Cattlemen’s Competitive Market Project (CCMP)

Questions and Answers

1. What is the Cattlemen’s Competitive Markets Project?

ANSWER: The CCMP is a self-funded program by cattle producers to focus resources on the crucial issue of our day – full and free competition for cattle at the point of sale.

2. Why do we need the CCMP?

ANSWER: Meat packer and retail supermarket concentration have reached all time highs. Vertical integration, or captive supplies, have become a major cattle market problem. Cattle producers are receiving lower prices while consumers pay high prices for beef. Packers and retailers are a necessary part of the system, but they are using market power to increase their margins to record levels. Producers need to focus their resources on leveling the playing field in order to bring the market system into balance so that independent producers have a fair opportunity to compete and make a return on their investment.

3. What are the priorities of the CCMP?

ANSWER: The priorities are horizontal concentration, captive supplies, and retail supermarket power. Concentration decreases cattle prices because there are fewer competitors. Efficiency claims have not been proven and any efficiency gains are not benefiting producers. Captive supplies allow packers to bid conservatively on the open market to reduce price. Captive supplies also allow packers to strategically schedule cattle deliveries in order to pull out of the market, depress the price, and maintain full plant capacity. Retail supermarkets are engaging in exclusive supply contracts with some packers freezing out competition and participation by new packer competitors. Retail beef margins have grown far wider than has ever been seen in the past. Thus, neither producers nor consumers are benefiting from the system.

4. Who runs the project?

ANSWER: The CCMP is guided by a Steering Committee made up of feeders, ranchers and auction market operators, all of whom derive a majority of their income from the cattle business. It is administered by the Organization for Competitive Markets, a nonprofit organization focusing on antitrust, competition and market fairness issues in all commodities.

5. How is the CCMP funded?

ANSWER: The CCMP is funded by voluntary, per-head contributions of cattle owners at the point of sale, including feedlots and auction yards. Participating feedlots and auction yards sign up for one year with automatic yearly renewals absent a request for termination. Customers are notified of the program prior to implementation with a chance to opt-out. Per head contributions may be 30 cents, 50 cents or one dollar.

6. Is this not a checkoff program?

ANSWER: No. The CCMP is not a mandatory checkoff program that is mandated by state or federal law. It does not come under the control of the USDA, the meat packing industry, or meat exporters. This is a private, voluntary project in which producers may choose to participate in order to preserve and increase competition for live cattle at the point of sale. The only similarity between the CCMP and the checkoff programs is that contributions can be made on a per head basis.

7. Are contributions tax deductible?

ANSWER: Yes. OCM, as administrator of the project, is a nonprofit, charitable organization under section 501(c)(3) of the Internal Revenue Code. All contributions will be used in according to the Internal Revenue Service rules and regulations governing charitable organizations. This includes research, education, communication and policy advocacy.

8. What will the CCMP funds be used for?

ANSWER: CCMP funds will be used for education, communication, research and policy advocacy on the dominant market competition issues relating to concentration, captive supplies and retail supermarket power. The first funds will be expended to educate and communicate with producers, consumers, academia and policy makers on market problems and solutions using existing knowledge. As more CCMP funds are generated, we will have the ability to hire experts to examine problems and develop better solutions than we have yet seen. We also will solicit the cooperation and support of organizations outside the farm and ranch sector, including consumer groups, faith-based organizations and others.

9. Why should we work against, and not with, packers and retailers? They are our customers.

ANSWER: Meat packers and retailers are a necessary part of our market system. We merely believe that there should be more of them and that they should play by the rules of market competition and fairness so that all industry participants, including producers and consumers, have the ability to benefit and to participate fairly in the markets. We are seeking balance and economic freedom as we oppose top-down control.

10. Why should feedlots and auction yards participate?

ANSWER: The days of independent feedlots and auction yards are numbered unless we make major progress in changing market structure, market conduct and public policy. They are at the front lines in fighting for better prices for their customers. Feedlot managers and auction owners have seen the decline in competition and the increase in market power of the meat packers in the last 15 years. By participating, they can give substantial strength to the effort to reclaim the markets for themselves and their customers.

