1 1 UNITED STATES DEPARTMENT OF JUSTICE UNITED STATES DEPARTMENT OF AGRICULTURE 2 Public Workshops Exploring Competition Issues in 3 Agriculture Livestock Workshop 4 A Dialogue on Competition Issues Facing Farmers in Today's 5 Agricultural Marketplaces 6 Colorado State University - Lory Student Center Fort Collins, Colorado 7 August 27, 2010 8 __________________________________________________________ 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 1 SECRETARY VILSACK: Good morning. I want to 2 welcome everyone to the fourth joint competition workshop 3 between the Department of Agriculture and the Department 4 of Justice. I want to take this opportunity to thank 5 Colorado State University for the help that they have 6 provided in setting up this workshop, allowing us to use 7 their facilities, and accommodating an overflowing crowd. 8 We know that this workshop has generated a lot of 9 interest, and Colorado State University has done a great 10 job in making it possible to have the space to accommodate 11 folks here today. 12 Today, we intend to focus on the livestock 13 industry and whether there is proper competition to ensure 14 producers are getting a fair shake. These workshops will 15 help us understand the issues that are of most concern and 16 deserve closer attention and to explore the appropriate 17 role, if any, for antitrust or regulatory enforcement in 18 the agricultural industry. 19 In March, we held a workshop on general farm 20 issues in Ankeny, Iowa. In May, we gathered in Normal, 21 Alabama, to discuss poultry issues. In June, we discussed 22 dairy issues in Madison, Wisconsin. Moving forward, we 23 intend to hold one final workshop on December the 8th in 24 Washington, D.C. President Obama provided a clear 25 direction that government should be open and transparent, 3 1 and these workshops are designed to do just that. We want 2 to have a public dialogue on these very complex but 3 important issues. 4 As I travel across the country, I hear a 5 consistent theme. Producers are worried. They're worried 6 whether there's a future for them and for their children 7 in agriculture. There are many ingredients needed for 8 someone to get into farming and ranching. He or she needs 9 to have access to capital to get the land, equipment, and 10 livestock; they need to be willing to take significant 11 risks and work very hard; and they need to know that 12 there's an open and competitive market for their livestock 13 and for their commodities. 14 Livestock producers are extraordinarily 15 innovative, despite enduring some very difficult times. 16 The USDA is designed to support producers' ability to join 17 together, to market their products, to find value-added 18 opportunities, and to enter into contract arrangements. 19 Additionally, we look to support producers in their 20 efforts to work hard and to receive a premium for their 21 efforts. 22 Now, there are some troubling statistics 23 concerning the livestock sector. The top four cattle 24 packers control roughly 80 percent of steer and heifer 25 procurement, and the top four hog packers control roughly 4 1 65 percent of hog procurement. In 1994, the spot market 2 for hogs was 62 percent. Today, it is only roughly 5 3 percent nationally. And new figures just recently 4 developed are showing it dipping below 4 percent for the 5 first time ever. 6 In cattle, depending upon what part of the 7 country you live in, the spot market is also rapidly 8 declining. In 1999, the spot market for cattle was 68 9 percent. Today, it's closer to 52 percent nationally. 10 And we know in some parts of the country, it's less than 11 30 percent. This thinning spot market is a concern 12 because it sets the base prices in marketing contracts. 13 In the retail sector, the top four retailers 14 now control 37 percent of the market up from 17 percent in 15 1992. And consolidation in this sector can have a squeeze 16 on the packing sector and have ripple effects all the way 17 down to the producer. Some have argued that the status 18 quo is better for livestock agriculture and that the 19 current system has resulted in efficiency and innovation. 20 But I think we need to take a look at where we are. 21 Under the status quo, there has been a 22 significant exodus from agriculture and a depopulating of 23 rural America. In the past 40 years, the United States 24 has lost 800,000 farmers and ranchers. And those that 25 remain are aging. From 2002 to 2007, our last ag census, 5 1 the average age of a farmer increased from 55 to 57. The 2 number of farmers age 75 and older has increased by 20 3 percent over the same period. Meanwhile, the number of 4 operators under 25 years of age has decreased by 30 5 percent. The sad fact is that young people find it very 6 difficult to get into this important occupation and 7 calling we call farming. 8 Fifty million people now live in rural 9 America, urban areas are growing at a much faster pace, 10 and more than half of rural counties have lost population. 11 Today, if you consider all family-farm operations, only 12 roughly 10 percent of family-farm income comes from 13 farming. And more and more of our farmers are looking 14 elsewhere for the primary source of income. Rural 15 communities have higher poverty rates than the rest of the 16 country. And the average per capita income of rural 17 residents is approximately $11,000 below their urban and 18 suburban counterparts. 19 In 1980, there was 666,000 hog farms. Today, 20 it's roughly one-tenth of that at 67,000. A similar 21 situation exists in the cattle industry. In 1980, there 22 were over 1.6 million farms. Today, there are roughly 23 950,000 cattle farms. In 2009, a hog producer received 24 24.5 percent of the retail value of the hog, and it was 25 over double that percentage in 1980 at near 50 percent. 6 1 Last year, 13.6 percent went to the packer and 61.9 2 percent went to the retailer. A cattle producer gets 42.5 3 percent of the retail value of a steer in 2009, which 4 compares to 62 percent in 1980. Last year, 8.5 percent 5 went to the packer and 49 percent went to the retailer. 6 While the causes of decline in farm numbers is 7 complex, it's no secret that livestock and poultry 8 marketplaces have become more consolidated and vertically 9 integrated. And although there can be efficiencies found 10 with these trends, there is also the potential for unfair 11 practices and limited transparency which increases risk 12 for producers. We continue to seek answers and solutions. 13 And under our watch at USDA, we've taken a number of steps 14 in an effort to improve competition in agriculture. 15 The USDA and the Department of Justice, as a 16 result of these hearings, has established the Agricultural 17 Competition Joint Task Force to explore new opportunities 18 for utilizing each other's expertise. These workshops 19 will also help inform the work of that task force. 20 To improve the efficiency and enforcement 21 under the Packers & Stockyards Act, we've increased 22 GIPSA's budget to improve enforcement over unfair and 23 deceptive practices in the marketplace. And the 24 Department is hiring more attorneys and field 25 investigators to handle complex investigations and other 7 1 violations. GIPSA recently published a proposed rule for 2 fairness in marketing of livestock and poultry. And in 3 December, GIPSA published a final rule to establish basic 4 fairness in poultry contracts. So it is in this broad 5 context that we have a conversation today. 6 I want to take this opportunity to thank all 7 who have traveled here today from near and far. I 8 especially want to thank the panelists, who will be 9 introduced in a few minutes, for their willingness to 10 participate in this workshop. And I look forward to 11 hearing what everyone has to say on these very important 12 issues. Just as a note, those who are in the overflow 13 rooms will also have an opportunity to make their thoughts 14 known. We have computers and staff in each of the 15 overflow areas to take comments. 16 Now I'd like to take the opportunity to turn 17 the podium over to the Attorney General of the United 18 States, Eric Holder. You need to know that during his 19 impressive career, General Holder has served in private 20 practice as U.S. Attorney for the District of Columbia, as 21 an associate judge for the Superior Court of the District 22 of Columbia, and as Deputy Attorney General. He's worked 23 to investigate and prosecute official corruption on the 24 local, state, and federal level, and he is fully invested 25 in strong enforcement of our nation's antitrust laws to 8 1 advance the interest of justice on the behalf of the 2 American people. 3 Ladies and gentlemen, please join me in 4 welcoming the Attorney General. 5 ATTORNEY GENERAL HOLDER: Thank you and good 6 morning. 7 (Response from audience.) 8 ATTORNEY GENERAL HOLDER: Good morning, folks. 9 (Response from audience.) 10 ATTORNEY GENERAL HOLDER: It's Colorado. I'm 11 out of D.C. You ought to be happy about this. 12 Thank you very much, Secretary Vilsack. And 13 also, thank you to the folks at Colorado State for helping 14 us put this together. This is a very important -- very 15 important workshop. And I want to thank all of you for 16 joining us and welcoming us this morning. 17 I think it's very fitting that we're gathered 18 here today in the Centennial State. Because as much as 19 today's discussion is about cattle, hog, and other 20 livestock industry issues, it's also about our nation's 21 founding ideals; about fairness and about equal 22 opportunity. And above all, it's about better 23 understanding and addressing the challenges that all of 24 you face. 25 Now, for some of you, these challenges have 9 1 never felt more urgent or more difficult to overcome. And 2 I realize this, so does Secretary Vilsack, and so does the 3 President. Our nation is now the world's larger producer 4 of beef and the third-largest producer of pork and pork 5 products. And here in Colorado, the livestock industry is 6 an economic anchor. We know that your communities and 7 counties are, in large part, ag dependent. 8 Now, in this state alone, more than 100,000 9 jobs rely on the agriculture and food industries, and more 10 than -- four in five farms and ranches are family or 11 individually owned. We also know that although beef 12 exports have been rising since the early 1990s, too many 13 farmers and ranchers are fighting tooth and nail simply to 14 make a living. This is a very, very serious issue, and 15 it's a problem that we can only solve by coming together 16 to listen, to learn, to share, and to seek out solutions. 17 And that's why we're here today. 18 The discussion we have gathered to begin 19 reflects a historic partnership between the Department of 20 Justice, the Department of Agriculture, and leaders from 21 across our nation's agricultural industry. It's a 22 partnership for which not only we can better understand 23 the conditions that you face every day -- though that's 24 the first and crucial part of this effort -- but also, and 25 most importantly, so that we can act. 10 1 As Secretary Vilsack mentioned, we kicked off 2 this workshop series nearly six months ago and so far have 3 explored competition issues in the seed, pork, poultry, 4 and dairy industries. Today, of course, we are here in 5 Fort Collins to learn about competition and regulatory 6 issues facing cattle, hog, and other livestock industry 7 sectors. And we've made these workshops a Cabinet-level 8 priority so that we can most effectively and efficiently 9 determine how to ensure a fairer, more competitive 10 marketplace for all of you. 11 Now, we already know that for many producers, 12 consolidation in the meat-packing industry is a top 13 concern -- primary concern. And I want you all to know 14 that the Justice Department is committed to fulfilling its 15 responsibility to take appropriate enforcement action when 16 a merger or other activity threatens to erode competition. 17 For example, when JBS proposed to acquire the 18 National Beef Packing Company, the Justice Department 19 challenged the transaction on the grounds that it would 20 have reduced competition among packers in the sale of 21 boxed beef and for the purchase of feed cattle. As a 22 result of that lawsuit, the parties abandoned the 23 transaction last year. This was an important step, but we 24 realize that it was only a small step. We would like to 25 hear any lingering concerns. We would like to know what 11 1 more we can do. 2 We're also eager to discuss the fact that 3 today many producers and consumers are unsure of whether 4 they're getting a fair shake. Farmers have noticed 5 discrepancies between prices at the grocery store and 6 prices paid to producers for their livestock or for their 7 crops. Secretary Vilsack and I are devoting our next 8 workshop on this very issue in December in Washington, 9 D.C., but we're very eager to air out these concerns today 10 as well. 11 You know, we realize that many of you are 12 concerned more generally about market concentration. Now, 13 let me assure each of you that administration leaders 14 across and beyond the USDA and DOJ understand that having 15 a fair and competitive agricultural marketplace is 16 critical for producers and for consumers alike. At the 17 Justice Department, vigorously and appropriately enforcing 18 our antitrust laws is an essential part of our core 19 mission. Today, it's also a top priority. And that's why 20 the Assistant Attorney General for the Antitrust Division 21 is sitting to my right, Christine Varney. 22 Now, with that said, none of us believes that 23 antitrust enforcement is the solution to every problem. 24 But it is a solution, and it is a part of our larger 25 government-wide commitment to champion the pro-consumer 12 1 principles that will promote competition in the 2 agricultural sector. Now, it is with these principles in 3 mind that Secretary Vilsack and I eager to begin today's 4 discussion. Whether you're here to share your concerns 5 over concentration or consolidation, pricing, or the 6 Packers & Stockyards Act, we are here to listen. I want 7 to emphasize that. We are here to listen. Not only do we 8 welcome your insights and your recommendations, we are 9 relying on them. If past is prologue, your suggestions 10 will be many, and they will be extremely valuable. 11 After our call for your ideas last year, we 12 received thousands -- literally thousands of comments. 13 Already your input has been critical in guiding and in 14 focusing our work. That tremendous response only 15 represents a fraction of the potential that I know still 16 exists for building on this extraordinary example of 17 government and public engagement at its best. 18 Now, ultimately our conversation is about much 19 more than simply last year's trends or this year's 20 challenges. It is about your livelihoods. It is about 21 your families. It is about this region's economy and our 22 centuries-old American way of life. This is essentially 23 about our nation. Your participation this morning gives 24 me great hope about what we can and will accomplish 25 together in the days and weeks ahead. Secretary Vilsack 13 1 and I look forward to hearing from and working with each 2 and every one of you. Thank you. 3 SECRETARY VILSACK: General, thank you very 4 much. To kind of explain the program for this morning, 5 the first thing we're going to do is introduce the 6 panelists in this first panel. And we have a 7 distinguished group of elected officials and appointed 8 officials with us today. That will be followed by a short 9 break. We will return and I will help lead a panel of 10 producers. 11 During the course of the rest of the day, 12 you-all will be given a number of opportunities to simply 13 have your comments heard. We have a process that Colorado 14 State University has assisted us with; randomly selecting 15 the folks who are here. I think you may have a number. 16 Those numbers will be posted, and you'll know when your 17 opportunity to speak to the mike will take place. So what 18 I'll do now is introduce the entire panel, then I'm going 19 to encourage any member of the panel to make any kind of 20 opening comments that they have, then we'll have a few 21 questions and responses. 22 Let me start with Governor Ritter, who is 23 obviously no stranger to those from Colorado. But since 24 we have visitors from all over the country here, Governor, 25 they need to know that you were elected as Colorado's 41st 14 1 governor in 2006, the first Colorado-born governor in more 2 than 35 years, raised on a small farm. 3 From 1987 to 1990, Governor Ritter and First 4 Lady Jeannie Ritter operated a food distribution and 5 nutrition center in Zambia, Africa. He has also served as 6 Denver's District Attorney from 1993 to January of 2005. 7 And I believe folks know here in Colorado that he earned 8 in that position a national reputation as one of the 9 country's most effective and innovative prosecutors. 10 Several of his programs continue to serve both here in 11 Colorado and as national models. 12 Governor, welcome. 13 I want to take this opportunity to welcome to 14 the panel the Honorable Betsy Markey, U.S. Congresswoman, 15 U.S. House of Representatives, who obviously has fans in 16 the audience. 17 Betsy was elected to Congress in 2008 and has 18 respected the people of the Fourth Congressional District 19 since that time. From 2005 to 2007, the Congresswoman 20 served the people of the Fourth District as U.S. Senator 21 Ken Salazar's regional director for the northern to 22 eastern parts of Colorado. Her extensive government 23 experiences date back to 1978 when she was hired by U.S. 24 Congressman Herb Harris to work as a legislative aide for 25 the subcommittee on post office and civil service. The 15 1 U.S. Department of State also recruited the congresswoman 2 in 1984 to develop computer security policies for the 3 newly formed Office of Information Security Systems. 4 She's been involved and engaged in her 5 community as president of the board of directors in the 6 Food Bank of Larimer County. She's also a co-founder of a 7 small business operation as well as a poplar and 8 successful coffee and ice cream shop in Old Town Fort 9 Collins, which all of you need to go to after this event. 10 Congresswoman, thank you for coming today. 11 Let me take this opportunity to acknowledge 12 the Assistant Attorney General that's already been 13 referred to by General Holder. Christine Varney was 14 confirmed as the Assistant Attorney General for the 15 Antitrust Division on April 20th of 2009. Prior to her 16 appointment as Assistant Attorney General, General Varney 17 held leadership positions in both the public and private 18 sectors. From '98 to 2009, she was a partner at Hogan & 19 Hartson, a law office in Washington, D.C., where she 20 served in the dual capacity as a member of the firm's 21 antitrust practice group and headed the international -- 22 excuse me, the Internet practice group. 23 From 1994 to '97, she served as a federal 24 trade commissioner at the Federal Trade Commission and was 25 a leading official on a wide variety of Internet and 16 1 competition issues. Prior to being a commissioner, she 2 served as an assistant to the president and secretary to 3 the Cabinet -- secretary to the Cabinet during the Clinton 4 administration. 5 Christine, welcome. 6 We are also joined by two other attorney 7 generals; the Honorable John Suthers from the state of 8 Colorado. General Suthers was appointed in 2005 as 9 Attorney General of Colorado and later elected in 2006. 10 From 1977 to 1981 he served as deputy and 11 chief deputy district attorney in Colorado Springs. From 12 1979 to '81 he also headed the economic crime division of 13 the DA's office. From 1981 to '88 he served as a 14 litigation partner in the Colorado Springs firm of Sparks 15 Dix, P.C., was later elected to two terms as district 16 attorney for the Fourth Judicial District. At the 17 conclusion of his second term, he returned to private 18 practice as a senior counsel in the Sparks firm in charge 19 of the firm's litigation section. And in 1999, he was 20 appointed by the governor as the executive director of the 21 Colorado Department of Corrections, then by Governor 22 Owens. 23 So, General, welcome. 24 We're also joined by the Honorable Steve 25 Bullock, Attorney General of the state of Montana. 17 1 General Bullock was elected as Montana's 20th attorney 2 general in 2008. He began his career in public service in 3 1996 as chief legal counsel to the Montana state -- 4 secretary of state. He went on to serve four years with 5 the Montana Department of Justice, first as an executive 6 assistant general and later as an acting chief deputy. 7 During this time, he also served as a 8 legislative director coordinating the attorney general's 9 legislative efforts. From 2001 to 2004, he practiced in 10 Washington, D.C., in a private firm. He also served as an 11 adjunct professor at George Washington University. Prior 12 to his election, he was in private practice in Montana. 13 And I think the last panelist that we have 14 today is no stranger to agriculture in Colorado. 15 Commissioner Stulp was named Commissioner of Agriculture 16 by Governor Bill Ritter in 2006; farmer, rancher who has 17 dedicated his life to Colorado agriculture. The 18 commissioner is an active member of the National 19 Association of State Departments of Agriculture. He's 20 also Vice President of the Western Association of State 21 Departments of Agriculture. 22 He's served as a county commissioner. He's 23 appointed -- was appointed to fill the vacancy. He also 24 served on numerous other boards and commissions, including 25 the State Board of Agriculture, the State Wildlife 18 1 Commission, Connect Colorado Technology Committee, the 2 State Land Board, and the Colorado Ag Development 3 Authority and Value-Added Board. I know -- the 4 commissioner and I spent several meetings yesterday, and I 5 learned a great deal about Colorado agriculture; the 6 diversity of it. I can tell you that he is a strong, 7 strong, strong advocate for the farmers and ranchers of 8 this state. 9 Commissioner, thank you for being here. 10 Let me let me invite the Governor, if he wants 11 to, to make a statement. We'll just kind of go in the 12 order in which you-all were introduced. All right. 13 GOVERNOR RITTER: Thank you, Secretary. And I 14 want to, first of all, actually thank and compliment the 15 members of the administration for taking this hearing sort 16 of to, you know, a place like Colorado where there are a 17 lot of folks who have come from other states. It's a 18 pretty rare thing to be in the presence of the Secretary 19 of Agriculture and the Attorney General -- the Assistant 20 Attorney General is here as well -- and just have an 21 opportunity, really, to speak your mind about this issue. 22 And so we very much are honored here in Colorado by the 23 fact that you've decided to come west for this hearing. 24 Secondly, I would say -- I want to tell you a 25 little bit about CSU. It is my alma mater. It's the 19 1 place I graduated from; got my undergraduate degree. I 2 think, actually, John Stulp has me beat. He put five kids 3 through CSU; I only put one through. But he came back -- 4 he just started his master's program. 5 This is a fantastic university for a lot of 6 different reasons. But from the agricultural science 7 prospective, it is really one of the leading institutions 8 in research for agricultural and animal science, such as 9 genetics, meat fabrication, and the humane treatment of 10 livestock, are all areas of study. That's just a few. 11 That doesn't exhaust the full thing. But that's, in part, 12 why we are here at this university is because it has 13 played this key role in the west in terms of the kinds of 14 research that goes on and really watching livestock as an 15 industry. 16 You mentioned in your comments I was raised on 17 a farm. I think it's important to keep in mind a couple 18 of things. And that is that this conversation is, in 19 part, about a market economy for cattle, a market economy 20 for livestock and hogs. And it's important for us to 21 ensure, you know, that we've got the right set of rules, 22 regulations in place. But there's an intangible value to 23 agricultural -- agricultural activity that I experienced 24 growing up on a farm. But I think a lot of people in this 25 room understand when I talk about it. It's the fabric of 20 1 who we are in Colorado. 2 Agriculture is the third biggest industry that 3 we have in this state. We have, as you said, a very 4 diverse agricultural economy. But there's a lot about 5 farmers and ranchers that the rest of us who don't 6 currently do it can learn lessons from. I have the 7 advantage of still knowing a lot of people in the ranching 8 world, the farming world. And a couple of times a year, I 9 still have the benefit of either branding with some 10 friends of mine who have a cow-calf operation south of 11 Walden or moving cattle, you know, from their place up to 12 BLM land. It's nice to be on the back of a horse and 13 moving cattle. But you have an opportunity to speak to 14 people who do it every day. 15 And this is really what my family was about 16 when I was a kid. But now, as a person who's kind of been 17 away from that, it is a fantastic opportunity to remember 18 that there are a set of values that are a part of ranching 19 and farming that are intrinsically what I would say are 20 American values. And they have to do with hard work. 21 They have to do with dedication, a loyalty to the land, a 22 loyalty, you know, to the -- to the industry; and, really, 23 an attitude of how we pick each other up is an important 24 part of it as well. 25 The kinds of things that we need to do when 21 1 our neighbors are in distress is still something that 2 farmers and ranchers understand, I think, better than 3 almost anybody else in America. And that's -- there's an 4 intangible there. And that's why it's important to do 5 what we can to ensure as wide a group as possible can 6 participate in the industry. 7 And I know there's different feelings in this 8 room about the regulations -- the draft regulations, and 9 that's why you're here. But I can tell you that it is 10 important, from my perspective as a Colorado governor, as 11 a person who kind of came off a farm and still has a lot 12 of friends and people I respect that are in ranching and 13 farming that -- I think what farmers and ranchers want is 14 a fair shake. They want to understand that the rules are 15 there and that they work for them. They're not a group of 16 people who want to be over-regulated. And so it's a bit 17 of a high-wire act to have regulations in place. 18 They want the rules enforced. They want some 19 certainty in it. But at the end of the day -- at the end 20 of the day, all they really want is that it's fair and 21 that, you know, if they are looking at a piece of beef in 22 a grocery store that costs a certain amount of money and 23 they were really -- it was their daily hard work that led 24 to that beef getting to the market, they want to ensure 25 that they're getting their fair shake. And I think that's 22 1 the most important point to take away. 2 I, again, finish the way I started by saying 3 this is a very important industry to this state. It's 4 important to the West. It's important to the United 5 States. And we very much are honored by the fact that 6 you're taking this time to handle such an important issue 7 in really a very big town-hall sort of way. So thank you 8 both. 9 SECRETARY VILSACK: Thank you, Governor. 10 Congresswoman? 11 MS. MARKEY: Thank you very much, 12 Mr. Secretary, General Holder, and Governor for holding 13 this hearing here. It's important that we get outside of 14 Washington and get into the communities across this 15 country to really hear firsthand on what government 16 regulations -- how they impact individuals. And so I'm 17 particularly happy again that you chose Colorado State 18 University, our state's land-grant university, and also 19 the Fourth Congressional District of Colorado. We are one 20 of the largest agricultural-producing districts in the 21 entire country. So it's appropriate that you hold this 22 hearing -- about competition in the livestock industry 23 here at CSU. 24 I have been hearing -- I'm a member of the 25 House Agricultural Committee and we have actually been 23 1 holding field hearings around the country as well, talking 2 about the 2012 Farm Bill, and this issue has come up as 3 well. I've been hearing from constituents on both sides 4 of the issue, and I look forward to a productive workshop 5 and learning more. We're really here to learn and to 6 listen. But basically, the debate has resolved -- 7 revolved around the impact of proposed changes on farm 8 prices, on consumers, on global competitiveness, and on 9 the traditional U.S. system of independent farms and 10 ranches. And inherent in these questions is the proper 11 role of government in monitoring and regulating 12 agricultural markets. 13 Now, some groups contend that the federal 14 government has not enforced existing laws designed to 15 prevent anticompetitive behavior and they say laws should 16 be strengthened in order to address today's market 17 realities. But others assert that present competition and 18 antitrust policies remain adequate and effective. The 19 livestock industry, as we all know, is complicated and 20 it's individualized. And ultimately, stakeholders need to 21 be the ones with the reigns in their hands. 22 For example, many producers have worked years, 23 even generations, perfecting herds to capitalize on 24 value-added opportunities, and we want to make sure that 25 they don't lose that little advantage that they have 24 1 worked so many years to perfect. I supported an extension 2 of the comment period of the GIPSA rule until November 3 22nd so that farmers, ranchers, and producers can 4 understand the effect this proposed rule would have on 5 farmer -- family ranching, feeding, and beef-processing 6 businesses. I hope that this workshop will shed more 7 light on how the GIPSA rule will affect the livestock 8 industry and the constituents in my district. And again, 9 I thank you for being here today. 10 SECRETARY VILSACK: Thank you. Assistant 11 Attorney General Varney, I don't know if you want to add 12 to the general's comments or not. 13 MS. VARNEY: Very little, Secretary. 14 Once again, I want to thank everyone for 15 welcoming us here. I have a little bit of a Colorado 16 connection. One of my children went to college in this 17 state; not here, but down in the Springs. And I get back 18 here every time I can. I've got another one; I'm going to 19 try to convince him to look here. We like coming out here 20 as much as we can. 21 And I just wanted to say that we're delighted 22 to be here. This is a historic undertaking. Never before 23 has the Department of Justice and the Department of 24 Agriculture sat together to take a look at the 25 intersection of competition and agriculture policy in the 25 1 United States. And American's farmers put food on the 2 table for all of us, and there's something wrong in the 3 system when the farmers can't make a living, when they 4 cannot pass that farm down to their children. 5 We all need to approach this with an open 6 mind. We all have a part in the solution. And we don't 7 have an agenda. I don't have an outcome. I don't know 8 what the answer is. But I sure know there's a problem, 9 and I'm here to try to understand what it is we can do -- 10 what I can do, as the Assistant Attorney General, for 11 antitrust under the leadership of General Holder to help 12 fix the problem, to keep American agriculture as vibrant 13 as it's been for the last two centuries. So I look 14 forward to hearing from everybody today. 15 SECRETARY VILSACK: Thank you. 16 General? 17 MR. SUTHERS: Secretary Vilsack, General 18 Holder, thank you so much for honoring us with your 19 presence here and choosing the state of Colorado as the 20 venue for this meeting. And I think it's wonderful that 21 we've chosen a venue like Colorado State University, which 22 is a great university that's so integral to agriculture in 23 this state. I, like Governor Ritter, am a native of 24 Colorado, and I come to the table with two basic 25 propositions. And it's the -- what guides the view of my 26 1 office towards agriculture. 2 Agriculture is a huge part of the Colorado 3 economy -- we've reflected that -- and agricultural 4 competition is critical to the welfare of our state and 5 nation. I don't have a large antitrust unit in my office, 6 but it's a unit with a great deal of expertise. And we 7 are spending an awful lot of time examining the issues of 8 competition in the agricultural sector, particularly the 9 issues brought about by the tremendous consolidation 10 that's taken place there. 11 We're here today to learn more. The members 12 of my office in the antitrust unit will be present at all 13 these meetings, and we're committed to monitoring -- I'll 14 tell you a little bit, I think, in a later point about 15 some actions that we've taken -- but we're committed to 16 preserving competition in the agricultural community for 17 the best interest of all Coloradans. 18 SECRETARY VILSACK: General, thank you. 19 General Bullock? 20 MR. BULLOCK: Thanks, Secretary Vilsack. 21 My family and I spent the weekend outside the 22 town of Geyser, and that's a small ranching community in 23 North Central Montana. We were there principally for a 24 family wedding. But along with that, we celebrated the 25 100th-year anniversary of that ranch. And I guess what I 27 1 fear is that there will be fewer and fewer of those 2 centennial celebrations across my state. Over the last 30 3 years, Montana's lost on average over 150 ranches each 4 year. The Secretary said what the average age of a 5 rancher is across the country. In Montana, it's even 6 older. Our average age is 58 years. 7 It's now only about half of our ranchers that 8 rely on their ranching and farming productions as their 9 primary source of income. And 20 of Montana's 56 counties 10 are experiencing long-term population decline. Each one 11 of those waning counties is heavily dependent on 12 agricultural. And I think that change in the face of 13 rural America is likely one of the reasons why many of you 14 traveled here today. And we each have our own definitions 15 of what would make this and those other workshops a 16 success. Given the size of the crowd, candidly, this 17 morning I decided just to find a parking spot would 18 probably be a good success, from my perspective. 19 But actually, my expectations are a lot higher 20 than that, and I imagine that everybody in the audience's 21 too. The fact that we're here today together, it signals 22 a significant break from the past. I'm cautiously 23 optimistic it demonstrates not only a renewed federal 24 commitment to ensuring we have a vibrant agricultural 25 sector but also a commitment to greater state and federal 28 1 coordination. 2 Nonetheless, I think that we also have to 3 acknowledge that bringing this many producers and ag 4 interests together in one room is much like organizing a 5 firing squad in a circle. Yet there are core values that 6 we share. It's the statistics I outlined a couple of 7 moments ago that illustrate we ought to be able to agree 8 that if we value keeping the family in family farming and 9 ranching, what we're doing hasn't been working. 10 I'm a strong believer that you can't regulate 11 away every problem. But I do believe that federal and 12 state governments have a role to play here and that in 13 decades past, governments may have lost sight of that 14 rule. And even if we're a bit past the time where we can 15 realistically expect to give teeth to the Packers & 16 Stockyards Act, perhaps we could still get that 17 89-year-old law a new set of dentures. And I think we 18 should look at that. 19 Briefly, I applaud GIPSA for taking those 20 steps to make sure that the issues that we're addressing 21 throughout the day every day -- contracting, 22 concentration, marketing arrangements, and transparency -- 23 are front and center in the proposed rules. At the end of 24 the day, I think all anybody wants is a free market; 25 willing buyers and sellers receiving the information they 29 1 need to make a private deal on a relatively equal footing. 2 I support, then, crafting some workable rule 3 that will meet those standards. And I think that we need 4 to think about some of those things, including first 5 promoting transparency by giving producers the opportunity 6 to learn the different types of marketing arrangements 7 being offered, the producer's more apt to strike a deal 8 that reflects the market, not the unequal bargaining power 9 brought about by incomplete information. And, second, 10 clarifying what conduct is and isn't acceptable. 11 It's interesting. Because as a state 12 regulator, when I enforce my state's unfair or deceptive 13 practices act on behalf of consumers, I don't have to 14 demonstrate that that deceptive act injured every consumer 15 in the state. I only have to demonstrate that one 16 consumer. I think what we do owe our -- we owe our 17 producers at least as much as we owe the individual 18 consumers of our respective states and a fair reading of 19 202(a) shouldn't require the rancher to demonstrate harm 20 to everyone. 21 Third, I think that with giving those 22 dentures, we need to clarify what are undue and 23 unreasonable preferences and advantages. Big doesn't mean 24 bad, and we never should suggest that it does. But by the 25 same token, absent justification, we need to make sure 30 1 that the packers aren't unfairly discounted to our smaller 2 and mid-sized producers that can produce the same quality 3 of livestock and do meet the same conditions set by a 4 contract. 5 Now, I know that there have been a lot of 6 concerns raised about the proposed rule that we'll be 7 talking about throughout the day. And I guess being from 8 the big sky country, I'm not quite willing to concede that 9 the sky has fallen quite yet. I'm hoping that the 10 rule-making process will allow the opportunity for GIPSA 11 to separate the wheat from the chaff or, more 12 appropriately here, to steer clear from any bull that 13 might be out there. 14 But I do hope to hear from Montana ranchers as 15 we work on crafting our state's and potentially other 16 states' responses in these GIPSA comments. And if a small 17 packer has real concerns, we need to hear that. And if 18 the producers -- if there's something to this notion the 19 producers get injured by these rules or that more 20 consolidation could occur, we need to hear that also. And 21 the extended comment period actually provides that 22 opportunity to get that clarity. 23 Because if we return to those shared values 24 that -- of the ranch being able to be passed onto the next 25 generation, I hope that we can at least agree that the 31 1 status quo ain't working and doing nothing is no longer an 2 option. I think we need meaningful enforcement of laws 3 that were set up a century ago to make sure that folks get 4 a fair shake. And in the meantime, it's also important to 5 recognize Montana producers have been innovative. You've 6 been employing technology by working together, by even 7 expanding niche and value-added beef markets. As we work 8 to promote transparency and competitiveness in the market, 9 as regulators, we must not make -- we must make sure not 10 to stifle those innovations. 11 Lately, and in closing, I guess I've been 12 saying that solutions to the competition issues that we 13 face can be found in bullwhips, BlackBerries, and some 14 degree of bureaucracy. What I mean to say is this: If 15 we, as a nation, truly value a vibrant ag sector to our 16 economy, we need to draw on the strengths and expertise of 17 the on-the-ground producers. We need to draw on 18 cutting-edge technology and ranch innovations and 19 common-sense government enforcement regulation. Each is 20 indispensable. 21 There are core values each of us share. 22 Republicans or Democrats, liberal or conservative, stock 23 growers or cattlemen, R-CALF or NCBA. I've never, never 24 ever heard a rancher say they didn't want their children 25 to have a viable operation to continue the family business 32 1 if they so choose. So if nothing else, I hope that as we 2 go forward, ensuring that family farming ranching is 3 viable for today and tomorrow's producers should be that 4 shared focal point as we move forward. Thanks so much. 5 SECRETARY VILSACK: Thanks, General. 6 Commissioner? 7 MR. STULP: Mr. Secretary and Mr. Attorney 8 General, thank you very much for coming to Colorado. This 9 is a very appropriate place to conduct this sort of a 10 hearing, here at Colorado State University, well-known for 11 their land-grant contribution to the livestock industry 12 and innovators in so many areas. 13 As I look across this audience, I recognize a 14 number of friends and neighbors. I recognize leadership 15 from the Colorado livestock industry. And you're going to 16 be hearing from them later today. And I think it's 17 important to point out they're well-respected in their 18 particular areas of interest and passion. 19 We are home in Colorado to some of the largest 20 livestock operations, some of the largest packing 21 operations, in the world. At the same time, we have some 22 of the smallest operations that are using the Internet and 23 other marketing tools to their advantage. And we're 24 seeing a great interest in our farmers markets and our 25 direct marketing from the farm to the table in the 33 1 different homes. And so we have a greet diversity of 2 interests here in Colorado. You're going to hear a lot of 3 that diversity and legitimate differences of opinion 4 today. 5 And so, once again, thank you for coming to 6 Colorado. I think you'll hear great testimony today. 7 SECRETARY VILSACK: Commissioner, thanks very 8 much. 9 We're going to have about a half an hour for a 10 few questions. And so, General, I'm going to start it off 11 with you, if I can. I think it would be helpful for the 12 audience to have a basic understanding of how you see and 13 how you foresee the role of the Department of Justice in 14 responding to concerns that folks may express about 15 transparency, about competition and concentration. 16 GENERAL HOLDER: Okay. I think that's 17 actually a very good question. Unlike the Department of 18 Agriculture, the Justice Department is not an agricultural 19 regulator. That's not what we do as our primary function. 20 We have a more narrow but, I think, important role. And 21 that is that we enforce the antitrust laws and we are a 22 voice for competition advocacy. We are trying to make 23 sure that things are done in a -- in a fair way. 24 The antitrust laws prohibit conduct that 25 stifle competition. That's what we focus on. We want to 34 1 make sure that competition is not stifled. That's what 2 Christine lives and breathes. We want to take aggressive 3 action against conduct that violates those antitrust laws. 4 We think that this will result in better prices for 5 producers that are selling their livestock and also for 6 consumers at the retail level; at their grocery shelf. 7 Our enforcement efforts include a variety of 8 things. We challenge mergers. I think I talked about 9 this 2008 challenge that we made to JBS's proposed 10 acquisition of National Beef Packing Company. We thought 11 that acquisition would have lessened competition among 12 packers for the purchase of fed cattle and in the 13 production and the sale of USDA-graded box beef. Again, 14 something that we thought would have stifled competition, 15 so we intervened. 16 There are instances -- rare instances where 17 the Justice Department will bring criminal enforcement 18 actions. These are not as -- not as common. For example, 19 we have brought criminal cases against Archer Daniels 20 Midland for fixing the prices of livestock and poultry 21 feed additive and against Hoffman-Laroche for fixing the 22 price of vitamins used as animal feed additives. Again, 23 that's not something that is as common as what we do on 24 the civil side. But I think it is a reflection of the 25 tools that the Justice Department has and is willing to 35 1 use where it is appropriate. 2 The antitrust laws are not a cure-all for the 3 problems that face ranchers and farmers. We don't hold 4 ourselves out in that way. But we think that in 5 conjunction with other laws and other regulations that are 6 more specifically designed to protect those rights of 7 individual farmers and advance their interest, that in 8 combination with those other laws and working with our 9 partners at the Department of Agriculture, that we can be 10 very effective. We can be most effective in protecting 11 those rights. 12 The Department, at base, acts as an advocate 13 for fair competition. I think, as somebody said, we don't 14 view big as necessarily bad. That is not our view. From 15 our perspective, fairness is the key to make sure that 16 there is a level playing field for competitors, whatever 17 their size. We want to try to encourage more competition 18 and transparency in the agricultural sector. And so that 19 is a general way in which I think the Department of 20 Justice sees its role in this very important sector, a 21 sector that's important not only for our exports and our 22 economy, but also for the American way of life. 23 Now, I'm unlike everybody else, it seems. I 24 was born and raised in New York City. And don't hold that 25 against me. But there is a reality to the fact that from 36 1 the earliest parts of this nation, a vital agricultural 2 sector and the values that are associated with it have 3 defined this nation and have really made this nation 4 different from so many others. And even as a New York 5 City guy, I get that and understand that and like to think 6 that in my time at the Department of Justice with my 7 partner, Christine Varney, that we will do our part to 8 ensure that that part of our nation, that part of our 9 culture remains viable. 10 SECRETARY VILSACK: General, you mentioned the 11 issue of competitiveness. And I want to turn to you, 12 Congressman (sic) Markey -- Congresswoman Markey, to talk 13 a little bit about this. You're out there, you're 14 campaigning, you're listening to folks. What are the 15 farmers and ranchers that you're meeting telling you about 16 the competitiveness and the openness and the transparency 17 of the market? What are you hearing about access to 18 markets? 19 MS. MARKEY: Well, I think one of the things 20 that we're hearing is uncertainty with the proposed GIPSA 21 rule with, you know, how far will it go in making sure 22 that it's going to benefit both consumers and producers 23 and that concern that any future government intervention 24 maintains the competitiveness in this marketplace and that 25 it's not a future haven for attorneys and potential 37 1 lawsuits. So again, I greatly appreciate the fact that we 2 need to move slower on this, that we extend the comment 3 period to make sure that what we're doing is right. 4 But it's -- as you know, it's a complicated 5 issue. It's a diverse issue with some groups feeling 6 that -- again, that the laws haven't been -- there are 7 existing laws that we should keep and that should be 8 strengthened and enforced and others that say that, you 9 know, the current laws are adequate and that structural 10 changes are just an outgrowth of what's going on currently 11 in the marketplace. But I think, in the end, producers 12 want to make sure as well that they are getting a fair 13 price for their product and that individual farmers, 14 ranchers, are making sure that they can keep their 15 competitive advantage in the marketplace. 16 So again, it's a delicate issue of balancing 17 how much enforcement should take place and, again, what's 18 the proper role of government. 19 SECRETARY VILSACK: Governor Ritter, I want to 20 ask you a question. You actually come to this from a 21 number of directions. You mentioned your early experience 22 living on a farm. You've been a prosecutor and now a 23 governor. I'm interested in your thoughts in terms of 24 what you believe we need to be looking at, in your view, 25 to make sure that those livestock producers, regardless of 38 1 size, are able to actually have a level of independence 2 over their operations and actually be able to continue the 3 value system that you talked so eloquently about. 4 GOVERNOR RITTER: Well, I do think that the 5 market, at the end of the day, is going to dictate that. 6 So much of what we've heard about with consolidation has 7 to do with the market economy that just doesn't support 8 small producers remaining in business. 9 If you look at our 20-year history of 10 agriculture generally -- this is farming and ranching -- I 11 said it was the third biggest industry, but it survives at 12 the thinnest margin; so a 20-year history, it's 2 to 3 13 percent profit margins over that time if you average it 14 out. You know this. You go through losses and there's 15 some really good years and then some tough years. That's 16 commodity marketing. But anticompetition or 17 anticompetitive practices within the market economy 18 absolutely could harm them. You all know that. And 19 that's why I think the Department of Justice is here and 20 is intent upon looking at the impact of that. 21 We want a good price for the consumer. We 22 want, you know, meat and pork to be placed on the plate at 23 the home in a way that is affordable. And yet, at the 24 same time, we want to make sure that we're doing all we 25 can to regulate the market; not too much regulation -- not 39 1 to heavy a regulation, but regulate it so that you take 2 out the competitive practices. 3 What I would say is one of the focus -- one of 4 the things we must focus on -- I think this is as a 5 country -- is the ability to expand the access to export 6 markets. And that's, I think, a reality that we should, 7 as a country, focus on. Because consumption in the United 8 States is likely to dwindle over time as a percentage 9 of -- you know, of all food consumed, beef and pork are 10 likely to dwindle. But you look at emerging economies 11 around the world -- China, India, places like that -- 12 there's actually greater beef consumption that's happening 13 in those places. 14 And for, you know, a variety of reasons, we 15 can take advantage of those expanding markets and then, in 16 a sense and maybe an indirect way, help that small 17 producer. But I -- I do think -- you know, it's a 18 difficult -- it's a difficult place. Because we value the 19 family farm, we value the family ranch, and yet there's a 20 lot about that that's made it more and more difficult. 21 People are staying in there sometimes at a financial loss 22 to them and to their family just because they believe in 23 it. 24 And so it won't all be done by regulation. It 25 won't all be done by trying to do what you can to take out 40 1 anticompetitive practices in those parts of the industry 2 that are heavily consolidated. But it can help. It can 3 help. And I don't think the margin has to get a whole lot 4 better than 2 or 3 percent to be able to reverse the 5 trends that we've seen in the consolidation and the 6 lessening of family farming. So I think the number one 7 thing is expanding access to markets. 8 And finally, I'd say this issue about ensuring 9 that the regulations allow for direct marketing and in a 10 way allowing the rancher to directly market to the 11 consumer and take, in some respects, some of the retail 12 middleman out of that, so not have -- don't regulate it so 13 heavily that it's impossible for that, that's a great 14 benefit. That's a great benefit to a variety of the small 15 producers that John Stulp referred to, particularly the 16 niche producers that have something that they can offer 17 that really distinguishes them but may get lost if they go 18 through the entire sort of -- if they have to go through 19 the entire process from wholesale to retail, there's a lot 20 they can get lost in that. Thank you. 21 SECRETARY VILSACK: Well, I can't help but 22 comment about exports. This will be the second-best year 23 in exports in ag in history since we've been keeping 24 records. We anticipate about $105 billion of ag exports 25 led, in part, by the livestock industry. And we'll have 41 1 about a $28 billion surplus, which is one of the few 2 places in our economy that actually has a trade surplus. 3 And every billion dollars of ag trade also 4 generates somewhere between 8 and 9,000 jobs. I see a lot 5 of folks from the UFCW here today who are working in those 6 processing facilities. And that means employment 7 opportunities as well; so you're absolutely correct. And 8 we are focused on increasing exports. The president has 9 charged us with, as economy and as an administration, 10 doubling exports over the course of the next several 11 years. 12 But I wanted to direct this next question to 13 the two state attorney generals who are here. You-all 14 have offices that obviously receive phone calls and 15 complaints and letters. I'm interested in knowing whether 16 or not you've seen an increase or -- of concerns as the 17 economy tightens and as farm families have difficulty. 18 And if so, what may be causing that and what protections 19 can you provide at the state level to compliment what can 20 be done at the federal level? 21 MR. SUTHERS: Well, like the United States 22 Department of Justice, the Colorado Department of Law is 23 not an agricultural regulator, per se. Our jurisdiction 24 comes from the antitrust laws of Colorado and also the 25 deceptive trade practice laws of Colorado. And I have to 42 1 tell you that over the last several years, virtually all 2 the concerns that have been expressed to our office about 3 the agricultural industry in Colorado and throughout the 4 United States have revolved around consolidation. 5 Particularly, in the last several years, 6 there's been a lot of concern expressed to our office by 7 agricultural interests in Colorado about consolidation 8 among packers. And it was our analysis of their concerns 9 and discussions with the United States Department of 10 Justice that caused us to join with 12 other 11 cattle-producing states and the United States Department 12 of Justice to oppose the merger of JBS Swift and National 13 Beef. 14 Just to be very precise about what our 15 analysis of -- of its impact on the marketplace, in the 16 High Plains geographic market -- the beef belt, we call 17 it; Colorado, Western Iowa, Kansas, Nebraska, Oklahoma, 18 and Texas -- we believe that that merger would have put 19 over 85 percent of packer capacity in the hands of the 20 three survivors: JBS, Tyson, and Cargill. And I think 21 every -- the cattle-producing states and DOJ jointly 22 concluded that this would have significant anticompetitive 23 effects at both ends of the chain. 