RS20079: Livestock Price Reporting Issues

Geoffrey S. Becker
Specialist in Agricultural Policy
Resources, Science, and Industry Division

Updated December 8, 1999

Summary

Meat packers and processors have not been required to report the prices they pay for animals, although the U.S. Department of Agriculture (USDA) has long collected and reported this data under an extensive voluntary system. A new mandatory price reporting bill, reported in July 1999 by the Senate Agriculture Committee, was incorporated into the conference version of the USDA FY2000 appropriation (H.R. 1906), and signed into law (P.L. 106-78) on October 22, 1999. Some farm organizations backed mandatory price reporting for packers on the grounds that meat industry consolidation, and the less public marketing arrangements that have resulted, have made it difficult for producers to determine a "fair" market price. Others argued that such proposals will prove costly for government and industry, raise privacy concerns, and not cure the low livestock prices that helped fuel interest in the idea.

Introduction

Packers and processors in the past were not required to report the prices they pay for the animals they buy from producers, or the terms of sale. Rather, daily sales information has been collected by USDA's Agricultural Marketing Service (AMS) from companies on a voluntary basis. However, more and more animals are now being sold under private marketing arrangements where prices are not publicly disclosed.

Some agricultural producers, believing that such arrangements make it difficult or impossible for them to determine a "fair" market price for their livestock, called for mandatory price reporting requirements for packers and perhaps others who process and market meat. Opponents, including some meat packers, and other farmers and ranchers, argued that mandatory reporting would impose costly new burdens on the industry and could cause the release of confidential company information.

Mandatory price reporting attracted interest in Congress in 1999, as Members sought ways to help producers coping with low cattle, hog, and sheep prices. Also fueling interest were concerns about the increasing concentration of the livestock industry into larger and fewer entities, and the impact of these changes on "price transparency"--that is, the ability to obtain accurate, timely price information.

Voluntary Price Reporting Activities

Under the broad authority of the Agricultural Marketing Act of 1946 (7 U.S.C. 1621-1627), AMS's Livestock and Grain Market News Branch collects and immediately reports livestock and meat prices and related market information. The agency's trained market reporters attend public livestock auctions, visit feedlots and packing plants, personally contact many individual buyers and sellers, and consult with trade associations to develop their data so that buyers and sellers all have access to accurate and objective information from major markets throughout the country. The information is disseminated through daily, weekly, monthly, and annual written and electronic reports covering sales of live cattle, hogs, and sheep, and of the wholesale meat products from these animals. Appropriations fund this service, except user fees are charged for written reports.⁽¹⁾

A USDA-chartered Advisory Committee on Agricultural Concentration in 1996 concluded that improved transparency in price and other sales information "is critical to both buyer and seller for efficient functioning of market systems" and for evaluating whether markets are competitive. "In today's global market, no country can afford a climate of distrust and hostility when successful global competition often depends on productive, industrial partnerships between government and business...a disclosure policy can provide a basis for harmonious and productive interactions between the food industry and farmers, as well as consumers."⁽²⁾ At issue has been whether such a policy should remain entirely voluntary or contain at least some mandatory elements.

The Advisory Committee recommended a variety of specific incremental improvements in voluntary information reporting and access, a number of which USDA has undertaken. Examples are expanded coverage of boxed (wholesale) beef sale commitments; new reports on numbers of hogs and on cattle being produced under contract; and new daily reports on cattle, hog, and sheep imports from Canada and Mexico. In another initiative to improve market information, USDA's Grain Inspection, Packers, and Stockyards Administration (GIPSA) published, in the September 10, 1998, Federal Register, an advance notice of proposed rulemaking asking whether GIPSA should prohibit private livestock transactions that are based on the condition that the price must remain secret.⁽³⁾

Department analysts have determined that AMS, under the 1946 Act, cannot require buyers and sellers to report price and other market information. However, GIPSA, under the Packers and Stockyards Act of 1921 (7 U.S.C. 181-229), has broad authority to collect price and other marketing information from firms in fulfilling its mandate to ensure fair competition and fair trade practices in the industry. Although packers and others must provide this information when GIPSA requests it, the data almost always are from past rather than current transactions. Consequently, it is not especially useful to producers seeking immediate price information.

