IB10021: Animal Agriculture: Issues for the 106th Congress
Geoffrey S. Becker
Resources, Science, and Industry Division
September 22, 1999
CONTENTS
SUMMARY
A variety of animal agriculture issues has generated debate in the 106th Congress,
including low livestock prices, particularly for hogs. Economic difficulties have revived
questions such as the impacts of consolidation in the livestock industry, and the price
effects of animal imports from Canada and Mexico.
This summer, the U.S. Department of Agriculture (USDA) was implementing provisions in
the emergency supplemental appropriations bill (H.R. 1141; P.L. 106-31,
signed May 21) that make available up to $145 million to assist pork producers, and
another $73 million in payments to livestock producers generally for disaster losses. New
economic assistance for animal agriculture also is being considered as part of a broader,
multi-billion farm relief package now nearing passage in Congress.
A number of other legislative proposals to assist livestock producers have been
introduced, including bills mandating that packers report prices paid for animals (the
Senate Agriculture Committee marked up a bill on July 29, 1999), or that meat products be
labeled with their country of origin.
On the trade front, U.S. officials concluded an agreement on April 14, 1999, on the
application of sanitary and phytosanitary standards that, among other things, commits
China to immediately open its markets to U.S. pork, beef, and poultry imports by agreeing
to accept USDA certification of the safety of U.S. products exported.
President Clinton, on July 7, 1999, announced new, higher tariffs on lamb imports from
New Zealand and Australia based on findings by the U.S. International Trade Commission
(ITC) that increased lamb meat imports "are a substantial cause of the threat of
serious injury" to U.S. producers. In a separate action, the ITC on January
19, found that U.S. cattlemen might have been economically threatened by Canadian cattle
imports, leading the Commerce Department to impose a preliminary 5.57% duty on such
imports. A final relief determination is due by October 3.
Continuing disputes with the European Union (EU) over its barriers to U.S. meat and
poultry imports and chronic difficulties getting products into countries in the
increasingly important Asian market also are at issue, as Congress considers the success
of existing trade agreements and whether to enter into new ones. For example, the World
Trade Organization gave the EU until May 13 to lift its ban on imports of meat products
from animals treated with growth-promoting hormones. The EU did not lift the ban, and the
United States retaliated by imposing, in late July, 100% tariffs on $117 million worth of
EU imports.
In another area, the Administration issued in March 9 1999, a new "Unified
National Strategy" for animal feeding operations -(AFOs) aimed at improving
compliance and strengthening existing regulations for controlling waste discharged from
such operations. In August 1999, the Environmental Protection Agency followed up by
unveiling a proposed guidance manual and permit examples for AFOs, inviting public
comments for 60 days. It is aimed at providing information on which AFOs would need to
apply for permits (likely 15,000 to 20,000 of the largest operations); how manure should
be applied on land; and monitoring and reporting requirements, among other things.
MOST RECENT DEVELOPMENTS
On September 22, 1999, House-Senate conferees were attempting to resolve
differences in their versions of a FY2000 USDA appropriation bill (H.R. 1906; S. 1233); the Senate
version contains a $7.65 billion emergency farm relief package that would earmark $325
million for livestock and dairy producers, among other provisions. Meanwhile, USDA has
been implementing provisions in an earlier emergency supplemental appropriation (P.L. 106-31,
signed May 21) that make available up to $145 million to assist pork producers, and
another $73 million in payments to livestock producers generally for disaster losses.
Legislation requiring mandatory reporting of livestock and meat prices, which many
producers believe is needed for them to determine accurate market conditions, is advancing
in Congress. The Senate Agriculture Committee, on July 29, 1999, approved a compromise
bill, culminating 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.
