[Senate Hearing 117-376]
[From the U.S. Government Publishing Office]
S. Hrg. 117-376
EXAMINING MARKETS, TRANSPARENCY, AND
PRICES FROM CATTLE PRODUCER TO CONSUMER
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HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
JUNE 23, 2021
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on http://www.govinfo.gov/
___________
U.S. GOVERNMENT PUBLISHING OFFICE
46-305 PDF WASHINGTON : 2022
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
DEBBIE STABENOW, Michigan, Chairwoman
PATRICK J. LEAHY, Vermont JOHN BOOZMAN, Arkansas
SHERROD BROWN, Ohio MITCH McCONNELL, Kentucky
AMY KLOBUCHAR, Minnesota JOHN HOEVEN, North Dakota
MICHAEL F. BENNET, Colorado JONI ERNST, Iowa
KIRSTEN E. GILLIBRAND, New York CINDY HYDE-SMITH, Mississippi
TINA SMITH, Minnesota ROGER MARSHALL, Kansas
RICHARD J. DURBIN, Illinois TOMMY TUBERVILLE, Alabama
CORY BOOKER, New Jersey CHARLES GRASSLEY, Iowa
BEN RAY LUJAN, New Mexico JOHN THUNE, South Dakota
RAPHAEL WARNOCK, Georgia DEB FISCHER, Nebraska
MIKE BRAUN, Indiana
Joseph A. Shultz, Majority Staff Director
Mary Beth Schultz, Majority Chief Counsel
Jessica L. Williams, Chief Clerk
Martha Scott Poindexter, Minority Staff Director
Fred J. Clark, Minority Chief Counsel
C O N T E N T S
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Wednesday, June 23, 2021
Page
Hearing:
Examining Markets, Transparency, and Prices from Cattle Producer
to Consumer.................................................... 1
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STATEMENTS PRESENTED BY SENATORS
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan... 1
Boozman, Hon. John, U.S. Senator from the State of Arkansas...... 2
WITNESSES
Tupper, Justin, Vice President, United States Cattlemen's
Association, St. Onge, SD...................................... 6
Gardiner, Mark, Partner, Gardiner Angus Ranch, Ashland, KS....... 8
Tonsor, Dr. Glynn T., Professor, Department of Agricultural
Economics, Kansas State University, Manhattan, KS.............. 10
Aherin, Dr. Dustin, Vice President, RaboResearch Animal Protein
Analyst, Rabobank, Chesterfield, MO............................ 11
Hendrickson, Dr. Mary K., Associate Professor, Division of
Applied Social Sciences, University of Missouri, Columbia, MO.. 13
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APPENDIX
Prepared Statements:
Tupper, Justin............................................... 46
Gardiner, Mark............................................... 58
Tonsor, Dr. Glynn T.......................................... 63
Aherin, Dr. Dustin........................................... 69
Hendrickson, Dr. Mary K...................................... 82
Document(s) Submitted for the Record:
Boozman, Hon. John:
Ashland Veterinary Center Inc., letter of support............ 90
F Cross Cattle Company, LLC, letter of support............... 92
Blair Brothers Angus Ranch, letter of support................ 94
Dalebanks Angus, letter of support........................... 96
Performance Blenders, letter of support...................... 100
Bruning Farms, letter of support............................. 102
Means Ranch Company, LTD., letter of support................. 104
Wayne Peek, letter of support................................ 106
Harp Farms, Inc, letter of support........................... 108
E-1053 Fed Cattle, letter of support......................... 110
NAMI, letter of support...................................... 140
NCBA, letter of support...................................... 156
Smith, Hon. Tina:
Examining Markets, Transparency, and Pricesfrom Cattle
Producer to Consumer, prepared statement for the record.... 186
Stabenow, Hon. Debbie:
R-Calf USA, letter of support................................ 187
Grassley, Hon. Charles:
Iowa Farm Bureau, letter of support.......................... 191
Fischer, Hon. Deb:
Nebraska Cattlemen, letter of support........................ 192
Thune, Hon. John:
South Dakota Stockgrowers Association, letter of support..... 195
South Dakota Cattlemen's Association, letter of support...... 197
Question and Answer:
Tupper, Justin:
Written response to questions from Hon. John Boozman......... 202
Written response to questions from Hon. Raphael Warnock...... 203
Written response to questions from Hon. Roger Marshall....... 203
Gardiner, Mark:
Written response to questions from Hon. John Boozman......... 235
Written response to questions from Hon. Roger Marshall....... 236
Tonsor, Dr. Glynn T.:
Written response to questions from Hon. John Boozman......... 239
Written response to questions from Hon. Tina Smith........... 244
Written response to questions from Hon. Roger Marshall....... 246
Written response to questions from Hon. Deb Fischer.......... 256
Aherin, Dr. Dustin:
Written response to questions from Hon. John Boozman......... 259
Written response to questions from Hon. Roger Marshall....... 262
Written response to questions from Hon. Raphael Warnock...... 267
Hendrickson, Dr. Mary K.:
Written response to questions from Hon. Tina Smith........... 269
Written response to questions from Hon. Raphael Warnock...... 269
Written response to questions from Hon. Roger Marshall....... 274
EXAMINING MARKETS, TRANSPARENCY, AND PRICES FROM CATTLE PRODUCER TO
CONSUMER
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WEDNESDAY, JUNE 23, 2021
U.S. Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The Committee met, pursuant to notice, at 2:30 p.m., via
Webex and in room SD-G50, Senate Dirksen Office Building, Hon.
Debbie Stabenow, Chairwoman of the Committee, presiding.
Present or submitting a statement: Senators Stabenow,
Brown, Klobuchar, Bennet, Gillibrand, Smith, Booker, Warnock,
Boozman, Hoeven, Ernst, Hyde-Smith, Marshall, Tuberville,
Grassley, Thune, Fischer, and Braun.
STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
OF MICHIGAN, CHAIRWOMAN, U.S. COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
Chairwoman Stabenow. Good afternoon. I call this hearing of
the U.S. Senate Committee Agriculture, Nutrition, and Forestry
to order.
A couple of notes. There is a vote scheduled for 3. We will
proceed and just ask members to go vote and come back if you
have not yet asked your questions. Also, I am told that the
only ones that control turning on the mics are ourselves. In
this system staff cannot do that. Please push talk when you
want to talk, and then turn it off, unless you want everybody
else to hear what you are saying after you talked. Thank you.
First I want to thank members of the Committee on both
sides of the aisle who have requested that we have this
important hearing. We are going to focus specifically on our
cattle markets today. Many of us have heard from producers
concerned with a lack of transparency and competition. These
farmers and ranchers also raised concerns about concentration
in the packing industry, potential market manipulations, lack
of access to small and mid-sized plants, and a range of other
issues.
This is a really important conversation, as the Committee
considers reauthorization of the Livestock Mandatory Reporting
Act, and as we oversee implementation of the $4 billion in
funding to strengthen the food supply chain that I authorized
in the American Rescue Plan. USDA announced a broad outline for
using those funds earlier this month, which will include
supporting new and expanded regional processing capacity. Just
this week, USDA also announced a new grant program to help
small processors upgrade their plants to meet Federal
inspection standards. That would help smaller processors boost
their capacity and meet increased demand while providing more
opportunities for small and mid-sized livestock producers,
nationwide, and certainly I am looking forward to that in
Michigan.
Still, we have work to do. Several of our Committee members
have introduced proposals to address these issues, issues of
transparency, competition, processing capacity, and I look
forward to discussing these proposals and working with
colleagues as we move forward.
Above all, we need to talk about how to make our food
supply more resilient. The pandemic made clear how really
important this is. Early last year, shifts in demand forced
producers to plow under crops and dump milk. At the same time,
consumers panicked at empty store shelves, and food banks faced
lines of waiting cars a mile long.
Compounding this disaster was the failure of many meat
processors to adequately protect their workers from COVID-19,
resulting in tens of thousands of cases and hundreds of deaths.
These outbreaks caused plants to shutter and forced many
producers to euthanize animals they could not get to market.
The price livestock producers received plummeted, while
consumer prices surged.
In an effort to stabilize the market, Congress stepped in
to provide assistance for workers and producers. Cattle
producers, in particular, received $6.45 billion to offset
losses. Just last week, Secretary Vilsack announced resources
to keep employees safe with pandemic response and safety
grants.
However, these only help mitigate some of the effects. Many
of the vulnerabilities exposed by the pandemic still exist. We
were reminded of that in May when a ransomware attack froze all
of Brazilian-owned JBS's Northern American processing. One
attack on one company halted one-fifth of U.S. meat processing
capacity. The issue was only resolved, according to reports,
after JBS paid $11 million in ransom.
Concentration and consolidation clearly play a large role
in many issues affecting the industry. For example, USDA's
Packers and Stockyards Division data show that four companies
account for 85 percent of fed cattle slaughter. With fewer
companies and more foreign-owned companies controlling more of
the marketplace there is a widening gap between those giant
players and the small, and medium-sized processors that many
local farmers and ranchers count on.
What happens when farmers and ranchers have fewer options?
What are the immediate effects and what are the unintended
consequences? Those are the questions I hope we can begin to
answer today.
I would now like to turn to my friend, Ranking Member
Boozman, for his opening remarks.
STATEMENT OF HON. SENATOR JOHN BOOZMAN, U.S. SENATOR FROM THE
STATE OF ARKANSAS
Senator Boozman. Thank you very much, Madam Chair, and
thank you for setting the stage for this afternoon's hearing.
The topic we are here to learn more about is so very important
to a number of Senators, both on and off this Committee. The
U.S. cattle industry has a storied history. It is the backbone
of many rural economies, and represents the largest segment of
agriculture in many parts of the country. Many success stories
are associated with the industry, as it has carved out its
place as the world's most sustainable producer of high-quality
beef.
In 2019, 14 percent of the beef produced in the U.S. was
exported, generating $8.1 billion in value. By comparison, in
1990, only four percent of the beef produced in the U.S. was
exported. Correlating with this growth in exports is the
increased quality of beef produced in the U.S. today. Nearly 85
percent of the beef produced in the U.S. is graded prime or
choice. In the early 2000s, only about 50 percent of our beef
earned these grades.
This improvement in quality is due to producers making
investments in their herds, in genetics, management, and
feeding practices to produce higher quality and more diverse
products for the global consumer base. These investments are
being made across every segment of this complex and
interconnected industry, from the cow-calf producer to the
backgrounder, packer, and further processor to provide the
wholesaler, retailer, exporter, and ultimately the consumer a
growing variety of nutritious beef products.
While this industry is diverse and modernizing in numerous
ways, the nature of the beef cycle dictates that the industry
is slow to adapt to even the most immediate changes. The ribeye
I am having for dinner tonight was derived from a steer that
was conceived over two and a half years ago. While changes can
be made in the cattle industry overnight, the effects of those
changes may not be realized for years. When any one segment of
this industry experiences an unexpected event, like the fire at
the beef plant in Holcomb, Kansas, in 2019, it ripples through
the entire supply chain.
When every segment of the cattle industry experienced the
effects of the COVID-19 pandemic, that ripple effect was
amplified in a manner that has been unmatched throughout modern
history. Though we are moving beyond the havoc wreaked by
COVID-19, new challenges are now confronting this industry--a
worsening drought in the West that is creeping into the Plains,
increasing input costs, severe labor shortages that are
limiting utilization of packing capacity, supply chain
challenges at our ports that have been worsening for months,
and the threat of regulatory overreach. The past two years have
been some of the most difficult this sector has ever
experienced.
Mounting frustration is resulting in calls for widespread
reform of the cattle industry due to these difficulties. We
must carefully consider reforms in response to the exceptional
black swan events that have occurred since 2019, and the
consequences both intended and unintended of such actions. An
increasing number of producers are marketing their cattle
through alternative marketing agreements to manage risk and
buffer themselves from market volatility while also capturing
gains for the value-added investment made to their herd.
Yet we are hearing questions about whether current market
conditions allow for adequate price discovery for fed cattle
and the effect that a thinning cash market could be having
throughout the supply chain. I am interested in hearing
perspectives from our stakeholders on these topics and for the
Committee to gain a better understanding of the impacts of
proposed reforms on beef producers, processors, marketers, and
consumers. I thank all of our witnesses for their participation
in this important hearing and helping this Committee learn
about this multifaceted industry and the unique challenges that
it faces.
Madam Chair, I have received several letters and written
testimony from cattle producers and stakeholder groups who are
interested in today's hearing, and I request unanimous consent
to include these documents for the record.
Chairwoman Stabenow. Without objection.
[The letters can be found on pages 90-185 in the appendix.]
Senator Boozman. With that I yield back.
Chairwoman Stabenow. Thank you very much.
We will introduce all of our witnesses. I will turn first
to Senator Thune for our first introduction.
Senator Thune. Thank you, Madam Chair, and thank you to you
and to Ranking Member Boozman for having this hearing. We are
here today because we need answers. We have cattle producers
who produce the highest quality beef in the world, and they
deserve to be able to participate in a marketplace that
operates fairly, transparently, and with integrity. I am
delighted that you have called this hearing, and I look forward
to hearing from all our witnesses, but I, in particular, want
to recognize a panelist who is here from my home State of South
Dakota, and I want to welcome to the Committee Mr. Justin
Tupper, from St. Onge, South Dakota.
Justin is a cow-calf producer who also serves as Vice
President of the United States Cattlemen's Association. In
addition to his cow-calf operation, Justin manages the St. Onge
Livestock Auction, which holds sheep sales every Thursday and
cattle sales every Friday. I have been there on a few of those
Fridays for those cattle sales.
Justin, thank you for being here today. I look forward to
your testimony and input about how we can improve the situation
for cattle producers in our State. Madam Chair, with your
indulgence, Justin, before you begin your testimony, I am
guessing some members of this Committee have maybe never been
to a sale barn. Since you are an auctioneer, would you mind
demonstrating, for members of this Committee, what they would
hear if they were on a sale day at the St. Onge Sale Barn?
Mr. Tupper. Why, sure. Thank you, Senator Thune. With that,
I do not know that we could get them in this room, but if we
had a fat steer here we would ask $1.20----
[Demonstrates auction call.]
Mr. Tupper [continuing]. and hope we get to $2.00. That is
where we are trying to head. Thank you, Senator Thune.
Chairwoman Stabenow. I love it.
Senator Thune. Thank you, Justin.
Chairwoman Stabenow. You know, my experiences at many 4-H
livestock auctions, more than probably where you were, but I
have heard that many times. When I was bidding, they always bid
me up. They always watched what I was doing, and I always ended
up paying higher than anybody else. It is wonderful. It is
wonderful to have you here, and thank you, Senator Thune, for
that example.
