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NPPC Votes to Explore Producer Ownership of Packing Plants

Packer ownership of hogs drew considerable attention from pork producer leaders prior to World Pork Expo.In separate, but related announcements, the National Pork Producers Council (NPPC) reported its task force findings regarding packer ownership of hogs and membership concerns about the interpretation of the Packers and Stockyards Act. The NPPC Board of Directors then revealed a decision to pursue

Packer ownership of hogs drew considerable attention from pork producer leaders prior to World Pork Expo.

In separate, but related announcements, the National Pork Producers Council (NPPC) reported its task force findings regarding packer ownership of hogs and membership concerns about the interpretation of the Packers and Stockyards Act. The NPPC Board of Directors then revealed a decision to pursue producer-owned packing, processing and marketing operations.

Packer Hog Ownership Cleared Pork producer delegates to the '99 NPPC annual business meeting in March voted to form a task force to study a motion (MT7A) calling for "implementation of state and federal legislation to prohibit packers or the packing industry from owning, operating, managing or financing captive supplies (of live hogs) greater than 5% of yearly slaughter, by company." The task force report was due to the NPPC Federation Council before World Pork Expo.

In turn, the Federation Council was directed to give the task force recommendations a thumbs up or thumbs down, thereby, giving the NPPC Board of Directors the authority to act on the proposal.

Chairing the MT7A Task Force, NPPC Immediate Past President Donna Reifschneider presented an extensive report of the groups' findings. Key amongst them was the interpretation of Section 202 of the Packers and Stockyards Act. The report stated: "The Packers and Stockyards Act does not prohibit the ownership of livestock by packers. Many have used the existence of packer ownership to infer that section 202 of the Packers and Stockyards Act (the section that bars practices used to manipulate prices) is not being adequately enforced. But Section 202 has never been interpreted by the courts as barring packer ownership (of hogs)." The task force report went on to note that the scope of the act's coverage could change as it continues to be tested. But for now the case history surrounding those challenges establishes legal precedent.

The task force interpretation was critical to the bold steps taken later by the NPPC Board of Directors as it announced intentions to explore the concept of producer-based cooperatives and to create enough slaughter capacity to have sufficient scope and size to be economically viable. If packer ownership of hogs was a restriction, producer-owned and operated packing plants could have hit a major snag.

Producer Ownership Of Packing In its announcement to explore producer-based cooperatives, the NPPC board explained its actions were aimed at preventing a recurrence of the devastatingly low hog prices pork producers faced this past year.

Additionally, its intent was to serve as a catalyst to explore producer-based efforts to operate packing, processing and marketing operations.

"Doing nothing was not an option," states NPPC Chief Executive Officer Al Tank. "We've been creating a vicious cycle with excess slaughter capacity and too few pigs, then we have too many pigs and too little slaughter capacity."

The self-described "bold step" Tank refers to is the NPPC's response to a need to "recreate a system where production and (slaughter) capacity are able to have some degree of ability to match." The proposal, he continues, "has the intended purposes of allowing pork producers access to shackle space by realigning themselves in the market chain" and leading to sales of branded pork products.

The Cooperative Concept NPPC President John McNutt, Iowa City, IA, says the cooperative concept is focused on helping independent producers who are "increasingly finding it difficult to find a market for their hogs; given the present situation, we are likely to continue to lose pork packing capacity."

What he refers to is the chance that higher hog prices and tightening of packer margins could force the closing of marginally efficient plants.

The producer-owned, packer/processing concept has been successfully undertaken by Ocean Spray cranberry growers, Gold-Kist, the second largest U.S. broiler producer and processor, and Danske Slagterier, the pork producer-owned cooperative in Denmark. These will be used as models to guide a newly appointed task force to work out other details.

High on the agenda is an economic analysis and developing of a business plan, including identifying the type of output and the end-user of the major products.

For the sake of discussion, Tank offered this scenario: three plants strategically located in key areas of the U.S., 8,000 head/day slaughter capacity, running 51/2 working days/week, 52 weeks/year. This would provide nearly 7 million additional head of slaughter capacity annually.

Financing The Venture Tank acknowledges there are several ways of capitalizing the producer-owned venture.

Federal and state grants may be available. "We believe there is significant interest from USDA and members of Congress in addressing the competition and capacity issues, and in allowing independent pork producers to reposition themselves in the (pork) value chain," Tank states.

"There may be some interest from end-users willing to capitalize this (venture). "And, if you form a cooperative, equity needs to be provided by pork producers," he explains. "Not only do they need to supply pigs, but (they) also need to supply equity."

It is unclear if checkoff funds can be used in this effort. Clarification will be sought from the USDA and the National Pork Board.

Mandatory price reporting legislation should clear both the Senate and House Agricultural Committees before the August recess, according to NPPC's Steve Cohen.

Cohen says the legislation probably will incorporate much of the NPPC-introduced Pork Industry Mandatory Reporting Act of 1999.

Put forth in late May, the act addresses five areas of concern, laying out specific suggestions and areas of responsibility:

1. Mandatory Price Reporting * The NPPC bill proposes the USDA publish by 8 a.m. each day all prices, volumes and terms of sale from the previous business day, grouped by purchase type. They also look for the USDA to report all hogs slaughtered the previous day, by purchase type, from all federally inspected packing plants that slaughter more than 250 hogs per day.

* The NPPC bill asks that prices reflect all premiums, discounts and carcass merit adjustments and that data be published in aggregate form based on geographic regions.

* In the bill, the USDA is also asked to publish a report at 11 a.m. (CST) and a report at 3 p.m. (CST) reflecting packer estimates for hog purchases and slaughter for that day. These reports will include volume, base market pricing, cash and spot market purchases, as well as contract sales and packer owned hogs.

2. Contract Reporting USDA would maintain an electronic library for each type of marketing contract being offered by packers who slaughter in excess of 250 hogs per day, under the bill's provisions. The contract listings would be plant specific and contain the price determination method being used for the hogs covered by the contract, including non-carcass meat premiums.

3. Monthly Retail Price Reporting A retail report that shows total sales volume in pounds and dollars is another provision requested in the bill.

4. Monthly Hogs & Pigs Inventory The NPPC bill would require the USDA to implement a new simplified monthly, instead of quarterly, hogs and pigs inventory reporting system in the 17 leading pork-producing states.

5. Report On Secretary's Power A new report from the General Accounting Office setting forth the Secretary of Agriculture's jurisdiction, power, duties and authorities as set forth in the Packers and Stockyards Act of 1921, and all other relevant laws and acts is requested in the bill.

"Information and knowledge are power in today's marketplace," testified NPPC President John McNutt before a Senate Ag Committee hearing. "Disclosure is critical to pork producers ability to grow, beprofitable and compete globally in the 21st century," said McNutt.