Who would have thought livestock price transparency would be so difficult to achieve? OCM’s "USDA Inc." report, released in August 2005, revealed general FEMA-like cronyism at USDA before post-Hurricane Katrina events revealed the Federal Emergency Management Agency’s antics. A December 9, 2005 Government Accounting Office (GAO) report discloses more USDA problems.

Requested by Senators Harkin (D. IA) and Grassley (R. IA), the new GAO report found USDA’s implementation of mandatory livestock price reporting less than stellar. Recall that OCM pushed for mandatory price reporting by packers in 1998, and the federal Livestock Mandatory Reporting Act was passed in 1999. USDA – under Clinton at the time - did not support or oppose the bill publicly.

We naively believed this law would be implemented to achieve its purpose, providing livestock prices in every region on a daily basis in a timely manner. USDA did not implement the law until April 2, 2001 – when Bush became president.

Working to de-tooth the law, the Agency chose packer bid confidentially over producers’ timely price information interests. The mechanism was an obscure 3/60 guideline. USDA would not report prices in less competitive packer buying regions. This meant no public price information: (1) if less than three packers bid in the region, or (2) if one packer purchased more than 60% of the animals in a particular time period.

OCM complained and USDA moved slightly, but insufficiently, with a 3/70/20 confidentiality guideline. This meant USDA would report prices in a particular reporting region if these three conditions were met:

• At least three packers provide data at least 50% of the time over the most recent sixty (60) day time period;
• No single packer provided more than 70% of the data for the period; and
• No single packer could be the sole reporting entity for an individual report more than 20% of the time over the period.

The result was producers in less competitive buying regions had no price information while producers in more competitive buying regions did receive information. States such as Colorado have no prices reported for hogs or cattle.

The December GAO report found USDA’s Agricultural Marketing Service, the sub-agency responsible for price reporting:

• Regularly excluded some packer transactions in aggregate price reports, up to 23% of cattle transactions from May through October 2003;
• Failed to inform the public of the extent of this practice;
• Failed to provide guidelines to market news reporters on when to exclude packer price data;
• Lax enforcement of packer reporting non-compliance – noting 64% of 844 USDA price reporting audits of packer records showed inaccurate packer pricing transaction reports, or transactions reported but unsupported by packer documentation; and
• Failed and refused to share information regularly with the Grain Inspection, Packers and Stockyards Administration (GIPSA), the subagency which enforces meat packer laws against unfair and anticompetitive practices.

GAO did recalculate actual aggregate cattle and hog prices including the price information USDA omitted. Thankfully, the GAO’s recalculated average prices were not much different than the actual prices reported by USDA.

The most significant problem is USDA’s refusal to regularly share price information with GIPSA to monitor markets for potential unfair practices. The Securities and Exchange Commission monitors stock markets’ real time price information closely to determine aberrant market behavior. This information is crucial to conduct investigations.

GIPSA should have this ability, especially with mandatory price reporting, but USDA has chosen not to allow it. GIPSA should develop a systemic ability to monitor daily and weekly prices in real time, through computer software and intelligent guidelines, to producers of fair markets.
Unfortunately, GIPSA does not even know what anticompetitive activity is – it has no guidelines to distinguish lawful and unlawful competition. Their investigators are flying blind, conduct few true investigations, and any investigations pursued have not been prosecuted in the last three years.

In response to this report, USDA promised to do better, but did not promise to increase GIPSA market monitoring of price information.

Senators Harkin and Grassley will introduce legislation to improve price reporting this year. OCM will work with the Senators in this effort.MS

Michael Stumo is an attorney with DominaLaw Group pc llo in Omaha, focusing on complex litigation in agriculture.