By:  Travis W. Hoffman
NCBA Young Producer’s Council Live Cattle Marketing Committee Chair

Innovation, differentiation, marketing, and a focus on quality beef have allowed progressive producers to manage market risk, provide beef for consumer demands and improve operation profitability.  These are fundamental components to entrepreneurship and building on free market choices, specifically for America’s young ranching families.  However, we must realize the potential impact of the United States Department of Agriculture – Grain Inspection, Packers and Stockyards Administration (USDA-GIPSA) and their recent proposed rule on future marketing of our cattle.  Our voice is needed, as this is not a small vs. big producer issue.  This is a good producer issue and the pro-active person who believes in market differentiation has the most to lose with this proposed rule. 

This topic is always contentious, but was most recently defeated by U.S. Congressmen in discussions regarding the 2008 Farm Bill.  Congress provided a directive to USDA-GIPSA to clarify specific regulations under the Packers and Stockyards Act.  According to the USDA website, the Grain Inspection, Packers and Stockyards Administration facilitates the marketing of livestock, poultry, meat, cereals, oilseeds, and related agricultural products, and promotes fair and competitive trading practices for the overall benefit of consumers and American agriculture.  However, according to Allie Devine, Vice President and General Counsel for the Kansas Livestock Association, USDA has gone above and beyond what was asked and directed by the U.S. Congress mandate of the Farm Bill and has decided to expand the jurisdiction of the agency to encourage future litigation on the basis of unfair and undue preference of livestock.  Consequently, this will most likely change the way we market cattle in the United States.

Allie Devine spoke at a Colorado Livestock Association meeting by leading off with, “I see very little good with this proposed rule for the cattle industry.”  Alternative marketing agreements and the ability to market improved genetics have incentivized decades and lifetimes of progress among American cattlemen.  Consumers deserve beef choices in the retail and foodservice marketplace.  We need to be responsive to our customers, as they influence current and future profitability of the beef supply chain.  The mother of all branded beef programs Certified Angus Beef® was formed in 1978 to provide assurances of beef quality and flavor to consumers, who during the 1970’s were largely dissatisfied with beef quality.  It was a venture that strengthened relationships between the American Angus Association, beef producers, packers and distributors.  Since 1978, our evolution of marketing has expanded exponentially by expanding into Asian export markets with age and source verified, adding the European Union with non-hormone treated cattle, or simply documenting management practices such as pre-conditioning, natural, grass-fed, or even organic.  BEEF magazine quantified market incentives of 621 survey respondents noting that 48.7% of producers received premiums for preconditioning, 32.5% for source verification, 32.1% for age verification, 16.7% for “natural”, 15.1% for breed eligibility, and 13.9% for non-hormone treated.  The ability to build relationships throughout the supply chain (and be rewarded for quality) in this industry is vital to our future success.

The GIPSA proposed rule may have unintended consequences for many involved in the livestock industry.  First off, this proposed rule may takes away from innovation, product differentiation, and leads us toward a generic commodity product which is the absolute opposite of what our consumer is demanding in the marketplace.  Don’t get me wrong, our packers, processors, and retailers will still aim to reach the ever-changing requests from America’s dynamic consumer, but the challenge with this proposed rule is that it may hinder the supply chain to provide premiums and discounts to reward the producers that assist in meeting beef sales niches.  Colorado Governor Bill Ritter suggested at the USDA and Department of Justice workshop in Fort Collins, Colorado held on August 27th that the proposed GIPSA changes and new regulations do not hinder a rancher's opportunity to offer beef in niche, direct-to-consumer markets, a growing trend among entrepreneurial cattlemen.  We can hope that our continuous efforts on quality improvement and entrepreneurial approach in the beef industry are not negated by governmental regulations hindering the free market system America was found on.