Our next two witnesses are going to be introduced by
Senator Marshall. We have two people from Kansas. You would
almost think that Pat Roberts was still chairing the Committee.
Senator Marshall.
Senator Marshall. Well, thank you, Madam Chair, and please
bow your head when you say the name Pat Roberts here today. I
certainly am pleased to see several Kansans participating as
witnesses in today's hearing. It is certainly an honor to
introduce two of them. First is my good friend, Mr. Mark
Gardiner, a fifth-generation Kansas farmer. The Gardiner family
is one of five families that traveled in a caravan of covered
wagons to the Ashland, Kansas, area in 1885. His ancestors
lived in dugouts on the harsh prairie on their homestead land,
incidentally just some 70 miles from where my great-grandmother
lived in a dugout, subsisting on jackrabbits and biscuits.
Sticking with that pioneer spirit, Mark, his father, Henry,
and the Gardiner Angus Ranch are some of the key architects of
value-based marketing in the beef industry that pays cattle
producers for the quality of their cattle. In 1997, Mark became
a founding member of U.S. Premium Beef, and today is the last
remaining original board member.
The Gardiners, and many of their friends and neighbors,
persevered through great adversity in 2017, when almost the
entire ranch was consumed by the largest wildfire in Kansas
history. The Starbuck Fire burned more than 450,000 acres in
Kansas, after burning nearly 200,000 acres in Oklahoma.
Mark and his wife, Eva, lost their home while the ranch
lost hundreds of cattle to the fire, and hundreds more had to
be euthanized. The miracle, only one human life was lost. The
aid that came from across the Nation to help ranchers certainly
was the most outpouring of love and hope I have ever personally
witnessed.
Now unfortunately, Mark cannot be here today. Evidently he
had a disagreement with his horse, and the horse won. Mark, I
want to thank you for being here, and I look forward to your
perspective.
The second individual I have the pleasure of introducing is
a Professor in the Department of Ag Economics for the ever-
optimistic and fighting Kansas State Wildcats, Dr. Glynn T.
Tonsor. Dr. Tonsor grew up in Missouri, Kansas neighbor to the
east, on a farrow-to-finish swine farm. He obtained his
bachelor's degree from Missouri State University, and his Ph.D.
from the Kansas State University. While we claim him as a
Kansan now, I would be remiss if I did not point out he spent
several years as a faculty member at our Chairwoman's alma
mater, the Michigan State University.
There is no questioning Dr. Tonsor's academic profile in
the agriculture realm. Since 2010, Dr. Tonsor has written over
78 peer-reviewed publications, and has been a wealth of
knowledge in the meat and livestock industry. It is difficult
to argue with Dr. Tonsor's opinion that ``the U.S. beef and
cattle industry is arguably the country's most economically
important agriculture sector,'' which underscores the
importance of today's topic.
Glynn and his wife, Shauna, live in St. George, Kansas,
with their children, Ethan, Levi, and Aubree.
Now it has been a while since we have three K State
Wildcats participate in one hearing, and we look forward to
your testimony as well.
Thank you, Madam Chair, and I yield back.
Chairwoman Stabenow. Thank you very much, and Senator
Roberts and I would be going back and forth between Kansas
State and Michigan State. I am glad to see that we have one
person representing both. That is wonderful.
I am going to turn to Senator Boozman now for our next
introduction.
Senator Boozman. Yes. I would like to introduce Dr. Dustin
Aherin, Vice President, RaboResearch Animal Protein Analyst in
Chesterfield, Missouri. Dr. Aherin is an animal protein analyst
at Rabobank, focusing on beef. Dr. Aherin joined the Rabobank
Food and AgriBusiness Group after completing his Ph.D. in
pathobiology from the Beef Cattle Institute at Kansas State
University. You guys are taking over.
His previous work focused on cow-calf production systems
assessing both biological and economic efficiency. Dr. Aherin
worked as a feed yard sales representative for an animal health
company and was a visiting fellow at the Massachusetts
Institute of Technology Sloan School of Management. In addition
to his Ph.D., Dr. Aherin has a bachelor's and master's in
animal science from Kansas State University.
Thank you, Dustin, for being with us today, and welcome.
Chairwoman Stabenow. Thank you. Last but certainly not
least, Dr. Mary Hendrickson. Dr. Mary Hendrickson is an
Associate Professor in the Division of Applied Social Sciences
at the University of Missouri. She also serves as Co-Director
of the Interdisciplinary Center for Food Security. She studies
the way food production and consumption has changed over the
past few decades and how farmers, consumers, and communities
can create more sustainable food systems.
In 2020, she was a Fulbright Scholar to Iceland, teaching
sustainable agriculture. From 1997 to 2012, she worked to
create local food systems in Missouri as an extension
sociologist, gaining valuable, on-the-ground experience in
transforming food systems.
Welcome to each of you, and we will begin today with five
minutes of witnesses testimony from each of you, and we
certainly welcome anything else in writing that you would like
to share with the Committee as well.
Mr. Tupper.
STATEMENT OF JUSTIN TUPPER, VICE PRESIDENT, UNITED STATES
CATTLEMEN'S ASSOCIATION, ST. ONGE, SOUTH DAKOTA
Mr. Tupper. Thank you for the opportunity to provide
testimony today. We appreciate both the Chairwoman and the
Ranking Member for coming together in a bipartisan manner to
host this hearing. This is definitely a producer issue. It is
not a partisan issue, so we thank you.
I am privileged to be here representing cattle producers
and independent meat processors across the U.S. This hearing is
critical because there is a crisis in rural America. We are
losing our producers at an alarming rate, all the while
watching big corporate feeders, and packers, make record
profits, with the threat of vertical integration hanging over
our head.
As cattle producers, we are natural stewards of the land.
These family farmers, ranchers, work day in, day out to produce
a high-quality protein product in a safe and sustainable way.
As we sit here today, producers in my State, and across the
country, are enduring devastating drought conditions. This is
just one of the many challenges cattle producers face, year in
and year out, all the while managing the land, borrowing money
to keep the operation running, fighting drastic shifts in
weather, and dealing with rising input costs and a falling
bottom line.
Most ranchers who sell their calves at weaning time are
selling those calves for less than $1,000 a head. That is
somewhere near $100-a-head profit after all input costs, and
amounts to less than a one percent return on investment--an
incredibly risky business. For those that raise and sell all
the way to fat cattle, calving to finish, a finished steer is
worth somewhere around $1,600 a head, today. Packers could buy
that steer, process it, and sell it for beef alone, not
counting byproducts, for over $2,800 a head today, for a gross
margin profit of over 80 percent.
We, as cattle producers, understand and want the packer to
make money. That makes the whole system work. Since 2015,
corporate packers' gross margin has ballooned from an average
of $100 to $200 a head to well over $1,000 a head. Packers have
enjoyed unbelievable profits, harvesting around 120,000 head
per day, while cattle producers go out of business and
consumers pay double or even triple at the meat counter. Cattle
producers, when they make money, reinvest in their local
community, buying and upgrading equipment, paying more for
feeder cattle, and reinvesting in the land through conservation
practices.
The corporate packer does not reinvest in the industry, or
sometimes even in country. Of the four companies that harvest
about 85 percent of the U.S. fed cattle, two of those, JBS and
National Beef, are owned and operated outside the United
States, in Brazil. The main goal of these corporations is not
to reinvest in our land or our people, but to create value for
their shareholders-not to mention the big four packers are also
heavily invested in our direct competition, plant-based and
lab-grown alternative proteins.
The packers ability to increase control of supply of cattle
solely committed to one packer has made it nearly impossible to
have active price discovery. In my years as an auctioneer and
operating St. Onge Livestock, I have learned the most important
participant in true price discovery is the second bidder. In
most cases in the fat cattle trade today, we do not have a
second bidder. There are simply not enough market participants.
In traditional market times, it was assumed when boxed beef
prices rose, a packer would ramp up chain speed to increase
profits. Instead, they are using limited chain speed and
shackle space to increase profits and make the same money, or
more, harvesting less cattle. Producers see huge losses in
equity while the packer reaps all the rewards, despite having
the least amount of risk and owning the product the least
amount of time, all while exploiting producers and ultimately
the consumer.
American cattle producers do not want nor are we looking
for a handout. We just want a fair and equitable playing field,
staffed by a referee with a whistle and a flag. Producers
cannot be sustainable or generational without being profitable.
Building a safe and secure food supply starts with ensuring the
success of our food producers. These cattle markets are very
complex--we know this--but when there is an oligopoly with four
packers controlling the industry there are only two ways to
level the playing field. We can either work to eliminate the
occurrence of anti-competitive practices and market
manipulation in the meatpacking sector, or, as we have seen
done in the past in other industries, we can break them up so
they cannot have as much influence or ownership in the market.
We do not take these challenges lightly. We believe these
are critical times. The United States Cattlemen's Association,
of who I am testifying on behalf of today, is fighting to
secure our food supply system, our rural communities, and our
members, and our members' livelihoods.
My graduating class in Kimball, South Dakota, 100 miles
down the road from Senator Thune's hometown, was 32 in 1991, in
rural South Dakota. Just a few weeks ago, in Kimball, South
Dakota, they had 19 graduates out of that same high school.
They have also combined in athletics. The towns have not shrunk
but the rural areas and the cattle-producing areas have.
I thank you for your time, and I appreciate and look
forward to any questions you may have.
[The prepared statement of Mr. Tupper can be found on page
46 in the appendix.]
Chairwoman Stabenow. Thank you so much for your testimony.
Mr. Gardiner.
STATEMENT OF MARK GARDINER, PARTNER, GARDINER ANGUS RANCH,
ASHLAND, KANSAS
Mr. Gardiner. Thank you, Chairwoman Stabenow, Ranking
Member Boozman, and members of the Committee. My name is Mark
Gardiner from Ashland, Kansas, and I would like to thank you
for the opportunity to visit today. This is a very important
topic for the U.S. beef industry, and I am very pleased to
represent beef producers who are committed to the industry to
raise the safest and highest quality beef in the world. I am a
fifth-generation rancher whose 12 family members are all
involved in our beef production.
Today our topic is complicated. The cause of this issue is
not. A processing plant fire, a pandemic, and a ransomware
attack caused extraordinary disruption in processing, resulting
in a dramatic drop of the processed beef supply and a bulging
oversupply of live cattle. This caused an unprecedented drop in
cattle prices while simultaneously leading to a record rise in
beef prices, all driven by pure economic market principles.
Today we have too many cattle and too little processing
capacity. We have a volatile marketplace, created by outside,
unavoidable factors, not any one market player. We have
observed similar market disruptions in lumber, automobiles, and
other goods.
Now the solution for all of this is very complicated.
Processors are adding capacity due to the demand for high-
quality beef. Adding this capacity will take time. History
tells us we will reach a point when ample processing capacity
will compete for a limited supply of cattle. When this happens,
the marketplace will shift and the producers will have more
leverage. The question for us in the meantime becomes how much
damage will regulations do to the marketplace by artificially
manipulating the pricing mechanisms? Experience tells us the
unintended consequences of these actions can create longer-
lasting havoc and even greater volatility to our industry.
Let us look at our industry history. From 1980 to 1995, we
were the very picture of an industry in trouble. Consumer
satisfaction was at an all-time low, and we were losing market
share at a rate that put us in peril of being an irrelevant
protein. This loss of market share and dissatisfaction was
rooted in the production sector. In other words, producers had
to resolve our quality issues at the beginning of the supply
chain.
What caused the disconnect between our product and the
consumer? It is very simple. All cattle were purchased on the
average. There were no incentives. One price fit all.
Progressive producers needed and wanted to price cattle on a
value-based system that paid for each animal based upon value,
not average. Superior cattle have more value. Inferior cattle
have less value. These incentives aligned producers to respond
to consumer signals.
Today we have record beef demand. Producers designed and
negotiated these grids with the processors. The information
transfer between the industry sectors establishing pricing
mechanisms that rewarded producers who delivered the beef the
world desired.
I want to stress the greatest benefit and the greatest
added value has been achieved by the very smallest producers.
They have reaped the largest dollar value per head and were
given market access.
The unintended consequences of regulated government
mandates, such as Senate Bill 3693 and 543, could potentially
have a negative effect on the beef industry. I am unaware of
any data or research that indicates these proposed regulations
will have a positive change on the price of cattle going
forward.
There is considerable discussion regarding the cash trade.
I look at this as a base price, no different than a commodity
like wheat. I can call our local elevator and get the base
price for wheat. If I hit the target to value with my wheat,
due to protein content or baking quality, I am paid for this
additional value. Value-based marketing operates on the same
concept. We know the target to value for the processor and the
consumer. If we achieve these goals we are compensated for
producing superior beef.
A possible price discovery we could look at, on the thinly
traded cash market, is to have all base prices a formula grid
and alternative market arrangements become a part of mandatory
price reporting. This base price needs to be inclusive. I
remind you that this comes up for renewal on September 30,
2021. Any changes that we make are better if implemented by the
industry versus government mandates.
Thank you so much for the opportunity to visit today.
[The prepared statement of Mr. Gardiner can be found on
page 58 in the appendix.]
Chairwoman Stabenow. Thank you very much. Dr. Tonsor.
STATEMENT OF DR. GLYNN T. TONSOR, PROFESSOR, DEPARTMENT OF
AGRICULTURAL ECONOMICS, KANSAS STATE UNIVERSITY, MANHATTAN,
KANSAS
Mr. Tonsor. Chairwoman Stabenow, Ranking Member Boozman,
and members of the Committee, thank you for inviting me to be
here today.
The U.S. beef and cattle industry is arguably the country's
most important agricultural sector. The sheer size and
importance of the industry must be appreciated before
implementing any proposed policy change, as the potential
exists to impact many members of our society.
It is not surprising the industry's markets are complex. I
often describe the industry operating as a Rubik's Cube--when
one thing changes, so do many others. Industry evolutions are
accepted by some, but not all stakeholders, and that is to be
expected.
Perhaps no relationship is currently more relevant than the
relationship of fed cattle inventories to processor capacity.
Prior to 2016, it was estimated, for many years, there was more
processing capacity than fed cattle inventories. That
relationship changed, and since roughly 2016, fed cattle
inventories have often exceeded operational processing capacity
in our industry.
The Holcomb plant event in 2019, and developments during
the pandemic, occurred in this setting. Economists expect lower
fed cattle prices and higher beef prices in this situation. On
balance, that is what we have observed. Going forward, it is
generally expected fed cattle volumes will decline and some
physical processing capacity is likely to be added.