24 Such consolidation would force producers, 25 ranchers, and feedlots to set cattle for lower prices and, 43 1 of course, wouldn't necessarily pass along those savings 2 to consumers. We believe that that sort of consolidation 3 allows firms to charge higher prices to grocers and 4 food-service companies. So not only the producer is 5 impacted, but the grocery store consumer is also impacted. 6 At the state level, we can use our existing 7 laws to protect livestock producers from anticompetitive 8 behavior and we'll certainly continue to very carefully 9 monitor that. We have the Colorado Antitrust Act of 1992 10 that forbids monopolization and attempts to monopolize bid 11 rigging and mergers that lessen competition. However, I 12 want to make sure that folks in Colorado here understand a 13 very important aspect of our Colorado antitrust law. Our 14 office cannot challenge any merger or acquisition that has 15 been reviewed by any federal agency under Section 7(a) of 16 the Clayton Act where the federal agency declined to 17 challenge the merger. That was put into Colorado law in 18 1992. 19 What that indicates to us is that there's a 20 significant premium on communication between the state and 21 federal governments. And we make sure that we convey to 22 you fully the input we have from our agricultural 23 community about concerns about consolidation and things 24 like that. Because the bottom line is if you decline to 25 intervene, we're precluded from intervening. So it's 44 1 very, very important that we communicate along those 2 lines. 3 We're aware of all the issues surrounding the 4 GIPSA proposed rules. The bottom line, it seems to me, is 5 that what we all have to be working for is to level the 6 playing field without over-regulating in a way that 7 disrupts the marketplace. And that's a balancing act, and 8 we're going to very carefully monitor the conversations 9 today and all that takes place to hope that we can assist 10 in our comments to the Department of Agriculture and the 11 Department of Justice in reaching that balance where we 12 have a more level playing field and don't interfere with 13 the marketplace by too much regulation. 14 MR. BULLOCK: The same is largely true -- one 15 of the nice things about AGs -- Attorney General Suthers 16 and I -- is that we're a lot closer to the grounds. We 17 hears these concerns in our churches, in our grocery 18 stores, when we're picking up our kids from school. 19 Interestingly, though -- and we both do a lot 20 of work on consumer protection issues -- if farmers and 21 ranchers were like senior citizens, we'd be a lot better 22 off inasmuch as that when they have concerns, they'll be 23 calling us. Farmers and ranchers, I think, are so used to 24 kind of going it on their own, that they're not 25 necessarily picking up their phone to some government guy 45 1 in the capital city. I think, though, that there is a lot 2 that can be done. General Suthers alluded to -- actually, 3 both of them did -- the calling off of JBS Swift. I mean, 4 that wasn't a change of heart. That was when USDOJ and 16 5 states came together. 6 Another thing that really heartens me, I 7 guess, is that we've seen a lot more in a lot of areas, 8 the federal government -- and under your leadership, 9 General Holder -- working together with the states, 10 realizing that we're equal partners in a lot of this. And 11 that crosses from financial crimes to straight crime to 12 fraud. I'm working a lot closer with my U.S. Attorney 13 than any of my predecessors ever did. 14 This is an area, especially for our ag states, 15 where we have to maintain that same sort of state and 16 federal cooperation. Because we will hear about what's 17 going on in Washington. They'll look to us. And the more 18 that we can work together, I think, the more apt -- I 19 mean, it is a real exciting time. Now we just have to 20 make sure that we channel that excitement in constructive 21 ways for the ag community. 22 SECRETARY VILSACK: Commissioner, I want to 23 talk to you for just a second. I -- you know, speaking of 24 people that are sort of on the ground level on all this, I 25 come from a state that is fairly significant in hog 46 1 production. And I know that when I was governor, I would 2 hear frequently concerns about how open the market really 3 was when spot market prices were basically so limited 4 and -- but they had such a great impact on what contracts 5 would generate. 6 I'm interested to know whether or not you see 7 the same kind of activity going on or the same kind of 8 trend going on in the cattle industry in your state or 9 what your thoughts are about the spot market. How do we 10 make sure that there's sufficient integrity as the amount 11 of that spot market shrinks? 12 MR. STULP: Mr. Secretary, as I mentioned 13 earlier, as I visit with a broad spectrum of agriculture 14 producers in this state, I hear a number of somewhat 15 conflicting issues from time to time. I've always heard 16 that if you get three farmers in a coffee shop, you'll get 17 four or five opinions sometimes. 18 You know, as we look -- I'm a wheat farmer and 19 a cow-calf producer. As I look back over the years, I've 20 had the opportunity to market my calves right off the 21 cows. I can market them as I precondition them. I can 22 take them onto yearlings. I can -- I have the opportunity 23 to finish them in our own lot, which I rarely do because 24 it's more efficient to go to commercial lots in the area. 25 And then I can partner with them or I can retain ownership 47 1 and market them eventually as fat animals. So I've been 2 involved in all aspects of it. 3 And that -- it's important that we have as 4 many opportunities for marketing at whatever point in the 5 life cycle of livestock that these producers want to take 6 advantage of the market. We all have our opinions on when 7 we can do the best profitably, so it's important to have 8 some transparency so we know what our options are. And if 9 we don't know we have an option with a packer or with a 10 retailer, it limits the opportunities that people have. 11 And we've seen this change -- and we mentioned 12 earlier -- of people starting to go it alone in -- 13 sometimes in the form of a co-op or marketing their own 14 animals. We have several people in the western slope that 15 contract their beef production through the Internet. And 16 they've retained -- they brand it with their own name. 17 They go through a USDA-approved slaughter plant and -- but 18 they retain ownership. They retain their identity. And 19 I'm not sure that everybody can do that. But that's an 20 opportunity that's important. 21 And as the Governor and others have mentioned, 22 that opportunity is driven by other markets if there's 23 competition in the markets. And we see, as you mentioned, 24 the export market as being very important to the meat 25 market. Colorado ranks in the top three or four, 48 1 depending on what type of meat we're exporting. 2 When the Governor went to Japan a couple of 3 years ago, we found out that the number-one product from 4 Colorado to Japan was beef; about 24 percent of what they 5 buy from our state alone. And so it's very important that 6 we expand the global markets. China alone -- we're not 7 allowed to go in there at this point. But with the 1.3 8 billion people, if they just ate an ounce a day, we'd 9 really have a market that we couldn't satisfy. 10 We have other political barriers out there, 11 and we appreciate what this administration has been doing 12 with the export initiative, what USDA has been trying to 13 do with the ag trade offices. But as we open up global 14 markets, I think it also opens up domestic markets too. 15 And it -- hopefully it raises the overall value of beef 16 and meat products to the producers at whatever level they 17 decide to market. Because we can't all market into the 18 same market and get a good profit. 19 SECRETARY VILSACK: Christine, I want to ask 20 you just a real quick question just to give people a sense 21 of what the process is in your office. You know, as you 22 hear about information that comes to your office that 23 might suggest that there's a competitive issue -- what's 24 the analysis, what happens, how does it get handled -- so 25 folks have a sense of the factors you consider? 49 1 MS. VARNEY: Sure. Well, on a merger, I think 2 the first thing we do is we call the state AGs' offices. 3 Because they have the expertise on the ground and we loop 4 them in depending on where the merger is taking place. 5 And a good example that everybody referred to was JBS. 6 You know, Secretary, we're -- we have targeted 7 tools in the Antitrust Division. So we have the Sherman 8 Act and we have the Clayton Act which prescribe what we 9 can do when there is a merger that substantially lessens 10 competition. So we look at consolidation and we try to 11 determine what's the -- what's the consequence of the 12 proposed consolidation on the competitive marketplace. We 13 have absolutely committed to a robust enforcement of the 14 antitrust laws. 15 So when we see a proposed merger that we 16 believe will meet the criteria established by the courts 17 and the law that it will substantially lessen competition, 18 we will challenge the merger. It takes awhile. It's a 19 very fact-specific undertaking. We have to get a lot of 20 testimony. We have to do a lot of economic analysis. 21 You know, the Department of Justice employs, I 22 think, the second- or third-largest number of economists 23 in the United States government, and they're in the 24 Antitrust Division. We have a very strong ag economic 25 section where we go through a lot of the activity in the 50 1 sector. We consult very closely with the USDA whenever we 2 see a merger, whether it be in livestock, poultry, grain; 3 across the board. 4 We then -- we have to go to court. We can't 5 block a merger on our own. A judge has to agree with us. 6 Now, in the past -- when we see a merger that we believe 7 is anticompetitive, many times the parties will simply 8 abandon the merger; they won't go forward. Other times, 9 we have to go to court and litigate. And we put on a hell 10 of a case. And, you know, judges don't always agree with 11 us. But we'll go to the mats and we'll go the mats with 12 our partners in the states to try to prevent 13 anticompetitive mergers. 14 That being said, there are mergers that 15 provide a lot of efficiency, that increase competition in 16 the marketplace. And we try to distinguish carefully 17 those mergers that are procompetitive and move quickly to 18 clear those mergers through. Our doors are open. Our 19 phones are open. I think everybody at both the USDA and 20 the state AGs know how to get ahold of us. 21 When there is a merger, we want to hear your 22 views. Our friends from the unions come in often to tell 23 us how they see the merger impacting what they're doing. 24 Your trade associations are always there. Every time 25 there's a merger in an industry, I hear from the trade 51 1 associations. The challenge there is there's often a 2 diversity of opinion within the associations as to how a 3 merger might impact its members. 4 So we try to sort through all the information 5 we get to get to the facts and then make a decision 6 accordingly. 7 SECRETARY VILSACK: We have a few more 8 minutes. And, you know, I was struck by Attorney General 9 Bullock's comment about if farmers were more like senior 10 citizens. The reality is that they're getting very close 11 to that. 12 And that raises, I think, a fundamental 13 question that I think is important to every single person 14 in this audience, regardless of where they come out on 15 competition or GIPSA rules or anything of that sort. And 16 that is: How is it that we're going to get young people 17 into this business and keep young people in this business? 18 We cannot continue to see the trends that we've seen in 19 the aging population within our farm families. You cannot 20 have the percentage increase in farmers over 75 and a 21 decrease in farmers under 25. 22 So what I'd like to do is just very quickly go 23 right down the -- right down the line. Commissioner, I'm 24 going to start with you and just simply ask you, you know, 25 what do we have to do? Are you satisfied that the current 52 1 market structures and systems and trends will allow young 2 people to get into this business? And if not, what's one 3 suggestion that you would give to us as to how we might be 4 able to improve opportunities for young people? 5 MR. STULP: As you mentioned, the statistics 6 don't bear out that young people are returning. And to 7 attract young people back, you have to have a variety of 8 things. You have to have the opportunity of 9 profitability, is the number one thing, in order to 10 attract young people back. 11 We also need the infrastructure of communities 12 that have viable hospitals and good education 13 opportunities for our young people, whether it's community 14 colleges or -- or just a local high school is important. 15 So I think profitability, it starts there. And that 16 crosses all the spectrums of commodities, especially the 17 beef industry because it's predominant in the High Plains 18 area. 19 SECRETARY VILSACK: General? 20 MR. SUTHERS: It has to be a viable economic 21 undertaking for the families involved, and the children 22 have to have the assurance that they can make a living -- 23 an adequate living in this agricultural community. 24 Mr. Secretary, you can -- we, in Colorado -- 25 water is at a huge premium. And it's very sad. And I'm 53 1 sure there's farmers and ranchers in this audience here 2 today who are facing the dilemma -- as much as they want 3 to stay on the land -- have their families stay on the 4 land, the realities of agriculture are such that their 5 water is the most valuable commodity they have. And the 6 temptation to sell that water for municipal use and take 7 land out of agricultural production is tremendous. 8 And Colorado, like many other western states, 9 tries to present all kinds of incentives, whether it be 10 conservation easements or whatever, to allow that to 11 continue to happen. But at the bottom line, it's all 12 driven by economics. And you can't blame a 65-year-old 13 ranchers whose water rights are so valuable being tempted 14 to sell those water rights to -- for municipal use. And 15 it's incumbent upon us to do everything we can to make 16 sure this agriculture business is structured in a way that 17 it's economic to stay on the land, to produce the food we 18 need on that land and reduce the incentive to simply cash 19 out and sell the water and take the land out of 20 agriculture. 21 MS. MARKEY: Thank you. You know, I, of 22 course, echo the -- you know, the basic factor that it's 23 got to be profitable for young farmers. And I talk to so 24 many families where the son and daughter -- you know, they 25 want to stay on the land, they love the rural lifestyle, 54 1 want to be married, raise their family; but just not sure 2 if they'll be able to eke out a living. 3 And, you know, you hear from so many farmers 4 say that behind every successful farmer is a teacher or a 5 nurse or, quite frankly, somebody else who has a part-time 6 job so that they can make ends meet. So certainly, a 7 system where it's -- we know that that farmer's going to 8 be profitable and be able to have a living for their 9 family and be able to raise their children in an area that 10 has good schools, has access to hospitals with the latest 11 technologies, banks, other small businesses in the area. 12 One of the things that I'm very happy that we 13 have done with the Recovery Act is really focus resources 14 on -- which we did after the Great Depression -- we made 15 sure that rural communities had electricity. Right now, 16 the next big investment in our rural communities is 17 broadband. You know, for any community to survive, a 18 community has to have access to the high-speed Internet 19 for your hospitals, for -- you know, a child really 20 growing up now needs to be -- needs to have access to the 21 Internet. 22 So all of these things that we need to have, 23 the -- the infrastructure in place so that our farmers and 24 our ranchers can raise their families with the same 25 advantages that their -- that families have in more urban 55 1 communities is going to be critical. Thank you. 2 SECRETARY VILSACK: I'm going to skip the 3 General to go -- give him the last word. So, Christine, 4 do you have any thoughts about this? 5 MS. VARNEY: As I said, Secretary, I'm here to 6 listen. I mean, the recurring theme that we've heard in 7 all of our workshops is the system is broken. Family 8 farms are not sustainable. They're not able to pass farms 9 down to their children. There's got to be a variety of 10 solutions. Not all of them are going to reside in 11 antitrust, in the Department of Justice, or in the 12 Department of Agricultural. 13 So I think what we're doing here is gathering 14 information. We're taking that information back to 15 Washington, back to our state capitals, to try and figure 16 out what a comprehensive solution is going to look like. 17 GOVERNOR RITTER: Thank you, Mr. Secretary, 18 again for coming. Thank you, General Holder. And I would 19 just pick up on a couple of the comments to say we've 20 focused on the agricultural economy and ranching. It's 21 important to look at ranching and farming and the 22 different things that need to be done from a regulatory 23 perspective to allow family farms and ranches to stay in 24 business. 25 But this other part of it, I think, shouldn't 56 1 be missed, which is the health of rural America is at 2 risk. It's not just ranching as an industry. And I 3 should -- I would congratulate you, Mr. Secretary, on what 4 you've done on rural broadband. I really think this is an 5 important part of it. As we expand markets, as we look at 6 global markets and say, We want to access those -- also 7 allowing ranches and farms to have greater access to 8 technology -- it's going to happen because of rural 9 broadband initiatives like your initiatives. And that 10 will, over time, make a difference. 11 We have a Main Street initiative that we've 12 started in Colorado. And it really is about going to very 13 small places -- Fowler, Colorado; Monte Vista, Colorado; 14 Rifle -- these are all communities where we're looking and 15 saying, What's the health -- what's the vibrancy of this 16 community, how we support it. 17 So while this is important -- this part of the 18 conversation and looking at competitiveness, 19 consolidation, and how you have as much freedom in the 20 marketplace for smaller producers, it's also important to 21 look at health, look at education, look at technology; all 22 those ways to keep kids coming back to the family farm 23 because they understand there is this future. And it's 24 not just about profitability; it's also just about, I 25 think, the quality of life in rural America. 57 1 So thank you for the opportunity to make these 2 comments. 3 MR. BULLOCK: I think that ranch that I 4 mentioned that I was at this past weekend where my 5 mother-in-law was raised -- the town of Geyser has changed 6 substantially in the last 30 years. And all 7 across throughout rural Montana, we're losing our schools, 8 we're losing our banks. You know, things are getting 9 smaller and smaller in some respects. If you look at that 10 over the last 30 years too, the piece of the pie that -- 11 the rancher's share of the dollar has been substantially 12 decreasing all along at the same time. 13 So I don't think to actually make it possible 14 for young folks to stay on the ranch or go to the ranch, 15 it's not going to change tomorrow. You're not going to 16 say all of a sudden, Tomorrow, life is going to be good, 17 you'll have your vibrant community back. But what you 18 need to do is offer some sort of promise or hope that that 19 trend will reverse; that the rancher's share of the food 20 dollar will actually start going back where it was 20, 30 21 years go. 22 And then there's the opportunity to say, Okay, 23 I'm a young person; I'll take the risk because I like this 24 lifestyle; I like what it produces for our country and for 25 our state. But there has to be -- I mean, we have to 58 1 reverse that trend or -- if not, you sure can't blame them 2 for wanting to get off the ranch. 3 SECRETARY VILSACK: General? 4 ATTORNEY GENERAL HOLDER: You know, I think in 5 some ways we have to return to old values and we have to 6 value what is done on our farms. We have to support in 7 ways that we can and ways that we have discussed people 8 who want to remain on farms, who want to pass on to their 9 children the opportunity to do that. There's an 10 attitudinal thing here, I think, as much as everything 11 else we have discussed. We have value what happens on our 12 farms in a way that I don't think we have in the recent 13 past. 14 This nation became great because we made 15 things. We manufactured things. We grew things. We 16 produced things. We raised livestock. That is, I think, 17 in essence, what has defined this country and made this 18 country great. Everybody can't be on Wall Street with 19 these complex financial instruments. You know, that's the 20 kind of thing we focus a lot of our attention on and think 21 is so great. And we have not focused on, I think, the 22 core things that really is at the foundation of what has 23 made this nation the leader in the world that it is. 24 This is the 21st Century, and yet I think we 25 have to go back and think about attitudinally and what we 59 1 value, some of the things from the 18th Century and 2 what -- what really distinguished America and then what 3 made this country great. And so I think it's important 4 for us in government never to lose sight of that, to stay 5 in touch -- as I hope we are today in this exchange -- to 6 stay in touch with the real problems of real people and 7 come up with real-world solutions for those issues. 8 But I really do think it is a question of 9 remembering, remembering why did this country become 10 great? It wasn't an accident. It was because we made 11 conscious decisions to do things that supported people, 12 young people, in the decisions that they made to do a 13 variety of things. And we can't concentrate our 14 efforts -- concentrate what we value on things that we 15 find in New York City only. 16 You know, there's a great big country out 17 here, a great diversity in our country that we have to 18 continue to value. And that's what I believe this 19 administration is committed to doing. It is what we want 20 to work with all of you on to make happen. 21 SECRETARY VILSACK: Okay. We're going to -- 22 thank you. In an effort to keep us somewhat on schedule, 23 we're going to take a quick break. We're going to come 24 back with a panel of folks who represent this rural 25 America that has been talked about today. We'll be back 60 1 in about 20 minutes. 2 (A recess was taken from 9:56 a.m. until 3 10:36 a.m.) 4 SECRETARY VILSACK: Could I have your 5 attention? We're going to start with the producer 6 presentation panel. Before we do, I've been joined by 7 Phil Weiser, who is a Deputy Assistant Attorney General 8 for the U.S. Department of Justice. And Phil will be 9 helping me moderate this producer presentation. I'm going 10 to introduce the producers, starting with folks to my 11 extreme left and go right down the line before they -- 12 before we begin the presentations. And hopefully, I don't 13 mispronounce anyone's name. If I do, I apologize in 14 advance. 15 Let me start with Mike. Mike's not here, 16 so -- this has been -- Alden Zuhlke. Alden Zuhlke is from 17 Brunswick, Nebraska. Alden and his family have been 18 raising hogs, corn, and soybeans for the past 35 years. 19 He's a past Nebraska Pork Board president, a member of the 20 Nebraska Environmental Quality Council. He has been 21 serving on the school board in Plainview, Nebraska, for 12 22 years; in the last four, served as president. Alden, 23 thank you very much for being here today. 24 Sitting next to Alden is Allan Sents. Allan 25 and his wife own a 10,000-head capacity commercial cattle 61 1 feedyard in Central Kansas. Allan has been around the 2 feedyard over 40 years and involved in ownership in the 3 last 29 years. He is the director of the United States 4 Cattlemen's Association, a past president of Kansas 5 Cattlemen's Association, and a member of the Organization 6 for Competitive Markets. Allan, thank you for being here 7 today. 8 Next to Allan is someone I know fairly well. 9 Chris Petersen is from my home state; family farmer since 10 1974 near Clear Lake, Iowa, and -- consisting of commodity 11 crops, hay; and is an independent hog producer raising 12 sustainable Berkshire hogs and direct marketing to 13 consumers in the Berkshire Gold program. He's the current 14 president of Iowa Farmers Union, board member of the 15 Iowa's Center for Agricultural Health and Safety Board, 16 Iowa Citizen Action Network, along with other boards and 17 groups in Iowa National. Chris, thank you for being with 18 us here today. 19 Sitting next to Phil is Harry "Butch" 20 Livermore -- Livermont, excuse me, who is an Oglala Sioux 21 tribal member; ranch and farms with his family on the Pine 22 Ridge Reservation in South Dakota. Butch is the chairman 23 of the tribe's Livestock and Landowners Association on the 24 reservation. He's the director of the local rural 25 electric association, as well as the representative on the 62 1 state REA board of directors. Butch, thank you for being 2 here. 3 Robbie LeValley, is that -- did I pronounce 4 that correctly? Robbie is a cow-calf producer from 5 Hotchkiss, Colorado; has been a cattle producer all of her 6 life. Her family and five other ranching families 7 cooperatively own Homestead Meats, which sells meat 8 directly to consumers, retailers, and restaurants. In 9 addition, the six families own a USDA-inspected packing 10 plant where they market their own animals and custom 11 process for numerous other consumers in West Central 12 Colorado. 13 Sitting next to Robbie is Dr. Taylor Haynes, 14 who is a cattle rancher from Cheyenne, Wyoming. 15 Dr. Haynes is involved in multiple beef-marketing efforts, 16 both conventional as well as all-natural and organic 17 grass-fed beef. I'd also like to point out that 18 Dr. Haynes is a urologist. So if anybody needs a quick 19 checkup later -- you know, in these serious conversations, 20 you've got to break them up every once in a while for 21 levity. He's a founding -- we're going to have some fun 22 on this panel. 23 He's a founding board member and president of 24 the Independent Cattlemen of Wyoming, is a member of the 25 board of directors of R-CALF USA, and, as such, is the 63 1 regional director for Wyoming, Utah, and Colorado. 2 Dr. Haynes is a lifetime member of the Wyoming Stock 3 Growers. He also was inducted into the Multicultural 4 Western Heritage Hall of Fame in Fort Worth, Texas, in 5 August of 2007. 6 And our last presenter is Mike Harper. Mike 7 is currently a part-owner of Harper Feedlot, LLC; has been 8 engaged in the operation since the 1970s. Harper Feedlot 9 offers custom feeding options to many producers and 10 customers in many states across the Western United States. 11 The feed-lot operation handles over 200,000 lambs per year 12 with a one-time lot capacity of 65,000 head. He is 13 currently the president of Colorado Wool Growers 14 Association and is serving on the American Lamb Council. 15 So that represents the panel that will be 16 discussing for the next hour-plus a variety of issues. So 17 let me start -- if I can, Alden, I'm going to start with 18 you, and I'd just simply ask everybody down the line the 19 way in which you were introduced. Let me just ask a very 20 brief question of all of you to just sort of open this up. 21 Over the years, as I have traveled around the 22 country, I have heard that there is increasing concern 23 that there are, essentially, fewer buyers to do business 24 with and that some are saying that producers or feeders 25 have a hard time getting bids or contracts for their 64 1 livestock. Is that consistent with what you have 2 experienced and heard? And if so, what are your thoughts 3 about that? 4 MR. ZUHLKE: Well, it's obviously changed in 5 the last 30-some years. 6 I said it's changed quite a bit in the last 30 7 years. And then I've thought about trying to break it 8 down in 10-year periods or something. But, I mean, 9 obviously, as economies have changed, we've had bigger 10 numbers and we've hauled in bigger numbers. I mean, if 11 you go back into this -- when we first started selling, 12 everything went to the auction barns. And then I remember 13 as a little boy, we -- Dad said, Well, we'll save some 14 money; we'll load the truck and the guy will haul them to 15 Omaha and we'll get -- capture a little more dollars 16 there. 17 And then eventually, the packers or -- you 18 know, they decided, you know, We'll put some buying 19 stations in. So then as the industry -- we hauled them 20 all to the buying stations for a while. But the trend has 21 been, you say, future -- or less people buying. But the 22 number of people selling is what drastically went down. 23 Some of the local hog buyers, when they started 25 years 24 ago, had probably 400 people they called on. And now it's 25 consolidated down to -- some of them, maybe 10 to 12 of 65 1 us. 2 Now, the catch in there is I market for a lot 3 of individual people that are still in the hog business. 4 So the number of people that we deal with is less, but I 5 personally deal with three different packers. 6 SECRETARY VILSACK: Okay. Allan? 7 MR. SENTS: When we acquired the feedlot 8 business almost 30 years ago, we had five different 9 packers that would routinely participate in the market 10 each week. Currently, we have three, really two of which 11 are active participants. We were impacted a couple of 12 years ago by the closing of the Emporia plant by Tyson. 13 Essentially, they still visit us on a weekly basis but 14 essentially took them out of the active market in terms of 15 competing for our cattle very effectively. 16 One of the biggest challenges we have on a 17 weekly basis is to try to determine what kind of space 18 we'll have with those other two main packers that we deal 19 with. And from week to week, it's very common for us to 20 hear that they've already secured all but one or two days 21 of the next week's supply. When we hear that, it's kind 22 of putting us on notice that we'd better be quick to act. 23 We certainly are more defensive in our stance in terms of 24 trying to sell cattle when we get that kind of information 25 and know that the trading window, as short as it is, will 66 1 likely pass us by in those weeks if we're not careful. 2 Now, recently we've had an uptrend in market 3 and we've had good interest in participation. But there 4 will be times, especially when there's a little pressure 5 on the market when the numbers swell some, that we get 6 most concerned about having access to the market. So 7 that's one of our biggest concerns on a weekly basis. 8 Will we have access to space the next week to move our 9 cattle? 10 SECRETARY VILSACK: Chris? 11 MR. PETERSEN: Good morning, everybody. Yeah. 12 This is quite the interesting question. When I started 13 farming in the '70s, I actually got established by raising 14 and selling feeder pigs; a quick turnover of profits. And 15 I tell you what, Iowa had tens of thousands of independent 16 hog producers. There's good demand for well-raised feeder 17 pigs. And so that market has been ruined now. It 18 basically no longer exists. 19 But in the butcher market in the '70s and 20 '80s, you had multiple buyers. Out in the countryside, 21 you had them calling you on days they needed hogs. And I 22 remember times when I was planting corn or whatever and, 23 my gosh, I don't want to really sell hogs today, you know. 24 But then the packers start calling, and you play them 25 against each other. And lo and behold, there comes a time 67 1 when you shut the planter off and you make an extra $5 or 2 $10 a hog. You load up a load of hogs. And I tell you 3 what, one thing we've been trying to do for years that I 4 stand for, if we want to start to solve this problem, ban 5 the packers from owning livestock, period. 6 Supply and demand actually work. Capitalism 7 was alive and well. Yield premiums -- when I first 8 started selling butcher hogs through the '80s and 9 early '90s, premiums paid good. You didn't have to haul 10 them far. That's disappeared now with the concentration 11 in the packers. The premiums are basically gone. And 12 localized facilities and packers no longer exist. You 13 know, you've got to pay the freight, if you're an 14 independent, to get these hogs to where they're going to 15 be killed. It's not about the farmers anymore; it's about 16 somebody else making a whole bunch of money. 17 And it -- progress, too. In the '90s, where I 18 had to hire a marketing firm to guarantee me shackle space 19 to get my hogs killed. At 3,000 head of hogs sold 20 commercially a year, I was considered one of the little 21 guys. And then the eight-cent hogs hit and tens of 22 thousands of producers were washed out of Iowa. And I say 23 today that risk -- is there too much risk for an 24 independent producer to stay in business or a beginning 25 farmer to risk if the bank will even loan for it, to be an 68 1 independent producer? 2 Now, I don't care if you're talking hogs, 3 cattle or whatever. The bank's attorneys are 4 questioning giving money for independent producers because 5 the markets have been ruined. Thank you. 6 SECRETARY VILSACK: Harry? Butch? 7 MR. LIVERMONT: Morning, everybody. We, in 8 Western South Dakota, we take quite a few of our calves 9 off the cows and sell them, and then we background a few 10 and -- and then take them -- take them in. We sell ours 11 in Philip, South Dakota. And we don't seem to have a lot 12 of trouble getting rid of our calves in that country. It 13 seems like a lot of people from all over come and look for 14 them. But we do have problems with cow buyers. 15 I'm thinking we probably get two buyers in 16 Philip to come and buy cows. I've talked to several of my 17 friends there in Philip and try to talk them into -- being 18 as they're around there all the time -- to maybe get into 19 the cow-buying deal. And they said there ain't no way to 20 get -- there ain't no way to get into it because it's -- 21 it's pretty well taken care of by one or two people that 22 buy for several different places. And that's how it is. 23 But -- and the calves seem to be -- going to 24 be worth a little more this fall, but still not sure 25 whether it's going to be enough to pay the expenses. But 69 1 we just keep plugging in there and just hope we can figure 2 out how to make it work. That's all I've got. Thank you. 3 SECRETARY VILSACK: Robbie, what about your 4 experiences with your co-op? 5 MS. LeVALLEY: In our business where we market 6 direct to the consumer through Homestead Meats, 7 approximately one-third of each of the calves that are 8 produced by the six ranching families go through the 9 Homestead Meats, the direct-marketing business. 10 Two-thirds of them go directly to feedlots and -- and 11 different feedlots in Colorado and Nebraska. 12 As I visited with the individuals that buy our 13 calves from these six ranching families, I was told that 14 on the average, the majority of the time there's three to 15 four bids on these fed cattle. If we just concentrate on 16 our Homestead Meats again, we entered into this to take 17 advantage of our premium cattle to sell direct to the 18 consumer and again, take advantage of the genetic 19 improvement that we have done across all of our herds for 20 not only selling direct to the consumer, but the improved 21 genetics to sell to the feedlots. 22 SECRETARY VILSACK: Okay. 23 DR. HAYNES: We're a calf-cow producer as 24 well; certified organic grass-fed. We got into the niche 25 because of a squeeze on the commodities side. The niche 70 1 handles our yearling cattle. 2 We both direct market and we also deal with 3 the major wholesale purveyors. And we've seen a 4 tremendous contraction when Whole Foods Markets was 5 allowed to buy Wild Oats. And this contraction has given 6 them such power that they will walk on the contract on the 7 day you're supposed to deliver the cattle. So they walk 8 on you, the feeder, or whatever. And by the time you 9 figure, Well, we can enforce the contract, you've spent 10 more than the margin you were going to make, so you go 11 somewhere else. 12 On the commodities side, from my weighed 13 cattle and my other products, we've seen a tremendous loss 14 of buyers. Some of you that maybe flew into Denver and 15 drove up here can see the result of that. There's a lot 16 of little family feedlots; a few along I-25 that you can 17 see. Well, they're empty. Well, if you got off the 18 freeway, you could find between here and the next major 19 freeway and the next major highway, maybe you could see 20 30, 50, 75, depending on which way you went. They're all 21 empty too. And it's consolidation and loss of access to 22 the wholesale market that has driven them out of business. 23 We also have another issue, and that's access 24 to the retail market. There's not a USDA-inspected plant 25 in Wyoming. And I've had several people try. I have no 71 1 idea why. But that's an issue that should be addressed. 2 So to give us access to the market, to decentralize meat 3 packing is a real key. We need to do that. There's 4 several ways to do it. 5 One, the house approval, actually, has killed 6 small packers. You've got the fox watching the henhouse, 7 and it's a paper chase. We need point source -- you need 8 point source interdiction and discovery, and you need to 9 enforce the food safety rule where the contamination 10 occurs, which is largely there on the kill floor. So 11 this -- how to solve the consolidation problem? Well, if 12 we can bring the small, medium-sized meat packers back 13 then that brings the small, medium-sized family feeder 14 back. 15 Then the second part of this access is retail. 16 The major wholesalers threaten -- at least in Wyoming -- 17 threaten supermarkets. And my organization, which -- my 18 statewide organization in which our main goal is to 19 increase the bottom line for our members, we put together, 20 say, steak specials, ground beef specials, for various 21 supermarkets, and they're happy to have that as something 22 different to offer. Well, their major supplier will 23 threaten the rest of their product. We won't supply your 24 chicken, pork, et cetera, if you buy any beef from these 25 guys. So that is an abusive practice that just simply 72 1 needs to be regulated away. We can compete on the shelf 2 side by side. 3 So really, access to both the retail, 4 wholesale market, is what's killing the cattle industry. 5 And we can bring that back. You know, we broke up Ma Bell 6 and that took a lot of regulation. If we facilitate 7 competition with the small meat packers, small family 8 feedlots, market access, then I think we break them up 9 with competition. Thank you. 10 SECRETARY VILSACK: Mike. 11 MR. HARPER: I feel pretty fortunate, I would 12 say, if -- Colorado might be the last place we had lambs 13 in this country. And, fortunately, we have two packers 14 right now; one in JBS, Greeley, and one in Denver, in 15 Superior Packing. So I have had an access to those 16 markets pretty regularly. We have contracts with both of 17 those entities and supply them with lambs year round. 18 Up until the last -- oh, I guess it's been 19 about six months now, I have never seen so much demand for 20 lamb. And we are extremely short in supply, and I could 21 sell lambs all over the country. If there's somebody 22 calling me, we'd have that opportunity. But I don't have 23 the numbers. The worst thing we have right now is a lack 24 of numbers. And we've got to figure out somehow to build 25 numbers back, try to increase interest in young people. 73 1 MR. WEISER: So I want to first say, on behalf 2 of the Justice Department, how glad we are to have a 3 partner in Secretary Vilsack. The leadership you have 4 given and focus on this has made this partnership 5 possible. 6 Second, for those who aren't going to be able 7 to speak publicly for any fears of intimidation, 8 harassment, or concerns, I want to acknowledge two people. 9 Bill Stallings, who is going to be up here shortly to 10 listen to you folks, is the leader in our agriculture 11 section, and Norm Familant, who is also up here, a 12 leader -- an agriculture economist. These two individuals 13 are here, in part, to talk to people informally. As part 14 of the effort to gather ideas, concerns, we know it's 15 going to happen not only by people speaking publicly but 16 by people speaking privately. So we encourage anyone who 17 has the interests. Myself, obviously, as well as both 18 Bill and Norm are here for that. 19 With respect to questions, I want to go back 20 to this side of the table. Because there's a theme that I 21 saw developing about potential opportunities and 22 constraints on those opportunities. One thing that I 23 think Taylor mentioned which is important is the concerns 24 about the impact of the Wild Oats/Whole Foods merger 25 and -- on the retail side. I want to start by talking a 74 1 little about the retail side here. 2 In particular, if you have concerns about 3 mergers after they've happened, that's also information 4 that's very valuable to share and feeds into this project. 5 So any of you who have seen a merger and then felt the 6 effects afterwards, I would encourage you to share that 7 information as well so that there's an ability of the 8 antitrust enforcement authorities to evaluate what 9 happened after the fact. That can be as or more important 10 sometimes because it enables us to do better the next time 11 and potentially even address it. 12 So I want to focus on that issue. Have you 13 guys felt, on the retail side, any of the changes -- you 14 spoke generally and -- specifically with that merger, 15 Taylor, so I'll start with you. Can you explain just a 16 little bit about -- a little more detail about exactly how 17 you see that? Is it merely on this -- you know, they will 18 walk away from contracts, or does it go further than that 19 as well? 20 DR. HAYNES: It goes further that than -- it 21 goes farther than that in our area because Whole Foods 22 was -- is a major purveyor and so they're also a major 23 buyer. And what they've gone to is they buy a little 24 local and then they import quite a lot from Uruguay. So 25 we're seeing that a great deal. 75 1 The other issue in Wyoming, without a 2 USDA-inspected plant, then, obviously, I can't have a USDA 3 organic plant, so I have to transport to Colorado to 4 process my product. And then it could be 500 miles to 5 western Wyoming or somewhere else in Wyoming to sell that 6 product. So what we're seeing with retail is obviously 7 shelf space for the walk-in trade but also access to 8 packing at a reasonable price so that we can manage our 9 niche and stay in the black. It's quite a trick. 10 So I think mergers have to be considered very, 11 very carefully up front. And we all protest it. However, 12 there's enough -- I suppose there were enough small 13 organic retailers. But, you see, they're nationwide. 14 They're in California, maybe in Phoenix. But that doesn't 15 help in any particular region where you've got a major 16 player that's dominant. 17 MR. WEISER: Robbie, I want to go to you. 18 You've managed to come up with a cooperative solution. Do 19 you think the model that you've been able to do will work 20 elsewhere, say, in Wyoming or other places where people 21 are feeling squeezed? 22 MS. LeVALLEY: Well, I'm thinking that we'll 23 be glad to process your animals. I do. Again, the six 24 ranching families went together, formed the cooperative to 25 market beef direct because of the premium cattle that they 76 1 had been, purchased the USDA packing facility, and are 2 direct marketing. My concern is, though, when you read 3 the proposed rules as written now, because it bans the 4 packer-to-packer sales and their subsidiaries, we are a 5 packer. And it does limit our marketing options as the 6 six ranching families. So that's my concern. 7 Again, that vagueness in that, was that the 8 intent? I'm sure not. But that is one of those 9 unintended consequences, as you read the proposed rule, is 10 that banning those sales really limits our options. We 11 were innovative. The six ranching families took market 12 risks and now will have some of their alternatives 13 limited. And that is a restriction on trade. And that's 14 my concern with some of the vagueness in the proposed rule 15 changes. 16 SECRETARY VILSACK: Can I just comment on -- 17 I'm not going to comment on the substance of what Robbie 18 said because it wouldn't be appropriate since the comment 19 period is still open on those rules. But I do want folks 20 to know and appreciate that comments like that that are 21 directed to the rules will be incorporated into the 22 official record of the comment period; so that anybody who 23 makes comments, we will incorporate that in the official 24 record and treat that as part of the comment-period 25 comments so that everyone can feel free to opine as they 77 1 wish. But we won't be able to respond because the comment 2 period is still open. 3 MR. WEISER: I want to jump back. Mike, you 4 didn't identify the concerns about the retail side or even 5 access to the packing facility, USDA-inspected plant. Are 6 those concerns at all for you? Can you see those coming 7 concerns? Maybe you could elaborate a little bit because, 8 obviously, you're in a segment that right now you have the 9 benefit of a lot of demand for your product. But are 10 these things you're thinking about? 11 MR. HARPER: You know, in times when we had a 12 lot more lambs available to us, yeah, you were always -- 13 if you felt the market suppressed for some reason, you 14 were always looking for an outlet or an option; whatever 15 you could do to maximize your return. And recently we 16 haven't seen that. The numbers -- the numbers just aren't 17 there in the sheep industry anymore. We just continue to 18 lose infrastructure. And we're at a point where if things 19 don't change, we're probably going to lose another packer 20 in the industry. We've got way more packing capacity than 21 we do lambs to fill that void. 22 So it's hard to look to retail when you 23 haven't got the volume of lambs to build for it. 24 MR. WEISER: And I'll go to Harry, and then 25 I'll turn it back over to the Secretary. Is part of this, 78 1 as, I guess, Mike's comment could suggest, a normal ebb 2 and flow, or do you think there are things going on here 3 that are deeper structural problems, Harry? How do you 4 size it up? 5 MR. LIVERMONT: Well, I -- there's not a 6 question in my mind that there's something going on. But 7 I don't understand the structure good enough to know. I'm 8 pretty busy ranching. I don't -- there's something going 9 on definitely. 10 SECRETARY VILSACK: Let me -- in the interest 11 of geographic diversity here on the panel, let me turn to 12 my left and talk to you fellows. I'm interested -- in my 13 opening remarks I made the reference to the fact that the 14 spot market has contracted significantly. And hog 15 production in 1994 was 62 percent. Today it's 5 percent. 16 And there are some trends suggesting that that may be the 17 direction that the cattle industry is headed as well. 18 Obviously, cash markets are important. 19 So I'm interested in knowing whether or not 20 you have any thoughts about how pricing for livestock 21 could occur differently, if it should, and what it means 22 to producers when the spot market becomes relatively small 23 and thin. Whoever wants to go first. 24 MR. ZUHLKE: Well, it seems to affect us more. 25 I mean, the spot market -- you already heard this morning, 79 1 I mean, we're down to maybe 4 or 5 percent. You know, I 2 personally can't analyze it enough to know what that means 3 in my pricing mechanism. All I can do is tell you what I 4 received in the last -- I've gotten years of data here on 5 prices. And it'll match up to the USDA's pretty -- you 6 could get it from USDA also. The things that affect us 7 more in pricing is -- obviously, last year's was H1N1. 8 I mean, August a year ago, we sold hogs for 9 $106 a head. You know, that was just devastating to us as 10 producers. This year -- I don't have the August numbers 11 in yet, but it looks -- you know, we'll be at $160 plus. 12 Now -- so I can't find a correlation with what 13 you're talking -- you know, the -- yeah, there's not a lot 14 on the spot market. But why did we go up $60-some a head 15 in one year's time? And I can find different periods of 16 things that have affected the hog market that didn't have 17 any -- we didn't have control of. A few years ago, there 18 was a poultry ban with Russia, and that came back to 19 affect us directly. 20 Packing -- you've asked about the packing. 21 You know, the only time that that was was the '98 period 22 when we simply had too many hogs for the ability -- for 23 the packers to kill. So that drove prices down in that 24 period. I don't have a direct answer on that. 25 SECRETARY VILSACK: Allan, your thoughts? 80 1 MR. SENTS: Okay. I'll give you a perspective 2 on the cattle side; just to run through a little bit the 3 scenario we deal with each week, trying to determine if 4 we'll have access to a market or not, and then the way 5 that sways our decision. 6 Early in the week, we try to find -- to get a 7 feel for the capacity of the packer to procure cattle for 8 the next week from our facility especially. Often, I've 9 got one of the main buyers we use that says that if we 10 wait for the trade to develop, he's going be the last guy 11 they call because he represents an area further away from 12 the plant. So already we know we're a little bit behind 13 the rest of the pack in that regard. 14 So as we go -- one of the decisions we have to 15 make, then, early on is -- we can have access to a captive 16 supply type of arrangement of some kind. So the choice we 17 have to make by Tuesday or Wednesday morning is, Do we 18 want to be sure we move these cattle and go on a captive 19 supply type of arrangement so we will not participate in 20 the cash market, which we have a disagreement with? 21 You know, we want to maintain an active cash 22 market; believe in the health of many bidders in that 23 process. But we have to make a decision, then. Are we 24 going to very likely be able to participate in that or do 25 we need to take advantage of one of these captive supply 81 1 types of arrangements which pushes us, then, out of the 2 negotiating market? 3 And just a little bit of the history we have 4 there and the power and the leverage that the packer has, 5 some years ago, the packer offered a captive supply -- 6 or agreement with some of our competitors in the area, 7 giving them the high of the week if they would commit 8 their entire supply of cattle to them. We were closer to 9 the packing plant at that time than those competitors and 10 put us at a disadvantage, then. Some weeks they would be 11 full at that plant from these competitor cattle that were 12 further away, costing more money to get there, and 13 overlooked us in the process. 14 So I told that buyer, I said, Well, if you're 15 going to discriminate us -- against us in that way, I'm 16 going to allow the other packer buyers first opportunity 17 to buy our cattle. I thought it was a turn about -- a 18 fair play type of thing. Well, the original buyer then 19 didn't like that kind of response and told his buyer to 20 quit coming into our yard. 21 So for three months we didn't get a 22 representative from that major packer into our yard just 23 because we had tried to play ball the same way the packer 24 was trying to deal with us; a very evident sign of 25 intimidation and why you hear these stories of why 82 1 producers are afraid to stand up and try to make a stand 2 to keep active in the cash market, which we believe is the 3 healthiest form of our business, and just reaffirms the 4 need that we have for a referee in our market. 5 And we appreciate the effort now being made to 6 address this issue and at the level that it is and greatly 7 appreciate Secretary Vilsack and also the Department of 8 Justice taking that effort to do that. And you've noticed 9 some green shirts in the crowd today. Those are people 10 that are recognizing and supporting GIPSA in addressing 11 this issue through the rule change and that type of thing. 12 So the effect, then, of our cash market, 13 ultimately, is a detriment to all of us. Initially, the 14 packers have picked off a few of these large entities that 15 are using supply. One of the biggest disagreements we 16 have is with the critics of this rule change saying that 17 it's all about procuring quality cattle. That has nothing 18 to do with it. The largest supply agreements have had 19 everything to do with supply and controlling that 20 inventory and nothing to do with quality cattle. And 21 that's shown by numerous studies and examples. 22 SECRETARY VILSACK: Chris? 23 MR. PETERSEN: Yeah. I'd like to go back a 24 few years to the eight-cent hogs. And when that happened, 25 the packers and others in the industry figured out they 83 1 had enough control to force prices down. And so they 2 flooded the market with hogs. And the result was tens of 3 thousands of independent producers being purged out of 4 business or going into bankruptcy or committing suicide; 5 whatever. They were exited out of agriculture. 6 Now, today we have -- I was up in Minnesota on 7 daily markets. Two to 3,000 of these hogs are now on the 8 spot market. And a lot of these hogs are the poorer-doing 9 hogs -- the hogs that, you know, once in a great while the 10 packers, they need a few pigs and they get these hogs. 11 Now, on the other hand, $100,000 -- or 100,000 hogs a day 12 on the spot market, half of these spot transactions are 13 packer to packer. Isn't that amazing? It's like 14 everybody's being convinced here. I've really been 15 convinced for a long time that something's going on here. 16 And the farmer pays the price. 17 I don't care if you're an independent pork 18 producer or a contractual pork producer. Because all of 19 the prices are based off the spot market contracts. So, 20 yeah, there's something going on here. Somebody's making 21 a whole bunch of money and somebody's getting screwed. 22 SECRETARY VILSACK: I'm interested in the 23 panel's discussion, the -- your thoughts about -- when we 24 talk about a spot market, is there a percentage, is there 25 an amount that you feel would be a more accurate 84 1 reflection or a more appropriate reflection, number one? 2 And, number two, what can we do in the interest of 3 transparency to provide more information so that whatever 4 decision producers are making -- are being made on the 5 best available information and the most comprehensive 6 information? 7 Mike, do you want to start with that? 8 MR. HARPER: I'll tell you what we're doing. 