubt that the structures of the US pork industry and the pork 

and hog markets have changed over the past 10 years. We urge 

Congress to focus, not on structural issues, but on the more important market efficiency measures of conduct and performance as you 

deliberate the wisdom of government intervention. Congress has inVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
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vested significant taxpayer resources in researching the current 

livestock markets. Much of that research, including the $4.5 million GIPSA Livestock and Meat Marketing Study, is relatively new. 

We have had little time to consider what it tells us, so we urge 

Congress to move slowly, as USDA and the industry digest and 

consider those findings. 

We also would like to know the status of GIPSA’s report to the 

2005 audit conducted by USDA’s Office of Inspector General. We 

believe GIPSA Administrator James Link has made substantial 

changes in the way GIPSA performs its duties. However, we do believe Congress should know specifically what has been done and 

how that is going to change GIPSA’s future efforts to enforce the 

Packers and Stockyards Act. The Federal government sought to approve livestock price reporting and enhanced the transparency of 

the markets by implementing the Livestock Mandatory Reporting 

Act. We believe that system has made markets more transparent 

and that refinements enacted in 2006, including new swine reporting enhancements, will further that cause. Let us work to make the 

system better before we proceed with other actions. 

The focus of most debates regarding the competition has been in 

the number and market shares of various participants. The key is 

whether sufficient competitive pressure exists to make packers and 

producers behave in a way that approaches competitive norms and 

yields competitive prices and quantities. This can only be measured 

by looking at actual transactions to determine how firms act and 

what the results of those actions are. The new GIPSA study did 

just that. Instead of looking at changes in ownership and market 

shares, it examined transactions and looked at conduct and performance. We now need to step back and consider the methods and 

results of that research, perhaps even ask and answer, there is no 

question on the results. 

Now there are always unintended consequences to virtually all 

public policies and part of the art of public policymaking is balancing the costs and the benefits of any proposal. In the areas for 

competition and industry structure, there are a number of pending 

proposals that will have an adverse effect on the pork producers 

and will give little benefit to anyone. As an example, consider the 

idea of requiring packers to buy at least 25 percent of their hogs 

on the spot market or through negotiated sales. The new GIPSA 

study found that such requirements would make producers and 

consumers worse off and would not leave packers better off. Additionally, the practical implications of such a requirement are challenging, to say the very least. Would the 25 percent be measured 

daily, weekly? Would producers be required to sell 25 percent of 

their hogs through negotiated trades to provide the 25 percent that 

packers are required to buy through negotiated trades? If not and 

since only 11 percent of all hogs are sold through negotiated trades 

now, which producers would have their contracts terminated to 

force their hogs into the negotiated trades? And what happens 

when those contracts are terminated? Would the financing that 

was contingent on those contracts be withdrawn by risk-adverse 

lenders? 

Pork producers face many challenges today and those include the 

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tory country of origin labeling costs, the specter of animal rightsdriven legislation dictating on-farm production practices, and increasingly stringent and costly environmental regulations that are 

almost universally better handled by large operations. I urge you 

not to add to these challenges by limiting the options we have 

available to market our hogs. Punitive actions against packers do 

not necessarily benefit pork producers in the long run, unless the 

packers are clearly in the wrong and we have not seen any evidence of this, and Congress must proceed with caution, weighing 

the costs and benefits of such important public policy. 

We thank you for the opportunity to be here today to represent 

the Nation’s pork producers, and I will be glad to answer questions 

at the appropriate time. 

Mr. BOSWELL. Thank you. Mr. Roenigk. 

STATEMENT OF WILLIAM P. ROENIGK, SENIOR VICE 

PRESIDENT, NATIONAL CHICKEN COUNCIL 

Mr. ROENIGK. Thank you and good afternoon, Chairman Boswell. 

We appreciate the opportunity to participate in this important 

hearing regarding the issue of market structure for the livestock 

and poultry industry. On behalf of the National Chicken Council, 

I appreciate your invitation to provide comments on the market 

structure of the US chicken industry. My name is Bill Roenigk and 

I am Senior Vice President of the National Chicken Council. Companies that produce and process more than 95 percent of the young 

meat chicken broilers in the United States are members of the National Chicken Council. I am pleased to have the opportunity to 

share with you information about the market structure of the US 

chicken industry. 

More than a half a century ago, as farmers moved more and 

more away from dual-purpose chickens, those were chickens that 

produced both eggs and meat, and move more and more towards 

specialized breeds, those that laid eggs and those that were better 

at producing meat, a new industry and a new market structure 

began to emerge in poultry farming. These farmers sought greater 

stability and predictability in their incomes and return on their investments. With access to only limited capital, it was very important to lessen market risk by sharing those risks with others in the 

production process. 