The U.S. meat industry sells products into three main
market channels: domestic retail, domestic food service, and
export markets. The industry maximizes overall revenue by
producing, processing, and marketing distinct products for
these market channels that value them most. This results in
higher overall carcass and livestock values.
One of the most drastic shocks from the pandemic was
extraordinary disruption in the relative demand across these
three market channels. These post-farm gate developments
directly impact derived demand for livestock and hence,
livestock prices. These shocks also highlight the need and
value for better data and information.
Over the years, I have worked on multiple projects on the
livestock mandatory reporting, or LMR, program. It is important
to appreciate a significant amount of more trusted information
on the market is now available than was the case prior to LMR,
over 20 years ago. Economists have long recognized the
substantial value of reliable, accessible, and timely market
information because it critically guides resource allocations.
I believe USDA AMS does a sound job of implementing LMR, and I
encourage ongoing consideration of adjustments and
enhancements.
Alternative marketing agreements, or AMAs, have grown in
use in recent decades. Initial interest in AMAs from both buyer
and seller perspectives originated largely from costs or
operational efficiencies. Furthermore, consumer demand signals
led to proliferation of beef products. This, in turn, elevated
demand for specific cattle, and with that further interest in
use of AMAs.
Increased use of AMAs reduces cost and enhances demand in
some segments of the industry. That, itself, is a worthwhile
outcome. AMAs present a multitude of well-documented economic
benefits while reducing the volume of traditional spot-market
transactions. For some context, in 2014, 23 percent of domestic
fed cattle were sold on a negotiated basis, while 58 percent
were sold using formulas. More recently, in 2020, negotiated
rates were 23 percent while formula rates were 65 percent.
The core point of that comment is while cattle prices, beef
prices, and estimated margins certainly have changed--they are
different in recent years than they were in 2014--it is my
opinion it is inaccurate to assert this simply reflects how fed
cattle are marketed. Rather, in my opinion, core differences in
supply and demand reflect these market changes.
I encourage the industry to proceed forward in a manner
that does not deteriorate economic benefits of the industry's
evolution to improve beef quality and align effort with beef
demand signals. This pursuit should include regularly assessing
ways to enhance the information content available on markets. I
encourage LMR to not only be reauthorized but for enhancements
to be considered. I have noted some of those in my written
submitted testimony. More research is needed on the types of
information contemporary markets need, and how to most
effectively collect and disseminate that information.
I will end by highlighting all revenue available to
industry participants ultimately originates with consumers.
Hence, aligning industry efforts with consumer demand is truly
essential. Fortunately, the U.S. beef cattle industry is the
envy of many others for several reasons. Comparative advantage
of the industry includes being a global leader in the
production of high-quality, grain-finished beef desired by
consumers around the world. I encourage today's discussion to
be mindful of the factors which favorably distinguish the
industry, and are core to the prosperity prospects not only of
today's industry participants but also those of future
generations. Thank you.
[The prepared statement of Mr. Tonsor can be found on page
63 in the appendix.]
Chairwoman Stabenow. Thank you very much. Now we will hear
from Dr. Aherin.
Welcome.
STATEMENT OF DR. DUSTIN AHERIN, VICE PRESIDENT, RABORESEARCH
ANIMAL PROTEIN ANALYST, RABOBANK, CHESTERFIELD, MISSOURI
Mr. Aherin. Chairwoman Stabenow, Ranking Member Boozman,
and members of the Committee, thank you for inviting me to join
the discussion today. As an animal protein analyst for
Rabobank, which is engaged across the entire beef supply chain,
I assist in strategic decisionmaking for both the bank and the
bank's clients offering a research-based perspective on
fundamental market dynamics and future trends.
Major U.S. beef supply chain disruptions over the past two
years have sent the cattle and beef industry into uncharted,
but explainable territory. The imbalance of excess market-ready
cattle supplies in the face of reduced operational packing
capacity has put downward pressure on cattle prices. Meanwhile,
consumer demand for beef and all animal protein has reached
record levels, fueled by pandemic stockpiling, increased and
reallocated consumer income, and more recently, restaurant
reopenings, not to mention export demand. These dynamics,
combined with elevated processing costs, have increased the
spread between beef price and cattle price, just as economic
principles, past research, and historical market relationships
would suggest. Both the direction and magnitude of the price
spread are well within the range of expectation.
Like many businesses, the pandemic has created enormous
challenges for cattle producers. Seeing the price difference
between cattle and beef has only added to that emotional
strain. I understand the frustration. I have owned and bred
cattle most of my life, and I have friends and family that make
a living ranching and feeding cattle. However, with
stakeholders that are invested throughout the entire supply
chain, from rancher to packer to retailer, I have to look at
the beef industry from an objective and analysis-based
perspective.
First, cattle are not beef. Cattle are one of several
inputs into beef production. Other major inputs include labor,
physical capital, and technology. These inputs are always
seeking, but never finding, the perfect balance between one
another. This creates cycles. Input imbalances are communicated
through prices, whether that is cattle prices, wages, or
investment. Over the past several years, extreme and unexpected
events have severely restricted several of these inputs, for
example, facilities in the August 2019 Tyson plant fire and
labor during the pandemic. A working market sends price signals
to adjust. These same price signals created record high cattle
prices and record packer losses in 2014 and 2015.
The biology and natural time delays of the beef industry
make it slow moving and capital intensive. Adjustments take
years. While recent, unforeseen events have exacerbated the
situation, free market signals, economic losses, drought, and
the natural cattle cycle laid the foundation for today's
circumstances over several decades.
Beef packing has historically been a low-margin business.
In the year 2000, with total cattle population of 98 million
head, the U.S. harvested nearly 30 million head of fed cattle.
By 2014 and 2015, the total cattle population was below 90
million head, with 2015 fed cattle slaughter under 23 million
head. Throughout this period of largely drought-induced beef
cow herd contraction, the most inefficient packing plants were
driven out of business as competition for limited cattle
supplies drove cattle prices to record highs. From 2000 to
2015, the U.S. beef industry experienced a net decline of
roughly 14,000 head per day in fed cattle processing capacity.
Even before the extremes of 2020, recent margins suggest
that there is opportunity to add packing capacity. However,
that opportunity does not come without significant risk. First,
the upfront cost of a new or expanded plant is extremely
expensive. Industry sources estimate cost of $100 million to
$120 million for every 1,000 head of daily capacity. Increasing
construction costs over the past year likely put current costs
even above that estimate. Then a new endeavor must meet
regulatory requirement, build a labor force, and keep enough
cash on hand to absorb losses. It is not just about building
facilities. It is about building a business model.
In response to the described market signals, numerous plans
for greenfield plants or expansions of existing facilities have
been unveiled in recent months. These plans come from new
entrants, minor incumbents, and major incumbents alike. If all
the announced plans for construction and expansion come to
fruition, roughly 8,000 head of daily fed cattle capacity and
nearly 2,000 head of non-fed capacity could be added over the
next five years. Recognizing current drought conditions, if the
beef cow herd declines by less than, say, two percent, there is
opportunity for profitability with 5,000 head per day of
expansion.
A note of caution. There is a point where industry
expansion goes too far and does not withstand tight cattle
supplies. The long-term cattle cycle, drought risks, and market
fundamentals must be considered.
Technology implementation will also be a critical component
of future success. Recently, many packers have revitalized
their focus on technology and development as a means to address
these labor challenges, manage costs, and reduce product waste.
Enlightened by the pandemic to the longstanding labor shortages
in the meat industry, many startups are also bringing outside
expertise and perspectives to advance technology and automate
the supply chain.
In closing, the shocks of the beef industry over the last
couple of years have presented the entire beef supply chain
with enormous challenges. The resulting price movements have
been frustrating, to say the least. Yet these same price
movements and supply chain disruptions have accelerated
investment in packing capacity, new technologies, and new
business strategies that will help keep the beef industry
evolving toward changing demands, and that is the market at
work. Thank you.
[The prepared statement of Mr. Aherin can be found on page
69 in the appendix.]
Chairwoman Stabenow. Thank you very much.
Dr. Hendrickson.
STATEMENT OF DR. MARY K. HENDRICKSON, ASSOCIATE PROFESSOR,
DIVISION OF APPLIED SOCIAL SCIENCES, UNIVERSITY OF MISSOURI,
COLUMBIA, MISSOURI
Ms. Hendrickson. Thank you. Thank you, Chairwoman Stabenow,
Ranking Member Boozman, and members of the Committee. I really
appreciate the opportunity to speak about the social impacts of
market arrangements in the cattle industry.
As a rural sociologist, I am concerned about the impacts
that market arrangements have on people, on people and their
communities. My concern centers around these relationships, the
impacts of market organization on relationships between
farmers, consumers, and communities, in effect the social
infrastructure that can make our food system and our
communities resilient. This leads me to focus on the broader
impacts of competitive markets.
Now competitive markets exist when no one seller, no one
buyer can influence the marketplace. It means that no actor has
the power to define choices or prices or ways of participating
in the marketplace. Competitive markets encourage a diversity
of organizational forms and they encourage multiple linkages
across actors. They can also decentralize decisionmaking over
food.
The power to make decisions about what food is produced,
how, where, by whom, and who gets to eat it, has become
increasingly concentrated in the hands of a few people that are
located in transnational agrifood companies. As has already
been stated, the four largest beef packing firms were
responsible for 85 percent of U.S. steer and heifer slaughter
in 2018. Four of the largest cattle feeders have a one-time
capacity to feed over 2.5 million head. This is in contrast to
the over 750,000 cow-calf farms in the U.S. that have an
average herd size of about 48 head.
Now when looking for a profit, these producers are also
concerned with their autonomy and well-being as well as their
other relationships with farmers and the community.
What are the impacts of consolidated decisionmaking in the
cattle industry as well as in the larger food and agricultural
sector? At the farm level, agrifood consolidation reduces
farmer autonomy. It means fewer choices for farmers about where
they market their animals. My colleague, Harvey James, and I
have argued that fewer market options constraints, as in limits
or inhibits, the decisions of farmers. It constrains, as in it
compels or obliges, them into decisions they might not
otherwise have made. We have also argued that basic agrifood
liberties, such as the freedom to negotiate and dictate terms,
or the freedom to know, can be constrained when agrifood
markets are consolidated.
As I stated, I am particularly concerned about social
relationships and communities. Rural sociologists conducting a
meta-analysis of the relationship between agricultural
structure and community well-being found detrimental effects in
82 percent of the 50 studies they reviewed. A Missouri farmer
once told me, ``I used to look around to see if any farmers
were getting out of farming, so I could get their land to farm.
Now I look around and I see I have no neighbors.''
Anthropologists at the University of Kansas showed that a
consolidated agriculture without people has depopulated western
Kansas with an accompanying collapse in social relationships.
Researchers in Europe have shown that less concentration of
agriculture production enhances social cohesion, and that is
the glue that allows groups and communities to accomplish their
goals and dreams.
This pandemic has shown us a number of flaws in our food
system. I want to highlight that worker health and well-being
are very important indicators of food system sustainability,
and both were severely impacted by COVID-19. There was a strong
relationship between proximity of livestock plans and the
incidence of COVID-19 over time. Many of these processing
plants were shut down due to COVID-19 infections, causing a
backup of live animals to be slaughtered. Now these animals
have to be fed, raising costs for farmers, or, in some cases,
euthanized, which causes economic and psychological harm. There
are ecological concerns about animal welfare and the waste of
natural resources, such as the soil and water embodied in those
animals.
Now what can we do? I do not believe that there is any one
approach, at any given scale, that will prove effective.
Instead, we need a combination of actions, strategies, and
policies at multiple levels that are ecological, democratic,
and equitable, within and across populations, generations, and
species, and this is the way we are going to build redundancy
and provide fallbacks when some organizations or networks fail.
I thank you for this opportunity, Madam Chairwoman, and I
look forward to answering any questions.
[The prepared statement of Ms. Hendrickson can be found on
page 82 in the appendix.]
Chairwoman Stabenow. Thank you very much, and we appreciate
very much the input from all of our witnesses today.
Mr. Tupper, let me start with you today. As a producer and
a livestock auction operator, which we have now had a
demonstration of, which we appreciate, you see the negotiated
cash market up close. What impacts do you see in the actual
sale barn when there are fewer packers and other participants
bidding on cattle during an auction?
Mr. Tupper. Thank you, Madam Chairwoman, for the question,
and I respectfully disagree with many of my colleagues that
spoke after me about what that is. As we talk about shackle
space and limiting the amount of packers that play, they talk
about efficiencies that these big packers can make. What we
give up in efficiencies, we would get back in competition.
Every time that we gain efficiencies, we lose competition.
I think that when we talk about whether shackle space is
the most important thing, under their scenarios, it concerns me
and my producers that the only way we can make money is if
there is less cattle than there is shackle space. That is their
theory, that shackle space is the only thing that can determine
whether we can be profitable, and I respectfully, definitely
disagree.
We need more players in the marketplace and competition is
huge. We would definitely give up some of those efficiencies to
have more competition.
Chairwoman Stabenow. Thank you very much. Dr. Tonsor, to
followup on this, when fewer packers are participating in these
markets we often hear concerns about market transparency,
because live cattle prices do not get reported, due to USDA's
current confidentiality rules under livestock mandatory
reporting. Do you have any suggestions on how those
confidentiality guidelines could be improved?
Mr. Tonsor. Yes, I do. My first response would be as a
point of clarity, is covered packers have to submit information
to USDA, and regardless if there is one, two, or five it all
gets submitted to USDA. The distinction that is important is
what does or can USDA do with that information. That is part of
the transparency discussion. It all gets reported to USDA. Not
all of it shows up on a report to the public, depending on how
confidentiality is approached, is what I am trying to make
clear for this body, first and foremost.
The 3/70/20 rule is the common confidentiality approach
that is used by USDA. I noted, in my written testimony, that
should always be--not always, periodically--re-examined. There
is a history of a different approach being used. At the end of
the day, anything that USDA does when it comes to implementing
LMR is a tradeoff between aggregation and precision. You can
aggregate across more categories to get more buyers and more
types of transactions, to make it more likely you can report,
but then you have the cost of precision.
A simple example I offer in my written testimony is maybe
aggregating steers and heifers by definition would add volume,
rather than trying to report them separately. That alone may
not get you another buyer, but that is a simple example that
this body can relate to. I encourage more of those things to be
considered.
