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Now Not the Time for Costly Rules

I am writing from an ag lenders’ perspective to express my concerns regarding the economic analysis for the proposed rule by the Grain Inspection, Packers and Stockyards Administration (GIPSA) on the marketing of livestock and poultry under the Packers and Stockyards Act

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I am writing from an ag lenders’ perspective to express my concerns regarding the economic analysis for the proposed rule by the Grain Inspection, Packers and Stockyards Administration (GIPSA) on the marketing of livestock and poultry under the Packers and Stockyards Act.

For an organization that has a congressionally mandated purpose to strengthen America’s agriculture industry and revitalize rural communities, the United States Department of Agriculture’s (USDA) recent proposal to limit livestock marketing agreements is perplexing to those of us working in America’s agriculture industry. While the USDA argues that the rule will help the livestock industry, the reality is this policy could limit the availability of many common food products, increase consumer prices and cost tens of thousands of jobs across the country.

Now is not the time for costly rules. The livestock industry has seen historic volatility in recent years. In fact, the pork industry alone lost $6 billion in equity from 2008 to 2009, causing many pork producers nationwide to struggle to survive. Dramatic daily shifts in livestock market values make it difficult for producers to provide high-quality animals at affordable prices, and make it difficult for ag lenders to provide critical operating capital to these farmers.

Marketing agreements between livestock farmers and meat- producing companies are one of the tools that help farmers manage this intense level of volatility. Producers of all sizes benefit from the stability these agreements can provide. As an ag lender, these marketing agreements help create stability that limits the risks associated with an unpredictable livestock market. When we know a farmer has secured a dependable contract to sell his/her livestock inventory or a producer has a reliable supply of animals, we can accept the moderate risk of providing capital to support that farmer or producer who may not otherwise be able to secure financing because of the high-risk environment in which they operate.

Without these agreements, the livestock market is simply too volatile for most lending organizations to risk financing. Current use of marketing agreements actually helps new farmers build the credit they need to become long-term contributors to the industry and their local economy.

Like the broader U.S. economy, access to capital is a critical factor that will determine how the food and agriculture industry will emerge from this recession. Limiting the ability of the nation’s livestock producers to use a proven risk-management tool to secure operating capital will limit the ag industry’s expansion potential at a time when our country desperately needs more opportunities.

A recent study done by John Dunham and Associates for the American Meat Institute estimates a total of 104,000 jobs will be lost if the proposed USDA rule for livestock marketing agreements is approved. Livestock operations that will close as a result of this rule will cause local, state and federal governments to lose approximately $1.4 billion in tax revenue – financial gaps that will only exacerbate the severe economic pressures our communities are facing.

There will be consequences for consumers as well. The agreements the USDA wants to limit help ensure that consumers have high-quality products at a consistent, affordable price. They also create valuable relationships between livestock farmers and producers that result in development of innovative, high-quality food products. Stephen R. Koonts, Ph.D., Colorado State University of Agriculture and Resource Economics, recently stated, ‘The net effect of eliminating alternative marketing agreements would be increased retail prices, decreased farm level prices, decreased quantities produced and consumed and economic losses in producer and consumer surplus in all segments of the industry.’

Unfortunately, despite the significant economic impacts to the livestock industry and American consumers, USDA has failed to conduct any research or economic analysis of the potential impacts of the proposed rule. In a show of broad bipartisan support, 115 members of the U.S. House of Representatives including House Agriculture Committee Chairman Colin Peterson, and Ranking Minority Member Frank Lucas sent a letter on Oct. 1, 2010, to Agriculture Secretary Tom Vilsack requesting USDA conduct an economic analysis on the GIPSA proposed rule.

I urge American consumers to contact their lawmakers and the USDA. Urge the USDA to evaluate the impacts of this proposed policy, conduct due diligence and make the right decision for the overall U.S. economy.

(This is an excerpt of the comments submitted by Mark Greenwood for AgStar Financial.