Although the vertical integration happened several different 

ways, the primary way it happened was with feed mills who provided the feed to the farmers growing the broilers, and they 

learned the best way to get paid for the feed they had in those 

chickens was to work with the grower and a processing plant to 

make sure that when the birds reached market weight, that they 

had a place to be processed. Because a chicken grows so quickly, 

the economics of feeding broilers requires prompt movement to 

market when they reach market weight, and a broiler grower is at 

a very distinct disadvantage if the processing plant is at capacity 

or the wholesale market for dressed chicken is depressed. By coordinating growing and processing and marketing, the surge in 

gaps in live production could be minimized. The chicken industry, 

as it began to use vertical integration to coordinate production, 

processing and marketing 50 years ago, was participating in a conVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
36

cept called just in time. At the time, we didn’t know it was called 

just in time. The Japanese carmakers later labeled that and took 

credit for it. We invented it or at least we think we did, but we 

forgot to label it, so we don’t get credit for it. 

Contracts with growers offer many important benefits. These 

benefits and advantages include substantially reduced market risk, 

quicker and a more thorough understanding of production requirements, better access to capital, more reliable and predictable income flows to labor, management and investment, and better opportunity to leverage success to expand or diversify farm operations. 

Family farms who contract with chicken companies have benefited in good measure over the past six decades. More than 25,000 

family farms currently contract with companies to raise broilers 

and can do so more confidently because, to a very large degree, 

they are insulated from the risks of the chicken marketplace. Contract growers are basically guaranteed a fixed payment with a 

bonus for above-average performance. University studies have 

found that returns to growers and companies are very comparable. 

As was mentioned earlier, companies, not every company, but 

most companies, have a list of farmers who would like to begin to 

grow chickens. They also have a list of growers who are currently 

growing chickens and would like to add additional housing capacity 

to their operations. And as was asked before, if this is not a good 

system, why has it existed for more than 50 years and why do we 

have these waiting lists? Vertical integration has stood the test of 

time very well. 

As I noted in my statement, the consumption has gone up to 

where chicken is the most consumed meat in the United States, 

and the cost to consumers has come down dramatically. It takes 

only four minutes for the average worker to be able to earn enough 

wages to buy a pound of chicken. Consumption of chicken has doubled from more than 30 years ago. And until the ethanol issue 

came, I would predict that we were going to continue to increase 

that consumption, but that remains to be seen. 

Chairman Boswell, the National Chicken Council appreciates the 

opportunity to share the broiler industry’s story with you. As you 

begin to deliberate the various issues involving the upcoming farm 

bill, I respectfully suggest that trying to improve the market structure for the chicken industry should not be a high priority for the 

subcommittee nor for Congress. The National Chicken Council does 

not see the need for new or additional laws nor USDA regulations 

that would involve government further in the grower/company 

business relationship. Nonetheless, if you have concerns or questions about the chicken industry, with respect to this issue, the National Chicken Council would very much appreciate the opportunity 

to work with you to appropriately and adequately address those 

issues or concerns. Thank you. 

Mr. BOSWELL. Fair enough. Mr. Queen, please. 

STATEMENT OF JOHN QUEEN, PRESIDENT, NATIONAL 

CATTLEMEN’S BEEF ASSOCIATION 

Mr. QUEEN. Mr. Chairman, my name is John Queen and I am 

a fourth-generation cattle producer and livestock market operator 

37

from Waynesville, North Carolina. I am President of the National 

Cattlemen’s Beef Association and I am pleased to be with you to 

discuss our policy on market structure issues, policy which was 

brought forward by, debated by and voted on by our rancher members. This is grassroots policy where one member/one vote has always been the standard. 

When it comes to market structure and competition issues, 

NCBA’s position is simple: we ask that the government not tell us 

how we can or cannot market our cattle. The way we market our 

cattle has changed significantly over the years and it has come 

from the recognition within our industry that we are not just cattle 

producers, but beef producers and must be responsive to the consumers’ demands. This consumer focus has led to many innovative 

marketing programs that have improved the quality of beef, given 

the consumer, what they are asking for, and allowed ranchers to 

get paid for the value that they add to their animal. 

In addition to being responsive to our consumers, participation in 

these marketing arrangements provides a rancher with several 

tools that help improve their operations and herd management. 

The ability to manage price risk is one of the most valuable of 

these tools. Taking advantage of marketing arrangements, such as 

forward contracting, allows producers to make a price that allows 

them to be profitable. If the price doesn’t fit their needs, they can 

walk away and find another buyer. Being a price maker rather 

than a price taker, puts ranchers in control of their business. Many 

ranchers who participate in these programs get information back 

from the feedlots, telling them how their cattle performed. Information also comes back from the packer, in the form of yield and quality grades. This information is critical in managing our herds and 

focusing on the trades which produce the highest quality animals. 