On the trade front, the European Union (EU) did not meet a World Trade Organization
(WTO) deadline of May 13 for lifting its 10-year-old ban on imports of meat from animals
treated with growth hormones, after issuing a preliminary report that raised questions
about potential human health risks. The United States, which strongly criticized the
report as unscientific, retaliated by imposing, on July 29, 100% tariffs on $117 million
in EU agricultural imports here. However, the EU and United States did finalize, on July
26, a "veterinary equivalency" agreement and process for determining that each
side has equivalent safety and sanitary standards for animal products.
In another area, in August 1999, the Environmental Protection Agency (EPA) unveiled
a proposed guidance manual and permit examples for animal feeding operations
(AFOs), inviting public comments for 60 days. It is aimed at providing information on
which AFOs would need to apply for waste discharge permits (likely 15,000 to 20,000 of the
largest operations); how manure should be applied on land; and monitoring and reporting
requirements, among other things.
BACKGROUND AND ANALYSIS
Importance of Animal Products
In 1998, U.S. farmers received $93 billion from the sale of their animal products,
about 47% of the value of all agricultural products marketed, according to USDA. In
virtually every state, one or more of the top five farm commodities (based on sales) was
an animal product, such as milk, cattle/calves, hogs, poultry, or eggs.
These commodities contribute about three-quarters of the protein and one-third of the
food energy to the average American's diet. Of the $561 billion that U.S. consumers spent
on all U.S. farm-produced foods in 1997 (the most recent year available), roughly half was
for meat, poultry, eggs, and dairy products.
Recent Economic and Price Concerns
Livestock (i.e., cattle, hog, lamb) and poultry (i.e., broiler and turkey) producers
entered 1999 with record supplies of red meat and poultry, contributing to depressed
prices for livestock in general and hogs in particular. Low feed and other input costs
have helped to offset some lost income. Red meat production will level off in 1999.
However, increased poultry production will push overall meat and poultry supplies to yet
another all-time record of more than 81 billion pounds in 1999--portending another year of
economic difficulties for many animal producers. Total meat and poultry supplies are
expected by USDA to level off or decline in 2000.
Hogs. The pork industry has been shaken both by historically low hog
prices in 1998 and by a relatively rapid decline in the number of smaller-sized hog farms.
Average 1998 live hog prices dropped to $35/cwt., the lowest annual level since 1972 and,
adjusted for inflation, the lowest of the century. Some reported prices dipped below $10
in mid-December. (Prices in 1996 and 1997 averaged above $50/cwt.) The University of
Missouri estimates that U.S. hog farms lost $2.5 billion in equity last year; other
analysts have estimated that losses were even higher. For all of 1999, prices will average
$32-33/cwt.; for 2000, they will average $34-37, USDA has projected.
Economists attributed the recent price problems to a 10% increase in pork production in
1998 over 1997. Producers had expanded in response to relatively higher prices paid for
hogs in 1996 and 1997, to lower grain prices, and to predictions of continuing robust
export growth. Hog prices also were depressed due to large supplies of beef and poultry
competing for the consumer dollar; and to the closure of several large packing plants last
year, which strained slaughter capacity and deterred packers from taking even more animals
off the farm, according to analysts.
Meanwhile, hog production is being consolidated into fewer and larger operations. From
1993 to 1998 alone, the number of U.S. farms with one or more hogs declined by nearly
half, from 218,060 to 114,380, according to USDA. In fact, by 1997, the largest 18
operators were responsible for nearly one-fourth of the entire nation's hog
output--roughly the equivalent of Iowa's entire annual production. Newer, much larger, and
highly capitalized facilities account for most of the recent expansion. In order to cover
high fixed costs, these facilities tend to stay in the hog business longer, even when
prices are low, than the relatively smaller-sized, and more diversified, farms of the
past, which tended to more quickly enter or exit the hog business in response to price
changes. The larger operations also tend to have contract supply relationships with
processing plants, rather than selling in spot cash markets.
