00001
 1   
 2   
 3                         WORKSHOP ON
 4          AGRICULTURE AND ANTITRUST ENFORCEMENT ISSUES
 5                  IN OUR 21ST CENTURY ECONOMY
 6   
 7   
 8   
 9                  WEDNESDAY, DECEMBER 8, 2010
 10  
 11  
 12  
 13               U.S. DEPARTMENT OF AGRICULTURE
 14                    JEFFERSON AUDITORIUM
 15               1400 INDEPENDENCE AVENUE, S.W.
 16                  WASHINGTON, D.C.  20250
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 18  
 19  
 20  
 21  
 22  
00002
 1                    P R O C E E D I N G S
 2             SECRETARY VILSACK:  Good morning, everyone. I
 3   certainly want to welcome everybody to the USDA for the
 4   fifth and final in a series of competition workshops
 5   held jointly by the USDA and the Department of Justice
 6   to explore the appropriate role for antitrust and
 7   regulatory enforcement in American agriculture.
 8             I want to welcome the panelists who I will
 9   introduce in a few minutes and my good friend, the
 10  Attorney General, who I will also introduce in just a
 11  second.
 12            In my travels across the country I've heard
 13  from producers who are concerned about the future of
 14  American agriculture.  In these workshops we've been
 15  looking at a wide range of issues regarding competition
 16  in agriculture and today we look at the dynamics and
 17  the interplay between each segment of the food
 18  marketing chain, margins in the livestock, poultry and
 19  dairy industries, and issues in the retailing sector.
 20            The Obama Administration is committed to
 21  being the most open and transparent in history, which
 22  is why we look forward to this dialogue with a diverse
00003
 1   group of stakeholders regarding the agricultural
 2   marketplace. I want to welcome all of you to this
 3   workshop and to this hearing.
 4             Today we intend to focus on a number of
 5   issues.  We will explore and better understand how
 6   livestock and other agricultural commodities move
 7   through out system and the dynamics and challenges
 8   within each segment of the food marketing chain.  And
 9   we hope to explore margins in the livestock, poultry
 10  and dairy industries.  And, lastly, we'll focus on the
 11  potential implications of consolidation in our
 12  retailing sector.
 13            I want to say these workshops have been very
 14  beneficial to me and to USDA in helping us understand
 15  the issues that are of most concern and deserve close
 16  attention.  I acknowledge that the issue of
 17  agricultural competition is extremely complex.  The
 18  ever-changing nature of the sector suggests the need to
 19  ask questions and shed light on issues that frankly
 20  have not seen much light in many years.  President
 21  Obama has provided a clear direction; the government
 22  should be open and transparent, which is what these
00004
 1   workshops are designed to do and be.
 2             We want to, and we have had a public dialogue
 3   on these issues.  We've held workshops across the
 4   country to explore the appropriate role of antitrust
 5   and regulatory enforcement.  In March we had a workshop
 6   on seed concentration and hog market issues in Ankeny,
 7   Iowa.  In May we traveled to Normal, Alabama to discuss
 8   poultry issues. In June we discussed dairy issues in
 9   Madison, Wisconsin.  And in August we explored
 10  competition in livestock markets in Fort Collins,
 11  Colorado.
 12            In these workshops in my travels across the
 13  country, a number of themes have emerged.  Producers
 14  want to have or maintain marketing options.  They want
 15  transparency.  They want access to markets.  They have
 16  fewer buyers with whom to do business and they struggle
 17  with debt and face challenges accessing capital.  And,
 18  lastly, they just want to be treated fairly and with
 19  respect.
 20            Most importantly of all, they care about the
 21  future of agriculture and want it to succeed, which is
 22  why we've seen such an overwhelming response and
00005
 1   attendance at these workshops.
 2             I for one am optimistic about the future of
 3   agriculture and I think our best days are indeed ahead.
 4   For this to happen, we simply need to ask the right
 5   questions and not ignore warning signs.  And there are
 6   warning signs that we should consider. America's mid-
 7   sized farms are barely profitable, and not always
 8   profitable enough to sustain a family.
 9             At the Iowa workshop, Jim Foster, a pork
 10  producer from Missouri summarized his concerns as
 11  follows:  He said, "My concern is not for me, but for
 12  my kids and grandkids, make sure they can pursue the
 13  American Dream as my wife and I have."
 14            He compared what he saw driving through the
 15  rural roads of Iowa and Missouri in the 1960s to today.
 16  "I saw home-built hog shelters and lots of rolling
 17  hills with sows with new litters.  I saw barns across
 18  Iowa with concrete pads out front with 50 to 100 calves
 19  on feed.  I saw veterinarians at work with their catch
 20  chute, feed trucks delivering feed, implement dealers
 21  delivering a new manure spreader or feed grinder."
 22  Today, he sees:  "Very little human activity around
00006
 1   what was once a thriving economic model."
 2             We all realize that agriculture can't be
 3   exactly like it was 40 years ago, but the warning signs
 4   shouldn't be ignored either.  In the past 40 years, the
 5   United States has lost 800,000 farmers and ranchers,
 6   and our remaining farmers are aging.   From 2002 to
 7   2007, the average age of a farmer increased from 55 to
 8   57 years.  And the number of farmers age 75 years or
 9   older increased by 20 percent over the same period,
 10  while the number of operators under 25-years-of-age,
 11  decreased by 30 percent. More than half of our rural
 12  counties, based on the 2000 census, lost population.
 13            At today's workshop, we will ask more
 14  questions.  We'll explore more into margins and why the
 15  retail value to producers is shifting away from them
 16  and what that all means.  In 2009, a hog producer
 17  received 24.5 percent of the retail value of a hog. And
 18  it was over double this percentage, nearly 50 percent,
 19  in 1980.  Last year, 13.6 percent went to the packer
 20  and 61.9 percent went to the retailer.
 21            The cattle producer gets 42-1/2 percent of
 22  the retail value of a steer in 2009, which compares to
00007
 1   62 percent in 1980.  Last year 8-1/2 percent went to
 2   the packer and 49 percent went to the retailer.
 3             Today we'll also explore what effects, if
 4   any, retail consolidation has had on the marketplace
 5   across all marketing sectors.  And there are warning
 6   signs to pay attention to there as well.  The four
 7   largest retailers account for 37 percent of U.S.
 8   grocery store sales in 2009, compared to 34 percent in
 9   2004, 28 percent in 1999 and 17 percent in 1994.  And
 10  we know that concentration can be much higher in
 11  certain regions of the country.
 12            There can usually be an explanation as some
 13  to aspects of these complex issues, but we must also
 14  ask if everything is fine, why aren't we seeing more
 15  young people getting in agriculture and why are people
 16  leaving our rural counties?
 17            At USDA, we take these warning signs very
 18  seriously, and have taken a number of steps to assist
 19  producers in rural communities.  The USDA and the
 20  Department of Justice have established the Agriculture
 21  Competition Joint Task Force to explore new
 22  opportunities for harnessing each other's expertise and
00008
 1   improving enforcement of laws designed to produce and
 2   protect producers.