The benefits of AMAs were recently supported by the results of 

the GIPSA Livestock and Meat Marketing Study conducted by RTI. 

This 3 1/2 year study was funded by 4 1/2 million taxpayer dollars 

and was billed as the definitive answer on these issues. The study 

supports what many ranchers across our country have known all 

along: a market-driven system works. The overwhelming conclusion 

of this study is that, overall, alternative marketing arrangements 

help all sectors of the industry, not just those that participate. 

The report states that the leading reasons ranchers participate 

in AMAs are the ability to buy and sell higher quality cattle, improve supply chain management and obtain better prices. When 

talking about improved supply management, we have to once again 

go back to the consumer. The consumer does not come into their 

local Safeway looking for ranchers reserve beef only on Tuesdays. 

The consumer demands the convenience of picking up a package of 

ranchers reserve beef any day of the week. To meet that demand, 

the retailer and packer need a steady and constant supply of cattle 

that meet the qualifications of the store-branded program. If the 

packer is limited in its ability to source those cattle, the branded 

programs go away. The consumer chooses other products and cow/

calf producers get less money. 

So far, I have only talked about AMAs, but approximately 62 

percent of cattle marketing is done through the cash or spot market. Spot markets such as auction barns are critically important to 

38

the US cattle industry. Ranchers who market this way cite several 

reasons for their choice. One reason is independence. Flexibility is 

also important to these producers. Selling on a spot market give 

ranchers the opportunity to participate in market rallies. We must 

remember, however, that this only gives them the opportunity to 

catch the rally. Timing the market is always a difficult task and 

adds to your price risk. 

Even with traditional means of marketing, we have seen innovations that have been market driven. One of these innovations is 

video livestock auctions. With this method, ranchers can auction 

their animals by video and reach customers all across the country. 

The results of these innovations are telling. Demand for beef has 

grown over 20 percent since 1998. Consumers spent a record $71 

billion on beef in 2006 and consumer confidence in our product is 

at 91 percent, greater than it was before the 2003 BSE case in 

Washington State. 

The study concludes that restrictions on AMAs would cause a decrease in the supply of cattle, quality of beef and feeder cattle 

prices. These results would set our industry back and place the 

burden on the individual cow/calf producer. In a time where we 

continue to see an increase in feed costs due to competition with 

ethanol for corn, as well as an increase in fuel costs, the last thing 

we need to do is to add more burdens to our ranchers. Keep in 

mind that, for every agreement made by a packer, there is an individual rancher on the other side of that transaction who had decided that that agreement is in their best interest and they should 

be allowed to conduct that business privately, just like any other 

industry. Restrictions or bans on AMAs will eliminate or significantly reduce these programs and hamper the progress we made in 

keeping ranching a viable industry. In the end, we must have a 

government that works to help our industry, not one that limits or 

removes choices for cattlemen in the marketing of their cattle. 

Thank you. 

Mr. BOSWELL. Thank you very much. Mr. Boyle. 

STATEMENT OF J. PATRICK BOYLE, PRESIDENT & CEO, 

AMERICAN MEAT INSTITUTE 

Mr. BOYLE. Good afternoon, Chairman Boswell, Ranking Member 

Hayes and Congressman Kagen. Thank you very much for the opportunity to represent the American Meat Institute here today. 

AMI represents 250 of the Nation’s meat and poultry food manufacturers. Collectively, they produce 90 percent of the beef, pork, 

lamb, veal, and 75 percent of the turkey processed in the United 

States. These companies operate, compete, sometimes struggle but 

mostly thrive in one of the toughest, most competitive and certainly 

amongst the most scrutinized sectors of our economy. 

Members AMI have concerns about legislative efforts to apply 

State-directed controls on an industry that competes intensely with 

each other and for a greater share of the consumers’ food dollar 

from other segments of agriculture which would be free from such 

controls. Specifically, these concerns relate to proposals that would, 

first, prohibit the ownership of livestock by a packer and unduly 

regulate investment; second, prohibit or restrict contracting and 

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39

ers freely agree and routinely utilize; and three, mandate an arbitrary cash or spot market purchase requirement. If enacted, these 

proposals would involuntarily expose producers and packers to the 

volatility of the cash markets, expose packers to the inconsistencies 

of raw materials, and subject consumers to fewer product choices 

at higher prices. 

