Chairman Frank Lucas today released the following statement on Scott O'Malia's last day as Commissioner of the Commodity Futures Trading Commission (CFTC). Last month, O’Malia announced he would resign to pursue other opportunities.
House Agriculture Committee To Examine Livestock Markets
Questionnaire lays foundation for hearings for all to weigh-in effectively
August 12, 2002 – House Agriculture Committee Chairman Larry Combest (R-Texas) has asked state and national producer groups, agricultural economists, national farm groups, packers and the Secretary of Agriculture to respond to specific questions that will lay the foundation for hearings on the current state of livestock markets. Ag Chairman Combest's letter encourages the respondents to provide detailed responses to the questions that examine the structure, health and fairness of the nation's livestock markets.
"During consideration of the Farm Bill, far reaching policy changes were considered. The Senate bill included an amendment that would have prohibited packer ownership of livestock within 14 days of slaughter. Though there was considerable disagreement about the consequences of this amendment, almost everyone agreed the effect on livestock markets would be profound," Combest wrote. "The Conferees ultimately agreed to put this amendment aside, pledging to conduct a sustained and comprehensive examination of our nation's livestock markets and consideration of potential legislative solutions."
QUESTIONNAIRE REGARDING LIVESTOCK MARKETING
HOUSE COMMITTEE ON AGRICULTURE - WASHINGTON, D.C.
1. Characterize the strengths and weaknesses that exist in the current marketing system for livestock. Please outline the nature and scope of the problems you observe. Finally, describe an appropriate governmental role in maintaining a viable livestock marketing system.
2. The Grain Inspection, Packers & Stockyards Administration's (GIPSA) definition of "captive supply" differs from many in the livestock and meatpacking industry. Why? Given that GIPSA's definition differs from many in the regulated industries, should GIPSA modify its definition? As we have seen, different individuals have different notions about the term "captive supply", which often complicates discussions about livestock markets. Please define the term captive supply.
3. Should captive supplies be reduced to 50%, 25%, 0%, or some other number? What criteria should a packer use to reduce captive supplies? Which current feeders will be eliminated from the captive supply chain? Who will make this decision? How will we measure the success of limiting or eliminating captive supplies?
4. Are you familiar with any empirical studies which have been conducted to determine what the current price of fed cattle would be if there were no captive supplies today? Will eliminating captive supplies put beef at a long term disadvantage to pork and poultry in the development of new branded convenience products?
5. In lieu of current alliance systems, what type of production and marketing system will provide a quality and consistent product needed for branded meat products?
6. Do contracts, alliances or other kinds of marketing agreements improve or harm marketing alternatives for all size producers? Since some lenders require price protection (hedges, forward contracts, etc) for cattle production loans, what alternatives will replace forward contracts?
7. Should independent, producer-owned plants, feedlots, marketing cooperatives and other livestock businesses be subject to the same level and kinds of legal and regulatory restrictions as more traditional livestock operations are currently and in the future?
8. What role do purchasing arrangements by major retailers have on packer pricing, captive supplies and other marketing and production arrangements? What is the current farm-to-retail
price spread? How has this changed over time? What role have captive supplies had in altering the spread? Will a further regulation of captive supplies or other governmental intervention in livestock markets impact the spread? How?
9. Numerous policy proposals have been discussed in Congress recently. For instance, a ban on packer ownership was debated during the farm bill and a packer requirement to
purchase 25% of their daily slaughter from the cash market is being discussed now. Please highlight the economic effects of each of these on all of the participants in the livestock production sector in both the near and long term.
10. Mandatory price reporting was advocated as necessary to improve market transparency and price discovery. Implicit in the arguments of individuals advocating mandatory price reporting was the idea that this improvement would lead to higher prices for producers. What has been the effect of mandatory price reporting on producer prices?
11. How does one reconcile the assertion that packers manipulate the market with the fact that prices move both up and down?
12. What structural and/or economic transformations have occurred in the livestock, poultry, meat and retail industries in the past decade? To what extent have these transformations been caused or influenced by consumer demand or purchasing habits?
13. Has the merger and acquisition activity in these sectors been greater than similar activities in other segments of the U.S. economy such as other food or consumer product manufacturers or retailers? What factors have motivated mergers and acquisitions within these sectors?
14. What factors have motivated vertical integration within these sectors? Are all vertical integration models the same? If not, describe various models and their benefits or detriments for consumers, retailers, manufacturers and producers.
15. During the past 10 years, which meat packers have increased packing capacity and/or built new packing facilities -- those who own or contract for some or all of their livestock, or those who do not?
16. Does the business structure of the current U.S. retail; meat and poultry processing; and livestock production sectors optimize productivity, quality and profitability for each sector? Why or why not?
17. Based on a competitive analysis of these sectors, which are better positioned for business success or failure? Why?
18. Would an analysis of farm, processing and retail margins for meat products over the past decade show that any one of these sectors has greater power or profitability than any other? Why?
19. How do these production/processing/retailing sectors compare with similar chains in other consumer product manufacturing industries, such as the automotive, dairy or pharmaceutical industries? What lessons can be learned?
20. What are the drivers of and barriers to profitability in today's livestock production, meat and poultry processing, and retail industries?
21. What effect do vertical integration, contracting and other supply-management strategies in the meat and poultry production/processing/retailing chain have on consumers? Retailers? Processors? Producers?
22. Does the current Packers and Stockyards Act need to be modernized to respond to changing conditions in the livestock sector? If yes, please outline the specific changes and/or additions to current law and resources that would be necessary to accomplish this goal.
23. Because the issue is so complex, it is impossible to cover the entire topic of livestock markets in one set of questions. This questionnaire, and the ongoing public policy debate, will inevitably require additional inquiry. Please take a moment to suggest additional questions you would like to see asked. These should not just be those you would like to answer but those you would like to see put to other actors in the livestock sector.
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