USDA proposal could help small livestock farmers

Fderal rule on livestock sales
This hog barn on Darwyn Bach's farm houses about 80 sows. Unlike the vast majority of hog producers Bach has never signed a contract with any meatpacking company. When the time comes to market his animals, he sells to the meatpacker offering the best price, but he has little negotiating power.
MPR Photo/Mark Steil

The U.S. Department of Agriculture is considering new regulations to force meatpackers to disclose more information on how they set prices for livestock.

That could help small farmers who sell a few thousand animals a year compete with large companies that sell millions of hogs and dominate the large and complex U.S. hog industry.

Farmers once took the best offer they could find, and trucked their animals to the packing plant that made the best bid. But the business of selling of poultry, hogs and cattle has changed dramatically in the last 20 years, with contracts determining how much farmers are paid.

Some farmers in Minnesota's $6 billion livestock industry say the system is too secretive, and they want the USDA to shed more light on it.

Among them is Darwyn Bach, who raises hogs on his farm in Yellow Medicine County, in the southwest part of the state. Unlike the vast majority of hog producers Bach has never signed a contract with any meatpacking company. When the time comes to market his animals, he sells to the meatpacker offering the best price. But he has little negotiating power and has to take the offered price or leave it.

Even though he's been farming for 25 years, Bach said it's pretty much a mystery to him how meatpackers decide what to pay.

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"I think there's a lot of things nobody knows about how they operate," he said. "That information is probably privy to a very few people, and they're probably involved in the packing industry."

Bach said there is sometimes a 20 percent spread between the highest and the lowest prices for hogs.

Darwyn Bach
Darwyn Bach farms near Canby in southwest Minnesota. He says independent hog producers like himself are being squeezed out of the business by larger farms.
MPR Photo/Mark Steil

"Always felt that I was probably near the bottom of that range," he said. "And have never been able to find out an answer why there is such a wide range in base prices."

In just one year, that can cost a small farmer thousands of dollars in lost income.

The USDA, which tracks the range of prices meatpackers pay for hogs, cattle and poultry, proposes to get to the bottom of the mystery by compelling meatpackers to disclose more information on exactly how they decide how much to pay. That would require them to explain why they pay higher prices for some animals.

The measures are opposed by large meatpackers.

"We really struggle to see how anybody in the industry can benefit from this regulation at all," said Ken Bull, vice president of cattle procurement for Cargill Beef, one of the nation's largest meatpackers.

Bull said from his office in Wichita, Kansas that the USDA push could hurt the small producers it intends to help.

Federal rule
Farmers like Darwyn Bach hope a new federal rule on livestock sales will help them earn more money from their animals. The U.S. Department of Agriculture wants to force meatpacking companies to provide more information on the prices they pay for livestock and poultry. But the packers and many farmers opposed the plan.
MPR Photo/Mark Steil

If the department's proposed regulations take effect, he said, meatpackers would change how they buy livestock.

To avoid giving away strategic pricing decisions, Bull said, meatpackers would simply go back to the system they used 20 years ago, and pay the same price for every animal. That means higher quality meat won't command a higher price, he said.

"What a producer's going to do is say, 'All right, if I'm going to get the same price everybody else gets, then I'm going to try and produce it the cheapest I can possibly produce it,'" he said.

That would lead to a series of events which could cause great harm for all livestock farmers, Bull said. If farmers go the cheap route, that would mean lower quality cuts of meat at the grocery store, reduced sales — and eventually less money going back to the farmer, he said.

The proposed USDA regulations could also cost consumers money because meatpackers would have to spend more on paperwork to satisfy the new requirements, Iowa State University extension livestock economist Shane Ellis said.

"All of those extra costs get passed on into the price of the product," he said.

Small farmers like Bach dismiss that scenario as a far-fetched scare tactic.

Bach admits if more information were available, he might discover that there are perfectly legitimate reasons why one operation is paid more than the next. But he said the deck now seems stacked in favor of bigger producers and against small operators like him.

"I think it's just a matter of time before we decide that it's not worth taking the risks," Bach said.

The USDA is still studying the issue and officials won't say when the department intends to issue the new regulations.

Meanwhile, some members of Congress are threatening to kill the USDA action. They say if the new regulations are issued, they'll make sure there's no funding to enforce the measure.