 3             In particular, USDA and the Department of
 4   Justice have established a new process to handle
 5   complaints for unfair and deceptive practice in the
 6   poultry industry to more effectively and timely resolve
 7   cases, something we feel will further facilitate
 8   addressing concerns we heard at the Alabama workshop.
 9             Enforcement of the Packers and Stockyards Act
 10  was mentioned many times at the workshops.  And in the
 11  past few years, the President has increased GIPSA's
 12  budget to improve enforcement over unfair and deceptive
 13  practices in the marketplace.   And the Department is
 14  hiring new attorneys and field investigators to handle
 15  complex competition investigations and other
 16  violations.
 17            The USDA's Grain Inspection, Packers and
 18  Stockyards Administration (GIPSA) I know, proposed a
 19  rule last summer for fairness in the marketing of
 20  livestock and poultry.  We know it has sparked
 21  considerable interest and discussion.  And now we have
 22  the public comments, some of which we heard at the
00009
 1   Colorado workshop.  We will begin in earnest and in
 2   good faith to process these comments and draft a rule
 3   that we believe will be workable, feasible and
 4   commonsense.
 5             In January, we put into effect a final rule
 6   to establish basic fairness for poultry contracts, and
 7   in particular, to ensure that producers no longer have
 8   contracts arbitrarily cancelled without notice.  This
 9   resolved a problem that had concerned poultry farmers
 10  for many years and was frequently mentioned during our
 11  Alabama workshop.
 12            I am looking forward to the findings and
 13  recommendations of the Dairy Industry Advisory
 14  Committee that I appointed to review the issue of milk
 15  price volatility and dairy farmer profitability, issues
 16  that were very important to participants at the
 17  workshop in Wisconsin.  The full committee report will
 18  be delivered early next year.  In the meantime, we
 19  issued $270 million in payments under the Dairy
 20  Economic Loss Assistance Program, and $930 million
 21  under the Milk Income Loss Contract Program, while we
 22  acquired 114 million pounds of cheese.
00010
 1             USDA has worked hard in these tricky times to
 2   support agricultural producers of every size and type,
 3   and we're helping American producers by promoting
 4   exports abroad.  This year we will have a record year
 5   in ag exports; and by supporting domestic and local
 6   regional food systems.
 7             We're working to help producers with access
 8   to markets and rural communities with investments in
 9   rural broadband access.  We're promoting the use of
 10  agricultural products and waste for use in the
 11  production of renewable energy in communities across
 12  the country.  And we're helping farmers and landowners
 13  capitalize on new income opportunities from ecosystem
 14  markets that reward them for taking care of the
 15  environment.
 16            So you can see, we have been busy in
 17  addressing the challenges that exist in agriculture,
 18  and recognize that some would like us to do more, and
 19  some would like us to do less.  We want to focus on
 20  doing what is right, and these workshops will further
 21  inform our work that we do every day.
 22            It is our hope that the dialogue we've
00011
 1   started extends beyond this last workshop and continues
 2   around the kitchen tables, in coffee shops, at academic
 3   institutions all across the country.  The government
 4   may not have all the solutions to these problems, but
 5   together we can continue exploring ways to address the
 6   challenges that indeed exist.
 7             Again, I want to thank you for attending; I
 8   want to thank the panelists for their willingness to
 9   participate in this workshop.  All of the panelists and
 10  all who have attended these workshops are owed a debt
 11  of gratitude.  And I want to thank the institutions
 12  from across the country that were kind enough to allow
 13  us to use their facilities to hold these workshops.
 14            And now I'd like to turn the podium over to
 15  Attorney General Eric Holder for his comments.  I want
 16  to welcome him to the U.S. Department of Agriculture.
 17  Mr. Attorney General, you are welcome all the time at
 18  USDA.  I'm not sure, but you may be the first Attorney
 19  General in the history of the USDA to come to USDA to
 20  discuss issues of competition in this type of forum.
 21            And I want to acknowledge the impressive
 22  career that our Attorney General has.  He served in
00012
 1   public practice as a U.S. Attorney for the District of
 2   Columbia, as Associate Judge of the Superior Court of
 3   the District of Columbia, and as Deputy Attorney
 4   General.  He has worked to investigate and prosecute
 5   official corruption on the local, state and federal
 6   levels.  And he is fully invested in strong enforcement
 7   of our nation's antitrust laws to advance the interests
 8   of justice on behalf of the American people.
 9             And I would want to say publicly to the
 10  Attorney General, I want to thank him and his staff not
 11  only for their commitment to these workshops, but also
 12  for your willingness to work with us to try to resolve
 13  outstanding civil rights claims against this
 14  Department.
 15            So, ladies and gentlemen, please join me in
 16  welcoming our Attorney General, Mr. Eric Holder.
 17            ATTORNEY GENERAL HOLDER:  Thank you.
 18                  (Applause.)
 19            ATTORNEY GENERAL HOLDER:  Thank you.  Thank
 20  you, Mr. Secretary.  It's a pleasure to be here at the
 21  Department of Agriculture.  And I thank you all for
 22  joining us.
00013
 1             I know that many of you have traveled a great
 2   distance to be here today; probably you have left
 3   warmer climates to come to Washington, and I thank you
 4   for that, and the perspectives that you are bringing
 5   from the Mississippi Delta and South Dakota, from
 6   Connecticut, California and communities in between will
 7   be critical to today's discussion.
 8             Now, I'd really like to figure out a way in
 9   which I can get one of those hats.  Those -- you know,
 10  I've been -- this is the last time I'm going to have a
 11  chance -- I see these guys all the time with these
 12  really nice hats and those good t-shirts, so at the end
 13  of my remarks if I could meet with you all we could
 14  maybe discuss a way in which I could -- I'm from New
 15  York, I don't have a hat like that or a t-shirt.
 16            But, you all represent many different
 17  regions, areas of expertise and positions in the
 18  agriculture supply chain.  And you represent nearly
 19  every sector one of our nation's oldest and most
 20  critical industries.  Regardless of your vantage point,
 21  as we turn our attention to pricing margins at all
 22  levels of the agricultural industry including the
00014
 1   retail sector, I have really no doubt that this
 2   workshop, like the previous four that we have held this
 3   year, will provide important learning opportunities for
 4   all of us.
 5             Now, before we get started, I want to thank
 6   Secretary Vilsack and his team for hosting us and for
 7   their partnership in conducting this workshop series. I
 8   also want to recognize the outstanding efforts of
 9   Assistant Attorney General Christine Varney and the
 10  Justice Department's Antitrust Division.  At each
 11  workshop I have been impressed with the Division's work
 12  in making the vision of these conversations a reality.
 13  And now that we find ourselves at the final workshop,
 14  it is clear that their contributions are paying off.
