Livestock Marketing and Competition Issues

Publication Date: February 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Agriculture, forestry and fishing

Type:

Abstract:

Changes in the structure and business methods of livestock and meat production and marketing -- sometimes referred to as consolidation, concentration and/or vertical integration -- have long generated interest and controversy in Congress. Although USDA still considers beef cattle production (farm level) to be among the least concentrated agricultural sectors, just four firms slaughtered 71% of all U.S. cattle in 2005. In 1985, the then-top four packers accounted for 39% of all cattle slaughter, according to industry and USDA statistics. Four firms slaughtered 63% of all U.S. hogs in 2005, compared with 32% in 1985.

Live hog production itself has seen sweeping changes over the past 25 years. The number of U.S. farms with hogs declined from 667,000 in 1980 to 67,000 in 2005; those remaining have become much larger and less diversified. Operations with at least 10,000 hogs now represent less than 1% of all producers but more than half of total U.S. production, USDA reports. Many hogs today are sold through production contracts, where a pork processor might provide the pigs and other inputs, and a contracting producer (farmer) provides facilities and labor.

Debate has revolved around the impacts of such changes on farm prices, consumers, global competitiveness, and the traditional U.S. system of independent farms and ranches. Inherent in these questions is the role government should play in monitoring and regulating agricultural markets.

Some groups believe that federal officials have not enforced existing laws designed to prevent anti-competitive behavior, and/or that the laws themselves should be strengthened to better address today's market realities. Others assert that present competition and antitrust policies remain adequate and effective. They believe that the sector's structural changes are a desirable outgrowth of other factors such as technological and managerial improvements, changing consumer demand, and more international competition.

Some of the proposals offered in past Congresses to address one or more of the perceived "competition" problems in livestock markets are re-emerging in the 110th Congress. S. 305, for example, would prohibit packers from owning or controlling cattle except for just before slaughter; S. 221 would prevent the imposition of mandatory arbitration clauses on producers in their contracts with processors. A wider-ranging measure (S. 622) includes provisions creating a new USDA special counsel for competition to investigate and prosecute violations of the Packers and Stockyards Act (PSA) and Agricultural Fair Practices Act (AFPA); and makes several other significant changes to the AFPA affecting contracts between producers and buyers of their products.

These or other forthcoming bills could be considered for a proposed competition title in a new farm bill to be written in 2007 to replace (or extend) provisions of the last omnibus bill, the Farm Security and Rural Investment Act of 2002 (P.L. 107171). This report will be updated if significant developments ensue.