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Break the packers: Secure the White HouseThe series of government hearings on consolidation in agriculture continued on Aug. 27, aiming at livestock production and processing. It sets up a political agenda for the Barack Obama administration that should play out in less than two years. The question is whether government regulation should be used as a hindrance to large livestock operations. Politically, it is a no-brainer, but in real-world economic policy, it is very complex. We are going to see if the intent of government is to use producer opposition to big business as the means to gain a winning majority for the presidential election of 2012. The antitrust law has been on the books since the 1920s to limit the packing industry's consolidation and manipulation of livestock purchases. Grain Inspection, Packers and Stockyards Administration is just the latest name for the government agency that comes from the legislation that broke up meat packers almost 100 years ago. Even in my lifetime, old line packers Wilson and Armour were under restrictions that made them move their capital out of the packing industry and into unrelated enterprises. Wilson owned a sporting goods company and Armour turned into a conglomerate. The hearing in Fort Collins, Colo., was the latest show put on by the federal government to imply that they are watching agriculture very closely. Their track record certainly isn't stellar in keeping track of market manipulation on Wall Street, so why should we assume that they are doing a good job in agriculture? The tools to find and prosecute violators are there, but the will to expend political capital seems to be sorely lacking. Why is it that after 30 years of consolidation it's time to do something? Could it be that government is looking out for itself more than it's looking out for anyone else? In the hearing, the smaller producers and their organizations gave examples of the number of livestock operations in 1980 versus the number today. In hogs, the production units dropped from 660,000 to 71,000. In cattle, the drop was from 1.6 million to 950,000. But in reality, the growth in size of existing livestock operations and the resulting decrease in numbers of producers are parallel with every other business in our economy. Government has endorsed consolidation like a marching band at the front of the parade. In the last 30 years, literally every merger that came forth for review has been approved, even those with majority ownership outside the United States. We have seen seed companies go from many to few. We have seen tractor manufacturers follow the same path. Why should the livestock sector be any different? On the other side of this equation is the definition of a "farm" in an era where jobs were abundant and few gained all their income from a single source. The real world still carries the 80/20 rule where 20 percent of producers contribute 80 percent of the output of the industry. Beginning in the 1970s, the small producer saw better utility for his or her time and energy and voluntarily left a money-losing livestock production. This allowed a combination of technology and capital to innovate and set up a more efficient and profitable operating system. To do so, the owners were no longer farmers but agribusinesses. They took steps to insure profitability and reduce risk. They contracted with livestock producers who agreed to make an investment in facilities and receive a guaranteed income. They linked to packers who would treat their livestock as "captive supplies" so that the price would not fluctuate wildly in times of shortage. This new generation of livestock production companies turned cattle and hogs into an efficient business, but in doing so forced out many small producers who would not contract with either integrator or packer. Those who remain are the real audience for the federal agencies. Now we have two cabinet-level appointees standing in front of a thousand cattle and hog producers on both sides of the consolidation issue. Maintaining the status quo is not the intent or the workshop/hearings would not have been held. Changing the structure of the industry to limit ownership might cause the departure of larger players who could damage the overall economy and potentially cause supply shortages and higher prices for consumers. I don't think this administration has any interest in truly changing the structure of agribusiness or realigning the supply chain from pig to plate or steer to steak. They only have one short-term objective: Get both sides to believe they are protecting them from the other and gain the votes of as many as possible. This is old politics, but it has worked in the past and well could work again. If this were a game of poker, the livestock and packer industries would have laid down their hand and "called" the administration to do the same. If it fails to do so and "folds," then the current interests win. If it shows bigger cards, it wins. If this weren't so serious, it could actually be fun to watch! There is one more USDA/Department of Justice hearing, but this was the one to watch because of the number of producers (voters) who will be affected. The November elections will tell whether the conservative forces gain back as many seats in the House and Senate as expected. If so, the next challenge will be the presidency in 2012. A robust action against the packing industry by the DOJ over the next two years could gain the votes of a million-plus cattle and hog producers. That might be the margin of victory to secure the White House for four more years. What happens to the livestock industry in Obama's second term may well be the opposite of the intent of the regulators, but by then the political victory will have been accomplished and business will have to fend for itself until it becomes politically expedient for government to step in again. Editor's Note: Ken Root is an independent agricultural journalist. He was named the 2009 Farm Broadcaster of the Year and was the 2008 winner of the Oscar in Agriculture. He is an Oklahoma native and an experienced print, radio and television journalist. He has spent the last five years as Lead Farm Broadcaster at WHO Radio in Des Moines, Iowa. He and his wife Gail have two adult children and two grandchildren.
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