Livestock Sale Rules Are No Bargain

Tired of the federal government intruding into every aspect of your life? Be thankful you’re not a hog farmer.

In June, the Obama administration unveiled strict new rules for buying and selling livestock that are a disaster for North Carolina’s pork industry. And because the rules will stifle innovation and reduce competition, we may all soon be seeing higher prices and fewer choices in the meat case.

The Agriculture Department argues that the draft rules – now in an official “comment period” – are needed to “open” livestock markets. In fact, they will do the opposite. They will restrict marketing arrangements, dictate contract terms, lower prices and eliminate jobs.

For starters, they will make it nearly impossible to negotiate premiums for higher-quality livestock without justifying the increase with a written cost analysis. Nor will packers be able to offer a lower price for inferior animals – which otherwise might not be purchased – without justifying the markdown in writing.

The result? All hogs will likely be purchased for the same price, regardless of quality or any other distinguishing factors. That’s turning competition on its head.

The draft rules also greatly expand what constitutes a violation of the 89-year-old Packers and Stockyards Act. Under the new guidelines, a violation can be almost any practice shown to be “unfair,” regardless of whether it actually prevents a producer from selling animals for a fair price.

The fallout from that? Packers could decide to raise all their own livestock and not bother with producers at all. And that, of course, will speed, rather than slow, vertical integration in the livestock industry.

Some of this might make sense if there were a huge outcry from producers saying the current system doesn’t work. But the great majority of livestock producers are happy with how their markets operate, especially since the recession bottomed out and prices started to climb.

USDA fashioned its regulations based on the views of a small group of dissatisfied producers. And because they cried foul, all of us will suffer.

Most producers want options for selling their animals. That’s how they manage risk. Packer contracts offer a guaranteed income for a specified period, protecting producers from harmful price fluctuations. They need to be one of the options.

But, in the name of improving competition, USDA’s new rules discourage packer contracts. That forces producers into the “cash” market, where prices tend to be lower and risks are greater. With less guaranteed income, many farmers will find it hard to get bank loans to operate. Some simply won’t survive.

These rules are a recipe for disaster. The Agriculture Department says the rules simply fulfill a mandate under the 2008 Farm Bill. In truth, they go well beyond what the farm bill asked for. Some provisions were specifically rejected by lawmakers, while others violate multiple court precedents.

USDA needs to go back to the drawing board and come up with something more in line with what it was asked to do. The alternative isn’t just bad for livestock farmers. It’s bad for consumers and all of rural America. By R.C. Hunt, The News & Observer