9 We price our lambs on a contract basis based on the USDA 10 market sheet Monday through Friday -- Monday through 11 Saturday every week. And I will tell you, I am a little 12 frustrated. We're seeing live lamb prices -- record 13 prices all around us. And, you know, we're big boys. We 14 sign these contracts and they've worked for us in years 15 past. 16 Well, right now, they're buying lambs on the 17 outside -- you know, outside the dress market at $1.40, 18 somewhere in that range, as high as $1.45. And I'm 19 sitting here looking at a dress market that's quoting me 20 back $1.22 to .25 and -- because my contract says I'm tied 21 into that. Now, I don't know what's going on with the 22 dress market. The last four to five weeks has been 23 changed lower every week; $2 to $3 on the lighter 24 carcasses and a small amount on the heavier carcasses. 25 But why are we seeing a lower dress market and getting 85 1 quoted that way and higher live prices outside? I'm a 2 little perplexed by that. 3 SECRETARY VILSACK: Doctor? 4 DR. HAYNES: Well, what we see on the cattle 5 side is really the captive supply effect. And so you 6 ask -- asked about transparency. If all contracts were 7 reported and all prices on the market -- whatever the 8 entree into that market were reported -- then we'd have 9 more transparency. But really, to get that -- to get a 10 really open robust market, you've got to get away from 11 concentration. 12 And it goes back to -- it goes back to your 13 question -- previous question about pricing. We've seen a 14 13-year decline in the U.S. cattle herd for cycles which 15 used to be, say, four to six years and then a nervous 16 cycle maybe would be seven years. And as you hit the 17 bottom of that decline, the producers saw an increase in 18 price driven by supply. Well, we're in a 13-year slide. 19 We are seeing record supermarket prices. And that gap 20 between domestic production and consumption is about 2 1/2 21 billion pounds a year that's filled with imported cattle. 22 Well, that's killing us. It's driving us out of business. 23 So pricing is -- and depending on the time of 24 year, some people have to sell for whatever they can get. 25 It's not related to what they've got in the animal, not 86 1 related to their worth. And they can do that because they 2 control the supply. By controlling packing and feeding, 3 it flows right back to the individual producer. 4 We saw this spring -- for no apparent reason, 5 except one -- a jump in calf prices and yearling prices in 6 the late spring. And it was because, Mr. Secretary, you 7 scheduled -- you and the Department of Justice scheduled 8 this hearing. Not being clairvoyant and being Christian, 9 I don't -- I don't ever tell you what someone else's 10 motive is. However, there was nothing in supply, nothing 11 in demand that generated that price increase. This 12 hearing was the only change in our life. And so I'm sure 13 that's why the prices went up. 14 So really, it goes back to simply somehow 15 getting rid of concentration at all levels, facilitating 16 small, independent producers at all levels -- that's the 17 cow-calf, lamb producer, hog producer, and the medium and 18 small packing plants that will bring the feeders back. 19 It'll make the food supply safer. Because right now, it 20 wouldn't take much to contaminate just about the whole 21 meat supply or 88 percent of it. So repetition is the 22 mother of retention. So the key here is to decentralize 23 the meat and food production. Thank you, Mr. Secretary. 24 SECRETARY VILSACK: Robbie, do you have any 25 comments about transparency in the spot market in the 87 1 nature of your operation? 2 MS. LeVALLEY: Certainly when we look at -- 3 there's been an incredible body of study that has been 4 done regarding this; some of it being done by professors 5 here at the Colorado State University and some you will 6 hear from later. 7 Not only ten years ago, but recently with the 8 RTI study, if we look at the AMAs -- the alternative 9 marketing -- it has added $6 per head across the board to 10 the contracts. When you look at all of the information 11 that is currently available on the Internet regarding the 12 grids, the superior sales that happen every week, every 13 month, all of the Internet sales, all of the information 14 is out there. There is a considerable body information 15 already out there. 16 Now, what is needed, when we talk about it, is 17 just what Mr. Harper alluded to, that information, some of 18 those discrepancies, but certainly not getting into the 19 business of private contracts that are entered into 20 between willing seller and willing buyer and posting those 21 for all to see. That is not what is needed. Thank you. 22 SECRETARY VILSACK: Butch? 23 MR. LIVERMONT: I don't have any answers, but 24 I've got a question. Going back to this cow thing, we've 25 got several reasons why the cow market should be depressed 88 1 right now. I mean, we've got cows coming in from Canada. 2 We've got dairy cows being killed. And usually this time 3 of year, our cow market is, oh, mid-40s to the top of 4 mid-50s. Now, there's been cows selling for 70 bucks in 5 the last month. Now there -- I mean, they're still pretty 6 much over 60. Why? I mean, it's -- it all goes back to 7 maybe what Taylor said. Somebody up there that's buying 8 these cows knows that we're having these meetings. 9 MR. WEISER: I want to pick up on a point that 10 Robbie referred to and was referred to in the first panel 11 and couple it with another question, which one is: How is 12 technology and the use of broadband where it's available 13 changing the marketing and selling of cattle livestock? 14 And secondly, what advice would you offer to a young 15 person looking to become a cattle farmer or rancher? 16 Maybe just starting at the other end of the table, both 17 technology and advice to the young ranchers. 18 MR. ZUHLKE: Would you say that again? 19 MR. WEISER: Sure. Do you use -- let me ask 20 two questions. Do you use technology at all to change how 21 you operate from, let's say, 20, 30 years ago? Has that 22 been something that's starting to enable you to operate 23 more effectively? 24 MR. ZUHLKE: Okay. Well, I'm right in the 25 middle of -- my three oldest boys are 26, 23, and 20, and 89 1 they're all becoming actively involved in the farming 2 operation. And hands down, their ability to use 3 technology -- you know, I have a hard time keeping up with 4 it. We do some farming on the side. And their ability to 5 use the GPS and those things are phenomenal. 6 Did you want other specifics? 7 MR. WEISER: Does it affect how you sell at 8 all, by the way? Some people, I think, mentioned that 9 they're actually able to use either value price 10 information or even selling directly over the Internet. 11 Is that -- have you seen that at all? 12 MR. ZUHLKE: If anything, that's my expertise. 13 That's one thing I have over those three boys, yes. And, 14 yes, I use the Internet every morning. I tend to start 15 looking at the markets -- obviously, we trade world 16 markets, you know, just constantly. And you can become 17 totally absorbed with the technology today. Everybody 18 knows that the grain -- everything trades. But I can get 19 up at five o'clock in the morning and you start to gather 20 information already; so, no, it's constant. I mean, I 21 probably spend two to three hours a day analyzing, whether 22 it's the grain market or, you know, the flow of the hogs 23 or where the demand is. I use it extensively. 24 MR. SENTS: Well, certainly technology has, I 25 think, led to this narrow trading window that we have, in 90 1 the cattle market especially. Each week we may have just 2 as short as ten minutes to an hour to trade our cattle. 3 And in years past, we used to wait until we could talk to 4 people at night; just to get ahold of people, before cell 5 phones and that type of thing. And we'd have bids that 6 would be good until the next morning or some extended time 7 like that. 8 So certainly, it's added to the pressure of 9 doing business. Of course, the information available 10 about the market and what's going on is almost information 11 overload at times too. But certainly, that has led to 12 some of these issues that we're addressing, the narrow 13 trade -- trading window and those types of things, along 14 with the decreased activity in the spot market. 15 And I'd like to respond a little bit about the 16 spot market and the value of these alternative marketing 17 agreements. And certainly, no one -- and we especially -- 18 we've made a great investment in our facility to do 19 sorting, to try to find the product that is desired by 20 consumers in terms of quality, avoiding overweight -- 21 overfinished cattle and those kinds of things. 22 And we, as much as anybody, don't want to see 23 cattle just bringing one price. And I know the proposed 24 rules do not do that. And it's extremely frustrating that 25 many of the nay-sayers continue to say that this is going 91 1 to eliminate those things. And we can think of nothing 2 more unreasonable, as the language of the law indicates, 3 than for that to happen. And I'm confident that it will 4 not happen that way. 5 In terms of how to address that -- and I think 6 you'll hear some more detailed explanation this 7 afternoon -- certainly, whole captive supply issue is 8 something that has to be looked at. And how do we start? 9 Maybe there needs to be a plant-by-plant percentage; 50 10 percent. There needs to be input on it to develop what 11 that level is; that cattle have to be procured in the spot 12 negotiated market. And that gets back to the information 13 part that you're asking about too, then. 14 We need more information to know how many 15 cattle are actually negotiated for versus how many earlier 16 in the week too. So much of this is after the fact that 17 we get that information. If we could get that sooner in 18 the week -- because it impacts our decisions that week -- 19 to know better what we're looking at in terms of what is 20 available in the negotiated market. And those are some of 21 the key things that I think we need. And there is great 22 premiums out there. And we have customers that have 23 focused on identifying those premiums and they know the 24 market generates them if we have access to it. So again, 25 market access is the key question we have. 92 1 And for the young people starting today, I 2 think it's important, first of all, they get the 3 education, to use the technology, be able to address the 4 issues, but also, then, that they're involved in these 5 kinds of discussions too to shape the policy that we have 6 that's going to impact the likelihood of our rural 7 economies to continue, the likelihood that they can come 8 back. And there is value -- economic value in having 9 10,000-head feedyards distributed across our rural economy 10 versus concentrating just for market power alone in the 11 100,000-head feedyards. 12 MR. PETERSEN: Yeah. I access technology on a 13 daily basis. You know, I'm proud to say I sell a lot of 14 stuff, you know, through the Internet, word of mouth; 15 whatever. I sell local first, take care of my customers, 16 and then I sell in the Berkshire Goal. I'm proud to say, 17 unfortunately, that today I don't sell one hog to a 18 packer. I gave up on them. I got screwed over too many 19 times. And technology, yes. Again, I use it, but I'm 20 busy farming and -- you know, a couple of off-farm jobs or 21 whatever. And I guess my response is: You can't depend 22 on it and it's not the answer to correct the problem here. 23 We all know what the problems are; every farmer or rancher 24 sitting out in the audience. 25 I just want to bring up one more thing -- oh, 93 1 technology, evidently, has been very successful for the 2 packers. I think we all realize that. 3 One other thing I want to bring up. A good 4 friend of mine, John Crabtree, of the Center for Rural 5 Affairs, him and I have known each other for years; done a 6 lot of work together. There's some rule making going on, 7 and here's what's going on. The packers routinely pay 8 $0.05 to $0.06 more per pound or more in volume-based 9 premiums to the largest hog producers simply because 10 they're large. $0.06 may not sound like much of a 11 discount. But I tell you what, for an independent 12 producer, the guy with 150 sows, farrow-to-finish 13 operation, trying to market on a yearly basis, that equals 14 $56,000 of income. That's an off-farm job. 15 We don't need the whole slice of pie; we just 16 need fairness and equality. And this is very, very 17 important if we want to get the age of the farmer and 18 rancher down to where they're farming 20, 30, 40 years and 19 not 10 more years. Thank you. 20 SECRETARY VILSACK: I'm interested in this 21 issue of access. You-all have mentioned it at one time or 22 another in your comments, either having concerns about it 23 or being able to meet to -- to meet the needs. Tell me a 24 little bit about what you think the USDA ought to be doing 25 with its rural development programs to address this 94 1 issue -- or what could we do in terms of creating more 2 opportunities for more markets, and how could we do it in 3 a way that would be -- that would allow someone to make a 4 decent living by operating one of those facilities. 5 MR. HARPER: I guess to stimulate young 6 people, like we've been talking about, it needs to be more 7 profitable; low-interest loans or something to that degree 8 and in the like, I think, to get somebody in. But it's 9 not easy to get in anymore. Property values are extremely 10 high. The cost of our livestock right now are -- and on 11 the sheep side are extremely high. So you're talking 12 about, you know, a young person just off -- I don't want 13 to say off the farm -- most of the young people in our 14 industry have inherited it, grown up in it, it's a family 15 operation. If they choose to continue to stay, they 16 continue on that way and they've got some resources there. 17 SECRETARY VILSACK: But my question is: If 18 you have to travel 100 miles or 200 miles or 500 miles to 19 basically sell your livestock, how could USDA provide a 20 closer market? Are there things that we should be doing 21 that we're not doing; things that would be able to be 22 helpful? 23 MR. HARPER: I don't know that I can answer 24 that. 25 DR. HAYNES: Well, certainly back to something 95 1 I mentioned earlier, Mr. Secretary, if the rules for the 2 state-inspected plants are released, then I would suggest 3 that the USDA do that so a state-inspected plant that 4 meets all the standards can ship nationwide. 5 That takes us back to local. Then you could 6 take your present cadre of USDA inspectors without having 7 to hire more and let them randomly inspect to be sure 8 these needs are met. See, the states would have to 9 maintain the standards. But you could randomly inspect to 10 be sure that's being done with your present cadre of USDA 11 inspectors, and that would free up local trade. That's 12 not an overnight thing. But the small packing plants 13 coming back will bring the small feeders back, will bring 14 meat production and sales down to a local level. 15 You mentioned technology earlier. The video 16 has actually exacerbated concentration because they can 17 get more cattle in one shot. And the fact that you maybe 18 get a nickel more, a nickel less, the problem is you're 19 not dictating the price based on what it costs you to 20 produce the animal. The only way to do that is direct 21 retail sales. And the only way, really, for most of the 22 people in this room -- whatever the product is -- is to 23 have local retail sales that -- at least regional retail 24 sales -- are local and regional packing plants that cater 25 to the small and medium-size producer. 96 1 We still have to solve the shelf space 2 problem. But I think we can do that in a cooperative way. 3 I think we can do that by having our individual states 4 regulate fair trade and monopolistic activities. So I 5 don't think the USDA has to do everything. But I think to 6 allow us at least the infrastructure -- which is what I 7 consider -- me, as a producer and the meat packer and the 8 small family feeder, really -- is the infrastructure in 9 supplying red meat and fiber to the nation. 10 So the USDA has a role in that. The retail 11 part of that, the supermarket part of that, I think that 12 goes back to the states. And we should, as producers and 13 taxpayers and voters, we should be able to deal with that 14 on a local level. 15 SECRETARY VILSACK: Robbie, you basically can 16 tell us about the economics of this. But what would it 17 take, if you were starting from scratch, to do what -- to 18 replicate what you're now doing with your operation? What 19 would it take? How could the USDA be helpful, apart from 20 inspection issues, but from a financial perspective? 21 MS. LeVALLEY: Again, when we purchased the 22 plant, it took significant upgrades to make it so that it 23 was -- that it did pass all of the USDA inspections. And 24 we are -- we will average two to sometimes even as many as 25 four -- but the majority of the time, there's two 97 1 inspectors and they're full-time. We welcome that. We 2 use that as a marketing tool to show that there is that 3 oversight for not only the food safety but for marketing, 4 in general. We use that. 5 One thing that in -- we talk about rural 6 development and we talk about what can be done for the 7 young people. There are -- we have received a value-based 8 marketing -- to expand our market into ready-to-eat 9 entrees. And we did receive a USDA rural-development 10 grant to do that. But that limitation on rural 11 development where you cannot build infrastructure, 12 purchase equipment under the rural development really 13 hinders. 14 You can study something until you're blue in 15 the face. But if you can't implement the results of your 16 study -- meaning you can't purchase that $30,000 piece of 17 equipment without a significant rigmarole, that's where if 18 there was a lower base there that would be easier to work 19 with, that would truly help from the rural development 20 side. Now, there are programs where you can purchase 21 equipment. I certainly understand that. We've looked 22 into that over and over. But it's that onerous 23 regulation -- again, we cannot regulate the marketplace -- 24 that really causes us trouble when we try to implement 25 some of our development grants. 98 1 SECRETARY VILSACK: Let me clear about this. 2 In terms of regulations, are you talking about the 3 application process or are you talking about some 4 restrictions in terms of geography? 5 MS. LeVALLEY: We're talking about the 6 restriction on what you can use those dollars for. 7 SECRETARY VILSACK: So flexibility in terms of 8 the dollars? 9 MS. LeVALLEY: Correct. 10 SECRETARY VILSACK: Okay. Any other panelists 11 want to weigh in on that? 12 MR. SENTS: Well, certainly, you know, the 13 programs that provide low-interest loans for beginning 14 farmers and ranchers, I think, are -- you know, serve a 15 good purpose that way to encourage that type of thing. 16 And the whole issue on the -- to address the efficiency 17 that is needed to operate some of these different packing 18 plants and that type of thing, you know, just continued 19 research in some of those areas that might benefit smaller 20 operations to succeed economically. 21 But I think also just enforcing the laws that 22 we have will do much to keep a diversified, efficient 23 operation size. And the -- GIPSA is attempting to do that 24 now. You know, another area that's going to have to be 25 addressed is -- this whole market power thing just gets 99 1 passed down the chain. We have to have it addressed at 2 the retail level to address what the packers, you know, 3 face in their operations, which is passed down to us, 4 then, and somehow get a handle on this distinction between 5 market power, size for that, versus the economy as size 6 efficiencies. And we've just shifted and went beyond 7 efficiencies to just accumulating market power. 8 MS. LeVALLEY: I'd like to address the 9 young-people side. I deal with young people in our area 10 on a daily basis. And there are five young producers 11 ranching -- again, families that have come back in the 12 last three years. They want to be part of the 13 infrastructure. They are -- struggle with just, as 14 mentioned earlier, the access to capital, the access to 15 the operating, especially now with the ever-increasing 16 regulation when it comes to operating capital. So there 17 is that willing desire to come back. But it's the overall 18 picture. 19 We use the Internet very well to market our 20 product to tell our story. We are all cattle producers 21 and we all have a quality product and we have people that 22 are external to this industry that are trying to say that 23 we are bad and that we are bad people and that we treat 24 our animals bad. That's how you can effectively use that 25 Internet to tell your story. Again, we are all cattle 100 1 producers. 2 But when we work with young people, again, on 3 a daily basis, they're concerned about, What is the sage 4 grass issues, endangered species going to do? What about 5 the estate tax? What is that going to be? What about the 6 clean water? What about dust? All of those things -- 7 again, it's that increasing regulation that as we sit down 8 with young people, we really have to take the big picture. 9 There's so many external people out there that want us 10 out. We should not be circling the wagons and shooting 11 inward. 12 MR. HARPER: Mr. Secretary, that brings up a 13 good point, if I could mention one thing. We've got -- 14 recently there was a decision made on the Payette National 15 Forest in Idaho. We're going to lose potentially five 16 ranching families in the sheep business. One of the 17 largest producers in the United States is greatly 18 affected. 19 And, you know, you talk about encouraging and 20 trying to get people to stay there. His younger brother's 21 got three young children and he's excited about the 22 business, and now he's been kicked off the Payette Forest 23 because of bighorns. And there's been -- I think the 24 Carlson family is one family up in that area that's been 25 there since 1928. And they've lived there with bighorns 101 1 the entire time, and there's still been no significant 2 proof that disease is communicated back and forth between 3 domestic sheep and bighorn sheep. 4 But the easy quick fix is to just oust the 5 rancher and off he goes. And it affects -- it affects my 6 market because we buy lambs from them and we feed them and 7 we provide that product to the public. 8 MR. PETERSEN: As far as rural development, 9 you know, there's been a lot of money invested in rural 10 America, and I'm sure that will continue. But we need to 11 invest in our main streets and infrastructure that, quite 12 frankly, in this day and age promotes and enforces more 13 localized agriculture. Okay? The State of Iowa invested 14 in Supreme Pack in northwest Iowa. That's where some of 15 the Niman ranch hogs go and that's where some of the 16 Berkshire Gold hogs go. It's providing a service to 17 small, independent producers. 18 And, you know, the last thing I want to see 19 is -- and backing up a minute, we need to evaluate who's 20 going to benefit first from rural development funds. You 21 know, I see a lot of bad things going on; I see some good 22 things going on. The last thing I want to see is 23 guaranteed loans put out there by the feds and the 24 taxpayers to back up vertically integrated packing 25 facilities. 102 1 MR. WEISER: Alden, do you have a point? 2 MR. ZUHLKE: Yeah. Again, I'm just speaking 3 from experience. My second son is actually using equip 4 funding, and that's been a very -- the oldest son used it 5 also, and I've used it in the past. That's been very good 6 for us. He's also -- the second one is also looking into 7 young farmer ownership. And there's, obviously, a lot of 8 requirements. And he has the ability to do the paperwork 9 to get it done. So we will get it accomplished. But, you 10 know, I don't want to make light of the fact that one 11 thing that they are requiring is that he has a three-year 12 contract to sell his hogs to somebody. 13 So, you know, the contracts are very important 14 for these young people. That's the only way the bankers 15 are going to let them secure these loans. 16 MR. WEISER: So a question that has been 17 diverted to -- I want to pick up on it -- is premium or 18 niche offerings that give people a differentiated product. 19 How significant is that and how real is that opportunity? 20 I think a couple of people have mentioned it. Taylor, you 21 mentioned that in your case, and Robbie as well. Why 22 don't you two start and then others -- 23 DR. HAYNES: Yeah. That niche is two-tiered 24 for us; certified grass fed, organic. Obviously, retail 25 is where the great deal is. And retail can be six-, 103 1 seven-fold over -- over what the commodity price is. But 2 on my wholesale side, we run about 30 percent -- we'll 3 average about 30 percent higher prices than retail market. 4 But everything that happens on the commodities 5 side for fed cattle affects us. Because if we don't take 6 a contract, if we don't cut a deal with a major purveyor, 7 then the only place we can go is the commodities side. So 8 they use that against us too. But it does provide us some 9 margin and some cushion to be certified organic. And 10 there are a fair number of hoops to jump through, so it's 11 not just something you do. It's a way of life and it's a 12 mindset. But it's not hard to do. It's not rocket 13 science at all. 14 For young people, my son -- I'm the fourth 15 generation in ag -- production ag since slavery, 16 continuously, and my son is the fifth. And for him, the 17 fact that we're certified organic -- and he is an 18 excellent marketer; we do Internet sales as well -- that 19 really is the thing that allows him to come in and have a 20 future in the business. 21 MR. WEISER: Robbie? 22 MS. LeVALLEY: Value-based marketing has given 23 our family and our direct marketing business the 24 opportunity to compete at the highest level. But even 25 before we started Homestead Meats -- again, those 104 1 value-based marketing where we had that relationship with 2 the individual that provided the feedback -- that gave us 3 the information to improve the quality of our cattle. And 4 when we improved the quality of our cattle, then we had a 5 significant increase in the choice grade. 6 When we had the significant increase in the 7 choice grade in our cattle -- and there was an increase in 8 that subsequent price received for the cattle -- that's 9 value-based marketing. And that was the only way that we, 10 as someone who was in that 300- to 500-head range, can 11 actually take advantage of that quality and compete. It's 12 having that quality-based contractual agreement that 13 rewards quality. 14 MR. WEISER: Mike, did you want to add -- 15 MR. HARPER: No. 16 MR. WEISER: Allan? 17 MR. SENTS: I'd just say we've seen a great 18 benefit -- we are a CAB-licensed feedyard; Certified Angus 19 Beef. And since beginning that about 12 years ago, we've 20 made improvements in our facility, also the training of 21 our people, and also then the quality of cattle that we've 22 handled. And a lot of that's been the information we've 23 provided back to the rancher to make the improvements that 24 have been mentioned. So we've been real active in that 25 process. 105 1 And the neat thing about that -- yeah, there's 2 some of these niche programs that are great for the people 3 involved in them. But in terms of the volume of premiums 4 available, they rest in the USDA-identified grades -- 5 prime, choice, certified Angus beef -- that are available 6 to anybody. Those premiums are determined in an openly 7 negotiated marketplace. It doesn't take specialized deals 8 to get access to those things. And those are premiums 9 that are determined in the marketplace. And we have found 10 great value in them and appreciate that and that know they 11 will be continued, even under, you know, updated rule 12 changes and that type of thing. 13 So we have found great value in them and 14 certainly look forward to being able to capture that in 15 the future and know that that will happen. 16 MR. PETERSEN: Well, the number one thing 17 about, you know the niche market is there's good profits 18 in it. And, you know, the Berkshire program they sell 19 private -- and the Berkshire Gold -- their profits are 20 basically one-third to double, you know, the price of what 21 you're getting for your livestock. 22 Now, we've got to get smarter in the 21st 23 century here with food. And I'm talking about food miles. 24 You know, food travels, on average, every bite you take, 25 1,500 miles in this country. And in the time of us trying 106 1 to deal with energy costs, we've got to rethink the whole 2 structure of agriculture here. There's things we need to 3 promote more than others. There's other things we need to 4 discourage. 5 And my priority -- I'm a firm believer, you 6 know, it's safer to eat -- quality control is great 7 because I eat it too. And I don't use antibiotics and -- 8 and, you know, the quality is there. And that's -- a 9 wonderful thing we used to have in this country 20 and 30 10 years ago was a more localized, regionalized food system. 11 It worked. It worked. We fed this country for decades. 12 It worked. And my personal opinion is that, you know, 13 letting this consolidation and concentration get out of 14 hand has contributed to the public health crisis in this 15 country and has contributed to the food safety problems in 16 this country. And, you know, I'm from Iowa. You-all have 17 been reading about the ag recalls. End the concentration 18 in the ag industry. I hope I made my point. Thank you. 19 MR. LIVERMONT: Secretary Vilsack -- 20 SECRETARY VILSACK: Yes. 21 MR. LIVERMONT: I think this niche -- these 22 niche markets are good. But I'm thinking we probably 23 can't all get into niche markets. You mentioned what you 24 could do to get maybe the market closer. Well, I don't 25 have a problem with hauling my cattle to a market to get 107 1 price discovery. I mean, that's where we find out what 2 our cattle are worth and to, you know, just let everybody 3 bid on them that wants to. 4 Well, the problem we've got is getting our 5 fair share of them that the packer allows us to have, it 6 looks to me like. And I -- that's kind of -- that's kind 7 of the biggest thing of people -- these young folks in 8 business, is being able to get their fair share. 9 MR. WEISER: If I could follow up on that 10 point. You and Taylor said something. How far is too far 11 in terms of -- to have to haul your cattle? When does it 12 become cost prohibitive? Either of you can jump on that 13 point. 14 MR. LIVERMONT: It's a good question. I -- 15 we're lucky in western South Dakota. We've got markets 16 everywhere. I mean, we've got markets within 50 miles of 17 us and some people would rather go 100. I mean, it's just 18 their preference. 19 DR. HAYNES: Anything over 100 miles, I ship 20 it frozen; cut and wrapped. And live cattle, I try and 21 keep it under 100 miles. And I like to rest them once 22 they get there at least a day or two before they are sold. 23 MR. SENTS: Yeah. It's a bigger issue the 24 bigger the animal, I think. So for the finished cattle, 25 especially, we find, once we go -- it's about 180 miles to 108 1 the furthest plate -- plant in the state for us. And once 2 we go beyond that, we begin to see bigger issues in terms 3 of shrink and dressing percentage loss and that type of 4 thing. So certainly they travel further, but we find that 5 to be kind of a workable distance. 6 MR. PETERSEN: Yeah. The way it used to be 7 compared to the way it is today in the last few years -- 8 when I first started raising hogs, you know, you'd haul 9 them 10 miles down the road and they'd get weighed up 10 and you get a price. And, you know, it got to be where my 11 hogs were traveling 100, 200 miles to get to the market 12 as the industry consolidated. And you're paying the 13 freight and you're paying the shrink. Because them hogs 14 are not weighed until they get to that facility. So, 15 yeah, it's a huge discrepancy in the prices you're 16 getting. 17 MR. ZUHLKE: You know, I'm fortunate in 18 northeast Nebraska. You know, currently, I think it's 19 about 180 miles is the farthest packer. But I've spent 20 some time with some of the Montana guys. And, obviously, 21 they have a challenge. I -- you know, I don't remember if 22 it was 1,800 miles. It was a tremendous haul that they 23 have to haul. So their costs -- you know, it's tough. 24 You know, typically what happens in the hog industry is 25 they may become the icewing provider, which they can haul 109 1 greater quantities and then have them fed out in the 2 Midwest, so . . . 3 SECRETARY VILSACK: On the USDA Web site with 4 the "Know Your Farmer, Know Your Food" KYF area, there are 5 maps of the country. We've tried to begin the process of 6 trying to identify precisely where all the facilities are 7 so people can visually see where the gaps are. And I 8 think it's fair to say that -- you mentioned Montana. In 9 that part of the country, it is a challenge. 10 Now, in other parts of the country, there are 11 probably significant numbers and fairly convenient 12 opportunities. But in other parts of the country, there 13 are serious holes that probably need to be addressed, 14 which is one of the reasons why I asked the question about 15 rural development resources, whether or not we could 16 better use and better target those resources to meet that 17 opportunity if it was financially feasible to do it. 18 We have just a few more minutes left in this 19 panel. And I think what follows, if I'm not mistaken -- 20 John Ferrell -- is that folks pick up lunch and then they 21 come back for the opportunity for people to comment. 22 There will be numbers posted, I think, on the screen. And 23 if your number is there, you just stand in line and your 24 comments will be taken down. We have a reporter here. 25 And we appreciate the hard work of transcribing something 110 1 like this so that we have an accurate record. So we'll be 2 in the process in just a few minutes of starting that. 3 But i'd like to give everyone just a minute to 4 summarize and put it in this perspective. If we came back 5 here because the good doctor made sure that we were all 6 healthy five years from now, what would you like to see 7 the situation to be? How would the conversation hopefully 8 be, either the same or different? 9 MR. HARPER: Well, we've heard the same for so 10 many years, we're kind of accustomed to that. But I would 11 like to see definitely, the way we've about it -- we've 12 got to do something to stimulate some young people to get 13 back into agriculture some way, somehow. 14 We've seen nothing but our numbers decreasing 15 in the livestock industry. We've got to relax some of 16 these restraints on public lands. We've got to help our 17 ranchers with gradation. We've brought back the wolf. 18 We've protected the grouse. We've been -- the bighorns. 19 And the consequences of that are diminishing numbers in 20 the livestock industry. And if we don't work on some of 21 that stuff, I don't know that we can bring it back. 22 So I hope if we do this in five years, if you 23 guys would consider having me back up here, it would be a 24 whole lot better picture. 25 DR. HAYNES: Mr. Secretary, I would like to 111 1 see the room full, I would like to see the average age in 2 the room be about 40 or 35, and I would like people 3 talking about problems that they're having because we have 4 so many outlands now, so much direct marketing, and we're 5 making so much money we don't know what to do with it. 6 And I would like us to -- as an agricultural community as 7 a whole, I would like us to be somehow able to communicate 8 to consuming America that we really are the 9 environmentalists, that we really are the people that care 10 for the land and the animals. 11 So when we come back in five years, we won't 12 be concerned about consolidation because we'll be 13 decentralizing. We won't be concerned about imported 14 foods because the quality does not compete with what we're 15 producing. If we can somehow touch the market, that will 16 work itself out without regulation. So I'd like to see 17 that problem solved in the next five years. 18 MS. LeVALLEY: In five years, I would echo 19 that I would like to see the young people here also. But 20 I was reading minutes from an affiliate -- a cattle 21 affiliate from 1946. And here in 1946, the minutes were 22 they were concerned about the average age of the producer. 23 They were concerned that producers were getting off-farm 24 income. 25 So in five years, what I would really like to 112 1 see is again that there is that, more young people, and 2 that we have that true story about the good that we do, 3 not only for our animals and for the safe food supply that 4 we provide to the American people, but that message is 5 clearly communicated and understood outside of just our 6 circles that we really truly have that connection with 7 those individuals that may not understand how we do things 8 and care for animals. 9 But what also -- all of the information that's 10 been presented in the first panel and this one has been 11 good. But what we really need is that in-depth analysis 12 of the -- of all of these changes that are occurring or 13 being talked about and understand the unintended 14 consequences. 15 The proposed rule signifies structural change 16 with very vague language. And what I really want is there 17 not to be that vagueness so that we do have that young 18 person that can -- has that assuredness that, no, I'm not 19 going to be taken out because of that ever-increasing 20 regulation or because of the constant threat of litigation 21 in the business. Whether it be from something as simple 22 as the endangered species -- that's a joke -- or our own 23 marketplace. 24 So again, I would echo what everyone has said 25 about the young people. But I want the in-depth analysis, 113 1 and not litigation and intervention, that determines and 2 drives our ability for our young people to be in this 3 market. 4 MR. LIVERMONT: Well, I -- along with the fact 5 of wanting to see more younger people here five years from 6 now and quite a lot younger -- just picking out some parts 7 of this -- of the speech I thought I was going to give, 8 because the cattle industry is the economic backbone for 9 much of Indian country, the federal government must take 10 steps to prevent the concentrated beef packers and the 11 concentrated cattle feeders from engaging in the practices 12 that are eliminating the economic opportunities for 13 individual Indian operators. 14 We must preserve competition, not just in the 15 market between the cattle feeder and the beef packer, but 16 also in the market where Indian operators sell their 17 calves to backgrounders, stockers, and feedlots. 18 Competition is what prevents the beef packers from 19 controlling the cattle supply chain like they now control 20 the hog supply chain. And, I mean, that's -- that's what 21 we're up against. That's where our problem is. 22 MR. PETERSEN: Well, it's a heck of a wish 23 list I was writing down here. I could just keep writing. 24 SECRETARY VILSACK: You've only got a minute. 25 MR. PETERSEN: I've only got a minute the 114 1 Secretary tells me. Well, you know, like I mentioned 2 earlier, I'd love to see the packers have to go out to the 3 countryside to bid hogs and cattle and whatever else 4 again. So, you know, ban them from owning the critters. 5 That's the first thing. 6 I'd like to see everyone benefiting out of 7 this restructured system. And I mean everybody: the 8 family farmers, the consumers, and the packers. They 9 always have made money. They just got a little greedy 10 here. I'd like to see the environment benefit. We need a 11 cleaner environment throughout this country. Iowa, 12 unfortunately, is 50 of 50 in water quality. To me, 13 that's an embarrassment for our state. 14 I would like to see rural development working, 15 population stabilizing, beginning farmers wanting to farm. 16 I would like to see the food miles coming down on more 17 localized agriculture. I'd like to see food safety -- 18 better food safety, starting with family farms again 19 raising and owning the livestock, and the animal husbandry 20 issues out there. I think every independent producer 21 knows that any independent family farmer takes far better 22 care of them animals than anyone else on this planet. 23 Thank you. 24 MR. SENTS: In this country, we value our 25 freedom, I think, as much as anything. And if we're 115 1 honest with ourselves, we recognize that all freedoms we 2 enjoy are protected in some way. There's always an 3 individual, an entity, that in their own self-interest 4 will try to extend into the freedom of another. So we 5 want to recognize the freedom of individuals to contract 6 or make agreements as they wish, but we also recognize the 7 need for limits when that freedom imposes on the freedom 8 of another people. 9 If we will pursue a policy that will halt this 10 trend of concentration of size to just achieve market 11 power and we can diverse that through our rural 12 communities and pursue a policy that allows the most -- 13 the smallest economically efficient unit to survive, we 14 will disperse and keep -- spread out in our rural 15 economies in an active industry that will provide 16 opportunities for our young people. 17 So it's my hope that we will pursue policy 18 that allows those economically efficient units to survive 19 by securing that they've got access to a market. And if 20 we do those things, it will help the survival of our rural 21 economies, the employment of our young people, and the 22 best thing is it won't cost the federal government a dime. 23 MR. ZUHLKE: I think it's important that you, 24 you know, try to focus on some of the things we agree on. 25 And hopefully, everybody in this room would raise their 116 1 hand that we're all meat eaters. That's one of the 2 things -- you know, our industry, obviously, is worried 3 about packers and concentration and the spot market. But 4 what's being forced on us, not only regulations, you know, 5 within the environment -- which some of those we do need 6 to deal with. There's no doubt about it. But, I mean, 7 the groups that are coming at us and telling us we need to 8 raise animals in a certain way is probably a real concern 9 in our organization. 10 But there's one common theme in this group, 11 you know, and that is the thing -- we all want young 12 people back involved. You know, somehow we have to turn 13 the world around. I have just one little perspective. I 14 think that camera is pretty good. But there's -- our two 15 youngest kids are actually adopted. And I don't know if 16 that shows up on there or not. But anyway, we adopted 17 them from Haiti. 18 And so the underlying freedoms that we still 19 have in this country, you know, are enormous. In fact, I 20 spent time down there at different times. And the 21 restrictions they have -- you know, their best day, you 22 know, is not good. You know, it's a real challenge. So 23 we've got some real positives on here. And hopefully, we 24 can all work together and focus on things that will 25 improve and help each one of the industries and also look 117 1 at each individual industry. Because we are -- we are 2 diverse. 3 SECRETARY VILSACK: Phil, do you want to talk? 4 MR. WEISER: I think the one thing that's 5 worth saying is what was said at the outset -- and we're 6 only halfway through the day -- the amount of learning and 7 getting experienced people who are on the ground is 8 invaluable. And the aim here is this is not the end of a 9 process; it's really the start of an ongoing process to 10 make sure we're getting from you-all your perspectives, 11 your ideas. And even if someone like Harry doesn't know 12 all of the dynamics at work, that's our job, to take that 13 information and make sense of it. So thank you for 14 helping us -- enable us to do our jobs better. 15 SECRETARY VILSACK: I want to thank the panel. 16 And I want to take, I guess, a personal privilege for just 17 two minutes to speak about what I've heard and what I've 18 heard as I've traveled to virtually every state in this 19 country. There really is something at stake here more 20 than what we've talked about today, which is the 21 livelihood of good, hardworking producers and more than 22 the capacity of rural development, rural economies to 23 survive and small towns to thrive. It is really, as 24 Governor Ritter suggested, about the value system of this 25 country. 118 1 As I travel around the country, I try to tell 2 our urban and suburban friends something about rural 3 America, and the best statistic I give them is the 4 following: One-sixth of America's population lives in 5 rural America, but 40 percent of the men and women in 6 uniform come from rural America. So 40 percent of those 7 100,000 troops that are coming back from Iraq probably 8 live in small towns, probably grew up on a ranch or farm. 9 40 percent of those 130,000 young men and women that risk 10 their lives in Afghanistan are from those small towns, 11 those farms, and those ranches. 12 Why is that? Now, some would suggest that the 13 reason is because they seek opportunity through the 14 military for a better life. And that may be part of it. 15 But I think there's something more at work here, and that 16 is how young people are raised in rural communities across 17 this country. They are raised with a very simple set of 18 values. Hard work is its own reward; you are responsible 19 for your actions. 20 And they also understand something about 21 Mother Nature, which is that you can't keep taking from 22 the land; you have to give something back. You've got to 23 replenish it from time to time. And when you do, Mother 24 Nature will reward you with good and bountiful crops. The 25 country is no different. You can't keep taking from it. 119 1 Periodically you have to give something back. These kids 2 understand that because you-all have taught them that. 3 So as I travel around this country talking 4 about the importance of farming and ranching, I go beyond 5 the food supply, the fact that you're responsible for 85 6 percent of the drinking water in this country, the fact 7 that you're also helping to clean the environment, the 8 air, through carbon sequestration, which you-all do in 9 your fields. I talk more about this set of values. 10 To me, what USDA ought to be about -- and 11 hopefully it is about and under my leadership we're 12 looking to make sure it's about -- is expanding export 13 markets, creating more domestic opportunities, and having 14 more local consumption and production being linked, and 15 making sure that we do pay attention to food safety 16 because that does and can impact markets -- and certainly, 17 the innocent get hit very, very hard when there's a 18 food-safety incident -- making sure that we use our rural 19 development tools in a way that will help build up those 20 local market opportunities and create the off-farm income 21 that many farm families still need today and, in the 22 foreseeable future, will likely have to have. That is 23 part of the work of USDA. 24 These hearings are also part of our work, 25 which is to ask tough questions, to stimulate important 120 1 and significant debate on how markets are functioning, 2 who's benefiting, who's not and why, so that we can do a 3 better job of making sure that that value system that I 4 talked about remains alive and well. I think it's at the 5 core of this country, I think rural America is the soul of 6 this country, and it is worth preserving and fighting for 7 and worth making the difficult decisions that will have to 8 be made in order to do the very best job. 9 So I want to express my appreciation to all 10 who are here today because you all care deeply not just 11 about your own operations, but your community and about 12 rural America. And that says a lot and hopefully the rest 13 of the country is paying attention. Thank you all. 14 (A recess was taken from 12:03 p.m. until 15 12:41 p.m.) 16 MR. FERRELL: If everyone can go ahead and 17 take their seats, and we're going to go ahead and get 18 started with the public testimony part of today. There 19 will be two opportunities for public testimony today. We 20 will have an hour right now, starting right now, and then 21 later on today we'll have at least two hours more of 22 public testimony, starting at 4:15. 23 In addition to the opportunities to provide 24 public testimony in this room, there is also four computer 25 stations set up in the spillover rooms and also in the 121 1 lobby outside this room. And if someone has a comment you 2 would like to provide you can just feel free to go to one 3 of those computers and put in your comment. And there's 4 volunteers all over with green shirts on; if you have a 5 comment and you want to go ahead and do that just look for 6 one of those folks and they'll take to you take you to 7 where the computer is. 8 The public testimony part of right now is 9 fairly straightforward. If you wanted to provide a 10 comment, you should've taken a red ticket that is out 11 front here. And these ticket numbers were all randomly 12 selected by a computer. And so right now there is two 13 screens up and they have the randomly picked numbers just 14 to start off with right now. And if you see your number 15 up on the screen go ahead and line up at the microphones. 16 There is a microphone on each side here. And just go 17 ahead and line up. You don't have to go in the order the 18 numbers are listed. If you see your number just simply 19 line up at the microphone. 20 When you come to the microphone you will have 21 two minutes to provide a comment. And I do ask for your 22 cooperation in limiting your comment to two minutes. We 23 have a lot of people here today, and we want to hear from 24 as many people as possible so we ask that you keep your 25 comments to two minutes. We have a lighted timer down at 122 1 the end of the table here, and it will have lighted colors 2 from green, yellow to red. And so when you get to red it 3 will beep and you'll know you went over your time limit. 4 And again, so I'd ask for your cooperation on that so we 5 can get through as many people as possible. 6 So why don't we go ahead and get started. 7 What we'll do is we'll just go back and forth to each 8 microphone and we'll just take your comments. I do ask 9 that if you feel comfortable providing your name, say it 10 very carefully so that our court reporter can have it 11 transcribed correctly. If you don't feel comfortable 12 providing a name, you don't have to do that. 13 So with that, why don't we go ahead and get 14 started. And we'll start over here. 15 MR. SANDERS: Good afternoon. My name is 16 Chris Sanders. I'm with the United Food and Commercial 17 Workers Union. I'm here with about 100 people from all 18 over our union. We represent unionized grocery clerks and 19 meat packers. I'm personally from Kentucky. I traveled 20 all this way to speak on behalf of 20,000 grocery clerks 21 and meat packers and on behalf of 1.3 million members of 22 our great union across North America. 23 I want to say the same thing here that I said 24 in Alabama, what my brother said in Madison, Wisconsin, 25 and what my president has been saying everywhere he goes, 123 1 which is this: If we're not dealing with the retailer in 2 these hearings, then nothing really matters. We have to 3 deal with the monopoly that is dominating any and all 4 other monopolies beneath it. 5 Some folks are afraid to name names in the 6 room. I'm not. The biggest -- the most troublesome of 7 them all in retail is Wal-Mart. Wal-Mart, bigger than the 8 next three grocery chains combined, is driving the change 9 in the food dollar that's hurting workers, that's hurting 10 ranchers, that's hurting producers, that's hurting the 11 packing-house counties. They take too much and they give 12 us too little. We've got to do something about that. 13 So I want to say to the Department of Justice, 14 to the Department of Agriculture, and to the Federal Trade 15 Commission, who is not here yet but needs to be in these 16 proceedings, you've got to do something about Wal-Mart. 17 If we don't, all the other changes aren't really going to 18 make much difference. And the moment is here. We won't 19 have another moment like this for years and years to come. 20 We have to do something this time. 21 I want to say one more thing too. If there 22 are folks here from the industry, if there are folks here 23 from Wal-Mart, they should come to this microphone. They 24 should speak out the same way that we speak out. They 25 should speak out in front of everybody, transparent, and 124 1 express themselves. Don't wait to go to Washington, fly 2 in, have a power lunch, do your thing, and hide behind 3 your silk suits, your fancy cars, and your big dollars. 4 Speak your piece in front of everybody. Express your 5 feelings. That's what America is all about. Please, 6 please, please, do something about Wal-Mart. Thank you. 7 MR. FERRELL: Sir, we do ask that when you 8 come up, do provide your ticket so that we know that 9 you've been called on. 10 We'll now go over here. 11 MR. LEWINE (phonetic): Good afternoon. I'm 12 Steve Lewine. I'm in the farm division of the Iowa 13 attorney general's office. My boss, Attorney General Tom 14 Miller -- my boss, Attorney General Tom Miller wants to 15 thank Attorney General Holder and Secretary Vilsack for 16 the opportunity to discuss these issues. We've been 17 involved in working on issues involving access to free and 18 open markets for livestock producers for -- since 1995. 19 We've been involved in many different projects in that 20 area. 21 One of the things we were involved with was 22 developing a Model Producer Protection Act, which provided 23 a series of protections for livestock producers that 24 were engaged as contract producers for processors and 25 other integrators. That act has not been fully adopted by 125 1 any states. Several parts have been adopted in Iowa. 2 Also, in the 2008 Farm Bill, several portions of the 3 protections included in the Model Producer Protection Act 4 were included as part of that act. In addition, the new 5 rules proposed by GIPSA include additional protections 6 that were included in the Model Producer Protection Act, 7 and we are supportive of those provisions. 8 Finally, in 2003, our state was sued by 9 Smithfield Foods in a constitutional challenge of our 10 corporate farming statute, specifically the provision that 11 prevented processors from being engaged in contract 12 production in Iowa. After about five years of litigation, 13 we resolved that suit with a settlement pursuant to which 14 Smithfield agreed to voluntarily implement most of the 15 provisions of the Model Producer Production Act with 16 regard to their contract producers in Iowa. Shortly after 17 that, Tyson Foods, Cargill, and Hormel entered into 18 similar consent decrees with our office whereby they 19 agreed to live by the protections in the Model Producer 20 Protection Act with regard to their contract producers. 