The challenge is that USDA – GIPSA sees a problem that some may consider free market enterprise, and the administration is attempting to “fix” the perceived issue against the better judgment of several court rulings, wishes of numerous U.S. Congressmen, and a majority of ranchers.  Dr. Stephen Koontz, an economist at Colorado State University, and expert on impacts of marketing agreements determined that getting rid of alternative marketing agreements and moving toward more standardized pricing will decrease calf prices $10-20/head or an aggregate loss of about $5.4 billion to the industry in the short-term and $21.9 billion in the long-term.  If price incentives and discount differences among the industry risk future litigation, then there will simply be fewer price differences as pricing becomes more standardized.  This October, a bi-partisan letter, signed by 115 U.S. House of Representatives (68 Republicans and 47 Democrats), was written to Secretary Vilsack expressing “concerns regarding the economic analysis for the proposed rule.”  The letter dated October 1st, says “this proposed rule is sweeping in its scope and would have major consequences in the marketing of livestock and poultry for producer and processors of all sizes.  In order for Congress and the public to evaluate this rule and its implications with full transparency, a thorough economic analysis is necessary.”

According to a September BEEF magazine survey with 730 responses, 78 percent answered that they believe that current marketing practices in the beef industry are positive for beef producers.  Concerning, only 31.1% have read the proposed USDA-GIPSA rule.  But Scott Grau, BEEF research manager concludes that “the more informed readers are about the proposed GIPSA rule, the more pessimistic they tend to be about it.”  Undoubtedly, there are more questions than answers about this proposed rule.  When asked whether they favored the GIPSA rule, 52.4% were uncertain.  However, only 4.9% said they favored the measure, while 42.7% said they opposed it.  Of those in opposition, the leading perceived negative effect (86.5% of respondents) was it would “hinder the industry’s progress in value based marketing.”  

Robbie LeValley, rancher and Colorado Cattlemen’s Association president, said at the August meetings that “we should not be circling the wagons, and shooting inward.”  Her family operation is one of six that together own Homestead Meats, which offers natural beef for sale direct to consumers, retailers and restaurants. The six families also own a USDA inspected packing plant where they market their own animals and provide custom processing.  Robbie is passionate about the success of future generations in agriculture, but fears the potential for additional government intervention, the increased litigation, and the long term impact on the next generation of livestock producers. 

Our industry is diverse with numerous marketing options available to everybody.  In fact, according to BEEF, 54.4% of respondents typically market their calves through local auctions, 33.2% sell direct to an order buyer or feedyard, 18.2% market calves via video auctions, 11.6% via special feeder calf sales, and 3.9% in graded auctions.  It requires efforts and forward thinking to allow our beef cattle to reach available market premiums rewarded for beef that meets consumer demands.  From the cow-calf operator in the Southeast U.S. who pre-conditions his cattle and sells through certified sales, to the Montana rancher focusing on reaching USDA Quality specs with their natural Angus calves, to feedlot operations reaching for natural and non-hormone treated cattle premiums, to the direct marketer of beef to customers in suburbia America, everyone may be affected in the future.  Adding value to cattle through genetics, nutrition and documenting management practices is only rewarded with the opportunity to differentiate to meet the moving target of quality, as it does only the commodity producer well to shift decades of innovation and progress back 30 years to marketing beef as a commodity product.

U.S. Attorney General Eric Holder reiterated in Fort Collins that “This is about more than last year’s trends or this year’s challenges; it is about your livelihood and America.”  The financial impact for America’s young rancher in the future is something that we must all take seriously.  The revitalization of rural America should be backed with economic information forecasting the positives and negatives of the administration’s proposed rule.  An economic impact study conducted by John Dunham and Associates concludes that the proposed rule on livestock marketing could result in approximately lost jobs for 104,000 Americans, and a resulting $14 billion reduction in the National Gross Domestic Product (GDP).  Furthermore, A recently released Informa Economics study on the economic impact of the proposed GIPSA rules finds it could cost the economy $1.5 billion and nearly 23,000 jobs.  It is our future that is at stake, and most importantly, we need to have your voice heard on how the proposed GIPSA rule will impact YOUR family’s operation.  Your voice is needed.  A GIPSA proposed rule summary developed by the National Ag Law Center is available at: http://nationalaglawcenter.org/assets/gipsaworkshops/handout.pdf  Comment period is open until November 22, 2010, and may be submitted via email at comments.gipsa@usda.gov or mailed to:

Tess Butler
GIPSA, USDA
1400 Independence Avenue, SW
Room 1643-S
Washington, DC 20250-3604

Or comments may be faxed to: (202) 690-2173