SALEM, Ohio — A proposed rule by USDA’s Grain Inspection, Packers and Stockyards Administration, better known by the acronym GIPSA, has groups on both sides of the issue wondering what lingering effects could be felt on the meat industry.
The rule is designed to protect livestock producers against unfair practices. However, many of the livestock groups don’t feel that’s what will happen.
The proposed GIPSA rules, boiled down, mean that packers will give one price for a carcass instead of basing it on quality. The carcass will then be graded and classified by the USDA after the purchase.
If a producer feels the packer is not following the rules, however, then they can take recourse.
The proposed rule change would also eliminate the use of an alternative marketing arrangement for premium payments.
The rules would require written justification on pricing difference. The USDA will then be able to scrutinize individually negotiated transactions.
In addition, the proposed rule is to expand and clarify the rights of independent producers to bring suit against packers for unfair and deceptive trade practices.
The National Pork Producers Council, the National Cattlemen’s Beef Association, the National Turkey Federation and the National Meat Association released the results of an economic analysis of USDA’s proposed livestock and poultry marketing regulation.
The analysis, completed by Informa Economics, broke out costs mainly to producers among specific species and accounted for direct and indirect one-time and ongoing costs that could result if the GIPSA rule were implemented.
Rob Murphy, senior vice president for Informa Economics, said the study shows that the indirect costs, such as lost efficiencies and damage for demand, are where the hits will be hardest. In fact, it could mean more than $800 million annually in beef, $335 million per year in pork and $341 million per year in poultry.
“Beef will suffer the most in terms of what we like to describe as ‘demand destruction’ as packers pull back on use of alternative marketing agreements,” Murphy said at a news conference Nov. 10.
Murphy added that packers will likely move away from live pricing of beef because of the legal ramifications if the rule is proposed. He said packers will wait to view the carcass before putting a price on it.
Bill Donald, National Cattlemen’s Beef Association president-elect, agreed that will have a negative impact on the beef industry. He said it will put a burden on the producer that will be passed on to the marketplace, if new regulations translate into higher retail meat prices paid by the consumer.
He added that the costs for all species will be ongoing for at least 10 years, peaking in about the third or fourth year following implementation of the proposed rule.
John Burkel, National Turkey Federation, said he fears it will mean fewer small farms in America if the proposal becomes a rule.
“It’s time to stand up and protect American agriculture,” Burkel said.
Other damages. The study shows that 23,000 jobs will also be lost, $359 million in tax revenues and there would be a $1.5 billion toll on the gross domestic product.
The estimates are prompting the trade groups to urge USDA to withdraw the proposed regulation.
The result of the study contrast sharply with GIPSA’s analysis that the proposed rules would cost less than $100 million, which is below the threshold that would have mandated USDA conduct a further economic impact study.
The Informa study also predicts the rule, if implemented as written, will have significant impact on live auction markets.
Murphy said it will mean the demise of between 150-200 isolated or small auction barns in the United States, because a provision in the rule bans order buyers from working for more than one packer.
The sales at smaller geographically isolated barns can be low, which also reduces the number of animals in a daily sale that might of interest to a particular packer. Currently, buyers contract with several packers to produce animals and then visit a barn on sale day to purchase animals according to each packer’s needs and specifications.
GIPSA’s proposed rule prohibits order buyers from purchasing livestock on behalf of more than one packer. Packer costs of animal procurement through livestock auction barns would be increased considerably if they were no longer able to share in the cost of putting a buyer in the smaller barns.
The National Pork Producers Council feels the proposal will discourage long-term contracts with packers, the rule will force more producers into the cash market, where prices can fluctuate wildly and risks can be greater. That volatility also makes it harder to get financing from risk-averse bankers.
“This is a disastrous rule,” said Doug Wolf, National Pork Producers Council. He added the rule is too vague and lacks definition.
Another concern stated by the trade groups is that it will add costs for meat packers and expose them to the threat of litigation from farmers, prompting packers to raise their own livestock, and increase vertical integration in the meat-packing industry.
The farm groups also fear an expanded definition of what constitutes a violation of livestock laws will turn ordinary contract disputes into federal court cases.
The common thread from each trade group was that the USDA needs to go back to the drawing board and start over to better define the GIPSA rule and take a more common sense, realistic approach.
There are livestock groups that are in favor of the proposed rule.
For their side of the issue, click here.