We believe the strength of the livestock marketing system in the 

United States is in the flexibility it provides to producers, packers, 

processors and retailers, in responding to market signals. Meat and 

poultry consumers continue to benefit from a wide array of valueadded products at very reasonable prices. The amount of discretionary income that American consumers spend on food has fallen 

to a historic low of just four percent, of which meat and poultry 

products account for less than two percent of our disposal income 

each year. We believe that most appropriate government role in today’s livestock marketing system is to enforce the numerous existing laws and regulations that ensure a fair and nondiscriminatory 

business practices amongst producers and packers, while allowing 

producers the freedom of choice on how best to market their livestock. 

Two recently released studies agree with AMI’s assessment of 

the competitive and rational nature of the livestock and meat markets, as well as the resulting benefits to American consumers. The 

first panel earlier today reported on the investigation and enforcement activities of GIPSA’s and RTI’s Livestock and Meat Marketing Study. I would like to emphasize two findings. First, the report found that contractual marketing arrangements between livestock producers and meat packers have numerous mutual benefits. 

They increase the economic efficiency of the cattle, hog and lamb 

markets, and these economic benefits are distributed forward to 

consumers, as well as shared between producers and packers. And 

secondly, the study concluded that restrictions on the use of these 

contractual arrangements, such as the legislative proposals that I 

have previously discussed and which AMI opposes, would have negative economic effects on livestock producers, meat packers and 

American consumers. 

A second multi-year congressional-mandated report from the bipartisan Antitrust Modernization Commission was submitted to 

the Justice Department earlier this month. It concludes that ‘‘the 

government should not displace free-market competition, absent extensive, careful analysis and strong evidence that a market failure 

requires the regulation of prices, costs and the entry in place of 

competition.’’ Clearly, the extensive, careful analysis of the 4-year, 

$4 1/2 million RTI study documents that we have nothing approaching market failure in the livestock sector of our agriculture 

economy. The RTI study is only the most recent in a long line of 

similar studies over nearly the past 20 years that have reached the 

same conclusions about the legality and vibrancy of our Nation’s 

livestock marketing system. Many of these studies were either 

mandated by Congress or initiated by Federal regulatory agencies 

with oversight responsibility for the livestock and meat packing 

sectors. Others were funded by universities, and by private entities, 

to assess the health and competitiveness of this industry. And they 

have, every one them, all 34, without exception, reached the same 

40

conclusions as the most recent RTI study; that the livestock and 

meat packing market is competitive and that current oversight and 

enforcement are effective. 

Congressman Hayes, you asked the last panel whether anything 

approaching an economic consensus exists on that conclusion. I 

would suggest that these 34 studies, representing nearly two decades of regulatory oversight and academic analysis, comes pretty 

darn close to representing that consensus about the health and vibrancy of this sector. I thank you for the time today. I ask that 

these be submitted for the record, and I look forward to your comments and observations and questions. 

Mr. BOSWELL. The additional materials will be incorporated in 

the record, and thank you for that and we will start our question 

time now and I will just start off with Ms. Philippi. In the testimony today, you heard that somewhere between 60 and 80 percent 

of the hogs are either owned outright by packers or are tightly controlled by various contracts. At what point does packer control become an issue? 

Ms. PHILIPPI. Well, to this point, we haven’t seen that has been 

proven yet, what that level is going to be and we do believe that 

we need to continually look at that. And if you would like to have 

even more in-depth numbers, we could be able to probably look for 

those. 

Mr. BOSWELL. I will appreciate that, but is there some point 

where you become alarmed? 

Ms. PHILIPPI. We haven’t been at this point. 

Mr. BOSWELL. So where would it cause the yellow flag to go up 

in your mind? 

Ms. PHILIPPI. Well, in my mind, I don’t have any problems with 

the packers owning hogs. 

Mr. BOSWELL. Okay. So if they have 90 percent of the hogs, there 

is no problem with you? 

Ms. PHILIPPI. It is not with me personally, but we will get you 

information, if we can get that to you. 

Mr. BOSWELL. All right. Thank you very much. Just to move 

along here, Mr. Roenigk, in Ms. Doby’s testimony today, we heard 

of multi-year contracts being redrawn before the contract runs out 

and the terms are changed. We also heard about mandatory arbitration clauses being added to the contracts. You state in your written testimony that a measure of successful relationship between 

companies and contract growers is that the majority of the companies have a waiting list for growers who are requesting to add to 

existing grow-out housing, and I think you make the connection 

that, since this is the case, it must be a good relationship. Could 

it not also be the case that the industry is so integrated that this 

is the only option available for the poultry producers? 

Mr. ROGERS. Permit me to——

Mr. BOSWELL. I will give you a minute. 

