STATEMENT OF NATIONAL MEAT ASSOCIATION
REGARDING AGRICULTURAL CONCENTRATION
National Meat Association represents packers of all sizes: small, medium, and large. A particularly significant segment of NMA's membership is composed of smaller and medium-sized family owned packers whose very existence and livelihood is threatened by increasing concentration in the meat industry. Because of the concerns of these members, National Meat Association opposes S. 2252 and S. 2411.
S. 2252 would place antitrust enforcement authority outside the Department of Justice, creating a politically charged antitrust process. The proposal would give USDA the ability to oppose the pre-merger review opinions of the Department of Justice, thus pitting one federal agency against another.
S. 2411 would place every packer who purchases livestock at the risk of double jeopardy from damage claims which could be filed with both the Secretary and with a Court. This legislation would also require all businesses that process agricultural commodities, as well as those which do business with the Agriculture sector, annually to disclose highly confidential information about contractual relationships and business alliances
S. 2252 and S. 2411 fail to address what NMA believes is the primary cause of concentration in the meat packing industry, government intervention and regulation. In addition these measures would impose additional burdens on small and medium-sized meat packers, thereby accelerating concentration in this industry.
The government program which provides what is probably the single largest incentive for increased concentration in the meat industry is the estate tax, which breaks up family-owned firms at least once every generation. While it is an extraordinary event when the government seeks to break up an AT&T or a Microsoft, the government routinely imposes death taxes on family-owned packing firms and family-owned farms which drive them to sell out to their larger corporate competitors.
The proposed legislation would regulate and sometimes prohibit the transactions between companies which provide the liquidity and capital to pay estate taxes. The likely effect of this prohibition would be to drive down the value of these enterprises and force them into bankruptcy. Government mandated illiquidity is unlikely to be an incentive for prosperity and growth among NMA's small and medium-sized packer members. The largest and most successful companies in the meat packing business cannot be held to blame for the inevitable consequences of these federal tax policies.
Another very current example of government policies which increase concentration is the recently enacted mandatory price reporting legislation. When Congress incorporated substantive requirements for mandatory price reporting into the FY 2000 Agricultural Appropriations legislation, it acceded to the demands of the largest packers to require mandatory disclosure, not only from the largest packers, but also from 30-40 small and medium-sized packers who altogether account for only 15-18% of beef slaughter. If the mandatory price reporting data from all of these companies results in a market which is so truly Atransparent as to help smaller producers understand the details of the largest packers businesses, it will unfortunately also be so transparent as to allow the largest packers to identify and overwhelm the niche markets which sustain small and medium-sized packers. We believe this result is not criminal, but that it is inevitable and that the effect of this sweeping new government program will be exactly the opposite of the stated intentions of its sponsors. To avoid this effect, a small and medium-sized packer exemption should be established.
Another example of the regulatory burdens on small and medium-sized meat packers is an inspection system that is more oriented to prosecutions and recalls than to prevention and public health. USDA insists on end product testing for pathogenic bacteria, rather than giving priority to the testing of incoming animals and ingredients. National Meat Association and its members do not oppose testing, but they do oppose testing which is done at a point that is unrelated to the packer's ability to control the tested hazard. End product testing is less effective than prevention-oriented testing of animals and ingredients. Because end product testing is statistically unsound, it puts every packer, large, small, or medium, at a Russian-roulette risk of closure or recall. For a small or medium-sized company, these risks threaten the company's ability to continue in business. Thus, the orientation of FSIS testing to prosecution, rather than prevention, is an additional incentive to leave the meat packing business and invest the family assets in the stock market. This risk is not hypothetical. The highly publicized Hudson ground beef recall resulted in the sale and division of that company's assets among the largest poultry processor and the largest red meat processor. When the government later brought criminal charges against two Hudson executives for withholding information which would have expedited a recall, the individuals were acquitted, after it was shown that the government itself had the information and, because of policies which put prosecution ahead of prevention, had not shared that information with the company or the public.
The appropriate response to increasing concentration in the meat packing business is to fairly monitor and identify the causes of concentration, rather than enacting new layers of regulation which will accelerate it. In October 1998, NMA asked Agriculture Secretary Glickman to:
ADirect the Grain Inspection, Packers & Stockyards Administration (GIPSA), to conduct a continuing monitoring and evaluation of industry concentration and in the unwanted event that firms do go out of business, to evaluate whether the manner in which regulations were implemented and enforced is a cause.
In February 1999, the Secretary responded to NMA's request for a Concentration Watch program by pointing out:
AConcentration in all sectors of agriculture into fewer and fewer hands has long been a concern of mine, and enforcement of the Packers and Stockyards Act (Act) will continue to be a high priority of the Department of Agriculture (USDA)... One aspect of GIPSA's program includes tracking packing firms that cease business in order to determine any impact on industry competition as well as to determine whether there are unpaid sellers of livestock.
While Secretary Glickman did not accept the NMA proposal for a Concentration Watch the idea still has merit. The Congress should ask the General Accounting Office to contact the executives of packing firms which have been sold or closed to determine the extent to which existing government programs or other factors have contributed to concentration.
Finally, NMA urges this committee not adopt legislation which penalizes people for being successful, whether they are small, medium, or large. It is NMA's view that the proposed legislation would create additional burdens for small and medium-sized packers and provide an additional incentive for these firms to leave the packing business, thereby increasing concentration. For this reason, enactment of this legislation would be a disservice to producers who would have fewer purchasers for their livestock, to packers, and to ultimate consumers who would have fewer sources from which to purchase meat.
Concentration is a matter of serious concern for NMA. It is time to identify the causes and to not be shy about asking whether government polices have been a major, indeed perhaps the primary cause. If that is the case, Congress is ideally situated to enact remedial legislation.
For further information, please contact Jeremy Russell at 510/763-1533.