The attempted resurrection of a horrible idea

Canadian Cattlemen, By Steve Dittmer Published: January 30, 2017

Free Market Reflections with Steve Dittmer

As is often true with proposed regulation, it helps to consider the source in evaluating the origin, impetus and motivation. With the attempted resurrection of then GIPSA administrator J. Dudley Butler’s so-called “GIPSA Rule,” the cast of proponents is very similar to mCOOL, with which Canadians are all too familiar. R-CALF, the Organization for Competitive Markets and National Farmers Union were prominent in both sagas. GIPSA is the Grain Inspection, Packers & Stockyard Administration, a division of USDA responsible for regulating grain and livestock markets.

Early in President Obama’s administration, Butler and these groups felt their moment in history had arrived, their golden opportunity to rein in the power of the major packers, to get the livestock business back to an open auction process at both feeder and slaughter level, to overhaul the poultry production system and open the legal gates by changing the basis for all lawsuits involving marketing livestock. Failing in 2010, they are trying again.

I won’t delve into the poultry issues. While it may not be perfect, the system in place has worked for decades, many poultry producers have prospered and claim their operations would be unprofitable without the chicken production contracts. Further, if the system was as cataclysmically flawed as attackers claim, the poultry processors would have run out of producers and chickens years ago.

At this point we still don’t know what the proposed regulations for beef are under the proposed GIPSA rule that has been developed in secret, without producer input. The 2010 proposed rule was debated literally from coast to coast in hearings and meetings. The concern of free market producers was that the rule would have disassembled the livestock marketing system U.S. producers, packers, retailers and foodservice operators have painstakingly built over the last 30 years, based on carcass value.

The Farm Bill of 2008 directed USDA to clarify the definitions of “unfair,” “unreasonable” or “undue prejudice” as written into the Packers and Stockyards Act of 1921 (P&SA), in response to claims by groups that packers had unfair marketing and pricing power and the government must step in.

Never mind that P&SA regulations and practice regarding unfair and deceptive had been thrashed out and were well known for nearly 100 years. In 2010, despite its charge to define the terms like “unfair” and “unreasonable,” USDA was evidently unable to do so by text. Instead, it proposed prohibiting the very basis of beef quality improvement over the last 30 years, forbidding packers to pay premiums for higher-quality cattle. That was termed “discriminatory” and provided “undue preference.” That rule would have forced the industry back to buying cattle “on the average,” just like when treating cattle and carcasses as commodities was driving the industry to ruin. The whole system of premiums and discounts, alliances and branded beef,  based on providing what consumers wanted, had been painstakingly hammered out since the mid-’80s, when American consumers rated one in four steaks as unpalatable.

From within the industry, the current GIPSA rule proponents are the same types who oppose selling on a carcass basis, grids and contracts, source and verification selling, beef alliances, branded programs, and oppose identification programs. They do not like the intensive management these programs entail. They do not want to be paid on the performance of livestock meeting consumer desires versus “run ’em in the ring and bid on them.” They distrust objective methods of evaluating livestock for the consumer market and distrust those who do the measuring, i.e. packers.

They wish to continue to produce cattle while dodging the requirements and results of a more efficient, more demanding production protocol designed to provide what the consumer wants. Their primary goal is protecting producers. Putting consumers first is not their priority.

While we all are concerned by the dropping number of livestock producers, veering away from producing what the consumer wants is the fastest way to lose even more. It has taken over 30 years for us to get beyond the inconsistent, unpredictable reputation U.S. beef had for tenderness and flavour, to today’s reputation for much higher quality and consistency. Additionally, the varied lines of production beyond mainstream — natural, organic, grass fed, etc. — would not be possible without the higher level of management and contracting needed to guarantee those promised characteristics. Without premiums, these higher-cost programs don’t exist.

The other provision would have made it easier to sue a packer for competitive injury. It is established U.S. legal precedent that a plaintiff must be able to show injury in order to sue a corporation, like a packer. The 2010 GIPSA rule would have removed that requirement, opening the door to an avalanche of lawsuits against packers.

Agribusiness Freedom Foundation taped Butler’s 2009 speech in which he explained: “We’re looking at it from the standpoint of Section 202 (a) and (b). When you have a term like “unfair” or “unreasonable” or “undue prejudice,” that’s a lawyer’s dream, a plaintiff lawyer’s dream. We can get in front of a jury on that, we don’t get thrown out on what we call summary judgment ’cause that’s a jury question.”

What Butler was describing as a plaintiffs lawyer’s dream still exists in the law, and as a plaintiff’s attorney, he made sure NOT to limit them in his rule. Fortunately, Congress kept that rule from being implemented with a rider on appropriation bills through 2015. We must hope this new rule, which may be published before Christmas, does not remove the requirement to show injury. That would remove the barrier that has kept packer lawsuits from burying the courts, and possibly the beef industry.