Legislative Activity

In the 106th Congress, the House and Senate Agriculture Committees held hearings on April 29 and May 26, 1999, respectively, on mandatory price reporting.⁽⁴⁾ The Senate committee then marked up and approved an original bill (S. 1672; S.Rept. 106-168) on July 29, 1999. This culminated a long period of intensive negotiations involving meat packing companies and livestock producers to design a comprehensive price reporting law acceptable to both segments of the industry. Although the full Senate did not vote on the plan, it was added to the conference version of USDA's FY2000 appropriation (H.R. 1906; H.Rept. 106-354). Congress cleared the conference measure in early October, and the President signed it into law (P.L. 106-78) on October 22, 1999.

Producer groups that endorsed some form of mandatory price reporting have included the National Pork Producers Council (NPPC), National Farmers Union (NFU), the National Cattlemen's Beef Association (NCBA), the American Sheep Industry Association (ASI), and the American Farm Bureau Federation (AFBF).

Several major packers participated in the negotiations on legislation largely because they wanted a federal law to preempt what they view as the "patchwork" of divergent and burdensome price reporting laws within individual states. For example, after a new price reporting law took effect in South Dakota on July 1, 1999, meat packers filed a federal lawsuit charging that it is unconstitutional and discriminates against specific businesses. In late July, the U.S. judge refused to block the law, except for a "price discrimination" provision that bans packers from paying different prices for animals of the same quality. Iowa, Minnesota, Missouri, and Nebraska also have passed price reporting laws. The reporting plan in P.L. 106-78 prohibits states from imposing mandatory reporting requirements that are in addition to, or inconsistent with, the federal law.

Provisions of the Plan

The plan in P.L. 106-78 is effective for 5 years. Besides preempting state laws, the measure: subjects packers to civil penalties of up to $10,000 for each violation of the requirements; requires USDA to collect and publish at least monthly information on retail prices for meat and poultry products; and requires the General Accounting Office to study the Secretary's powers and current legislative authorities to regulate the livestock sector. The law contains the following species-specific provisions, which, sponsors estimate, imposes reporting requirements on only 10% of all cattle and hog plants (the largest) but still captures 94% of market transactions.

Cattle Provisions. Cattle plants that slaughter at least 125,000 head annually must report to USDA twice a day on all cattle purchased on a live or dressed weight basis. Packers must report weekly to USDA on all cattle not purchased on cash (spot) markets, such as through forward contracts or formula marketing agreements. They also are required to report to USDA on their sales of boxed beef, by price, volume, and grade. USDA, in turn, is required to compile and publish the data in detailed form at regular, statutorily-prescribed intervals--some of it several times per day.

Pork Provisions. Federally-inspected pork plants that slaughter at least 100,000 head annually must report to USDA by 8 a.m. each day all prices (also to reflect any premiums, discounts, and merit adjustments), plus volumes and terms of sale, for domestic hog purchases from the previous business day. USDA in turn is required to publish detailed reports on hog purchases and slaughter twice daily, plus separate weekly reports distinguishing between barrow and gilt slaughter, and a monthly rather than quarterly hogs and pigs inventory report. USDA also must maintain an electronic library on open hog marketing contracts offered by packers.

Lamb Provisions. The Secretary of Agriculture is given the authority to mandate, through public rulemaking, price reporting for lamb if he determines one is needed.

Administrative Cost Considerations

Additional funding is needed for USDA's administration of the mandatory system, including such expenses as new market reporters, clerical staff, and auditors to collect data, review records, and assess compliance. The FY2000 appropriations bill both provided no money for mandatory reporting and explicitly prohibited user fees to fund it. However, a subsequent law, the Consolidated Appropriations Act (P.L. 106-113), authorized USDA to expend for the program up to $4.7 million in Commodity Credit Corporation funding not otherwise needed for emergency farm assistance payments.