 15            We've learned a tremendous amount from
 16  farmers and producers and from industry experts as well
 17  as experts, and I have every expectation that the
 18  fruits of this workshop series will benefit the
 19  agriculture industry for years to come.
 20            Now, over the last nine months, we have
 21  discussed everything as the Secretary indicated from
 22  vertical integration and dairy prices to the
00015
 1   implications of the Packers and Stockyards Act and
 2   leading poultry industry challenges.
 3             Secretary Vilsack and I have had the chance
 4   to hear directly from hard-working farmers and
 5   producers, business professionals, economists, as well
 6   as elected officials. And the impact that these
 7   conversations has had on our thinking and on the
 8   enforcement strategies that we are in the process of
 9   developing has been, I think, profound.
 10            Of course, we know that antitrust enforcement
 11  actions will not solve every problem, we know that.
 12  But, because of the insights that you have provided
 13  when the circumstances warrant legal intervention, I
 14  believe that we will be better prepared to take the
 15  steps necessary to ensure a fair and competitive
 16  agricultural marketplace, both for producers as well as
 17  consumers. Now, what's been clear throughout this
 18  workshop series and in the thousands of public comments
 19  that we have received over the past year, and there
 20  have been thousands, is that America's farmers and
 21  producers work extremely hard.  And they want to keep
 22  working hard, and they're not asking a handout. What
00016
 1   they want is a level playing field, nothing more and
 2   nothing less.
 3             Now, that means that they want market
 4   transparency, they want market access and they want
 5   market fairness.  And in my view, in Secretary
 6   Vilsack's view and in President Obama's view, that's
 7   exactly what they deserve.  Vigorous and appropriate
 8   enforcement is an essential component of our commitment
 9   to ensuring market fairness and robust competition.
 10            Now, in addition to this workshop series, our
 11  commitment has resulted in a joint task force between
 12  the Departments of Justice and Agriculture that is
 13  focusing on agriculture markets and industry issues,
 14  and it has resulted in a simple and accessible online
 15  submission process for reporting concerns and
 16  complaints.  That process is outlined on the Department
 17  of Justice's website and I urge all of you to utilize
 18  it to keep us informed of any complaints that you may
 19  have about unfair or deceptive practices.
 20            I also want to be clear about something.  The
 21  critical channel of communication that we have opened
 22  this past year, as the Secretary has indicated, will
00017
 1   remain open and the Departments of Justice and
 2   Agriculture will continue working in close coordination
 3   to address your concerns and to ensure fairness and
 4   opportunity for America's farmers, producers and
 5   agriculture industry.
 6             I'm really proud that collaboration between
 7   our two agencies has never been stronger and that this
 8   new level of cooperation is driving meaningful,
 9   measurable progress.  Just last week, now our joint
 10  efforts to resolve the long-running discrimination
 11  lawsuits reached a new level with the house passage of
 12  the Claims Settlement Act.  This legislation
 13  represents, I think, an historic step in ensuring that
 14  farmers who faced discrimination by their government
 15  finally received the justice that they deserve.  It
 16  also plants the seeds for a transformed relationship
 17  between the federal government and the many Americans
 18  who rely on a fair and effective claims process.
 19            Now, while I'm proud of this and all that has
 20  been achieved this year, I recognize that we still have
 21  further to go.  After workshops on seed, poultry, dairy
 22  and livestock issues, today we turn our attention to a
00018
 1   matter that really cuts across all facets of the
 2   agricultural industry: pricing margins.
 3             Now, I understand that this issue like many
 4   of the others that we have encountered, is nuanced;
 5   that it is not black or white.  I realize that when
 6   farmers don't receive their fair share, it can pose a
 7   serious threat to industry sustainability.  And to
 8   ensure a fair and competitive agricultural marketplace
 9   for farmers, producers and consumers alike, I know that
 10  pricing margins must be more fully understood.
 11            So I really look forward to a candid,
 12  informative conversation today and to further
 13  discussions in the weeks and in the months ahead. These
 14  workshops have marked an important, and I think,
 15  unprecedented chapter in public, private collaboration.
 16  And although this is the last workshop, it is not the
 17  final chapter.  As our conversations carry forward, I
 18  expect that our enforcement efforts will continue to be
 19  sharpened and will continue to be strengthened.  And
 20  I'm confident that our nation will remain a great place
 21  to do business.
 22            So I thank you all once again for your
00019
 1   participation and for your commitment to the goals that
 2   we share: justice, fairness and opportunity for all.
 3             Thank you.
 4             SECRETARY VILSACK:  Thank you.
 5                   (Applause.)
 6             SECRETARY VILSACK:  General, thank you very
 7   much.
 8             And the process that we have followed in
 9   these workshops is to open the workshops with remarks
 10  and follow it with a panel discussion.  And I want to
 11  take this opportunity to introduce some of the
 12  panelists.
 13            But before I do, I want to acknowledge and
 14  second the comments of the Attorney General concerning
 15  Christine Varney, the Assistant Attorney General for
 16  the Antitrust Division.  She has been passionate about
 17  these issues.  She has been at every workshop and fully
 18  engaged in every workshop and has been working with our
 19  team to better that communication that the Attorney
 20  General talked about.  So, Christine, thank you for
 21  being here.
 22            Just to give you a little of her background,
00020
 1   she's held leadership positions in both the public and
 2   private sectors.  From 1998 to 2009, Christine Varney
 3   was a partner at Hogan & Hartson, LLP in Washington,
 4   D.C., where she served in a dual capacity as a member
 5   of the firm's Antitrust Practice Group and head of the
 6   Internet Practice Group.
 7             From 1994 to 1997, she served as a Federal
 8   Trade Commissioner at the Federal Trade Commission and
 9   was a leading official on a wide variety of internet
 10  and competition issues.
 11            Prior to her service in the Federal Trade
 12  Commission, she served as an Assistant to the President
 13  and Secretary to the Cabinet during the Clinton
 14  Administration.
 15            So, General, thank you for being here.
 16            And now the panelists.  And we again want to
 17  thank each and every one of these individuals for
 18  taking time to be involved.  I'm going to do this in
 19  alphabetical order.
 20            Ben, we're going to start with you.  Ben
 21  Burkett is a farmer, and he's farmed land in
 22  Mississippi; his family has for 121 years.  On what
00021
 1   once was a cotton farm he now grows 16 varieties of
 2   vegetables and organic herbs for farmer's markets and
 3   local cooperatives.  He's the Director of the
 4   Mississippi Association of Cooperatives, an arm of the
 5   Federation of Southern Cooperatives Land Assistance
 6   Fund.  He's also President of the National Farm Family
 7   Coalition.
 8             Sitting next to Ben is Barry Carpenter. Barry
 9   Carpenter is the CEO of the National Meat Association,
 10  assuming this position in 2007, following a 37-year
 11  career here at the USDA.  During his tenure at NMA,
 12  Barry has actively represented the meat industry on an
 13  array of key issues ranging from food safety
 14  initiatives to immigration reform.  He has been heavily
 15  involved on export issues, especially working with the
 16  USDA and the USTR to support negotiations including our
 17  Korean Free -- Korea Free Trade Agreement to open
 18  markets for U.S. beef and pork.
