Proposed GIPSA rule makes procurement process more transparent

SALEM, Ohio — While some trade groups are speaking out against the proposed Grain Inspection, Packers and Stockyards Administration rule, others say there are benefits to it.

The most vocal group is R-CALF USA, which feels the packer lobby is fighting to derail the USDA’s proposed competition rule.

Rule needed

It claims few people understand how the fed cattle market functions, where it is broken, and why the GIPSA rule is needed to begin restoring competition to the U.S. cattle industry.

R-CALF USA is encouraging cattle producers to send comments to GIPSA in support of the GIPSA rule, and to urge their members of Congress to support GIPSA’s effort to restore competition.

Clarity

R-CALF USA feels the GIPSA rule clarifies that when a packer engages in unfair, unjustly discriminatory, or deceptive practices against a cattle feeder, the cattle feeder can file a complaint with GIPSA to stop the packer’s unlawful actions without first having to prove that the packer’s actions also harmed the competitiveness of the entire industry.

This provision benefits all cattle producers by preventing packers from forcing cattle feeders out of business one cattle feeder at a time.

It prohibits packers from targeting an individual cattle feeder, or a small group of cattle feeders, to make it unprofitable for them to stay in the cattle feeding business.

Unreasonable preferences

R-CALF USA members also feel the GIPSA rule prohibits packers from granting their preferred feedlots undue or unreasonable preferences or advantage, such as giving select feedlots more timely access to the slaughtering plant, higher premiums for quality traits, and higher prices for plain cattle.

The effect of such preferential treatment (known as “sweetheart deals”), R-CALF claims, is that preferred feedlots grow larger while the number of total feedlots decline, thus reducing the number of competitors for feeder cattle.

Records

The group feels the GIPSA rule requires packers to maintain records that justify why they paid different prices or offered different terms to different cattle feeders, as well as records that explain the market-based reasons premiums and/or discounts that were applied to the standard price of cattle.

The proposed rule, R-CALF claims, requires packers to make their cattle procurement practices transparent, thus ending the secret deals that packers have with select feedlots that commit hundreds of thousands of cattle to a packer without any disclosure of price or terms.

Cattle market

R-CALF USA wants its members to know the GIPSA rule requires packers to submit samples of each unique type of contract or agreement the packers uses to procure cattle (including forward contracts, formula contracts, production contracts or other marketing agreements). GIPSA would then post the sample contracts on its website.

This information can be used by cattle producers to determine which packer is seeking the type and quality of cattle he/she has to sell, or to make breeding and purchasing decisions so he/she is producing/purchasing the type and quality of cattle likely to be sought after by one or more packers.

The proposed GIPSA rule also prohibits a packer from selling cattle directly to another packer. Currently packers can get some of their weekly cattle supply needs from each other, thus enabling them to avoid making bids in the fed cattle market when they run short of supplies.

When packers purchase cattle from another packer, they avoid creating a demand for cattle in the fed cattle market, which forces fed cattle prices lower and translates into lower prices for feeder cattle, R-CALF claims.

The proposed GIPSA rule prohibits two or more packers from sharing one packer buyer.

R-CALF claims this provision benefits all cattle producers because it prohibits two or more packers from eliminating competition by sharing a single buyer, a practice the group says has eliminated competition for cows and bulls in auction yards across the country.

For the other side of the issue, click here.

About the Author

Kristy Foster Seachrist lives in Columbiana County raising sheep and horses. She earned her degree from Youngstown State University and has worked in both print and broadcast journalism. You can follow her on Twitter at http://twitter.com/fosterk96. More Stories by Kristy Foster Seachrist

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