LB176 Letter to Senators – February 1, 2016

February 1, 2016

Dear Senator:

As president of the Organization for Competitive Markets, I sent the Agriculture Committee a strong letter of opposition to LB176 last year. On February 2, 1999, I testified before the Legislature’s Agriculture Committee in favor of LB832, LB833, LB834, and LB835 which were later merged into the Competitive Livestock Markets Act. I testified as the owner and manager of a large beef feedlot in Kansas, and on behalf of the Cattlemen’s Legal Fund, a group of cattle producers who had filed a lawsuit against IBP for using anti-competitive practices that stole value from beef producers.

There is a reason Nebraska is the nation’s leading red meat producing and processing state, with more independent family farmers, ranchers, and feedlot owners per capita than any other state in the nation. Nebraska’s success is directly tied to the fact that the Competitive Livestock Markets Act is in force. Your state is the shining example for the rest of the nation. You should be proud of this accomplishment. When independent livestock owners and operators are treated fairly in the marketplace, commerce thrives and rural communities prosper.

The focus and mission of the Organization for Competitive Markets, a coalition of livestock, farm, faith, animal welfare, and academic interests headquartered in Lincoln, Nebraska, is to fix broken agricultural markets and make them functional again. Healthy markets are accessible, transparent, competitive, and fair. When markets are healthy, they perform the critical task of establishing price and allocating value.

The meatpacking sector is more highly concentrated than at any time in modern history. For example, four processors control over 84% of beef processing. Those four packers are JBS, Tyson, Cargill, and National Beef.

Similarly, three pork processors — Smithfield, Tyson and JBS— control over 64% of pork processing. It is not an accident that many of the same companies are engaged in pork, poultry and beef processing. These sectors are all joined at the hip. The vertical integration that happened in the poultry sector is now happening in the pork sector, and beef is next in line.

Foreign interests are now in the process of taking over our U.S. meat markets. JBS is a Brazilian company that has the support of the Brazilian government, which it uses to dominate the beef sector. In pork, Smithfield operates in concert with the Chinese government and is in the process of taking over both hog production and hog processing. We at OCM are in shock as to why Congress, the anti-trust department of the U.S. Justice Department, and the GIPSA division of USDA seem incapable of doing their jobs to protect and preserve competition in the marketplace.
Reclaiming the agricultural marketplace for farmers, ranchers and rural communities.

Everyone who knows anything about economics knows that no company can compete against the financial resources of a foreign government, especially China. Trade publications rightly have openly discussed Smithfield’s ambition to completely dominate and control the U.S. pork industry. From the perspective of national food security and economic interest, allowing Smithfield to take over our domestic pork industry is a monumental mistake.

According to the latest public data available from the 2015 Successful Farming “Top 25 U.S. Pork Powerhouses,” in addition to Smithfield dominating pork processing, Smithfield dominates hog production with 894,000 sows, nearly twice as many as Triumph Foods, a consortium of five mega hog producers. Smithfield’s worldwide hog operations total 1,135,000 sows when you add in their Mexican, Polish, and Romanian operations.

LB176 authorizes two activities that are absolutely toxic to a healthy agricultural market. First, it not only allows but encourages meat packer ownership of pork, which is the textbook description of captive supply. Captive supply is a form of vertical integration that is deadly to price discovery and allocation of value. Captive supply reduces demand in the cash market.

LB176 also authorizes increased meat packer control through contracts. Contracting outside of a competitive market reduces demand, market transparency and price discovery. The only competition that LB176 encourages will be between producers to see how low they can go in cutting costs to raise and care for meat packer-owned hogs. The academic study of poultry contracts shows that contract production shifts the liability of livestock waste and production costs to farmers and the profits to processors. The end result is increased community conflict, environmental pollution, poorer quality of life, depopulation, and poverty as profit centers are exported from rural communities.

Compared to other leading livestock producing states, Nebraska has a unique position in supporting responsible livestock production. With its remaining pool of independent producers, Nebraska is the spot market basis for the nation’s cattle market. Texas, a meatpacker controlled state, has no spot cattle market left at all. Nebraska is where the action is for what little competition is left in the beef sector. Why abandon what has served your state so well for so long?

There is no doubt that LB176 will not only impact the hog sector, it will impact the beef sector in Nebraska as well by undermining the lone ban in the nation against beef packer ownership of cattle. If that happens, the entire U.S. cattle and beef sector will lose an important point of price discovery. Nebraska is not only the largest red meat producing and processing state; it is also the largest non-meatpacker controlled cash cattle market in the entire country. Nebraska alone sets the price for cattle producers everywhere.

It is our hope that you will appreciate how pivotal Nebraska is to the future of competitive agricultural markets. Please vote NO on LB176. Thank you for your time and consideration.

Sincerely,

Mike Callicrate