Organization for Competitive Markets

P.O. Box 6486
Lincoln, NE 68506

Tel: (662) 476-5568
Fax: (860) 379-6196
web site: www.competitivemarkets.com

 

Newsletter, March 2000

 

What about consumers?

     Have consumers been harmed by the Food Cartels?  As farm prices drop drastically, the plodding consumer food price increases continue.  Most consumer groups have not concerned themselves with the Food Cartels.  This may be because they believe low commodity prices result in cheap food for consumers.  This view is incorrect.

     Farm gate prices have little impact on consumer food prices.  The farm gate and consumer shelf are insulated from each other by the presence of the Food Cartels in the middle.  For example, eight cent hogs in December, 1998 had little if any effect on consumer pork prices.  If people are buying food, retail stores will not lower prices, especially if the retailers have too much market power.  If the price of corn was tripled, food prices would be only slightly affected because commodity corn is such a small portion of the retail price of most corn-containing foods.

     Farmers sell into oligopsonistic processing sectors which sell into the oligopsonistic retail sector.  Any savings from low farm gate prices result in increased profits for the processors and retailers.  Consumers hardly see a dime.  Thus, consumers should get on the antitrust band wagon.

 

Descartes' Error

     French philosopher Descartes believed and taught that true rational thought must be free from emotional encumbrances.  It seems that many agricultural economists have incorporated Descartes' paradigm into their supposedly "objective" writings and speeches. 

For example, Bruce Bullock of the University of Missouri told delegates at the National Pork Producers Council annual meeting that too often, "we tend to think with our hearts and not our minds."  Big Agribusiness executives also dismiss criticism of their abusive practices as mere "emotion."  Corporate lobbyists cry out for "science based" regulation.

In his 1994 book "Descartes' Error," neuroscientist Antonio Damasio shows that Descartes was wrong.  Emotion is an absolute necessity for reason.  Through his clinical and laboratory experience, Dr. Damasio documents that when people suffer from an absence of emotion due to some anatomical or psychological defect, pathological behavior arises.  Dr. Bullock and others of similar ilk need to realize that their myopic version of "objectivity" may actually be closer to pathology.  Similarly, agricultural consolidation should be discussed in terms of social and economic pathology rather than "progress".

 

What is "something"?

     As the Food Cartels squeeze more and more out of the food dollar to the detriment of farmers, politicians and so-called farm leaders volunteer their intention to do "something".  "Something" must be done. Some further obscure the issue calling for a study before we do "something."  There are many variations of "something."  But what is the best "something?" 

     Concentration has caused misallocation of resources throughout the food system.  Because of undue market power, big, lumbering agribusinesses use their market clout to redirect resources away from decentralized, nimble, independent production agriculture and rural communities to evermore overflowing corporate coffers.  Where does the next dollar of profit produce the most benefit?  In the hands of Robert Peterson, CEO of IBP?  Or in the hands of an independent farmer who buys inputs on Main Street, donates to the local church and hires the neighbor kids to help during harvest?

     Innovation and change will always occur whether agriculture is concentrated or not.  No rule says that only big firms can innovate, especially in this new century.  Farm and food policy needs to promote decentralization and market competition to properly distribute resources where they do the most good.  A merger moratorium and restrictions on captive supplies would be giant steps towards that goal.  Now that would be something.

 

NPPC on Packer Feeding

      The leadership of National Pork Producers Council  (NPPC) was at its best in ramming through a resolution endorsing packer ownership of hogs at the National Pork Forum in March.  Last year Iowa presented a resolution calling for a ban on packer feeding.  Through a parliamentary maneuver, the packer lobby within NPPC diverted the issue to a study committee.

     Iowa came back to this year's Forum with the same resolution to ban packer feeding.  But Al Tank, NPPC's executive director, and NPPC economist Steve Meyer were ready.  The study committee came back with the recommendation that packers should feed livestock (surprise).  Meyer drafted a biased commentary full of unsupported assertions that packer feeding is not a problem. Dr. Bruce Bullock from the University of Missouri parroted that position.

     Dr. Neil Harl of Iowa State University had prepared a comment to the resolution as well.  Harl's comments, read to the members in his absence, expressed serious concern about packer power through horizontal concentration and vertical integration.  Thereafter Dr. Bullock, in an obviously premeditated attack, made shocking statements that he was beside himself that a colleague (Harl) could have such ridiculous views.

     Thereafter the NPPC members, populated by employees of Cargill, Seaboard and Smithfield, narrowly voted for a resolution opposing a ban on packer feeding.  Independent producer members were disheartened at best.  Harl called the event the worst form of "intellectual thuggery".  Now, NPPC lobbyists will scamper through the Halls of Congress proclaiming that the nation's hog producers really want packers to feed tremendous numbers of hogs.

    

Pork Checkoff Referendum

     USDA secretary Dan Glickman has called for a referendum on the pork checkoff program.  The pork checkoff is a mandatory payment that all producers must make to the National Pork Board.  Most of the money is forwarded to the National Pork Producers Council (NPPC), its primary contractor.