 19            So, Barry, welcome.
 20            Sitting next to Barry, is Erik Lieberman.
 21  Erik is a regulatory counsel for the Food Marketing
 22  Institute.  Previously he served as the Majority
00022
 1   Regulatory Counsel for the House Small Business
 2   Committee.  From 2004 to 2007, Erik was the Director of
 3   Government Affairs at the National Grocer's
 4   Association.  Prior to that, he served as a legislative
 5   assistant to then-U.S. Senator Bob Graham.
 6             Sitting next to me on my left is Vaughn
 7   Meyer. Vaughn is a third-generation beef producer from
 8   northwestern South Dakota managing a purebred angus and
 9   red angus cattle operation diversified by dry land
 10  farming operation with his wife and son.  The ranch was
 11  homesteaded in 1909 by Vaughn's grandfather and
 12  purebred livestock was added in 1955 by his father.
 13  Commissioned as a 2nd Lieutenant in the Army Medical
 14  Corps, he's been involved in numerous state, local and
 15  national organizations including the South Dakota Stock
 16  Growers, R-CALF USA and U.S. Cattleman's Association.
 17            Next to Vaughn is Dan Vincent.  Dan is the
 18  Chief Executive Officer for Pacific Coast Producers, a
 19  grocer-owned cooperative founded in 1971, which is made
 20  up of 165 family farmers in the San Joaquin and
 21  Sacramento Valleys.  He has served as Vice President of
 22  the Private Brand Sales for Del-Monte Foods as well as
00023
 1   in the Corporate Agricultural Credit for the Bank of
 2   America.  He is affiliated with the National Council of
 3   Farmer Cooperatives, the Ag Council of California and
 4   is a Board member for Superior Farms.
 5             And sitting next to Dan is Chris Waldrop.
 6   Chris is the Director of the Food Policy Institute at
 7   the Consumer Federation of America, an association of
 8   nearly 300 nonprofit consumer organizations that seeks
 9   to advance the consumer interest through research,
 10  advocacy and education. Chris oversees the research,
 11  analysis, advocacy and media outreach for all food
 12  policy activities at the Institute.
 13            So we have a broad cross-section of folks.
 14  And the way this is going to operate, I'm going to open
 15  it up with a question, then I'm going to turn it to
 16  General Holder and then we'll sort of go back and
 17  forth.
 18            Just to give the audience just a sense of
 19  this, we know that consumer demand, and this is a
 20  question I'm going to pose to all of the panelists
 21  today, we know that consumer demand has changed over
 22  the years, and in some cases, consumers are spending a
00024
 1   significant amount of their food dollar away from home,
 2   in restaurants, they're purchasing more prepared meals
 3   at supermarkets and the retail value appears to be
 4   concentrated to the processing and retailing side.  And
 5   that may very well be a reflection of these changes.
 6             My question is:  Tell us a little bit from
 7   you perspective how consumer demand impacts decisions
 8   on food marketing?  And for those of you that work or
 9   represent retail, processing or distribution, can you
 10  walk us through how you ensure that that demand is
 11  being met appropriately?
 12            So let me start, Ben, if you don't mind, I'll
 13  start with you and we'll just go right down the line if
 14  that's okay.
 15            BEN BURKETT:  Thank you.  I'd like to say
 16  good morning to everyone, the Secretary and the
 17  Attorney General for allowing me the opportunity to be
 18  here to speak on behalf of Family Farmers.
 19            In my area, consumers really want to know
 20  where there food come from.  Consumers are really
 21  driving the "know your farmer" effort and to really
 22  realize that to buy fresh, to buy local is a supporter
00025
 1   of their local community.
 2             So what we tend to do is stay in contact with
 3   groceries and supermarkets and through the farmer's
 4   market where we will know that we are producing what
 5   they really want and the need of the consumer that
 6   local is the way to go.
 7             BARRY CARPENTER:  From the packing industry
 8   perspective, our customers are obviously retailers and
 9   food service companies.  Our feedback on consumer
 10  demand comes through them as they place their orders
 11  and they come to us to develop new products.  The
 12  message we hear loud and clear is that some things
 13  haven't changed; consumers still want a consistent
 14  quality product and they're looking for a product that
 15  has value.
 16            In addition to that, there seems to be more
 17  and more of an awareness of making sure you get what
 18  you're looking for in your products.   And that's being
 19  dealt with through branded products.  In a recent meat
 20  case study funded by the Beef Checkoff and Pork
 21  Checkoff, over two-thirds of the meat packages in the
 22  meat case were branded.  And those brands carry a
00026
 1   message and are there -- they tend to develop trust
 2   with the consumer.
 3             So consumers are clearly looking for
 4   credibility in the products that they're buying and
 5   they are what they say they are. So from a packer
 6   perspective, our focus is to be able to fill those
 7   brands day in and day out with a consistent high
 8   quality product.
 9             SECRETARY VILSACK:  Thank you.
 10            ERIK LIEBERMAN:  I just want to say it's an
 11  honor to participate in the panel this morning before I
 12  begin.
 13            Retailers meet demand through forecasting
 14  based on historic models; past performance is a key
 15  indicator.  Some retailers track daily demand.  Demand
 16  is met through this proper forecasting and working with
 17  suppliers.
 18            Factors considered in making decisions at the
 19  retail level include the demographics of the market,
 20  seasonality, time of month.  Folks tend to spend more
 21  money earlier in the month, you know, after they get
 22  paid.  And, of course, advertising drives demand.  So
00027
 1   you look at how consumers respond to advertisements in
 2   the past, maybe a feature on the front page of a flyer
 3   and then you forecast accordingly.
 4             VAUGHN MEYER:  Can you hear me out there?
 5             As a producer and representing producers, we
 6   noticed that there's been 20 percent increase in the
 7   last decade here of certified programs and branded
 8   programs and we realize that that's what the consumer
 9   is looking for.  But, overall, I would have to say that
 10  the producer out there is really having trouble
 11  understanding what the consumer wants because if you
 12  look at our cattle cycles from last year, we typically
 13  have been going through cattle cycles of 10 to 12
 14  years.  And these cattle cycles, you know, as consumer
 15  demand decreased, why then you have your cattle numbers
 16  following and decreasing and so on.  These cattle
 17  cycles are not there anymore.  In 1980, we witnessed --
 18  or the 1980s, excuse me, we witnessed eight years of
 19  cattle numbers of dispersions and the number lowers.
