The latest proposed rule change to the Packers and Stockyards Act will set meat production back decades by encouraging litigation and limiting how livestock producers can market their animals to packers

The USDA attempts to circumvent Congress and the courts to reverse the longstanding legal standard that parties must demonstrate harm to competition to sue and win under the Packers and Stockyards Act Section 202(a) or (b).

Removing the need to show harm to competition will encourage frivolous lawsuits. To protect themselves, meat packers may be forced to curtail the use of Alternative Marketing Agreements (AMAs) to minimize these costly litigation risks.

 

 “These changes would undermine the benefits earned from growing beef demand”

 

 

“Unfortunately for the Biden Administration, Secretary Vilsack has tried these changes before,” said Julie Anna Potts, President and CEO of the Meat Institute. “They have failed before the courts, conflict with Congressional intent and are a blatant attempt to pick winners and losers in the marketplace. Under these proposed rules, everyone loses, the livestock producer, the packer and ultimately the consumer.”

Portrayed as an effort to increase competition, this government interference comes when fed cattle prices were at record levels for most of 2023, surpassing the 2014-2015 previous record highs, and now, well into 2024, cattle prices remain at record levels.

“What is the Biden Administration trying to fix?” said Potts.

And the cattle price outlook for 2024 continues to be bullish, with USDA projecting the annual average price of cattle to increase over the 2023 record based on a smaller cattle supply.

Contrary to USDA’s assertion, these changes would introduce uncertainty into the market and de-couple the demand signals producers receive from beef consumers, including consumers’ willingness to pay for value-added attributes.  At low points in the cattle cycle, like this year’s historically small cattle herd, it puts at risk the value producers earn from sustained beef demand, and as the expansion phase of the cattle cycle begins it would undermine the benefits earned from growing beef demand.

“In response to consumer demands for value-added meat products like ‘no antibiotics ever,’ ‘grass-fed,’ or even someday ‘carbon neutral,’” said Potts, “AMAs have rewarded livestock producers for investing in these attributes while ensuring meat packers can make the high-quality products consumers want to feed their families.”

In addition, the Meat Institute believes the proposed change violates the “major questions doctrine,” as articulated in the Supreme Court’s ruling in West Virginia vs. Environmental Protection Agency, because the U.S. Department of Agriculture is acting without the permission of Congress and proposing administrative rules that will have a dramatic effect on all stakeholders in the meat and poultry markets.

“The President and his Administration continue to pursue policies that will increase costs for consumers. From Secretary Vilsack’s proposed changes to the Packers and Stockyards Act’s rules to USDA’s delayed modernization of pork inspection to EPA’s proposed wastewater guidelines, these policies will prove costly to the 98 percent of American households who purchase meat to feed their families,” said Potts.

Share of the Consumer Dollar
U.S. Secretary of Agriculture Tom Vilsack today said the share of the consumer dollar received by farmers and ranchers was dropping. In the beef market, the share of the consumer dollar is steady with the meat packer and processor receiving the smallest share.

Background on AMAs for Cattle
The American beef market has modernized to allow producer driven innovations or AMAs. AMAs allow producers more flexibility in how to market their cattle, protect themselves against risk and earn better prices.

AMAs for fed cattle include: forward contracts, formula pricing, negotiated grid trades, and packer-owned transfers.

A few examples:

Forward Contracts:

• a cattle producer signs a contract with a feedlot operator. They agree that in six months, the producer will deliver 100 head of cattle at a fixed price of $1000.00 per head. When the delivery arrives at the lot, despite the current market price, the producer receives $1000.00 per head. This forward contract gives the producer certainty and provides the feedlot operator a stable supply at a fixed cost.

Formula Pricing

• a cattle producer enters a formula pricing arrangement with a small beef packer/processor. The formula determines the price based on the agreed criteria: price per pound for carcass weight. For higher quality grades like “Choice or Prime,” $.10 per pound. It could also include a penalty like $0.05 per pound for below grade carcasses. Formula pricing also provides potential premiums for other value-added production practices that align with consumer demand. When the cattle are delivered, the pricing is calculated based on the formula. This lets the producer be rewarded for investments in the herd like improved genetics and high-quality feed, provides risk management opportunities for the producer, and ensures the processor receives high quality cattle to meet demand. Ironically, USDA has invested significant resources in establishing a cattle market library to support this method of pricing.

Experts Agree and Studies Show AMAs Increase Beef Demand

• AMAs have been studied for decades, see them here: http://www.themarketworks.org/studies
• USDA Commissioned IRI Study on Livestock and Meat Marketing Final Report
• Leading Agriculture Economists have this to say about AMA’s and government interference: https://www.meatinstitute.org/press/economists-academics-industry-agree-supply-demand-labor-economies-scale-drive-beef-and-cattle

The Legal Background: Showing “Harm to Competition” has been upheld by eight different appeals

The eight federal courts of appeals that have considered the issue have unanimously concluded that a plaintiff must show actual or likely harm to competition to make a claim and win under Section 202(a) or (b) of the PSA.   

The most recent circuit to address the issue, the Sixth Circuit, said it best:

The tide has now become a tidal wave, with the recent issuance of the Fifth Circuit Court of Appeals’ en banc decision in Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355 (5th Cir. 2009) (en banc), in which that court joined the ranks of all other federal appellate courts that have addressed this precise issue when it held that “the purpose of the Packers and Stockyards Act of 1921 is to protect competition and, therefore, only those practices that will likely affect competition adversely violate the Act.” Wheeler, 591 F.3d at 357.  All told, seven circuits – the Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits – have now weighed in on this issue, with unanimous results.