     The Campaign for Family Farms petitioned for a referendum and appeared to have enough signatures to trigger the statutory referendum process.  However, USDA verification procedures were unable to conclude that all signatures were valid.  Glickman said the verification process was flawed and called for a referendum anyway.

     The NPPC, which has offices in the same building as the National Pork Board and shares a website, has denounced the decision to allow producers a vote.  NPPC may sue to block a referendum.

 

NCBA members "not informed?"

     The January convention of the National Cattleman's Beef Assn. was just as contentious and divisive as the NPPC annual meeting.  Members were insulted by Jon Ferguson, newly elected Chairman of the Beef Checkoff Division, who said on January 26, "It is important for the decisions of the cattle industry to be made by this group (NCBA Executive Committee) of educated people that are knowledgeable about the issues facing our industry.  The large group of grassroots producers we are always hearing about are not informed enough or knowledgeable enough to understand these issues."

     The NCBA Stakeholders Congress, which included only 191 people, voted by a margin of less than 20 votes to oppose any legislation that would prevent packers from controlling the market through direct ownership of cattle.  Thus, the U.S. Congress is now being advised that the one million cattlemen in the country oppose a ban on packer ownership.

     Additionally, the NCBA Blue Ribbon Commission suggested changes to NCBA including allowing only producers to vote on policy matters.  The final vote was 135 to 125 in favor of non-producers voting on policy issues.  The Oregon Cattlemen's Assn. subsequently terminated its affiliation with NCBA because it feels packers and big feedlots are harming the grass roots membership.  The North Dakota Stockmen's Assn. has also announced its intention to leave NCBA if changes are not made.

 

Cargill's Trade Policy Influence

     President Clinton appointed Ernest C. Micek, chairman of the board at Cargill, to the Asia-Pacific Economic Cooperation (APEC) Business Advisory Council, according to investigative ag journalist A.V. Krebs.  The 21 member countries of APEC - including Russia, China, Japan and the U.S. - account for nearly half of global trade and population.

     "This is a tremendous opportunity to represent America's business interests in these important markets," said Micek, who joined Cargill in 1959. "I relish the chance to help lower overseas barriers on American goods and services and to work with APEC leaders in building a more environmentally sustainable and prosperous trading system."

     Krebs states, in commenting on the appointment, "any lingering questions as to how U.S. trade policy is formulated and executed has once again been answered."  Micek also serves as chairman of the Emergency Committee for American Trade, as a member of the President's Economic Council and as a board member of the Pacific Basin Economic Council.

 

 

Biotech update

·  Religious groups, environmentalists and socially conscious investment funds have flooded 18 companies with shareholder resolutions against GMO's.

·  Year 2000 GMO corn plantings will be reduced by 16% according to a survey by the American Corn Growers Assn.

·  Cargill will source its soybean meal for its U.K. factory chicken production from Brazil to obtain non-GMO product.

·  Applications to USDA for approval of new biotech crops are the lowest since 1993.

·  Many high-end U.S. restaurants are eliminating all GMO food, according to new reports.

 

Pickett update

     The Pickett v. IBP case is the largest class action lawsuit ever brought under the Packers & Stockyards Act.  Prosecuted by attorney David Domina, an OCM member, and other attorneys, the suit alleges that IBP unlawfully depresses cattle prices utilizing captive supply procurement practices.  "Captive supply" includes packer owned cattle as well as cattle supplies controlled through forward contracts and marketing agreements.

     In February, federal judge Lyle B. Strom rejected IBP's objections to the plaintiffs' request to require IBP board members to testify under oath.  IBP board members who will testify include Robert Peterson, IBP chairman and CEO; Eugene Leman, President of IBP's Fresh Meats Division; Wendy Gramm, former chairperson of the Commodity Futures Trading Commission and wife of Texas U.S. Senator Phil Gramm; Michael Sanem, past ConAgra-Monfort executive; and JoAnn Smith, past National Cattlemen's Assn. president and former Assistant Secretary for USDA.

     Other board members to testify through depositions include John Jacobsen, of the Jacobsen family which previously owned National Beef, now Farmland-National, the fourth largest U.S. meat packer; John Chalsty, President and CEO of Donalson, Lufkin & Jenrette; and Martin Massengale, President Emeritus of the University of Nebraska.  OCM vice president Mike Callicrate, a Kansas feedlot operator, is a named plaintiff in the case.

 

NFU annual meeting

     National Farmers Union held its annual meeting in Salt Lake City, Utah in February.  Members voted to support a packer feeding ban and to support labeling of GMO crops.  Country of origin labeling was also supported.  NFU members voted against permanent normal trade relations with China.

     Significantly, Sen. Orrin Hatch (R. Utah) spoke before the delegates stating that he would call for hearings on federal antitrust legislation before the Senate Judiciary Committee.  Hatch chairs that committee and has not previously been willing to air such issues.

 

Smithfield's Murphy acquisition

     In February, Judge Ronald Schechtman of Humboldt County, Iowa district court issued a temporary injunction in February prohibiting Smithfield's acquisition of Murphy Farms' Iowa assets.  The judge also appointed a special master to investigate the financial and business transactions surrounding the acquisition.