 20  And since 1996, we've been -- we've been on a
 21  liquidation phase in the cattle industry.  So I'm
 22  really not sure that producers know what they want to
00028
 1   do out there or where they should be on their -- part
 2   of it, there are several reasons.  There are the age of
 3   the producers is getting up there and we have imports
 4   coming in and taking that over.  But we do recognize
 5   that there is a 20 percent increase in the brand of
 6   products, but at the same time, it's tough to follow
 7   out there if you study the cattle cycles and that and
 8   our liquidation phase.
 9             DAN VINCENT:  Yeah, I also want to thank you
 10  for letting us be a part of this and for our 165 family
 11  farms I represent.
 12            Yeah, I will say echoing a couple of
 13  thoughts, the thing that's really changed I think in
 14  the last ten years and what I'm seeing in terms of
 15  marketing is, you know, how a consumer determines value
 16  I think has changed.  It used to be just price, now
 17  it's this combination of price, quality and food safety
 18  recently. We've seen that a lot in the last two years.
 19  So I think it's delivering that value.
 20            For our business it's a little different than
 21  the meat; we're a center store commodity, we're canned
 22  fruits and vegetables.  We've seen that value trend
00029
 1   move towards private brands which has actually helped
 2   our company quite a bit cause that's what we do,
 3   private label.  And that's been a major marketing trend
 4   for Center Store.
 5             I'd also echo what Erik said, that's pretty
 6   much the process we go through with our customers, is
 7   we set down an annual plan.  We're a seasonal packer so
 8   you can only do it once a year.  We use historical
 9   forecasting and forward forecasting, put that together
 10  and then work with them on a day-to-day, week-to-week
 11  basis as we go through the year.
 12            We have things, they're called bookings,
 13  they're really not contracts, they're basically just
 14  buying intentions and we have to stay competitive
 15  throughout the year.
 16            SECRETARY VILSACK:  Chris.
 17            CHRIS WALDROP:  I'm in a little different
 18  position here because I represent consumers as opposed
 19  to working to produce food for them.
 20            So I wanted to highlight just a couple quick
 21  things.  One, I wanted to pick up on something Ben
 22  said, is that consumers are becoming more and more
00030
 1   interested in where their food is coming from.  And
 2   it's echoed in the increase in the interest in local
 3   and sustainable food and organic food, but it's also --
 4   consumers want more information period about their
 5   food.
 6             Where it comes from is one issue, they also
 7   want to know that the food is nutritious, that the food
 8   is safe.  They want more information about what the
 9   ingredients are and what makes up the food, so it's --
 10  consumers really are looking for a lot more information
 11  about their food; certainly not less information these
 12  days.
 13            SECRETARY VILSACK:  General Holder.
 14            ATTORNEY GENERAL HOLDER:  Well, I think
 15  different parts of the agricultural industry,
 16  agriculture industry face diverse challenges today, and
 17  I think these challenges are likely to change as we
 18  move into the future.
 19            With respect to competition, each segment of
 20  the agriculture industry may have different
 21  perspectives on how we can ensure that there's a fair
 22  and competitive marketplace.
00031
 1             So I guess the question that I have for
 2   everybody is what do you think the major differences
 3   will be in the industry from your perspective in ten
 4   years?  I'm looking ten years out.  What do you think
 5   the major differences will be from where we are now?
 6             And then a follow onto that is what is needed
 7   from your perspective to ensure competitive and open
 8   agricultural economy in the future?
 9             So differences in the next ten years and what
 10  do you think we need to do to ensure a competitive and
 11  open agricultural economy in that time period?
 12            Maybe we can start with Ben again.
 13            BEN BURKETT:  Again, I think the -- the
 14  concentration of the marketplace is really playing an
 15  impact on producers where you have only maybe four
 16  major chains controlling the majority of the marketing
 17  of fresh produce and vegetables.
 18            I think in the future, in the next ten years
 19  that really needs to change and open up and be more
 20  transparent where small farmers or a cooperative can be
 21  a major player in the marketing and receive a higher
 22  margin of the profits back to farmers.
00032
 1             Under the current structure we have now where
 2   the concentration in the poultry industry and the dairy
 3   industry and especially in my industry of growing
 4   vegetables with only four or five major buyers, I think
 5   that should be -- I don't know how you can change it,
 6   but in the future definitely it needs to be
 7   restructured where it could be opened up to different
 8   avenues of marketing instead of the tradition that
 9   we've been going, the road we've been going down for
 10  the last fifteen or twenty years.  It needs to be
 11  reorganized from top to bottom.
 12            ASSISTANT ATTORNEY GENERAL VARNEY:  Can I ask
 13  a follow up to that?
 14            ATTORNEY GENERAL HOLDER:  Yes.
 15            ASSISTANT ATTORNEY GENERAL VARNEY:  Ben, do
 16  you -- is consumer demand going to drive part of that
 17  if consumers are, you know, not all of us have a --
 18            BEN BURKETT:  Most certain is -- what's
 19  stated is consumers are very aware -- want to know
 20  where there food come from, who produced it, the
 21  quality of it, the safety of it.
 22            And I think us as family farmers in the
00033
 1   middle of those are, not necessarily a huge operation
 2   but those truly family farming operation is able to
 3   field that for them and farmers -- consumers would know
 4   that tomato and in my case, okra, I grew it.
 5             BARRY CARPENTER:  When we look at consumer
 6   demand and what differences we see in the future,
 7   clearly, where the meat and livestock industry are
 8   going to have to go is to focus on those needs.  And
 9   when you look at where they're going, certainly I
 10  mentioned earlier, the branded products is two-thirds
 11  of the marketplace.  That's likely to continue to grow.
 12  And when I talk about branded products, we're bringing
 13  in everything from sustainability to locally produced
 14  which was discussed earlier, some of the specialty
 15  programs for natural and organic, those are all -- are
 16  all going to continue and probably grow in the
 17  marketplace when we look at demand.
 18            So what that does to the industry is that
 19  really dictates the need for relationships from the
 20  consumer back to the producer.  And in order to fill
 21  those orders for natural or organic or whatever it
 22  might be, you need to have a relationship from the
00034
 1   production sector through the packer to the marketplace
 2   so that you can have a consistent steady supply of
 3   those products.  Consumers are going to continue to
 4   demand that not only they have those options, but also
 5   that they can consistently get those.
 6             Now, as far as things that need to happen to
 7   get that done, you really are going to have to look to
 8   these long-term relationships to be able to create some
 9   value.  The producers are creating value in livestock
 10  by going to the extra cost of grass feeding, for
 11  example.  They need to know that they're going to have
 12  a mechanism for capturing that value that they added as
 13  it moves through the marketing chain.
 14            And so, I think you're going to -- to see
 15  success in this industry for all parties, and that's
 16  what has to happen for the industry to continue. You're
 17  going to have to see more and more communications up
 18  and down the marketing chain and more cooperation to
 19  really target the needs of the consumer, because that's
 20  ultimately what the whole industry is all about.
