Farm activist groups contend the proposed GIPSA (Grain Inspection, Packers and Stockyards Administration) marketing rule is all about creating a level playing field for farmers. But the chief executive officer of the National Pork Producers Council (NPPC), Neil Dierks, says the stark reality is if the rule stands, it will change the structure of the pork industry.
“It will commoditize the industry, change the way that business is conducted, and provide a tremendous boost for why the industry would integrate,” Dierks contends.
“Business people in this industry don’t want to put up with uncertainty that this proposal would put forward in the form of potential legal ramifications,” he adds.
Two Key Issues
The pork industry gets hit from both sides by USDA’s GIPSA plan. First, marketing arrangements between producers and packers would be affected because the proposal touts one daily price per animal. That jeopardizes agreements that allow producers to bargain for lean premiums based on meeting packer requirements for hogs and pork quality.
Second, production contracts between pork producers are full of undefined details and the threat of lawsuits. For example, if one producer is offered $36/pig space/year to feed hogs, and the second is offered $34/pig space/year, the hog owner would have to justify reasons for the different pricing structures. The owner may also face a possible lawsuit if one of the producers is unhappy with terms of the contract.
Those types of roadblocks could lead hog owners to build more of their own barns just to avoid litigation.
“Producers could get to the point where instead of their motivation being to produce lean quality meat to access premiums, it shifts to being worried more about feed conversion, and their motivation becomes the least cost for producing the pig,” he explains.
NPPC believes GIPSA should promulgate rules to address five specific issues summarized below, as required in the 2008 farm bill:
- Criteria for determining preferences or advantages that have been given to any producer.
- Whether a poultry producer has given enough time to remedy contract disputes.
- Whether a poultry dealer has given reasonable notice of suspension of delivery of birds to a contract grower.
- When a requirement of additional capital investment during the life of a contract constitutes an unfair practice.
- The factors that comprise a fair usage of arbitration.
“Our policy is that USDA should stick to the five things that were in the farm bill, and we aren’t in favor of anything that goes further,” Dierks says.
For a complete overview of the GIPSA rule, log onto http://nppc.org/issues/gipsa.htm.
Meanwhile, the NPPC executive acknowledges there is a flurry of activity on Capitol Hill regarding the Agriculture Department’s budget for 2012, and along with it concerns regarding the GIPSA proposal. Oversight hearings are possible, and Congress could restrict funding.
The November GIPSA proposal drew more than 60,000 comments, Dierks says, including numerous requests for an economic analysis of its potential impact. He says Agriculture Secretary Tom Vilsack told NPPC that there would be a complete review of both the policy and the economic analysis, which would be conducted by USDA Chief Economist Joe Glauber.
Dierks says there is still some question as to the breadth of the economic analysis, and that is why NPPC is watching closely to ensure that the analysis covers the impact on the livestock and poultry industries. USDA’s earlier economic analysis only looked at the impact of the rule on the government.
Once the policy and economic reviews have taken place, USDA is expected to issue a revised GIPSA rule that would first go to the Office of Management and Budget that reviews all government proposals. NPPC hopes the results of the economic analysis would be made public before any rule is issued.
“Most observers are saying that they don’t expect anything to be issued until late this summer, near the end of the third quarter or even into the fourth quarter,” Dierks says.
In the end, government regulations such as the GIPSA proposal hit all producers.
But, Dierks says, there’s a lesson from the Chesapeake Bay Watershed Project regulations promulgated by the Environmental Protection Agency currently being played out on the East Coast. So far it has put an 80-cow dairy operation and a small turkey flock out of business.
“It is always the small guy who pays the biggest price,” he says.