The second thing, real quickly, is as it relates to the
data that is submitted, currently that is done on a whole-State
basis--so the State of Kansas is one unit, State of Nebraska is
one unit, and so forth. Something that is worth thinking about
is whether or not that could be submitted on a more precise
level, so think sub-States of a State or even zip code or
something, which potentially--and please note, I am saying
``potentially''--would allow USDA to report differently and
address confidentiality that way. Their hands are sort of tied
by the way data is shared with them at the whole-State level,
currently. Thank you.
Chairwoman Stabenow. Thank you very much. Dr. Hendrickson,
I really appreciate your perspective as we think about how we
are going to move forward after the pandemic, and in announcing
the framework for funding to improve resiliency in the food
supply chain, the USDA identified four pillars of focus:
supporting production, improving processing, investing in
distribution and aggregation, and creating new market
opportunities. I am wondering, what are some of the factors
that you think that the USDA should consider as they design the
program so that we can assure these investments have real
impact and sustainability in the long run?
Ms. Hendrickson. Thank you, Chairwoman Stabenow. One of the
things that I think USDA needs to consider as they design this
program is how will they build in redundancy and resiliency.
One of the things that we saw with the pandemic is that we had
a very brittle food supply chain, not just in cattle but across
the board. We had a very brittle food supply chain. We know
that local and regional farmers and businesses were much faster
and more nimble at responding to the impacts of the pandemic
than were far-flung supply chains.
What we need to do is to figure out how we are going to
build in failsafe mechanisms. How can we have a redundancy in
processing? These should be priorities as USDA focuses on
processing, on aggregation, and so on.
I think it is important to regionalize the food system, to
find ways to regionalize the food system so we are not as
dependent on these North American or global kinds of
production-consumption relationships. Thank you.
Chairwoman Stabenow. Thank you very much. Senator Boozman,
for your questions.
Senator Boozman. Thank you, Madam Chair. Mr. Gardiner, we
have all heard about the devastating impacts the Holcomb
packing plant fire and the COVID-19 pandemic had on many cattle
producers. Can you describe your personal experience weathering
these events?
Mr. Gardiner. Yes, sir. Thank you, Senator. You know, in
this business we all deal with risk all the time, so we work to
lay off risk with forward contracting, hedging, and placing
cattle at different times. I often talk about our management
and our genetics, and the access to these places, based on that
quality alone, gives us systems that allow us to hit those
targets at varying times.
Yes, that delayed it. That made a bottleneck. Our
relationships with these people allowed us, through the
pandemic. I will go back to a year ago right now. They were
able to take away all of the discounts on our grid, and they
incentivized us and helped us get through that. Many of the
other processors were offering a base price of 95, and our base
price, for all those cattle, cash included, was $1.15.
I think when we look at these things, by nature cattlemen
are the ultimate optimists, but they are the ultimate gamble.
With weather, drought, market access, and all of these things,
it is almost like with the fire, the pandemic, and now the
ransomware, what else can they hit us with.
We have to be flexible, and the flexibility of all of these
things have allowed us to manage risk.
Senator Boozman. Dr. Tonsor, can you explain the risks and
benefits of alternative marketing agreement use and the risks
and benefits of a mandated volume of cash market trade? Then
also, you talked a lot about data and things and the importance
of that. Have the risks and benefits of both of these topics
been clearly quantified?
Mr. Tonsor. Of course, it is hard for an academic to answer
that in the short minutes here but I will do my best. The
benefits and costs of AMAs themselves have been studied
extensively over time by economists. To summarize and keep it
jargon-free, most of the economic benefits have come down to
helping coordinate, so efficiencies of knowing I have a place
to send my cattle, efficiencies of knowing cattle are coming
in, from both the buyer's and seller's perspective, are
substantial. That makes our system more efficient, is what is
underneath that statement, as well as aligning the demand
signals.
I made the comment about proliferation of beef products.
There are a whole bunch of different beef products that go into
those three different market channels that I alluded to. Some
of that goes back to asking for cattle to be bred differently,
raised differently, conveying information with them, and so
forth, but does not align well with the spot market,
traditionally. A lot of the economic benefits on the demand
side align with use of AMAs. That would be my main response on
the AMAs.
What is the benefit and cost of bumping up cash spot or
mandating cash spot, was the second half of your question. I
think an honest answer is economists have not quantified those
costs very well yet. I could just give you a personal opinion,
because that is the best I can do as long as I am transparent
on that, is I get concerned when we add rigidity to a system
and we get in the way of people being entrepreneurs and doing
things a little bit differently. Any kind of government mandate
gives me that pause. Those who have heard me before know that
is my M.O. that I respond to.
My concern beyond that, that would certainly be a cost in
this specific case, is the more we bump up cash share being
required is exactly what would be done to just meet the specs,
what would a negotiated trade look like, would it be different
than formula and forward, and so forth. LMR, in many ways, was
designed to be a price reporting as opposed to a regulatory
effort, and that needs to be thought about carefully. Thank
you.
Senator Boozman. Very good. Dr. Aherin, there are several
new beef processing plants that have been announced in the last
year. Ranchers and feeders are investing in these facilities.
In many instances, a greater degree of supply chain
coordination through AMAs will be utilized to procure the
cattle for these plants. Can you speak to why these new market
entrants may choose to pursue AMAs over the others? If a
certain volume of cash trade were mandated, what might the
impact be on these new facilities or other investors
considering entering the business?
Mr. Aherin. Certainly. I think it is important to look at
how a lot of these new plants are being designed. They are
being designed around niche markets, product differentiation,
because they are not going to be able to compete in terms of
economy of scale and efficiency, with the large incumbents.
They have to separate themselves based on product quality and
really truly meeting consumer demands.
If you have specific specs in the beef that you are looking
for, you have to have specific specs in the cattle that you are
looking for as well. To guarantee that you have enough cattle
and you have identified suppliers of the cattle that meet those
programs, you are going to want a strong relationship with your
suppliers. One of the best ways to build those strong
relationships is through AMAs.
If cash were mandated in this situation it would severely
hamstring the ability for these smaller, regional plants that
are likely going to have to compete in niche markets to be able
to differentiate themselves from the large, more efficient
incumbents.
Senator Boozman. Thank you, Madam Chair.
Chairwoman Stabenow. Thank you very much. I believe we have
Senator Klobuchar with us, virtually. Senator Klobuchar.
Senator Klobuchar. That is right. Thank you very much.
Thank you to all the witnesses. Such important issues. I just
want to start out with a quick question to Mr. Tupper. The
pandemic painfully exposed high risk to our food supplies.
Senator Moran and I worked on the RAMP-UP Act, that was
included in the December relief package, to help small plants
with inspection and get the inspections they needed and the
like.
How does having a more diversified meatpacking industry
help improve resiliency in our food chain, because clearly the
pandemic showed some of the problems.
Mr. Tupper. Thank you, Senator Klobuchar. I think having
more small and regional packing plants is huge, but I think
that we have to look at it as more than just shackle space.
They have to be sustainable, and we have to make sure that they
are able to succeed. We have a history, in building some small
and regional plants, of it taking three or four different
owners before they can be prosperous. I think another onus on
those small plants is when they go to sell that meat, or try to
get their market share, it is very difficult when you are
dealing with four major packers that are ready to squeeze you
out at any time, because you are trying to take a share of
their business.
I think it is important, and I think it is definitely
better for the security of our food system to have more small
and regional packers, but we have to, besides just build them,
we have to be able to make sure they can succeed.
Senator Klobuchar. Okay. Very good point. Thank you for
that. In Minnesota, around 90 percent of our cattle leave the
State for processing, and cow inventories have outpaced
processing. We would like to make this work better. I guess I
would go to you, Dr. Tonsor. What barriers prevent the
expansion of livestock processing capacity?
Mr. Tonsor. Thank you. It has been alluded to. There are
many economic drivers of why we have the packing processing
sector the way we do today. Economies of scale is the most
often noted one. I have used the term ``efficiency'' at least
three times already today. That simply means the larger
operations have a cost advantage per unit, to keep it jargon-
free.
I will also note that something that has been added, in my
opinion, in the last probably 20 years, with the proliferation
of additional beef products, is economies of scope. The ability
to not only produce a high volume and be cost efficient to run
the plants efficiently, but also to be able to sustain large
volumes of multiple types of beef products must be noted, and
that is something that a smaller operation will have as a
challenge.
You can look at that as an opportunity or a threat. You
cannot compete with bigger operators on everything, is the
point of that. My colleagues to my left noted that as well. You
have to narrow your business, and I think that is harder if you
are new entrant in a small, medium-sized place, when you are
facing not only economies of scale but economies of scope, for
a lot of current incumbents.
Senator Klobuchar. Okay. Very good. I am working with the
Antitrust Subcommittee on a number of pieces of legislation, as
some of you may know, which would be helpful, I believe, in
this market, with being more pro-competitive and changing some
of the standards we use to analyze not just mergers but looking
backward at what is happening in industries. We are also going
to be holding a hearing coming up soon on meatpacking as well
as the food supply chain in Judiciary, that I am helping to
head up.
Mr. Tupper, how important is it that the agencies continue
to investigate the current cattle market dynamics and provide
updates of their findings, whenever possible?
Mr. Tupper. Thank you again, Senator Klobuchar. I think
very, very important, and we thank USDA and Secretary Vilsack
for his willingness to work on these issues. He has stated that
he is wanting to look at the Packers and Stockyards Act, and we
definitely need these investigations into the antitrust
theories to come out.
One of the questions that always gets asked, in a free
market system, why aren't any of the big four packers trying to
gain more market share, if it is truly a free market system?
Why are they not trying to gain market share upon each other?
That is something that always comes to mind.
Yes, we definitely encourage and appreciate your work on
that, trying to get these antitrust legislations worked
through.
Senator Klobuchar. All right. Well, thank you very much.
Thank you, everyone.
Senator Boozman.
[Presiding.] Senator Marshall.
Senator Marshall. Thank you, Chairman, and again, welcome
to all of our witnesses. I will have my first question for Mark
Gardiner. Mark, I would like for you just to share a little bit
about the story of U.S. Premium Beef. What were the ag
economics like when you made the decision to do that, and as I
recall it was basically cattle producers that formed this
packing plant.
Mr. Gardiner. Thank you, Senator Marshall. It was very
similar to some of the things we are talking about today. As I
mentioned in my testimony, we were--one out of four steaks
ain't bad. Our product was terrible. We were losing market
share at a rate that Dr. Harlan Ritchie of Michigan State
University wrote a paper that said five years to meltdown. At
the rate we were losing market share, we were not going to be
relevant in the protein business.
I was 35 years old. We were scared to death about
investing. It has been mentioned oftentimes about investing in
our community and investing in our infrastructure. We wanted to
put some skin in the game to understand what made cattle
better. We made the investments, we made that purchase of a
percentage of National Beef as a group of 470-plus
stockholders, because our cattle were not very good. Ours were
not any different than the rest of them.
When we went about doing that, all of a sudden, and we got
that information on each and every animal, we started to learn
what we needed to do to align our supply with consumer demand.
My biggest view of the problem at the time was one price fits
all, and that is part of the discussion today on the cash
markets. It is very thin, but you are pricing everything on the
average. We wanted to go to value-based systems that valued
each and every animal, and this was successful because all of a
sudden when you realize your animals are not hitting those
targets we changed our genetics, we changed our management, we
changed our feeding strategies, and we have vertical
coordination of information to help all of us become more
profitable.
The realization that the beef industry was in so much
trouble, losing market share, and our product was not very
good, that is what changed it to where we have more beef demand
today. That is what we have done, and our cattle have led the
charge of improving the quality of the beef cattle in the
United States.
Senator Marshall. Thanks, Mark. Dr. Tonsor, maybe I will go
to you next. Everywhere I travel people tell me that American
beef is the best product on the market, that there is no one
else that can compete with them. Even if the Australians maybe
could beat us on price, the quality of our beef is what drives
it. There are huge export opportunities across the world for
more markets.
If we lost this value-based system that we have now, how do
you think it would impact those export markets?
Mr. Tonsor. Yes, thank you for the question. Remember in my
testimony the three different market channels, so domestic food
service, domestic retail or grocery, and export?
Senator Marshall. Yes.
Mr. Tonsor. We send different products to those three
channels. That is part of what you are alluding to and remind
this body. Beef products find the market where they are most
valuable. I would be concerned, to answer the question
directly, if we erode incentives to have quality enhancement in
the industry, at what point does the U.S. lose its current
comparative advantage and high-quality beef?
That would not happen overnight, right, because some of
those things are genetic--feed, management, reputation. Some of
those have long legs. We need to think through, very carefully,
what the economic signals are for each one of those steps and
what that signals to consumers.
Eventually, I would think you would lose market share not
only in the export market but domestic food service and
domestic retail, because all three of them, you are competing
with other proteins. Sometimes it is beef, sometimes it is a
non-beef, but it is a protein marketplace globally.
Senator Marshall. Thank you for that answer. Then, Dr.
Aherin, my phone has blown up like it has never blown up
before. Friends that I have grown up with since I was a child,
people in the ranching industry, folks that own small feedlots,
cow-calf operations just concerned about this situation.
Feedlots that I have known, again, for decades, where there
used to be 10 or 15 buyers, are having one person show up and
offer a price. The sale barn that I worked every week in, from
the time I was 16 until I was 20, used to have dozens of buyers
show up, and now there are only two or three, maybe four buyers
show up.
What would you tell them the why, how come that is where we
are today?
Mr. Aherin. There is not an easy answer to that, but I
think a lot of it has been alluded to the fact that the
industry has moved toward these value-based marketing systems
where we can reward cattle based on their different quality
traits.
One point that was mentioned earlier today, that I think
helps explain this some, cash trade as a percentage of total
transactions really has not changed since 2014, 2015, but what
has changed is price. Cattle prices were at record highs in
2014 and 2105, and then they have been challenged recently, but
yet that negotiated trade level really has not changed. What
has changed over that time is the supply relative to demand for
those cattle.
I want to emphasize one thing that we have kind of danced
around, is that consumer demand is really what drives the price
and the value of these animals, but it is processing capacity
that allows that demand to trickle down to the cattle feeder,
to the cow-calf producer. While there might be great consumer
demand in today's market, it is not necessarily trickling down
to the cattle feeder in the same way that it did in 2014,
because of that oversupply of cattle relative to packing
capacity. That is going to change. Over the next several years,
the cow herd will likely decline. We are in a drought
situation, liquidation phase. It is frustrating from an optics
standpoint, but we are in a national market where total supply
and total demand really drive price.
Senator Marshall. Thank you, and I yield back.
Senator Boozman. Senator Gillibrand.