21 Since that time -- I wanted to point that out 22 because we hear a lot today about how those provisions may 23 stifle certain portions of the livestock sector. In Iowa, 24 since the bill's entities have agreed to live by those 25 guidelines that were set out, the contract production in 126 1 Iowa has actually increased. It has far from stifled the 2 industry. It has increased. We have more contract 3 production in Iowa now than we have had anytime in 4 history. 5 Again, our office has been involved for a long 6 time with these issues. We're anxious to provide whatever 7 assistance we can with regard to developing a final rule 8 with GIPSA, with other attorneys general from other 9 representatives from the industry, and with other agencies 10 of the federal government to be involved in developing a 11 final rule that works for all parties in this industry. I 12 think everyone's goal is to develop the best market 13 discovery, the best access to free and open competitive 14 markets for farmers that we can. Thank you. 15 MR. HAYES: I'm Scott Hayes. I'm an 16 independent pork producer from Missouri. I would 17 encourage the Department and DOJ to look at what happened 18 in Missouri about ten years ago when we passed similar 19 legislation on price discovery. 20 The governor -- in seven months, the governor 21 called a special session just to do away with that 22 legislation it was such a mess, such a fiasco. But in 23 that period, we lost the only packing plant that was 24 killing independent hogs -- independent producers' pigs. 25 The University of Missouri says that the pork producers in 127 1 Missouri lost $5 per pig during that period. And we 2 continue -- that continues to cost us now because we have 3 to ship our pigs farther away. 4 The other thing I'd like to say is it's my 5 understanding from the World Health Organization that we 6 have to double food -- the food supply worldwide in the 7 next 40 years. That's going to provide a lot of 8 opportunity for young folks. It's going to provide a lot 9 of opportunity for people like myself. There's no one in 10 the world that can do a better job of producing pigs than 11 we can right here. So I ask the Department to just leave 12 us alone and let us produce. Don't raise the cost of our 13 production where the foreign countries can outproduce us. 14 Thank you. 15 MR. FERRELL: Just one quick point. If 16 someone is in a spillover room and they see their number 17 up on the screens, they can come -- go ahead and come in 18 and line up at the microphone. 19 MR. MEYER: Thank you. I'm Vaughn Meyer, a 20 producer from northwestern South Dakota and chairman of 21 the South Dakota Stockgrowers Marketing Committee. And 22 I'd like to relate briefly to that which will not be said 23 here today. 24 The silence here today is representative of 25 the 370,000 producers who through the past 16 years have 128 1 lost their hopes and dreams in production agriculture. 2 That silence is also from the half a million family 3 members that saw their last hopes and dreams of their 4 ranch in rearview mirrors. That silence is also from the 5 215, 000 main-street businesses that have exited our small 6 towns in the last decade. 7 This issue is not about organizations against 8 organizations or producers versus feeders, packers, and 9 retailers. We are here today to strengthen the previous 10 rules in order to rebuild America's largest industry: 11 family agriculture, a rebuilding that once again will put 12 the laughter and prosperity into our small towns, a 13 prosperity that will carry into our major cities and to 14 the footsteps of our capital, a prosperity that will 15 rebuild the foundation of this great country that it 16 was -- was once founded upon, and a prosperity that's also 17 to prerequisite for our national security and our 18 industrial superiority of the United States of America. 19 Mr. Secretary and Mr. Butler, on behalf of the 20 South Dakota Stockgrowers, I thank you for the 21 once-in-a-lifetime opportunity to stand before you today 22 and witness the rebirth of family agriculture. And as a 23 member of the South Dakota Stockgrowers, we proudly 24 support your endeavors. 25 Now I have one quick question someone answered 129 1 in relation to Secretary Vilsack's comment on developing 2 foreign markets. As a member of our South Dakota Beef 3 Council, I applaud these efforts and -- we work hard to 4 develop those markets and we can sure help in developing 5 those markets. However, that's as far as we can go. We 6 do not have control of those foreign markets just like we 7 do in our U.S. markets. Those markets are all 8 concerned -- controlled by the same people that are 9 controlling us here domestically. Thank you. 10 MR. HOFFMAN: Hello, panel. I thank you for 11 the opportunity to speak to you. My name is James 12 Hoffman, Fort Pierre, South Dakota. I'm a cow-calf 13 operation and ranch. And it all boils down to 14 profitability to keep the farmer and the rancher on his 15 land. And some of the things that sort of took this 16 profitability away is the interstate eliminating of small 17 packing houses. Where in South Dakota, we've got three or 18 four states right around us, Nebraska and Iowa -- in 19 Nebraska, a small butcher cannot sell his product across 20 the line, which puts a great handicap for the smaller 21 towns. 22 Same way with our marketing our cattle, where 23 it's been stated before where you've got one day or one 24 hour or 15 minutes to make up your mind when you go to 25 sell or not. And packer ownership -- when they've got 130 1 ownership, they can control everybody else. Because when 2 the price is high, they'll sell it by their own and sell 3 them. When the prices are low, they'll buy your cattle. 4 And another thing that the -- several of our 5 stockers went to court against -- one of them was against 6 IBP and they beat them. And the jury awarded the 7 stockgrowers -- or the stock producers a large sum of 8 money. And the judge says, I don't know how to divide 9 that up, so we'll throw it out. Well, what good is our 10 justice system with our jury of 12 people and a judge 11 overrules? I call that dictatorship. 12 And there's -- I'll cut this briefly. One way 13 to keep the farmer and rancher on there -- I'm getting 14 ready to -- pretty close to retirement. If you do away 15 with the inheritance tax and give it to a son or daughter 16 that's on the ranch, and as long as that son operates that 17 ranch for ten years, that tax would be forgiven. And then 18 for the next generation to pass on, establish the value of 19 that land at the time the first giver gave it away. So 20 when the second son, or the one to do his land, you'd have 21 a basis for inheritance tax down the future. And this 22 would not cost the government anything. It would greatly 23 enhance the rancher and the new rancher coming in. 24 I thank you for your time and God bless you. 25 MR. SINETT (phonetic): Thank you very much. 131 1 My name is Richard Sinett, and I'm a cow-calf cattle 2 producer there in California. And I'm here to defend the 3 cash cattle market. 4 The cash market's reported to be approximately 5 50 percent of the total market. This cash market's 6 already thin as a result of the structure of the industry 7 and the number of outliers which do not reflect the true 8 market. The only way to protect the cash market is to 9 halt the growth of captive supplies and possibly even roll 10 back the practice. As it should be, the language of 11 Section 2(a) and (b) of the Packers & Stockyards Act does 12 not require the finding of harm to the industry. The 13 definitions and clarifications found in new proposed 14 regulations attempt to make that clear. 15 I am here to support the adoption of the 16 proposed rules and regulations. However, some small 17 adjustments might be necessary after some of the things 18 I've heard today. However, how is it that if I strong-arm 19 someone out in the hall I could be put in jail, but if 20 a -- but to receive just and due compensation for my hard 21 work and efforts, I have to prove that there is an injury 22 to the industry and not just to myself? That's a pretty 23 ridiculous test to overcome. 24 So I would appreciate your consideration of 25 these new proposals. And I thank you for your time and 132 1 your presence here. Thank you. 2 MR. SHOEMAKER (phonetic): Herman Shoemaker, 3 Prairie, South Dakota. And I can't appreciate enough the 4 meeting that we're having here today. 5 I want to talk about a couple of issues. I'll 6 get along as fast as I can. If I understood Ms. LeValley 7 correctly, she markets one-third of her cattle through her 8 niche market and two-thirds go, then, to a feedlot where 9 they also get an added value. And then my question to her 10 would be: The two-thirds that she does go to feedyard 11 with, does she go to one like Mr. Sents' where he has a 12 10,000-head feedyard? But if I understood him correctly, 13 he gets less money for his cattle than larger feedlots do 14 down the road just simply because of volume. 15 So how much of this market today is not 16 value-added based but volume based? And right now, 17 today -- yep. And, you know, another thing that's not 18 been talked about at all today is the intimidation factor. 19 Now, I'm a fellow you probably read about that -- Tyson 20 Foods hung a sign on my door "No Trespassing." We beat 21 them in the courtroom. The appellate court overturned it. 22 They turned back on me and two other individuals in trying 23 to collect their court fees for that. 24 So the intimidation factor being, a man like 25 Allan Sents -- now, I myself, am a 10,000-head feedyard 133 1 owner. And Allen Sents, the courage that he takes to go 2 up there and testify today when knowingly they could very 3 well intimidate him and stay out of his yard -- I've had 4 that experience. I've -- I was a livestock market owner 5 for 30 years. And I tell you what, if I would treat one 6 of my customers the way I've gotten treated by Tyson 7 Foods, I wouldn't have a head -- I couldn't have gotten my 8 own cattle to go there. 9 But what I'm saying is I've had Tyson Foods 10 come bid on my cattle and give me -- give me that 11 five-minute window. And when we talk about all the 12 technology that's out there, there is no technology until 13 about five minutes on Friday afternoon when they finally 14 post the price maybe; sometimes not until Monday. But 15 anyhow, I've been hold that, Either you take this price or 16 you're going to have to go into next week. 17 Well, if they're customer cattle, I call up 18 the customer and say, Are you ready to sell them or -- 19 yeah, he'll say, go ahead and sell them. I'll call IBP 20 back and they'll say, Well, it's too late now; we're going 21 to put you in the next week. Okay. Then you panic. You 22 sell them, right? He'll call you back the next day and 23 say, By God, Herman, we found room for them; can you load 24 them Sunday for Monday morning's kill? Now, that's a 25 downright outright lie, and I've experienced it. I've 134 1 been in the feedyard business for 25 years. 2 So I tell you what, the intimidation factor 3 out there is real. There would be more food lots here, I 4 guarantee you. But there's fear. And I guess I've pushed 5 the -- I've pushed it far enough to where they've had the 6 courage to put a sign on my door. But like I say, there 7 would be more feedyards here if the fear wouldn't be 8 there. So thank you again very much. This is a moment in 9 time. 10 MR. WEBER (phonetic): Mr. Secretary, my name 11 is John Weber. I am a pork producer from east-central 12 Iowa, and I'm here to share a few concerns that I have 13 about the new GIPSA rules that were handed down in June 14 and how they regard -- affect the pork industry. And I 15 realize that the different species have different issues 16 and different problems, and I respect that. But 17 certainly, some of these rules are very problematic for 18 the pork industry. 19 I've been a livestock producer my entire life, 20 raising both cattle and hogs in East Central Iowa. For 21 the last 20 years, I have focused on pork production, 22 raising my own hogs, as well as custom feeding for a major 23 packer. I have been involved in just about every 24 marketing contract arrangement and future hedge position 25 that you can imagine and have recently entered into a 135 1 production contract with a major packer. 2 It is this ability to use these tools that has 3 helped me in my business. It is also allowing my son to 4 take over the business with better risk management. 5 Production agriculture by nature is an extremely 6 competitive business. Regardless of its size, it is 7 competitive. It is competitive right to the very moment 8 the consumer puts food in his mouth. 9 If my pigs score higher on a premium scale 10 than my neighbor's pigs, I expect to get paid for that 11 premium. If I get up at 2:00 a.m. to deliver those hogs 12 to the packer, I expect to get paid for that service. If 13 a snowstorm is coming, I expect my processor to have the 14 right to pay me more that given day or that given moment 15 for pigs than he made the next day without justifying it 16 with a written cost analysis to GIPSA. The new rules will 17 make it difficult if not impossible to negotiate these 18 types of premiums. 19 Another rule that is problematic to the 20 industry is that the contract must be long enough to allow 21 me, as a producer, to get back 80 percent of my initial 22 investment or investment that I have to make along the 23 way. That may be fine and dandy for some producers, but 24 not in every case. And on that particular rule, I think 25 the producers should have the option to opt out of that. 136 1 He may have other plans before that cost recovery is 2 achieved and/or other opportunities. So the producer 3 would need the opportunity to at least opt out of that 4 particular clause. 5 As I look at this rule from the other side as 6 a pig owner, I'm going to say that if I have to guarantee 7 a producer 80 percent of his initial investment back, I 8 will just go to the building myself. This rule alone will 9 further vertically integrate the industry and eliminate a 10 lot of producers around the country. Combining this with 11 all the paperwork, administration, and work with the legal 12 liabilities that these vague rules imply, I am afraid you 13 will achieve a far greater rate of vertical integration 14 than we have at this point in time. Thank you. 15 MR. BULLARD: Thank you. I am Bill Bullard 16 representing R-CALF USA. And by design, U.S. cattle 17 producers are currently caught in a classic Catch-22 18 situation. Cattle producers are leaving the cash market 19 at an alarming rate. They're doing this because the cash 20 market has persistently produced prices too low to cover 21 their costs of production. 22 These producers have exited the cash market to 23 seek out alternatives. Many have entered alternative 24 marketing arrangements and formula contracts. This 25 remains the only game in town in order to beat this 137 1 dysfunctional cash market that was persistently producing 2 low prices. And now the U.S. cattle industry is midway in 3 the highly successful and anticompetitive strategy of the 4 meat packers that they are deploying in this industry to 5 capture control over the live cattle supply chain just as 6 they've already captured control over the hog industry and 7 the poultry industry. And they're doing this in a very 8 straightforward manner. 9 Their strategy includes four steps. Number 10 one, they create an entirely new economic risk in this 11 industry, and that risk is market-access risk. The 12 markets, by virtue -- or the packers, by virtue of their 13 market control, a handful of them are controlling who does 14 and who does not have timely access to the marketplace 15 when these perishable animals are ready for slaughter. 16 Second step. They then solve the problem of 17 market-access risk. They do this by offering to guarantee 18 access if the producer is willing to sign a contract. As 19 a result, more and more producers leave the cash market. 20 It becomes thin, highly susceptible to manipulation. As 21 the price lowers, the aggregate price of all cattle 22 lowers, including the cash price, all the alternative 23 marketing agreement prices. All of those that are lowered 24 as a result of the dependence on the cash markets continue 25 to be the price-discovery market. 138 1 What we need to do now is for USDA and the 2 Department of Justice to take aggressive steps to stop the 3 monopolization of our U.S. cattle industry. They must 4 take the first step and that is to prevent the packers 5 from creating this market-access risk. And then what they 6 have to do is they have to ensure the integrity and the 7 functionality of the cash market. We believe the USDA 8 proposed rule does just that. It addresses the four major 9 affronts to competition, and we support it fully. And I'm 10 out of time. Thank you. 11 MR. SMITH: Thank you. My name is Mark Smith 12 and I'm president of the Kansas Livestock Association. 13 Our organization was formed in 1894 and represents all 14 cattle industry segments from seed stock, cow-calf, cattle 15 feeders, land managers, and diversified farming 16 operations. 17 The Kansas livestock industry in the state of 18 Kansas is very important to our producers and also the 19 state. We have 70,000 meat production workers in the 20 state of Kansas. The Kansas livestock industry supports 21 over $10 billion of economic impact to our state. So this 22 issue, this topic of this workshop, is also very 23 incredibly important to our state, and not only to the 24 producers of the state of Kansas and the members of the 25 Kansas Livestock Association. 139 1 We have a lot of concerns with this -- with 2 these rules. We are asking that GIPSA and the USDA do a 3 serious economic analysis of all that can happen with 4 these rules. We believe that there's a lot of vague 5 answers, a lot of vague rules that can have serious 6 impacts to the livelihood of the farmers and ranchers on 7 this land. Our initial analysis shows that it's going to 8 have negative impacts. So as this regulation is in its 9 current form, we oppose this regulation. We believe that 10 it's going to lead to further negative impacts in our 11 industry. 12 I'm a small farmer, small cattleman. I 13 produce cattle for U.S. Premium Beef. I'm a member of 14 U.S. Premium Beef. I also sell in the cash market. I 15 also sell and formulate in markets on feeding cattle and 16 other feedyards. I believe these rules and regulations 17 being vague are going to have a detriment to my way of 18 living off the land out in western Kansas. We want you to 19 have serious consideration and serious thought and serious 20 analysis before any of this regulation is adopted. We 21 want to keep this dialogue box open and want you to be 22 sure that when you analyze every fix, it's a solution to a 23 real problem before any regulation is finalized. Thank 24 you. 25 MR. HENNING (phonetic): My name is Tim 140 1 Henning. I'm from Ranier, Minnesota. I am a fourth- and 2 final-generation farmer from southwest Minnesota. 3 In the mid-1990s, a neighbor and I bought all 4 the cattle off a ranch in Montana. He took the heavy end; 5 I took a light end. They were basically fed the same 6 ration, same genetics. When it became ready about the 7 same time, a major packer came out, looked at my cattle, 8 gave me a bid, drove over to my neighbor's and gave them a 9 bid. I called John. I said, What did you get for yours? 10 He informed me that his bid was $2 higher than mine. When 11 I called the packer/buyer and questioned him, his comment 12 was, What do you got; a damned hotline between the two 13 places? 14 After pressuring him, he openly admitted that 15 the reason that John got more than I did is because he -- 16 he'll sell him 20 loads of cattle in the next year and 17 I'll only sell him two. So I joined a marketing group -- 18 oh, let me back up a minute. That was the last time that 19 that packer and I were able to do business. Not by my 20 choice; by his. My cattle were either not what he was 21 looking for or they were -- the bid was ridiculously low 22 or he just was out of the market. 23 So I joined a marketing group. We formed a 24 niche market on the east coast with a packing plant there, 25 took the choice roasts and the steaks out and went to 141 1 high-end restaurants. The balance went into hamburger. 2 That was bought out by another packer. That niche market 3 died. Last week, my marketing group was indirectly 4 informed through innuendos and other means that if we 5 showed up at this meeting, they may or may not be able to 6 buy our cattle in the future. 7 My question to you is: If these GIPSA rules 8 are not enforced, if the Packers & Stockyards Act is not 9 enforced, where will I be able to sell my cattle? Who 10 will stand up for me if you don't? Thank you. 11 MR. BACH (phonetic): My name Darren 12 (phonetic) Bach. I'm a hog farmer from Boyd, Minnesota. 13 I did have a prepared statement, but I'm not 14 going to use it. The reason being Secretary Vilsack, in 15 his opening statement, did such a good job of hitting on 16 all the points I wanted to make, I don't think I could add 17 much to them. The one thing that he did seem to be very 18 interested in, both in his opening statement and some 19 follow-up questions, was about the open market, 20 particularly in hogs. He had pointed out that recently, 21 we went below 4 percent on the purchases that were made on 22 the open market. And what can we do on the spot -- do to 23 protect and legitimize that spot market? 24 If you look on the USDA's data, it shows that 25 packers buy more hogs from other packers than they do from 142 1 producers on the spot market. There's two problems with 2 that, these packer-to-packer sales. One, they're avoiding 3 coming into the market and bidding for the hogs that they 4 need, which holds on the price. And as Secretary Vilsack 5 pointed out, most of the other hogs are sold on some type 6 of a formula based on that open market price. 7 The second thing it does is it sends price 8 signals to the pack -- to each other on what they're 9 paying for their hogs. He came out -- in the question 10 session, he asked what can be done to try and help the 11 open market to make it a viable, open and competitive 12 market. My answer is ban these packer-to-packer sales and 13 implement the GIPSA rule. 14 Now, I hear a lot of complaints from the 15 packer-producer groups about the vagueness in the rules. 16 My question is: What are the rules now if not extremely 17 vague or nonexistent? I mean, they're there but just 18 not -- they're so vague that that's been what the problem 19 is. And that was the directive of Congress, to clarify 20 these rules. If they need some further small 21 clarifications, do it. But implement the rule. Because 22 if you do not, independent hog producers will be gone 23 before this term is up of Secretary Vilsack and the rest 24 of the administration. Thank you. 25 MS. WILLIAMSON: My name is Dawn Williamson. 143 1 I'm a pork producer from North Carolina. My family and I 2 run 3,000 sows. We run those sows on two separate farms. 3 We sell pigs on contract with two different integrators 4 under terms that are fair and equitable to everybody. 5 I want you to understand, gentlemen, that I 6 take a lot of pride in my ability as a herdsman. I also 7 take a lot of pride in my ability as a business person. I 8 take very, very strong exception to the notion that a 9 government agency feels like they have the need to come in 10 and check and approve of my private business contract. As 11 an aside to that, I particularly don't want my business 12 published on the USDA Web site. That's a matter of my 13 private business and not for the world to see. 14 The proposed GIPSA rule as its written is 15 vague and it overreaches its intent. It's potentially 16 harmful to my industry, to my farm, and to my family's 17 financial future. And I would ask that USDA withdraw it, 18 go back to the table, and try again. 19 MR. FOX: Hello. My name is Kenny Fox. I'm 20 the president of the South Dakota Stockyards Association. 21 And we represent cattle ranchers and a few independent 22 feeders. 23 We support this rule. We think it's 24 necessary. We also feel that this ban on packer ownership 25 should be there as a -- what happened to us in 2005 when 144 1 the Canadian border was closed and cut off the captive 2 supply of the packer, our market jumped several dollars 3 higher practically overnight. We sold the highest priced 4 cattle we ever sold in 2005. And the price of meat was -- 5 choice retail meat was $4.09 a pound. Today, retail 6 meat -- choice meat is $4.49 a pound and we're $100 to 7 $150 less on the price that we're receiving for our 8 cattle. We need -- we need this protection. We need to 9 keep our people on the land. And it's all about a market. 10 If we don't have a market, nothing else matters. Thank 11 you and we appreciate your work. 12 MR. HERZEG (phonetic): My name is Don Herzeg, 13 independent producer from very rural Montana. And the way 14 this rule is written is vague, and I don't think there's 15 any argument about that. There's a lot of agreement here 16 today that it is vague. And we've had people analyzing 17 this ourselves and even an attorney. What does it mean? 18 We have not gotten a definite answer because no one is 19 sure. And so we don't know what it means to our future. 20 In Montana, the bulk of the pork production is 21 in the Hutterite Bretheren colonies. I don't know how 22 many of you are familiar with that. These people are as 23 down to earth as you could get and very family oriented. 24 We have no major packers in Montana and we have to ship 25 several hundred miles to the nearest packer. And so 145 1 contractual arrangements are essential -- absolutely 2 essential for the transportation and marketing of our hogs 3 out of Montana. 4 In our family, we -- we're cow-calf and we're 5 hogs and we're grain. We've worked literally for 6 generations to develop good genetics in our livestock. 7 And I'm not about to apologize for getting a premium for 8 something that's superior to someone else's product. And 9 I resent the implication that I should have to do that to 10 justify that. That's obvious. 11 One of the things that was talked about at 12 length here today is the age of farmers and how our -- the 13 aging population is an issue that everyone's concerned 14 about in the farming ag community. You've got to address 15 the inheritance issue if you expect the next generation to 16 be there. I don't -- I don't think it's fair for you to 17 take half of what several generations have worked for in 18 our family in the form of inheritance tax and give it to 19 someone who won't work. Thank you. 20 MR. DAY: Gentlemen, I'm Louis (phonetic) Day 21 from Valentine, Nebraska. And I'd like to have you folks 22 up there, up front, look out here because -- and I would 23 like to thank all you people that have made the effort -- 24 and you've got to realize most of these people are here on 25 their own dime. Some of them traveled several days. Some 146 1 of them worked all day yesterday, drove all night, and are 2 here to make a difference for their future and their 3 children's future, and this country's future. Thank you 4 all for making that effort. I think that will bear fruit. 5 Mr. Butler, they've sent you out several times 6 and I've heard you talk. And I guess one reason why I'm 7 here is because I was a little skeptical. You said that 8 you wanted to do your job. And I guess you've come under 9 a lot of fire for trying to do that. And I want you to 10 look here because a lot of these people are here because 11 that's all we want. We want someone that will do their 12 job. And you people that are higher up in the USDA and 13 these other departments, you've given us some kind of nice 14 political talks today. But there's several things that 15 you can do to prove that you are working for us. 16 And one of them is, is we work very hard to 17 pass country-of-origin labeling. Every one of us here can 18 tell where our underwear is made. But you guys messed up 19 the rules to where our consumers still have a struggle to 20 find out where our beef is coming from. The other thing 21 is, is something you could do right away to prove that you 22 are here working for us is many of us have taken money 23 away from our operations and our family trying to force 24 you to do your job in protecting our herds and our 25 livelihoods from foreign diseases. 147 1 With that in mind, what I would like to bring 2 up is we will take care of our own families if we have a 3 fair playing field, and the cash-negotiated fed cattle is 4 a key to that. And if you don't believe me, you just go 5 buy a pen of cattle, feed them out, and try to deal with 6 that handful of packers and let them know who you are. 7 And, gentlemen, you will get an education of why we're all 8 here. 9 I want to highlight the seriousness and the 10 amount of money that's at stake here and why we're all 11 here and why we are having trouble feeding our families. 12 Do you realize that in Nebraska alone, for every $0.50, 13 that this market can be controlled? In 2007, Nebraska 14 alone fed out 5,130,000 head. If they average 1,250 15 pounds, that's $6.25 a head. But every $0.50 is 32 16 million. That's real stimulus. 17 The other thing is we had -- in 2003, the good 18 Lord's given us some hints of the opportunity that's there 19 because of BSE being found in the Canadian cattle herd. 20 The good Lord showed us the opportunity. I'll go further 21 on what Kenny said. It's documented proof. I've got 22 records at home from the extension agent in Nebraska. In 23 five months from the time they lost 5 percent of the 24 cattle used to control our cash-negotiated cattle, 25 Nebraska increased $25 to 100. Thank you. 148 1 MR. ACEY (phonetic): Hello. I'm Gary Acey, a 2 pork producer from Illinois. I have been around hogs all 3 my life. In the past, I've produced hogs and I've had 4 contract growers who fed the hogs for me. In 2008, I made 5 a decision and I sold my last hog. And I built a new wing 6 to a finished building and began feeding for another 7 producer. 8 Because of my past and present experience, I 9 understand both sides of contracting and feeding. There 10 are many factors that go into consideration to determine 11 the feed that goes to the contractor, such as the type of 12 building. For example, a wean-to-finish building, a 13 feeder-to-finish building, large pen, small pen, tunnel 14 ventilation or natural, the age and location of the 15 building. Also, the skills of the person operating the 16 buildings, such as skills for caring for small sick 17 animals and sorting, and skills in setting the 18 light-weight animal and even-weight animals to market. 19 Another consideration is the market contract -- market for 20 contract spaces at the time the contract was signed. 21 With the proposed changes to the Packers & 22 Stockyards Act that require written records for a 23 difference in pay to contract feeders, if all these things 24 have to be verified, it would create a great deal of 25 paperwork that must be kept; most likely, individual 149 1 records for each professional contract. The way in which 2 the new ruling is written is very general and the owners 3 of the hogs do not know how the rules will be enforced. 4 And with this fear -- this, I fear the prices for many 5 contractors' spaces may go down while a few may go up. 6 Thank you. 7 MR. KAZAR (phonetic): My name is Bo 8 (phonetic) Kazar. I manage a feedyard in the Texas 9 panhandle. I'm also a shareholder in that feedyard. Our 10 group owns a major interest in a small cow-kill plant at 11 Booker, Texas, Preferred Beef Group. Preferred kills 12 160,000 to 180,000 cows a year. 13 As I interpret the rule -- or as I understand 14 the rule, at the point that I become defined as a packer 15 because of that ownership, I'll have to send 80,000 cattle 16 to our packing house, displacing 80,000 cows. And that's 17 going to detrimentally impact their operating year. Small 18 and large producers are going to be damaged and hurt 19 because of that. I maintain and have secured 20 certifications for verified natural NHTC source-and-age 21 verified cattle. I sell cattle to five packers. I'm not 22 limited in what I can do. I negotiate most of those 23 prices. I do -- I do sell some top-of-the-wheat cattle. 24 But I have a choice and I choose to do that. And I feel 25 like it's good for my business; good for me personally. 150 1 The -- what I see going on here is 2 government -- the government's attempt to interject 3 themselves in the free markets by telling me when and how 4 I can merchandise my cattle. The vagueness that's been 5 mentioned several times, the broad general scope of the 6 rule is going to open the door to lawsuits. It's an 7 opportunity for trial lawyers. It's going to really 8 interfere with our business. I see it a lot. 9 I have just a few more points. The -- 10 MR. STALLINGS: If you can go quickly, sir. 11 MR. KAZAR: We can -- it goes beyond the 12 scope -- the directive of the 2008 Farm Bill. It goes 13 against court rulings that have already been documented. 14 When we can -- when we can freely sue because we feel like 15 we've been mistreated, it's going to -- the price 16 differentiation based on value is going to go away. We're 17 going back 30 years. 18 And if you look at -- if you look at a chart 19 30 years ago, we're in a declining demand for our cattle. 20 MR. STALLINGS: Sir, if you could finish up. 21 MR. KAZAR: On behalf of my company, my 22 customers, our consumers, both of the United States and 23 abroad, I urge you not to pass this rule. 24 MR. FERRELL: Please try to stick to two 25 minutes. 151 1 In order to stay on schedule today, we -- 2 we're going to run for about another ten minutes. If you 3 are in line, what I want you to do is, when we pick up 4 again in the next public testimony part of today, go ahead 5 and get in line and pick up right where you left off. And 6 so we're going to go another ten minutes so we can start 7 with the other panels. But we're going to continue to 8 work through as many folks as we can. And again, I 9 encourage you to please stick to your two minutes. 10 MR. KENNING (phonetic): Thank you. My name 11 is Jerry Kenning. I'm from Imperial, Nebraska. My father 12 started an operation that my grandfather began. The thing 13 that hasn't been mentioned here is change. I no longer 14 ride in the boxcar to Chicago with fat cattle. My father 15 hauled cattle to Denver, Colorado, to try to get a higher 16 dollar. I today do not use the cash market. I bid my 17 basis, I bid my grade-yield premium, and I bid my 18 source-and-age premium. And then I have from the time I 19 purchase the cattle -- or, in actuality, I have an 20 opportunity before I even purchase the cattle to sell them 21 with price discovery that opens at 8:20 in the morning and 22 closes at 12:30. 23 We -- I have had to change. My son is home 24 today. I expect him to make some changes. This is not 25 the same industry that we had 50 to 100 years ago. The 152 1 thing I would ask you -- my point is: Please do not raise 2 our cost of production in regulatory management. I'm 3 going to use the EPA as an example. Their regulatory 4 things that we had to comply with raised our cost of 5 production. Beef today is the highest-cost protein that's 6 out there. We've much higher costs than other foreign 7 countries. Please, when you read this, realize it's vague 8 and leave us alone. The tools are out there today for us 9 to manage in the way things work. Thank you for this 10 opportunity. 11 MR. ENGLER (phonetic): Thank you. My name is 12 Paul Engler, and I am a founder and chairman of Cactus 13 Feeders, which we have a one-time capacity of slightly 14 over 500,000 cattle. We turn that inventory in excess of 15 two times a year, so we market over 1 million head of 16 cattle. 17 Folks, I celebrated my 81st birthday this 18 week. Thank you. I'm still going at it strong. I'm 19 very, very obsessive about not only the industry today but 20 the future of the industry. I started -- I borrowed money 21 and bought my first cattle when I was 12 years old. If 22 you subtract 12 from 81, see if you come up with 69 years 23 of experience in the business. And I've been in every 24 sector of the business from cow-calf all the way through 25 cattle feeding, even meat packing. I also have experience 153 1 in foreign countries in -- both in ranching and in cattle 2 feeding and meat packing. So I think I would qualify as 3 an experienced speaker. 4 Now, when I studied this rule, I read it and 5 reread it and reread it. And I couldn't believe where -- 6 what I was reading insofar as what I thought the impact 7 that that rule is implementing in our industry today, what 8 harm would result. So I got to thinking a little bit 9 about it. I'm going to run a little scenario by you. 10 And, look, it's fiction right at this point. 11 But if there was a terrorist organization that 12 wanted to do irreparable harm to our industry -- 13 irreparable harm -- instead of going out and dropping a 14 virus, say, for instance, in a feedyard -- FMD and so on 15 and so forth -- they're going to attack the industry from 16 an economic standpoint. And if you could look at a 17 scenario where the USDA -- and more specifically, GIPSA's 18 offices -- where infiltrated by these terrorists, and what 19 kind of a plan that they would come up with to do that 20 irreparable harm to the industry. 21 Okay, okay. Obviously, I'm not -- all they'd 22 have to do -- in all that territory, all they'd have to do 23 is follow through with the plans that this rule is calling 24 for. So, folks, be very, very careful. Don't ask for a 25 little bit more than what you might expect you're going to 154 1 get. If you go back in history -- 2 MR. STALLINGS: Mr. Engler, if you could 3 finish up. 4 MR. ENGLER: Okay. I suffered through -- 5 thank you very much. I've suffered through the price 6 freeze of 1972, suffered through -- 7 MR. STALLINGS: We have a lot of people in 8 line that -- 9 MR. ENGLER: Okay. Well, thank you very much. 10 I thought perhaps my age might make me get a little 11 difference on the deal. Okay. 12 Folks -- folks, I've been in tougher places 13 than this. I can assure you that. Okay. Thank you. 14 MR. SMITH: I wrote Dudley Butler a letter. 15 My name is Johnny Smith, and I'm in the cattle 16 business through an auction market and ranch. For 15 17 years, I've led the fight to get the big major 18 corporations to obey the Packers & Stockyards Act. All we 19 want is fair treatment. 20 In 1980, a thing called deregulation came into 21 effect. The effect, we were told, was to take the 22 government out of agriculture. What it did was turn a 23 bunch of greedy monster corporations loose on unsuspecting 24 producers, both in the packing industry and the grain 25 industry. In the fat-cattle industry, they have four 155 1 packers that control 90 percent of the fat-cattle 2 industry. Number one is Tyson with 11 packing plants, 3 killing 35,000 head a day. Cargill has eight packing 4 plants, killing 28,000 head a day. JBS has eight packing 5 plants, and they kill 25,000 head a day. National Beef 6 has three packing plants and kills 13,000. 7 Why should our industry be controlled by, 8 essentially, four entities? This has taken all of the 9 competition out of our industry. Why should one entity be 10 allowed to control more than two packing plants? This 11 destroys all competition because four entities know how to 12 cooperate with each other in a shared monopoly. What this 13 has done in the past 30 years has almost destroyed our 14 cattle industry. The only competition we have in the 15 cattle industry anymore is individual feedlots and 16 individual cattlemen feeding livestock. This is not the 17 way in the fat-cattle industry. There's no competition. 18 The same goes for elevators and grain 19 companies. The huge grain companies are continually 20 ripping off farmers. For example, in the winter-wheat 21 industry, there's huge deductions on protein if it's under 22 12 percent. This year, our crops were very good. But the 23 protein is low, so the elevators take advantage of that 24 and beat the price back tremendously. Yet can you tell me 25 anywhere on a box of cereal that it says "low-protein 156 1 grain"? 2 Over the years, we have continually tried to 3 make the packers and grain companies adhere to the Packers 4 & Stockyards Act. In 1980, deregulation came in and the 5 P&S Act was thrown into the garbage. Since 1921, it was 6 the law of the land. It's very simple. The P&S Act is 7 made up of right is right and wrong is wrong. Yet in the 8 last 30 years, USDA and the attorney general -- neither 9 one has done a damned thing to try to control the 10 monopolies in the agriculture industry. 11 Isn't it about time that Americans stood up 12 for America? Our whole country has turned into a 13 corporate wreck. When Dubai tried to buy our sea ports, 14 there was a loud outcry to keep them owned by the U.S. 15 Then we found out that they were owned by the British 16 already. Our cement plants are owned by Mexican 17 companies. 18 MR. STALLINGS: Mr. Smith, we're trying to 19 keep it fair here. 20 MR. SMITH: The Vietnamese own our railroads. 21 Just one second, my friend. 22 The Chinese outsource most of our industry. 23 And most recently, a Brazilian company, JBS, was wanting a 24 captive supply, over 1 million head of feeder cattle. Why 25 should these foreign countries be allowed to control our 157 1 industries that are so important to our nation's 2 livelihood? These rules are going to help our industry, 3 so we ask you to be past the rules. Thank you. 4 MR. STALLINGS: Thank you. If I could also 5 note, I know we're under the strict two-minute time limit. 6 But if you could speak slowly enough for the court 7 reporter to write down what you're saying, the record will 8 be there for history. Otherwise, it will just be kind of 9 garbled. 10 MS. VALDEZ: Good afternoon. My name is Olive 11 Valdez, and I'm from a small community; Antonito, 12 Colorado. We're 5 miles from the New Mexico state line. 13 My husband and I were cattle producers. We were 14 missionaries and, in a sense, because we were going to 15 produce the best product anyone had ever seen. Therefore, 16 after 32 years of selectively breeding, artificial 17 insemination, and everything you could think of, we came 18 up with a fat-free beef product. Fat-free. We had the 19 independent analysis to prove it. 20 Okay. So we had a loan with Farm Service 21 Agency. We went into the agency, We need to continue our 22 loan. And they said, Well, we're not going to be able to 23 carry that loan any longer for you; you're going to have 24 to go to the bank and get a guaranteed loan. Well, so we 25 had the 4 percent loan. We figured it couldn't be too 158 1 bad. We went to the bank and they told us, Well, we'll 2 give you a guaranteed loan, but it's going to cost you 14 3 percent. Well, you know, that was when the parity for 4 agricultural products was at 39 percent. So this is the 5 reason for my message today. 6 We're involved in a lawsuit, Garcia versus 7 Vilsack. 67 percent of Hispanic voters supported 8 President Obama. We were proud to do so. Now, as a 9 result of years of discrimination, we're defendants in a 10 lawsuit against USDA. We have been offered a settlement 11 that is a trivialization of our damages. This proposed 12 settlement is one-half of that awarded to the black 13 farmers. 14 Our suffering is real, and it's devastating. 15 We've lost homes and family lands due to USDA 16 discrimination. Injustice is injustice no matter where or 17 when it occurs. Please remember us. We stick up for you 18 when you needed us. Please stick up for us. Correct this 19 injustice. Thank you. 20 MR. FERRELL: I think we'll do two more. And 21 then what we'll do is we'll pick up is -- when we pick up 22 again for the next public testimony part of today, just go 23 ahead and just come right back where you were. We want 24 to -- we want to hear from you that were already in line, 25 but also want to hear from as many people as we possibly 159 1 can. So we're going to do two more. And then, to keep on 2 schedule, we're going to run through our -- do our two 3 more panels and then go right back into listening to your 4 comments. 5 So we'll pick it up over here. 6 MR. SHERINE (phonetic): Hello. I'm Dave 7 Sherine from southwestern Minnesota. I'm a livestock 8 producer -- pork producer from southwest Minnesota. 9 For 25 years, I've worked on changing my 10 operation to improve with the industry. And it's taken a 11 lot of work. It's taken a lot of money. And one of the 12 ways that I've done that is, is as I've grown in 13 livestock, I've found people that will build barns for me. 14 And it keeps them in business, as well as myself. They 15 share the barn risk; I share the livestock risk. As I 16 went through time, we decided we needed a better marketing 17 plan. So we went to a group of people from midwestern 18 United States and we went to work and we built a plant 19 called Triam (phonetic) Foods. 20 Today, I have part of my pigs that go to Triam 21 Foods; part of them that go to three other packers in the 22 upper Midwest. What I find out today is, guess what? I'm 23 the dirty packer. According to the GIPSA rules that are 24 written, I'm the packer that has to turn around and say, 25 You know what, just because I don't have money enough to 160 1 buy all my shares and put all my pigs in Triam Foods 2 today, I either got to sell out of Triam Foods or reduce 3 my pork production. 4 And the other problem that I have with the 5 GIPSA rules, if my livestock people that -- the young 6 farmer that builds the barn does improvements to that 7 barn, now I must guarantee that I'm going to pay 80 8 percent of that back to him in some form or fashion, the 9 way I read the GIPSA rules. Well, guess what, guys? My 10 banker won't allow that to happen. He's going to turn 11 around and say, Dave, either you -- either you build your 12 own barns and take that risk, because then you have equity 13 risk as you pay for them, or get out of the business; you 14 haven't got the money to follow through. 15 So please, guys, as you look at these GIPSA 16 rules, keep pork out of it. It's working well the way it 17 is. I've changed and done everything I could, so leave us 18 alone in pork production. Thank you. 19 MR. GREENO: I'm Joel Greeno, a dairy farmer 20 from Kendall, Wisconsin. And as a dairy farmer, we're 21 major contributors to the cattle industry. And when milk 22 prices are low, you try to supplement income by selling 23 cull cows and calves and heifers. And in doing so, you 24 know, we're major contributors to the beef check-off 25 where, in the case of a dairy animal, they could collect, 161 1 you know, three, four, five, even up to six times off a 2 single animal when it's sold on the market. 3 Secretary Vilsack was in West Salem, 4 Wisconsin, July of '09. He commented that most of the 5 world or much of the world pays anywhere from 25 percent 6 to 50 percent of their income for food. But here in the 7 U.S., it's closer to 10 percent and that we'd prefer to 8 keep it that way. At whose expense? Farmers? Ranchers? 9 Consumers can no longer afford this. The time has come 10 for USDA and DOJ to decide whose side they're on. Will 11 you continue to allow corporate America to run rough-shot 12 over everyone or will you come out on the side of farmers, 13 ranchers, and consumers and at least allow us cost of 14 production, plus a reasonable profit? I can't help but 15 feel that farmers and ranchers are used as pawns in fixing 16 the economy. This will fail. Rural America will be dead. 17 In 1962, the committee for economic 18 development released an adaptive plan for agriculture. 19 Kenneth B. Bolding, an economist, Department of Economics, 20 University of Michigan, member of the Research Advisory 21 Board, stated the following: The only way I know how to 22 get toothpaste out of the tube is to squeeze. Likewise, 23 the only way to get people out of agriculture is to 24 squeeze. If the toothpaste is thin, you don't squeeze 25 very hard. On the other hand, if the toothpaste is thick, 162 1 you have to put real pressure on it. 2 If you can't get people out of agriculture 3 easily, they're going to have to do farmers a severe 4 injustice in order to solve the problem of allocation. 5 This has got to stop. You have to stop squeezing. You've 6 got to wonder how much of this is by design -- 7 MR. STALLINGS: Sir, if you could finish up. 8 MR. GREENO: Absolutely. 9 -- and how much is just mere circumstance. 10 But implement the GIPSA rules and enforce Packers & 11 Stockyards. Thank you. 12 MR. FERRELL: We will now go ahead and start 13 our next panel if our panelists for the next panel can 14 come ahead up here and get started. 15 (A recess was taken from 1:45 p.m. until 16 1:47 p.m.) 17 MR. WEISER: All right. We want to have two 18 panels now that will put into perspective some of 19 discussions we've had up until now. With all these 20 hearings, as folks have articulated it, is to get our arms 21 around the dynamics in a comprehensive thorough-going 22 manner. To do that, we put together a panel of diverse 23 and extremely accomplished individuals across different 24 market segments and valuable expertise. 25 Sitting next to me here, Libby Cook. Libby is 163 1 the founder of two supermarket retail chains: Wild Oats, 2 found here in Colorado, and Sunflower, also found here in 3 Colorado. It's great that you came here to join us to 4 share your perspectives. 5 Next to her, going this way, is Jerry Born -- 6 or Jerry Bohn, who is a -- owns a feedlot -- is that 7 right -- and comes to us to share his perspective. We 8 appreciate that. 9 And, please, if I mispronounce your name -- 10 Gilles? Is that right? 11 MR. STOCKTON: Not quite. 12 MR. WEISER: Not quite. 13 MR. STOCKTON: Good enough. 14 MR. WEISER: Come on. 15 MR. STOCKTON: Gilles. 16 MR. WEISER: Gilles. 17 MR. STOCKTON: It's French. 18 MR. WEISER: Gilles Stockton operates a family 19 cattle and sheep ranch. He comes to us from Montana. 20 Like some other people, he is pursuing his craft with the 21 benefit of an advanced degree -- in this case, a master's 22 degree in animal science from Montana State University -- 23 and has been a leader in the Western Organization of 24 Resource Councils, among other efforts. 25 And at the end there -- I'm trying to see 164 1 here, is that Clem? Clem Ward -- for those of you who 2 don't know, Clem is one of the leaders in agricultural 3 economics. He is at Oklahoma State University. I 4 think -- are you an emeritus now or -- 5 MR. WARD: (Nodded.) 6 MR. WEISER: It seems like he was there for a 7 long career -- 31 years -- focusing on the broad changes 8 in the industry. We're so glad to have you here with here 9 today. 10 Sitting on my right here, Mark Lauritsen? Is 11 that right? 12 MR. LAURITSEN: (Nodded.) 13 MR. WEISER: Mark Lauritsen represents a 14 number of the folks here in yellow shirts, as you can see; 15 those who work in sort of the other side of the business 16 helping to pack the beef. There's a lot of workers 17 employed in that. He has a valuable perspective to offer 18 from the United Food and Commercial Workers. 19 Mark Greenwood, another perspective, from 20 AgStar Financial Services; lending to ranchers. We 21 appreciate you joining us, Mark. Mark comes to us from 22 Montana; is that right? 23 MR. GREENWOOD: Mankato. 24 MR. WEISER: What's that? 25 MR. GREENWOOD: Mankato. 165 1 MR. WEISER: Mankato. All right. Great. 2 And Armando Valdez is another producer who 3 joins us on this panel. He is also from Colorado doing a 4 family farm with cows and calf. We appreciate you coming 5 to us. I should say for those here, Armando is a graduate 6 of Colorado State University. 7 MR. VALDEZ: Absolutely. You've got to play 8 the crowd, right? 9 MR. WEISER: That's right. Absolutely. We 10 appreciate you joining us. 11 Bill Heffernan is, like Clem, one of the 12 giants in the academy. He got a Ph.D. in rural sociology 13 and has been, for quite some time, at the University of 14 Missouri. It's great to have you here with us, Bill. 15 Thanks for joining us. 16 So as I said, I want to start off with the 17 broadest picture. There is, as has been discussed, 18 increasing concentration in cattle and hog industries. I 19 guess from the two academics who bookend us, let me ask 20 you for your perspectives. 21 Clem, how would you describe the situation as 22 it has evolved? 23 MR. WARD: First of all, I think we all know 24 that what's happened in the packing industry and retailing 25 industry is not unique to our economy. It's pretty much 166 1 happened throughout most of a lot of manufacturing 2 industries and other sectors of the economy. 3 Concentration's increase has come about and -- typically 4 comes about from two sources. One's internal growth of 5 the firms themselves and the other is through mergers and 6 consolidation. And we've seen a lot of both of those 7 things in the pork-, beef-packing industries and in the 8 retail industry. 9 I'm more familiar with the packing industry, 10 so I'll pretty much concentrate on that. But back in the 11 '70s, four-firm concentration of the four largest firms 12 had about 25, 27 percent of the market share. And in the 13 hog industry, it was about 32, 33 percent. Then through 14 the '80s, we had some very, very sharp market structure 15 changes. We had a number of plants that were not 16 profitable who closed their doors. Some of those were 17 purchased by other packers. Some were closed for a time, 18 came back with different labor contracts. Some of them 19 were expanded. But the driving force at that time was to 20 try to become more efficient. 21 And so there had been a couple studies at that 22 time. There have been some since then, all of which 23 suggest there are significant economies of size in the 24 packing business. So the larger you are, the lower your 25 average costs are. And that was the driving force. Along 167 1 the way, we had some mergers and acquisitions that were in 2 conjunction with growing those plants and some that may 3 have just been because they thought there were some 4 multiplant economies that they wanted to achieve. 5 MR. WEISER: Clem, you said, on the packing 6 side, there's some economies of scale of being bigger. 7 How about on the ranching side? Are there economies of 8 scale there too or do they have a smaller -- 9 MR. WARD: Some, but much less. Most of the 10 research has been fairly consistent that there are some 11 economies up to about 1,000-head cow herds and then may 12 tail off pretty sharply. 13 MR. WEISER: So one of the suggestions we've 14 heard -- and let me actually turn the suggestion to Bill 15 to analyze a little bit -- is that a greater level of 16 concentration at the packers and stockyards level has 17 actually tried to put pressure on ranchers to get bigger. 18 Is that true, do you think? 