 21            SECRETARY VILSACK:  Erik.
 22            ERIK LIEBERMAN:  Well, I think when you look
00035
 1   into the future in the retailing side, you're going to
 2   see continued diversification of the marketplace.  And
 3   we're seeing that already right now.  It's really
 4   amazing how the market has changed.  Thirty years ago,
 5   folks had to buy most of their groceries at a
 6   conventional supermarket.  But you look at the
 7   marketplace today it's so much more diverse.  There are
 8   so many more retail channels where you can purchase
 9   groceries.  We've got, of course, the conventional
 10  supermarkets, but we have super centers now.  We have
 11  warehouse club stores.  We have convenience stores,
 12  chain drugstores, natural food stores and Dollar
 13  stores.
 14            So folks are going to more retail channels
 15  Now and this has resulted in very intense competition.
 16  So we're talking about margins that are a penny a
 17  dollar.  And I think in the future, we're going to see
 18  continued diversification, it's going to mean even more
 19  competition, lower prices for consumers.
 20            You know, in the 1940s, the American family
 21  spent about 19 percent of their income on food eaten at
 22  home.  Today that's 5.5 percent.  That's raised quality
00036
 1   of life; this increased competition is helping American
 2   consumers and I think it will continue in the future.
 3             ATTORNEY GENERAL HOLDER:  Okay.  Vaughn.
 4             VAUGHN MEYER:  Well, I'll agree with a lot of
 5   that that was just said.  What we see, sitting on the
 6   Angus Board, we see an increase in a lot of demand for
 7   niche products, the natural.  There's a group out there
 8   that want the all-natural.  Now, we don't see these
 9   percentages going any one way.  You've always got your
 10  diversification.  You've got this group that wants that
 11  and that.  So I believe that in the next ten years we
 12  will probably see a lot of that.
 13            As far as communication at all levels coming
 14  back down from the consumer to the producer, we
 15  definitely need that.  But the main thing on
 16  communication from that period from the standpoint for
 17  producers is that we have to be there.  It's just a
 18  struggle to be there in ten years for producers is
 19  going to be quite a -- quite a feat.  You know, at the
 20  rate we're losing 1,000 producers a month, that's
 21  alarming.
 22            And, you know, so we're ready to work, we're
00037
 1   ready to listen, but we've got to be there first on the
 2   thing.  We've got to have fairness in the markets and
 3   we've got to have parity for our product if we're going
 4   to be there is the main problem we have.
 5             When you look at the consumer price index
 6   this last year went from up on all food products of 1.4
 7   percent and we out there as producers have a lot of
 8   fixed costs and that.  Well, our fuel -- all fuels went
 9   up 5.4 percent, gasoline went up 9.9 percent.  Diesel
 10  fuel, which is a big item on farm and ranches, went up
 11  14 percent.  That's nine times over what we increased
 12  in food.
 13            So our struggle as far as producers for the
 14  next ten years is just going to be trying to be there
 15  so that we can produce those foods for the consumer.
 16            DAN VINCENT:  Well, I think what we see
 17  coming in the next ten years, we'll actually -- looking
 18  back to the last ten years, the trend we saw was
 19  consolidation as we've discussed.  Like for our
 20  company, ten years ago our top ten accounts in retail
 21  were 50 percent of our revenue.  Today, the top ten
 22  accounts are 90 percent of our revenue.  And in food
00038
 1   service it's even more concentrated; we have two
 2   accounts that make up 90 percent of our food service
 3   business.  And we pretty much sell every account in
 4   America.
 5             So, but I actually see that consolidation, at
 6   least the trends we're seeing now and the new customers
 7   we're talking to, leveling off and I think Erik's
 8   right, it's kind of spreading out a little to new
 9   players, limited assortment players, Dollar Stores.
 10  People like Trader Joe's, those kind of people, so it's
 11  -- I think that level of consolidation has pretty much
 12  peaked and now it's going to start fracturing a bit
 13  which I think is good for everybody.
 14            And I do think looking into the future, I
 15  think a lot of these current issues that are important
 16  to consumers like food safety, sustainability is a huge
 17  deal.  We -- we do sustainability all the way from farm
 18  all the way through the supply chain, and ethical
 19  practices are becoming a big issue now, audits.  I
 20  think those are going to continue.
 21            ATTORNEY GENERAL HOLDER:  Okay.  Chris.
 22            CHRIS WALDROP:  On a couple of things.  In
00039
 1   terms of consumer demand in the next ten years, I think
 2   there's going to be an increase in consumers wanting to
 3   eat healthy, wanting to have healthy, nutritious diets.
 4   That's going to manifest through increased fruits and
 5   vegetable purchases but then also increased demand for
 6   information about food and how nutritious it is.
 7             Convenience will, I think, continue to be a
 8   driver for consumers.  We all lead very busy lives, a
 9   lot of our households have two incomes, and that means
 10  that we, when it's time to cook dinner, we want
 11  something quick and easy.  And so that's going to I
 12  think continue.  We're certainly not getting any less
 13  busy.
 14            There's also, I think, as consumers become
 15  more educated over time, and incomes increase, there is
 16  increased demand for variety of foods and having a true
 17  variety that's available.
 18            I did want to kind of caution us in making
 19  broad statements about consumers.  I mean, while it may
 20  be true that consumers generally have more access to
 21  groceries in various retail outlets, that's not the
 22  case for all consumers.  If you look at low-income
00040
 1   consumers, for example, especially folks in inner
 2   cities, they do not have the same access to fruits and
 3   vegetables because of a lack of retail establishments
 4   there.
 5             And I know USDA is trying to make efforts to
 6   change some of that, but there's been a long time
 7   period that we've had where consumers, low income
 8   consumers in urban areas have not access to healthy
 9   fruits and vegetables and other healthy foods simply
 10  because they don't have access to retail -- retail
 11  outlets.
 12            SECRETARY VILSACK:  Chris, let me just add to
 13  that, that it's not just urban centers.  There are
 14  obviously areas in rural communities where you may be
 15  ten or twenty miles away from the nearest full-scale
 16  grocery store.
 17            CHRIS WALDROP:  Great.
 18            SECRETARY VILSACK:  So it is a -- it is an
 19  issue and it's one that we are trying to address at
 20  USDA.
 21            I want to sort of touch on something that
 22  Vaughn said just to give people a sense of this.  If we
00041
 1   went back to 1980 and we asked ourselves how many pork
 2   producers there were in the country, the answer would
 3   be roughly 667,000 pork producers.  Today there are
 4   67,000, so 90 percent of our pork producers are out of
 5   business.
 6             If we ask the same question about cattle
 7   producers, what we would find is there were about 1.6
 8   million in 1980; today there are about 975,000.
 9             In the dairy area if we just go back ten
 10  years and ask how many dairy producers were there,
 11  about 110,000, today there are about 65,000.
 12            So to reinforce Vaughn's concern about the
 13  fact that there is a reduced number, and if you look at
 14  the people that produce the bulk of our food, 85
 15  percent of our food, it's really about 200 to 300,000
 16  farmers.  And if you look at farmers generally, it's
 17  about 2.2 million farmers.  Less than 1 percent of our
 18  population and roughly one-tenth of 1 percent produce
 19  85 percent of our food.