Mr. ROGERS. To phrase the question, the question is, is there a 

better way to operate contracts with growers? 

Mr. BOSWELL. Well, is there any other option for the producer? 

Mr. ROENIGK. Given the current market forces, both in terms of 

inputs and in the consumer demand, I don’t know of one, Mr. 

Chairman. 

41

Mr. BOSWELL. That is my point there. Okay. Well, that is a concern that I hear people talking to me once in a while. Mr. Queen, 

if I could, what would be the result of prohibiting packer ownership 

for livestock for more than a couple weeks? 

Mr. QUEEN. I am sorry, I didn’t hear you. 

Mr. BOSWELL. What would be the result of prohibiting packer 

ownership for livestock for more than 7 to 14 days before slaughter? 

Mr. QUEEN. Because I think a lot of the value-added markets 

that we have, have to go through a chain of events and that packer 

is one of those links in that chain, going from the producer to the 

feeder to the packer to the retailer to the consumer, and if we don’t 

let him fulfill that continuously, then we are going to lose that 

added value that we have in our commodities. 

Mr. BOSWELL. Continuing that, could it be said that if a producer 

wanted to take advantage of high future prices, they could sell a 

CME contract? And could it also be said that if a processor wanted 

to take advantage of low prices and a short supply, could he not 

buy on the CME? Isn’t that why live animal contract trading was 

started in the 1970s? 

Mr. QUEEN. Yes, sir. 

Mr. BOSWELL. So what are your comments? Why did you say yes? 

Mr. QUEEN. Well, certainly the producer has that opportunity to 

sell that contract to protect himself in that risk, if he has monetary 

means of doing so. The producers in America today are so small, 

the average herd size is just 38, so very few producers in America 

have the ability to hedge those contracts the way the market was 

set up. 

Mr. BOSWELL. In your testimony, you emphasize that the National Cattlemen’s Association wishes the government to stay out 

of cattle marketing issues. A little later in your comments, you say 

how much you rely on Federal regulations to keep the playing field 

level for producers. Would everyone be better off if there were no 

AMAs or packer ownership and let contracts on the Chicago Mercantile Exchange manage the risk? 

Mr. QUEEN. No, sir, I don’t think so. I think we are trying to take 

away the American way, what our country was founded on, and 

that being the ability of every producer in this country to choose 

his own business model, that being the ability to sell his commodity 

to whom he wants to sell it to, when he wants to sell and for what 

price he wants to sell and to be delivered what day he wants to 

do that. That is the American way. That is what our country was 

founded on and I think we are trying to take that away from the 

livestock producers in America. 

Mr. BOSWELL. Okay, I am going to stop now and come back to 

you in a little bit, Mr. Boyle. I would like to recognize Mr. Hayes. 

Mr. HAYES. Thank you, Mr. Chairman. Mr. Roenigk, one of the 

legislative proposals we heard discussed today is the prohibition of 

mandatory arbitration clauses in poultry production contracts. 

Could you take a a minute to outline the use of these clauses and 

why your industry opposes the proposal to eliminate them? 

Mr. ROENIGK. Well, mandatory arbitration is in many clauses. I 

don’t think it is in all the clauses. But differences arise in any business relationship, contractual relationship. You need an efficient 

42

and timely way to resolve their differences. Mandatory arbitration 

does that. If someone can propose a better mechanism, I think we 

would be willing to consider it, but we are not aware of one. And 

the arbitration system, as I understand it, does not give someone 

a home field advantage or a home court advantage. You choose arbitrators who are fair and just to hear both sides and make a decision. To me, that sounds somewhat fair. 

Mr. HAYES. Okay. Joy, the poultry contract grower on the previous panel made three specific legislative recommendations: prohibit mandatory arbitration, expand coverage under Packers and 

Stockyards Act over production contracts, and authorize collective 

bargaining power for contract growers. What is your thinking on 

each of these three? 

Mr. ROENIGK. As my statement——

Mr. HAYES. Joy Philippi. 

Mr. ROENIGK. I am sorry. 

Mr. HAYES. I was asking Joy. 

Ms. PHILIPPI. Those are three areas that we discussed. We also 

believe that the regulation of a contract like that doesn’t need to 

be mandated. We believe that there are some agreements that can 

be made that producers can enter into. They can review them to 

know if they are good for their business model. I am a contract producer, so I was walking that right through my head as well, and 

we just don’t believe that there is any need to have any further 

regulation on those things. 

Mr. HAYES. Mr. Roenigk, do you want to comment on that? 

Mr. ROENIGK. As my statement indicated, we believe, for further 

government intervention, whether it is congressional or USDA, it 

probably is not needed at this time. We think the system works 

well. Companies have grower relations committees where they 

meet periodically with growers. The State poultry associations include both growers and companies in there. There are a lot of opportunities to work out the differences and I think we should try 

and make that system work better before we have more government intervention. 

