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Sunday, May 06, 2007

This will make everything better?

The response of government officials when certain of their constituents complain is interesting. Sometimes the constituents get no response and at other times government officials create whole new laws and regulatory bodies. For instance, the beef industry is fairly concentrated in packing/processing. Cattle ranches, however, are not very concentrated.

The result? Beef processors have market power (monopsony power) and individual cattle ranchers have little to no market power. This means that prices are typically a little lower than the rancher wants (go figure) and this makes ranchers upset. What to do about this problem?

There are a number of possible solutions, one might be to enter in the processing market with a cooperative of some sort (much like what corn farmers did with ethanol before the latest government mandated surge). There are other options, but the one that is the easiest on the part of the cattle ranchers is to go to the government and demand a solution.

Unfortunately, there are at least two lawmakers in Washington that agreed to create an entirely new anti-trust/anti-competitive enforcement branch of the federal government. Rather than try to improve the efficiency of the beef market, the government will simply create a new bureaucracy that is essentially guaranteed to make the market less efficient (and cost us taxpayers more as well).

[Full disclosure: I own a few heads of cattle, so you might think I would be happy about this development.]

From BEEF-Cow Weekly:

Rep. Leonard Boswell (D-IA), chairman of the House Agriculture Livestock Subcommittee, introduced the "Competitive and Fair Agricultural Markets Act of 2007."

Boswell says, "The concentration in the livestock industry raises many concerns on what the future may hold for independent producers. Last month, we held a hearing on the market structure of the livestock industry. Many concerns were raised about anti-competitive and unfair practices that occur daily in the marketplace. It's my hope that this legislation will attempt to level the playing field for independent producers."

The legislation establishes a Special Counsel on competition matters at USDA whose sole responsibility will be to investigate and prosecute violations on competition matters. The bill also makes the following changes to the Agricultural Fair Practices Act:

  • "Prohibits unfair, deceptive, unjustly discriminatory and anti-competitive practices by a person that affects the marketing, receiving, purchasing, sale or contracting of crops.

  • Provides needed contract protections to ensure that the production contract clearly spells out what is required of the producer.

  • Prevents discrimination against producers belonging to an organization or cooperative by removing a disclaimer clause allowing processors, handlers, or contractors to refuse to do business with producers just because they belong to such organizations.

    Develops rulemaking by requiring the Secretary of Agriculture to write regulations defining the term "unreasonable preference or advantage under the Packers and Stockyards Act."
    Sen. Tom Harkin (D-IA) introduced similar legislation in the Senate earlier this year.
    -- P. Scott Shearer, Washington, D.C., correspondent
  • The removal of the "disclaimer clause" is the only bullet point that seems reasonable.

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