11. Will we face market retaliation for participating?

ANSWER: Feedlots that are currently participating in the program have experienced praise for standing up for free and open markets. They have neither experienced any loss of customers, nor have they experienced retaliation or boycotts by meat packers. As the CCMP becomes more popular and effective, the theoretical risk of retaliation will be reduced. If retaliation is experienced, OCM has a project entitled the Competitive Markets Litigation Project that is a network of attorneys that is able to help fight for the producers that have been harmed economically.

12. What solutions do you propose?

ANSWER: Generally, we seek to correct the imbalance in policy making which currently says that efficiency must be pursued at all costs and that we will accept unproven, rhetorical claims of efficiency by industry without documentation. Rather, we want priority to be given to preserving and increasing farm gate competition under the theory that a diverse production sector of independent producers produces economic growth, innovation, choice and benefit for a larger number of people than does a concentrated industry. As to current specific solutions, we will work for a reduction or elimination of captive supplies, a reduction in the market power of supermarkets, increased marketing options for producers, and increased prices. Our focus is market competition, opportunity and fairness at the farm/ranch/feedlot gate. As the CCMP gains in strength, we can develop more detailed and documented solutions with the ability to communicate, educate and advocate that the solutions be implemented at the state and federal levels, or through private industry cooperation.

13. Do we really need government intervention in the cattle business telling producers and packers what they can and cannot do?

ANSWER: Yes. We need market facilitating rules, and enforcement of those rules, in order for markets to exist and to perform properly. Market facilitating rules exist for the stock markets. These rules promote access to markets; fairness; transparency of market information; and competition. Without such rules, markets break down and do not reflect true supply and demand conditions.

14. How can I be sure that CCMP will not advocate policy changes that will hinder risk management options available to me?

ANSWER: We believe that risk management is very important, but that it should not be done through the meat packers. Risk management strategies through third parties, such as brokers, producer organizations, or directly on the Chicago Mercantile Exchange. “Second party” risk management, i.e. committing inventory to packers in return for certainty in price, enables too great a risk of increased market power for the packers and decreased cattle prices. However, it is risky for some producers to stop contracting with packers and go to open market sales as a unilateral act. Thus, we seek a systemic limitation on risk management through packers to promote third party risk management options so producers are not at a disadvantage in weaning themselves from packer contracts.

15. How can I be sure that CCMP will not advocate policy changes that will harm opportunities for value added producer efforts?

ANSWER: Value added marketing ventures are extremely important as the “New Competition” to the concentrated meat packing markets. Every policy change advocated by the Organization for Competitive Markets, and every piece of legislation proposed in the U.S. Congress to support livestock competition, exempted such ventures. However, we have not been supportive of new generation cooperatives and other value added ventures that merely align with existing packers because they have the same effect as traditional captive supplies – i.e. they confer more market power on those packers.

16. Who is the Organization for Competitive Markets?

ANSWER: OCM is a nonprofit, charitable organization dedicated to reclaim competitive markets for farmers, ranchers and rural communities. OCM engages in research, education and advocacy to change state and national policy to promote a market environment that provides opportunity, competition and fairness to independent producers. Members include farmers, ranchers, university professors, state legislators, rural leaders and business persons. Only individuals may be members, not corporations or associations.

17. Why is OCM the best organization to administer the CCMP?

ANSWER: OCM is one of the most, if not the most, respected authority in the country on problems and solutions in the agricultural markets. Last year, Successful Farming magazine wrote that “A relatively small group, the Organization for Competitive Markets, deserves credit for turning a common gripe of most farmers and ranchers [lack of competition] into a high-profile issue.” We are a membership group and think tank that advocates based upon both principal and sound science. OCM’s work gave rise to Competition Title proposal in the last farm bill. It was the first time in the history of the farm bill that competition has been addressed. Due to the efforts of many supporters, some elements of that bill passed… but not enough. We have a network of academic experts, attorneys and rural leaders that work for solutions to our problems. OCM, its staff and collaborators write issue papers and scholarly articles which have been published in book form, in the media, and in professional journals. We work on no other issues but competition and market fairness.

18. Is this not an additional administration cost for auction yards?

ANSWER: There will be a minor marginal cost for auction yards to alter their current payment, notification and record keeping systems. Auction yards currently engage in administrative functions relating to state and federal laws and regulations, as well as for identity preservation of niche market cattle such as Certified Angus Beef or “naturally raised” animals. We have not found participation in the CCMP as significant burden. However, auction yards are entitled to receive 5% of the CCMP funds to defray such costs at their option.