Mr. HAYES. Okay, I am going to come back with another question. Mr. Boyle, talk about GIPSA’s enforcement activities. Are 

they doing enough, not enough? Are we balanced here? 

Mr. BOYLE. Well, my impression from the Administrator’s update 

on steps that he has taken since he arrived to run that agency, 

suggests that it is a revamped, reorganized agency with a lot of investigations underway in the last few years. At AMI, we have been 

always supportive of a strong and effective GIPSA, as well as 

strong enforcement of our antitrust laws. I will point out for the 

record that, unlike all other segments of American business who 

have the pleasure of interacting on occasion with the antitrust division of the Department of Justice and the Federal Trade Commission, in the meat packing sector, we also have the opportunity to 

interact with the Packers and Stockyards, a unique agency with 

oversight of competitive practices and fair trading practices in the 

meat packing sector. So it is an additional layer of antitrust enforcement and review. We have always been supportive of it. We 

interact with them when necessary and I believe that the AdminisVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
43

trator gave a fairly positive update of changes he has implemented 

since he arrived. 

Mr. HAYES. Back to Mr. Roenigk for a minute. Interestingly, I 

was at the opening of a new poultry plant last week and this is 

based on rejuvenating older, smaller poultry houses, contracting 

with those folks for a different way of raising, air-chilled rather 

than—so there are a lot of organic, free range. A lot of different alternative markets are springing up. So I think, even though the integrators have a big impact on the market, there are a lot of alternatives that are being used out there. Mr. Chairman, time is running out here. With Mr. Queen, we will ask about animal ID on 

the next round. 

Mr. BOSWELL. Thank you, Mr. Hayes. The chair recognizes my 

colleague from Iowa, Mr. King. 

Mr. KING. Thank you, Mr. Chairman, and I want to thank the 

witnesses that are here. I am listening to this testimony and reading through it at the same time and I looked back on Joy Philippi. 

In your testimony, you mention a number of challenges facing the 

livestock industry, high feed prices, mandatory COOL, animal 

rights initiatives, and keep this list for me, because I am going to 

ask you a prioritized question. So high feed prices and mandatory 

COOL, environmental regulation. What else do I have? Let us see, 

packer ownership, lack of a livestock ID program. And out of 

those—no, I will go down through the list again. I have got them 

in order. High feed prices, mandatory COOL, animal rights initiatives, environmental regulation, packer ownership, and then I 

added the livestock ID, lacking a livestock ID program. Out of 

those, what would you say would be the greatest risk to the livestock industry? And if you would like to prioritize them, if you can 

do that on the spot, that would be wonderful. 

Ms. PHILIPPI. That is pretty hard to do without reflecting my personal opinion as well. But we have treated the issues of the corn 

availability and corn price, the issue of mandatory country of origin 

labeling. All of those first that we identified, we were trying to address in an equal fashion, because we believe they are all going to 

have a cost effect, costs that our producers are going to have to 

somehow recover in the marketplace. But when we get to the issue 

of the way that—asking us to change our production practices, 

those costs are still very much unknown. So you know, we look at 

those things equally and that is why we hope that we don’t have 

to have regulation on the way we do our business today. 

Mr. KING. If I could then, you want us to fix them all at once. 

Ms. PHILIPPI. That would be wonderful. And we will help you. 

Mr. KING. And I appreciate that. Given the track record of Congress, though, we may want to be focusing on some priorities. I am 

going to ask Mr. Roenigk. Would you like to take a stab at that, 

please? 

Mr. ROENIGK. Yes, thank you very much. And if I could just 

maybe add a couple, I think the Number one priority, and I don’t 

know if they would change market structure, I think it would create greater concentration, and that is that we have to have a 

super-abundant corn crop, not just this year and not just next year, 

but until we get this breakthrough in yields, because the only way 

you get more corn right now is more acres. I am agreeing with the 

44

corn geneticists, some day we will get that breakthrough, but we 

have got to have more acres, we have got to have more corn and 

we have got to satisfy that. If we have a hiccup in our corn crop, 

I am sure there will be more than one hearing of this subcommittee 

about the impact of that. So that is Number one, not just this year, 

but I think for the next few years. I will try to stay in my one 

minute. But if you look at my graph on Page four, from 1970 to 

1975, broiler production was flat. I hope I am wrong, but that is 

what I see for the next five years, flat, and I hope it is not down. 

We talk about contract growers and their opportunities. The way 

to get more opportunities is to keep that trend up and not flat. So 

I hope I am wrong, but that is my concern. 

