August 31, 2010

 
 

Testimony to be presented by Allan Sents

Joint USDA/DOJ Workshop

August 27, 2010 Ft. Collins, CO

 

Good morning and thank you Secretary Vilsack and Attorney General Holder for convening these workshops and especially for taking the time to personally attend them.  Discussion of marketing issues at this level of government and with this sincerity is long overdue and I commend you for doing it.
     Let me begin by stating very clearly that I do not believe all finished cattle should bring the same price per pound.  In fact, in keeping with the language of the law, I can think of nothing more “unreasonable” than for that to happen.  We have made a considerable investment in facilities and staff time to sort and maximize the optimum endpoint of our cattle.  To do that we need a premium to average cattle and I certainly don’t want that opportunity to disappear.  The naysayers of effective enforcement of the Packers and Stockyards Act try to distract the debate by unjustly sticking a “one size fits all” label on those of us seeking reform.  Nothing could be further from the truth.  No, the heart of this issue is about market access and active competition.  Not just competition between the big and powerful, but, competition that involves participants that rely on efficiency and business savvy to stay competitive, not just sheer market power.  With that preface I’ll share some of my experiences.
     For the last 29 years I have been involved in the ownership and management of a 10,000 head capacity feedyard in Central Kansas.  When we started we had five different packers calling on us on a weekly basis.  Bids were extended throughout the week and often good for overnight or throughout most of a given day.  Today, we have three of the major packers coming by every week, but the bidding process has changed considerably.  One of the greatest challenges now is to determine the likelihood of the packers that visit us to be in the market buying when the trade develops.  Many weeks we hear comments like:  “we aren’t going to need very many cattle,” or “we only have to buy for about one day next week.”  Such comments put us on notice that we may or may not receive competitive bids when trading starts.  It is virtually impossible to sell cattle before Wednesday morning when the packers have gathered their committed cattle numbers for the next week.  Numerous times I have offered cattle for sale on Monday or Tuesday at steady with the week prior only to be refused and then ultimately receive higher money later in the week.  The packer is very reluctant to establish any kind of a market on a small number of cattle early in the week.  When trade does develop it is often over in less than an hour, sometimes a buyer must know before we hang up the phone.  This short trading window is not the sign of a healthy, competitive marketplace.
     In the 1970’s and 80’s, cattle feeders were successful in confronting packer attempts to change buying practices.  A sense of solidarity allowed feeders to stand together for things like, one week delivery period and standard weighing conditions.  That solidarity has vanished in recent years.  As the packers have become fewer and more powerful the feeder has lost leverage which necessitates the need for a referee- the Packers and Stockyards Administration (P&S).  In my business life I have seen the P&S act used effectively and ineffectively.  Effective uses and examples of why we need a referee include prompt payment legislation stemming from a packer failure in the mid 1970’s.  Yet, some packers still test the limits of that law by clearing checks on the most remote bank in their district to increase float time.  A few years ago a major packer came out with a grid containing a flawed settlement provision for a category of carcasses.  My cattle buyer, his supervisor and a plant accountant all agreed it was wrong, but the main office refused to acknowledge the issue and commented “you don’t like it, don’t use it.”  Only after threatening to go to the P&S did the packer correct the issue.  Another time a major packer changed payment procedures for afternoon delivered cattle, in violation of the law, a letter from a P&S official was needed to correct that issue.
     There have been a few instances the P&S Act has not been enforced in my opinion.  Some years ago a packer began giving competitors of mine further from the plant a “preferential” deal in buying their cattle.  I complained to the packer, but was rebuffed.  I began selling my cattle to other packers, giving them preference over the one that had excluded me in the same way that I was being treated.  The head buyer of the deal making packer pulled my local buyer from our yard for three months- packer intimidation?!  At one point I was approached by one of my competitors receiving the preferential “deal” about selling my facility to him.  Out of discouragement with this whole situation I told him I would consider that.  He lost interest when the packer told him he didn’t want any more yards in their “deal” and ours would not be eligible even with an ownership change!  Was my facility devalued in that situation?  My situation became part of the complaint P&S filed against IBP in the late 1990’s that was heard by an administrative law judge who ruled in IBP’s favor.  There were no quality of cattle issues in this case, strictly quantity secured at the benefit of some feeders and the detriment of others.  All of the P&S investigators and lawyers felt the Act was violated, yet a judge ruled differently.  We are aware of the Pickett/Tyson case in which an impartial jury found the Act to be violated and again a judge overturned their verdict.  These judges have inserted language from anti-trust law like “competitive harm” and “business justification” that is not found in or required for violation of the P&S Act.  Surely, these outcomes establish the need for clarification of the Act as Congress mandated in the 2008 Farm Bill and the recently proposed rules attempt to do.
     I believe the greatest challenge operations our size face is one of market access.  From all the industry data I gather we are very competitive from the standpoint of operating efficiency-cost control and input buying.  As a Certified Angus Beef licensed feedyard we have focused on high quality cattle.  We have adapted to what the packer indicates they want, yet many times we are denied the right to receive what others are paid for similar cattle.  I fear for the survivability of efficient operations our size if this practice continues unabated.  Operations our size can be more flexible in feed and by-product utilization than larger operations and be better poised to meet consumer desires in food safety, environmental protection and ethical handling.  We constantly hear talk of rural development- one of the simplest things we could do would be to keep as many efficiently operating entities in business as possible simply by enforcing the P&S Act.

     It seems incredibly ironic that the critics of rules clarification want to trust the “free market” to police itself yet they seem to doubt that it is capable of generating the incentives to provide the quantity and quality of product needed without denying freedom of access to some!  I challenge these critics today to attempt to refute this statement of fact:  the largest Alternative Marketing Agreements (AMA’s) were started and continue to be used for securing supply; the largest consumer desired products (Prime, Choice, CAB) bring a premium in the marketplace that is available to anyone capable of producing it.  Isn’t that what a competitive marketplace is supposed to do?

Established in March 2007, USCA is committed to concentrating its efforts in Washington, DC to enhance and expand the cattle industry’s voice on Capitol Hill. USCA has a full-time presence in Washington, giving cattle producers across the country a strong influence on policy development. For more information go to www.uscattlemen.org.