19 MR. HEFFERNAN: Well, we've heard several 20 times that they push -- that they push, essentially, for 21 the larger ranchers in terms of giving them preferential 22 treatment and such. 23 But I want to go back for just a moment, if I 24 might, to the concentration. I got involved in looking at 25 this concentration, and I borrow from the economists back 168 1 in the 1960s who were talking about the -- what percent of 2 the market share did the largest four firms have. And 3 they said -- their view at that point -- and these were 4 primarily institutional economists back in those days -- 5 and that's people who, you know, will take a little bit of 6 sociology or psych or political science or whatever. 7 They're sort of the Renaissance people. But the -- they 8 said when four firms had more than 40 percent of the 9 market share, you begin to lose some of the benefits of 10 competition. 11 I sort of came along a little later -- along 12 in about the late '60s -- and I took sort of that and went 13 back to what's called small group studies, a sociological 14 theory that basically says that when you have four social 15 units left sort of in a competitive market -- and I'd like 16 you to think about board games that families play and so 17 on if -- because, in a sense, they did things like this in 18 terms of their experiments -- what they found was when you 19 had, like, nine, ten players, that was really pretty 20 competitive. 21 But as you move back toward about four firms, 22 what you found was they started acting in concert. They 23 would look at one another, what move they made, and then 24 they would adjust their behavior accordingly; therefore, 25 they see what -- look to see what somebody else did, if 169 1 they raised or lowered the price, whichever way it 2 happened to be, and then they would do the same. So in a 3 sense, what's happened is when we got down to that CR4, 4 once it started moving over 40 percent -- and most of 5 them are well worth 50, 60 percent, up around 75 percent 6 or more, as you've heard -- when you have four firms 7 operating in concert, I call it a near monopoly. And so 8 that's one of the problems and why we've concentrated 9 early on on the CR4. 10 The second point I want to make, it's not just 11 the concentration of the four firms. That's what we call, 12 you know, basically the horizontal integration. It's the 13 food chain that is now the supply chain. The food supply 14 chain is lined up so that basically you have maybe three 15 or four dominant players starting all the way back with 16 the seed, or even the gene for that matter, and they 17 control either through ownership or through what we call 18 strategic alliance -- that's joint ventures, long-term 19 agreements and so on -- all the way from the seed down 20 through the supermarket. I don't have time to give you an 21 example, but that's another way. 22 And in a sense, you end up -- and I'm a member 23 of the board of directors of the Ozark Mountain Pork, 24 which started about eight, ten years ago trying to find a 25 market for our -- what we call "Farmers of the Middle" -- 170 1 and we ran up to that problem. In a sense, you've got to 2 compete with the whole supply team. How do you break into 3 that? So all I'm saying is it's really hard to break into 4 the system. 5 The third thing I want to do is do a quick 6 flip on that and say, but those big firms we've been 7 talking about in the CR4, they're not immune to getting 8 pushed out either, or thrown out, as the case may be. And 9 I think we need to keep that in mind. In a sense, it's 10 sort of like they are running on a treadmill and they've 11 got to run faster and faster. And if they stumble 12 somewhere along the line, they're gone. 13 And since I'm in Colorado, I'll use the 14 Albertson model that was -- they were a third-ranked 15 retail firm about five years ago. What happened to them? 16 Those of you in Colorado know or have been in Denver and 17 so on enough, looking at those old stores that didn't get 18 picked up right away. What happened was Safeway, which is 19 down in seventh place, teamed up with an investment firm 20 and basically it was a hostile takeover. 21 That was a firm that was operating fine and 22 dandy. You read the trade journal. They were doing a 23 good job. And they woke up one morning, and that 24 management team was history. Now, that really isn't a 25 very efficient way to run things. And all we did was move 171 1 Safeway up to third place. The other one shifted up a 2 little bit and life went on. 3 MR. WEISER: So people are going to have 4 questions, I suspect, as we go along. There should be 5 volunteers in green shirts. If you want to write your 6 question down and give to one of them and get it filtered 7 up here, I'll see if I can intersperse them in. 8 That gets us to the retail. And that, 9 obviously, is another piece of this equation. Mark, maybe 10 you can offer a few thoughts. How is retail and retail 11 concentration more specifically impacting on the whole 12 supply chain? 13 MR. LAURITSEN: Well, at first, I -- I think 14 we need to look at this -- I want to point something out 15 here this morning before I answer that question. Attorney 16 General Bullock described what's going on today as putting 17 packers and producers in the same room is like 18 establishing a firing squad in a circle. It kind of got a 19 chuckle out of the group. But then I got to thinking 20 about it, and I've just got to make this comment. 21 I have the honor and the pleasure of working 22 for the union that represents the hardworking men and 23 women that work in the slaughterhouses around this 24 country: beef, pork, chicken, and all of food processing. 25 And when you guys establish that firing squad, we're the 172 1 folks you put smack dab in the middle of it. 2 Now, I say that -- and I say this to my 3 friends on the producer side -- those 250,000 people that 4 we represent, they need you in the supply chain. They 5 need the producers to produce a good herd. My friends on 6 the packers side, those 250,000 people that we represent, 7 we need you. You supply the jobs. So in this firing 8 squad, you put us in the middle. And we've kind of 9 created this family fight, and we forgot to look at this 10 whole system as a food chain or a supply chain. 11 And if we try to adjust these problems by 12 looking at them strictly from the packer back or from the 13 producer forward to the packer, we miss out on the most 14 important piece in that food supply chain. We're going to 15 treat a system, but we're not going to get to the disease. 16 And I'm talking about the retail side. There's been 17 consolidation in the food supply chain. It's going on 18 right now and it's going on rapidly in the retail sector. 19 Right now today, Wal-Mart controls 23 percent 20 of the grocery. Now, you may not think 23 percent seems 21 like much. But think about what's been happening since 22 the early '90s when Wal-Mart's growth in the grocery store 23 sector has taken off and expanded. One in five retail 24 dollars in America is spent at a Wal-Mart store. Wal-Mart 25 controls 44 percent -- excuse me. Of 44 percent of the 173 1 markets, Wal-Mart controls over 30 percent of grocery 2 store dollars. Wal-Mart has more retail stores than the 3 next five closest competitors combined, and it does more 4 grocery store -- or grocery sales than its next three 5 biggest competitors. 6 So what has all this caused over the last 7 number of years when this concentration took place? Well, 8 since 1990, if you look at the consumer dollar spent on 9 beef, the retailer took $0.33 of that retail dollar. The 10 rest of it was passed back to the supply chain. Today, in 11 beef, the retailer is $0.49. That's a dramatic increase. 12 In 1990, in pork, the retailer kept $0.45 of that consumer 13 dollar. Today, in pork, the retailer's keeping $0.61. 14 Now, here's the thing. The people that I 15 represent, the cut that they get comes from what the 16 packer keeps. That's been constant. It's been around 17 anywhere, if it's beef or pork, from 8 to 14 percent. But 18 it's been pretty constant during all this time. There's a 19 way to address these needs. But again, I want to 20 challenge everybody to -- let's face the problems we have 21 and go at it from the total picture and looking at the 22 retailer. And here's really what we're talking about. 23 I've talked to people from R-CALF. And they 24 would tell us that if one penny was passed back down 25 through the supply chain from the retail side, that would 174 1 make a dramatic increase in the farmer and the rancher's 2 lives; one penny from the retailer. We've done our 3 studies at the UFCW. One penny takes the average packing 4 U.S. worker's wage from $13.50 to $16. Those kinds of 5 numbers affect our communities. They improve our 6 communities. 7 So what are we talking about? $0.02. $0.02 8 changes the lives of everybody in this room. My challenge 9 to you and what I would say to everybody is: Let's look 10 at where that $0.02 lies. I think it lies upon the retail 11 end -- and it's the consolidation on the retail side that 12 I believe is forcing consolidation all throughout the 13 supply chain in the food industry. 14 MR. WEISER: So, Libby, you have first-hand 15 experience in the retail sector. I guess I'd ask you to 16 analyze those markets generally with what's been said and 17 also specifically to whether these are local markets, 18 national markets, or both. How would you explain to 19 people who were trying to understand the retail side how 20 things are evolving? 21 MS. COOK: Well, it's interesting because I 22 think, you know, not -- no industry is more competitive 23 than the supermarket industry where we're looking at 2 to 24 3 percent net profit margins. So this is -- this issue 25 with the small farmers and ranchers is -- reminds me of us 175 1 back in the early supermarket days with Wild Oats Markets 2 trying to compete with the large supermarket chains like 3 Safeway, Wal-Marts. And I think we did so effectively by 4 creating a niche market and educating our consumers on 5 local and organics. And I think that's an important 6 lesson maybe for local farmers, small farmers and ranchers 7 here today. 8 I would take issue with the margins that Mark 9 was talking about. Typically, our margins in the meat and 10 in part of our business are some of the lowest; more like 11 20 percent with a maximum of probably a 35 percent margin. 12 And I think we are trying to not only promote, but really 13 help local vendors and manufacturers succeed. And we 14 highlight them and really try to focus on helping that 15 small farmer or rancher succeed. 16 And I know, for example, Whole Foods now, 17 after the acquisition of Wild Oats, works with, for 18 example, Panorama Beef, an organic and natural beef 19 supplier up in Wyoming that's main -- raises their cattle 20 on Indian lands. And so they just recently started 21 working with this producer about a year ago. So, you 22 know, I think we are, in the natural foods industry, 23 always looking to help promote the alternatives, smaller, 24 more high-quality rancher that's producing a high-quality 25 product. 176 1 MR. WEISER: So I want to go, if we can -- I 2 think, Armando, you would fit in this category, raising 3 high-quality product. Have you had success working with 4 retail outfits like Whole Foods? What's your experience 5 been? 6 MR. VALDEZ: My experience working with some 7 of these retailers, especially the organic natural 8 markets, if you're a smaller rancher or producer, it's 9 much more difficult. Unless you come with 200 head, they 10 don't even want to talk to you. So you try to look for 11 other options and other retailers; other retailers who 12 share your values, especially as a small rancher or 13 producer in producing that product and who want to work 14 with you. But if they don't share those values, it's 15 about some of those efficiencies, economies of scale. 16 They want that product in bulk, as many as they can get. 17 And if you're not that size, then there aren't that many 18 options available. 19 We tried to market to Whole Foods in the past, 20 and they told us we just don't have the numbers. And I 21 don't consider myself a small, small producer. We have 22 300 head of cattle. And they still wanted more. So we've 23 looked at marketing through other co-ops to where -- in 24 the earlier panel this morning, looking at bringing 25 different ranching families together, we could finish our 177 1 own cattle and sell direct to the consumers. So that's 2 another option that's out there. 3 In our discussion today, though, we keep 4 talking about change, moving forward, what are we going to 5 do for the future. But it's almost like we're going back 6 in time. Think about 1920, 1921 when the original Packers 7 & Stockyards Act was coming out. They were probably 8 having conversations dealing around some of these same 9 issues with the packer concentration. And there may be -- 10 because ranchers and farmers are never able to retire, 11 there may be a few still around who remember what was 12 happening in those days and could actually give some 13 testimony from that. 14 But they were successful in creating more 15 competition, reducing some of that concentration in the 16 market. And look what happened. As one of the gentlemen 17 earlier in the testimony mentioned, in 1980 we started 18 seeing deregulation and here we came back with increased 19 concentration. I do agree with Dr. Ward, down at the end, 20 about the economies of scale and the efficiencies. There 21 are significant efficiencies, I think, when you do have 22 the consolidation, as well as vertical integration. 23 But efficiency is only one part of that 24 equation. What happens with your economic power and what 25 happens with economic freedom? We talked about some of 178 1 those freedoms this morning, as an individual producer, 2 being able to take my product, find competitive bids, make 3 profitable margins with my product. If we're focusing 4 just on efficiency, we're -- and consolidation is really 5 taking economic power and putting it in one place -- what 6 am I left with? I'm not left with much economic freedom. 7 MR. WEISER: So I want to go to Jerry and 8 introduce someone who we've not talked a lot about today, 9 which is the consumer and how the consumer fits into this 10 equation. Some have posited that the consumers have 11 focused on getting cheap food and that demand for cheap 12 food has kind of reverberated through the system. Is that 13 a suggestion you find merit in or do you have other 14 translations of consumers are approaching their food? 15 MR. BOHN: I think that in our country -- you 16 know, I believe that our government has a cheap-food 17 policy. I think that they want to keep food cheap so that 18 the majority of the people -- the 97 percent who are not 19 in agriculture -- are able to produce food at a low price. 20 I think consumers, though, have become more 21 discriminating. And there are opportunities in the 22 markets today. 23 We found by our involvement with U.S. Premium 24 Beef that beef consumers are willing to pay a higher price 25 for a higher quality product and more consistent product. 179 1 And so the system that we're involved in and would be 2 similar to several other systems that are involved -- that 3 other producers are involved in focus on producing a 4 higher quality product that's consistently good every time 5 they eat it. And to do that, we have to do some things 6 differently than we've done in the past. 7 And I want to speak briefly here for a minute. 8 We're all here today because we don't think we're getting 9 enough for our product. Nobody's talked about how we -- 10 to build demand to sell more beef at a higher price. 11 We're all worried about packer concentration, their 12 cheapness. And we haven't heard a word about growing 13 demand and building demand. Why in the world would we not 14 do that? Let's get Japan open 100 percent. Let's get 15 China open 100 percent. Let's grow demand. 16 All of you will benefit if you sell more beef 17 at a higher price. That's what you're here for. 18 Government entities also tell people they shouldn't eat 19 beef. Look at the food pyramid. Don't eat meat. It's at 20 the point of the pyramid. Help us sell beef. I think 21 that's what Government can do. Instead of telling us how 22 to sell our cattle and how to market them, let's sell 23 beef. Let's increase demand. The consumer is there. 24 They want our product, but we've got to provide it for 25 them. 180 1 MR. WEISER: Gilles, what's your -- what's 2 your perspective on what consumers want and how to sort of 3 achieve the sort of premium opportunity that I think both 4 Libby and Jerry mentioned? 5 MR. STOCKTON: A growing demand, huh? Sell 6 more to Japan. Sell more to China. We can't raise enough 7 to feed the people in this country. The reason we 8 can't raise -- the reason we can't raise enough to feed 9 the people in this country is that the people who do the 10 hard work out in the land and the people who work in the 11 slaughter plants are not getting their fair share of that 12 consumer dollar, the retail dollar. 13 I don't need JBS or Tyson to tell me how to 14 raise good cattle. I raise good cattle. I raise the best 15 cattle. I've retained ownership. They're fed in the top 16 10 percent, you know, in the nation. They're not -- and 17 there's nothing special about, you know, me. I'm not 18 smarter than my neighbors. They know how to raise cattle. 19 They know how to raise cattle better than I do. You know, 20 so we don't need a top-down corporate board of directors 21 telling us what to do. 22 I got concerned about this issue in 1987 when 23 a poultry producer came out to Montana and he talked to 24 us. And he told us what happened to him in the poultry 25 industry. And he begged us, he said, Don't become like 181 1 me; don't become a serf of my own land. And I don't want 2 to be a serf on my own land. I want to be independent. 3 But I think independent farmers and ranchers selling in a 4 competitive market can compete with anybody of any size, 5 whether they're small producers, 1,000-head cattle 6 producers, 100,000-head feedlotters. You know, there is 7 very little in the economy of scale, and we can compete if 8 we have a fair market. 9 Now, the cow-calf section of agriculture is a 10 little bit unique in that it is the only part of 11 agriculture that still markets through an auction system. 12 And in recent years, we've been marketing more and more 13 through video Internet auction systems. And they work 14 very well. They're a very inexpensive way to, you know, 15 market our cattle. And we market them through forward 16 contracts. 17 Now, if you could make a forward contract for 18 fall delivery of feeder calves, you sure as hell could 19 make a forward contract for, you know, two- or three-week 20 delivery of fat cattle. That's -- there's no big trick 21 here. All we need to do in order to restore competition 22 in the cattle industry is require that the beef packers 23 buy out in the open, in the public. 24 MR. WEISER: So, Gilles, you've anticipated 25 my next question. I will turn to Clem and ask it, which 182 1 is: How are the markets for the buying -- be it spot 2 market, exchanges, forward contracting -- evolving? And 3 how do you analyze their current dynamics? 4 MR. WARD: And I think we've talked about some 5 of this. I mean, that's -- and I guess I'll do it. In 6 1993, I think, on the hog side, 87 percent of the hogs 7 sold were from the cash market, we've said many times. 8 Last year, that averaged 6 percent. Now some weeks it may 9 be down below 5 percent. On the cattle side, in -- in the 10 late 1990s, we were at about 60 percent or so in the cash 11 market. Last year, on average, it was about 35 percent. 12 So we have had an increase on other kinds of marketing 13 arrangements; the so-called AMAs. 14 There's been some people, obviously, not very 15 happy with a formula price to the cash market. I know 16 myself and other economists have said for a long time that 17 people who are formula pricing ought to try to be looking 18 up at the wholesale level; something that a packer would 19 try to push up as high as possible rather than tying that 20 price to a price that a packer would try to push down as 21 much as possible. 22 But there's problems in doing that. There are 23 a few people who are, both in the hog industry and the 24 beef industry, trying to contract, trying to formula price 25 to the wholesale market. There's been an increase on hogs 183 1 and cattle the last ten years in forward contracting where 2 you're pricing to basically a future's market, as somebody 3 alluded to in the open-mike session this morning. So 4 people are looking for other alternatives. And as we get 5 thin markets, as I think will probably be mentioned later, 6 some people are voluntarily trying to support that market 7 by marketing a part of their hogs or cattle through cash 8 trading and, in part, through contracts. 9 MR. WEISER: Armando, you are having to face 10 this question on a regular basis. How do you go about 11 marketing your cattle? 12 MR. VALDEZ: You're trying to look for as many 13 options as possible for the best price. It comes down to 14 profitability and looking for the option which gives you 15 that biggest margin or greatest margin out there. I've 16 done -- or worked through several different marketing 17 options all the way from the spot-market, cash markets, 18 trying to inform buyers there at those markets, you know, 19 know the quality of the cattle, some premiums such as the 20 natural aspects that we keep with our cattle, also looking 21 at forward contracting and other contracting markets. And 22 it's difficult. 23 I don't know if it's the region of where I'm 24 at. In south central Colorado, we're a little more 25 isolated. We do have to ship those cattle a lot further 184 1 away than someone who has, you know, a feeder right down 2 the road. I don't have one probably within, you know, 150 3 miles. And so I'm trying to see how I get those cattle 4 out at the best price. And so it is a challenge finding 5 options a lot of times, and it's a lot more work on my 6 part. 7 There was a gentleman this morning on the 8 panel who mentioned, you know, we're out there trying to 9 ranch, farm, produce the best-quality product. And then 10 we're being asked then, you know, to market it. And then 11 we're asked to make these changes of what the buyers want. 12 And it's constantly more pressure being put on a producer. 13 It's like kicking a man when he's down. 14 MR. WEISER: I want to -- before I come back 15 to this, I want to put another piece of this equation on 16 the table, which is the credit side that Mark deals with. 17 One suggestion we've heard is that part of the 18 push towards the forward contracting or captive supply, as 19 some have called it, is they need to have those contracts 20 to get credit. Mark, how do you analyze that issue? 21 MR. GREENWOOD: You know, I kind of feel like 22 the cull cow here or the cull pig, being a lender. And I 23 don't know if I was the only one crazy enough to be on a 24 panel with this many producers. 25 MR. WEISER: I think Libby feels that way, 185 1 being a retailer on the panel. 2 MR. GREENWOOD: Yeah. Maybe we should have 3 sat by each other. 4 And my first thing is I work almost 5 exclusively in the swine sector. I -- you know, there's 6 not a lot of cattle in Minnesota. So my knowledge base is 7 much more on the swine side. When we look at marketing 8 agreements in order to -- and to get access to capital, it 9 had been a driver in order to get access to capital as 10 we've -- we went through it. If you kind of look at the 11 volatility in the marketplace that we've seen over the 12 last 13 years, just -- even if you look over the last 12 13 months -- we went from -- I think a producer talked about 14 $105 a pig last August, where today we're making $160. 15 Now, most of the marketing agreements, per 16 se -- and the other thing I would say as a lender, we 17 continually learn. And I think we have to learn kind of 18 through history. The thing that I talk about with our 19 producers is -- you know, we have a relationship with our 20 producers. We work very, very hard on making sure that we 21 try to make our producers profitable at the end of the 22 day. Because if they go out of business, that's not good 23 for us by any means. So we want a viable industry going 24 forward. 25 So part of the things that we talk about with 186 1 marketing agreements, they're -- they are pretty much 2 shackle space where you have an alignment with the packer 3 that gives you, you know, the option to deliver those 4 pigs. The issue today when we have less supply because 5 of one of the plants that got closed in Sioux City -- 6 because we have less supply -- August of last year, I had 7 producers that were selling on the open market that could 8 not sell pigs for three weeks. And that was a problem. 9 So, you know, as a lender -- and I'll give you 10 kind of how my job works. I'm not the person that makes 11 the decision when we do the yay or the nay on the credit. 12 I'm the relationship manager that goes to his farm, tries 13 to understand his business the best -- the best he can. 14 And then we kind of work together on trying to develop a 15 business plan that works best for his business. 16 I have to go in front of a credit committee 17 and kind of explain this to our credit committee. And 18 part of the things they're going to ask is what type of 19 alignment or what type of marketing agreements do they 20 have in place to ensure -- that mitigate some of that 21 risk. If you're a younger producer, which -- the only 22 other comment I make is in Minnesota, in the Midwest, we 23 do have young producers that are very successful today, 24 raising hogs. We've been able to do that. I -- and we've 25 worked together in the -- in developing marketing plans. 187 1 We do extensive training on risk management using futures 2 and options. We might do forward contracts with the 3 packer. But it's using all the toolbox (sic) in the 4 toolboxes to make sure that that producer has a chance of 5 being profitable. 6 Now, part of that is -- the issue is if a 7 producer -- a young producer that's 25 comes to me and 8 says he's going to sell all his pigs on the open market, 9 you know, I might have a high integrity (sic) that he has 10 the management capabilities to be able to do that. But 11 the question that I'm going to get asked is: What risk 12 management is he going to use? Is he going to be able to 13 use futures? Is he going to have a place to deliver his 14 pigs? Those are the questions I get asked. 15 So, you know, I do think, when I look at 5 16 percent of the spot market today, it is a little bit thin. 17 But again, where I'm at, I'd prefer not the government to 18 decide what that is. I trust my producers in making those 19 decisions for them. 20 MR. WEISER: I'm going to go to Jerry with -- 21 the broader question is: Do the current institutions in 22 the market provide sufficient price discovery, 23 opportunity, and transparency? Is that something that 24 you're comfortable with? Obviously, some people suggested 25 that there may be a flaw in the current system. What's 188 1 your view? 2 MR. BOHN: I can speak for our company. We 3 have at least three buyers every week; sometimes four. We 4 sell about 60 percent of our cattle. We market about 5 175,00 to 200,000 head of cattle a year. About 60 percent 6 of our cattle are merchandised in the cash market, and 7 about 40 percent are on grids or possibly forward 8 contracts; those kinds of things. So we see -- and I 9 think the Texas panhandle, Kansas markets, Nebraska, 10 Colorado are all fairly competitive in that regard. 11 And I want to speak -- I want to back up a 12 little bit and speak for a minute about marketing 13 opportunities. You know, one of the things we're talking 14 here today are the fact that small producers don't have a 15 chance to participate in these marketing systems that we 16 have today. I want to share a little data with you from 17 U.S. Premium Beef first, and then I want to share a 18 personal one with you from our company. 19 U.S. Premium Beef has marketed about 8 million 20 head -- had about 8 million head of cattle delivered 21 through -- in its system since it started in 1996. The 22 average premium per head for every one of those animals 23 was $21.74 per head above the cash market. But we found 24 that the smaller producer's got an even bigger price, 25 bigger premium. 82 percent of our members deliver less 189 1 than 500 cattle a year. I think they would be considered 2 small producers. And our sort there, the top 25 percent 3 premiums that were paid in -- with the company, the top 4 premium went to the group made up of members that deliver 5 less than 250 head a year. They got $63.48 a head 6 premium. 7 If you look at the top 10 percent of the 8 premiums, the members that delivered less than 250 head of 9 cattle per year got $79.74 a head per year. The 10 second-highest group were those that delivered under 100 11 head a year. I would consider them small producers also. 12 They got $79.57 a head premium. So there are 13 opportunities today -- in the market systems that are 14 existing today for small producers to participate. 15 Let me share a personal one with you. I had a 16 group -- a man in this spring, a customer from Kentucky. 17 He had 18 head of cattle in a feedyard. He was part of a 18 multiowner pen. He had grouped with some of his neighbors 19 to send a pen of cattle to our feedyard. When we 20 merchandised his cattle, he got $129 a head premium for 21 those 18 steers. Now, if he would have took them to the 22 auction market or if he would have sold them in the cash 23 market where everybody gets the same price for same 24 cattle, he wouldn't have gotten that premium. 25 So I'm telling you, there are opportunities 190 1 for each one of you to participate in the market today and 2 to get a higher price for your cattle. 3 MR. WEISER: I'm going to come back -- yeah. 4 I'm going to come back to that point in a minute. First, 5 a little bit more discussion about sort of the price 6 discovery and transparency. Mark, go ahead. 7 MR. GREENWOOD: Just 30 seconds. If I look at 8 our portfolio over the last two years when we saw corn go 9 from almost up to $8 to now sitting -- we're at about $4, 10 the independent producer that raised most of his own corn 11 compared to the larger producers that had to buy a lot of 12 their own feed stuff had a much better -- fared 13 financially -- and we look at the portfolio -- they have 14 fared much better financially than that larger producers. 15 So it goes back to Jerry's point. An 16 independent producer, if you have market opportunities, 17 can compete with anybody. And actually, when I look at 18 the Midwest, from a global perspective, U.S. pork 19 production is the best in the world. 20 MR. WEISER: Let me go to -- we have two 21 producers. I'd ask you, from your perspectives, have you 22 been able to get enough insight into the price system so 23 that you feel you're able to know where and how to sell, 24 or do you feel like there are some sorts of structural 25 limitations. 191 1 Armando? 2 MR. VALDEZ: From my perspective, I don't 3 think the information sharing is there. I don't think the 4 transparency is there. Because if all those premiums were 5 available, I don't think this room would be full with all 6 of these different individuals out here. I think there is 7 preferential agreements. I think if you're -- fit within 8 a certain characteristic or fit into a certain box or a 9 certain area, I think there are those premiums available. 10 Being an individual, like I said, with 11 distance as an obstacle, I know I'm getting discounted 12 automatically. And that becomes a challenge. And I know 13 there's other ranchers and producers out here who feel and 14 share those same experiences, especially in my area. 15 MR. WEISER: Gilles, what's your experience 16 been? 17 MR. STOCKTON: Well, you know, it's a little 18 bit complicated because we've got two sides to the cattle 19 industry. And I'm a cow-calf, and I'm not really dealing 20 directly with any packers. And I never -- although I did 21 last year. I got one bid; take it or leave it. And I 22 took it. A week later, the market started going up. And 23 for no reason -- for no reason whatsoever. 24 You know, and when you look at the market for 25 cattle in the last three years, it's been going up, down, 192 1 demand is constant, demand is pretty good even with the 2 recession. Numbers are down. The market is going up. 3 The market's going down. You know, you're USDA, GIPSA. 4 You tell me why. Because it makes no sense to me. 5 There's something I wanted to kind of just 6 finish from my previous talk there. In 1996, the Western 7 Organization of Resource Council gave USDA a petition for 8 rule making. And there were hearings held in Denver in 9 2000; very extensive hearings. And some of these same 10 people were there, and I've see quite a few of the people 11 here. Did I lose my page? Where did it go? 12 MR. WEISER: We can come back to -- 13 MR. STOCKTON: No, no. I'll just finish. 14 So we had those hearings, and there was never 15 a ruling from the USDA. And the subsequent secretary of 16 agriculture had not ever made a ruling. I am submitting 17 today, you know, a letter -- and if you can give this to 18 Secretary Vilsack and Attorney General Holder -- asking to 19 look at this rule, this competitive and transparent 20 pricing rule. It's a very, very simple rule. 21 All it says is that beef packers should make 22 their forward formula contracts in an open, public-manner 23 bid with a base price. And the second part of the rule 24 says that if packers are feeding livestock, the livestock 25 should be marketed in an open public manner. There should 193 1 be a firewall between their packing subsidiaries and their 2 feeding subsidiaries. I'm just saying, let's take what's 3 being done under the table and in the dark and just bring 4 it out in the sunshine. 5 MR. WEISER: Clem, how do you analyze the 6 price discovery issue? 7 MR. WARD: When we talk about price discovery 8 and when you talk about concentration both, there's an 9 aspect here that, I think, has been alluded to but we've 10 never really openly addressed it. And that's the fact 11 that -- you know, if you're situated in the heart of 12 hog-production country or you're situated in the heart of 13 cattle feeding, you know, the concerns that you may have 14 about price discovery and concentration are probably going 15 to be less than if you're out in some of those other 16 areas -- what I would call the fringe production areas -- 17 where you may be more adversely affected. 18 There are regional differences. The RTI study 19 found regional differences in the amount of AMA use by 20 packers by region, both in the hogs and in cattle. But we 21 also know that as concentration increased and we began to 22 close plants and so on, it was usually in those areas 23 where there were not a lot of supplies nearby. And those 24 are a lot of the areas where many of you are from and have 25 major concerns about not having opportunities because 194 1 those plants are no longer there. 2 I just thought it should be mentioned that, 3 you know, there is some -- there are some regional 4 concerns here associated with price discovery and 5 concentration. 6 MR. WEISER: So the other question I want to 7 put on the table is with respect to something which has 8 been talked about but worth talking about expressly, that 9 there's opportunity for premium products or in for niche 10 areas. People seem to have a difference of opinion on 11 exactly how readily available that is. 12 Libby, why don't you start off. Where do you 13 see those opportunities? How extensive are they? 14 MS. COOK: I mean, I see opportunities in more 15 progressive practices, such as better animal husbandry and 16 welfare practices. I mean, we see a lot of negative 17 publicity in the beef industry just with movies like 18 "Food, Inc." or "Omnivore's Dilemma." And I think that's 19 caused problems for the beef industry from a consumer 20 standpoint. 21 So in terms of educating the consumer and 22 marketing possibilities, I think promoting better 23 husbandry, animal welfare practices, using antibiotic-free 24 vegetarian-fed or grass-fed beef, also raising different 25 breeds, whether it's leaner or heartier brands, Angus or 195 1 Hereford -- more quality brands -- or it's selling direct 2 to consumers through farmers markets, selling directly to 3 specialty restaurants or retailers, creating cooperatives 4 to create a better base from which to have marketing power 5 or creating value-added products in the organic and 6 natural markets in particular. There's just an explosion 7 of consumer demand for value-added products. 8 I talked with Mark McKay, the CEO of Coleman 9 Natural Products down in Colorado. And he had recently 10 met with a group of ranchers in Iowa, and they were using 11 a local small packer to sell products and create 12 value-added products that he then distributed to the 13 natural foods industry; everything from flavored sausages 14 to meatballs to -- you know, I know I've seen organic 15 jerky -- beef jerky products; that type of thing. 16 MR. WEISER: So, Bill, I want to go to you on 17 this one. We heard someone this morning say that the 18 problem is if you want to sell directly to consumer 19 stores, restaurants, you've got to go through a USDA 20 facility. And that may not be easily accessible. How do 21 we bring the opportunities that Libby talked about and 22 square that with that challenge that was talked about this 23 morning? 24 MR HEFFERNAN: It's not easy. And that's one 25 of the big issues. But before we get too optimistic about 196 1 these alternatives, may I just remind you that Laura's 2 Lean Beef sold out to Meyers (sic) All-Natural Angus down 3 in Loveland here. And that was in '08, I believe. And 4 then Coleman sold out to the same organization. So 5 Coleman All Natural want to Meyers. And I think it's the 6 beginning of this month, less than 30 days, that Meyers 7 All-Natural Angus was basically -- let's see, they call it 8 a go-to market effort with Cargill -- but, basically, all 9 the processing and so on is going to be shifted over to 10 Cargill. 11 The bottom line is once we do get these set up 12 and if they're successful -- and I pick on these 13 especially because these are such well-known brands. If 14 there's any banner brands in the country, these are the 15 three. And yet, basically, for all practical purposes, 16 those producers who used to have a unique product -- it 17 will stay that way for a while. But the whole identity -- 18 the real benefits of some of these alternatives are being 19 lost pretty rapidly when it gets put into the system like 20 that. 21 And as I said earlier, I was on the board of 22 Ozark Mountain Pork. That's sort of an interesting one 23 because after the price of hogs dropped at the end of 24 the '90s, the USDA, the Rural Development Division, gave 25 out a lot of grants to farm -- farmers who had hogs who 197 1 were trying to put together an alternative market. And 2 that meant including, perhaps, putting together a 3 processing plant, to get back to the real question here. 4 And, interestingly, we got started. We had our problems 5 along the line. But eventually, we got things sort of 6 going. Now, we have a pretty big debt in the meantime and 7 we were sealing -- we were selling meat on the west coast. 8 We were out on the east coast. We were in the -- to a 9 distributor with the high-end restaurants on the east 10 coast. We were into Whole Foods. 11 And then at Meadowbrook, we were -- there 12 ended up being three -- sort of three cooperatives, three 13 organizations working together on this. Because we had 14 the -- we had the farmers with us to raise the product to 15 begin with. But it took so long to get the market, we 16 didn't have a market. By the time we got the market, we 17 no longer had many producers left in our organization. 18 And Meadowbrook had this nice facility, but they couldn't 19 keep it busy. So we teamed up with Meadowbrook and 20 another organization that had producers that needed a 21 place to go. So we sort of had three cooperatives working 22 together cooperatively. That was a nice way to do it. 23 Then Meadowbrook finally got in trouble and 24 they went under. Those of you who followed the news in 25 the last week, that facility just finally -- it's been 198 1 sitting empty since then. It got picked up by another one 2 that's going to try it. We have a common saying in our 3 group. We bought our processing plant after someone else 4 went broke. And the saying on our board was, While the 5 first mouse doesn't get the cheese, the question is, will 6 the second one get the cheese? So maybe now the second 7 one in will get it. 8 But the bottom line -- there was a processing 9 plant, got it set up, got going, couldn't make it. Before 10 long, our other partner had some real financial issues 11 given just the whole commodity issues and so on. They 12 pulled out. We were going on our own. And one day, we 13 got a call from journalists -- there were three 14 journalists that called. One from USDA, one from a farm 15 magazine, and one from a trade journal. And they wanted 16 to suddenly know more about our organization. We had the 17 sense maybe that we were the only ones -- we know there 18 weren't many -- we think we may have been the last one 19 standing of those people who got those USDA grants. 20 MR. WEISER: Well, I -- 21 MR. HEFFERNAN: And let me just add that -- 22 and before that day was over, we got a call from the 23 president of the board of directors saying we were done. 24 We were sold out. We're done. 25 MR. WEISER: So to -- another farm metaphor 199 1 there. It could be said to be a chicken-and-egg problem 2 here. If you don't have the processing facility, it's 3 hard to have -- 4 MR. HEFFERNAN: There you go. 5 MR. WEISER: -- the opportunities -- 6 MR. HEFFERNAN: There you go. 7 MR. WEISER: -- to get it developed. If you 8 don't have the people selling, it's hard to make it work. 9 Mark, you have a unique perspective on what it 10 takes to make these facilities viable. What are your 11 thoughts? 12 MR. LAURITSEN: Just -- Bill brings up an 13 excellent point about, you know, Laura's Lean and Myer and 14 the transition that's going there. The question to be 15 asked is: Why did they end up consolidating at the 16 beginning levels and at the end? And here's the thing. 17 So if we all close our eyes, wave the magic wand, if we 18 woke up tomorrow and the dream came true and under the 19 current U.S. law we busted up the big packers, so what 20 would it look like? 21 Well, the law says you have to divest. So 22 somebody has to operate that facility. How long could an 23 independent plant out there by itself in Marshalltown, 24 Iowa, withstand the price pressures that are put on them 25 by the large retailers like Wal-Mart squeezing every ounce 200 1 of profit out of them. We end up, I think, with less. 2 And plants that sit empty -- because then they're no 3 longer, you know, being divested. They just couldn't make 4 it as a company, so they go out of business. 5 Well, who gets hurt there? The producer has 6 nobody to sell their stock to and the worker has no place 7 to work. The consumer gets less choice. Those 8 communities are devastated by the loss of good jobs in the 9 community. So as we look at this, I don't want to sound 10 like I'm beating this drum to death. But there is a large 11 component that really needs to be addressed. Hopefully it 12 gets addressed in Washington. These retailers are 13 exercising way too much power in this industry, and 14 somebody's got to call them on it, and they have to do it 15 soon. 16 MR. WEISER: I want to ask to go to -- go to 17 our panel and ask each one -- each member of the panel, in 18 a minute or so, to give their advice to a start-up rancher 19 who is getting into the business to understand, obviously, 20 the challenges that we talked about, what kinds of counsel 21 would you give them? 22 Clem, why don't you start us off. 23 MR. WARD: Well, I think someone said earlier 24 you need to use all the tools available. But capital is a 25 huge issue for young farmers, I think. Some of us who 201 1 have some land know how much land has appreciated. For 2 some of us, that's a wealth effect and that's nice. But 3 for a young farmer, that just is a tremendous obstacle to 4 getting in the business. And so, you know, you're going 5 to have to use Enterprise Budgets. You're going to have 6 to use cash-flow planning and every tool that's available 7 to make sure you don't overinvest. 8 The standardized production analysis data 9 shows pretty clearly that the top quartile in 10 profitability are those operations that have below-average 11 investments in land, equipment, and cattle above average 12 production. So you have to take care of the production 13 end of the business and you have to concentrate on 14 marketing. And that means doing the things that the 15 market suggests. And, for example, we've been trying to 16 push preconditioning programs in Oklahoma and many other 17 parts of the Midwest because we think there's some 18 premiums there that cow-calf producers can benefit from. 19 MR. WEISER: Gilles? 20 MR. STOCKTON: The question is: Advice to a 21 young start, what can they do? What's that old saying? 22 If you're going to get married, she might as well be rich. 23 I don't think someone could get started the 24 way I got started and make a go of it. And part of it 25 that help me a lot -- besides my parents, of course -- was 202 1 USDA and the Farmers Home Administration; probably the 2 best program USDA ever had. And after helping me with low 3 loans and helping me on planning and business and advice 4 and stuff, after about 12, 13 years, they told me it was 5 time to graduate. And I did and I'm still here. But I 6 can help my son quite a bit, but I don't think he'd be 7 able to make a go of it unless he finds that rich girl. 8 MR. WEISER: Jerry? 9 MR. BOHN: I'd say get a good education, get 10 some business experience, maybe even go away and work away 11 from home for a year or two with somebody else, work with 12 your banker to establish that relationship, learn about 13 risk management. We're in a risky business. Not enough 14 of us know how to manage risk. And I think they need to 15 as they come into the industry, they need to understand 16 how to manage risk. 17 Let's get rid of the state tax, make it easier 18 for these people to come back to the farm and ranch. 19 Let's lower the cost of regulation. Air regs, water regs, 20 it's unbelievable what the cost of that is right now, and 21 the negative impact it has on agriculture. How are we 22 going to repopulate rural America if we regulate them out 23 of business? 24 And finally, we've got to figure out how to 25 make land cheaper. You know, we've got to quit letting 203 1 land be developed for cities. Urban sprawl and recreation 2 is ruining our -- the opportunity for young people to buy 3 land in all parts of the country. 4 MR. WEISER: Libby? 5 MS. COOK: Coming from the small-business 6 perspective, I'm the consummate entrepreneur and always 7 optimistic and always think that there's a way for 8 business to compete. Small-business owners need to be 9 creative, need to have aggressive marketing strategies. 10 And I do a lot of small-business consulting. And I feel 11 like, you know, just like any other small business, 12 creating a niche and being creative, looking for 13 opportunities where you might not think there are 14 opportunities, is the best way to succeed. 15 MR. WEISER: Mark? 16 MR. LAURITSEN: Well, where I grew up, you 17 either raised it or killed it. My family killed it. So 18 my advice to anybody starting up in anything, I guess, 19 would be: join a union. 20 MR. GREENWOOD: Actually, you know, from the 21 swine sector, we have had some success with young 22 beginning farmers getting in. I can give you countless 23 stories of -- we did loans -- young beginning farmer 24 loans. And we have young beginning farmer programs where 25 we were leveraged at -- they didn't hardly have a -- 204 1 what's the term -- a pot to piss in. 2 But, you know, we developed young beginning 3 farmer programs that had contract arrangements for 4 contract -- with a contract pig owner. It's been paid off 5 over a ten-year period. Now they've had the choice -- and 6 they have the choice, however -- if they want to own pigs. 7 Some of them are and some of them have chosen to be 8 contract still -- vendor contract production. That 9 program has been one of the best young beginning farmer 10 programs that we have had in our association bar none. 11 And it has allowed -- I can give you countless stories of 12 farmers -- these young guys in their mid-20s, now they're 13 actually owning some pigs, also owning some land, that 14 have done pretty well. 15 I'll give you one quick story. We had a 16 college intern last year. He did a lot -- he's a lot 17 smarter than me, by the way. Family farm, 500 sows farrow 18 to finish. He came in and he was helping us kind of 19 analyze our portfolio. But he -- I said, If you had a 20 wish, what would you do? What did I want him to do? He 21 put together a live break-even using the Chicago Board of 22 Trade with futures, live with corn meal and hogs, and that 23 kind of helped kind of do average costs. Well, he built 24 it in about two days and it's live. There are a ton of 25 bright young people that have -- and he went back home 205 1 farming, by the way. But he's using that tool to manage 2 his risk. So there is opportunity, by the way. 3 MR. VALDEZ: I agree. There are plenty of 4 opportunities. I think it's a great question. Because 5 young farmers, we're all invested in them. We need food. 6 We need food production. So in starting to think about 7 this question, it was what would I like to tell them or 8 what do I need to tell them? 9 I'd like to tell them, you know, it's a very 10 profitable industry. They have to get in it. There's 11 nothing else better. Great lifestyle, great communities, 12 great and plentiful market options where they can make 13 lots and lots of money. What I need to tell them is that 14 they need to be efficient because there's slim margins. 15 And any errors out there are going to quickly wipe those 16 away. So a good education and understanding risk 17 management, I think, is very, very important. Also, you 18 need to watch your cash flows. You need to see where that 19 money is coming in and where that money is going out. 20 Don't depend on a banker. 21 I like the gentleman's idea about finding a 22 rich spouse -- you know, a wife or husband down there. I 23 put down, you know, find a rich aunt or uncle and get the 24 money; get the animals from Mom and Dad. The state taxes 25 are an issue, especially in rural America. But if you're 206 1 going to pass an estate and you're going to die, 2010 is 2 the year. Just ask George Steinbrenner. And there's an 3 ad that goes, If you want to make a little money farming, 4 start off with a lot of money. 5 It's very honorable, very honorable to raise 6 food for the American people and the world. I take a lot 7 of pride in that and I consider it a strong privilege to 8 live in the lifestyle and the community that I do live in. 9 There should not be a trade-off, though, to have that 10 wonderful lifestyle and that honorable profession and 11 trade that off for economic opportunity. We shouldn't 12 have that trade-off. 13 One final comment, I think we don't need to 14 look just to our rural communities to develop young 15 farmers. We need to look for flight from our urban and 16 suburban neighbors. We're so much looking at how do we 17 keep them on the farm. We need to keep them on the farm, 18 but we also need to find how people are going to get into 19 farming industries as well. So there's a lot of options, 20 a lot of opportunity. We just need to develop the 21 mechanism and the infrastructure to do so for those young 22 people. 23 MR. WEISER: And, by the way, later today, 24 Armando is going to be doing a standing-up comedy routine 25 at Congressman Markey's ice cream shop for those who want 207 1 to stop by. 2 MR. VALDEZ: How do you think I went through 3 Colorado State University? 4 MR. HEFFERNAN: Well, the question isn't 5 exactly just hypothetical for me. About a year ago, I 6 learned about a young fellow, a senior at the College of 7 Ag, finishing up. He lived about six, eight miles from me 8 and he wanted to farm. He's gotten an FSA loan and bought 9 some cattle. There were a couple of landlords who rented 10 him land at below what I would call a market price that 11 they could have rented it for; giving him a break. 12 I'm trying to downsize, so I've got a little 13 more time to do things. I need somebody to help me in the 14 wintertime, and other times to look out for my animals 15 when I'm traveling. And so I've got machinery capacity 16 for hay making and so on that I don't use much anymore. 17 And so I could help him out on that. So some of us sort 18 of got together talking about this. 19 But when you really get right down to it, he's 20 either got to -- someone said earlier -- market, really 21 spend some time marketing. And people who do this tell me 22 when they're producing -- Armando, you brought that up -- 23 you've got to spend about half your time producing and 24 half your time marketing when you do that. 25 MR. VALDEZ: Another half taking care of 208 1 everything else. 2 MR. HEFFERNAN: Yeah. You do that after dark. 3 MR. GREENWOOD: You need a good banker, 4 though. 5 MR. HEFFERNAN: Well -- and that's really the 6 point. With all that going for him, are we really going 7 to do him a service by putting this piece together? It's 8 still a question. 9 MR. WEISER: So, Bill, you made a reference -- 10 I want to say, unfortunately, there's no time to get to 11 the comments. But this one, we have to say, which is: 12 Thank you to all the people who stayed home, so we could 13 be here today, taking care of our cattle, livestock, and 14 farms. 15 We're aware a lot of people couldn't make it 16 because they were helping those who came. We should 17 acknowledge those people. This has been a great panel 18 discussion. It's very helpful. I want to thank you all. 19 And then we'll segue onto our next panel. 20 (A recess was taken from 2:49 p.m. until 21 2:56 p.m.) 22 MR. MACDONALD: Welcome to our second panel of 23 the afternoon. I guess it's our third with our public 24 panel to begin with -- on market structure. 25 My name is Jim MacDonald. I'm with the 209 1 Economic Research Service of USDA. And we have a group of 2 participants on this panel with, I would say, both deep 3 and brood experience in the business. I'll introduce them 4 to begin with. Starting to my right at the end of the 5 panel, we have Bruce Cobb, who is general manager for 6 Consolidated Beef Producers, a feeder-owned cooperative 7 that markets cattle to packers, on behalf of their feeder 8 members. 9 Next to Bruce we have Dave Domina. He's an 10 attorney with Domina Legal Group, who is also the lead 11 attorney in the Picket/IBP case. Next to Dave we have 12 Mark Dopp, senior vice president of the American Meat 13 Institute. Next to Mark is James Herring, immediately to 14 my right, president of Friona Industries, a feedlot 15 company with four lots in North Texas. 