Yet while many ranchers and small-feedlot owners are cheering the reforms, some experts believe the real cause of the cattlemen’s pain is the relentless ideology of economic efficiency — the notion that “bigger is better” in everything from computer companies to 200,000-cow capacity feedlots.
This ambivalence was reflected in Fort Collins, where about a third of the cattlemen voiced opposition to the reforms. While some were big operators who enjoy preferential treatment from meatpackers, others were smaller-scale ranchers who fear that government intervention would only make things worse.
Rich Sexton, an agricultural economist at the University of California-Davis, says the meatpackers’ marketing contracts increase efficiency by minimizing the transaction costs embedded in the old system, in which many cattle buyers roamed across rural landscapes bidding on small lots of cattle. Contracts also guarantee meatpackers a steady supply so their large processing facilities can operate at maximum efficiency, allowing for greater quality control than the cash market does.
Sexton not only believes the proposed GIPSA rules would increase inefficiency, he says that the packers would quickly circumvent the rules anyway, probably through more vertical integration, such as buying their own herds of cattle, which is not prohibited under the proposed rules. When big packers own lots of cattle, they can continue to thin the cash market.
“I can pretty much guarantee that if these things get put into place, there will be a nightmare of unintended consequences,” says Sexton. By making U.S. agriculture less efficient and competitive, he adds, the rules would invite even more competition from producers in other countries, where costs are lower.
The USDA’s James MacDonald, an economist who studies the effects of concentration, doubts that the new GIPSA rules or similar interventions would impact the marketplace enough for most cattlemen to even notice. The average feedlot size is growing mainly due to economies of scale, he says, and none of the other factors threatening cattlemen will disappear under the proposed GIPSA rules.
“All of these are probably inexorable trends,” Sexton says. “We could debate whether they are good or bad. They are good in that they drive some costs out of the system, and they are bad because they leave some people behind. They’re bad in terms of the vitality of rural America. People will leave, and the communities that rely upon agriculture as a primary industry are going to be affected.”
Callicrate himself demonstrates how some cattlemen can adapt. He formed a direct beef-marketing business — Ranch Foods Direct — in 2000 and seems to be thriving in that niche. But Callicrate thinks the proposed GIPSA rules would help less-entrepreneurial cattlemen, and other experts, including Taylor and economist and antitrust expert Peter Carstensen, agree. Carstensen, a law professor at the University of Wisconsin, likens the proposed GIPSA rules to traffic laws, which place restrictions on all drivers but ultimately benefit everyone. “You need rules to keep people from behaving in opportunistic ways, whether they are driving cars or buying cattle,” he says.
Taylor notes that the GIPSA rules would force packers to be transparent about the price they are offering sellers. Currently, all contract negotiations and price settings take place in private, so a feedlot owner can’t tell if the price he is being offered is comparable to that being offered to another feedlot with cattle of the same quality. If packers had to post the price they were paying for a given type of cattle on a given day, then feedlot owners would be able to bargain based on a comparison of deals others are making.
All this talk of reform has the packers “flipping out,” says John Crabtree of the Nebraska-based Center for Rural Affairs. Meatpacker lobbying groups have blanketed the agricultural trade media with anti-rule propaganda. Under pressure from them, the USDA extended the official comment period until last November, and the agency still has no deadline for finalizing the proposed rules. “These guys have set out an absolute slash-and-burn strategy to change the minds of people in Congress and to try to scare the secretary of agriculture to try to pull back from some of the provisions in the rules,” says Crabtree.
The American Meat Institute, which represents 95 percent of the red-meat packers in America, says the new rules are supported by cattlemen who are stuck in the mentality of the past — the days when they could make money without having to market their beef as aggressively as Callicrate does. The new rules would open packers up to more lawsuits and discourage them from offering premium contracts to producers for specialty products like Certified Angus Beef or humanely raised beef, says Mark Dopp, a lawyer in charge of regulatory affairs for the lobbying group. “It will be a field day for trial lawyers.”