Senator Gillibrand. Thank you, Mr. Chairman, Mr. Ranking
Member. In New York, there is a very high demand for increasing
processing capacity at small facilities, and farmers are often
booking slaughter dates several months or over a year in
advance.
On Monday, USDA announced their new Meat and Poultry
Inspection Readiness Grant Program to assist small and medium-
sized transition to USDA FSIS inspection, and I am hopeful this
program will meet the needs of the processing facilities in New
York.
Mr. Tonsor, with the consolidation in processors, this has
led to a decreased buyers and processing options as well as
increased opportunities for market disruptions if just one
facility goes offline. Outside of the aforementioned grant
program, what other options need further exploration to
increase capacity at smaller facilities?
Mr. Tonsor. There are a whole host of governmental
discussions around subsidizing grants, you know, increasing
access to credit and the like. Those all have a place there. I
do not think it is my wheelhouse to advocate for one of those
or not. I think just at the point in time you have a lot of
society interest in that. Bodies like this can listen to that.
That is my short answer.
Senator Gillibrand. Thank you. Dr. Hendrickson, in your
testimony you touched on the need for flexibility, particularly
in areas like processing, and you also mentioned the social
value of communities and neighbors. I have worked to invest in
our rural communities and strengthen our local food systems in
New York so that more food from New York producers can get to
other parts of the State. You also point out the consolidation
is an agrifood systemwide concern, in your comments, which is a
sentiment that I share.
First, can you speak more about how decentralizing and
making our cattle market more resilient can also help our rural
communities thrive? Second, can you elaborate about
consolidation in the cow industry and its connection to
consolidation in the dairy sector, and how this broad
consolidation impacts family farms and consumers?
Ms. Hendrickson. Yes. Thank you, Senator Gillibrand. The
investments that we can make it regional food systems have a
lot of impact on communities, farmers, food businesses. We have
done some work around local food, economic impacts of local
food, and we know that the economic returns stay in the
communities and have a larger economic impact. There is quite a
body of data on that, that shows that those returns are good
for building the economic base of the community.
My concern is on people and the social relationships, and
what happens when we do decentralize, when we can build
relationships between farmers and eaters, we start to build
kind of this social infrastructure that I talked about earlier.
That social infrastructure is really important and necessary
for communities.
One of the ways I will just point out, during the pandemic
those cities that were able to use existing networks, strong
networks that had a lot of social cohesion, they were much more
effective in getting aid out to people who needed emergency
food aid, for instance. That is just one example of the returns
that we can have to social infrastructure.
I do not think that this is just a cattle problem or a
dairy problem, or a hog problem or a protein problem. What we
see is consolidation across the board, and we need to really
think about buyer power in that consolidation arena, and that
starts with who is buying these food products--the Walmarts,
the Whole Foods, the consolidated retailers. That is a buyer
power issue, but it goes throughout the system. We see
consolidation on the farm side. We see consolidation in
processing, distribution, all of these things, and I think we
have to address it in multiple fashions. I think one of the
things that we need to think about is how are we going to
create a diversity of ownership and control where consumers and
farmers can negotiate these relationships that they want, that
are socially important for them and their communities. Thank
you.
Senator Gillibrand. Thank you. Even though New York is not
a large beef cow producing State, we do still have a fair
number of beef operations, over 7,000 farms with over 100,000
beef cows, according to the 2017 Ag Census. In addition, we
also have a large dairy cow population, over 4,500 dairy farms
with over 600,000 dairy cows, with many of those dairy cows
eventually making their way to the ground beef market as cull
cows, and finally, we have a fair number of veal calves
originating from dairy farms.
Over the past several years, dairy farms have begun to
transition lower genetic quality dairy cows to beef to increase
their profits for dairy calves. These calves are often then
raised as feeder cow for the beef market.
Mr. Tupper, how do smaller beef States like New York remain
competitive and ensure that cow producers receive fair prices,
and what are the potential opportunities to expand markets for
retired dairy cows to be used as beef?
Mr. Tupper. Thank you, Senator. I think you are exactly
right. There is much more done in the dairy sector cross-
breeding to bring those cattle into the beef sector. I think
ways that they can stay competitive is we have got to keep
these markets fair, we have got to be able to make sure that
bigger is not always better. The bigger the packer is,
sometimes they squeeze out these small and regional packers
that we are trying to build and get shackle space for.
I think one of the main ways that they can stay competitive
is make sure that they can get market share and that they can
fairly be in that marketplace. I think that is the best way
that we can keep them competitive.
Senator Gillibrand. Thank you. Thank you, Madam Chair.
Chairwoman Stabenow.
[Presiding.] Thank you very much. As we go back and forth
here to vote, hopefully everyone who is with us at the moment
has voted on the first vote.
Senator Tuberville.
Senator Tuberville. Thank you, Madam Chair. Thank you for
being here today. You know, back in Alabama cattle production
represents a $2.5 billion industry, so I am thankful we are
having this today, because we have got a lot of our farmers and
cattle growers in serious trouble.
Let us start with Mr. Gardiner. Mr. Gardiner, your
experience using alternative marketing agreements to compensate
for the investment your family has made to improve the genetics
of your herd is a compelling experience. Alabama is home to
thousands of small cow-calf producers, and I am curious to know
how these agreements can benefit producers like those in my
State. Can you elaborate?
Mr. Gardiner. Yes, sir. Senator, I would first thank you
for the question, but I would stress that these AMAs that we
have developed are actually the very best for the small
producer, that have allowed them to take their genetics and
take their managements, and being able to have that market
access for those superior cattle and for that superior
management. I think we have to look at the marketplace and we
have to look at where do we fit into that marketplace and how
do we go forward on a demand-driven market. I think when we
look at a lot of the discussion--and I agree with much that has
been said--the challenge for everybody, whether you are a cow-
calf producer or a processor, is how are you profitable. If you
look back in history, 100 years ago we had lots more
processors, and the blunt truth of the matter why they are not
here today is they were not processors, they were not
profitable.
I work with customers every day. How do we change our
management systems? How do we create cattle that somebody
wants? How do we coordinate and align these beef cattle with
consumer demand, which ultimately aligns with profitability? It
takes organization, coordination, it takes working together.
As we go back to one of the earlier questions, we had all
these exact same problems. We still have them today. We work
with, whether you are from Alabama, Kansas, or Alaska, how do
we reach the market and how do we make all of these systems
better, to be more profitable? I would stress that the absolute
smallest producers have reaped the highest dollar per head
value on our value-based grid, because they can hit those
targets better than anybody else has. Quite frankly, that is
what has kept my family in business, that is what kept our
other families in business, and that is where we go, as we go
forward.
My concern is, with mandates, is all of a sudden I have
spent all these years, as many others have too, I am mandated
to go back to average pricing for one-price-fits-all, and that
is why I think when we look at the information and the thinly
traded cash market, and Dr. Tonsor alluded to it, if we can put
all base prices, a formula grid and AMAs, into the mandatory
price reporting, this is the base price and that becomes all-
inclusive, then we are going to have a more robust, more
transparent market.
Senator, I just would stress to you that when we know where
those targets are and we align them with consumer demand, we
are rewarded for it. Thank you.
Senator Tuberville. Thank you. Dr. Tonsor, you know, back
in my State beef cattle is second to buying broiler chickens.
Can you explain how beef competes with other proteins in the
market, such as chicken and pork? I would be particularly
interested in your thoughts about AMAs and the role they might
play as beef's overall competitiveness among other proteins.
Mr. Tonsor. Sure. I do spend a lot of my time monitoring
meat demand, and meat is broader than just beef, right, so
multiple proteins, as you alluded to. Meat demand is high. It
is not unique to beef. We must note that. Over time, some of
the work I have done actually says what economists call ``cross
price effect.'' The price change on pork and chicken has less
of an effect on beef today than it did 20 years ago.
My opinion on why that has happened is there is a quality
distinction that has grown over that 20 years, and it is not
just price. It is price and other considerations that make
somebody switch from Protein A to Protein B, hence why we are
here today. I think we, being the beef industry in that
statement, there is a quality advantage in the eye of the
typical consumer that justifies them paying more per pound,
typically, for beef than they do for pork or chicken.
If it is just simply a cost per pound of protein, then the
protein that wins is simply who can produce that the cheapest
and most efficiently. That is not something that is in the
wheelhouse that is favorable for the beef industry, hence my
comment on comparative advantage in my oral testimony. Over
time, the beef industry has had a comparative advantage on
high-quality, good eating experience, that has helped them
position themselves well, compared to other proteins.
Senator Tuberville. Thank you. Madam Chair, my time is up
but I would like to submit a couple of questions for them to
answer.
Chairwoman Stabenow. Absolutely.
Senator Tuberville. Thank you very much.
Chairwoman Stabenow. Absolutely. Without objection.
Senator Booker, and then we will have Senator Grassley.
Senator Booker.
Senator Booker. Thank you very much, Madam Chairman. I
would like to put some questions toward my friend, Dr.
Hendrickson.
You know, COVID really showed how fragile our food system
is, and we saw our system really break down in pretty stunning
ways. Consumers were paying higher prices for meat while
ranchers, who were paid less for their cattle but the big,
consolidated companies really made record profits. COVID did
not create this problem. It really shined a light on what was
going on. Many of the witnesses who testified talked about how
there is really record concentration going on right now in the
meatpacking industries. Companies like Tyson, Cargill, JBS, and
National Beef control more than 80 percent of all the U.S. beef
processing.
I have been concerned about these extreme levels of
concentration for years, and as you know have introduced a
number of bills to try to deal with that, bills with multiple
colleagues on both sides of the aisle. Senator Tester and I put
together a bill that would stop these ag mergers, put a
moratorium on them.
I have introduced another bill, the Farm Systems Reform
Act, which would make reforms to the Packers and Stockyards
Act, including a prohibition on meatpacker ownership of
livestock more than seven days prior to slaughter, and a
requirement for meatpackers to buy at least 50 percent of all
cattle from open-cash auctions. The bill would also address a
problem that Mr. Tupper described in his testimony, and would
stop the USDA from allowing imported beef to be deceptively
labeled as products of the United States of America, which is
so against the ideas I think that we have when we label
something ``Product of the USA.'' At least it is deceptive to
the consumer.
I will be introducing legislation with Senator Lee to
reform the Federal checkoff programs, which our ranchers are
forced to pay into a program that is used to benefit the giant
meatpackers.
There is so much in the system that is clearly unfair,
clearly working against producers, and driving many of them out
of the market, and as you have talked about, hurting so many of
our rural communities.
Dr. Hendrickson, if we actually use the antitrust laws that
we have today, I wonder if you can show what breaking up these
companies and this unprecedented consolidation, what would the
impact have on farmers and ranchers and those rural
communities, and what the impact of stopping this kind of
consolidation have on the resiliency of our food systems in
moments of crisis, whether it be droughts or, frankly, what we
just saw with COVID?
Ms. Hendrickson. Thank you, Senator Booker. I think the big
thing about resiliency is that we have to have a way to have
fallbacks or failsafe mechanisms, and what concentration does
in the food system, it focuses on efficiency and
specialization, and it does not say, oh, what is going to
happen if we have like a pandemic or we have a disaster or we
have these ransomware attacks? Everybody keeps saying that, oh,
these are black swan events, but they happened and we were not
very well prepared for them. We have to think about how we can
prepare for them in the future.
Resiliency requires a diversity of different kinds of
forums, large-scale, small-scale, cooperatively owned, publicly
owned, these kinds of things. It requires a lot of diversity in
the system, and it also requires a different kind of
connectivity, modular connectivity, where if you take out one
node it does not crash the whole system.
I think those are really important aspects of it. I am not
sure that current antitrust law actually, the way it has been
interpreted, it has been difficult for these kinds of questions
about resiliency and fairness to be embraced within the current
iterations of antitrust.
I think we need to think, you know, some of the policies
that you are talking about are potentially ways that we can
have a system that really connects farmers and consumers,
connects communities, and really pays attention to the
ecologies in which these relationships take place. I think that
is really important.
Senator Booker. You know, we saw this in Upton Sinclair, in
The Jungle. We are more concentrated than even at that time.
Real quick, in the seconds I have left, the consumer impact
also would be affected too, by a more diverse system. Correct?
Ms. Hendrickson. That is right, and a lot of my fellow
panelists have talked about consumer demand driving everything,
but if consumers do not know about their food system, and most
of the information about food, they cannot find it out.
Anything we can do to make it more apparent for them to choose
what they want, I think is really good.
Senator Booker. Thank you. Thank you very much. Thank you,
Chairman.
Chairwoman Stabenow. Thank you. Senator Grassley.
Senator Grassley. Madam Chairman, I want to put an
editorial on the record from the President of the Iowa Farm
Bureau.
Chairwoman Stabenow. Without objection.
[The letters can be found on page 191 in the appendix.]
Senator Grassley. Okay. Second, I want to give a couple of
takeaways so far from this meeting. We have got one witness
that says we have a cozy setup, do not pass any laws to affect
any of that cozy setup. That is not going to work for the
farmers in my State that are mad about the $1,200 profit that
the packers are making, and they get a low price compared to
other people, and they have to wait 30 days, in some instances,
to market their product. That is going to demand action by this
Congress to take care of that unfair situation.
The other takeaway is that I have not heard anybody justify
the situation I just described, where farmers do not make a
profit, the family farmer, and the packers make a $1,200
profit, and there is no benefit to the consumer.
My first question is to Mr. Tupper, being a cow-calf
producer as you are. Over the past 20-plus years there has been
a drastic shift in the purchase agreements, where, in the early
2000's, more than 50 percent of the cattle were traded on a
negotiated basis, but now it is only about 20 percent cash,
maybe even less than that, I have heard. I have also heard from
many Iowa cattlemen who fought to keep auction markets open and
functioning as close to normal during the pandemic, because
they are so vital to price discovery in the cattle industry.
This question to you. Does captive supply create more
leverage for packers to pay lower prices for fed cattle in the
cash market, and how does the lack of cash trade ultimately
impact livestock auction markets?
Mr. Tupper. Thank you, Senator Grassley, and it definitely
is a definite yes, it impacts it hugely. When the Big Four can
have all of that captive supply, so they do not have to go out
and compete for those cattle, then they can push down the
prices.
One of the other things that I would like to say to Mr.
Gardiner, when we talk about the differences in cattle and
prices, there used to be four or five buyers come out to your
State and Iowa and look at cattle, and they could still buy
those cattle on an up basis. They do not have to have an
Alternative Marketing Agreement (AMA) to give more for those
cattle. At any time, they can go to Senator Grassley's feedlot
and say he has a superior set of cattle, and the base price
that everybody else is given is $1.20, and they can bid them
$1.25. I strongly disagree that that helps the market.