16 To my immediate left is Bob Mack, a cow-calf 17 producer and feeder in South Dakota. Next to Bob is Bob 18 Miller, rancher and deputy director for the Division of 19 Tribal Affairs for Muscogee Nation. To Bob's left is Bill 20 Rishel, cow-calf producer in Nebraska and president of the 21 Nebraska Cattlemen's Association. And finally all the way 22 to the left end of the table is Charlie Rogers, who is 23 owner-operator of Clovis Livestock Auction in New Mexico. 24 We're going to cover two broad topics. And as 25 you might guess, we're going to be kind of integrated 210 1 across panels. We're going to be talking about some 2 topics that you've heard a little bit about already. I 3 want to start the panel off talking about some issues 4 related to concentration and competition in the fed cattle 5 business, and then I want to shift over to a discussion 6 about marketing practices. 7 Let me start with concentration questions. 8 We've heard the broad numbers in several different panels; 9 that it's about 80 percent of the fat cattle in the 10 country are purchased by the four largest packers in the 11 country. We found in the investigation of the proposed 12 JBS/National merger last year that through most of the 13 High Plains, most sellers faced three to four bidders, a 14 number that we heard in a few earlier discussions. 15 So I want to start off and talk about the 16 nature of concentration in different elements of the 17 business. So let me start with James Herring and ask him, 18 in your experience, do you typically face three to four 19 potential buyers for your cattle, and do you think that's 20 an accurate representation of the situation in the High 21 Plains? 22 MR. HERRING: Well, first of all, Jim, thank 23 you for allowing me to begin this panel and for being here 24 in the first place. Looks like we've got a lot of 25 interested participants out there. And I guess it -- I 211 1 need to introduce at least at the beginning that we are a 2 relatively large cattle feeder in the Texas panhandle. We 3 have worked for the last 13 years to create a vertically 4 aligned production system into a series of brands that we 5 put into Safeway and Harris Teeter and some other 6 retailers. 7 All of our cattle are merchandised in a 8 formula based off the cash market. So we have our antenna 9 up on the cash market at all times. And I might add that 10 I have -- as the president of the Texas Cattle Feeders, in 11 1996, I was instrumental in getting the ball rolling on a 12 cooperative call of consolidated beef producers who are 13 also represented on this panel. 14 We have three to four packers out in the Texas 15 Panhandle that participate on a very aggressive basis. We 16 are lucky as a region because our packing community has 17 excess capacity. We have kill capacity that's above our 18 supply by about 15 percent. So if you own 100 head, you 19 own 100,000 head, you market 2,000 head a week, you market 20 100 head a week, if you're feeding in the right spot and 21 you have the right kind of cattle, desirable cattle. Keep 22 in mind that regardless of what anybody tells you, there 23 are differences in value in livestock. 24 Regardless of that, we have an active 25 participating marketplace out there with four interested 212 1 parties that are trying desperately to fill up their 2 capacity every single day and every single week. And that 3 creates a pretty stimulative marketplace. 4 MR. MACDONALD: Let me just follow up a 5 little. I've had several other people involved in the 6 feeding business on the panel. Is that your experience, 7 for example -- Bob Mack -- do you see three to four 8 buyers? 9 MR. MACK: No. In most cases three would be 10 the max. Normally we've got one or two that have smaller 11 feeders. And the feeders that I work with are smaller 12 feeders, I think. There would only be a few of them that 13 would market 10,000 plus head a year. If you're in the 14 cash market, you're a residual market. And basically once 15 the packers that are in the market have their captive 16 cattle killed, they'll -- then they come into the cash 17 market. And quite often I think buyers are even just a 18 little bit lazy about it. They go -- they start off with 19 the biggest lots that might sell some cash cattle and work 20 their way down. 21 MR. MACDONALD: So is it generally true that 22 we would expect people with greater volumes to have more 23 bidders for their cattle? Is there a relationship between 24 bidders and the number of cattle? 25 MR. HERRING: Well, I think the example was 213 1 100 head a week or 100,000 head a year or 100 head a year. 2 And our market is a weekly market, so 100,000 head a year 3 is about 1,800, 2,000 head. And we're lucky in that we 4 have an active participating marketplace out there as I 5 mentioned. Kill capacity is pretty vigorous. In my mind, 6 again, pick the right feeder, pick the right cattle, you 7 have aggressive participation for the purchase. 8 MR. COBB: Jim, if I could comment on that as 9 well. At CBP we've been in business for 10 years and 10 market a lot of cattle. And we're the largest marketer of 11 cattle in the negotiated market in the country as a co-op, 12 organizing the Capper-Volstead Act. And we see the market 13 function every week not just with any other region, but 14 across regions. So we have a pretty good feel of what's 15 going on in the marketplace as it relates to bidding. And 16 while potentially there are four market participants, what 17 we see typically region by region is that there are really 18 one to two meaningful participants, rarely three, and four 19 meaningful participants is very much of an oddity. 20 And one of the things that we value very 21 greatly at CDP is that we're very data driven, number one. 22 We work week in and week out to understand the markets. 23 Each market is different. A lot of dynamics going on. 24 Conditions change, so we study them in great detail. So 25 we tend not to lend ourselves to what we subjectively 214 1 believe, okay, but what is objectively true, very data 2 driven, as I said. So let's just look at the data, what 3 does the data say about bidding in the marketplace. And 4 we did our own assessment and challenged ourselves very 5 deeply on this. And we looked at the last 52 weeks in 6 Texas, Oklahoma, and New Mexico. 7 In the last 52 weeks, there were three 8 meaningful market participants five times, five weeks. 9 Only two weeks were there four meaningful market 10 participants, so a total of seven over a 52-week period 11 could be defined as perfect competition. Additionally, 12 there were 18 weeks in which there was only one market 13 participant, four weeks in which there were none. So a 14 total of 22 weeks we had a market that was defined as 15 imperfect competition. So we consistently can see region 16 by region where we had a presence where the region is 17 dominated by one buyer, clear and simple. 18 And the fundamental reason we see this kind of 19 procurement behavior going on is because of the large 20 volumes of the non-negotiated supplies that are already 21 committed. And I'll tell you this: Guys, as an industry, 22 we have to recognize the problem because it's not just a 23 problem to the negotiated market; it's a problem to the 24 entire health of the U.S. cattle industry. 25 MR. MACDONALD: Let me keep just a brief 215 1 follow-up for now on the concentration side. In 2 particular, the areas that Clem Ward in the previous panel 3 described as fringe areas perhaps outside the High Plains. 4 Do any of you have experience or want to comment on the 5 number of buyers we tend to see in areas outside the High 6 Plains? 7 MR. MACK: The numbers will generally be less, 8 and a lot of times you're dealing with regional factors. 9 But it's not uncommon. We're -- when we deliver cattle, 10 we're hauling the cattle 200 to 800 miles, quite often. 11 So there's other factors involved there, too, but I agree 12 with what he says, it's not only the cash cattle that are 13 being affected, it's also -- that's establishing the price 14 for many of the captive capital. And so when that market 15 is depressed, it's actually driving the capital market 16 down also. 17 MR. MACDONALD: Let me give you one more quick 18 one since you brought up distance. Are those distances 19 for fat cattle? 20 MR. MACK: Yeah, one way. 21 MR. MACDONALD: That's a long way. Now, I've 22 talked a little bit about numbers, and Bruce touched 23 briefly on volumes and bidder numbers. Let me follow up a 24 little bit with Bruce and see if -- we also want to have 25 other people jumping in on this. 216 1 Bruce, do you also see that volume matters in 2 the types of prices that you're able to get? In other 3 words, do you get price premiums related to volumes of 4 cattle that you're selling in particular transactions? 5 MR. COBB: I think in any industry, yes, 6 volume does matter. It does speak, whether you're talking 7 agriculture, airline industry. It really doesn't matter. 8 What does matter is taking time to understand 9 the marketplace and study. We at CBP strongly believe 10 that you have to get in and study the business week in and 11 week out to understand the dynamics and the conditions of 12 each marketplace. Markets change not because of some 13 whim. Markets change because of fundamental supply and 14 demand, and you have to understand that. And there also 15 has to be a balance in terms of buying and selling power. 16 That is a business strategy in any industry. 17 MR. MACDONALD: I wasn't sure I got the answer 18 out of you. Do you get higher prices when you sell 19 the market -- 20 Mr. COBB: Yes, absolutely. At times there 21 are -- in the last eight weeks, there have been numerous 22 two-tiered markets. So, yes. 23 MR. MACDONALD: Two tiered meaning a premium 24 for volume in a transaction. 25 MR. COBB: Meaning that the market begins at 217 1 one level and then goes to another level during the week. 2 MR. MACDONALD: You mentioned that -- let me 3 see if we can get others following up as well though 4 because we did have discussion on earlier panels on the 5 volumes and prices. And I'd like to see if other panel 6 members have a view on this. 7 Do you you need a particular threshold or 8 significant volume of cattle to be sold in order to get a 9 price premium? Are there volume premiums in the market? 10 MR. DOMINA: Well, it might be worthwhile to 11 look at the data that the packers report to you. The 12 mandatory price reporting data doesn't indicate that 13 there's any difference per volume, but it indicates a very 14 large packer reported difference from packer-reported data 15 between cash prices paid and non-cash prices paid. From 16 1994 through August 10 of this month, that difference was 17 a little over $21 a head. That's one of the problems. 18 The other problem is, if the question and the 19 answer don't necessarily match up, the data isn't very 20 good. The first question you asked today was, what is the 21 market level activity that's seen at Friona Industries. 22 And the answer included the word "vertical" and then 23 described the market. I think I'm right that Friona 24 Industries sells 100 percent of its cattle under a 25 contract arrangement to Cargill. 218 1 And if that's so, there's no bidding for those 2 cattle by those other three packers. So the data has to 3 match the question in order to be meaningful. 4 MR. MACDONALD: I'll give James a chance to 5 respond on that. 6 MR. HERRING: Well, the answer to that, as I 7 mentioned earlier in the comments, is yes. We do trade 8 our cattle in the formula because we spend a lot of time 9 and effort downstream to acquire the cattle that can 10 perform against today's pricing parameters in the 11 marketplace. So even though the choice select spread is 12 relatively tight now, and there are other little nuances 13 in the marketplace for premiums and discounts. Obviously, 14 we design the cattle to fit the formula and the pricing 15 mechanism that exists in the marketplace at the time. 16 So, yes, we do use the cash market to 17 represent a base price for what comes to us, because we 18 spend a lot of time and effort based on tenderness in our 19 27 critical control points to create a differentiated 20 product for the retailer and the consumer. So, yeah, I'm 21 not embarrassed to say I'm chasing a premium every single 22 day. I want the premium. I want my cattle producers that 23 deliver to us -- there's 82 of them across about 28 24 states. I want those people to be well rewarded as well. 25 So, you know, I've heard a lot of commotion 219 1 here today about vertically aligned production systems, 2 but you're going to hear this afternoon in some comments 3 from producers that are in a vertically aligned production 4 system that it's not that bad. We pay them, and we're in 5 the marketplace 24/7 with premium prices for the cattle 6 that we know will perform. 7 Don't ever let anyone tell you that livestock 8 are the same, because they're not. In our 13-year 9 progress to this branded product scheme that we have now, 10 there's $400 difference in the cattle from pen to pen any 11 time in the Texas Panhandle. You walk into any pen of 12 cattle in the Texas Panhandle that's traded on a commodity 13 basis, a commodity price cash price, and there's $400 14 difference. 15 So all we're trying to do is mind those 16 differences. And we have a way to do that and we're proud 17 of that, and people down below us, you guys sitting out 18 here in this room, 650,000 times a year, somebody has a 19 grin, smile on their face, from something that we've done. 20 MR. DOMINA: That's called premium selling. 21 And the reason it's called premium selling is because if a 22 packing plant kills 5,000 head of cattle a day and 23 operates for eight hours a day and operates for 28,800 24 seconds, divide that by 5,000, it takes 5.8 seconds to 25 kill and harvest an animal. And that doesn't allow 220 1 differentiation in the packing plant. That is premium 2 selling. 3 MR. HERRING: Can I respond to that, too? 4 We'll get a real discussion going here. Here's the real 5 discussion. The USDA spent a lifetime creating a grading 6 system that says to the rest of the world, retail and the 7 consumer, hey, we want you to know the differences in 8 livestock. That's not a bad thing. That's a good thing, 9 because there are differences in livestock. And the GIPSA 10 regulation, as it's written today, would take that 11 methodology, that attempt to differentiate the meat within 12 an animal, and to the producer not allow that. Does that 13 make any sense to any of you sitting out in the room? 14 MR. DOMINA: That's absolutely not true. 15 MR. MACDONALD: Let me try to hold us off. I 16 still want to stay with the concentration a little bit 17 before we get into arguing over marketing practices. Let 18 me just take a little bit more time on some of this. As 19 Dave pointed out, a large kill plant today will slaughter 20 about 5,000 cattle a day. I think it's two shifts that 21 will make 5,000. 22 MR. DOMINA: It takes 10 seconds. 23 MR. MACDONALD: If I go back a little bit -- 24 yeah. Two kills. 25 If I go back a little bit further, back when 221 1 concentration was low, 1980, the top four packers owned 2 about 26 plants. Today the top four packers with a 3 concentration of 80, about the same number of plants. 4 Those plants are a lot larger. We all know that. We 5 didn't have plants killing 5,000 a day in the early '80s. 6 What I want to do is take a little bit of time to talk 7 about something Clem Ward mentioned in the past panel, 8 which is whether there are scale economies and to what 9 extent they are in packing plants. 10 In short, I want to get around to the several 11 drivers that are driving us towards higher concentrations. 12 So I'd like to ask Mark Dopp: Do packers realize any cost 13 or efficiency advantage from these large annual 14 transaction volumes? 15 MR. DOPP: Thank you, Jim, for allowing me to 16 be here today. The short answer is yes. The data is 17 indisputable. In fact, I heard somebody discuss this 18 issue very recently. And last night, I think it was 19 described as a fairly boring topic to analyze because it's 20 so well founded, so well-discussed, and so well-proven, 21 that the economies of scale matter very, very much in this 22 business. 23 The data I was given recently and provided 24 recently shows, for example, a plant kills 1.7 million 25 head on an annual basis is 5 percent more efficient than a 222 1 plant that kills 1.3 million head and 12 percent more 2 efficient than a plant that kills 950,000 head. Now, 3 950,000 head is still a lot. But when you're talking 4 about efficiencies on a scale of 12 percent, that's a big 5 number. So the short answer is yes. And it's not 6 surprising, therefore, that companies started looking at 7 ways to become more efficient, getting larger to achieve 8 those efficiencies, those economies of scale. 9 Now there is something I would like to talk 10 about for a minute, and I'm not taking issue with your 11 data, Jim, but something that nobody's mentioned all day. 12 Something I hear about a lot is this quote, unquote, 13 increasing concentration. All right. Well, the facts 14 are -- if anybody wants to go to GIPSA Web site and look 15 at the 2009 report, which was published in March of 2010, 16 you will see that for fed cattle, the concentration, the 17 CR4 number, the concentration ratio is at about 80 18 percent. And it's been there since 1995. 19 It hasn't changed more than about a percent. 20 Go to page 45. It's in the report. So this idea that 21 there's increasing concentration in the cattle industry or 22 the fed cattle industry is a bit of a red herring. Now 23 admittedly, it grew dramatically from '80 to '95, 24 that's when you move from 30 to 80 percent. 25 But since 1995, that number hasn't moved much 223 1 at all. In fact, you can talk to some economists who will 2 tell you it's about 70 percent. So, in fact, I looked at 3 the report this morning. For steer and heifer it's 81 4 percent in 1995. In 2008, the most recent data that the 5 agency publishes, it's 79 percent. For fed beef 6 production, 85 percent in 1995. 2008, again, the most 7 recent data they put out, 76 percent. So there is a bit 8 of -- there's some disingenuousness, if that's a word, out 9 there about this increasing concentration. It just hasn't 10 happened, not recently. 11 Now, there are some very good reasons why the 12 concentration has gotten there. And some people talked 13 about OSHA issues and EPA issues. Let me mention one 14 other because I'm intimately familiar with it. Some of 15 the government regulatory policies that USDA has put out 16 have contributed or fostered that concentration level. 17 And I'm thinking about the food safety policies. I'm the 18 first to tell you that we are all in favor of the most 19 stringent food safety policies out there. But I can tell 20 you as a fact, because I represented them. I represented 21 a company that some of you know in Nebraska that went out 22 of business in 1997 because of an E.coli recall. 23 That recall, that policy, led to at least two 24 other companies leaving the business. I represented those 25 companies. They sold out. They were family-owned 224 1 operations, and the folks that ran those companies said, 2 I'm not taking the chance of being the next Tyson Foods, 3 so they got out. Those types of things contribute to what 4 everybody calls quote, unquote, the concentration issue. 5 MR. MACDONALD: So if I could just jump in 6 briefly and put it in a past tense then. When it became 7 concentrated, do we have a sense of why that happened 8 besides from a scaled economy? Are there other issues 9 involved in the increase of concentration that occurred 10 during the '80s and '90s? And I agree with you, the major 11 structural change in the industry occurred during the '80s 12 and the early '90s. Anyone want to take a shot at that? 13 MR. DOPP: I think what was discussed a little 14 bit about the retail sector has contributed somewhat to 15 that. I think the issues there, however, are far more 16 related to the cattle marketing issues which you want to 17 get into. I think the evolution of the retail sector 18 contributed perhaps a little bit. 19 MR. DOMINA: Well, I'll take a shot at it. 20 First of all, I think the only place you could be employed 21 in the livestock industry and have the sense that the 22 market is unchanged for the last 20 years would be as a 23 lobbyist for the packers. 24 MR. DOPP: I'll tell our lobbying people that. 25 MR. DOMINO: The second thing I would say is 225 1 that surely one of the reasons that concentration came to 2 be, continues to be, continues to grow and gets worse is 3 because packers with large plants are able to cut up more 4 pieces of meat by the pound by the hour for the same wage 5 as if it was a little bit smaller, which creates the 6 marriage between the workers who are here and the 7 producers who are here. We have the same problem. 8 The third thing about concentration is 9 answered with a simple rhetorical question. 64 percent of 10 the deposit assets of the United States of America 11 including its federal treasury are in four banks. If you 12 feel safer about your country because of that, raise your 13 hand. And if you don't, then why would you think your 14 food supply is safer at a higher level of concentration 15 than your money? 16 MR. MACK: Jim, I've got a question for 17 Mr. Dopp. What would the concentration level be if the 18 Justice Department had blocked the most recent JBS merger? 19 MR. DOPP: I think they would be at 80 20 percent. You would have three firms at 80 percent, not 21 four. It's still 80. You're marrying three and four. 22 You know, Jim, if I might make an observation about the 23 food safety comment that was made, you know, I think 24 there's been a lot of meat about that, and I think it's 25 frankly -- some people need to learn the facts. For 226 1 example, when E.coli 157H7 was declared an adulterant in 2 about 1994, 1993, the incidence rate on products coming 3 out of US federal inspected packing plants was about 1 4 percent, maybe a little higher. It's now at .1 percent. 5 So to suggest that the packers aren't doing a good job at 6 dealing with E.coli issue, I think it's just not true. 7 MR. COBB: Jim, could I comment one time on 8 concentration? 9 MR. MACDONALD: Sure. I need to get somebody 10 from that side. 11 MR. COBB: The numbers on concentration, they 12 are what they are. But the reality is that on a regional 13 basis, because of the concentration, it allows for market 14 power. And then because of procurement practices, that 15 creates lack of competition. 16 MR. MACDONALD: Let me get us to the last 17 question on the last section of concentration. I'll just 18 put it straight. Since Bob brought it up, suppose a 19 merger had gone through and an we had one less buyer, let 20 me throw it out and ask: Would prices have gone up? What 21 would be the effect of fewer bidders, one fewer bidder, no 22 matter what we're starting from, bid on prices? I'll let 23 Dave start with that one. 24 MR. DOMINA: Well, if you're only getting one 25 bidder, the price goes down, the price goes down because 227 1 you get none. But I think that Bruce is right that there 2 are huge sectors of their industry. You know them, you've 3 lived them, you've experienced them, where feedyards are 4 getting one bid, one bidder. They only get one person who 5 calls on them from one company. They sell their cattle to 6 one place, whether they're in the cash market or not, and 7 that's because they have one opportunity. It's not just 8 four-firm concentration in the industry nationwide. It's 9 sort of like politics. All cattle selling is local. And 10 if you don't have somebody calling on your yard, you're 11 not selling your cattle. 12 I hear twos and threes, but when you hear it 13 from people who are using formula sales, you wonder why, 14 if there's such a vibrant market. I think Bruce has got 15 it exactly right. Concentration cannot get worse than one 16 except to go to zero. 17 MR. MACDONALD: Let me put it then to the two 18 of you. Had that merger gone through, would there have 19 been no effect on price since everybody already faced just 20 one? 21 MR. COBB: I think there would have been a 22 dramatic price had the merger gone through, because rather 23 than the few weeks that we have right now with perfect 24 competition, we would have even fewer weeks of prefect 25 competition. 228 1 MR. MACDONALD: Okay. So your argument is you 2 would have had more weeks in which you would have single 3 buyer? 4 MR. COBB: Yes. 5 MR. MACDONALD: Anybody else want to take a 6 shot at that? 7 MR. MACK: I agree with everything he said. 8 But at the same token, I think part of the problem with 9 concentration is that historically cattle have been fed 10 where they can be fed the most efficiently and for the 11 least money. And right now you've got the packing 12 influences in the south where you've got some huge 13 feedlots. The unfortunate thing is things in -- or have 14 changed with feed prices and things like this, ethanol 15 production and other things. 16 And cattle can be produced cheaper once again 17 in the Corn Belt, especially the western corn belt than 18 they can on the High Plains. Shipping costs, irrigation 19 costs, a lot of these things are factored in. But the 20 influence of the packers over these large lots, they've 21 been kind of joined at the hip and actually magnified the 22 effect of that concentration. 23 MR. MACDONALD: You brought that up to me in 24 earlier conversation, and I want to see if we've got other 25 people saying the same thing. I understand you believe 229 1 there is a fundamental change in the economics of feeding 2 that starts to favor more corn belt and Northern Plains 3 operations; is that right? 4 MR. MACK: Initially cattle feeding was done 5 in the Corn Belt; when irrigation opened up in High Plains 6 and you had a huge supply of feeder cattle and you could 7 raise lots of corn very inexpensively. Cattle feeding 8 naturally followed. Packers built packing plants there. 9 The big feedlots went in there. 10 Historically, now if you go and take USDA 11 numbers and track the corn prices in the eastern Dakotas, 12 North Dakota, Minnesota, Iowa, Nebraska, compare them to 13 the Texas Panhandle, then add in ethanol byproducts, soy 14 bean byproducts, storage costs, the availability to high 15 quality, northern plains feeder cattle and everything 16 else, historically cattle feeding should be moving back to 17 the north. The packers should be moving back to the 18 north, and things like this, but you're not going to see 19 it because you've got huge feedlots down there joined at 20 the hips with the packers. They could care less about how 21 inexpensively beef can be raised, so the consumer can go 22 and get a better buy so the feeder cattle producer can go 23 and get more for his calf. All they're concerned about is 24 to get more control of that market. 25 MR. MACDONALD: Any other reactions on that? 230 1 Does anybody else see that economics are changing? Bill, 2 yeah. Bob Miller, I'm sorry. 3 MR. MILLER: I'm probably one of the older 4 ones in here and I've seen an awful lot of changes from 5 the time we loaded cattle on the road; 15, 20 miles to the 6 railroad to load them and take them to Kansas City. And 7 they would be steers three or four years old that weighed 8 from 12 to 1,500 pounds off grass. And then the people 9 that raise corn in Iowa and Illinois and Kansas and 10 Missouri all bought those cattle and fed them a little bit 11 and killed them. 12 And so we've seen the markets, as Bob said, 13 change from Chicago, Kansas City, where we even had two 14 packing companies in Oklahoma City and sold fat cattle 15 there. We've seen all that change to the panhandle of 16 Texas and Oklahoma. 17 And it has caused concentration, and it has 18 put a lot of people in a bind in different places. And 19 it's kind of where you're looking from. And it's kind of 20 like the two old maids that live together and they called 21 the police and said there's a man next door that's 22 indecently exposed. Would you hurry up here. Come up 23 here and arrest him. So the police got up there and 24 looked across the alley and said, Well, he's just -- I 25 can't see him but just from the waist up. She said, Well, 231 1 get up here on this table. 2 So it's kind of where you are in this program. 3 And you have to be in somebody else's shoes to really see 4 what their situation is. I can't see that concentration 5 is a good thing. But we have to agree that the packers 6 and the feeders, for that matter, are much more efficient. 7 When one company owns the cattle, the feed, the feedyard 8 and packing house, to the ordinary cowboy, it looks bad. 9 MR. MACDONALD: With that, let's -- that gives 10 us a nice introduction to talk about cattle marketing 11 issues, something we've been coming back to all through 12 the day. Before I get there, though, let me remind you of 13 something I should have said right at the beginning, which 14 is we have these volunteers in green shirts, Colorado 15 State students, going up and down the aisles. They've got 16 some pencils and notepads. They're using those notepads, 17 I see, to fan themselves, which is probably a good idea. 18 If you have questions that you would like to 19 have the panel address, give a nod to one of our 20 volunteers. They'll give you a piece of paper. You pass 21 it back to them, and they'll -- I've got a couple coming 22 right now I can take a look at. And we can look and see 23 if we can work them in. 24 While they're there, though, while you're 25 doing that, let me shift on to talking a little bit about 232 1 alternative marketing arrangements and cash market 2 volumes. And I'd like to ask Bill Rishel -- I know you've 3 been involved in Angus programs for many years. I'd like 4 to get your sense of why we're seeing shifts to 5 alternative marketing arrangements and declines in cash 6 market sales. 7 MR. RISHEL: Jim, I hope you'll bear with me 8 here if I could make one statement before I get to that. 9 There's been a lot of different opinions offered in this 10 room today about a lot of different issues. And I'd like 11 to offer one that's been touched on by several people 12 earlier in the day and some folks who spoke at the 13 microphone. 14 My biggest disappointment of this event was 15 the fact that the first panel of the day up here, which 16 included the Secretary of Ag and the Attorney General, 17 state's attorney generals, assistant attorney generals, 18 and a commissioner of agriculture, and talking about 19 sustainability of this industry and bringing young people 20 back. 21 And the bottom line is that the death tax 22 which will revert back to 2001 on midnight of December 23 31st this year, if something isn't done about it, will be 24 the most devastating thing to this industry and the 25 advancement of our operations in bringing young people 233 1 back. And I would implore everybody -- I would implore 2 everyone in this room to contact your congressman, your 3 congresswoman, the folks that were at this table earlier 4 today, they have power in this administration and that is 5 how we start the process of maintaining the farms and 6 ranches in this country and bring them back. Thanks, Jim, 7 for letting me do that. 8 My family and I are just a simple family 9 operation. My wife and I, we raised three kids. They're 10 all grown and have moved on. Our daughters married guys 11 that were extremely good athletes, didn't have necessarily 12 an ag background. And I jokingly say -- I love them all, 13 but I jokingly say there's not a damn good cowman in the 14 whole bunch of them. 15 And I seriously -- they're great folks and I'm 16 tickled to death. But what we did was primarily when they 17 were young and my wife and I were struggling to make this 18 thing happen, we did not inherit a place. We developed 19 this on our own. My love has always been in the 20 registered Angus business, the seed stock business. It's 21 always been about developing genetics. 22 And I can tell you that only about one other 23 time today did I hear anybody talk about beef demand. And 24 for some reason, a lot of people in our industry do not 25 believe that beef demand has anything to do with this 234 1 process. And I think it has everything to do with the 2 pricing and value of our cattle. 3 That beef demand, if some of you have really 4 looked at this, from 1980 to 1998, was cut absolutely in 5 half. Had that kept going in the direction that it was 6 going, we could have been addressing an industry at some 7 point here that would have been similar to the young 8 fellow that was on the end of the earlier panel in the 9 sheep business, an industry that has almost disappeared 10 off the face of the earth in this country. 11 There's still in areas some of them being very 12 successful with it. But the bottom line was, there was 13 not a great promotional program in that or an added value 14 kind of a program, and they just -- they just dwindled in 15 numbers dramatically over time. 16 I see similarities in the beef industry. And 17 what we did was from a genetic standpoint in developing 18 the kind of genetics that we thought our customers could 19 use to improve the genetic value and therefore the 20 economic merit of their cattle was structured on 21 evaluation work. Because those traits were so highly 22 inheritable that we knew that our customers could 23 certainly make these cattle better than the average. 24 I don't -- whether the cash market was 80 25 percent or whether it's 50 percent, and I don't know 235 1 anybody smart enough to say what is an ideal cash market 2 or an ideal balance. But I will say this: The cash 3 market is an average of the cattle, and they're going to 4 buy those cattle to arrange where they're pretty sure that 5 the upper end of that lot of cattle or group of cattle 6 will be good enough to be able to be pieced out into the 7 industry to cover the cattle that aren't as good. 8 A lot of what I have to say about this has 9 been repeated here earlier today because there's been so 10 many folks to talk about it. But I do want to talk 11 about -- we heard about certified Angus beef. It started 12 out in 1978, struggled like all get-out. For about a 13 six-month period, the USDA actually shut the program down. 14 They finally got it back on track. And then 15 early 1980s, they sold their first million pounds of beef. 16 It's projected on September 30th of 2010 that the 17 certified Angus beef program will sell 785 million pounds 18 of product. And I do believe that nearly everyone in this 19 room that's a cow-calf person, and I am one, has at some 20 point experienced some value from that program. 21 It has increased the price of cattle. The 22 facts and the data pretty well substantiate that. And any 23 of these economists can certainly provide that 24 information. So that's one example. And that 785 million 25 pounds is 18 percent above 2009. Now, I don't know about 236 1 you, but S&P doesn't do 18 percent. And the DOW didn't do 2 it, and I don't know anything else that did, but that did 3 because there's consumer demand that pulled that product 4 through that system because of the palatability and the 5 value of the taste and the consistency. It met the 6 target. It hits the target for what is very, very 7 salable. 8 We know, and it was said earlier, that there 9 are these huge differences, easily $100 between the high 10 and the valued animal on a lot. We see 200, 300 and many 11 things up to 400 bucks. It can go higher, but I'm not 12 talking about extremes here. I'm talking about what you 13 see every day. So we looked at trying to get involved in 14 value-added programs and help our customers get more money 15 for their cattle. And that's exactly what we were able to 16 accomplish. 17 These cattle, because of those highly 18 inheritable traits, they can do these things, become 19 involved in these programs. And what really concerns me 20 for a lot of my customers, they're not on the same 21 program. We have some on U.S. premium, we have some using 22 a grid in other markets and other places. 23 The idea is that they have lots of options. 24 And these programs are not only helping their bottom line 25 and helping their profitability, but I see young people 237 1 coming back into these operations. When I've made trips 2 to affiliate meetings this spring, I've seen quite a few 3 young people. I didn't expect that. But I see them 4 coming back because I think they're learning how to manage 5 their inventory. They're learning how to manage their 6 risk, and obviously they're bigger operations. They have 7 to be. There's more families involved when they come 8 back. 9 So there's some fundamentals here that we 10 can't forget. I don't want to take up a lot of time on 11 this. I think I gave you some background on why we did 12 it, what we see. I can tell you that the value per head 13 over the cash market in these programs -- many of our 14 customers doing it are doing it very consistently. On the 15 conservative side, 40 to 50 bucks, many of them 70 to 80, 16 occasionally better than 100 bucks a head over the cash 17 market. 18 We've seen it -- the numbers were mentioned to 19 you earlier. These folks I'm talking about are small to 20 average size producers. And I think by most standards 21 would really be considered small. So these programs are 22 very essential. And as a unit holder in U.S. Premium 23 Beef, does that make me or my customers a packer because 24 U.S. Premium Beef does own a share of National Beef? So 25 if we're a packer, it destroys programs that were 238 1 absolutely essential to these folks that I think are in a 2 better financial position and doing a better job in terms 3 of the way their banker would look at their operation. 4 I've seen it. I've seen the success in what 5 they've been able to accomplish with it. So that's one 6 thing. And also with those type of programs, there's an 7 annual commitment of a certain percent of those units to 8 U.S. Premium Beef, for example. Well, obviously that's 9 more than 14 days out. Would that not be permitted 10 anymore by these proposed GIPSA rules? 11 So you have those situations. And then I 12 don't want the opportunity taken away from me if I commit 13 some cattle to U.S. Premium not to be able to commit other 14 cattle in the cash market or any other marketing 15 arrangements I would like to have. Thank you. 16 MR. MACDONALD: Let me follow up, particularly 17 on behalf of my crowd of suits over here who may not 18 understand the markets as well. Do we need marketing 19 agreements for the types of value-added programs that 20 you're talking about or can the same goals be arranged 21 through cash markets? 22 MR. RISHEL: I don't see it happening in the 23 cash market. It didn't happen before. I could say that 24 on occasions in a cash market over the many, many years, 25 you might on a situation have a particular instance where 239 1 a buyer for a packer might have some prior history on a 2 set of cattle, and, therefore, might bid just a touch more 3 because he thinks that they'll probably do the same thing 4 again. 5 But I will guarantee you, it's still a guess. 6 I think I've got a pretty good eye for livestock. And 7 when you look at confirmation, a lot of people out here 8 are the same way. And you think about the muscle that's 9 in them, the retail product. But you're not really going 10 to know that marbeling that's in there, the quality grade 11 that creates the value. And it's not 'til you peel the 12 hide that you really are able to figure or know what the 13 real value of those individuals is. 14 And the business that I've spent the last 25 15 years in, and many of our customers, is a business of not 16 price discovery, it's value discovery. 17 MR. MACDONALD: Let me get to the rest of the 18 panel. Do cash markets give appropriate quality 19 incentives? 20 MR. COBB: Our experience with CBF is that 21 we're not only a live calf seller. We market a lot of 22 volume on negotiated grids and on a dressed basis as well. 23 So I think when we start talking about premiums, you've 24 also got to consider discounts. Let's set that aside for 25 a second. The base price generates at least 90 percent of 240 1 the value of the cattle, folks, 90 percent. We have to 2 spend more time focused on that 90 percent. Yes, let's go 3 satisfy consumer demand and be market driven and deliver 4 high quality product for our customers here and around the 5 world, but we have to also consider that procurement 6 behavior region by region that affects the base price -- 7 and just real quick, look what's happening, look what is 8 happening right now region by region as it relates to 9 non-negotiated volumes. 10 In Texas, right now we're running at about 71, 11 72 percent of the fed cattle market marketed on a 12 non-negotiated basis. In Colorado -- folks in Colorado, 13 it's a problem. It's 80 percent right now. Kansas is 63 14 percent. Those numbers relate directly to the value of 15 the base price whether you're negotiating in the open 16 market or the base price of non-negotiated cattle. 17 MR. MACDONALD: We still want to really focus 18 in a bit on price discovery and base price and 19 manipulation of base price issues. But I do want to get 20 some focus in here on whether we can get appropriate 21 quality incentives in cash markets. And I'd like to see 22 if we have anybody else with something to add. 23 MR. HERRING: Let me add just one other thing. 24 People who sell in the cash market want the risk of 25 ownership to stop at the gate. And that's a choice that 241 1 they make. The folks who don't mind and are trustful of 2 the packers' ability to break that animal up and value the 3 carcass and send them something back do it another way. 4 And just so everybody knows, it's a transfer of risk 5 question as well. 6 MR. RISHEL: Jim, could I jump back in? 7 Because I agree with what Bruce said down there when he 8 said discounts in the marketplace. And I'm here to tell 9 you that those of us that are involved in these kind of 10 programs accepted the risk in the marketplace in the form 11 of discounts for the premiums that were available for the 12 right kind of cattle. And they're huge premiums and 13 they're very, very worthwhile. 14 So you're absolutely right, there are 15 discounts and there are premiums, and that's exactly why 16 the cash market ends up being an average of the 17 population, because they make the premiums in a lot of 18 cattle cover the discounts. 19 So we're not -- we wouldn't disagree at all on 20 that. And that is part of the deal, that we believe 21 enough in the cattle, the genetics, and the way it repeats 22 itself. And it does, it works. We're willing to take 23 that risk. 24 MR. MACK: The only problem with a lot of the 25 grids and a lot of the premium structured bids is that 242 1 there is twice as much of a discount as there is a premium 2 offered. And it ain't all up to the packers. Some of 3 it's up to the grader and things like that. 4 One of the things with price discovery is the 5 packers would choose -- they were told this years ago 6 already. If you go and pay for meat based on what that 7 meat brought at the wholesale price level, you'd have true 8 price discovery, and they'd still be able to make their 9 margin, and the producer would get paid for the quality 10 that he produced. 11 MR. RISHEL: And I'll answer that one. It's 12 very possible that the wholesale choice box beef price and 13 the retail case price could eventually determine the 14 price -- the cash price of cattle. 15 MR. MACK: They've told us that for 15 years. 16 Rosemary Mucklow told me 12 years ago or whatever, never 17 going to happen. I don't know. 18 MR. MACDONALD: Let me jump right in while 19 we're on that topic, because I remember hearing earlier, I 20 believe James Herring, you told me that your base price 21 was cash-based; is that right? 22 MR. HERRING: Sure. Most of these formulas 23 are based off the cash, but that's not the only way it can 24 be done. 25 MR. MACDONALD: I mean, do you see a shift 243 1 towards -- 2 MR. HERRING: I see that if the cash market 3 becomes an irrelevant price and everybody on formula is 4 very attentive to that, our antenna is 10 feet tall on the 5 cash issue. If it does not convey appropriate value, then 6 nobody in the formula business is going to stand for that, 7 and we'll find a better way. Our differentiation up here 8 on this panel is we don't believe it's the government's 9 job to do that; we believe it's the industry's job to do 10 that. Simple as that. 11 MR. DOMINA: I'm not sure there's a 12 disagreement about that point. The question is: Why 13 won't the packers establish the price in a visible market 14 so you can see the bidding happen? Why isn't it 15 transparent, and why isn't that transparency voluntary? 16 And if it's voluntary, it doesn't take regulation. 17 Why is it always reported strictly as history? 18 MR. DOPP: Well, I think one of the reasons 19 is, and we heard it earlier from several people, willing 20 buyer, willing seller, be a private transaction. This is 21 not the government's role. 22 MR. DOMINA: There's nothing more private and 23 nothing more public and nothing more fun than an auction 24 with an auctioneer, and that's the way this business grew 25 up, and that's the way this business works best. Those 244 1 are private transactions. And the only reason it doesn't 2 happen that way now is the packer does not want to expose 3 the packer's bid. It's not got anything to do with the 4 government. That point is fundamentally incorrect. 5 MR. MACK: If you've got that one bid there, 6 you're a seller. Many times I wouldn't call you willing. 7 I mean, it's almost like having to do it with a gun to 8 your head. 9 MR. RISHEL: Jim, I might jump in here if I 10 could. I want to put a pitch in for the Big Red, 11 Nebraska. We talked about -- yeah, there's at least one 12 more out there. We talked about the value of mandatory 13 price reporting, and we believe in that. We're all over 14 that. We think it's very important. We'd like to see it 15 used, looked at, studied all the time, tickled it's being 16 renewed. 17 But we've taken it one step further when these 18 folks talk about not knowing what the packers are bidding. 19 I want to share with you an example of cattlemen taking 20 care of their own business. And in Nebraska, our Nebraska 21 cattlemen have a mandatory or a market reporting service 22 that people can join. Maybe you guys ought to move to 23 Nebraska and join this thing. And it is a 24 minute-by-minute daily update of the bids in the 25 marketplace. 245 1 This is a case of us taking care of our own 2 business, creating systems that add value to what we do, 3 and we're talking here about whether they're cash, whether 4 they had a source-in-age on it, whatever the value was, 5 what the weight, steers, heifers, whatever. It's a 6 marketing reporting service that we have. We're very 7 proud of it. And it's a way that we help those producers 8 in our country. 9 MR. MACDONALD: Let me shift just slightly 10 because I really need to bring Charlie Rogers into this. 11 He seems reluctant to argue with everybody else on the 12 panel. 13 Charlie, your business involves auction sales 14 of horses, cows, feeder calves. These fundamental changes 15 that we've talked about in the meat packing and fed cattle 16 business and trace back to cow-calf, do you see that 17 affecting your business and markets in the southwest? 18 MR. ROGERS: Well, actually, you know, we 19 can -- we could take it to that level. We're not -- I 20 don't know that we're there yet. But if we continue to 21 see the cash market dwindle, it will have a dwindle-down 22 effect into the feeder market and down into the calf 23 market, yes. 24 MR. MACDONALD: We spent a little -- we've 25 touched over several times here on price discovery. It 246 1 shifted a little bit towards spending effects of the 2 shift. Let me start a related issue with Bob Miller. And 3 that is, with small number of packers and people still 4 pricing off the cash market, are you concerned with 5 manipulation of cash market prices that may, therefore, 6 affect contract prices if they're based off the cash 7 market? 8 MR. MILLER: Bob Miller or Bob Mack? 9 MR. MACDONALD: Bob Miller. It says on my 10 list. 11 MR. MILLER: I would think it would have some 12 effect. I'm not really -- I can't answer that really 13 intelligently, but I would think it would, yes. 14 MR. MACDONALD: How about that, Bob? 15 MR. MACK: There's a lot of incentive to do 16 it. As you've heard, most of these formula programs, most 17 of value-based programs, all go in and are based on that 18 cash price, so there's a tremendous incentive. Everybody 19 can talk about premiums in these programs, but the big 20 question is: How is the base price established before you 21 start adding premiums? Because I've worked with guys on 22 this, and sometimes, you know, it's questionable because 23 if the base price isn't a realistic one, the premium 24 that's quoted isn't a realistic one. 25 So there's a tremendous amount of incentive to 247 1 go and manipulate that price because of the effect it has 2 on other transactions when you have a thin market. That's 3 why hopefully when the Big Red go out on the field 4 Saturday they've got referees on the field. It would be 5 nice if USDA would come in and provide some referees for 6 this cattle market. 7 MR. DOPP: One observation, it seems to me the 8 referees are there. Again, if you go back and look at the 9 most recent GIPSA report, there's an extensive discussion 10 about this very elaborate reporting program, pricing 11 analysis program, for lack of a better term, where they go 12 into great detail about how they analyze virtually every 13 transaction on a weekly basis. If there is some anomaly 14 in their view, they investigate it. So I would suggest 15 the referees are there and they're doing their jobs. They 16 have not found anything. 17 MR. COBB: Jim, can I comment, please? When 18 you start talking about a thin cash market, it really is 19 quite simple, and it's -- you go to the seller who at that 20 point in time is the most distressed. And that's the way 21 that it has been functioning in many areas. And, again, 22 it's not unique to the cattle industry. 23 But if you have a distressed seller and that 24 distressed seller is operating in a very thin market. 25 That distressed seller sets the price for the entire 248 1 market. 2 MR. MACK: One of the problems when it comes 3 to refereeing, if you look at these court cases, juries 4 have said there's been harm done. I mean, they become the 5 referees. The judges have come in and overturned it 6 because they said it didn't affect everybody in the 7 market. That being the case, if you were a prosecutor out 8 there and somebody murdered someone else, you'd say, I 9 can't prosecute him, didn't have any effect on everybody 10 else. It just -- only one it hurt is him. So let him go. 11 And without this clarification, that's what we've got. 12 MR. MACDONALD: Want to go? 13 MR. DOPP: Sure. Well, as a starting point, 14 we are talking about fundamentally different statutes 15 here. That's one point. And let's face it, that's the 16 elephant in the room, right, the GIPSA rule. And some 17 people have alluded to it already, you know. On one level 18 you're right, Bob, eight different federal appellate 19 circuit courts have said this is the standard. They've 20 looked at it carefully. They've analyzed it. I know 21 people up here aren't going to agree with me, but that's 22 what they've concluded. And the fact of the matter is the 23 way the system works, the statute is what it is. It's 24 been interpreted by all these courts. The most recent 25 ruling was on May 10, 2010, the tide has become a tidal 249 1 wave, to quote the 6th circuit. It's well-settled law. 2 If people don't like the statute, that's fine, 3 but let's have that debate not through some bureaucratic 4 fiat, but let's have that debate in the halls of Congress 5 where it belongs. 6 MR. DOMINA: We've now found a place where I 7 can agree with Mr. Dopp, and that is that the GIPSA rules 8 are not the focus of this meeting. This meeting was 9 scheduled a year in advance of release of those rules. 10 The statute about which we are talking was passed 89 years 11 before those rules. The statute fell into disuse. And 12 any law that falls into disuse is just like a dam in an 13 aggressive stream that you don't tend to. If you don't 14 tend to the dam and take care of it, it gets washed away. 15 That's what's happened here. 16 On May 10th, in the Terry case, the 6th 17 Circuit decided that because one poultry producer insisted 18 that he be permitted to be present at a Tyson plant to 19 watch the birds he was delivering be weighed, which is his 20 precise right under the regulations. He was scheduled for 21 that weighing at 2:00 a.m. twice, and they couldn't reach 22 his birds. So they got weighed without him. And he filed 23 suit and the United States Department of Agriculture, and 24 the Grain Inspection Packers and Stockyards Administration 25 supported the producer in the case. And the Sixth Circuit 250 1 said, Because weighing your birds didn't affect the whole 2 market, the statute doesn't apply to you. 3 Now, here's where I agree with Mr. Dopp. The 4 rules that are going to be debated at another meeting are 5 an attempt to reinvigorate the statute, but they are not a 6 statute. There has to be a statute. The problem for the 7 producers who need a stronger statute is the packers have 8 lobbyists. 9 MR. DOPP: As do the producers. So do the 10 producers, David. I work with them. You do, too. 11 MR. DOMINA: No, I don't. I'll make that 12 clear. No, I don't. 13 MR. DOPP: To ignore the fact the rule's out 14 there in this context is, I think, a bit -- you know, I'll 15 leave it at that. But the fact of the matter is, again, 16 this is an exercise that we are troubled by. We don't 17 think it's within the purview of the Department of 18 Agriculture to try and overturn long-standing judicial 19 precedent, and we will take issue with that, and we think 20 it's inappropriate. 21 MR. MACDONALD: Let me bring us to another 22 sensitive issue. 23 MR. DOPP: By the way, Jim. May I add 24 something? 25 MR. MACDONALD: Sure. 251 1 MR. DOPP: If I recall correctly, the 2 Secretary said this morning comments about the GIPSA rule 3 would be part of the record for the rule making, so I 4 think the GIPSA rule is very much in play in this setting. 5 MR. MACDONALD: Sure. Let me bring it to 6 packer ownership of cattle. Since 1999, according to 7 GIPSA data I see, packer-owned cattle accounted for 5 8 percent of fed cattle volumes. Now, we've heard allusions 9 to packer ownership of cattle throughout the day. Let me 10 throw this out to the panel. I'll start with a straight 11 question. You think packer ownership affects competition 12 and pricing in cash markets or marketing agreements? And 13 if it does, tell me how. Anyone want to take that? 14 MR. COBB: Can I start briefly? I think we 15 need to look at the total body and not negotiate supplies 16 and not just one method. It's a combination of all 17 non-negotiated supplies, whether it's the formulated 18 arrangements, the forward-contracting or the packer-owned. 