A wise man once said, “Beware what lurks under the banner of reform.”
He was referring to what economists call the Law of Unintended Consequences. With recently proposed legislation that would establish new federal mandates on the terms by which cattle are bought and sold, those consequences, while unintended, are predictable, and costly.
Thanks to analyses by several leading economists, we know “The Cattle Price Discovery and Transparency Act,” introduced by Senators Chuck Grassley, R-Iowa, and Deborah Fischer, R-Neb., would impose costs, not just on cattle feeders and packers, but also cow-calf operators and ultimately, consumers.
At the 2022 American Farm Bureau Federation Annual Convention in Atlanta, Dr. Stephen R. Koontz, professor in the Department of Agricultural and Resource Economics at Colorado State University said, “Mandated cash trade is not going to get you better price discovery. It's going to put a $50 cost on calves impacted.” This $50 cost per head will be shouldered by cattle feeders and cow-calf producers - folks hard hit by the pandemic.
The Grassley-Fischer bill mandates a certain percentage for negotiated, spot market cash sales of fed cattle from cattle feeders to packers, restricting the use of Alternative Marketing Agreements (AMAs). And surprise, surprise, the way the bill is drafted, it favors the Iowa and Nebraska markets, which make up only about 30% of fed cattle sales.
Under the Grassley-Fischer bill, in regions with most sales using AMAs, parties will be forced into a cash market by government fiat. So, producers and feeders in Texas, Oklahoma, Kansas, and Colorado, which make up over 56% of all fed cattle sales, have the most to lose. Given the nature of cattle markets, cow-calf producers in the Southeast are at risk too.
Advocates of the legislation argue that mandating more cash-market sales are needed to improve “price discovery.” Price discovery, however, does not equal price determination. Industry and land grant university economists have said that even if 100% of cattle were sold on the cash market, prices for cattle producers would not have been any higher than what the market allowed in 2020 and the first half of 2021. Fed cattle prices at the end of 2021 were at five-year highs.
Undoubtedly, government intervention in the market would impose costs. More daily cash negotiations require more time and financial resources for feeders and packers. Fewer AMAs mean fewer opportunities for producers and feeders to manage risk in periods of market volatility.
AMAs benefit producers and consumers because producers are incentivized and rewarded to invest in the quality of the herd, resulting in consistent high-quality beef that consumers demand. With the premiums producers can receive through AMAs, producers can continue to innovate, which is critical as consumers increasingly demand – and the industry provides – more sustainable beef. Without a robust and market-balanced role for AMAs, the costs associated of meeting increased sustainability will be borne by producers, either through higher costs of production or decreased demand for beef.
But Secretary Vilsack has announced he intends to change Packers and Stockyards Act rules, which could result in even fewer AMAs. If both the P&S rules and the Grassley-Fischer mandate become law, the beef and cattle markets will resemble nothing we have today.
Cattle producers struggled in 2020 and 2021 and the pandemic continues to take a toll on our workforce and the U.S. economy. Now is time to rebound and build on the record demand – both domestic and export – for beef. It is not the time for the industry to be mired in policies that turn back the clock.
The Meat Institute and its members are looking ahead as we provide the food Americans need. We choose not to look in the rearview mirror at commodity cattle, unpredictable beef quality, and low consumer demand, and we oppose a call for government mandates that deliver unintended, but predictable, consequences.
Our members and industry partners are focused on earning the trust of consumers and promoting market practices responsive to consumer demand. We have launched a new initiative called Protein PACT to strengthen animal protein’s contributions to healthy people, animals, communities, and the environment. We are working to sustain the beef industry, which includes restoring faith in the market’s recovery from the pandemic and understanding that reform must benefit the entire industry, not just Iowa.
Julie Anna Potts is President and CEO of the North American Meat Institute.
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