Proposed regulations divide meat industry | The Wichita Eagle

Is more competition in business good or bad?

That question has raged through the meat industry since the federal government proposed regulations last year that could reshape the sector.

"I've been in this job for 20 years and there are few watershed moments that stand out for the level of concern they generate, and this is one of them," said Janet Riley, senior vice president of the American Meat Institute.

The beef, pork and poultry industries have consolidated over the past three decades.

In the beef industry, for example, just four packers, including Wichita-based Cargill Meat Solutions, purchase about 80 percent of the beef on large U.S. feedlots.

The number of cattle producers has fallen from 1.6 million in 1980 to 950,000 today. The number of hog farms has dropped from 660,000 to 71,000, according to the U.S. Department of Agriculture.

The 2008 farm bill required the USDA to promote competition within the industry. Last year, Secretary of Agriculture Tom Vilsack proposed rules that he said would do that just that.

Consolidation, he said, has given the packers ever greater control over the producers and allowed them to keep a larger share of revenue.

This loss of bargaining power, Vilsack argued, is one of the big reasons livestock farmers have struggled financially in recent decades — with tens of thousands forced out of the business.

The key provision would make it easier for farmers to sue under the Packers and Stockyards Act. Instead of existing rules requiring that farmers prove that a company had reduced industry competition, the new rules require a farmer to show only that a company has engaged in discriminatory acts against the farmer, such as by offering higher prices to preferred suppliers.

That provision likely would unleash a wave of litigation and dramatically change feedlot and packer buying practices.

The rules changes have supporters among some hard-pressed small ranchers and feedlots, who say they have been squeezed out of the market by the big guys.

Daryl Larson is a small cattle farmer in McPherson County and vice president of the Kansas Farmers Union. He sells his cattle at the auction barn, but an increasing number of the nation's cattle is being sold by private contract to feedlots and packers.

The USDA's changes would tend to force sales back to the open market and at a uniform price for all cattle, despite differences in quality.

"This allows all of us fair access to the market," Larson said. "Right now the four major packers have mechanisms in place to manipulate the prices that we can get for our cattle."

The proposed rules have provoked an enormous backlash from the big packers, industry trade groups and many ranchers.

The present system works for the public, as well as for the industry's most efficient and innovative operators, argues Todd Domer, vice president of the Kansas Livestock Association.

The public wants better quality beef. Only by controlling production, raising standards and introducing expensive innovations can the product get better, he said. All of that takes money and expertise, which requires size and efficiency.

"If you are going to be serious about food safety, you're going to need a lot of Ph.D.s in your business," said John Keating, president of Cargill Beef, which is based in Wichita. "There are just so many food safety issues that it's tough for smaller companies to compete these days."

Kansas State University agriculture economist Glynn Tonsor said that while the number of firms is few, it doesn't mean there isn't fierce competition. And while it may have exacted increased costs, it more than makes up for it with better quality.

"On balance, it's more positive than negative," he said.

Vilsack, who initially said the USDA wouldn't do an economic analysis of the proposed rules, agreed in December to do one. All sides — plus many members of Congress — eagerly await the result.