19 Those are the tools that are used in an attempt to reduce 20 the competition in the marketplace. 21 MR. HERRING: We contract to producers just 22 like you all sitting in the audience, as much as 12 months 23 in advance. I've said publicly we've contracted cattle 24 that haven't even been born yet because our database 25 allows us to understand what a producer actually has and 252 1 produce it. 2 So we're a little nervous that the contractual 3 part of these regulations may impact some of our business 4 downstream. Obviously, for us, for our company, the 5 ability to assure supply is a solution that we've passed 6 forward to the packer and to the retailer. And those two 7 entities consider that a benefit, particularly with the 8 kind of cattle that we produce. 9 So when you say "contract," I think all of us 10 need to be careful, because that's a -- that's a very 11 valid way to reduce risk in any operation, cow-calf, 12 stocker, feedlot, et cetera. And we would be very nervous 13 about impacts to contracting forward supply. 14 MR. DOMINA: Jim, could I very briefly -- this 15 morning one of the panelists observed that in the 5 16 percent of the hog market that is traded in cash, 17 approximately half of the cash trades are packer to 18 packer. Now, if that trading is open and transparent and 19 everybody can see it, that may be acceptable. But if it's 20 not, it's unacceptable and drives the price down, and 21 that's a risk to the cattle producers, too. 22 MR. MACDONALD: All right. I've got a little 23 over four o'clock, which is the time we were scheduled to 24 end. I think our panel has done a nice job of keeping 25 everybody alert and cheering one side and the other 253 1 through this near the end of a long day. So I'd like you 2 to give a hand to our panelists for coming. 3 (A recess was taken from 4:03 p.m. until 4 4:19 p.m.) 5 MR. FERRELL: Let's go ahead and get started 6 right now for the second public testimony period of today. 7 Just a couple of quick comments before we go ahead and get 8 started, if you can go ahead and take your seats. 9 This will be the second opportunity to provide 10 comments. For the folks who were at the public testimony 11 who had been lined up to the microphones before and had 12 their numbers up on the screen already identified, if you 13 could -- if you-all could go ahead and come up to the 14 microphones and we'll -- we'll pick it up where we left 15 off. And then when we get those individuals completed, 16 we'll change up the screen with new numbers. And then 17 you'll look to see whether your number is up there and we 18 can go ahead and get started then. 19 I just want to say that we -- in addition to 20 the opportunities to provide a comment right now, we also 21 have four computers -- stations that are set up in -- just 22 outside this room and also in the -- in the other large 23 rooms that were the spillover rooms. And if you didn't 24 want to wait to provide a comment, you can go ahead and go 25 to the computer and just submit your comment. We have 254 1 volunteers around with green shirts, and they can help you 2 provide that comment, if needed. 3 So with that, why don't we go ahead and get 4 started. I do ask for your cooperation, though. We've 5 got a large number of people who want to provide comments. 6 And the only way -- we're not going to be able to 7 accommodate everybody. But we want to make an effort to 8 accommodate as many people as we can. And to do that, 9 we've got to have you limiting your comments to two 10 minutes each. And -- because for every person who runs 11 over a little bit, that's someone else who didn't get to 12 provide a comment. So please limit your comments to two 13 minutes. 14 And for that -- if individuals could take 15 their comments -- or if you're having those side 16 conversations, if you could take that out in the hallway, 17 so everyone can hear people at the microphone. So with 18 that, we'll go ahead and get started over here. 19 MS. MUCKLOW: My name is Rosemary Mucklow. 20 I'm the director emeritus of National Meat Association. 21 I've been in the industry for almost half a century. I'm 22 78. I want to tell you that the greatest successes I have 23 observed over that time have occurred where there have 24 been partnerships between producers and packers. Those 25 partnerships have led to better products and expanded 255 1 sales to consumers, our most important customers. 2 In the '60s, livestock and meat industry went 3 through huge structural changes that were the death knell 4 for those large old stockyards and slaughter plants close 5 to metropolitan areas. The old facilities were replaced 6 by slaughter and processing facilities in the countryside 7 that produced chilled vacuum-packed cuts of beef, pork, 8 and lamb, extending the shelf life from less than ten days 9 for swinging carcasses to an astonishing three to four 10 weeks. 11 Livestock producers were no longer nameless 12 individuals whose animals were dispatched on a truck to a 13 market and sold on the average to a nameless buyer 14 representing on old-line packer. Because new packing 15 plants were in rural areas, producers began partnering 16 with packers to provide specific characteristics and 17 livestock traits which would then provide marketing 18 advantages all the way to the retail store and the table. 19 These partnering programs led to dedicated branded 20 programs, such as certified Angus beef and parallel 21 programs for pork and lamb. They helped families prepare 22 meals quickly. 23 Over the 50 years, I've had a ring-side seat 24 watching history being made. I've seen producers and 25 packers working together in partnerships, using contracts 256 1 that ensure each could make a reasonable living in the 2 very competitive industry. Together they've done a superb 3 job meeting the expectations of the consumer at the retail 4 store and in the restaurant. 5 I'm especially proud of how NMA members, large 6 and small, have partnered with producers to develop 7 programs. And I suggest to you this has resulted in the 8 organic, never-ever, source-verified, grass-fed and 9 others. We're proud to have as members people like 10 Laura's Lean, Buyer Natural, Niman Ranch, Morgan Ranch, 11 Tall Grass Beef, Panorama Beef, Maverick Ranch, Coleman 12 Natural, Carlton Farms -- 13 MR. STALLINGS: If you could finish up. 14 MS. MUCKLOW: -- Creek Stone and the lot. The 15 greatest successes that I have observed have been with 16 partnerships between producers and packers. Let's build 17 on the success of the partnerships in expanding consumer 18 demand for red meat. 19 MR. STALLINGS: Okay. Thank you very much. 20 MS. MUCKLOW: And if anyone would like a copy, 21 can come see me. 22 MR. SMINK (phonetic): My name is Jeff Smink. 23 And I'm the fourth generation to live on and operate my 24 family's farm and ranch in Western South Dakota. We are 25 predominantly a cow-calf operation. Today, you've heard 257 1 comments from individuals who are in favor of GIPSA's 2 proposed rule. I respectfully disagree with these 3 individuals. 4 For the last several years, our calves have 5 been marketed by using a grid system. At times, the 6 spread between select- and prime-graded carcasses has been 7 as much as $450 a head, and the grid has outpaced the cash 8 market by as much as $200 per head. We have to pay 9 serious attention to breeding our livestock and 10 continually improving carcass yields and grades. For the 11 small producer like me, the grid system for marketing 12 cattle offers an opportunity to manage my risk in addition 13 to the highest returns and the best opportunity for 14 profitability. 15 If this proposed rule is adopted, I fear that 16 our ability to market our livestock on the grid could 17 disappear and that this unintended consequence would hurt 18 most of all the small producer who has been striving to 19 improve the herd and offer a superior product. Let me 20 explain. I believe that by amending Section 201.94 and 21 requiring packers to maintain written records that provide 22 justification for differential pricing or any deviation 23 from the standard price is an attempt to open the door for 24 litigation against our packing industry. Instead of 25 subjecting themselves to this risk, I believe packers will 258 1 offer one low commodity price for all cattle, thus 2 avoiding endless lawsuits. 3 The unintended consequence would be the 4 disappearance of the grid system and the premiums received 5 by progressive-minded producers. If this proposed rule is 6 adopted, I fear it will lower the price of better 7 performing cattle to the level of basic commodity cattle. 8 Please, for the sake of my children who represent the 9 fifth generation of our operation, do not fence in their 10 future by severely limiting their options for 11 profitability. Thank you for listening. 12 MR. WALDNER: Hello, everybody. My name is 13 Jake Waldner. I'm from Heartland Colony, vice president 14 and director of Montana Hallmark Association, Montana Pork 15 Producers Association. 16 In my part of Montana, pork producers and 17 production is small by some comparison. Producers are 18 spread out and market opportunities are limited. It is 19 extremely important that we work together in groups and 20 make arrangements with and for transportation by our 21 harvest partners. To move pigs 1,300 miles is essentially 22 impossible. Full loads and full value of pigs are 23 important. 8,000 people depend on our ability to 24 negotiate together and make marketing agreements. 55 25 percent of our income is from pigs. 259 1 Our lenders depend on us to be involved, to 2 help our pork operation keep our financing. Eliminating 3 this business option totally eliminates pork production in 4 our area. We are concerned that the proposed rule GIPSA 5 has out for comment will reduce opportunities and then 6 help -- and would not help the producer and will hurt the 7 producer. This GIPSA rule will not help to pig 8 improvement in Montana. Thank you. 9 MR. MINOR: Good afternoon and thank you for 10 this opportunity to speak. My name is Casey Minor. I'm a 11 third-generation registered Angus breeder from Sioux 12 County, North Dakota. And speaking on behalf of the North 13 Dakota's Stockmens' Association, we're 2,800 members 14 across the great state of North Dakota. We're 81 years 15 old. And as the stockmen's trade organization, we are in 16 full support of the concept of GIPSA. However, we have 17 some concerns about the vague language that exists in it. 18 If you will, picture this whole industry as 19 one big game. We believe the government should not be a 20 player in the game. However, they should be more of a 21 referee. And if they're going to blow the whistle and 22 call a foul on somebody, we have concerns about the GIPSA 23 being the rule book they go to. We do believe there is -- 24 they have to have some intervention somewhere and they 25 have to step in. But we do have concerns about the vague 260 1 language in the rule book, as a lot of others do here 2 today. 3 But the overall concept, we do support the -- 4 support of transparency and more competition in our 5 markets. We also have concerns of the unintended 6 consequences, so to speak, in some of the language. One 7 example we'd like to show is order buyers buying for one 8 packer. 9 In the upper midwest, the fall run of cows, 10 they could have 1,000 cows at one particular auction barn. 11 And there might be two or three order buyers there to 12 place them cows. And if that order buyer has the 13 opportunity to buy it for only one packer, that takes them 14 out of market. We don't feel other order buyers are going 15 to show up just because they can only buy for one. When 16 they have three different orders, who gets the cattle? 17 Whoever gave them the best order. 18 So we have a concern about that and others. 19 But we support the overall concepts of it. And it's very 20 hard, as producers, to read the law, comprehend it, and 21 then look into your crystal ball and see how it's going to 22 affect the way we do business in the future. So we -- as 23 referees, we encourage you to use caution when you're 24 engaging in refereeing. 25 MR. LARSON: Good afternoon, my name is Daryl 261 1 Larson from McPherson, Kansas. My brother and I are 2 cow-calf people. We also have a dryland farm operation. 3 For the last 10 or 12 years, my brother and I have 4 retained ownership on a portion of the cows -- calves that 5 we raise. Out of the total of number of years, we 6 probably made money a couple of years, broke even five or 7 six years, and lost money more times than we made. 8 Now, in my opinion, the competition is 9 basically gone at the buying level because they say we 10 still have the choice of the cash market. In reality, the 11 cash market is basically worthless. Whether you have 12 average cattle or top-quality cattle, our cash market is 13 worthless. So the only thing we -- the only choice we 14 have is putting them on a grid or some other form of 15 marketing arrangement. 16 If the packing industry was trustworthy, in my 17 opinion, we wouldn't need any of this. If humankind could 18 regulate themselves and be honest with everybody, we 19 wouldn't need this. But for 100 years or more, there's 20 been a problem with the packing industry not being honest 21 with us, as producers, and it's time that we have some 22 sort of rules to protect us from the people in power. 23 Thank you. 24 MR. METZGER: I'm Doug Metzger from Kansas, 25 and I've been in this livestock industry for 60 years. 262 1 I'm one of the old guys that started off in cows when he 2 was a little kid and then raised -- went on to raising 3 turkeys and hogs and beef cattle, and I've still got them 4 all. But the last two years have been the worst that I've 5 seen in the industry with the high-priced grain. 6 But when we had open livestock river markets 7 where we could all take our stock there, why, everything 8 was more competitive. We had some good years; we had some 9 bad years. But it was competition. And like in the pork 10 industry, turkey industry, there was a lot of competition 11 in the '50s, the '40s, and the '60s. And then the big 12 companies started in with the contracting, and things 13 started going downhill. And now our turkey plant in 14 Gibbon, Nebraska, went broke last year producing 15 commercial turkey. 16 Well, I produced a turkey for Heritage Foods 17 in New York, especially turkey like we did 50 years ago, 18 and I get a pretty good price for them. And the same way 19 with the Berkshire hogs like Chris Petersen does. But 20 there is no competition today like there was back then. I 21 support what Daryl Larson says over there. It's just 22 concentration and we don't have any way to set a market 23 price anymore. And it's basically since packers left the 24 river market and went to the country. I said -- way back 25 in the '60s, I said, They're not coming to the country to 263 1 give us more. There's some reason they went to the 2 country. Thank you. 3 MR. BLAIR: My name is Rich Blair. I'm from 4 Sturgis, South Dakota, and I'm a cow-calf guy. I'm a 5 cattle guy. I've fed cattle. I've bred cattle. I've 6 artificially inseminated them. I've embryo-transferred 7 them. I've sold them to the packer. I've bought them 8 from other producers. 9 I'm against the GIPSA rule because I think 10 we're chasing the wrong boogeyman here. When you -- you 11 know, Secretary Vilsack asked the question, How can we 12 keep young people down on the farm? How can we make rural 13 America strong again? And I think the answer to that, 14 number one, is USDA needs to aggressively go after export 15 business. Since 2003, since the mad cow and we lost our 16 export business, I think it's cost us $100 a head on 17 average. 18 You know, another big problem in the ag 19 industry is costs. I mean, costs for fuel, costs for 20 health insurance, costs for inputs. I mean, the ethanol 21 program, whatever it's done, it has increased costs at 22 probably 150 bucks a head for feeder cattle in a feedlot. 23 The cow-calf guys are here today telling you it's not 24 working. And that's their problem; it's not working. But 25 to me, they're chasing the wrong guys. They're 264 1 chasing the feedyards and the packers. And the feedyards 2 and packers are saying, Hey, guys, we're not stealing all 3 your money. 4 And I've fed cattle. I believe them. I don't 5 think they are. I think the problem in the cattle 6 industry -- we've got to get together. We've got to push 7 exports. We've got to push demand. USDA can help push 8 demand. I mean, the food pyramid, I think, is a problem. 9 I mean, the beef industry and the pork industry -- meat, 10 in total, has taken a bad name. Help us tell that story. 11 And that's my comment. 12 MR. LAMB: My name is James Lamb. I'm one of 13 the young farmers that returned back to farm. I'm from 14 North Carolina. I'm a contract swine nursery producer. I 15 came back to the farm at the age of 16 after my father 16 passed. I started out as an independent. But I saw that 17 I couldn't compete with contract growers. So after 18 college, at 25, it was hard to get money without a 19 contract. So that's the route I've taken. 20 I've had nothing but a good relationship with 21 my integrators. In the late '90s when prices were $0.08, 22 I still got my contract. And last year, my integrator was 23 losing $20 per head that he marketed, and I was still able 24 to receive my payment, which allowed me to stay in 25 business and stay on the farm. 265 1 My fear with the GIPSA rule is that by 2 limiting the contracts -- maybe unintentionally -- it 3 might make it more difficult. If they wanted to change a 4 contract, they may do more vertical integration with the 5 fear of getting sued if by some legal means said that the 6 GIPSA rule was to pass. So on that note, I'm not in favor 7 of passing the GIPSA rule. Thank you for your time. 8 MR. FOSTER: I want to thank everybody for 9 hearing us. I'm Jim Foster from Missouri. I'm 55 years 10 nonstop raising hogs -- also cow-calf. 11 I'm here for one reason; these guys on this 12 picture. These are my three grandkids that are absolutely 13 nuts about raising hogs. In my county, we had enough hog 14 producers to fill the fellowship hall of my church 20 15 years ago. Today, there's six. These three little boys, 16 their daddy, me, and another guy. Why? Cargill owns 17 almost all the hogs in my county. We used to have two 18 other integrators that owned hogs. They got in deep 19 trouble. Cargill owns them all. 20 Now, down a couple of counties to the south, 21 there's a collection point that's one of the few in 22 Missouri where they get any hogs. They get about ten pot 23 loads a week. The major -- one of the major packers 24 pulled out a bidding at that place because we got tired of 25 making four or five checks and keeping track of the hogs 266 1 on a pot load. That tells me that you're going to have to 2 have 180 head of hogs every two weeks if you're going to 3 get them for a bidder. 4 Somebody that's against these rules, come tell 5 my three grandsons that they're going to start out with 6 250 sows to be able to get bid on for those hogs. I can't 7 believe that anybody would be against all the rules. I'm 8 sure they've got to be tweaked. And I appreciate other 9 people's opinions. But the rule where you've got to show 10 injury to everybody is like the murder -- you know, you 11 don't show injury to all of the other people because you 12 murdered one guy. That's crazy. And the arbitration, my 13 goodness. If you guys are in contracting, please look at 14 that stuff. You'd better think about it. 15 There seems to be a thought too that all these 16 animals are going to be commodity priced. There's going 17 to be no differentiation. I want to bring up the Missouri 18 price reporting bill which some have said, This is simple. 19 It had 12 exemptions. There was a lot of room to prove 20 that -- why they paid different prices. So I'd say we've 21 got to go with some things. We need a referee. Thank 22 you. 23 MR. HOUSTON (phonetic): I want to address 24 most of you here. My name is Otis Houston, and I'm from 25 Buffalo, South Dakota. I've only got one contract. 267 1 That's with my wife. We raised nine children. We did it 2 on 1,520 acres of land. We've added 1,000 acres to that. 3 When I raised hogs and farmed, we did that for 4 20 years. I've seen lows and I've seen highs. When 5 Smithfield Foods came through and bought sows for $8 a 6 head and sold them for 480 on the shelf, I slid 7 "Successful Farmer" across to my wife and I said, That's 8 it; hogs are done; we're going to move to another entity. 9 We're in the beef cattle business now. 10 We hay out all of our cows. I think we've got 11 some of the top gaining calves in my county. I don't 12 think anybody's going to top our weights. All I'm asking 13 here today if we don't have a bottom floor on these 14 markets, if feeder packers can come in and steal my calves 15 some day like they stole my hogs, I'd just as soon sell 16 the cow herd tomorrow and I'll go do construction. There 17 is no need to keep running a business that's unwelcome in 18 our nation. 19 Children, I've done the math on it. I raised 20 these nine kids on 1,520 acres of land in Harding County, 21 if any of you have been there. If you multiply that 22 times -- or divide it into the acres in that county, we 23 should have about 5,000 kids raised every year. We just 24 put in a new school. I could fill that if I had more men 25 like me. We just need a bottom on our market. Don't 268 1 steal our cattle. We'll fill the schools. 2 MR. SCHMIDT (phonetic): Good afternoon. I'm 3 Mack Schmidt from Omaha, Iowa. I'm one of these dying 4 breeds. I'm an independent hog producer and I'm proud to 5 be a farmer. We raise corn, soybeans, and hogs. We 6 market about 30,000 hogs a year and we have no contracts 7 with anyone. We -- I am entirely on the open market. I 8 have very good relationships with the packers, and I've 9 sold to all the major packers in the Midwest this year, 10 and I have a good working relationship with all of them. 11 The comments I wanted to make this morning -- 12 or this afternoon here go back to what Attorney General 13 Holder said this morning when he asked us, We need to 14 return to our core values. And even Secretary Vilsack 15 returned to those core values. And I'd just like to touch 16 on some of those. 17 Independents, that's what we are as producers. 18 Self-reliant, you bet. Don't stand in front of us. We 19 need to figure it out. Let us figure it out and we'll get 20 the job done. Self-discipline, we exercise that. We know 21 right from wrong and we know enough to respect others. 22 These are all values that were taught in us. But as we 23 seek to return to our core values, we're talking about 24 personal values. And this doesn't necessarily carry over. 25 Because in our economic situation, time has marched on. 269 1 If this hearing was decade ago at least, it might have 2 been more relevant, as far as I'm concerned, in the hog 3 industry. 4 Today, as I look at it, I wonder, Who am I to 5 tell these other people who are -- as we just heard the 6 young man from North Carolina explaining he's found his 7 place producing for someone else. He has found a way to 8 manage his risk and raise his family. I think we need to 9 step back and look at all of those changes that have taken 10 place and we need -- in our own operation, we figured out 11 we weren't very good at farrowing. 12 We had 1,500 sows. We contracted with a gal 13 that's got 1,200 sows. I'll publicly admit I'm 14 embarrassed to say she produces 100 pigs a week more than 15 we ever did. So we found out that's not what we're good 16 at. And we gave it to her and we stepped back. Two 17 comments. Let the market tell us what works best -- 18 MR. STALLINGS: Sir, if you could do that 19 quickly. 20 MR. SCHMIDT: -- and government regulation 21 will not bring the desired results. 22 MR. STALLINGS: Thank you. 23 MS. CARTER: Good afternoon, my name is Brandy 24 Carter. I'm a cow-calf producer from the Flint Hills in 25 Kansas. But I'm here today as the executive director of 270 1 the Kansas Cattlemen's Association. We have 1,700 members 2 in the state of Kansas and several others in other states 3 that are supporting our cause. But we are the largest 4 cattle-producer organization that is solely producer 5 driven and whose sole purpose is to represent producers in 6 our industry in the state of Kansas. We receive no dues 7 from packer-owned cattle. 8 In 1998, our organization was founded because 9 there were a number of producers who saw the movement into 10 large amounts of captive supply in the industry. We began 11 seeing lower cash markets and a lack of market access. 12 There was a bus full of us that came yesterday. We 13 started about five o'clock in the morning. And these 14 producers were not forced to come here. 40 of us decided 15 to get on a bus as producers to let you know that we 16 wanted to support your efforts to improve competition in 17 our industry and to provide fair marketing opportunities 18 for producers. 19 We need transparency in the market. Cattle 20 are traded on the open market. Behind-the-scene deals and 21 a number of captive-cattle deals, including "high of the 22 week" do not allow for timely transparency. This kind of 23 information only allows misinformation for producers to 24 make true business decisions. Packer ownership of cattle 25 does affect competition and it does affect the markets. 271 1 When packers own cattle they do have the ability to pull 2 their cattle and they have the ability to stay out of the 3 market. Not only does this drive the price of cattle 4 down, but it reduces market access. But more importantly, 5 the problem is the non-negotiated deals. Negotiation is 6 critical to maintaining our markets. 7 We as producers need transparency, we need 8 competition in our industry, and we need enforcement of 9 the Packer & Stockyards Act. Thank you. 10 MR. FERRELL: I would ask if the next slate of 11 ticket numbers could be put up on the screen. And if you 12 see your number up on the screen, to go ahead and line up 13 at the microphones. So if that could be done now, that 14 would be helpful. 15 So we'll start over here. 16 MR. WERTISH: Gary Wertish. I'm the vice 17 president of the Minnesota's Farmers Union. I'd like to 18 thank the administration and Secretary Vilsack and 19 Attorney General Holder for holding these important 20 workshops on agriculture. On a proposed GIPSA rule, I 21 guess we'd like to speak in favor of the rule. 22 Earlier this summer, I attended a Minnesota 23 cattlemen's meeting in West Central Minnesota. And in 24 the evening, at the banquet -- or supper, about 500 or 600 25 people attended. And there was a Tyson cattle buyer who 272 1 spoke to the crowd. He made a couple of comments that 2 were very concerning to us. One, he told the producers he 3 was paying too much for the cattle. Then he started -- 4 too much for their cattle. 5 Then he started talking about the proposed 6 GIPSA rules and how they would affect them. And he was 7 encouraging the producers to write their comments during 8 the comment period. But the comment that really struck 9 me, he said, If these proposed rules go through as 10 proposed, we will have to follow the rules. I was told 11 that at a public meeting, West Central Minnesota, by a 12 Tyson cattle buyer. 13 Now, you know, it's an election year. We all 14 should -- I guess we're all getting used to a fear of 15 politics. We've heard a lot about fear of politics here 16 on the proposed GIPSA rule. The one talk -- the one fear 17 talking point we heard a lot was about the vagueness of 18 the GIPSA. Well, there's one thing I think we can all 19 agree on here in the room. There is not any vagueness 20 when you drive around the countryside and see the empty 21 buildings -- the empty feedlots, the empty buildings and 22 farmsteads that at one time families -- farmers were 23 raising their families, producing livestock, being 24 involved in a local community. I think there's no 25 vagueness about that at all. Thank you. 273 1 MR. BUHL: Good afternoon. I'm Don Buhl from 2 Tyler, Minnesota; a wean-to-finish hog producer. We 3 are -- we own all of our own hogs. I want to reinforce a 4 couple of things very briefly. The talk about the 5 regulation impact on industry, I think, is significant. I 6 want to agree with those comments made earlier. The other 7 thing is we have three trade agreements that are pending 8 that have been sitting there, and that is important that 9 the administration get those approved. 10 As far as price discovery, the comment was 11 made that 5 percent of the hogs are in a negotiated 12 market. It was pointed out to me that does not include 13 that are traded between packers. In the pork industry, 14 those prices are reported, but they are in excess of the 5 15 percent. Having said that, among producers like myself, 16 we agree that that number needs to be a little higher. 17 And I think that it's our responsibility as producers to 18 take it upon ourselves not to contract, but to have some 19 hogs that are always available for open market in every 20 group. So I want to make that very clear. 21 I am very uncomfortable with the government 22 legislating that because I'm worried about how that would 23 be implemented. We need to have, in my personal opinion, 24 the ability to have a marketing contract. And so I'm 25 concerned if the GIPSA rule makes that a lot more 274 1 difficult to handle. Within that contract, I think it 2 would be good not to have the ability by either party to 3 alter that contract during the duration of the contract 4 without the approval of both parties. Otherwise, you'd 5 have the potential for mischief. 6 I want differentiation between production and 7 marketing contracts. Because those issues can be very, 8 very difficult, very different. And also, between species 9 there are differences in what the contract issues might 10 be. I have a good relationship with my contract growers 11 and I don't want to have to turn them into the authorities 12 just to work with them on a problem. It's something I've 13 seen and it concerns me. Thank you. 14 MR. RAINEY (phonetic): I'm Gary Rainey, 15 southern Colorado. These are comments that came to mind 16 as we had many fine panelists and speakers today; 17 questions that crossed my mind and I -- I guess these are 18 the answers, in my mind, of what I saw. 19 I'm from a farming-ranch family of which I am 20 the fifth generation and my son is the sixth. I've been 21 actively involved in the cow-calf operation, the 22 stocker/feeder, and the feedlot end of the business. In 23 all of these, I strive to identify my customer, the 24 person the -- the person or entity I will be selling to. 25 I have not asked them to come identify me. I also buy 275 1 feeder cattle for -- excuse me. My comments from these 2 observations are things that -- over the last 40 years 3 that I've watched the transition of this industry 4 from a -- and be refined into a much more mature industry. 5 In reference to the young producers entering 6 agriculture, there are barriers to entry from huge capital 7 requirements, barriers to entry from estate taxes, 8 barriers to entry if an operation is of insufficient size 9 to support one family but not large enough to -- and 10 especially not large enough to accommodate father and son 11 or granddaughter as they wish to enter the operation. 12 We also have to recognize that operators that 13 produce at an older age are not turning the operations 14 over to the younger people, the new generation, as often 15 as they -- or as -- in the shorter time that they used to. 16 Some impossibly young producers do not make all solid 17 business plans that are marketable and bankable. In all 18 of these cases, who do we blame for these? Can we really 19 blame a packer or a retailer for things that are a social 20 evolution within our business -- change and structure of 21 business that has evolved over time? 22 I guess another example would be too we talked 23 about concentration. We had a group of farmer feeders 24 gathered together that bought a feedlot in our area. Did 25 they do it to decrease competition or did they do it to be 276 1 more efficient? Thank you. 2 MR. BLACKWELL: My name is Buddy Blackwell, 3 and I'm in the livestock auction business in Cuero, Texas. 4 I'm also the vice president of the Texas Livestock Market 5 Association. The Livestock Market Association of Texas is 6 the sole trade group in the state of Texas representing 7 115 member auctions, livestock movers and order buyers. 8 Livestock auctions are the voice of the largest livestock 9 consistency in the state of Texas with approximately 100 10 auctions representing over 125,000 producers that marketed 11 over 5 million cattle in 2009. 12 Livestock markets continue to guarantee an 13 open marketplace for competitive bidding improves the 14 value of every class of livestock sold. Auction markets 15 also help producers navigate the industry regulations, 16 technology, marketing programs, and operate a vital link 17 to the state animal health death protection, livestock 18 research, and promotional programs. Livestock auction 19 markets represent the truest form of competition and price 20 discovery in the livestock industry. 21 Every day, thousands of producers sell 22 livestock to the highest bidder in the open market. The 23 cash market for livestock is largely established at these 24 public sales. The importance of the competitive auction 25 markets, particularly for the independent producer, cannot 277 1 be underestimated. Recently, GIPSA published -- proposed 2 rules that -- rule changes that would bring change to the 3 livestock market transparency and open livestock trading. 4 Everyone understands and appreciates the 5 delicate balance that GIPSA attempts to achieve between 6 the competing forces of instilling more competition in the 7 marketplace without doing harm to the structure that's 8 already in existence. We do support the continued efforts 9 of GIPSA and USDA to increase market competition and add 10 transparency to the livestock market industry. 11 Particularly, we support the GIPSA rule 12 provision that protects the cash market for fed cattle. 13 The cash market for fed cattle is the price discovery 14 market for all fed cattle, including those sold under 15 alternative market arrangements. USDA and the Department 16 of Justice must take immediate steps to protect the 17 integrity of the cash market for fed cattle so it can 18 function like the nation's auction markets to discover the 19 competitive price of cattle. This is essential to protect 20 against market manipulation, which causes lower prices in 21 the cattle market. 22 And to close, about 10 or 12 years ago, it was 23 one of the first concentration hearings that was held in 24 St. Louis. I was eating dinner, sitting right next to Bob 25 Peterson. And I asked him -- I said, Well, how do you 278 1 think the meeting went today? He said, Well, Buddy, I 2 don't have any animosity towards you or any of your 3 friends; but if the P&S doesn't stop Monfort from feeding 4 their own cattle, we're going to get in it big time; and 5 I'll show you what that will do to this industry. Thank 6 you. 7 MR. FERRELL: Folks, do try to keep you 8 comments to two minutes. 9 And we'll start over here. 10 MS. KNIEBLE: Good afternoon, my name is Mary 11 Ann Knieble. And I am a commercial cow-calf, seed stock, 12 and feedlot operator from Kansas. And this is our 132nd 13 anniversary for our ranch. And our history is somewhat 14 unique because we have always finished our own calves -- 15 our own home-raised for harvest from driving them to the 16 railhead to our current ownership in U.S. Premium Beef. 17 Our income dollars for our ranch has been generated from 18 the beef we raise directly for harvest. 19 The past 20 years has seen significant change 20 for us. Prior to these changes, our ranch was a smaller 21 operation that was only one operator at a time. And 22 conversely, we now have three family members involved. 23 And I feel it's important to point this out because we're 24 not working on inherited money, because we've tripled in 25 size since 1990. And what has helped us to achieve our 279 1 growth and ability to include other family members in the 2 operation is how we sell our cattle. 3 We average close to $100 per head above the 4 cash marketing premiums due to our management. That 5 includes many different programs, all of which have 6 surfaced in the last 15 years. We sell around 450 to 500 7 finished animals per year, which is not a lot in the big 8 scope of things. But that extra 40,000 to $45,000 a year 9 in income makes a huge difference to the bottom line of 10 our ranch, and it allows us to keep more family involved. 11 And it's also rural development. 12 Now, it's been pointed out that the proposed 13 rule changes will not affect the premiums available to 14 these diverse marketing groups. And we do not agree with 15 that statement. Unfortunately, we live in a litigious 16 society. And the openings this rule leaves for filing 17 unjustified lawsuits is unacceptable and potentially 18 catastrophic. I also take umbrage at the reporting that 19 these regulations would like to entail. 20 Our management practices that we utilize for 21 the premiums that we do is a huge invasion of privacy. 22 And that is the equivalent to -- it's our intellectual 23 property, and it's not something I feel I should have to 24 expose to the world for free. I hear people that say they 25 want more transparency, and I equate that to not wanting 280 1 to do your own marketing. We're a small producer and we 2 found ways as many others have said they have in the room 3 today. And they are open to everyone, but you do the work 4 to seek those out. Thank you. 5 MR. NELSON: My name is Larry Nelson. I'm 6 from Buffalo, South Dakota. Also, we -- I haven't raised 7 any kids. But I do raise cattle and sheep. And I was not 8 going to talk up here today, but there's been a couple of 9 statements made about the sheep part of this thing that I 10 would like to comment on. Mr. Rishel -- William Rishel, 11 who was on one of the panels -- made the statement that 12 because the sheepmen didn't promote their industry, they 13 lost their industry. I've always been interested when 14 somebody says that because generally it's made by 15 folks that aren't in the sheep business and don't know the 16 history. 17 Sheep numbers in the United States peaked in 18 the 1940s at 40-some million head. In 1954, Congress 19 passed the National Wool Act which paid the wool incentive 20 out to producers. Subsequent to that, a portion of that 21 wool act was checked off and the old American sheep 22 producers group promoted sheep for many, many years. We 23 lost the -- that wool act in 1954 and then sheep promotion 24 did stop. What happened to the numbers in those times? 25 We went down to about 11 million head. 281 1 Now, by what measure is a promotion program 2 successful that has those kinds of numbers? Now, that 3 really doesn't have a lot to do with what we're talking 4 about today. Mr. Harper made the observation that, What 5 have we got -- what do we do to get more people in sheep; 6 we're going to lose the industry. I'll tell you what you 7 do. You pay people enough for lambs so that they can make 8 money running. It's just that simple. 9 I've got -- there are a couple of cases in my 10 county where people sold cattle and went into sheep 11 because that is just what happened. I'm sitting here and 12 I hear statistics every day -- every week that the cattle 13 numbers went down 2 percent per year. I've heard seven 14 years, eight years, nine years, ten years. What we're 15 doing is we're working for the cow-calf. And I think, 16 Mr. Butler, that we do need to proceed to these rules and 17 we've got to try something different if we don't end up -- 18 or we'll end up just like the sheep people did. 19 MR. ANDES (phonetic): I'm Bruce Andes from 20 Missouri. I'm a pork producer there. My family has been 21 involved in this business. My dad specialized in the pork 22 business back in the -- in 1954. 23 One thing I'd like to just reiterate today is 24 that Missouri passed a livestock price discrimination bill 25 back in '99. It took affect in '01. It was very 282 1 devastating to our industry. It cost somewhere between 19 2 and 20 million to the livestock industry then. These 3 GIPSA rules that are being proposed right now, it seems 4 like they'll do the same thing. Guys, that was mistake. 5 And I think you need to really look at that. Because you 6 could do the same thing, and it wouldn't be just affecting 7 the state of Missouri; it would be affecting the whole 8 United States. And Governor Bob Holden had to call a 9 special session to clean up that mess that the legislature 10 created. 11 You know, I've got a couple of kids, or 12 whatever, that like to come back to the farm. We're doing 13 really well. We can compete with any of the integrators. 14 We're an independent operation. We market with some other 15 producers. We've got a very good cost structure. You 16 know, I just don't want the government, you know, getting 17 in the way and screwing up what we've got that's working 18 very well for us right now. And I think, you know, if you 19 kind of -- if the government could kind of get out of the 20 way and wouldn't regulate us as hard, you know, you just 21 turn us loose and you watch what we can do or whatever. 22 Because we can flat produce in this country. 23 And to reiterate, if I would have your time 24 and energy rather than working on this stuff, you know it 25 seems to me it would make a whole lot more common sense to 283 1 work on those free trade agreements and get those opened 2 up. Give us a place to sell more product and we'll -- 3 because we're a bright spot in this economy, the livestock 4 sector. Thank you. 5 MR. FERRELL: If we can go ahead and have a 6 new page ticket of numbers, and then we'll get started on 7 those as well. 8 MR. DAVIDSON: Hi. I'm Brian Davidson from 9 Marathon, Iowa. It seems to me that all the money the 10 government is trying to -- spending trying to stimulate 11 the economy, that any new policy should correspond with 12 progress. By implementing these proposed rules, it would 13 limit farmers' abilities to sell their own animals and 14 dictate terms of private contracts. Because of 15 unnecessary costs of bureaucracy, the rules will stifle 16 any incentive for innovation and eliminate jobs in rural 17 America. 18 We need to be careful not to assume that if 19 there's an issue with one portion of the industry, that a 20 blanket policy is the right way to go. For example, my 21 job as a grower sometimes requires me to sell on a Sunday 22 or a holiday. Because I feed in a specialized all-natural 23 program, it allows my contractor to receive the premium 24 because of the added cost to produce this product. This 25 program also fills a specific consumer demand. The added 284 1 red tape of this bill would raise consumer prices and 2 reduce choices at the meat counter while penalizing our 3 ingenuity and extra efforts. 4 The above example is a basic but sound 5 business plan based on good, old-fashioned free 6 enterprise. It seems the government gives us what we need 7 to establish a good business model in one bill and then 8 ties our hands in the next. The government should not 9 micromanage our private business. This country is losing 10 our world leadership status because Americans have become 11 lazy and selfish. I'm saying any of us here are lazy, but 12 we all need to start working together. America, in 13 general, is losing their attitude. 14 I personally am on my fifth contract with 15 Murphy Brown, and every contract has been notably better 16 for the grower. If it weren't for my contract, I honestly 17 don't know what I would have to be doing to survive. 18 These people are my friends, not my employer. I farm 350 19 acres, have three Murphy barns, and an off-the-farm job. 20 My contract is essential to my family's well-being. 21 Please consider these two minutes of your time a lifetime 22 for my family and five daughters. Thank you. 23 MR. SHEETS: Good afternoon. I'm Leon Sheets, 24 pork producer from Ionia, Iowa, up in the northeast 25 corner. I've got a 1,200 sow farrow-to-finish operation. 285 1 I also have a small cow-calf and run some corn soybean 2 rotation. 3 I started out raising feeder pigs. And for 4 those of you who have been having issues with selling to a 5 packer or on the beef side, you really ought to try to 6 sell feeder pigs through your neighbors. It was just as 7 difficult and the same issues came up. And so in the 8 mid-'90s, I and my wife made the decision that we would 9 move into finishing our own pigs because it seemed to be 10 that that was not -- selling feeder pigs had too many ups 11 and downs. The lender agreed with it. 12 To minimize our risk, we needed to add on more 13 finishing space, and so we chose to visit with some of our 14 neighbors about doing some of the finishing on their 15 existing facilities that they had exited. So we started 16 some relationships, signed some contracts with some 17 neighbors. To do part of this, we sat back with the 18 lender, took a look at what -- the extra dollars it was 19 going to make. And from a business model, we went out and 20 started visiting with harvest partners, what they could 21 offer us. 22 We signed up one, going through '97, '98. 23 Pork producers -- remember those years, we've heard about 24 it. It was a God send. It got me through ten years and 25 we upped -- moved, growed (sic), and progressed. And I'm 286 1 glad to say now that because some of those, ten years ago 2 I would have said, My son will not return. Three years 3 ago, he returned. And right now, this new technology 4 is that he taught me how to text a little while ago. And 5 I'm thinking he's wishing he wouldn't have right now. 6 But what is important is that I had a 7 relationship with my harvest partner and my grower 8 producers. But one of the things that came out -- it was 9 not about the dollars I received on the basis. It was not 10 about the premium. But what got important in the pig 11 operation is I have 500 pigs that need to move out of the 12 farrowing barns every week to make for new sows. I need 13 to move 500 pigs out of the finisher every week to make 14 pigs for those pigs coming out of the nursery. I need a 15 time factor to get that done. And then in the process of 16 negotiation, it's important to me that we have a 17 relationship, when I need to move animals that it can be 18 done. 19 As I read -- and I need clarification on this 20 proposed rule is -- I think that will take away some of 21 those abilities, because it is important to me. So 22 please, have your folks review and make clear of what 23 they've done. 24 MR. KAMMERER(phonetic): Good afternoon. My 25 name is Marvin Kammerer. I'm from Black Hills, South 287 1 Dakota. I'm from the family that walked into the freight 2 wagons in 1882. Good bless America that we can still have 3 people who come here and, I hope, listen to the survival 4 of American agriculture, especially the American cow and 5 calf producer. 6 Grandfathers -- that's what I am, is a 7 grandfather. I've got five kids still on ranches. 8 Others -- you know, my grandkids are either in school or 9 pulling their own weight. I should be in Fort Pierre, 10 South Dakota, today at the State 4H rodeo finals. I have 11 three children there, grandchildren. That's where I 12 belong. Here I am, 73-plus years old, and here I am 13 trying to fight for the rights of those who are coming 14 after me and those not yet born. 15 God bless the city people and the labor people 16 who came here to share their concerns. Grass roots 17 people, people who produce new wealth, are becoming fewer 18 and fewer. Every cow that's bred this spring -- sheep, 19 whatever -- next spring comes something that's never been 20 here before. That's new wealth. And we don't want to 21 turn it over to the packers. Enforce the Packer and 22 Stockyards Act. Don't let these boys who come to 23 Washington with pockets of money sit there and bribe our 24 congressman year after year after year. 25 You people may have to step outside the box 288 1 and become men and take our side. Get after the 2 independent -- this nation is not going to survive. This 3 republic is dead if we don't start changing things 4 quickly. Thank you. 5 MR. STIKA: Good afternoon, I'm John Stika, 6 president of Certified Angus Beef. And I just want to 7 share that the Certified Angus Beef brand is a non-profit 8 subsidiary of the American Angus Association, which has a 9 long tradition helping producers add value to their 10 cattle. Producer members of the association planned ahead 11 for the value-based future we have today by investing in 12 genetic evaluation and establishing this very brand more 13 than 30 years ago. And since that time, value-based 14 opportunities have only expanded for producers and pull 15 through consumer demands function successfully. 16 We urge that great care be given to ensure 17 that no one who has worked to add value to their herd in 18 an effort to meet consumer demands find fewer marketing 19 opportunities tomorrow, even if that development is 20 unintended. Now, we fully understand the proposed GIPSA 21 rules don't spell out a required end to value-added and 22 value-based marketing. However, it is possible that 23 efforts to comply with new provisions could logically 24 result in fewer value-separation opportunities for 25 high-quality cattle compared to average commodity cattle 289 1 that risk a decline in consumer demand for beef. 2 Unintended consequences of rule changes could 3 actually harm the interest of fairness in the beef market. 4 For example, if a proliferation of newly required 5 paperwork makes it less profitable for packers to offer 6 alternative marketing arrangements, then producers will 7 not be paid premiums based on true value. The idea of 8 improving fairness in the marketing of livestock is 9 something we all should support. How it should be 10 achieved is a matter of opinion, but it does little good 11 to enhance fairness on one hand while potentially 12 restricting it on the other. 13 We all want clarity in the rules, if 14 necessary. But our consumer-driven industry can't afford 15 the kind that throws the baby out with the bathwater, so 16 to speak. We can all have the kind of clarity that 17 negates its intent by opening the doors to a long series 18 of lawsuits to further clarify. Therefore, we urge 19 caution to -- in attempting to clarify a policy by using 20 only selected opinions without greater consensus on both 21 the direct effects and potential side effects resulting 22 from efforts to comply with change. Thank you very much. 23 MR. BRUSS (phonetic): Good afternoon. My 24 name is Craig Bruss. I come from North Central 25 Washington. I drove 1,500 miles to get here today to 290 1 thank you for the opportunity that the livestock industry 2 has. We're grateful that somebody finally has woken up to 3 the fact that something has to be done or we're losing all 4 of our producers. My operation is a 750-cow deal. I've 5 got two boys involved. We feed cattle. We market 6 pure-bred Angus bulls and we market feeder cattle. 7 My concern is packer concentration. All you 8 have to do -- it isn't the number of cattle that are -- 9 that the packers are feeding, but it's how they 10 strategically place them in the market. Whenever this 11 thing starts to heat up, it looks like we -- all you have 12 to do is look at last week. I mean, you don't got to dig 13 too deep. Look at last week. Cattle hit a buck one, buck 14 one and a quarter. 15 And all of sudden, the next week, they go back 16 and look at the kill, look at cattle that came forward 17 this week. A big portion is -- a portion of those cattle 18 are select, select-plus cattle. Why? Because they 19 strategically took those cattle out of their supply, 20 brought them into the market. And what happened this 21 week? The market dips down to the 98, 99, depending on 22 where you're at with this. But the point is they 23 strategically place those cattle in market that tips the 24 market over. We can't continue to stay in the business. 25 Every time something happens like that, they step up, tip 291 1 the market over with their strategic supply that they 2 have. It isn't the number they have. We watched it 3 happen with the Canadian cattle. 4 Whenever that thing would heat up in 5 Northcentral Washington -- and I operate a livestock 6 market -- down come the cattle. It tips the market over. 7 All of sudden, I'm sitting with a sale yard full of 8 850-pound steers and there's not -- the market's $2 to $3 9 less than it was the day I consigned the cattle. That 10 can't continue, guys. We've got to do something 11 different. Thank you. 12 MR. MURPHY: My name is Andrew Murphy. I'm a 13 cattle producer from Central Kansas. 14 The reason that I am here and the reason that 15 I have a job in this industry is because I'm a 16 third-generation cattleman. And these marketing 17 opportunities that we've had in the past are primarily the 18 reason that my father had room to get me back into the 19 operation. These are exactly the types of marketing 20 arrangements that this rule has potential to hinder. It 21 has the opportunity to damage and potentially limit our 22 ability to grow, limit our ability to be innovative. If I 23 didn't have a father who was involved in the operation, 24 that was innovative in this thinking process, again, I 25 wouldn't be here. 292 1 A couple of observations. And one of them is 2 a little bit tongue in cheek and the other one is fairly 3 serious. You know, what I've listened today -- and I had 4 a prepared statement, and I kind of tend to wing it every 5 once in awhile. So the prepared statement is kind of out 6 the window for just a second. I listened to the panels 7 this morning. I listened to everybody's comments here 8 this afternoon. And ultimately, I think there's a 9 common -- there's a goal here. 10 I listened to the panels this morning talk 11 about how -- that if they had less restrictions on their 12 ability to have a packing industry in Wyoming, had less 13 restrictions on the HASA programs, less restrictions or 14 more opportunity in the equip programs, and more 15 opportunity in the grants and the funding to build 16 infrastructure for new opportunities and new innovations 17 in their business. And at the same time, in opposition to 18 the GIPSA rule, we come in here and we say, We want less 19 restrictions on opportunities for us to be innovative as 20 producers. We're saying exactly the same thing. We're 21 pointing at different segments, but we're saying exactly 22 the same thing. 23 Secondly, having been in an operation that's 24 in these marketing arrangements -- and I'm going to insult 25 the packers a little bit. We work a lot with the packers. 