Two years ago, at the height of the COVID-19 pandemic, I wrote to the USDA Secretary in my capacity as Chairman of the House Agriculture Committee, to ask the agency to engage with our land-grant university policy research centers to address stress in the U.S. beef sector and its impact on cattle and beef prices.
At the time, meat packing workforce challenges, plant closures like the Holcomb fire, as well as restaurants unable to utilize supply, showed us that our country’s beef supply chain was shaky, while also exposing high levels of concentration in the industry.
Today, cattle producers are rightly frustrated with the disparity between calf prices and beef prices, and with increasing packer and retailer profit margins. And consumers, faced with inflation at the grocery store and gas pump, are fed up with the whole system.
And despite well-intentioned legislation such as the Cattle Price Discovery and Transparency Act, a fix to mandate how cattle must be bought and sold not only won’t solve the issue but would instead make things worse.
Here’s why: Mandating that packers buy a certain percentage of cattle in each region of the country on a cash basis is really a mandate that cattle producers must sell a certain percentage of their cattle on a cash basis, whether they want to or not, even if they could earn more by utilizing an alternative marketing method that pays premiums for quality and value-added production practices to meet consumer preferences.
The bill also gives the packers the power to determine which producers must sell on a cash basis to meet the mandate, which will inevitably harm smaller producers.
Congress shouldn’t be picking winners and losers based on regional marketing preferences. And after many studies, respected cattle economists at our policy research centers have told us that we have adequate regional price discovery, and the cattle industry has successfully enacted voluntary measures to make it even more robust.
There are ways to improve how USDA reports market information to ensure cattle producers have better access to timely and pertinent market information without giving up proprietary market information.
Instead of pushing proposals to mandate how cattle are marketed, we should be addressing the packers’ market leverage. The clearest solution to fostering producer profitability and consumer demand is to expand beef processing capacity.
The processing sector represents a bottleneck in the overall beef supply chain, and the result has a negative effect on cattle producer leverage in fed cattle negotiations. When cattle supplies exceed the capacity to process them, cattle prices decline even if demand remains strong.
Over the last decade, several packing plants have closed, creating a shortage of adequate processing capacity throughout the system. The House Agriculture Committee recently held a hearing where a 2020 study by Rabobank was cited that found excess operational beef processing capacity fell to zero in late 2016 and turned negative in early 2017.
Fortunately, there recently have been strong bipartisan efforts to expand beef processing capacity and Congress should continue to support those efforts while also addressing labor shortages and strengthening the supply chain to benefit both cattle producers and consumers.
The tough reality is that we have a supply and demand issue in cattle and beef production that has been further exacerbated by COVID-19. In my opinion, cattle producers and the market are better equipped than Congress to work out what needs to be done about price discovery and transparency.
The U.S. cattle/beef production system is a major economic driver, accounting for $167 billion in gross sales and over 720,000 jobs across the nation. It is also the most efficient in the world.
Let’s not screw this up.
Collin C. Peterson is former Chairman of the House Agriculture Committee and represented Minnesota’s Seventh Congressional District as a Democrat from 1991-2021. He is President and Founder of The Peterson Group.For more ag news and opinion pieces, visit www.Agri-Pulse.com.