Commentary: GIPSA - the goldfish didn't get mailed

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Ideas don’t always work out the way they are intended. For instance, an Australian firm that seeks to promote South Australia recently mailed – yes, mailed – a number of goldfish to various media outlets with the tagline: “Be the big fish in a small pond and come test the water.”

Predictably, at least 55 of the goldfish died in transit.

A spokesperson for the PR firm that mailed the goldfish said, “We offer our sincere apologies. There was absolutely no intention to cause distress or harm to the fish.”

The Australian goldfish promotion obviously produced unintended consequences.

On a much larger scale, unintended consequences were what many of us feared if the U.S. Department of Agriculture had fully implemented the proposed changes to its Grain Inspection Packers & Stockyards Administration (GIPSA) regulations.

Since June of 2010 when USDA first announced proposed changes, opinions have flowed from all directions. Those supporting the rule argue that changes are needed to restore market competition for livestock producers. Specifically, some believe packers have far too much leverage and they favor some producers over others.

Opponents believe that the proposed rules would greatly reduce the incentive to seek premiums through production marketing arrangements, thereby driving the cattle industry backwards to the time when all cattle were sold as a commodity, undoing the progress the industry has made toward quality the past two decades.

USDA received over 60,000 comments to their proposed rules, and I have received numerous comments of my own. Indeed, I’ve listened to several enthusiastic supporters of the proposed GIPSA rules over the past year, but my humble opinion remains that the proposed rules would cause many unintended consequences.

Further, it’s becoming increasingly hard to visualize this dominant leverage packers are supposed to have on the cattle markets. At least twice this year we’ve seen record fed cattle prices, and cow-calf producers are having a banner year. At the same time, packers have been losing money by the bucketful on every head they’ve purchased this fall – the Sterling Beef Profit Tracker pegged last week’s packer losses at $56.90 per head.

Finally, if the packing industry is so lucrative – with government regulatory agencies oblivious to their underhanded actions – why aren’t there more people trying to get into the packing industry?

Indeed, if the packing business is so good why did JBS SA – the world’s largest beef packer –  announce last month they may sell idled plants in the U.S.? JBS, also the world’s second-largest poultry producer and the largest U.S pork packer, said it was seeking to reduce debt after net debt rose in the third quarter to four times earnings before interest, depreciation and amortization.

It just seems silly to believe anybody with a few billion dollars to spare would want to seek new ventures in the packing business.

USDA’s publishing of the final rule yesterday, however, is not the final word. In fact, Secretary of Agriculture Tom Vilsack hinted in the USDA release that he and the Obama Administration believed the new rules should have gone further.

Others have indicated the debate is likely to continue. National Farmers’ Union president Roger Johnson said in a statement, “While the Final Rule is a good first step, it is certainly not a last step.”

Johnson also lamented the omission of the competitive injury provision. “In choosing to prevent the competitive injury portion of the rule from moving forward, Congress has clearly chosen to put the interests of large packers ahead of family farmers and ranchers.”

Among the thousands of comments against the proposed GIPSA rules, however, were family farmers and ranchers who are as convinced as I am that the unintended consequences would have been disastrous for our industry.

Thankfully – in the GIPSA case – the goldfish didn’t get mailed.


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Robert    
Arkansas  |  December, 09, 2011 at 07:46 AM

It's really hard for us poor people to sympathize with anyone that has a few billion to invest. And as for the loosing money part.....I for one just don't believe it. If I knew I was going to loose over $50 on every cow I bought....I simply wouldn't buy any more....period. Yet, they continue to buy. Ergo, the loses are lies. Sorry.....I didn't fall for it.

Edgar    
Louisiana  |  December, 09, 2011 at 09:40 AM

I agree with Robert 100%

Keith    
Kansas City, MO  |  December, 09, 2011 at 09:40 AM

Plants have to run. If they didn't a packer would lose all their workers and couldn't start again. You buy cattle at at a loss to bide time until margins are black. You can scale back but there must be "blood on the floor". It is common that packers lose money 5 months and hopefully make money in 7 so the year-end results are positive.

Jason    
Texas  |  December, 09, 2011 at 09:58 AM

First, I am not associated, nor have I ever been with any packing plant. I just don't think it's as simple as "stop buying"...they are committed for the long haul. Take a look at the bigger picture. It is cheaper for them to lose that kind of money in the short term and hope for better margins to return in the future. Assuming you are a cow/calf producer, if you stopped running cows, how would you make money with your land if it wasn't being used? You also have to think they might have union contracts guaranteeing a certain number of hours to the workers each week. Not to mention the the cost of having a plant go dark could be much more costly than running at a lose (they still have to pay the mortgage on the plant and land). Also, can you imagine the maintenance it would take to get a plant up and running after having it down for any period of time? What if you only used your tractor or truck once a year? More importantly, what if all plants losing money just stopped processing today...what would that do to the domestic and export markets(which has been at record levels this year, adding about $200/hd value to live cattle). Who would buy your cattle, if there was no place to harvest them? With your logic, one would say...when cow/calf or stocker operators are losing money because they bought too high or didn't have enough feed due to the drought (or any number of reasons)...well then it must be a lie, just because I don't understand your business? Respectfully, in my opinion, not understanding is not an good excuse for disbelief, no matter what your pay scale is.

james    
Texas  |  December, 09, 2011 at 04:13 PM

It's wrong to make villains of the wealthy and accuse them of lying without proof. That is what Marx, Stalin and Hitler did and that is what Occupy is doing now. Some industries do operate without a profit at times, hanging on until better times. Who has not done that? My problem with JBS is that they are very big and a Brazilian company. Brazil is in bed with China. China neeeds no spies to get detailed economic information about our meat production. Should America's source of meat protein that vulnerable?

    
December, 10, 2011 at 02:02 PM

Adding to all of this, we must remember that JBS is playing both sides of the coin here. They are not only the world's biggest packer, they are also the world's biggest cattle feeder. I have long thought their overall plan was to drive up U.S. beef prices high enough no one can afford to eat it while working to get low priced Brazilian beef approved for import, then shut down all of their facilities...


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