Last October, the packer, poultry, and hog lobbies persuaded 115 members of the House of Representatives to denounce GIPSA’s rules, charging that the USDA had overstepped its authority. And shortly after the November elections, when newly empowered Rep. Darrell Issa (R-Calif.), chair of the House Committee on Oversight and Government Reform, sent out a note to more than 150 business groups asking them to identify regulations that harm job growth, the meat lobby responded. Out of the nearly 2,000 pages of letters released by Issa this February, 328 came from the American Meat Institute, protesting the proposed GIPSA rules.
Despite the industry’s muscle-flexing, however, many reformers say the GIPSA rules are still not tough enough on the meatpackers. Not only would the rules not prevent packers from owning cattle, they also wouldn’t address the basic, insurmountable fact that four meatpackers now control almost the entire marketplace.
“We didn’t get into this predicament overnight, and we’re not going to fix it overnight, either,” says R-CALF’s Bullard. He and his allies have petitioned the USDA to strengthen the cash market for cattle and limit the amount of captive supply packers can lock up, and also prohibit the largest packers from owning cattle.
On a blustery gray February day, Norm Smith, a rancher near Paonia, Colo., drives his tan Ford F-110 to a high pasture crunched up against the Gunnison National Forest, in the shadow of 11,300-foot-tall Mount Lamborn. There’s a straw bale in the truck bed — extra weight over the rear wheels for better traction on this winding, snow-packed road. He comes up here every morning and afternoon to break ice off his stock tanks and feed his cattle.
Snowflakes flicker and feint around the truck’s cab, and the wind picks up. Smith, 61, unlatches a gate, and then, his blue eyes gleaming, tells me each cow’s story as he pitchforks hay.
“See that cow without the ears? About the first week in March (2010) we had a foot and a half of snow and it turned bitter cold like tonight … his mother went out in the snow bank and dropped (the calf) there; he was lying out there in the snow. I thought he was dead,” the rancher says. “He was lucky all he lost was his ears. Sometime they lose the (ankle) joint, and then you have to kill them because they’re lame.”
Smith, like most ranchers, is too busy working the land to get involved in politics. He’s stayed out of the GIPSA fight, and even though he’s worried about the meatpackers’ power, he also distrusts the government’s ability to fix the problem without making things worse.
“I don’t think any of us understand the market. That amount of volume of money and business, I don’t know how you would understand it,” Smith says. “I know that the large concentration is bad. … There’s been situations where those large packers have blacklisted feedlots. I’m sure there are abuses in the system, I mean, greed is a terrible thing. … I hope that’s what (the GIPSA rules are) used for — to crack down on people who are abusing the system.”
Smith owns 2,300 acres, runs about 150 head of cattle and sells to feedlots as far away as California. His father was also in ranching. He has seen firsthand what happens when ranchers and feedlot operators go out of business in the rural West. As we top a rise and head back toward his modest home, he points out changes in the landscape, starting with a newly divided parcel that belonged to a 92-year-old rancher who recently died.
“That house and that other little house sold to a guy in Chicago,” says Smith. “The rest of it — they owned 70 acres — it sold to a guy in Aspen.” He points to two other houses owned by people from resort towns.
When Smith moved up here in 1959, every house belonged to a rancher; every part of the landscape was worked. “I’m the last one left out here who is in agriculture,” he says. “This guy over here has 77 acres (for sale for) a million-two. I mean how can you ever, ever, get into agriculture? It’s really disheartening.”
As he uses a tractor to load up another 2.5-ton loaf of hay for tomorrow’s feeding, Smith tells me how he used to spend hours pitchforking entirely by hand. Mechanization has made it possible for one rancher to work many acres and continue to ranch even as he ages. But there’s a price for every innovation, he says — mechanization’s also made the business more expensive. Equipment and fuel don’t come cheap; progress always exacts a price.
“We’ve lived a simple life; we’ve enjoyed everything we’ve done,” says Smith. And as his eyes drift away, remembering the past, I can imagine a younger Smith, years ago, hunkered down here raising cattle on a mesa top amid elk-bearing mountains and cherry orchards. It was — and is — one sort of Western dream.
Soon it will be time for Smith to sell his yearling cattle. This year, he expects good prices; for reasons no rancher truly understands, the market — soft for the past few years — has recently rebounded. Smith will be able to make a living raising cattle for a while longer. But it seems that no one else on this mesa is even trying to do so anymore.
This article originally appeared in the March 21, 2011 issue of High Country News.
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