I think the other part of your question is that if we had
more competition out there and they could not hold captive
supply, then when we have high boxed-beef prices, we would
directly see the benefit of that. The argument that shackle
space, and there is no question we need more, but we do not get
to see the direct benefit of higher boxed-beef because we do
not have competition and they can have captive supply. Thank
you.
Senator Grassley. Okay. Also, Mr. Tupper, you mentioned
that alternative marketing agreements like formulas offer
advantages to producers but that they also adversely affect
price transparency, price discovery, price competition. Iowa
leads the Nation in cash trade, nearly 60 percent, and they are
frustrated that they are shouldering the burden.
How do we know what cattle are worth in regions that do not
have price discovery? Are small, independent producers offered
the same opportunities to market their cattle as big producers
do through formula contract?
Mr. Tupper. I would say definitely they are not. We know,
and we need a contract library that tell us this. Some of the
big corporate feedlots are getting a different deal than the
smaller farmer-feeder is. We cannot get those same deals. They
are being offered those. I agree, some of the best cattle in
the country are raised in your State, come from our State of
South Dakota, and are fed in Iowa, and they do cash trade, and
they are shouldering the burden for everybody else.
All of those AMAs are set on a base price. If they are
getting an up in the market, if the base price was higher than
those AMAs may not look like quite so much. The whole base
price, the whole of the fed cattle industry would get more.
Thank you for the question.
Senator Grassley. Dr. Tonsor, in your testimony you
recognized the importance of reliable, accessible, and timely
market information. Iowa cattle producers that I have talked to
believe that the lack of cash trade in other regions and
limited information reported due to confidentiality guidelines
impede their ability to make well-informed marketing decisions.
How can we make cattle market work more efficiently so that
the small Iowa producer can compete with more transparency and
agreements help independent cattle producers get a fair price?
That is my last question.
Mr. Tonsor. Thank you. In my written testimony--I saved you
from it today because I only had five minutes in oral--I
outline several candidate adjustments to LMR. My short response
is please look at that list. Some of them get at the heart of
we cannot tell, as an analyst, at the moment, how similar
cattle quality are on formula versus negotiated. In many ways
that is because the formula bucket is a catch-all the way it is
currently operated.
I think part of the honest answer to that is we need to
pause and say, can we gather more information in a reasonable
way, to make sense from an economist's benefit cost perspective
of doing so to understand the differences in the type of
cattle, the relationships, and so forth. If those prices are
very similar once we account for differences in the cattle and
the relationships, that is one thing. If they are not, that is
a different thing. We do not know, until we understand more
what is in that broader bucket. Currently the formula is a
catch-all budget the way it operates.
You will find, in my submitted testimony is an
encouragement of looking at that.
The second part, briefly, would be currently USDA reports
ranges, min and max. I think there is an opportunity to report
more on the price distribution. An example I used in my written
testimony was maybe the 15th and 85th percentiles. Let us
understand more about the distribution of prices, help both
buyers and sellers--we are honing in on the seller perspective
here, at the moment; I get that--gather more information on
that whole distribution, some things like that are fairly
feasible, in my opinion, given how things already work, if we
could ask AMS to work with us to do that.
Senator Grassley. Thank you.
Chairwoman Stabenow. Thank you very much, Senator Grassley.
We will turn to Senator Smith, who I believe is with us
virtually, and then it will be Senator Thune and Senator
Fischer. Senator Smith.
Senator Smith. Thank you so much, Madam Chair. Thank you
for this hearing, and to all of our witnesses for being with us
today.
Cattle producers in Minnesota tell me that they feel
squeezed by this marketplace. The lack of transparency and
competition means that cattle producers are making pennies on
the dollar, in some cases. Meanwhile, consumers are paying more
and more for beef while the big processors, which control, as
Senator Booker said, over 80 percent of the market, are seeing
soaring profits. This imbalance in the market is exactly why
Senator Rounds and I led a bipartisan and bicameral letter
asking Attorney General Garland to investigate these
anticompetitive practices in the marketplace.
I also just want to thank Senator Klobuchar, who has shown
important leadership on this issue as well.
I think that we do have a market concentration problem, and
certainly the experiences of Minnesota calf producers, cow
producers, cow-calf operations really bear that out.
I want to just note I appreciated, Dr. Hendrickson, what
you said a bit ago in response to Senator Booker's questions
about how diversity contributes to more strength, more
resilience, and more fairness in the market, and I certainly
see that in the experience of the ag sector in Minnesota.
I want to ask a question with a little bit of a different
angle, and I am going to direct it to Dr. Hendrickson and also
Dr. Aherin. I would love to know your take on this. It is hard
for folks to make a living raising livestock, but it is
especially hard for beginning farmers and farmers of color.
Cattle producers are not just dealing with market concentration
and the power of the big meatpackers but also they have got
issues with land prices and hay prices and the general cost of
living, which keeps on going up and up. The rising input costs
make it especially hard for farm families that are just
starting out, because they just do not have a lot of built-in
equity. Then, on top of that, you have got the shortage of
processing capacity for smaller processing facilities, and that
becomes a real problem for beginning farmers and farmers of
color.
Dr. Hendrickson, let me start with you. Would you like to
comment on this, and what you see as the relationship between
this concentration, on the one hand, and then the challenges
that beginning farmers and especially farmers of color have
breaking in?
Ms. Hendrickson. Thank you, Senator Smith. I think one of
the big problems we have in the food system today is that it is
very capital intensive, and it is very difficult for those
without capital to figure out a way to participate, and it does
not have to be that way. We can do things that are less capital
intensive. I know that a lot of folks have been talking about,
you know, building processing plants, and so on, and that is
pretty capital intensive. We have got to figure out ways to
help people that do not have access to capital to get a part of
that.
One of the ways to do that, I think, is to do things
cooperatively, to do things collectively, and we have a long
history in agriculture of where we cooperatively work together
we can make a lot of changes. For beginning farmers, the
farmers of color who have been marginalized in so many
different ways, and particularly in access to capital, I think
that we really have to help those collective strategies, help
them work together to access markets and to think about things
in new ways.
Senator Smith. Thank you very much. Dr. Aherin, would you
like to comment on this? You were here representing the
financial sector. Could you talk a little bit about how the
current cattle market has impacted new farmers and what banks
can do to help new farmers and farmers of color who
historically have challenges getting access to capital, you
know, how they can be assisted?
Mr. Aherin. Certainly. My role, within the bank, is to
really be a source of knowledge. I have colleagues in different
sectors all across agriculture and all across the world, and
really try to engage in information sharing and helping
producers to identify potential new markets, help them build
new business models.
As it has been alluded to today, several times, consumers
are more and more interested about where their food comes from.
There is more and more interest in production practices and
sustainability, and there are several of my peers who have gone
back to their family operations and added a component of a
different, kind of more of a niche market to maybe their
family's operation or maybe started something brand new on
their own, you know, being more engaged with the consumer and
really helping to identify trends in the marketplace.
Senator Smith. Thank you. Thank you very much, Madam Chair.
I yield back.
Chairwoman Stabenow. Thank you very much. Senator Thune.
Senator Thune. Thank you, Madam Chair. Mr. Tupper, help me
understand a little bit here. You have heard some of your
colleagues on the panel today talk about the prices are being
simply a function of supply and demand. I think I heard you say
that the livestock producer, in many cases, is generating a
margin that may be 1 percent, and that packers were generating
margins of 80 percent. I think that was, if I heard you right,
in your opening remarks.
If you have got a food chain, a food chain that consists of
a producer, maybe in our part of the country it goes to a
feeder, but to a processor, ultimately to a retailer and to the
consumer, the consumer is paying, I think as it has been
pointed out, record high prices, and the producer is going out
of business, which means that the profitability in the middle
of that food chain is hardly evenly distributed at all.
Now if there is a true market, supply and demand regulating
this, you would think that there would be some benefit that
would accrue to the folks who are in that supply chain, and
maybe at the end of the supply chain, or the start of it,
however you want to look at it, and that is the producer.
Could you just respond to the whole question, or I should
say answer that has been given by some on the panel to the
explanation for prices, that this is simply a function of
supply and demand.
Mr. Tupper. Absolutely, and I think you alluded to it in
your question, that it really boils down to competition. When
they do not have to compete--we can talk about shackle space
and they can bring that up--that definitely is a factor,
because then they can control it. They can control the chain
speed, they control the price out the back door, as they are
pricing the meat. The margins can be very disproportionate.
I do not disagree that there are cycles. As we look back
through the history of the cycles, how many farms and ranches,
and how many small feedlots do we have to lose, every time we
go through a cycle, just because it is just another cycle?
Through that cycle, the Big Four corporate packers get filthy
rich, and we squeeze out the small guy. Time after time, if you
look through history, we have squeezed out the smaller guy.
Bigger is not always better, and efficiencies should not always
be given up for competition, and I think that is some of the
things that get overlooked.
Senator Thune. For a free market to work, you have to have
competition, and from what I hear you saying--so I am trying to
figure out, if we are trying to come up with solutions and
answers to what is happening out there--there is volatility in
the cattle market, these huge spreads that the packers continue
to get, that are driving producer, the producer level, out of
business--how do we fix that? It sounds like what I hear you
saying is that there is a virtual monopoly--you called it an
oligopoly, but a virtual monopoly--and there is a choke point
there where there is not enough competition. Even though you
had huge demand by the consumer, and you have adequate supply
at the producer level, that is not making it through the food
chain in a way that saves the consumer any money.
Let me ask you a second question, because you mentioned
something about having a second bidder. Talk to me, in your
business, what that means, how that works.
Mr. Tupper. Without question, when we have calf sales,
especially in the fall which is the big time, many of our
cattle move through South Dakota to eastern South Dakota,
Nebraska, or Kansas, and we have to have that second bidder to
decide what that price may be.
I can tell you, as a sale barn owner, when we have one of
these black swan events, it affects us directly too. If it is
on a Friday at 2, and I have 6,000 bawling calves in my sale
barn, and everybody is running scared because we have another
black swan event, that falls on our shoulders, as auction
market owners, to make sure that that market stays at a good
place.
The only way, in my opinion, that you can have any true
price discovery is you have to have a second bidder. You talk
to any of these small or medium-sized feedlots that do not
already have an arrangement with a packer, they do not get a
second bidder, and they cannot get one, and they tell them that
you have to take this bid, because otherwise there is not chain
or shackle space for you, so here it is. Or you can turn them
in on the grid--and hear, ``we are not going to tell you what
that price is until next Monday.''
I think the real key that does not get looked at or
analyzed is that the market power that the Big Four packers
have dictates and controls the profitability through the whole
sector.
Senator Thune. Well, and if you do not have, if I might
add, if you do not have a second bidder, you do not have
competition, right? You have got a single buyer setting a
price, and in this case a price that is making huge profits for
one of those rungs in the food chain, if you will, at the
expense of others, and particularly the person who is putting
the time and the effort and the energy in the work, into
raising that animal in the first place. Is that a fair
assessment?
Mr. Tupper. I think you are spot on in that assessment,
Senator.
Senator Thune. Okay. Madam Chair, my time has expired, but
I would suggest that we have to figure out, as part of our
deliberations, and whether that is in the form of legislation
or working with the Department of Justice, to address this
issue of lack of competition, and the fact that there is an
oligopoly and that price-setting and market powers being
misused in a way that disadvantages the very people that are
out there trying to make a living on the land.
Chairwoman Stabenow. Thank you very much. Yes, we have got
work to do.
Senator Fischer, and then Senator Hyde-Smith.
Senator Fischer. Thank you, Madam Chairman, for holding
this hearing. Before I begin I would like to request that
Nebraska Cattlemen's testimony highlighting their concerns
regarding the thinning levels of price discovery, lack of
processing capacity, and the need to increase market
transparency be added to the record.
Chairwoman Stabenow. Ordered, without objection.
[The letter can be found on pages 192-194 in the appendix.]
Senator Fischer. Thank you. I would like to start by saying
that I am not claiming or arguing that more cash sales will
improve prices for producers. I am concerned with price
discovery, and I am concerned with market transparency.
Many witnesses mentioned supply and demand impacts on the
supply chain, the cattle market, and sector profitability. I
spent over 40 years on a ranch in the Sand Hills of Nebraska. I
experienced firsthand the drought, changes in herd size, and I
saw smaller, regional packing facilities being shuttered around
us. I understand the shift in the industry that occurred after
2016, and how we find ourselves with more fat cattle and less
shackle space. I also understand that no one could have
predicted Holcomb of COVID-19.
Mr. Tupper, I thank you for your testimony. I love your
points on the second bidder, I love your points about the cow-
calf producer getting squeezed, but you left out our great
Nebraska beef.
Mr. Gardiner and Mr. Tonsor, Dr. Tonsor, I appreciate your
testimoneys. In Nebraska, I represent every segment of the
supply chain--cow-calf operations, backgrounders, feed yards of
every size, we have packers of every size, including three of
the big four. I understand that every region is different. What
works in one State might not work in another. I see the merit
in AMAs. I understand why they may be more popular in certain
regions. I understand they provide greater economic returns as
well as operational efficiencies, both for packers and for feed
yards.
In fact, that is why I have included a contract library in
my legislation, to provide all producers who want to diversify
their marketing but who were not lucky enough to have a seat
the negotiating table, that Mr. Gardiner references in his
testimony, and they can then have access to examples of what
already exists in the marketplace.
Dr. Tonsor, as the economist on the panel I am interested
in your opinion on Mr. Gardiner's testimony where he States
that his customers, on average, have earned $92.71 per head in
premiums, above live-based market price, because of his use of
a value-based system. Later in the testimony, he States that
cash trades can be interpreted as the base price. If there were
no publicly reported cash price for Mr. Gardiner to use as his
base, he would not be able to determine that his cattle are
worth that $92 more per head than his neighbor's cattle. Base
price is important.
Dr. Tonsor, you highlight the value of AMAs to market
participants who choose to utilize them. How do you foresee
these market participants setting the base price for these
agreements in the future if the pool of cash participants
continues to shrink?
Mr. Tonsor. Thank you for the comment and questions. Two
things come to mind. One is I think we honestly need to, as I
noted also in my written testimony, assess if LMR can help us
with the discovery and reporting and transparency component.
That in itself does not change in the percentage that are
negotiated, right? I think that has to be kept in mind as well,
not that I have the magic list, but there are some potential
helping points there.
