Despite rising feed costs and occasional disease outbreaks, U.S. pork producers now have recorded 43 consecutive months of profits. Also, pork exports continue to grow, helping to boost the U.S. economy.

So why is Congress trying to "fix" the U.S. pork industry?

Several proposals are now pending in the U.S. Senate and House of Representatives that purport to promote competition and fairness in the livestock industry. While the House has finalized its 2007 Farm Bill, there are sure to be attempts in the Senate to add some competition provisions to its version.

The word in Washington is that the Senate Agriculture Committee is expected to take up the 2007 Farm Bill the week of Sept. 17.

The potential competition proposals fall under the category of “I’m from the government, and I’m here to help.” We all know the common response to that — “No thanks.”

One proposal would allow a producer to sue a packer for the packer’s “unfair” practice of giving any “undue” or “unreasonable” preference or advantage to another producer. The producer filing the suit would not have to prove that he or she suffered a competitive injury.

So, say a packer needs pigs delivered at an off-hour on a holiday, which would require me to pay my employees overtime, the packer could not offer me a premium for that special-request delivery.

Particularly disconcerting is a proposal to require packers to buy 25 percent of their daily slaughter-hog quota per plant on the cash market. Currently, only 11 percent of market hogs are sold on the cash market. To date, there is no economic theory or empirical research showing that a market will work more efficiently if a certain percentage of the product is sold through a cash market or through negotiated trades.

Yet another proposal would prohibit a packer or contractor who owns pigs from asking his or her contract grower to make investments in production facilities beyond the initial capital investment required to secure the contract. As outlined, the proposal would allow contract growers to forgo paying even for regular maintenance of barns that house the contractor’s hogs, which is actually necessary for the animals’ health and well-being.

It also appears there may be efforts to prohibit mandatory arbitration clauses in contracts between packers and producers. This would force parties to resort to costly and time-consuming litigation to resolve disputes. Arbitration could still be used but only when both parties consent in writing, and it can only be used after a dispute arises. Similar language was proposed in the House farm bill, but it was modified to require the USDA Secretary to establish fairness standards for arbitration, using the American Association of Arbitration best-practices guidelines. That is a better solution.

Yet another “fix” would require contractors to give a 180-day notice to cancel a contract with a grower whose contract required a capital investment of $100,000 or more in facilities. Then, the contract could only be terminated during the 180-day period for the following reasons:

  • The grower’s “complete failure to perform.”
  • If a grower abandoned the contract.
  • If a producer were convicted of fraud or theft against the contractor.

But what if a producer is only charged with fraud? Or convicted of fraud against someone other than the contractor? And what if a producer fails to live up to 95 percent of a contract? Clear answers are yet to come.

Some lawmakers want to create an Office of Special Counsel within USDA to investigate competition issues. This would be a politically appointed position and would duplicate many of the Grain Inspection, Packers, and Stockyards Administration’s duties.

Everyone knows about the broad, unfettered powers of special counsels. For Democrats, the poster boy is Ken Starr, who investigated the Clinton administration; for Republicans, it’s Patrick Fitzgerald, who went after “Scooter” Libby, Karl Rove and other Bush administration officials.

These competition proposals are solutions in search of a problem, and Senate lawmakers should follow their House colleagues and reject them. Limiting marketing options, restricting contracts and prohibiting certain business practices would promote neither competition nor fairness. Rather it would hurt the very producers the proposals purport to protect.

When it comes to Congress’ offer to help “fix” the pork industry, pork producers should just say "no thanks.”

Not opposed to marketing contracts

The notion that pork producers don’t like marketing contracts smacks more of nostalgia than reality. At least that’s what the 2007 Pork Industry Structure Study would suggest.

Pork magazine, the National Pork Board and PIC conducted the study, which University of Missouri and Iowa State University agricultural economists analyzed.

It shows that most pork producers like marketing contracts and view them as just another business tool. While producers raising fewer hogs sold more animals on the spot market — 58 percent for those selling 1,000 to 2,999 hogs annually — than their counterparts did in 2006. It also showed that producers running all sizes of operations sold hogs through contract arrangements.

Asked for opinions about marketing contracts, survey participants said:

  • Marketing contracts help coordinate hog slaughter, preventing wild swings.
  • Marketing contracts treat them fairly. In fact, producers running smaller operations (marketing fewer than 50,000 hogs a year) agreed with that statement more strongly than did those in the largest producer group (more than 50,000 hogs).
  • Producers, regardless of operation size, said they would continue marketing hogs through contracts.
  • Across the board, producers said there’s no need for USDA to keep a closer watch on marketing contracts — a response trend that has only strengthened over the years. 
  • All producer groups said they did not want market contracts to be made illegal.

Add it all up and it’s pretty clear that those who raise the hogs don’t want those who don’t raise hogs to dictate their marketing options.