 20            And so, and if you look at who's making money
 21  in farming and who's just barely making it, what you're
 22  going to find is 1.9 million of the 2.2 million farmers
00042
 1   in this country are either losing money or in one of
 2   the best years we've had in a long while where farm
 3   income is up 31 percent.  Those farmers in the middle
 4   will make about an average of $6,400, their farming
 5   operation.  That's not enough to support a family.
 6             So that's part of the challenge.  The folks
 7   who are producing the most are going to probably do
 8   pretty well financially this year, but the bulk of
 9   folks who farm may not, which is why we need off-farm
 10  income and rural development.
 11            So that raises the question I want to pose to
 12  Erik and Barry and Dan if you want to pipe in, please
 13  feel free to do so from your perspective.  And I'm just
 14  curious, in terms of the relationship, you talked about
 15  relationships, are you seeing the more specific
 16  requirements being demanded from grocery stores?
 17            And specifically, is there a difference
 18  between the large operations, the Wal-Marts, the
 19  Safeways and maybe smaller independent operations in
 20  terms of what they are demanding?
 21            BARRY CARPENTER:  I'll go first on that.
 22            The demands are very specific in most cases.
00043
 1   The relationships between the packer and the retailer
 2   and the food service are -- generally tend to be long-
 3   term relationships.  So what happens is the packer
 4   actually works with their customer to identify what
 5   their specific needs are, and even through R & D
 6   actually develop products that target the kinds of
 7   products they want to sell so they can maximize the
 8   value of that product.
 9             So what we see happening is we see this
 10  communications and this relationship becoming stronger
 11  and stronger between the packer, the processors and the
 12  food service retailers.
 13            Now, the critical part of that is, you can't
 14  satisfy those needs without those relationships back to
 15  the suppliers, because many of these attributes that
 16  are being demanded by the retailers in food service
 17  originate with the livestock.  So in order to -- for
 18  the packers to have a consistent supply of those
 19  products that are unique to those retailers, they have
 20  to have arrangements with those suppliers so that they
 21  know that day in and day out, they're going to be able
 22  to get a consistent supply of that product.
00044
 1             As far as the size of the customer, there's
 2   not much variation there.  They all have their niches
 3   and their needs and what kind of products they want to
 4   sell to the consumer, and they come to the packers and
 5   they target those.
 6             And one of the things that becomes very
 7   complex in the packing industry is that different
 8   packers have different customers, obviously, and they
 9   tend to be long-term customers, so the type of
 10  livestock that one packer needs to fill their orders
 11  may not match another.  So what one packer's willing to
 12  pay a premium for may just be a commodity price to
 13  another packer because it may not fit their mold.  So
 14  this connection from the product origin at the
 15  livestock to the ultimate consumer is very critical and
 16  the attributes that they're willing to pay for and
 17  insist on have to flow through that process.
 18            So I think it's a -- I think it has to be a
 19  very transparent process so that -- so that the message
 20  can go very quickly from the consumer back to the
 21  livestock producers so they can through genetics and
 22  management, they can target the needs of the
00045
 1   marketplace.
 2             ERIK LIEBERMAN:  Mr. Secretary, I think it
 3   varies, and when you look at our members, some of our
 4   smaller guys like the branded meat programs and they
 5   use it to meet the demands of their consumers.  Some of
 6   our -- some of our bigger guys have branded programs,
 7   others don't.  They -- it's not a priority for them.
 8             But retailers -- a number of retailers do
 9   have specifications for the meats they sell and they
 10  relate to breed, consistency, food safety, animal
 11  welfare, sustainability or something like tray size.
 12  And retailers pay premiums for these products and this
 13  has increased the quality of the meat that you're
 14  seeing in the store.  And also, combined out with a
 15  vigorous competition on price, it's helped to stem the
 16  decades long decline in meat consumption. Meat
 17  consumption declined from 1979 to 1998 by nearly 50
 18  percent, and that's stopped.  So, I think these --
 19  these value added branded programs have, to some
 20  extent, reinvigorated consumer interest in the meat
 21  case.  Our latest meat survey cites quality as the
 22  number one factor prompting increased meat purchases at
00046
 1   retail.  And, I think, some of these premium meat
 2   products are bringing more quality to the consumer and
 3   that's generating demand.
 4             SECRETARY VILSACK:  Dan, how about on the
 5   vegetable side?
 6             DAN VINCENT:  Yeah, I think your question is:
 7   Are the demands changing or growing, and I -- yeah,
 8   definitely.  You know, it used to be what's your price
 9   and that was it.   Those have definitely changed.
 10  They're asking for us to add a lot of value to the
 11  equation for the retailer or the food service
 12  distributor and ultimately the consumer.
 13            Probably the biggest one in the past ten
 14  years has been managing supply chain.  Before it was
 15  all picked up for our products west coast, now we are
 16  pretty much two days to market anywhere.  We have 28
 17  forward warehouses we manage and they expect us to
 18  manage those inventories and get them to market.  And
 19  that's why the relationships are important, because
 20  you're moving inventory all the time to keep in stock.
 21            A lot of these initiatives, we've talked
 22  about sustainability, ethical practice, those are
00047
 1   really hot items.  Food safety is the biggest demand
 2   that's been asked for.  Like at our plants, we had 45
 3   separate audits last year.  And these are customer
 4   audits, not FDA, state or federal.
 5             And the big initiative that I think we'll all
 6   see in the next couple of years, we're already there,
 7   are going to global food safety initiative standards
 8   for food safety.  And we're under SQF, Safe Quality
 9   Food Level III.  So I think you'll see everybody there
 10  pretty soon.
 11            ATTORNEY GENERAL HOLDER:  Chris, a question
 12  for you, and you touched on this, I guess, in your
 13  earlier remarks.  Consumer demands have changed and
 14  some would say they've changed because families operate
 15  under increasingly tight budgets.  Both parents work,
 16  you know, long hours and families need food that's
 17  quick and easy to prepare.  I know that's the way my
 18  household works.
 19            SECRETARY VILSACK:  And you're preparing the
 20  food?
 21            ATTORNEY GENERAL HOLDER:  And you have only
 22  sometimes one -- one person's preparing the food, and
00048
 1   that would not be me in my family.
 2             Has your organization done any studies or can
 3   you offer any perspective on how these -- these
 4   lifestyle changes have impacted consumers and changed
 5   consumer demands and do the options that we see on our
 6   store shelves dictate consumer choice?  Do you feel
 7   that consumers have more or less choice today than
 8   perhaps they did in the past?  And from that
 9   perspective, I mean, that's a good or bad state of
 10  affairs?
 11            And about prices, do you think that prices
 12  have stayed roughly the same over the years, have they
 13  increased, have they decreased?  And if you think they
 14  have increased, what do you think is leading to those
 15  higher prices?
