PACKERS MANIPULATE THE BEEF MARKET – by Dan Teigen
In mid-February, a jury put a price – $1.28 billion – on the amount Tyson/IBP swindled from ranchers between 1994 and 2002 through a specific form of market manipulation. That accounts for the illegal use of captive supplies – in this case, livestock the packers own or control through contracts with feedlots – by just one of the big three packers in the cash market over just eight years.
Some analysts estimate the packer monopoly's use of captive supplies costs farmers and ranchers $1.4 billion a year, which explains why so many ranchers are going out of business during a time of strong consumer demand for beef.
The big three meat packers – Tyson/IBP, Cargill, and ConAgra – control 80 percent of the cattle that end up as steaks on American dinner tables. The packer monopoly uses its concentrated power to manipulate markets through the use of captive supplies – livestock that are tied to one packer and are therefore not subject to normal supply and demand market forces.
Over the last three decades, the packer monopoly's increased use of captive supplies has corresponded with an increase in market concentration and a decrease in the rancher's share of each dollar spent by consumers on beef:
· In 1975, ranchers like our family were rewarded for our hard work and quality product with 65 cents of every retail beef dollar. Back then, four meatpacking companies slaughtered less than 40 percent of U.S. cattle. Less than 20 percent of those cattle were acquired through the use of captive supplies.
· Today, the packer monopoly includes just three firms that together slaughter 80 percent of fed cattle. Half of these cattle are acquired through captive supplies. The rancher's share of the beef dollar, meanwhile, has dropped to just 40 or 45 cents – down 25 percent since 1975.
In Pickett v. Tyson/IBP, the jury confirmed what the Northern Plains Resource Council and Western Organization of Resource Councils have been saying for years: Tyson/IBP and other packers use captive supplies to depress prices paid to ranchers in violation of the Packers and Stockyards Act of 1921. In this case, they depressed prices to the tune of $1.28 billion.
The Captive Supply Reform Act – sponsored by Sen. Mike Enzi (R-Wyo.) and Rep. Earl Pomeroy (D-N.D.) – would restore competition to the livestock industry by preventing the non-competitive, unfair use of captive supplies and requiring an open and public bidding process for cattle and hogs.
Specifically, the bill would:
1. Require a fixed base price in contract and marketing agreements; and
2. Require that contracts be traded in open, public markets.
The bill would not prevent the use of forward contracts – an important means of coordinating supply and reducing risk for the meat packers. Rather, it would simply require such contacts to be traded in open, public markets to which all buyers and sellers have access. We need meat packers as much as we need cattle ranchers. We just need packers to play fair.
Passage of the Captive Supply Reform Act would reduce market manipulation, restore market competition, and enable our markets to do what they do best – establish fair prices between buyers and sellers. This would in turn help keep ranchers on the land and bolster state economies.
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In mid-February, a jury put a price – $1.28 billion – on the amount Tyson/IBP swindled from ranchers between 1994 and 2002 through a specific form of market manipulation. That accounts for the illegal use of captive supplies – in this case, livestock the packers own or control through contracts with feedlots – by just one of the big three packers in the cash market over just eight years.
Some analysts estimate the packer monopoly's use of captive supplies costs farmers and ranchers $1.4 billion a year, which explains why so many ranchers are going out of business during a time of strong consumer demand for beef.
The big three meat packers – Tyson/IBP, Cargill, and ConAgra – control 80 percent of the cattle that end up as steaks on American dinner tables. The packer monopoly uses its concentrated power to manipulate markets through the use of captive supplies – livestock that are tied to one packer and are therefore not subject to normal supply and demand market forces.
Over the last three decades, the packer monopoly's increased use of captive supplies has corresponded with an increase in market concentration and a decrease in the rancher's share of each dollar spent by consumers on beef:
· In 1975, ranchers like our family were rewarded for our hard work and quality product with 65 cents of every retail beef dollar. Back then, four meatpacking companies slaughtered less than 40 percent of U.S. cattle. Less than 20 percent of those cattle were acquired through the use of captive supplies.
· Today, the packer monopoly includes just three firms that together slaughter 80 percent of fed cattle. Half of these cattle are acquired through captive supplies. The rancher's share of the beef dollar, meanwhile, has dropped to just 40 or 45 cents – down 25 percent since 1975.
In Pickett v. Tyson/IBP, the jury confirmed what the Northern Plains Resource Council and Western Organization of Resource Councils have been saying for years: Tyson/IBP and other packers use captive supplies to depress prices paid to ranchers in violation of the Packers and Stockyards Act of 1921. In this case, they depressed prices to the tune of $1.28 billion.
The Captive Supply Reform Act – sponsored by Sen. Mike Enzi (R-Wyo.) and Rep. Earl Pomeroy (D-N.D.) – would restore competition to the livestock industry by preventing the non-competitive, unfair use of captive supplies and requiring an open and public bidding process for cattle and hogs.
Specifically, the bill would:
1. Require a fixed base price in contract and marketing agreements; and
2. Require that contracts be traded in open, public markets.
The bill would not prevent the use of forward contracts – an important means of coordinating supply and reducing risk for the meat packers. Rather, it would simply require such contacts to be traded in open, public markets to which all buyers and sellers have access. We need meat packers as much as we need cattle ranchers. We just need packers to play fair.
Passage of the Captive Supply Reform Act would reduce market manipulation, restore market competition, and enable our markets to do what they do best – establish fair prices between buyers and sellers. This would in turn help keep ranchers on the land and bolster state economies.
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