OTHER 'CAPTIVE SUPPLY' ARRANGEMENT
USDA & Dept. of Justice should ÒimmediatelyÓ begin
enforcing antitrust laws, conclude authors
4/28/99
WHITE BEAR LAKE, Minn. Ñ Meat packers are robbing the pork industry of its
competitiveness through the use of exclusive contracts, formula pricing and
other Òcaptive supplyÓ arrangements, according to a new report released by the
Land Stewardship Project (LSP) today.
The report, Killing Competition With Captive Supplies, also found that the
federal government has failed to implement the legal authority it has to prevent
meat packers from shutting independent farmers out of the market. This is
particularly troubling considering that between 64 and 70 percent of all hogs
sold are no longer part of the open market, and almost 60 percent of the pork
slaughter is controlled by four firms (Smithfield Foods, IBP, ConAgra and
Cargill), concluded the report.
The report is based on interviews with hog farmers from Minnesota, Iowa and
South Dakota, as well as an extensive review of the economic literature. LSP was
assisted in the interviews by Dakota Rural Action and Iowa Citizens for
Community Improvement. The report also includes a legal analysis of the Packers
and Stockyards Act.
The main findings of Killing Competition With Captive Supplies include:
¥ PackersÕ practice of acquiring captive supplies through contracts and direct
ownership is reducing the number of opportunities for small- and medium-sized
farmers to sell their hogs. Fewer than 30 percent of U.S. hogs are marketed on
the open cash market.
¥ With fewer buyers and more captive supply, there is less competition for
independent farmersÕ hogs and insufficient market information regarding price.
Lower prices result.
¥ Packer control of the market is pervasive.
¥ Farmers reported facing daily what they call a mind game, which they describe
as pressure from agricultural leaders to conform to the new factory farm system
of hog production.
¥ Despite some recent indications of growing interest in addressing the impact
of packer concentration and vertical coordination in the livestock markets, the
USDA has taken no significant action to reform its trade practices regulations.
This last point is particularly troubling to Lynn Hayes, an attorney with
Farmers Legal Action Group (FLAG) who wrote the reportÕs legal analysis. For
almost three-quarters of a century, the USDAÕs Grain Inspection and Packers and
Stockyards Administration, as well as the U.S. Department of Justice, have had
the authority to prevent industries like pork from becoming controlled by a
handful of packers, she said.
ÒWe donÕt need new laws on the books. We already have ones that address this
issue,Ó said Hayes. ÒBut the governmentÕs failure to use them is making
antitrust enforcement a joke.Ó
In recent years, Sacred Heart, Minn., hog farmer Rodney Skalbeck has run into
the Òmind gameÓ described in the report by other independent producers. For
example, in 1994 he received $30 per hundred pounds for a load of hogs he had
sold to a local buying station.
ÒThe manager of the buying station told me that a particular mega-hog operation
in the county was receiving $42 per hundredweight at that same time,Ó said
Skalbeck. ÒMy hogs graded 90 percent number ones, the rest number twos. The
manager said some of their hogs graded number threes. They wouldnÕt even buy
number threes from me.Ó
Dave Serfling, a crop and livestock farmer from Preston, Minn., said he can
produce hogs as efficiently as mega-contract producers, but itÕs frustrating to
see larger operators receive significant premiums based on nothing but their
size.
ÒIf I donÕt have a competitive market to sell those hogs in, it doesnÕt matter
how cheaply I produce quality pork,Ó said Serfling, who markets 700 pigs a year.
ÒI simply have to have a place to sell them.Ó
Paul Sobocinski, a Wabasso, Minn., farmer who conducted interviews for the
study, said he was amazed at the amount of market access independent farmers
reported losing just within the past few years.
ÒI heard story after story of buying stations being closed without notice and
packing plants narrowing the time frame within which they would accept hogs from
independent producers,Ó said Sobocinski. ÒContract hogs from large corporations
are filling more and more of the kill slots at these plants.Ó
Based on the reportÕs findings, the authors make several recommendations,
including:
¥ The USDA and the Department of Justice should immediately develop and make
public a coordinated plan for consultation, communication, investigation and
enforcement of all antitrust laws in the livestock packing and production
industries.
¥ Regulations should be issued that identify the circumstances under which
volume premiums, inconsistent application of grade and yield, use of captive
supply contracts and other terms of purchase violate Section 202 of the Packers
and Stockyards.
¥ The USDA should require packers to report all packer purchases of hogs,
including all details of those purchases.
¥ USDA and land grant researchers should increase investigation of the impact
captive supply procurement has on family farmers.
¥ State policy makers should specifically prohibit packers from owning hogs or
hog operations in the state.
ÒThe big packers are using every means at their disposal to take absolute
control of the U.S. hog industry,Ó said Mark Schultz, LSPÕs Policy Program
Director. ÒThe USDA, under the Clinton-Gore administration, has left the door
wide open for this to happen. This has got to change.Ó
For a copy of Killing Competition With Captive Supplies, send a check or money
order for $6 ($6.39 for Minnesota residents) to: LSP, 2200 4th Street, White
Bear Lake, MN 55110; phone: 651-653-0618. That price covers shipping and
handling; make checks payable to Land Stewardship Project.
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