The second part would be--and other testimony alluded to--
there are other industries that have similar shocks, lumber
industry and so forth, but I encourage us to go a little bit
further also. There are a lot of other industries that have
changed what their base way of doing business is. I do not
think we are to that point tomorrow, so please do not overreact
to my comment, but there are a lot of other sectors in ag to
where the base that you used in how you do business is
different today than it was 30 or 50 years ago.
I encourage us to look forward as opposed to backward. I
used that phrase in my oral testimony for a reason. At some
point, I think the industry will use a different base. I think
it makes sense, the best we can, to keep spot-negotiated,
reported transparently and the like, but we need to also be
open to, if there are ways to discover value for a commodity in
a different way, over time, we need to be open to that. There
are other sectors in ag that have done that. We are not going
to do that tomorrow on fed cattle, but I encourage us to at
least be aware of that evolution that exists.
Senator Fischer. I would be interested to know how you
would determine base in the future, because I think the cash
sales are important. They provide information to those using
AMAs. I do not think that they are receiving the value that
they have, the economic value that they have in the system that
we currently have. They are important to be able to know what
the market price is, to have that transparency, the
accountability in a system that should be benefiting every
segment of this industry, from cow-calf producers, to my
neighbors in South Dakota, close to the Sand Hills, to be able
to have that across the board. We need every segment of this
industry to be able to succeed.
My time has expired, but I thank you. Thank you, Madam
Chair.
Chairwoman Stabenow. Thank you very much. Senator Hyde-
Smith.
Senator Hyde-Smith. Thank you, Chairwoman Stabenow, and
thank you, Ranking Member Boozman. I am thrilled that we are
having this hearing today. I have been so excited, looking
forward to this, and I want to thank our panel of witnesses for
being here.
You know, I am pleased that the Committee has decided that
we need to discuss price manipulation, collusion, restrictions
of competition, and other unfair practices in the cattle
market. I applaud American Farm Bureau President Zippy Duvall
for establishing a Cattle Market Working Group in April 2020,
to investigate and research the volatile activities in the
cattle markets, and the findings and suggestions that resulted
from that working group's research are quite informative, and
it should be taken into consideration.
What we have been seeing in the cattle markets--rock-bottom
prices for fed cattle yet sky-high prices for boxed-beef--just
defies the basic laws of economics, supply and demand, and we
need some solutions. We need some solutions, and we need some
answers, and we need to act upon this.
Being a producer myself, as well as a family that operates
a stockyard that has had a live cattle auction since 1942, I am
getting hundreds of calls from producers, from beef cattle
producers that are saying, ``Cindy, what is wrong with this
market?'' They are seeing their prices they are getting and
they are seeing what the prices are at the grocery store with
boxed beef. Several of my colleagues have put forth legislation
that would require USDA to establish a minimum mandatory
negotiated trade in the cash markets by the packers. We have
talked about many things, but I have never seen so many
producers give me calls. They are busy. Right now they are in
fields all across America, cutting hay, baling hay, getting
ready to put it in the barn for winter so they can feed their
cattle. My 87-year-old father-in-law, I assure you, is fixing
fence right now, today, somewhere, because we are protecting
our herd. We have got to be the voice to protect this industry.
Mr. Tupper, your fellow panelists here, they seem to
suggest that the AMAs are the solution to low prices being paid
to producers. Tell me how an alternative marketing agreement
between a feeder and a packer will benefit a cow-calf producer
who unloads a gooseneck trailer-load at your barn every week.
How would that benefit that producer?
Mr. Tupper. It will not, you know, in short. There is no
question that there can be some value, and we need to make sure
that we get a good product out there. There are other ways to
do it than just an AMA.
Senator Hyde-Smith. Well, I want to be here, because these
producers cannot be here, and they know exactly what you just
said. They know that. They do not have a seat at this table.
Farm Bureau was not asked to be a panelist today, as I
requested. I assure you, their chair at this table is not empty
because I am sitting in it.
Should this Committee continue further discussions on the
legislative proposals in hopes of finding legislative solutions
to bring greater price transparency to the market, Mr. Tupper?
Mr. Tupper. Absolutely. We need to know. One of the big
things, the big elephant in the room when you talk to these big
feeders, the corporate feeder does not want you to know what
price they get versus what price I get when I sell my fat
cattle from my feedlot in Nebraska. I am going to throw in the
Nebraska section, but they do not want to know the differences
that that may be, what I can get versus what they can get.
Senator Hyde-Smith. We have a lot of customers, you and I.
They are being treated very unfairly right now, and I think
that it is time for that to stop.
My second question is for Dr. Tonsor. I have a little bit
of time left. When an August 2019 fire knocked out one of the
largest beef processing facilities in the country, in Holcomb,
Texas--and boy, I remember the day, watching it on national
news, and that smoke billowing out--cattle prices collapsed
while wholesale beef prices rose 12 percent in a week. In seven
days, wholesale beef prices rose 12 percent.
During the COVID pandemic, the same trends were amplified
and the effect was more widespread. At the height of the
pandemic, wholesale beef prices were more than double the
previous years, but those gains were never experienced on a
rancher's level. Were available risk management tools
sufficient for ranchers to manage their risks during these
highly volatile events that we did not expect?
Mr. Tonsor. I am not aware of a risk management tool
against a fire at a plant if you are a producer, right, because
that is a market access thing for something I sell. I am not
aware of a tool that would be there for that.
To answer the question, there are risk management tools for
somebody that sells fed cattle or feeder cattle for just
general price movement, whether that is a traditional hedge
using CME products or whether it is a USDA livestock insurance
product, or the like. Those tools do exist. That is probably a
whole other separate discussion for a day. None of them are
specific to a fire or a loss of packing capacity specifically.
Senator Fischer. Well, I am out of time and I appreciate
your answers, and I hope we have another round, because I have
a lot more questions.
Chairwoman Stabenow. Thank you very much, Senator Hyde-
Smith. Senator Ernst is next, and then Senator Hoeven, and
Senator Braun.
Senator Ernst. Yes, Thank you, Madam Chair, and thanks to
our witnesses today.
Dr. Tonsor, like you I grew up feeding hogs and walking
beans, and those are the typical things us farm kids do on our
family farms. I, of course, grew up in southwest Iowa, and I
experienced firsthand the hard work that goes into production
agriculture. Agriculture has long been the bedrock of our
national economy, and Iowa certainly plays a critical part in
ensuring folks have access to a safe and affordable food
supply. Without transparency, we risk losing that fair,
competitive pricing.
What would you recommend to achieve greater transparency in
the market, and how can the market send clearer signals to both
our producers and our end consumers?
Mr. Tonsor. My response would be similar to what I have
given a couple of times, is I would encourage ongoing looking
at how LMR works, and there is always room for improvement.
Some of the things in my written testimony are easier, closer
to the no-brainer kind of edge on that continuum. Others need
further assessment. I made the comment about formula,
transactions being kind of a catch-all category. I think there
is room to potentially gather information better, so we
understand what that is a little bit more. I cannot sit here
and tell you more without additional information coming back
out.
That is my best response, is to pause, and there are
periodic reviews of LMR. LMR has been around for 20 years. It
is reauthorized roughly every five years. Part of what happens
is looking at how that works. I would encourage us to seriously
think about that and make sure we are, to the best we are able
to while protecting confidentiality--that is embedded in my
submission as well, and I think that is important to keep in
mind--providing as much information on the market as we can.
I think there are ways to do that without mandates on
certain percent cash negotiated, and so forth. That is embedded
in several of my responses that have come up today. Thank you.
Senator Ernst. Thank you very much, and, Mr. Tupper, I am
going to turn to you. My mother worked at a livestock auction
when I was a young girl. She was not an auctioneer, but
certainly every Wednesday afternoon she kept the books for the
folks in Stanton, Iowa, and that was 1 day a week us kids did
not have to ride the school bus home, so we loved it.
Over the past 20 years, we really have seen a drastic shift
in purchase agreement. Twenty years ago, over half of all
cattle were traded on a negotiated basis, and today negotiated
purchases account for just a quarter of all purchase. Instead,
alternative arrangements like formula or forward contracts have
become more prevalent. Formula transactions are less
transparent, because they utilize base prices that are not
publicly disclosed or reported.
As a producer, can you accurately describe what is used to
set the base price in these formulas, and then would knowing
the base price and any premiums be advantageous for cattlemen?
Mr. Tupper. Yes, and thank you for the question, Senator,
and as an auctioneer we appreciate those secretaries. That is
what keeps us in line.
Senator Ernst. Yes. It is a good one. Thank you.
Mr. Tupper. I think the base price is generally set in most
of those AMAs, and there are very many different ones. You said
it, there are very many different categories to that, so we do
not know exactly what some of those are. The five-State
weighted average is often used as the base price. So, as the
packer can buy less than, as Senator Grassley pointed out, 20
percent in the spot cash market, and use that to set the base
price for 80 percent of the cattle that are sold in these AMAs,
and then he can tell those guys that are getting AMAs, like Mr.
Gardiner has alluded to in his testimony, that you make $80 or
$90 a head, that is quite a significant move for the packer.
They absolutely can control the base price and then give little
incentives to a few of the cattle, and then keep the rest of
the cattle at that base price level.
I think when we set those base prices, that is where the
bar has to get higher. We have a great product. We definitely
need to segregate. I do not disagree that the better cattle and
the better breeding and all the things that are put into that
need to be rewarded. I think there are other ways to do it than
just AMAs.
Senator Ernst. Well, and I thank all of our witnesses for
being here today. This is a tough issue, I think, for so many
of us. Hearing all different sides coming together, certainly
we hope to be able to sort through this and figure a way
forward, certainly.
Madam Chair, thank you very much.
Chairwoman Stabenow. You are welcome. Thank you very much.
Senator Hoeven.
Senator Hoeven. Thank you, Madam Chair. Mr. Tonsor, boxed
beef prices continue to rise, as we have discussed here. Live
cattle prices are struggling to reach pre-pandemic levels. In
your opinion, why is that?
Mr. Tonsor. In my opinion, consistent with other peer-
reviewed research, is when you have the shocks we have had we
would expect beef prices to go up and fed cattle prices to go
down. That is what we have seen. The magnitude of what we have
experienced stands out, and in many ways that is because the
life experience, that I hope we are on the end of, has been
very unique. That would be my short response.
Senator Hoeven. Would reducing concentration in the
meatpacking sector alleviate that trend?
Mr. Tonsor. You are getting Tonsor's opinion. That is why I
was asked here, so I as long as I remind you, that is Okay.
There is an important difference between price discovery and
price level. If you erode concentration in the spirit of more
smaller facilities, maybe--and please note I said maybe--you
help with some price discovery issues, like it depends on what
else we do around that discussion. I also think you give up a
lot of known economic benefits.
Depending on how far you go with that argument, you are
going to squeeze out--actually, you are going to shrink the
size of the industry, because the beef cattle industry will be
less efficient. I am not hiding the fact I noted the evoluation
of industry was because of efficiencies. If you lose those
efficiencies, you end up with a smaller industry.
Senator Hoeven. What changes should be made to the
Livestock Mandatory Reporting to improve pricing and
transparency? What changes should be made?
Mr. Tonsor. I cannot tell you one that has to be made. I
think that is outside my wheelhouse. My written testimony
listed out some that need serious assessment. Some that I think
are easier to implement without giving up much is things like
adding information on the distribution of prices. I think
speaking to not just the min-max range, the 15th, 85th
percentile, can add information to those that are wanting
information, to negotiate differently or to understand the
cattle type value and so forth. Those are fairly easy, so those
are the ones I am most comfortable saying, and quote/unquote
``should.''
There are other ones that require changes in how the data
is collected. I made the comment earlier, for a different
Senator, is currently we have whole-State aggregation. The way
the data is reported we know if that transaction was in
Nebraska or Kansas or not. Potentially refining that would
allow us to examine other ways to report that might help.
Please note I said ``potentially'' and ``might'' as I am
working through this continuum. There are several things that
need to be evaluated. Some of these I am more comfortable
advocating for--not like advocate for, I am just more
comfortable they can be done without adverse impact. Others
need to be examined more.
Senator Hoeven. Do you think changes need to be made?
Mr. Tonsor. I think some would be beneficial without
substantial cost, and if they fall in that bucket then I would
say yes.
Senator Hoeven. For Mr. Gardiner and Mr. Tupper, you both
noted the importance of price discovery in your testimony, but
you disagree on how best to ensure adequate levels of cash
trade to support that price discovery in the cattle market. How
should we balance a producer's ability to use alternative
marketing arrangements with the need to protect and improve
price discovery? What do we do?
Mr. Tupper. I will tackle that first. To me, one of the
very first things we have to do is know what those agreements
are. The contract library that Senator Fischer alluded to would
be huge. That way we know what those are, though we may not
know exactly what they are. I think one of the biggest ways we
can do that is make sure we understand what the equal playing
field is, and not just the big corporate feeders or the ones
that have arrangements with certain packers, that all their
cattle that go there can get that price, that the smaller
feeder can get the same price.
Senator Hoeven. Would all prices--what prices would go to
that library? All prices?
Mr. Tupper. One of the things now that is not reported is
what those ups might be. We do not get to know, necessarily, in
price reporting what one of those contracts that they may have
or one of their exclusives that they may have to those. A
contract library, if written correctly--because we have a
contract library in hogs, so we have something to work from,
and there are some problems there, and I think we can work
through those--then we can find out what all of those market
contracts are and what the true price that some are getting for
those cattle are.
Senator Hoeven. Including the AMAs.
Mr. Tupper. Including the AMAs, yes.
Senator Hoeven. Okay. Then, well, I guess, again, any other
changes, but you would recommend the library, and then--so I
had that for both Gardiner and Tupper. What other changes? Any
other changes to the AMA?
Mr. Gardiner. Senator, may I speak?
Senator Hoeven. Yes.
Mr. Gardiner. Yes, sir. I stated in my testimony and my
written testimony, I think all of these things need to be
included in there. The confidentiality has caused that to not
be there. I think the base price is the base price, just as I
sated with wheat. If we do have that transparency and we do
have that there, then it is going to be a more robust price
discovery.
I will get disagreement, as I have all afternoon, but I
would suggest to you if there was not a single AMA or a single
formula--and again, like Dr. Tonsor said, this is Mark
Gardiner's opinion--our price today on fed cattle would be the
same. I am all about robust, transparent, put everything into
what creates this base price, and that will allow us to hit
these targets.
