WASHINGTON (October 7, 2021) – Today, NCBA vice president and South Dakota rancher Todd Wilkinson testified before the U.S. House Agriculture Committee. Wilkinson addressed the need to avoid one-size-fits-all policy prescriptions, and the importance of considering nuanced policies that properly address transparency, processing capacity, price discovery and oversight in the cattle markets.
“As producers struggle to get by, large meatpackers have realized record-breaking windfall profits. These profits have not been shared equitability with cattle producers,” Wilkinson said. “Because the challenges facing our industry are so diverse, it is imperative that policy makers at all levels of government remain focused on viable and tenable solutions with vast industry buy-in.”
Wilkinson urged Congress to resist one-size-fits-all policy prescriptions which may have disastrous unintended consequences and instead adopt a multi-pronged approach to bring relief to cattle producers, transparency to the markets and resiliency to the beef supply chain.
Wilkinson’s testimony follows months of NCBA engagement with members of Congress on complex cattle market conditions and ensure that policy solutions address the correct issues without harming producers or their profitability.
Background
Transparency
NCBA has long supported Livestock Mandatory Reporting (LMR), which provides market information to cattle producers. Thanks to NCBA’s engagement on this issue, Congress passed a temporary LMR extension during the most recent continuing resolution. NCBA has also advocated for the creation of a cattle contract library, which would provide information on the formula contracts in use between producers and processors. This information may help cattle producers capture more value for their livestock and better plan their business strategy.
Processing Capacity
Adequate processing capacity is essential for maintaining profitability in the cattle industry and providing a steady supply of beef from pasture to plate. Currently, there is a serious lack of processing capacity or “hook space” in the production system, leading to a chokepoint at the meatpacking segment. A recent study by Rabobank found that the industry could accommodate an additional 5,700 hooks per day of processing capacity, or about 1.5 million additional head per year. Unfortunately, access to capital is a major barrier to starting new processing facilities. The average start-up costs are roughly $100,000 per hook, meaning that someone trying to open a modest 25-head-per-day facility must secure $2.5 million in financing just to turn on the lights. NCBA is working with USDA to secure federally-guaranteed, low-interest loans and grants for small, independent, or regional meat processing facilities. In July, USDA announced that it would invest $500 million in federal funds to support expanded processing capacity and in October USDA pledged an additional $100 million investment. NCBA is continuing to push for additional processing capacity that returns leverage to producers and meets consumer demand.
Price Discovery
Cattle producers have long witnessed the decline of negotiated fed cattle trade in favor of Alternative Marketing Arrangements (AMAs), including formulas and grids. While these AMAs may help cattle producers manage risk and capture more value for their product, these methods depend on price discovery that occurs in the direct buyer-seller interactions of negotiated trade. Current research has shown that more negotiated trade is needed to achieve “robust” price discovery within the industry. NCBA’s producer-led working group developed a framework of triggers to monitor the levels of negotiated cash trade in different regions of the country. If robust price discovery is not achieved and the triggers are “tripped,” NCBA will pursue a legislative or regulatory solution determined by the membership.
Oversight
NCBA is the leading voice for oversight of the meatpacking sector. In June, NCBA supported a bipartisan group of lawmakers pushing the Department of Justice (DOJ) to complete their investigation into possible anticompetitive practices by big meatpackers. NCBA also urged the swift conclusion of this investigation in a letter to the leadership of the House and Senate Agriculture Committees on areas of concern in the cattle industry.
