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AMI Says Reactions To Market Fluctuations Are Not Long-Term Solutions

Tuesday, January 26, 1999

Washington, DC – Reactions by lawmakers and policymakers to livestock market fluctuations and industry consolidation are not necessarily long-term solutions, according to American Meat Institute President J. Patrick Boyle, who testified before the Senate Committee on Agriculture today. Instead, Boyle said a long-term, educated view is needed if real improvements are to be made.

In his testimony, Boyle acknowledged that many structural changes are taking place within the meat packing industry, production agriculture and the wholesale and retail industries. “No one who takes the long view can disagree that the changes in U.S. agriculture have brought tangible and impressive benefits to U.S. consumers,” he said. “Not only do U.S. consumers have more food available to them than anywhere else in the world, they have the broadest variety, the highest quality and the safest food in the world.”

Boyle acknowledged that these structural changes have been painful, but that the current hog market situation has wrongly prompted allegations that the market is unfair. “The current market situation is not unfair; it’s bad, and packers are justifiably concerned about the situation’s implications to the viability of tens of thousands of producers upon whom we rely for our livelihoods. But the punitive undercurrent to these allegations is wrong.”

In response to charges that meatpacking industry structure is somehow responsible for low livestock prices, he noted that much research has been done to examine consolidation in meat packing and its impact on producers. Twenty years of independent research has not identified significant harm to producers as a result of structural changes in the meat industry. In fact, a recent study from the Journal of Industrial Economics showed packer consolidation benefits producers with a net cattle price increase of two percent for every ten percent concentration increase.

The current economic crisis faced by hog producers is not a result of industry consolidation, but rather of simple oversupply of hogs, according to Boyle, who said packing plants have been working overtime six days a week, and sometimes seven, since Labor Day to process the record large hog supplies coming to plants.

“At its simplest level, the hog market collapse in December and its continuing weakness today reflects an unprecedented increase in the supply of hogs,” he said. “Packers, producers, USDA and anyone who was reading pork trade publications this time last year knew a supply increase was in the works. The only surprise was how big it would be and how poorly the hog markets might react.”

The challenge, in Boyle’s view, is to ride out the current livestock cycle and refrain from short-term, easy “fixes” that can exacerbate problems. He said that country of origin labeling on meat products is a reaction, not a solution, which will deal a devastating blow to international trade and trigger World Trade Organization actions against the U.S. A careful study of country of origin labeling should be conducted to ensure that unintended consequences do not become realities.

He said mandatory price reporting proposals also are reactions and not solutions. “Before we move forward in fashioning a new reporting system to replace the one we have, we need a better understanding of how well – or not—our current system works,” Boyle argued.

“Had we had country of origin labeling and mandatory price reporting in December, we would still have had $9 hogs,” he said. “These initiatives cannot change the fundamentals of supply and demand or negate price effects of livestock cycles. What they can do – what they will do – is add costs for everyone, and limit opportunities for many. Because of that, they would likely hasten consolidation in the meat industry.”

In his concluding remarks, Boyle said that larger companies are better able to withstand new or expensive, or burdensome regulations. However, the more government tries to constrain industry practices or add costs to existing ones, the more small business may fail and the faster the industry may consolidate. “Lawmakers and policymakers must carefully consider the possibility of unintended consequences that may actually worsen problems they are trying to solve,” he said.

“AMI believes government has a legitimate role in monitoring the changes currently underway in agriculture and in ensuring competition,” Boyle said. “But government also has a responsibility to ensure that it understands the implications of policy initiatives it mandates. And the business community…deserves government’s diligent examination of all facts before new and costly mandates are applied through legislation or regulation.”

AMI represents the interests of packers and processors of beef, pork, lamb, veal and turkey products and their suppliers throughout North America. Headquartered in Washington, DC, the Institute provides legislative, regulatory and public relations services, conducts scientific and economic research, offers marketing and technical assistance and sponsors education programs.

For more information contact:
Janet Riley
Vice President, Public Affairs
James Ratchford
Manager, Public Affairs

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