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American Meat Institute Says Government Data and Economic Analyses Show Meat Packing Industry Is Dynamic, Competitive

Tuesday, April 17, 2007

AMI President J. Patrick Boyle today told the House Committee on Agriculture, Subcommittee on Livestock, Dairy, and Poultry that the U.S. meat packing industry is dynamic and competitive and that the industry will oppose legislative and regulatory efforts to restrict livestock marketing and packing procurement opportunities that have helped grow the industry and provided consumers the most affordable meat supply in the world.

“We believe the strength of the livestock marketing system in the U.S. is the flexibility it provides to producers, packers/processors and retailers in responding to market signals and offering an increasing variety of alternatives for the producer through to the consumer,” Boyle said.

According to Boyle, producer options include: spot market transactions, production contracts, cooperatives, bargaining associations, marketing agreements, and other options that allow them to align themselves with consumer demands through contractual arrangements to manage risk and produce a desired product.

“These measures aid a livestock producer’s ability to manage price and weather risks, access credit, and participate in valued-added, branded product lines. Within the last decade, we have witnessed significant sales growth in branded beef and pork products and the corresponding response to market signals by producers to increase production,” Boyle said. “We believe that the most appropriate government role in today's livestock marketing system is to enforce the existing laws and regulations that ensure fair and nondiscriminatory business practices among producers and packers, while allowing producers the freedom of choice on how best to market their livestock.”

Boyle told committee members that the many marketing options provide producers the ability to diversify or concentrate their livestock marketing plan to best match their skills, experiences, capital base, or tolerance of weather and price risks. One of the more common reasons producers and packers enter arrangements is to manage price risks to aid in the access of credit and capital, he said.

“Producers and packers recognize that managing this volatility is critical to their long-term economic well-being and livelihood. This is true across agriculture, where more than 40 percent of all agricultural goods are produced via contracts or related agreements,” he said.

Consumers also have benefited from more products that meet their needs and values as well as price competitiveness from improved efficiencies, Boyle said. According to the Bureau of Labor and Statistics, an item such as ground beef has, on average, since 1984 consistently lagged behind the larger consumer price index increases, thereby, consistently improving the value returned to consumers for their food dollar relative to all other expenditures. Further, the amount of income that consumers spend on all meat and poultry products has shrunk to less than two percent of income.

“Attempts to limit packers’ and producers’ abilities to engage in contracts, marketing agreements, and strategic mergers reduce capacity to respond to consumers and pursue economic, social, and environmental goals in rural America,” he said.

Two recently released studies – both mandated by Congress – affirm AMI’s assessment of the competitive and rational nature of the livestock and meat market, as well as the resulting benefits to American consumers.

In February, the Agriculture Department released a “Livestock and Meat Marketing Study.” It was conducted in cooperation with the Department of Justice, the Federal Trade Commission and the Commodity Futures Trading Commission. This four year, $4.5 million analysis, now complete, is the most comprehensive and far reaching study that has ever been conducted on livestock and meat marketing. On the beef complex alone, transaction data was secured from the 29 largest beef packing plants and the report focused on the sales of 58 million cattle in 590,000 business transactions.

The report found that contractual, marketing arrangements between livestock producers and meat packers increase the economic efficiency of the cattle, hog, and lamb markets, and that these economic benefits are distributed to consumers, as well as to producers and packers. Conversely, the study concluded that restrictions on the use of these contractual arrangements would have negative economic effects on livestock producers, meat packers, and consumers.

A second multi-year, Congressionally-mandated report from the bipartisan Antitrust Modernization Commission was released earlier this month. It concludes that “government should not displace free market competition absent extensive careful analysis and strong evidence that a market failure requires the regulation of prices, costs, and entry in place of competition.”

“These are but two recent studies, in a long line of similar studies over the past twenty years that have reached the same conclusions about the legality and vibrancy of the livestock marketing system,” Boyle concluded. “And they have all – every one of them, without exception – reached the same conclusions as the two studies I have cited in my testimony: That the livestock and meatpacking market is competitive and that current oversight and enforcement are effective.”

For more information contact:
Dave Ray
Vice President, Public Affairs
Janet Riley
Sr. Vice President, Public Affairs

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