Number two, the likelihood of avian influenza, commercially a 

high pathogenic, avian influenza breaking out in the commercial 

flocks in this country is very, very small. USDA and the other 

agencies have done a beautiful job of putting up the biosecurity 

firewall, safeguards and so on and we have to keep that up. But 

if it was to happen, I suggest that, not just the companies, but the 

growers would not be thinking about whether mandatory arbitration was the most important thing in their life. They would be saying, how can I save my livelihood and my farm? If the system shuts 

down, we can’t. The consumer confidence is a problem both in this 

country and other countries. We have already seen it. A truck 

drives through West Virginia with its doors shut. It can’t ship to 

Japan because it went through West Virginia and because they had 

an outbreak. The turkeys were in the ground before the headlines 

were in the newspaper, but Japan cuts West Virginia off. 

The third thing I would say is that there is an increasing likelihood of poultry inputs coming into this country from countries who 

can undercut our prices, and these are from countries who have—

at least one country has been in the news recently, not about 

human food, but some other type of food. 

Mr. KING. Thank you. If you don’t mind, please, I would like to 

move over to Mr. Queen. I am running out of time. But your priorities on the greatest risks to the livestock industry? Yes, I read 

through most of them. High feed prices, mandatory COOL, animal 

rights activist initiatives, environmental regulation, packer ownership, lack of a livestock ID program. What puts the livestock industry at the greatest risk, Mr. Queen? 

Mr. QUEEN. Well, I think that the greatest risk, as we have 

talked here, is doing away with their ability to market their cattle 

as they see fit, taking away that right from the citizen of America, 

the rancher. 

Mr. KING. Thank you. And I am running out of time, so I will 

have to pass on Mr. Boyle and I will yield back the balance of my 

time then Mr. Chairman. 

Mr. BOSWELL. We have been joined by Mr. Baca. The chair recognizes Mr. Baca from California. 

Mr. BACA. Thank you very much, Mr. Chairman, and thank you 

very much for having this hearing. Let me ask this question to Mr. 

William R. Just like with the pork producers, you have seen some 

prosperous times recently. You say that the conditions currently 

placed are the ones that the market itself has indicated and decided work best. Is anyone being left out? 

45

Mr. ROENIGK. I am not sure I understand that question. Are you 

asking, as vertical integration of the industry moves forward, have 

any parts of the farmers been left out? 

Mr. BACA. Left out. 

Mr. ROENIGK. I don’t think so and in fact, as was mentioned by 

Congressman Hayes, we have a very dynamic industry and business and we are seeing the smaller producers produce the organic, 

free-range, exotic breeds, being able to go to live bird markets. So 

yes, there are large companies, but there is also this growing specialty market and in that sense, I don’t think they are left out. In 

fact, I think, in today’s market, they have much greater opportunity than ever before. 

Mr. BACA. Okay. Then to John Queen. The marketing agreement 

and contracts you described in your testimony have clearly provided great benefit to many producers and consumers, but what 

about those that don’t participate in contracts? Are producers who 

do not have the same advantages, are they being left behind or 

not? 

Mr. QUEEN. No, sir, every producer has the same ability or the 

same chance to enter into these alternative marketing arrangements, and we have proven that in the southeast. We have very 

small producers there and the opportunity for those producers to 

come together whith their cattle—market them through an alternative marketing program to a feed lot or a packer, that certainly 

has been a great advantage to us there in the southeast. 

Mr. BACA. And how are we reaching out to them to make sure 

that they are not left out? 

Mr. QUEEN. Well——

Mr. BOSWELL. Mr. Baca, would you yield? 

Mr. QUEEN. —it is just common knowledge that they have 

the——

Mr. BACA. I yield to the Chairman——

Mr. BOSWELL. So you are saying that a cooperative system or 

some kind of way that these small producers are banding together 

to provide a market that would interest an AMA-type operation? 

Mr. QUEEN. Yes, sir. I run a video sale. We had 39 semi loads 

of cattle, and we could go today, that we sold there in western 

North Carolina. Those cattle, if you will look at the different opportunities from each individual load on there and how they were either age and source verified or——

Mr. BOSWELL. Okay, I understand what you are saying and I appreciate that. So give me some, if you can remember it, because I 

won’t expect you have, but what size operators come together, 

bringing drafts of——

Mr. QUEEN. They can come from 10 head to 10,000 head. It 

makes no difference to commingle those calves to create those trailer-load lots, and each one of those trailer-load lots has a different——

Mr. BOSWELL. It almost sounds like an NFO operation. I am not 

being facetious. It does kind of sound like it. 

