MEAT INDUSTRY OPPOSES EFFORTS TO MAKE MODERN BUSINESS MODEL ILLEGAL FOR MEAT PACKERS

Washington, DC, July 16, 2002 – Vertical integration and strategic alliances used in many American industries should not be made illegal for meat packers, according to the American Meat Institute (AMI), for such an action will turn the clock back on industry progress and the quality provided to consumers. AMI President J. Patrick Boyle vowed to fight efforts to ban packers’ ability to own and control livestock when he delivered testimony today before the Senate Committee on Agriculture.

“We will oppose any effort to restrict meat packers who comply with existing antitrust and fair business practice laws from sourcing their raw materials in any way,” said AMI President J. Patrick Boyle. “It is unfair to make it illegal for the meat industry to compete effectively with the vertically integrated poultry industry and many other vertically integrated industries for the consumer’s dollar.”

In addition to federal antitrust laws like the Sherman and Clayton Act, meat packers are also subject to the Packers and Stockyards Act, a statute unique to the meat industry. “To my knowledge, there is no other sector of the U.S. manufacturing or service economy in which government plays such a watchdog role with respect to raw material suppliers,” Boyle said.

According to Boyle, consumers want consistent product quality at the lowest possible price. Consumer demand has led to fewer and larger retail chains in fields as diverse as home improvement, video rentals, food and consumer products and fast food.

“Just ask anyone who supplies products to Wal-Mart or McDonalds what this means: it means you must meet their standards or you can’t sell to them,” he said. “This is the way business is done today – and the meat industry should be no exception.” Iowa-based Winnebago and Maytag are two examples of companies that have used vertical integration to provide high quality products, he noted, as is Gateway computers, founded by an Iowa cattleman.

Boyle told lawmakers that the meat industry has done many things – including increasing coordination with livestock producers and even owning some livestock -- to ensure that meat products meet consumer expectations. As a result of strategic alliances, packers today sell beef that is 27 percent leaner than it was in the 1980s and pork that is 31 percent leaner. Coordination and vertical integration also have created beef and pork products that are increasingly convenient and consistent, and many are value-added with features like marinades and sauces added to fresh, branded products.

Consumers spend far less of their disposable income on meat than they did 30 years ago, according to Boyle: 1.9 percent of disposable income, compared to 4.1 percent in 1970. “This is a trend of which we are proud – and one that provides consumers a distinct benefit,” he said. We should not rush to undo the foundations of this success without understanding the ramifications for everyone involved.”

In addition to the many benefits to consumers, contracted sales between packers and producers also are a valuable risk management tool, Boyle argued. “The benefits to farmers were perhaps most vivid during the hog market crash of 1998, when spot market prices for an unanticipated over-supply of hogs dropped to as low as $9 per cwt. Those hog farmers with contracts had locked into much higher prices for their hogs – generally $35 and more per cwt – and were protected from the low market prices,” Boyle said. “Packers with contracts, on the other hand, were obviously paying far over the market value for their hogs at the time. Both parties to the contract, however, benefited from the certainty provided by a steady, consistently priced, contracted supply of hogs.”

A complete copy of the testimony is available at http:://www.meatinstitute.org.

AMI represents the interests of packers and processors of beef, pork, lamb, veal and turkey products and their suppliers throughout North America. Together, AMI's members produce 95 percent of the beef, pork, lamb and veal products and 70 percent of the turkey products in the U.S. Headquartered in Washington, DC, the Institute provides legislative, regulatory, public relations, technical, scientific and educational services to the industry. Its affiliate, the AMI Foundation, is a separate 501(c)3 organization that conducts research, education and information projects for the industry.