ORGANIZATION FOR COMPETITIVE MARKETS

P.O. Box 6486

Lincoln, NE 68506

Web site: www.competitivemarkets.com

Date: July 16, 2002 For Immediate Release

Contact: Fred Stokes: 662.476.5568

Michael C. Stumo: 860.379.6199

OCM Tells Senate to Eliminate Captive Supplies

The Organization for Competitive Markets presents Senate testimony today calling for a ban on packer ownership and to transform captive supply contracts into an open, public bid market. OCM also calls for specific reform of the U.S. Department of Agriculture’s enforcement infrastructure under the Packers & Stockyards Act. The Senate Committee on Agriculture, Forestry and Nutrition convenes the hearing to discuss two matters: (1) legislation that would prohibit packer ownership of livestock, and (2) USDA’s enforcement of the Packers & Stockyards Act.

“The role of government in the marketplace is to create and maintain the infrastructure for the most people and companies to engage in commerce,” says OCM. “This is similar to the internet and the U.S. highway system. The internet is not commerce, but it facilitates commerce. We would not allow four companies to dominate the majority of the internet because we would then quash or displace too much commerce by others. But we are quashing a tremendous volume of rural commerce by allowing domination of the livestock marketing system.”

“The top goals of market facilitating rules should be fairness, access, transparency and competition. Efficiency claims, i.e. the market facilitating rules harm efficiency, have been overblown. Market facilitation helps efficiency. Any harm to efficiency should only be considered if: (1) the efficiency claims are real, (2) they are directly related to the market practice at issue; (3) there is no other way to achieve the efficiency gains; and (4) the efficiency gains are likely to be passed on to consumers or producers rather than kept within a dominant firm in the form of increased profit.”

OCM also shows how packers use captive supplies to “game the system” in the way that Enron gamed the energy trading market in California. Enron “used strategies such as Death Star, Fat Boy and Get Shorty in creating fictional transactions, creating perceived shortages, and trading advantageously in the situation they created.” Similarly, packers use committed inventories of livestock, known as captive supplies, to engage in strategic scheduling of supplies, drive the price down, jump back into the open market to buy at low prices, and make tremendous profits.

Solving the problem requires, at a minimum, enacting the prohibition on packer ownership and passing legislation transforming secret contract deals into an open market.

As to USDA, OCM says that its Grain Inspection, Packers & Stockyards Administration is in a time of crisis similar to that of the Federal Trade Commission (the FTC regulates unfair practices in the consumer-to-business relationship) in the late 1960’s. USDA-GIPSA suffers from lack of leadership, squandered resources, and aimless direction. FTC successfully reformed itself in the 1970’s.

USDA-GIPSA has failed to even define what “unfairness,” “deception,” and “price manipulation” is under the Packers & Stockyards Act. Therefore its investigators have no standards to guide their duties. Rather they are relegated to the I-know-it-when-I-see-it approach. That approach has failed. OCM proposes a means to reform USDA-GIPSA.

The Organization for Competitive Markets is a multidisciplinary, nonprofit group of farmers, ranchers, academics, attorneys, and policy makers dedicated to reclaiming the agricultural marketplace for independent farmers, ranchers and rural communities.

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