     The transactions involve Stoecker Farms, Inc. which was incorporated in Iowa on January 20, 2000.  Randall Stoecker, a Murphy Farms executive of Ames, Iowa is the corporation's only officer and shareholder.  With no financial wherewithal, Stoecker Farms received a $79 million loan from Murphy in acquiring Murphy's Iowa assets.  Murphy transferred its non-Iowa assets, presumably including the loan note, to Smithfield.

     Iowa Attorney General Tom Miller alleges that this is a sham transaction designed to create an appearance of compliance with Iowa's ban on packer feeding.

 

USDA Texas Panhandle study

     USDA recently released its study of cattle procurement in the Texas Panhandle.  Ag economists Azzanine Azzam and Schroeter took transactional data acquired from four packing plants by USDA in 1995-6, in an attempt to study captive supplies.  The main question was whether captive supply cattle, i.e. packer owned and contracted, have the effect of depressing cattle prices. 

     The study is being used by both sides of the debate.  The big packers say that the study vindicated them because the authors failed to find that captive supply "causes" lower prices.  However, the study explicitly finds "a robust correlation" between captive supplies and lower prices "in every case."  This means that when the percentage of packer controlled cattle went up, prices went down each and every time.  Azzam and Schroeter, however, were too conservative to take the step from "robust correlation" to direct causation.

     Further, the study's numbers show that for every 1% of captive supply, the market price was depressed by 8%.  If this holds true consistently as captive supply rises, today's 42% captive supply translates into $3.36 per hundredweight price depression which is $40.32 per animal.  Some economists believe that as captive supply rises, the price depressing effects grow more significant with each percentage increase.

     USDA can use this study to continue abandoning its responsibilities for preserving market competition.  Or it can use the study to change direction to support a competitive market structure and to reign in packer controlled supply. 

 

Drabenstott's Research Mill II

     Mark Drabenstott is continuing his biased advocacy for eliminating the family farm with a $350 per head conference called "Beyond Agriculture: New Policies for Rural America" on April 27-28 in Kansas City.  Drabenstott is Vice President of the Kansas City Federal Reserve Bank.  The Fed funds his research mill, the Center for the Study of Rural America.

     Drabenstott has argued before the National Press Club and the U.S. Senate that family farms are outmoded and corporate consolidation is desirable and efficient.  Senator Bob Kerry of Nebraska wrote Kansas City Fed President Thomas Hoenig asking for a more "balanced approach" in Drabenstott's advocacy.  Nebraska State Senator Cap Dierks was more forceful in charging that Drabenstott should not use "his position with the Federal Reserve to promote his cockamamie ideas."  

     Fred Stokes, president of OCM says that "Drabenstott hasn't got the idea that collective farms are a bad idea."  Maybe Drabenstott would get the idea if he was a poultry producer under contract with Tyson.

 

Biotech myths

     Genetically modified (GM) crops have been pushed by industry and accepted by farmers faster than any other development in agriculture… ever.  Dr. Mike Duffy of Iowa State University conducted a study last year for the Leopold Center documenting that increased profits have not resulted from GM crops (note that profits are much different than yields).  George Moriarty of the Iowa Farm Business Assn. states that GM crops have not resulted in decreases in herbicide use.

     Big Biotech claims that we need to "feed the growing world" and that GM crops are the answer.  But GM soybeans yield less than conventional beans (although GM corn may have a moderate yield advantage).  Crop prices are low due to an alleged oversupply and the world produces more calories per person than ever.  A recent study commissioned by the United Nations found that hunger is most attributable to government corruption, wars and political problems.  Lack of adequate production was well down the list.

     The primary effect of Big Biotech has been to consolidate domestic and world seed production to record levels.  The primary beneficiaries have been Monsanto and Novartis.  Now that Wall Street disapproves of ag biotech companies as an investment, Monsanto has agreed to sell itself to Pharmacia and other companies are marginalizing their ag biotech subsidiaries. 

Land grant university bio-researchers, heretofore underwritten by Big Biotech, may increasingly have to look elsewhere for funding.  These scientists, and land grant ag colleges, should consider research into topics which directly benefit farmers.  The misguided practice of universities becoming outsourced R&D centers for agribusiness has not resulted in pass-through benefits for those who till the soil.

 

OCM Food Policy Retreat

     On April 29 to May 1, OCM will host a Food Policy Retreat in Kansas City as a mechanism to bring diverse thinkers together to facilitate discussion of problems, solutions, and the multiple factors necessary to achieve a better alternative to a corporate dominated food system.  One or several white papers will be generated to document these problems and propose solutions within a roughly common paradigm.

     While OCM's mission focuses on market competition and abuses of market power, the Retreat will be much broader.  Recognizing that "food" is a concern for everyone, top academics from many disciplines across the country will discuss not only competition policy, but food security, conservation, consumer interests, local and regional food systems, and rural communities.

      Food and farm policy currently struggles with conceptual stagnation.  The default is a corporate dominated system with vacuous promises of benefit.  While the Retreat participants will document problems, they will focus on solutions and achieving a better paradigm, or way of thinking about these issues as a whole system.

 

[Edited by Michael C. Stumo]