Cattle. The cattle industry has struggled with a longer-term
problem:--the longer-term erosion of market share to competing protein sources, especially
poultry. Prices paid for "fed" (i.e., slaughter-ready) cattle in the Nebraska
market averaged about $61/cwt. in 1998, down from $66 in 1997 and the lowest annualized
price of the 1990s, according to USDA. Average prices for "feeder" cattle
(animals bred and readied for placement in feedlots) in Oklahoma City were about $72 in
1998. Prices had reached $76 in 1997, after a long slide between 1993 and 1996, from $86
to $61. USDA expects beef production to decline by 2000, leading to price improvements.
Average prices are projected at $64-65 in 1999 and $66-72 in 2000 for Nebraska fed cattle;
and $73-75 in 1999 and $78-84 in 2000 for Oklahoma City feeder cattle.
Poultry. Broiler prices averaged 63¢/lb. 1998, or more than 4¢
higher than the prior year, helped by a relatively modest 2% growth in production. Prices
might have been higher if the key Russian market had not collapsed after devaluation of
the ruble in August 1998. For 1999, average prices could drop by 4-5¢ due to a projected
6% growth in production, and to sluggish exports, USDA said. Turkey prices averaged about
62¢/lb. in 1998, from 65¢ in 1997; they may recover to 69-70¢ in 1999 but decline to
61-67¢ in 2000. Large meat supplies have helped to dampen poultry prices.
Government Response
USDA launched a number of initiatives--and Members of Congress have proposed various
bills--to assist the livestock industry, particularly pork. Both the House and Senate
Agriculture Committees have held hearings where these issues have been reviewed.
Hog Industry Assistance. USDA has among other
things: provided $50 million for direct payments of $5 per head to smaller-sized
producers; eased Farm Service Agency (FSA) credit terms; accelerated the Animal and Plant
Health Inspection Service (APHIS) pseudorabies eradication program with an infusion of $80
million; purchased, since February 1998, $165 million worth of pork products for
distribution to domestic feeding programs (including $95 million in so-called
"bonus" buys over and above planned purchases); and earmarked pork (along with
other meats) for several export and food aid programs.
On May 21, the President signed an emergency supplemental appropriations bill (H.R. 1141; P.L. 106-31)
that includes a Senate provision making available up to an additional $145 million
specifically to assist pork producers. The measure also permits USDA to exceed the
statutory limitation of 25% of total available money that it can spend on any single
commodity under the so-called Section 32 program (used to purchase surplus farm products),
theoretically enabling the Department to spend more funds on hog producers.
USDA is now disbursing $100 million or more for additional direct payments to hog
producers. Those marketing no more than 2,500 hogs during the last 6 months of 1998 (about
96% of all operations) are eligible for the payments, which cannot exceed $5,000 per
recipient. Payment rates are $10 per head (with the previous $5 per head payments counting
toward the $10 limit).
Other Livestock Assistance. The Senate-passed
emergency supplemental bill includes an additional $73 million (not in the House version)
to assist livestock producers generally who have experienced disaster-related losses. On
June 29, 1999, the Secretary announced that most of this money was being made available,
through county FSA offices, to supplement the $200 million in livestock disaster
assistance that was provided in the FY1999 omnibus appropriations bill. The combined $270
million will enable producers in 31 states to be compensated for a total of 30% of the
value of their grazing losses.
Because of continuing low prices in the crop as well as livestock sectors in 1999,
Congress and the Administration are debating another major farm relief package this year,
which is being considered as part of the FY2000 USDA appropriations bills (H.R. 1906; S. 1233) passed by the
House and Senate and before a conference committee on September 22. The Senate version
contains a $7.65 billion emergency farm relief package that earmarks $325 million for
livestock and dairy producers, among other provisions. (See CRS Issue Brief 10043, Farm Economic Relief: Issues and Options for Congress.)
Current law gives USDA the discretion to determine whether a commodity is insurable
under the federal crop insurance program, but livestock is specifically excluded. The
Administration and several Members of Congress have proposed offering, on a pilot basis,
revenue-based insurance products for livestock. (Se CRS Issue Brief 10037, Federal Crop Insurance: Reform Issues in the 106th
Congress.)
  
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