293 1 And you guys give them a hell of a lot more credit for 2 being organized than they really are. They can't design 3 that well to be able to fill in the cattle market for a 98 4 versus -- they don't have any more clue than we do. So 5 with that, I'm going to be short of my two-minute time. 6 Thank you. 7 MR. KNIGHT (phonetic): I'm Mark Knight from 8 Highland, Kansas. I, too, am in operating agreements. 9 Those agreements were established back in 1989. In 1989 10 we found that in Central Kansas, that we would probably 11 not be able to get the markets that they would put the 12 packers as close to the feedyards as they were out west. 13 That's the reason we went and did what we did. And we 14 tried to -- like a lot of cow-calf guys in here, I've 15 heard today, they're trying to pool their resources in 16 order to get a better dollar for their customers. That's 17 one thing. 18 The second thing I want to talk about is 19 earlier today we talked about how are we going to get the 20 farm, the feedyards, all of these businesses, to continue 21 on in the future when we're all gone? It's been pointed 22 out, and I just want to reiterate, that the government can 23 do a lot of things and it can take away things. One thing 24 that we could do is get rid of the restrictions that the 25 EPA, ADH&E, all the Kansas rules that we have to follow -- 294 1 everything that we make, whatever profits there are, there 2 seems to be a new regulation coming to where we need to 3 change something. Now we've got dust issues we're talking 4 about. 5 But if you wanted to do that, aside from 6 getting rid of the estate taxes, those are a lot of things 7 that you guys in government can do, is to have less 8 regulation -- because our ultimate goal is to feed the 9 world with the best, nutritious beef, tasty, in the whole 10 world. That's our goal. We want to get to the plate. We 11 bash packers all day long. We've got to have those 12 packers. They're in line -- from the very beginning, we 13 have the rancher, through us, through the packer to the 14 end user, bashing them. And I understand we need better 15 price discovery. But also we need them in our industry. 16 Thank you. 17 MR. BONNWELL (phonetic): Hi. I'm Brett 18 Bonnwell from Columbus, Nebraska, pork producer. I've 19 been in agriculture for 30 years. And one thing hasn't 20 changed since Grandpa and Dad and I sat around the table, 21 is cursing those dammed packers. Some things never 22 change. 23 I'm very concerned with the GIPSA, the 24 rulings, and how that will affect our business. Our 25 industry -- at least the swine industry -- is the most 295 1 competitive in the world, not only in how we produce the 2 product and our cost to produce it, but also in the 3 quality. That's very much, you know, shown by our exports 4 and how they continue to grow. I know the government is 5 trying to help. The government has always tried to help. 6 But a lot of times, there's a lot of things they're not 7 good at. One is getting into our business. 8 We have to compete in this world market, and 9 we need help not in help managing our business, but 10 opening free markets, which are there, which have been 11 sitting on the books for several years, and do to 12 political correctness with associations have not been 13 opened. Please, if you want to help pork producers, get 14 our markets opened up. We're the best in the world. All 15 we need is a fair playing field. 16 We think GIPSA will penalize the people who 17 are very good and help the people who are average. And 18 that's no way you're going to compete today in the world 19 market. We're better. We don't want to be average. 20 Rural America needs jobs. And without the pork industry, 21 we'll lose those jobs. In Nebraska, it's critical that we 22 have those. Our communities are shrinking. We're losing 23 our schools. We don't need any more regulation. In 24 Nebraska, we have a motto: We'll handle our business 25 ourselves; we do not need your help. Thank you. 296 1 MR. BARNES (phonetic): I'm Pete Barnes. 2 We're cow-calf producers in steak -- in Texas, running 3 stocker operations in Texas, Oklahoma, Kansas and 4 Colorado. We feed cattle in Oklahoma, Texas, Nebraska, 5 Iowa, and South Dakota. And I'm really against these 6 rules that you-all are trying to change. I mean, I'm 7 really against changing any of these rules. 8 To give you a good example, we have filled 9 small farm of feeders in South Dakota. This being a 10 specialty market, I would not consider finishing these 11 cattle without a contract from the packer before I place 12 them on feed. We got bid by two different packers. 13 There's $500 difference between the two bids. It's real 14 simple. I sold the cattle to the highest bidder. If we 15 could not have contracted these cattle, this young 16 producer would not have been able to buy this farm without 17 a guarantee from us about filling it. 18 We also produce a large number of cattle that 19 are qualified for the USDA's non-hormone treated program 20 through the AMS. This is a specialty market as well. I 21 do not feed these cattle without a contract before placing 22 them on feed. The premiums of $160 a head are great. 23 However, we have another $100 of additional costs by doing 24 this. And if there is one too many out there in the 25 market, then all of a sudden they become commodity cattle. 297 1 Why should a person that's not willing to do the extra 2 work to get cattle qualified be able to sue a packer or 3 possibly myself to have them justify these premiums? 4 These extra efforts help the entire cattle 5 industry since the beef from these cattle are all exported 6 to the European Union. I'm afraid this is just the start. 7 Washington apparently wants to regulate us all out of 8 business. On Monday, we sold on the superior livestock 9 video 650-pound calves for $1.23. On the same sale, I 10 bought 600-pound calf for $1.10. I don't want the owner 11 of these cattle to be able to sue me. 12 Real quickly, let me make this final point. 13 Here's a short history lesson. The Packers and Stockers 14 Administration started in the 1920s to control the big 15 five packers. To put this in retrospect, in 1917, Swift & 16 Company was the second-largest corporation in the United 17 States; not agricultural companies, the second-largest 18 company in the United States. Now the big -- and Armor 19 (sic) was number five. Now the big three is small parts 20 of larger corporations. If being a packer was so 21 profitable, why haven't Buffet, Murdoch, or Storris built 22 a packing house? 23 MR. OUTLAW: My name is Ben Outlaw. I'm a 24 third-generation pork producer and vice president of the 25 North Carolina Pork Council. There are some 2,200 hog 298 1 farms in North Carolina, and the North Carolina Pork 2 Council represents the farm families and production 3 companies that own and operate these farms. The swine 4 industry has been and continues to be a very important 5 part of the North Carolina economy. 6 The North Carolina swine industry accounts for 7 22.5 percent of all farm cash receipts and is the 8 second-leading source of farm -- gross farm income. 9 Combined effects of the swine production, pork packing, 10 and processing in North Carolina are over $7 billion in 11 sales with an additional $2 billion in value-added income. 12 Also, there's 46,000 full-time jobs generated by the pork 13 industry. 14 Just as production practices have changed 15 since my grandfather produced hogs, the industry in North 16 Carolina has changed. Nearly all the hogs in North 17 Carolina are produced on contract with integrated 18 companies or with packer contracts. The changes in the 19 GIPSA rules would be disastrous on the pork industry. By 20 reducing, limiting, or eliminating the contracts, many 21 North Carolina producers will lose large amounts of equity 22 that they have generated over the years and will be forced 23 to exit the industry as they would not be able to secure 24 financing and withstand the risk by losing these 25 contracts. 299 1 I believe that GIPSA needs to go back to the 2 Farm Bill and look at the five specific things it was 3 asked to do with the regulations. Then it needs to revise 4 these rules accordingly. Hog farmers like me and those I 5 represent need the freedom to operate the way we want. We 6 don't need the federal government interfering in our 7 business decisions. There's been a lot of talk about 8 bringing young people back to the farm and these contracts 9 help control risk and secure financing. Without them, 10 it's going to be much more difficult bringing young people 11 back to the farm. Thank you. 12 MR. ROGERS (phonetic): Ronnie and Walita 13 Rogers operate the R-BAR Cattle Company, a family-owned 14 cattle operation. I have two daughters and a brother, a 15 cow-calf stocker and feeder from Southeast Kansas. 16 At present, I am a KCA director, member of 17 KCA, and R-CALF for about ten years. We have been 18 involved in the cattle feeding business for approximately 19 35 years. From a fat-cattle market perspective, the last 20 two weeks have demonstrated how captive supply affects the 21 market. Kansas fed cattle grade volume has been about 22 82,000 head, including 41,000 head of captive designated 23 supply cattle. When this number dropped below 50 percent 24 or below, the cash market in this instance responded $4 to 25 $6 advance. When the packer has 60 to 70 percent of the 300 1 designated supply of cattle, they become very independent 2 in bidding on cash cattle. 3 We have seen a diminishing profitability over 4 the years. We simply need competition in the marketplace 5 in order to obtain real value. If these contracts are so 6 great, how come there's so many people still going broke. 7 Thank you. God bless America. 8 MR. KENSEY (phonetic): I won, and I 9 appreciate it. I'm glad to be here around so many smart 10 people. 11 I'm Brett Kensey. I'm 38. We run a cow-calf 12 feedlot operation in South Dakota, along with my dad, my 13 34-year-old brother, been in the Army. That flag means a 14 lot to me. The country means a lot, family and property 15 ownership. I think that's what drives the whole thing. 16 If you really boil it down, you've got to make a living to 17 stay on the land. Being here in the presence of USDA -- 18 I've been in the FSA beginning farmer program. It got me 19 going and I appreciate it. I'm going to try to pay that 20 back. 21 I guess I didn't come to talk, but my number 22 got called and I felt like I had to. I've got more 23 questions than I do answers. I'm here to learn. And I 24 guess some of the things that bother me is when you hear 25 about exports. Exports are important. They're really 301 1 important. They're key. But we've got the smallest herd 2 since the '50s and we're growing more meat from that herd. 3 But we import meat to fill our demand. So I don't see how 4 exports can be brought here today as an answer to our 5 problems. 6 There seems to be a lot of discussion about 7 these incentive programs with the packers. And I'm not 8 smart enough to know whether those things will go away 9 with this or not. But it just seems to me like we can 10 write this so there will be incentives there. I'm not 11 going to bash the packers. Packers are smart. They're 12 good businessmen. Their job is to buy it as cheap as they 13 can; my job is to sell it for as much as I can. 14 I'm young. I'm ambitious. Give me some 15 competition. I'll figure out a way. Thank you. 16 MR. COLLINS: My name is Jim Collins, and my 17 family and I are cow-calf producers in east Alabama and 18 west Georgia. 19 I come today with two different perspectives. 20 One is a personal perspective and one is a regional 21 perspective. As a partner in a fifth-generation 22 operation, we've been sustainable over 60-plus years by 23 spending decades improving not only our genetics but all 24 phases of our production practices from our health, 25 nutrition, handling, as well as developing market 302 1 relationships. All of these things were done with a goal 2 of maximizing our market access and improving quality. 3 As a result, we've had several value-added 4 options available, including, but not limited to, our 5 producer-led feeder calf marketing association that 6 incorporates beef quality assurance, source and age 7 verification, the VAC45 or VAC60 program, and additionally 8 is involved with our local sale mart. Additionally, we 9 have the option to retain ownership in large or small 10 quantities -- some quantities a few as eight head -- 11 collectively with other producers and marketing in product 12 on a grid using a QSA to enter a source-and-age-verified 13 market. 14 In the last two weeks, we marketed our entire 15 steer calf crop with other producers for the 17th year in 16 a producer-led cooperative board sale. These cattle had 17 several value-added claims and were a part of this product 18 we were offering. Ultimately, these cattle sold at a 19 premium for delivery in September and October. A very 20 diversified group of buyers were involved in this sale; 21 some as individuals, some representing value-added 22 marketing chains, and some representing both, which will 23 determine the feeding channels as they enter and are 24 closer to shipment. 25 From a regional perspective, I speak on behalf 303 1 of the Southeastern Livestock Network, which represents 2 over 50,000 dues-paying members of our member states. And 3 we have grave concern that the opportunity for producers 4 of all sizes to -- on their own decide to use these 5 options by their own choice to market these cattle might 6 be limited if we move forward with this process. 7 The other part we need to keep in mind is that 8 cattle are not homogeneous. Unlike commodity crops and 9 grains, there's a wide range in these cattle and we need 10 to recognize that before we move forward, assuming they're 11 all a commodity. Again, thank you. And please, keep 12 these in consideration. 13 MR. BUTLER: Good afternoon. My name is John 14 Butler. I manage a company called the Beef Marketing 15 Group out of Kansas and Nebraska -- no relation to 16 Mr. Butler on the panel here. But I wish to express my 17 concern over the rules. And I'll just touch on one issue. 18 I have a number of issues. What we do in our company, we 19 harvest about 500,000 cattle a year. And we totally focus 20 on value added. 21 We totally focus on value-chain alignment. 22 And we haven't heard that word today, but that's basically 23 aligning everybody in the value chain that has a chance to 24 create value and exercise that through really 25 understanding what the consumer is wanting. And if we're 304 1 able to do that, we have a chance to reward everybody in 2 the value chain for their contribution to that value. 3 As I understand the GIPSA rule, this entire 4 concept will be threatened and jeopardized. And as my 5 esteemed colleague, Mr. Herring, mentioned earlier this 6 afternoon, we've been involved in programs where we have 7 to and we look forward to working with the ranching 8 community to identify those attributes, whether they be 9 sources of cattle or whether they be the genetics of the 10 cattle or where the cattle are handled and managed, all 11 the way through the entire system so that we can deliver 12 on that consumer demand and earn that added value that is 13 there. 14 And if these rules are put in place, what will 15 happen is that we -- that will be entirely taken away and 16 we will have an average price for all the cattle. And if 17 you think I can go into Montana or West Virginia or Kansas 18 and talk a cow-calf guy into participating in a 19 value-chain alignment program where the same price is 20 offered for all animals, it won't work. This whole 21 concept is driven so that we get out of the commodity 22 marketplace and we get into the value-added marketplace 23 and are able to compete in a very competitive protein 24 marketplace. 25 The other thing I want to bring up is that 305 1 today it was discussed that these contracts or that these 2 sort of formulas are not negotiated. I promise you they 3 are all negotiated. Now, they may not be negotiated every 4 time but they're negotiated from the beginning to 5 establish the business proposition. So I stand before you 6 today with concern over just virtually every piece of the 7 GIPSA rule and I thank you for your time. 8 MR. FERRELL: I think if we could go ahead and 9 start with the next page of ticket numbers. And if you 10 could line up in front of the microphones if you see your 11 number up on the screen. Thank you. 12 MR. ROBBINS: I'm Lee Robbins. I'm a 13 fourth-generation beef producer from Gove City, Kansas. I 14 don't -- I didn't start out and build from the family's 15 operation. My wife and I built our own operation, and 16 it's been tough. We feed cattle. We do whatever we think 17 will be best to market our cattle at the time that we have 18 to market. We use the futures market, which hasn't been 19 mentioned much. And you can still contract your cattle 20 ahead on the future market, if they do enforce GIPSA, 21 which I hope they do. I would think that even a caveman 22 could see that we have some serious problems in this 23 business. 24 If you want to -- if you don't want to change, 25 then we can go down the same trail as the chicken business 306 1 and they'll be gone. We can go down the same bit -- the 2 same trail as the hog business. When I was kid, we had 3 hogs. My father saw that it was going to turn into a big 4 corporate fiasco with small profits. We got out. We had 5 the biggest one in the county. If they don't enforce it, 6 then as far as I'm concerned, the beef business is a "has 7 been" and the future will be gone. 8 We've got to packer ownership. We don't have 9 to stop their value-added stuff. They can still do that. 10 I don't see anywhere where it says they can't do value 11 added based off of a live discovered price. We've got to 12 stop packer ownership. If we don't, then, Adios. Thanks. 13 MR. MICHAELSON: Hello. My name is Travis 14 Michaelson. I'm from Mud Butte, South Dakota. I'm a 15 fourth-generation rancher there. I ranch with my father, 16 my father-in-law and my grandfather. We all work 17 together. We raise cattle and buffalo. 18 I appreciate the chance to be involved with 19 something like this and have access to officials in high 20 places like this and be able to air our concerns. One 21 thing I have as an insight into comparing a similar but 22 different market -- and believe me. I got made fun of a 23 lot for having buffalo a few years ago. The market was 24 pretty tough, you know. And there was -- it was a 25 completely free market. There was nobody supporting that 307 1 market. And there was no packer consolidation. There 2 still isn't. There's a large number of competitive 3 packers that bid on buffalo. Okay? 4 I want to point out the price disparity today 5 between buffalo and beef, which I think a large number of 6 cattle producers aren't aware of. You know, right now, 7 fat buffalo are bringing $2.80 on the rate of hot hanging 8 weights. And cattle -- fat cattle are bringing in the 9 $1.50 to $1.60 range, while the retail price is largely 10 similar. Okay? I mean, yeah, there's a lot of 11 differences in those two markets. And buffalo is tiny, 12 tiny, tiny -- inconsequential -- in comparison to the beef 13 market. But they're similar; they're red meat protein 14 sources. 15 And in many ways, they're similar in how you 16 handle them. They're similar in their cost structure. 17 There should be an explanation for why one similar meat 18 source of equal size is worth nearly twice as much as 19 another meat source of similar size in the wholesale 20 market. I think that's something that all these cattle 21 guys should think about. You know, how come is it that 22 the buffalo is worth so much more? One reason, I think, 23 is the buffalo -- the packers that deal in Buffalo are 24 completely unrelated to the packers that deal in the beef 25 cattle. 308 1 They're small, they're spread out all over the 2 country, and they're absolutely competitive. I sold a fat 3 load of heifers yesterday -- last week. I had seven 4 different buyers calling me, wanting to make a deal on 5 those fat heifers, you know. And believe me, I didn't get 6 discounted on a single one unless they were light on 7 weight. You know, class-wise, as long as I fed them the 8 way I sold them the way I did, there was no difference in 9 price, as long -- unless they were too light for their 10 deal, you know, unless they didn't meet the weight limit. 11 I just thought that was worth sharing today when we're 12 talk about competition. Thank you. 13 MR. CLUCK (phonetic): I'm Bill Cluck. I'm an 14 agent and director for the Southern Cattle (sic) 15 Stockgrowers. And I inherited a lot from my father. He 16 was -- I was the fifth of a family of five, and he kicked 17 me in the butt and told me, You'd better get to work 18 because there wasn't anything for me. That's a pretty 19 good inheritance, whether you like to admit it or not. 20 Now, what I'd like to relate to you -- I've 21 had trouble with the packers. I feed cattle. I 22 background cattle. I'm basically a feeder calf producer. 23 But I've done all aspects of it. I've had trouble selling 24 to the packers, and that's one reason that I don't feed 25 cattle anymore to the fat. But the story I want to relate 309 1 to you, we've heard a lot about premiums today. Different 2 people talked about premiums. 3 I went to a bull sale and there was a 4 representative from Cactus Feeders there. And he gave us 5 quite a deal on premiums, the quality bulls that we were 6 looking at. And I got up and I asked him -- when he was 7 done, I said, You know, we are looking as some real 8 quality bulls here today. I've been feeding cattle for 9 four or five years. I've got all the data on my cattle. 10 I could show where their yield is good, their grade is 11 good. I can show you where the feed efficiency of the 12 cattle are good. I want to know: If I buy these goals, 13 how can I get a premium from your feedlot? 14 And he talked around the question and he 15 talked around the question. And when he got done, I said, 16 You still haven't answered the question. How do I get a 17 $0.05-$0.10 premium for my calves? Well, he talked around 18 the question some more, but he didn't answer. And 19 finally, the third time I asked him, I said, Now, listen, 20 I've been hearing you talk a lot, but still haven't told 21 me how to get that $0.05-$0.10 premium for my feeder 22 calves. And he said, Cactus Feeders does not give a 23 premium; we buy on the averages. 24 And so when I hear a lot of this stuff about 25 premiums, I get really skeptical. Because I believe the 310 1 big feeders feed on the averages. I just wanted to share 2 that story. Thank you. 3 MR. TENNIGER (phonetic): I'm Bill Tenniger. 4 I'm a pork producer from Lamars, Iowa. I've been doing 5 this since 1969. I've been in this industry for a fair 6 amount of time. I have seen the pork industry change 7 dramatically from the time I started until today. I'm 8 still in the industry today. I'm a smaller independent 9 producer. I'm in the industry today because I have 10 learned to adapt. As my industry changed, I adapted and I 11 changed with it. 12 This workshop is supposed to be all about 13 competition. Competition, to me, is a good thing. Small 14 amounts of competition keep us -- keep producers on their 15 toes. Through the years, it's competition with other 16 producers in the industry that have made me improve my 17 genetics, improve the quality of my product. I don't look 18 at my packer as competition. I look at it as a harvest 19 partner. I have a good relationship with my packer. I 20 worry more about government regulations and how they're 21 going to affect my operation. I don't have a back room 22 full of attorneys to turn to. 23 This is potentially the biggest thing that 24 could probably put me out of business. The fact that I 25 would have to document any contracts that I have with my 311 1 contract growers that raise my pigs and the fact that 2 not -- possibly not being able to enter into a contract 3 with my packer to sell my production may affect my 4 financing -- I'm worried about the fact that there's a 5 possibility that we could lose the incentive to raise 6 better pork, better product and how that will affect our 7 place in world trade. 8 You know, the fact that 20 percent of pork 9 raised in the United States today is exported -- I like to 10 tell people, When you drive down the road and you see the 11 semi loads of hogs headed to the packing house, one out of 12 five of those are going to foreign exports. That, to me, 13 makes a big difference. And that is a reason why I think 14 in the midwest, we are larger exporters than a lot of 15 people think. Thank you. 16 MR. UMPHIST (phonetic): Arty Umphist, 17 irrigated crop farmer from the Longmont area, which is 25 18 miles north of Denver here. 19 Let's face it. What this really is about is 20 profitability. And when it comes to profitability, you're 21 also talking about profitability equaling sustainability. 22 And I think vertical integration is something that really 23 needs to be focused upon. And we heard earlier today from 24 Robbie LeValley about a great way to vertically integrate 25 and make some profitability by forming a co-op. And I 312 1 think there's great merits to that. 2 As a person who grows sugar beets and has been 3 involved in witnessing the sugar industry in this 4 country -- the sugar beet industry -- transform itself 5 from mostly a privately owned industry into a farmer-owned 6 cooperative system, it has worked very well and there's 7 great promise there for livestock producers as well to 8 look forward to trying to form more co-ops and take 9 advantage of that vertical integration and get those 10 profits back into their pockets from selling to the end 11 user. 12 Let's face it. There's also another part of 13 the equation that needs to be factored in, and that's 14 reasonable feed prices. And one of the things that's 15 going to impact that, in my opinion, is the ability to 16 continue to -- for crop producers like myself to continue 17 to grow genetically enhanced crops that allow us to use 18 safer and cheaper pesticides and result in higher-quality 19 beef for our livestock producers. We need to expedite the 20 process of getting round-up ready alfalfa back on the 21 market and allow us to plant round-up ready sugar beets 22 that also -- the sugar beet crop can also result in some 23 good protein feed supplements for our livestock producers. 24 And so I think sustainability is something we 25 really need to look at and the ability to attract younger 313 1 people to become ag producers. We need to make sure in 2 Colorado that the water continues to flow to our farms. 3 Because that's going to provide a great future for all of 4 us in agriculture. And, therefore, we need to go ahead 5 and build projects like the Northern Integrated Supply 6 Project. 7 And I would just like to say we need to dam 8 the Poudre and store it in Glade Reservoir. This is one 9 of the great new water projects that is currently being 10 studied here near Fort Collins, and it needs to go ahead 11 and get government approval. And we need to make sure 12 that the government doesn't overregulate production 13 agriculture that will lead to the importation of all of 14 our food needs from foreign countries if we don't back off 15 on cap-and-trade and try to back off on -- and increase 16 our EPA regulations. 17 So in closing, I'd just like to state one of 18 the things I commonly hear at these agriculture meetings, 19 and that is: In the next 50 years, we need to produce as 20 much food in the world as has been produced in the history 21 of the world. Thank you. 22 MR. LEGAN (phonetic): Good afternoon. My 23 name is Mark Legan. I'm a first-generation independent 24 farmer from Coatesville, Indiana. And 21 years ago when 25 I -- my wife and I started this deal, I was a beginning 314 1 young farmer. I guess when we started, we were -- ran 120 2 sows 50-50 with another family and farmed 200 acres. One 3 thing that we surely appreciate have been the 4 opportunities we've had the last 21 years. Today we run a 5 2,400-sow operation and farm 1,000 acres. But we've 6 always looked for opportunities to survive, whether those 7 be to partner with other growers in the area. 8 On the crops or the livestock area, we've used 9 production contracts with some of the neighbors to finish 10 out pigs for us in the past, and we've also used marketing 11 contracts as well. And when I think of our crop and 12 livestock farms or operations today, we have a lot more 13 opportunities on the livestock side of our farm to manage 14 risk than we do with the livestock. So I'm looking for 15 any way to help manage risk more with the livestock. And 16 certainly, these contracts allowed us to do it. 17 The thing that's been pointed out earlier but 18 I want to reiterate, pork production contracts, by and 19 large, are much different than poultry contracts. I don't 20 think you can paint us all with the same brush. We need 21 competition in the marketplace. We need transparency; the 22 importance of mandatory price reporting. Am I concerned 23 about the thinly traded-spot market? Yes. Is it working? 24 I believe it is for now. I also believe that we as 25 producers can innovate well enough so that when we feel 315 1 it's not working, we can make the changes. And part of 2 the new mandatory price reporting deals with wholesale 3 cuts of pork. And I think that would be one thing to get 4 us there. 5 In conclusion, then, I would encourage 6 GIPSA -- and I'm sorry Mr. Butler had to step out -- but I 7 would encourage GIPSA to pull the rule back and deal with 8 the five issues that the 2008 Farm Bill required. Thank 9 you. 10 MR. BEASLEY (phonetic): I'm Jeff Beasley. 11 I'm a fourth-generation beef producer from Illinois. And 12 we cover all segments: cow-calf, registered and 13 commercial, stocker cattle, backgrounding and finishing. 14 We're one of the little guys too. We may run a few 15 thousand head through our operation a year, but I consider 16 that the little guy. 17 One thing is sure. These rules that are being 18 proposed are vague and ambiguous, and that's cause of 19 concern for a lot of people. I think that's why we're a 20 little bit tentative about this. One thing I do know is 21 if I want to enter into an agreement with a contract or 22 some sort of marketing arrangement, I should be able to do 23 so on my own volition without any government's 24 intervention or oversight. 25 We talked about pricing. We have three 316 1 packers aggressively in our yard all the time bidding on 2 cattle. We feel like we're getting competitive pricing, 3 and we're very happy with that. We also talked some -- or 4 heard about price discrimination. If I could do a better 5 job of negotiating a selling price for my cattle, if I do 6 a better job marketing and promoting my cattle for sale or 7 if I produce a product -- a calf that the packer wants 8 more than someone else's, then I've done a good job. If 9 my neighbor does that over me, he's done a good job. I 10 need to do a better job to improve my bottom line. 11 We've tried to work with some area producers 12 to market our cattle together, feed our cattle together; 13 whatever the case may be. It is hard to get people to 14 change. If they don't want to, that's understandable. 15 But what I hear a lot of today is, I don't -- some people 16 don't want the change, however they want to tear down the 17 other guy who may be trying to be innovative and do a 18 better job in marketing his cattle. 19 Another thing I want to say quickly, is the 20 packer is a business. Like any other business, he has to 21 make money for his shareholders. We need to be thankful 22 for the packers, in a sense, because we have the raw 23 products that we need them to buy. And as part of the 24 group that once tried to buy a small regional packing 25 house in a co-op with a bunch of other producers, it is 317 1 not easy to make this work because of overhead, government 2 regulations, et cetera. It's just not that easy. 3 So my final comment is I would ask that GIPSA 4 pull back the proposed rule changes and just enforce the 5 PSA as it is. Thank you. 6 MR. SCHULTZ (phonetic): Thank you. My name 7 is Mike Schultz from northwest Kansas, cow-calf producer. 8 We're a heifer development deal. I've been involved in 9 agriculture most of my life. 10 A couple of things. I want to offer a 11 solution, I guess. You know, you listen to everybody. 12 Yeah, I've got one bidder, two bidders, three bidders, 13 four bidders. Maybe they do; maybe they don't. I don't 14 think so. But I will tell you the solution, and it's very 15 easy. They can keep their captive cattle for the people 16 who want to do their little niche program and all that. 17 And all we have to do is ban packer ownership, and then we 18 create a more competitive environment for everybody. 19 Because without them trading the cattle and 20 doing it behind closed doors -- if they don't own any of 21 them and get the best from our feedyards. Now look at 22 what we've got. And everybody will benefit and will 23 change this thing. You have to ban packer ownership. 24 Thank you. 25 MR. DICKLETT (phonetic): Jim Dicklett, 318 1 Nebraska, drug-free cattle feeder, rancher, and company 2 rep. There's a lot of issues that are being addressed 3 today. I want to get into the GIPSA program. I think 4 there's great minds than mine. I feel -- I trust, Dudley, 5 you, if you pass these laws, you'll initiate those as best 6 you can. 7 What concerns me is some of the laws that we 8 have in our grading system now because of the inspectors 9 we have in our packing plants are not inspecting the 10 cattle and grading them properly. I've had one yard of 11 cattle from two different plants graded differently and 12 it's cost me $50. In that yard, a difference in the 13 greater -- the better-quality cattle is bringing in less 14 money than the lower-quality cattle. It's just because of 15 the graders and their system. 16 Secretary Milsap (sic) this morning asked what 17 they could do -- what the government could do to bring 18 younger people back to the farm and the ranches. I say 19 change our tax system. If generations of -- an older 20 generation wants to sell to an individual -- a young 21 individual, he should not pay any capital gains if he 22 sells that land below market value -- below the assessed 23 value. And if he finances that ranch or farm, that he not 24 pay any taxes on that financing or the interest that he 25 charges will keep the dollars back on the farm or back in 319 1 the real communities. 2 Another thing I'd like to see is our commodity 3 markets. How many bankers who loan money to the 4 individual to get into the farming and ranchers leave only 5 10 percent down? I can get into the commodity markets -- 6 corn, cattle, whatever -- if I just put 10 percent down 7 and go to the commodity board and buy cattle. I think 8 this is wrong. It creates a very lucrative -- or an 9 unlucrative situation for the cattle market, and it does 10 not calm the markets any. It creates a great fluctuation 11 in the market. 12 And I think the funds that are out there that 13 are getting into our markets on less money are causing 14 this problem. If they were charged more to get into that 15 market, I think we'd have a better market and the market 16 would change, be less active. Thank you. 17 MR. LEIGHTENBERG (phonetic): My name is Fred 18 Leightenberg from Corsica, South Dakota. In 1996, our 19 family farm was given the opportunity to expand our hog 20 finishing operation. We signed a production contract with 21 Murphy Family Farms to raise pigs in a 3,300-head feeder 22 pig finishing site. In 2006, we again stepped forward and 23 purchased another 3,300-head finishing site and signed new 24 contracts for pork production with Murphy Brown. 25 We are looking forward to another new set of 320 1 contracts to sign as we are upgrading both our facilities 2 to operate them as wean-to-finish. These contracts have 3 had a very positive impact on our operation. And in 2005, 4 we were honored with the South Dakota Master Pork Producer 5 award, and in 2008 the South Dakota Pork Environmental 6 Stewardship Award. 7 These new regulations might make sense if the 8 current system doesn't work. But the majority of 9 producers are happy with the way our contracts operate, 10 protecting us from the wild swings in the livestock and 11 grain markets. These new regulations also give the packer 12 no incentive to continue to work with producers at all. 13 Instead, they can go to using all company-owned livestock, 14 eliminate competition from the existing producers, and 15 increase the vertical integration. 16 I ask USDA to step back, let the producers 17 decide what is best for their operation, let the packers 18 process and market the products, and let the consumers 19 purchase the finished foods they wish to consume. After 20 all, isn't that what free enterprise is all about in our 21 great United States of America? Thank you. 22 MR. PHIPPS (phonetic): I'm Bobby Phipps from 23 Arnold, Missouri. I'm with the Ozarks Property Rights 24 Congress. And I -- it's been fighting the -- against the 25 check-off dollar and the premise ID and emblem ID. One of 321 1 the reasons is because it's government controlled. Look 2 where our dollar is going; to the government. Who is 3 trying to get our premises? The government. Now I'll 4 tell you the reasons why and who controls it. 5 Now then, the synonym for premises means 6 convince a property from one person to another or 7 corporation. Who in the hell runs the USDA in Washington, 8 D.C.? Corporations or pointy farmers? All right. 9 Now then, I went to two meetings where we've had -- the 10 state of Missouri said, Hey, we need to have it voluntary. 11 But it wasn't really voluntary. 12 And I proved it to one man. Because I asked 13 him -- I said, How many acres have you got? He said, Oh, 14 about 400 acres. I said, Well, would you put your 15 property up for collateral if someone in state of Missouri 16 here loses their property if they sign up for their 17 premises or would not sign their property up for premises? 18 You lose your property and he does too. No, they can't. 19 I said, Then it's not voluntarily, then, is it? 20 The same thing they -- all right. He said, 21 We'll just -- we've got legislature to pass in the state 22 Missouri where it's only going to be -- it's going to be 23 mandatory only. Now then, the surrounding states are 24 trying to get passed what's called corporate agreement. 25 And I know Arkansas has been doing it, two -- what I call 322 1 corporate agreement -- two premise IDs. And the 2 premise -- who is pushing the premises? These corporate 3 multi-corporations in Arkansas; the chicken farmers, and 4 the hog farmers, and the cattle farmers. 5 Now then, who is the premises? Does the 6 premises -- we tried to get the word "premises" changed in 7 Washington, D.C., and Jefferson City. The premises -- 8 nobody owns that premises. That's one way we try to get 9 the property changed from premise ID to property ID. We 10 cannot. We couldn't. Still, yet, our government says 11 we're going to have beef check-off that's been extorted 12 and our premise ID is going to be extorted. And this is 13 the way the packers -- our corporate -- model corporation 14 will take over the farms. I'm sorry. But I've had enough 15 of government control. Thank you. 16 MR. FERRELL: I'd like to make a quick 17 comment. I just want to let everyone know that the buses 18 will stop running at seven o'clock. So I just want to 19 make sure you're aware of that. 20 I think we'll go ahead and allow the folks who 21 are at the microphone right now to finish up. We'll put 22 up another page of numbers. But we will take a ten-minute 23 break first so that way, our court reporter can let her 24 fingers heal for a moment. 25 And with that, we will start over here. 323 1 MR. BEEDEN (phonetic) Hi. My name is Jim 2 Beeden. I'm from Hamilton, Montana. A lot of you folks 3 enjoy something that we don't. We market pigs to four 4 different locations. We have to ship between 6 and 1,200 5 miles. 6 I'm very concerned about the GIPSA program 7 because it could affect our marketing association greatly. 8 I represent 23 producers in Montana. And with the GIPSA, 9 the way it's written, we market pigs from 8 pounds to sows 10 600 pounds. With GIPSA, we would not be able to represent 11 our people and ship the pigs to the places that they need 12 to be shipped, the way it is worded today. 13 It would be devastating to our -- the state of 14 Montana. We're a small business with $24 million to $30 15 million a year. But if you look at the size of our state 16 and the income that that brings in, it is huge to us. It 17 is very, very important that you take this very, very 18 seriously and you look at it. 19 And as far as -- you know, I've heard a lot of 20 things today and some things that -- you know, a lot of 21 in-fighting and stuff like that, like the packers are the 22 bad guys. Without the packers that we have established 23 contracts with, Montana could not produce pigs. With the 24 way that our contracts are, we get premiums for raising 25 them. That helps us ship them the distance that are 324 1 there. So please look at this very closely. This is 2 going to affect a lot of people. Montana hog marketing 3 does not support GIPSA as it is written now because it 4 would be devastating to our industry. Thank you. 5 MR. BURGIS (phonetic): My name is Brock 6 Burgis. My wife and I operate a backgrounding, stocker, 7 reconditioning operation in central Oklahoma. My wife and 8 I kind of started out in a unique way. We did not marry 9 or inherit any kind of operation, we started out small. 10 We were kind of the middle guy going between -- leasing 11 ranches and customer cattle. And as we grew and our 12 program grew, we eventually were able to purchase the real 13 estate but we still stayed in the customer contract 14 business. 15 And as our industries fall, because we have 16 evolved as a business ourselves, that became a 17 nonprofitable business simply because the operating inputs 18 increased, our customer base was shrinking. It is no 19 longer a viable operation. And when all that took place, 20 one day, my wife and I woke up and we said, Well, it looks 21 like we're going to be forced to sell. We'd been in 22 business a little over 17 years. That's a hard thing to 23 swallow. 24 That's when an opportunity to work with the 25 Friona Industry program and the lines that they had 325 1 developed was presented to us. When that opportunity 2 arose, we were kind of leery. But at first, as we got to 3 know the operation, what it was and how it was set up, it 4 has been a life-changing experience for us. It turned our 5 operation around 360 degrees and made us profitable. We 6 can actually look and think about growth again at this 7 point. 8 My hat goes off to the people who designed the 9 alliance they have. These people have been designing one 10 year, two years. They've been working on this project for 11 13-plus years. Somebody had a vision. Somebody took the 12 time and the effort to make that vision come to reality. 13 When they did that, they started out with the customer. 14 They wanted to find out what the customer wanted. And 15 that's what we all here in this room need to do. 16 Because if we don't have the customer, we 17 don't have anything for anybody to sell on the market. 18 When they find out what the customer wants, they build a 19 program that everybody profits, all the way from the 20 customer all the way back down to the grower. The packer, 21 the feeder, everybody profits in this operation. And 22 that's the only operation we've ever been involved with. 23 There's been a lot of talk today about the 24 young people not having an opportunity. There's 25 opportunity out there for young people. You've got to be 326 1 willing to change, you've got to be looking for 2 opportunity, and you've got to be aggressive if you're 3 going to stay afloat in this type of environment and 4 industry. Thank you. 5 MR. OLDFORD (phonetic): My name is Ed Oldford 6 from Milford Colony, Montana. Several 232 families make 7 up the Milford Colony, and farming and hogs are our way of 8 life. We recently built a 700-sow growth to market going 9 into Yosemite Meats in California for a niche market. 10 With this GIPSA rule, the contract would not have been 11 read. We tried to get a loan from Farm Credit. Without 12 the contract, we couldn't have built the barn. So, 13 please, the GIPSA rule will hurt Montana. Thank you. 14 MS. SUSHER (phonetic): Good afternoon. And 15 thank you for coming all the way to Colorado. My name is 16 Margaret Susher. I am a rancher out there in the 17 northeast corner of Colorado where the sand hills come out 18 of Nebraska over the Oglala aquifer. 19 My dad raised six girls on that ranch with a 20 500-cow operation. I've been trying to take it over and 21 there no way I could raise my risk kids without outside 22 income. The work out there to small family farms and 23 ranchers is the off-farm income we have to get -- often 24 two and three jobs -- and you your kids to work as soon as 25 you can. 327 1 Many years ago, I co-chaired the committee -- 2 the Small Farm Advisory Committee under Secretary 3 Glickman. Prior to that, there was a Small Farm 4 Commission report. You have within your arsenal the facts 5 and the documentation to do what you need to do. We just 6 have the political will anymore that we lack to enforce 7 laws. 8 Volume-based buying and selling exist and it 9 existed for decades. I've been a bookkeeper in about 10 every kind of business in rural America in my town there 11 is. When a big operator gets to buy his seed or his input 12 cheaper than me because he's buying on such a large scale, 13 and at the same time he gets to sell because he's selling 14 at a large scale, that's something I could never do 15 because I won't be as big as he is. Whether it's corn, 16 whether it's cattle, whether it's pork; whatever. 17 I started my activism fighting pork and hog 18 farms that located near my ranch. The environmental costs 19 they displaced on my rural community because environmental 20 laws -- they were often zipped up or they're not in 21 force -- displaces on the taxpayer and the neighbor. If 22 we would start enforcing laws that are on the books and we 23 would find people with backbone to enforce those laws, use 24 the tools that people like me bring forth. 25 I drove to Grand Island, Nebraska, 4 1/2 hours 328 1 for five minutes to counteract the beef packer who said, 2 I've got to have that feedlot in Greeley, Colorado, to 3 supply my chain; I don't want to ship the cows three hours 4 a way; that's an extra cost. He has a big feedlot in Yuma 5 County. Had I not testified, they wouldn't have known 6 that. Why is the price difference in his ownership of his 7 cattle in Yuma County any different than if he went and 8 bought it from the small independent feedlots that are now 9 going out of business or they've got to have contracts in 10 place to ship their cattle. 11 I used to feed one or two pens a year with my 12 dad. We would get three, four, five bids every little bit 13 constantly. Now we get one bid one day a week for 15 14 minutes. Take it or leave it. That is market control, 15 people. And you've heard it and you've heard it and 16 you've heard it. We don't want special treatment. We 17 want to operate in the cash market which sets the basis 18 for those other people. It doesn't take rocket science to 19 figure it out. 20 I've testified on the Hill. I've testified in 21 the state. I've traveled all over, often at my own 22 expense. And I finally got a job to be an environmental 23 consultant. I will shoot from within because I'm not 24 going to sit at the people -- at the same table as those 25 people who are displacing their costs on me when I am the 329 1 best steward of my land. And those controlled, confined 2 operations are displacing their costs on me. Thank you 3 for your time. 4 MR. KLOUCEK: Good evening. Frank Kloucek, 5 senator from South Dakota. My best to you. I bring you a 6 greeting. I'm asking you to be like Teddy Roosevelt who 7 speaks softly and carries a big stick. And you have the 8 power to do that by adopting these GIPSA rules, 9 strengthening the mandatory price reporting and banning 10 packer ownership. It needs to happen. The people here 11 today overwhelmingly supported the GIPSA rules. 12 The sad thing is -- there's a gentleman named 13 Jerry Litton, and he's a congressman from Missouri. He 14 said, Happy are those who dream dreams and pay the price 15 for making them come true. And many of these people here 16 today have paid that price, either through discriminatory 17 pricing, contract growers, or just on the open market. 18 Our families experienced it. We were told, 19 Sell your sows for $0.07 a pound or we will not have a bid 20 on them tomorrow; we will take them off your hands. 21 That's exactly what they did. Chicken growers -- 22 contracts were offered to my family. Three -- three years 23 later, the people that took those contracts were broke. 24 And then the gentleman that spoke earlier with 25 the Murphy contract, I could write a book about that. 330 1 There are people that have done it, but it's a survival 2 mode with the Murphy contracts. And Fred did a tremendous 3 job, but so many of my friends have gone broke under them 4 same contracts. Iowa, the attorney general had a whole 5 page devoted to the contracts and what to watch out for 6 such as the ledger contracts. So they've weeded us out, 7 and they get the most efficient, and they get them to work 8 for peanuts. And we're losing rural America as a result. 9 I ask you to be bold. Adopt the GIPSA rules. 10 There's an exception when there's some people complaining 11 about it. Allow them to own the packing plant as a 12 cooperative -- not as a corporate entity, but as a 13 cooperative, and then sell the marketing through the 14 cooperative thing. Use that as an exception, as a 15 possible idea for your allowing some of these rules to be 16 molded to make them work. 17 This is the first time since Teddy Roosevelt 18 was in that we have a chance to do something that goes 19 beyond what we've seen here today. And you gentlemen and 20 ladies have that opportunity. And I hope that we can make 21 this not just for our farmers, but for our consumers, for 22 the packers, and for the people that live in our great 23 country. Thank you very much. 24 MR. NOLAN: My name is Jack Nolan. I ranch 25 with my wife and my two sons and their wives in southeast 331 1 Montana on land that was homesteaded by my 2 great-grandparents. 3 I want to thank you, Mr. Butler, for trying to 4 address a problem that we all are aware of. I can't 5 imagine the amount of people that are here that are 6 apparently satisfied to carry on this -- the decline that 7 we've all acknowledged. I salute you for trying to do 8 something about that. I believe that if people are truly 9 offering a superior product, they should be first in line 10 to demand an open and fair market. Why are they not? 11 I got -- that's a question that I think we have to answer. 12 Exports -- we've heard a little about exports 13 off and on today. Why are we even talking about it? We 14 live in the greatest consuming market in the world. 15 Exports, it's great. If we got all our people fed and we 16 have leftover food, then we could export. Our calves -- 17 today we hear some people talking about a premium -- 18 they've got a premium. Maybe they got $1.40 for some 19 calves. Our calves should be bringing in $2 to $3 a pound 20 if we're keeping up with the rest of society, and we 21 wouldn't be sitting here crowing about a $0.10 premium. 22 I guess one other thing was touched on today. 23 What could we do about retaining our young people in our 24 communities in rural America? And the question was: 25 Could the government do more? I think the government's 332 1 doing a lot in that regard already. It has to be 2 attractive for the young people to be here. If it's a 3 vibrant industry, they're going to be here and they're 4 going to be happy to be here. Thank you. 5 MR. FERRELL: We will now take a ten-minute 6 break and then reassemble in ten minutes. Thank you. 7 (A recess was taken from 6:13 p.m. until 8 6:27 p.m.) 9 MR. FERRELL: Well, it looks like it kind of 10 cleared out a little bit. I think what I'll just say here 11 is we can -- if there's a few folks here that still 12 haven't commented, go ahead and come to the mike up front. 13 If you do, I ask that you go to the microphone closest to 14 the court reporter so she can hear better. If not, I 15 would just -- do we just kind of move forward with 16 closing -- with some closing remarks here? 17 Well, I guess with that, I will just say I 18 want to -- just for the record, I want to thank all the 19 panelists and the people that came here today and provided 20 their comments and their input. I think -- you know, I 21 will say that it's been very beneficial and helpful to us. 22 And I thank Colorado State University for being so helpful 23 to us and you -- allowing us to use this facility and, you 24 know, doing whatever we asked to try to help accommodate 25 and to make this workshop successful. 333 1 I'd also to thank our sign language 2 interpreter and our court reporter for sticking with us 3 and doing all the hard work that they've done today. As 4 the Secretary stated earlier today, that any of the 5 comments that were made as a part of the Farm Bill GIPSA 6 rule will be made part of the rule comments. So if 7 there's any doubt or question about that, it will be part 8 of the record. And I just would like to state that our 9 last workshop will be held on December 8th, and it will be 10 the last and final workshop that we will work on. And I 11 will turn it over to DOJ if you have any last-minute 12 comments. 13 MR. TOBEY: I would reiterate what John has 14 said; thank everyone for coming here from long distances 15 and from nearby. You know, please continue to engage in 16 this dialogue with our agencies. And all of the material 17 that we've received today will eventually be put on the 18 Web site, both a video transcript and a printed 19 transcript. And, you know, thank you very much again, and 20 come to Washington in December. 21 MR. FERRELL: Thank you. 22 (The proceedings were concluded at 6:29 p.m., 23 on Friday, August 27, 2010.) 24 25 334 1 REPORTER'S CERTIFICATE 2 I, Wendy Evangelista, Registered Professional 3 Reporter and Notary Public in and for the State of 4 Colorado, do hereby certify that said proceedings were 5 taken in shorthand by me at the time and place hereinabove 6 set forth and was thereafter reduced to typewritten form 7 under my supervision. 8 I further certify that I am not related to, 9 employed by, nor counsel for any of the parties or 10 attorneys herein, nor otherwise interested in the event of 11 the within action. 12 My commission expires August 12, 2012; and I 13 have hereunto set my hand September 3, 2010. 14 15 ________________________________ 16 Registered Professional Reporter and 17 Notary Public 18 19 20 21 22 23 24 25