In an example of déjà vu Secretary of Agriculture Tom Vilsack has introduced the third in a series of rules under the Packers and Stockyards Act. The intention is to create “fairer markets which ultimately can lead to lower grocery prices.” In the first instance there is little evidence that poultry integrators are applying the tournament system to the detriment of integrators. It is also unfathomable how a rule that has as its ultimate effect of increasing the cost of production will lower prices to consumers.
Under the Obama Administration, Secretary Vilsack was instrumental in introducing restrictions on integrators that he approved within hours of the expiry of his term in office. This may well happen again.
According to Andy Greene, USDA senior advisor for Fair and Competitive Markets, “this proposed rule is intended to provide growers with a clear base-price contract, a contracting partner that designs and operates any comparisons fairly and with access to the information that growers and the USDA need to identify and to halt coercive investment demands before growers take on large debits. The proposed rule will allow bonuses for performance but will not allow any reduction for suboptimal production parameters. Greater transparency will be required if contractors are obliged to make improvements that increase efficiency.
The National Chicken Council representing integrators noted that the proposed rules that modify the existing relationship between contractors and integrators are designed to “address a problem that does not exist.”
Recent events including closing processing plants in areas where contractors have no alternative integrator has created hardship. Contractors operate with long term loans but are susceptible to the actions by integrators with respect to reducing volumes of production or even closing entire complexes. Under these circumstances, contractors unable to grow for other integrators, are obliged to find alternative uses for housing such as occurred with the failure of Townsend’s and the recent Dexter, MO. closure by Tyson Foods. In both cases, growers were able to convert housing to produce table eggs for Cal-Maine Foods.
The question of enhancements requiring capital expenditure should be subject to negotiation between the contractor and integrator with either guarantees of continuation or some form of financial support. During the 1970’s when separate male and female feeding was introduced offering advantages to both contractor and integrator, farmers were required to make the appropriate capital investment with payback over an extended period.
The contractor-integrator system has served both parties and consumers over many decades. This is evidenced by the waiting list to acquire contracts and evidence that broiler contractors have a higher income than livestock and crop farmers operating similar acreage. Tom Vilsack, the longest serving USDA Secretary, has continually exhibited a socialistic trend and has demonstrated opposition to large-scale and efficient poultry, hog, and beef production. This is exemplified by attempting to support alternatives to existing production using the resources of the Commodity Credit Corporation and federal funding that has contributed to both inflation and the national debit. Problems that have arisen in the past year could be resolved using existing rules under the Packers and Stockyard Act. Introducing a far-reaching new rule will only add to production costs ultimately borne by contractor, shareholders and consumers.