Mr. QUEEN. No, sir. But in the past, in the south, we have had 

a terrible reputation for our cattle down there, so the producers are 

coming together to create better opportunities for the cattle in the 

south, and we are the largest cattle——

46

Mr. BOSWELL. I won’t take up any more time and I might want 

to pursue this, to visit with you some on that. I appreciate you saying that. I yield back to you, Mr. Baca. 

Mr. BACA. I think he has completed the answer and I think we 

still need to do a little bit more of the outreach to make sure that 

no one is left behind. So I think that was part of your additional 

question, too. 

Mr. BOSWELL. It is but I am giving you back your time. 

Mr. BACA. Yes, okay. No further questions. Thank you. I yield 

back the balance of my time. 

Mr. BOSWELL. Well, thank you. Mr. Hayes. 

Mr. HAYES. Mr. Queen, you have been extremely active and helpful, along with many others, on the voluntary animal ID situation. 

We have got the consent and agreement of USDA to do this, but 

had a little trouble winnowing down the requirements for them to 

certify. Just give us a quick update. That is still the way to go? 

Mr. QUEEN. Yes, sir. We are strictly for a voluntary market-driven, cost-efficient animal ID system in America today. And it will 

work and it shows that through the alternative marketing agreements that we have, how that does add value. So it is ongoing and 

we have a lot of producers today. 

Mr. HAYES. Thank you, Mr. Chairman. That is my question. 

Mr. BOSWELL. Thank you, Mr. Hayes. Mr. Boyle, based on conversation with Mr. Queen, do you agree that the small operators 

out there across the country got that opportunity? It sounded like 

they are very organized in that part, but what about some of the 

other places? 

Mr. BOYLE. That is true throughout the Nation, not only for 

small producers, but for the midsize and smaller packers that we 

represent. The arrangements that you have with one’s livestock 

suppliers are not the size of the operation. 

Mr. BOSWELL. Let us just say a small producer in the State of 

Nebraska, Missouri, Iowa or Minnesota got a 100 to 200 cow herd 

that they feed out. Can they take advantage? Will there be a market for them? 

Mr. BOYLE. Absolutely. If they want to market their livestock in 

partnership with a feeder and a packer, absolutely. That is available to them. 

Mr. BOSWELL. So you think there is an adequate market? 

Mr. BOYLE. I do. And you have seen it grow dramatically on the 

hog side in the last five or six years. And there are fundamental 

marketplace reasons for the growth in those marketing arrangements on the hog side. The red meat retail case has become revolutionized in the last five or six years. 

Mr. BOSWELL. Well, I hear a lot of different producers say that 

they just don’t have access. Is it because they don’t know how to 

get the access, these small operations that are scattered across 

parts of the country? Mr. Queen has talked about their solution. 

But do they have access, the person that is sitting out there in Missouri that wants to run a 100 to 200 head cow herd and find a market? 

Mr. BOYLE. Sure. The economics and the marketplace rationale 

are different amongst various species. Ninety percent of the hogs, 

as RTI has indicated in its report, and it is not a surprising concluVerDate 0ct 09 2002 15:04 Mar 12, 2008 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 F:\DOCS\39808.TXT HAG2 PsN: JAMIE
47

sion, are marketed through some sort of marketing arrangement or 

a vertically integrated company on the hog production import processing side. That leaves a very small percentage of producers outside of that option, but I suspect they remain outside of that option 

through their own business decisions. 

Mr. BOSWELL. Would it surprise you that I have farmers come 

up to me pretty regularly and say there are days I cannot find a 

market? 

Mr. BOYLE. Well, there may be days when they go to market and 

in their particular geographic region, there may not be a broadbased market to acquire their cattle. But aside from that observation from producers that you have in your district, Mr. Chairman, 

that perception has been studied in great detail, in terms of whether or not there is anything nefarious about it, anticompetitive 

about it, conspiratorial about it, and under each of those investigations, the regulators have come away saying it is the normal functioning of a vibrant and competitive marketplace. 

Mr. BOSWELL. Okay. Well, Mr. Hayes, if you are finished, I think 

I might as well speak, too. We do want to close by thanking you 

for your coming today and giving us your time, your willingness to 

testify, your frankness, and I think we have gained some knowledge today on both sides of the issue and it was good for us to have 

this time together, so I appreciate it. With that, we will adjourn. 

Under the rules of the committee, the record of today’s hearing will 

remain open for 10 days to receive additional material and supplementary written responses from witnesses to any questions posed 

by members of the panel. The hearing of the Subcommittee on 

Livestock, Dairy and Poultry is adjourned. 

[Whereupon, at 1:30 p.m., the Subcommittee was adjourned.]

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