One of the things I think about in this whole discussion,
as we talk about producers and discuss this angst, this
discussion, this worry that we all see in all of our families
and our customers and just the whole industry, will lead us to
a better place. I am asking that the industry go there and not
be mandated, because you look back to these niche market
processors, I am a niche market producer. We designed U.S.
Premium Beef because we wanted to fit the niche to be rewarded
for the things that we did.
I happen to agree with Justin Tupper that I think all these
things be disclosed, we will have a more robust price
discovery, but I do not want to be inhibited on extra options.
Senator Hoeven. Thank you. Madam Chair, sorry. I went over
my time, but thank you for the indulgence.
Chairwoman Stabenow. That is all right.
Senator Thune. Madam Chair, could I submit for the record--
I have received input and consulted with South Dakota Stock
Growers and South Dakota Cattlemen's Association. They
submitted Statements. I would like to submit those for the
record, if there is no objection.
Chairwoman Stabenow. Without objection, so ordered.
[The letters can be found on pages 195-199 in the
appendix.]
Chairwoman Stabenow. Thank you. Senator Braun.
Senator Braun. Thank you, Madam Chair. I am going to take a
little different angle, because there is no doubt about it, the
more transparency you have in anything, along with options,
many people wanting to buy what you produce, and that is how
you get to where, I think, markets really work. There should
not be barriers to entry. You should have full transparency.
You have to have enough entities on the buying end, because
then you turn into what is called an oligopoly, to where they
game the system.
What I am afraid of is we have already gotten there. I have
been the loudest voice trying to reform health care, and when
you end up with only three hospitals in a market, we are going
to go after transparency, and I think it would help there
because there was zero in that place of our economy, where it
costs us 20 percent of our GDP, and we never know what it costs
us until we get our bill in the mail and open it up with
trepidation. I think that is an issue, along with all the other
things I mentioned.
I want to look at the input side. Often, you know, you have
got issues with selling your product, or you have got robust
competition for it, with transparency. My question would be for
Mr. Tupper and then for Mr. Gardiner.
Corn, soybeans. I deal with several of them on land that I
rent to farmers, and they complain to me about all of a sudden
when corn goes up to $5.50, inputs follow right along. You are
not dealing necessarily with more acres. You just got, again,
the folks that you buy seed corn from, that you buy herbicides
from, pesticides. It is not as broad a selection as you had 15
to 20 years ago, when corn and soybeans cost maybe one-third in
variable inputs what it costs now.
Do you own your own farm, Mr. Tupper, grow silage to feed
your cattle, or is that something you buy on the market, your
corn that would go into silage?
Mr. Tupper. For myself, we purchase most of that.
Senator Braun. That is another way, when you are looking at
ways to avoid markets that are not giving you choices on your
inputs. There, at least, if you had ways to avoid inputs going
up--have you had inputs go up on other things you need to
fatten out your cattle? Has that gone up, or does it stay
steady? Do you view that side of the equation as something
where you have got choice and transparency as well?
Mr. Tupper. I think we have seen exactly how you explained
it. All those input costs have gone up, and one thing that
happens in the ranching sector, when they see the rancher
bringing money--I alluded to in my testimony--give money to the
rancher, they will spend it faster than anybody. The costs go
up in rent, just like you alluded to, and it never seems to
fail, our costs would go up in seed costs and all through the
sector.
Senator Braun. It is getting squeezed on both sides of the
equation. You have got more concentration, fewer options on
selling what you produce, and fewer options to control your
input costs along the journey as well.
Mr. Gardiner, would you want to weigh in on that also?
Mr. Gardiner. Well, I think that is all true. We raise
wheatlage here and put that up, but our costs skyrocket too.
When corn goes up, that adds cost to all of our feed stuffs and
all of our inputs. At the risk of sounding like an economist,
it is supply and demand. The reason that corn has gone up is
because there was less of a supply and a worldwide demand, and
I think that is a good thing for corn farmers. At the same
time, all these other input costs, that is part of the risk
management. That is part of the supply alignment, to hit
consumers markets that have more value.
We are actually, lots of us, saying the same thing in
different ways. All I want is the opportunity to be able to
compete, and know what those targets are, and when we do that--
and I think Justin is saying the same thing--if we have this
robust price discovery, true supply and demand will go forward.
Thank you.
Senator Braun. I think the difference there--because I am
about out of time--is the fact that your corn and soybeans, you
are dealing with generally the same number of acres, give or
take, that are produced.
Seed corn, and all the inputs and things that go into that
side of is, just because the price of corn goes up, because you
have got a short supply, does not mean that the underlying
inputs should. What is happening, across not only agriculture,
it is happening across many other industries, we are no longer
the markets that we used to have where it is full transparency,
many participants in it, robust competition, and you end up
with oligopolies, monopolies, high prices, and if you are at
the bottom of the food chain you pay the consequences of it.
Thank you, Madam Chair.
Chairwoman Stabenow. Thank you very much. Because of the
interest of members, we are going to allow another round of
questions, if you are interested in doing it, if someone has a
question or two. I think at this point the only thing I would
like to ask is, Dr. Hendrickson, if there is anything further
that you would like to share with us as it relates to
resiliency and what we have talked about today and where your
focus would be in addressing these issues.
Ms. Hendrickson. Thank you, Senator Stabenow. I actually
think one of the things that we have overlooked is the power
issue here and the power that comes with being able to control
decisionmaking in the food system. Right now, those decisions
are often controlled within the boards of directors, within the
managers of these large food firms. It is not just in the
meatpacking industry. It is within the supermarkets, like
Walmart, it is within the corn traders, that Senator Braun was
talking about, like Cargill and ADM. This power of the
decisionmaking is something that has to be addressed if we are
going to have the ability to implement a diverse number of
options, nimbleness in the food supply chain so that people can
respond in their particular place.
I would also emphasize the importance of the impact this
has on people. We have talked a lot about, well, the industry
may be smaller or larger. We have talked about, you know,
supply and demand. We are really not talking about what is the
impact on people, their communities, and their ecologies. I
think we have to keep that impact on people--farmers, workers,
consumers. We have to keep that impact on people, front and
center. People need to be able to make decisions about their
food. Farmers need to be able to make decisions about where
they are going to buy and where they are going to sell. That
decentralization is absolutely imperative if we are going to
have a resilient food supply chain.
Chairwoman Stabenow. Thank you very much. We have with us--
Senator Boozman, I do not know if you would like to ask a
question.
Senator Boozman. Just very quickly. First of all, thank all
of you for being here, either here or virtual. This really has
been a good discussion, and a discussion that we need to have.
And again, ongoing talks in the future.
It sounds like we have got some consensus in regard to
transparency, things like contract libraries, again,
understanding price distribution, those kinds of things.
Mr. Tupper, you mentioned that there might be other tools
that can be utilized to pay for quality, aside from the AMAs.
Have you got any ideas in that regard?
Mr. Tupper. I do. It used to be, when I was a kid and we
sold fat cattle, there were four or five buyers would walk on
your yard, and they would walk through the cattle, and they
would assess those cattle, and they would bid you a price,
according not only to the market but according to those cattle.
One thing I can remember as a kid, a term that used to come
out at the sale barn, they called it ``grade and steal.'' I
reflect back to that because that is what we are trying to do
now. Mr. Gardiner alluded to we want to raise high-quality
beef, and we want to get paid for that, and I do not disagree
with that, and I do not want to sound like I do.
What I am saying is there are very many ways to do it. They
talk about efficiency. Many times today, the packer does not
even send a buyer out to any of those feed yards, especially
the smaller ones. They never even get a buyer to come out.
Because of efficiencies they have eliminated those people they
needed, the Big Four packers, so they do not have to send them
out. They already do not compete against each other, so if they
come to Senator Hyde-Smith's yard, they are only going to see
one buyer. For some reason they drew the boundaries. I cannot
tell you how many producers tell me they cannot even get one of
the other packers to come bid, and whether that has been done
anticompetitively, how do you prove that? I do not know, but
that is what I hear out there. I think it is huge that we get
that second bidder in the marketplace.
Senator Boozman. Thank you very much.
Chairwoman Stabenow. Thank you. I will call on Senator
Fischer and then Senator Hyde-Smith.
Senator Fischer. Thank you, Madam Chair.
Mr. Gardiner, I was going to ask you a question after Dr.
Tonsor completed his, so I would like to touch base on one more
thing, if I could. In your testimony, you make clear that the
preferred route of addressing price discovery is through
voluntary programs. You are against mandating. You also cite
the ongoing industry efforts. I assume you are referring to
NCBA's 75 percent plan. Is that correct?
Mr. Gardiner. Thank you, Senator, for the question. I am
certainly aware of that, but I do want a robust, transparent
price discovery. The question of mandates--who is going to
mandate them? If I want to hit these targets, who is going to
tell me I have to sell cash or I have to sell this other way?
I think the unintended consequences have challenges for all
of us. We have talked about it, we need more processing, we
need more shackle space, we need more buyers. I agree with all
that. The reason they are not there is because, if we go back
to those times that we all loved so much, in 2014 and 2015,
when we had record-high cattle prices, it was because we did
not have enough cattle. The cattle supply was there and they
needed to fill that. Those processors are gone from that time
period.
The growth and capacity today is coming from this increased
beef demand. When we put all of these things--and I will just
call it a bucket--if we had 1,000 processors and they were all
bidding on the cattle, my belief--and I will say it is my
personal belief--the fed cattle price today would be the same.
If we have that there, transparent, for everybody to see, and
then we let the industry come together and solve these
arrangements and solve this price discovery, then we are not
mandated.
Senator Fischer. Yes. You know----
Mr. Gardiner. I appreciate the--go ahead. Yes, ma'am.
Senator Fischer. I thank you for your comments, but the
issue is we do not see voluntary reporting. We do not have that
transparency under a voluntary method. With that 75 percent
plan, there were many States that did not make the cut in the
first quarter on it. That is the issue in trying to keep
everything voluntary. I think when you compare, you know, what
many of us are trying to do on this Committee to have that
transparency, to have the information available to all
producers so they can make wise market decisions, it is not
going to happen on a voluntary basis.
Mr. Gardiner. Senator----
Senator Fischer. Thank you.
Mr. Gardiner [continuing]. I am saying--I appreciate your
comment. I would like to clarify that. I am saying put all of
this in mandatory price reporting for full disclosure.
Voluntary, I do not believe, is going to--you know, it has
proven so far it is not working.
Senator Fischer. Yes. Thank you, sir, very much. Thank you,
Madam Chair--Mr. Chairman.
Senator Boozman.
[Presiding.] Senator Hyde-Smith.
Senator Hyde-Smith. Thank you, Ranking Member Boozman, and
again, today has been so helpful. It really has. No one is out
to destroy any company, any industry. The packers are very
vital in our industry, and we realize that. We just are so
appreciative of the panel and hopefully may be coming to some
solutions now that we have had this hearing.
My third question is for Mr. Tupper again, because we are
talking about the livestock mandatory reporting. With the
authorization for the livestock mandatory reporting set to
expire at the end of this September, what is the case to be
made for including formula-based pricing in the reporting just
as current negotiated cash trade, and would this additional
information be beneficial for producers as they strive for more
information into the cattle markets, as Senator Fischer has
alluded to?
Mr. Tupper. I think it would be more beneficial. I think
the one thing--and this is going to be real layman's terms--
your confidentiality kills LMR. When we cannot see, because
there is not--and here is the key--there is not enough
participants in the market, we cannot report it.
The trouble with that is, in a fat cattle market today,
everybody with an iPhone, and you and I know this in the
marketplace, if somebody is bidding $1.26, which I got texted
this morning, for fat cattle, everybody in the industry knows
it. This confidentiality rule that they fall back on, 3/70/20--
thank you, Mr. Tonsor--does not fit for this industry. I
understand it, and I have been told every time we go to USDA, I
get shot backwards, because throw up their hands all over
confidentiality. That is one of the big things. We cannot get
it all in there.
Senator Hyde-Smith. Thank you. I have a question for Dr.
Hendrickson. In April and May 2020, you know, we saw the
grocery stores, just the shelves that were barren, and store
meat cases. In portions of our country meatpacking plants at a
standstill due to the COVID, and a backup of fed cattle that
could not be processed, because the people just were not there
to be able to process that.
While larger, more efficient packing plants allow for more
daily production of meat, can a case be made for directing more
funding to smaller, independent and regional packing facilities
to reinforce their role in our supply chains, so we will not
experience the grocery stores shelves to be completely empty
like we experienced in that totally unprecedented pandemic?
Ms. Hendrickson. Thank you, Senator Hyde-Smith. I think
that building up more forms of capacity in beef packing and
other parts of the food system is absolutely critical. We do
not want everything concentrated in one node. We need to have
multiple nodes and multiple connectivity between nodes in order
for us to be more resilient and nimble in responding to
something like the pandemic.
I think that supporting new kinds of capacity at different
levels--like right now we do not have anybody between those who
can process maybe, you know, 80 or 90 cattle a day and people
that are, you know, doing 5,000 or more a day. That middle is
missing, and I think that trying to reinforce and build that up
is really important.
Senator Hyde-Smith. Thank you. For Mark Gardiner, some time
ago USDA, they consolidated GIPSA under the missionary of the
USDA Agriculture Marketing Service. Do you, as panelists,
believe this move has limited the agency's ability to
investigate any level of the market manipulation in the beef
industry, and what level of collaboration do you believe there
should be between USDA and the Department of Justice?
Mr. Gardiner. Senator, I do not feel I am qualified to
answer that, so I am not going to conjecture.
Senator Hyde-Smith. Is there any panelist that would like
to address that?
[No response.]
Senator Hyde-Smith. Okay. It will go unanswered.
Thank you, Madam Chairman. My time has expired.
Chairwoman Stabenow.
[Presiding.] Thank you very much. Thank you to all of our
witnesses. As you can see, there is no shortage of questions on
these issues. It is very, very important. We appreciate your
testimony.
There is clearly a need for greater transparency and
competition in the marketplace, and we need to make sure that
livestock producers of all sizes have options, both in normal
times and during unprecedented times like we have seen in the
last 18 months.
As I said when we started today, we need to keep exploring
ways to make our livestock supply chain and our food supply
chain, as a whole, more resilient. Reacting to specific events,
whether it is a pandemic or a hack or extreme weather is not
enough. We need to build a food supply chain better able to
withstand these future disruptions, whatever they are.
One thing is certain. We are not done as a Committee, and I
commit to continuing with colleagues, to work with colleagues
on both sides of the aisle, to address these important issues
going forward.
Thank you very much. The hearing is adjourned.
[Whereupon, at 11:26 a.m., the Committee was adjourned.]
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