Arguments for Mandatory Price Reporting

The livestock industry, particularly the meat packing segment, has undergone fundamental changes in recent years, both structurally and in its marketing practices. Today, just four firms slaughter about 80% of all fed cattle, and four firms slaughter about 55% of all hogs, for example. Rather than buy in open cash markets, these and other top firms increasingly feed their own animals or use private marketing arrangements--such as forward contracts, formula pricing, and exclusive purchase agreements--for which prices and terms of sale are not publicly disclosed. This makes it difficult for producers, particularly smaller-sized ones and those that want to utilize open cash markets, to determine a "fair" market price, it is argued.

Many producers contend that they cannot obtain the data needed to quickly and easily compare bids from different packers and to negotiate the best possible price for their livestock. As the number of spot cash market transactions diminishes, the reported prices from these transactions--which tend to be lower than privately-negotiated sales--are questionable as indicators of market prices, they argue. Government and producer efforts to coax more information from firms on a voluntary basis have largely failed, add proponents of mandatory price reporting.

These proponents contend that the lack of transparency in prices also creates the potential for large firms--whether buyers or sellers--to unfairly wield market power. They argue that when prices, and the terms under which those prices are negotiated, are readily apparent to all parties, there is less likelihood that firms will break anti-trust laws--and less need for the government to expend resources searching for evidence of, and prosecuting, anti-competitive behavior. This was one of the arguments the Advisory Committee on Agricultural Concentration used in recommending that mandatory price reporting legislation be considered.

Arguments Against Mandatory Price Reporting

Opponents of mandatory reporting contend that the voluntary system already presents an accurate and timely picture of market prices and conditions. For example, the American Meat Institute (AMI), an association representing a number of large packers, cited USDA estimates that at least 75% of all boxed beef sales are covered by voluntary reporting, and that more than two-thirds of all negotiated live cattle sales are covered. Meat packer Cargill, in testimony before the House Agriculture Committee, also noted that GIPSA several years ago undertook two of the most comprehensive studies of cattle pricing in history--reviewing every cattle transaction over a one-year period in two states (Kansas in 1995 and Texas in 1996). These studies found a high degree of participation in the current voluntary system, and that the prices reported were representative of overall market conditions, Cargill added. Although voluntary reporting for hogs and pork was found to be not as effective, improvements could be achieved simply by encouraging more packer participation, Cargill testified. Others suggested that with additional resources from Congress, AMS could easily have expanded its voluntary market news services.

Packers also have expressed concerns about the forced disclosure of companies' proprietary information. "Disclosure of specific sales and volumes may limit our competitive ability to capture premiums and it also may disproportionately provide greater leverage to the purchasers of our products," producer-owned cooperative Farmland Industries testified at an earlier House hearing. AMI pointed out that mandatory reporting of all private transactions does not exist in any other segment of agriculture; it burdens industry and "compromises legitimate business interests." Opponents contend that mandatory price reporting is imposing a new, costly regulatory burden on the red meat industry at a time when it is struggling to be competitive not only with other protein sources (i.e., poultry, which is not subject to the new law) but also with foreign rivals in the global marketplace.

Mandatory price reporting will not address the fundamental problem with producer prices, opponents contend. Prices have been depressed because of an imbalance between supply and demand--that is, domestic consumption and export markets have not been able to absorb high animal and meat production. Low prices--not concerns about the lack of price information--impelled producer groups to seek government intervention; when prices recover, the pressure for more "price transparency" would have diminished, it is argued. In fact, some critics have argued that packers rather than producers could be the ultimate beneficiaries, if they use the information about what competitors are paying to offer less, not more, attractive prices for animals.

Footnotes

1. ^(back)For more information about these market news services, see the AMS home page at http://www.ams.usda.gov/.

2. ^(back)Concentration in Agriculture: A Report of the USDA Advisory Committee on Agricultural Concentration. USDA/AMS, June 1996.

3. ^(back)The notice is available at http://frwebgate.access.gpo.gov/cgi-bin/multidb.cgi.

4. ^(back)Testimony from these hearings can be accessed via the Internet at: http://www.senate.gov/~agriculture/ and http://www.house.gov/agriculture/.