In a society that values association with winners, and vocally expresses disappointment with losers, say hello to the team that has made a comeback from government intervention, labor strikes and a challenge by all the smaller franchises to be stronger than ever. These are the beef and pork "packers" who are now the giants of the cattle and swine industry. Their factories are modern marvels that bring automation and precise supply management to their kill floors that daily disassemble a huge majority of cattle and hogs and route the finished product to supermarket meat cases worldwide.

These are astute business people who have positioned themselves between passionate producers and hungry consumers. They are corporations working within the system to eliminate barriers to commerce, adopt regulatory controls and increase long term profitability.

The packers winning strategy, in this extended age of unfettered capitalism, has been to work around laws that were passed to limit their vertical integration and to utilize the courts to invalidate laws and lawsuits. In the latest rulings, the legal protections of independent feedlots and farmers may well be gone. Those who sell to a monopolistic buyer will have to meet contract standards and surrender independence to be considered as a provider of his beef or pork supply.

Two cases, one federal and one state, may have set modern precedent for packer ownership of livestock and contracting with growers. The federal case stems from a lawsuit (Pickett vs. IBP and later Tysons Fresh Meats) where a class action of cattlemen challenged the buying practices of the packer. A jury found in favor of the cattlemen and awarded an astounding $1.28 billion as a representation of the damages caused by the packer's business practices. However, the judge granted Tyson's motion to set aside the jury verdict. The case wound its way through the courts again and the 11th Circuit Court of Appeals upheld the actions of the judge. The court, in effect, said that packers could use tools of supply management (captive supply) to keep the cost of their inputs down.

Last week a settlement between the State of Iowa and Smithfield Foods settled a five-year challenge of whether a livestock producing entity, with a packer component, could own and control hogs within the state. The State of Iowa and Smithfield compromised, as both spent huge amounts of time and money, and even the legislature got involved. Iowa still maintains a corporate farming law but realized that their relationship with Smithfield, the nation's largest pork producer and processor, jeopardized the title of "largest hog state" if they didn't find middle ground. Smithfield made several concessions to allow contract producers rights, protection and transparency but all will expire in two, five or 10 years.

I have observed many power players within agriculture over the past 30 years, from Farmland Industries to The Fertilizer Institute to Monsanto, but they all pale in comparison to the players in the meat packing industry. The business of disassembling animals in not for the faint of heart and the business practices of packers are equally brutal. The book "Jungle" was a socialist view of the meat packers and their power over workers and suppliers in the 1920s. It was a catalyst for the famed "Packers and Stockyards Act" that broke up the packing industry and forbid vertical integration for many years. I was told by a college professor in the 1960s that Wilson Packing began a sporting goods division and Armor and Swift became conglomerates because they couldn't focus all their resources on their core business of meat processing. This started to change in the 1970s as IBP emerged as the new power in meat packing and pioneered the practice of breaking down the carcass to "boxed beef" and shipping it to stores who no longer had to hire a skilled butcher. IBP's success gave the industry confidence that they could return to dominance, break the unions and create a "captive supply" of market ready animals for the purpose of supplying their needs at a lower price. Thirty years later, it appears they've succeeded.

It's clear that beef packers don't need to own ranches or feedlots as long as they own the chute where the cattle go once the growing cycle is completed. There are over a million cattlemen ready and willing to take the risk of birthing, grazing, and feeding to bring the animals to the packers. Some are willing to contract and others come hat in hand. It's a symbiotic relationship as the cattleman gets to do the job he loves and the packer does the detested work of slaughter and merchandising. When business minded buyers meet those who love to raise livestock, money trumps passion.

Hog farmers are not as colorful as cattle feeders but the result is the same: many sellers and few buyers. Conform your product and your business practices to the packer's standards or build your own slaughter house. That's one area that very few want to pursue. Selling to a packer is tough enough, competing within the same business is even tougher.

It's actually good for the industry to have the courts finally pull down the curtain to reveal that packers can legally use buying practices to keep a steady supply of lower priced animals coming into their abattoirs. Even though the Packers and Stockyards Act has been on the books since the 1920s, and specifically prohibits vertical integration, the courts have invalidated most provisions and Congress has refused to rework the law to enforce compliance. Again, big business wins financial arguments while Congress attempts to appear to be the advocate for the small and powerless in order to gain their vote.

A cynical view, without a doubt, but for all sectors knowledge is power. Producers who know their risks and rewards will become more business minded in contracting their skills to raise cattle and hogs. They will take a step away from their heritage and gain their pleasure not just from production but also from profit.

Editor's note: Ken Root is a farm anchor at WHO Radio in Des Moines, Iowa. He is a 28-year veteran of agricultural broadcasting and writing. He can be reached by e-mail at: kenroot@clearchannel.com or by writing to him at the Journal at P.O. Box 760, Dodge City, KS 67801.

Date: 9/22/05

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