The first quantitative, economic analysis of the Johnson amendment to ban Packer-livestock ownership, done by Sparks Company, concludes it could cost the pork industry more than $7 billion. The study was requested and funded by the National Cattlemen's Beef Association and National Pork Producers Council.
“The Johnson amendment likely would result in immediate and long-term negative impacts for all sectors of the U.S. pork industry, from independent producers to packers,” says William Motes, Sparks senior vice president. “No segment can expect to benefit, and each would likely face significant losses. Losses for pork could be as high as $7.4 billion. Losses for hogs and cattle combined could be as high as $10.9 billion.” He does concede that the U.S. poultry industry, other countries and competing meat exporters could benefit.
The study examined the potential impact of the Johnson amendment– currently in the Senate Farm Bill– at all industry levels. Initial divestiture of related assets would be severe but temporary. "We took the numbers from the industry as it was in 2001," notes Motes, "and made analysts' judgments as to how it would apply to the industries in the future."
For pork, immediate costs could range from $600 million to $1.8 billion, depending on market conditions. Immediate impact would include:
- Increased capital costs across the industry as lenders increase their risk premium. For pork, the range would be $34 million to $133 million.
- The cost of reduced domestic demand for meats would trickle back to producers. For pork, the costs could range from $119 million to $595 million.
- Reduced export demand for meats. For pork, the range would be $188 million to $750 million.
- Transfer and relocation of significant amounts of pork production and packing capacity to Canada and Mexico. For pork, the costs could range from $100 million to $2 billion.
- Reduction of packers' operating efficiency and increased risk could result in pork industry costs of $55 million to $2.16 billion.
“The Sparks study makes it clear that the Johnson amendment would be detrimental to pork producers of every size and type,” says NPPC President Dave Roper. “We believe that given the study's results, the Johnson amendment should be withdrawn in favor of a more deliberate and careful study of the significant issues involved.”
NCBA and NPPC representatives have presented the report to Senate and House Farm Bill conferees, and have a meeting with the Bush Administration this afternoon (March 18).
"Overall, the pork industry would be smaller, with higher costs and smaller markets," notes Motes. "Consumer and export meat demand would fall, there would be lower quality meat products and fewer choices."
In terms of packers, Motes notes that with the decline in efficiencies their margins would drop, and they would pass those costs on to producers. Some packers would leave the business– or the country. They also would reduce their retail and branded product investments. The same goes for export-market efforts.
The study, conducted in late February and early March, is based on reviews of economic statistics, studies and reports; firsthand knowledge; interviews with agricultural lenders, producers, breeders, feeders, packers and other key industry players. Sparks is a broad-based agricultural and commodity market research, analysis and consulting company.
Source: National Pork Producers Council, National Cattlemen's Beef
Association, Sparks Company