Processing

Opinion: Is the US Packers and Stockyards Act a panacea for Australia?

Trent Thorne, McCullough Robertson Lawyers, 03/10/2014
trent-thorne-square

Trent Thorne, McCullough Robertson Lawyers, Brisbane

The Senate Standing Committee on Rural and Regional Affairs and Transport recently delivered its report on ‘Industry structures and systems governing levies on grass-fed cattle’.

The Senate Committee made a total of seven recommendations, most of which were not endorsed by a variety of industry lobby groups.

The final recommendation made by the Senate Committee seems to have garnered the least attention, namely that the Department of Agriculture, in consultation with the cattle industry is to conduct an analysis of the benefits, costs and consequences of introducing legislation akin to the United States legislation, the Packers and Stockyards Act 1921 (Packers Act) and Livestock Mandatory Price Reporting Act 1999 (LMPR Act).

In the words of the US Congress, the purpose of the Packers Act is ‘to assure fair competition and fair trade practices, to safeguard farmers and ranchers … to protect consumers … and to protect members of the livestock, meat, and poultry industries from unfair, deceptive, unjustly discriminatory and monopolistic practices.’

The Packers Act was introduced in 1921 after decades of openly anti-competitive behaviour by the ‘Big Five’ meat processors that controlled and manipulated the beef processing market.  The US Senate at the time concluded that with a ‘multitude of producers on the one hand, and a very limited number of packers and distributors on the other, the packing industry lent itself ready to monopoly.’

It was the high concentration ratios in the beef packing sector in the early part of the 20th century that prompted the introduction of the Packers Act.  However the level of concentration in the US at the moment is even higher now than when the Act became law in 1921.  In this regard, it is noted that in 1972 the largest four firms in the US slaughtered 25% of the cattle, whereas this figure is now well above 80pc.

Further, 75pc of cattle were purchased at US stockyards by processors in 1950.  However, by 2010, over 80pc of cattle purchased by processors were sourced directly from feedlots.

The increase in concentration and the trend towards producers selling to processors through forward contracts caused the US Congress to pass the LMPR Act in 1999. Surveys that have been conducted following the introduction of the LMPR Act reveal that the system has suffered from a number of issues, which have included the significant problem of whether the data being reported by the processors was in fact accurate.

One survey sought the perceptions of feedlotters to the introduction of mandatory price reporting.  In relation to whether mandatory price reporting was benefiting the beef industry, 22pc of the respondents strongly disagreed with this statement and almost 50pc of respondents believed that it was not benefiting the beef industry.

With respect to whether mandatory price reporting had enhanced a producer’s abilty to negotiate cash prices, grid premiums or discounts with processers, 71pc of the respondents disagreed with this statement.

The purpose of the introduction of the LMPR Act was to facilitate greater transparency and information flow to producers.  The survey results reveal that whilst the intention of the LMPR Act is sound, the result is not the panacea that producers were obviously seeking.

Whilst the Senate Committee at this stage is only seeking to conduct an analysis of the benefits, costs and consequences of introducing the US legislation into the Australian framework, alarm bells should be ringing that this potential regulatory burden may not solve producers’ fears.

Potentially the greatest concern was raised during the Senate Committee hearings by Dr Peter Barnard (MLA General Manager, Trade and Economic Services) that the regulatory and compliance costs for US beef processers runs into the tens of millions of dollars.  If such a system was foisted onto Australian beef processers, it is inevitable that the regulatory cost will be borne by producers for potentially very little gain in the way of price transparency.

Whilst I am not suggesting that the current system is fair or equitable for beef producers, significant consideration needs to be given to whether the adoption of the US model is going to create false hopes and another layer of red tape that will ultimately hurt those who can least afford it.

Trent Thorne is an agribusiness lawyer with McCullough Robertson Lawyers in Brisbane (@agintegrity)

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Comments

  1. Brad Bellinger, 03/10/2014

    The transfer of costs from the processing sector back to the production sector is unsubstantiated unless there is collusion between the meat packers is Dr Barnard assuming that this is the case. If it is then the introduction of the packers act is essential.

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