 16            I've asked you a whole series of questions
 17  here, but I -- have at it.
 18            CHRIS WALDROP:  I'll try to hit them one by
 19  one.  I think the issue you bring up about consumers'
 20  busy lives and two-income households, I think a lot of
 21  that has led to consumer demand for convenience, for
 22  foods that are already prepared, sort of ready-to-eat
00049
 1   foods or partially ready-to-eat that consumers can take
 2   home, heat up and serve as quickly as possible.  And
 3   we've seen not only food companies, but also retailers
 4   offering more prepackaged foods, more ready-to-eat
 5   foods that are -- that are already, like, you can
 6   already -- you can go there and get a chicken, roasted
 7   chicken that's already ready-to-go; those types of
 8   things.
 9             On the issue of choice, I think there is more
 10  choice than we had decades ago, but part of that, I
 11  think, is probably the illusion of choice in that one
 12  company is owning many different brands and so
 13  consumers may be thinking there's a difference between
 14  a couple of different types of food, but it's all owned
 15  -- they're all owned by the same company because
 16  they're just different brands owned by one company. And
 17  consumers, as I said earlier, want more information
 18  about their food.  They don't necessarily have that
 19  type of information to make those sorts of -- sorts of
 20  informed decisions or just informed understanding of
 21  what's going on.
 22            And then on the price issue, I think prices
00050
 1   have gone up over the past, you know, decades.  The, I
 2   think, key issue though is how prices go up in relation
 3   to what the farmers -- the farmers get.  So if the
 4   farmers are getting additional money and then -- or let
 5   me start again.
 6             If supply goes down and prices go up, prices
 7   go up pretty quickly for consumers.  And consumers have
 8   to pay that price.  When supply increases, prices don't
 9   go down as quickly as they go up.  And sometimes they
 10  stay elevated for a certain period of time.  Now,
 11  there's a number of different -- maybe a number of
 12  different reasons for that, but that's something that
 13  consumers are having to deal with and having to pay
 14  for.  When those prices go up quickly, they have to pay
 15  for that and then it just often doesn't go down as
 16  rapidly.  And that, of course impacts low-income
 17  consumers to a greater degree because they spend more
 18  of their disposable income on food.
 19            ATTORNEY GENERAL HOLDER:  Now, we've talked
 20  about --
 21            ERIK LIEBERMAN:  I just need to -- I just
 22  wanted to address Chris' statement, the prices are
00051
 1   going up.  That's simply not borne out by the facts.
 2   When you look at USDA's data, the proportion of family
 3   income that is spent on food, in general, and food at
 4   home has complete plummeted since the 1940s.
 5             You know, at the turn of the century, we were
 6   paying 50 percent of our income, family income on food.
 7   Now it's 5.5 percent.  In the 1940s it was about 19
 8   percent.  So I just wanted to make a comment on that.
 9             Thank you.
 10            ATTORNEY GENERAL HOLDER:  Well, then that's
 11  interesting.  I mean, if we're paying a smaller
 12  percentage of our income for food, does that mean that
 13  the amount of income that we have has increased in
 14  relation to the prices that are charged or is it that
 15  prices have gone down?
 16            What's -- what do you think the variables
 17  are?
 18            ERIK LIEBERMAN:   Well, I mean, when you look
 19  at that statistic, that's the real cost of food to
 20  people.  So that's what it's saying.  And in the real
 21  cost there's no question that it is going down
 22  tremendously.  And that certainly raised the quality of
00052
 1   life for our country.  You know, even today in other
 2   industrialized nations such as in France and Spain,
 3   they're paying about 15 percent of their family income
 4   on food.
 5             ATTORNEY GENERAL HOLDER:  15?
 6             ERIK LIEBERMAN:  15.  You know, look at
 7   Russia and China, it's about 30 percent, Indonesia 50
 8   percent. So you can see how that really raises the
 9   quality of life in our nation.  And it's -- it's
 10  essential to consumers.  It's really benefited.
 11            SECRETARY VILSACK:  Erik, let's -- I mean, I
 12  want to make sure there's clarity on this point.
 13  There's a -- there's a difference between what we spend
 14  for food at home and what we spend for food totally.
 15            ERIK LIEBERMAN:  Right.
 16            SECRETARY VILSACK:  Because we obviously
 17  spend a lot of --
 18            ERIK LIEBERMAN:  Right.  And now we're
 19  spending more at restaurants.
 20            SECRETARY VILSACK:  Right.  So what is the
 21  percentage of what we spend on food in total?
 22            ERIK LIEBERMAN:  That has dropped -- in the
00053
 1   1940s it was about 20 percent on food total and now
 2   today, it's around 9 percent.  So it's dropped.
 3             SECRETARY VILSACK:  So it's around 9 percent.
 4             ERIK LIEBERMAN:  So it's dropped tremendously
 5   too.  But for food at home, like, purchasing at a
 6   supermarket, that's dropped at an even faster pace.
 7             ASSISTANT ATTORNEY GENERAL VARNEY:
 8   Secretary, can I ask a question there?
 9             Is there a component of that that's due to
 10  price fluctuation, because prices of some commodities
 11  have gone up obviously.
 12            SECRETARY VILSACK:  Right.
 13            ASSISTANT ATTORNEY GENERAL VARNEY:  And
 14  consumers tend to cut back, I think, when prices go up.
 15  I can remember growing up when milk would get expensive
 16  and, you know, we'd be cutting back on milk for a while
 17  or cutting back on meat for a while when meat went up.
 18  And so there must be a mix in the basket that also --
 19  because it does seem to me that some prices have gone
 20  up and down over time at the retail level.
 21            ERIK LIEBERMAN:  Yeah, certainly prices
 22  fluctuate at the retail level.  These are not -- you're
00054
 1   looking at each year, you know, it's on an annual
 2   basis, but they're including the staples.  You know,
 3   consumers are still going to buy milk, they're going to
 4   buy meat, they're going to buy produce.  I mean, we
 5   need this to sustain ourselves.
 6             So they have fluctuated but because the
 7   competition is so intense in our industry, and the
 8   margins are a penny on the dollar, that the prices that
 9   consumers are paying, the true cost of food for them
 10  have declined consistently over the past many, many
 11  decades.
 12            CHRIS WALDROP:  But, still, if I may, when
 13  prices do go up, they go up quicker than they come down
 14  and that's a burden on consumers or can be a burden.
 15            ERIK LIEBERMAN:  And that's also a phenomenon
 16  that's found in all industries too, price asymmetry.
 17  That's because the decisions that you have to make to
 18  lower prices take a longer time than they do to raise
 19  prices, cause you may have to get labor, you may have
 20  to expand production, expand stores.  Those are all --
 21  you're taking a bigger risk, that's the bottom line,
 22  when you cut prices.
00055
 1             And the Justice Department did a paper on
 2   this recently and they explained that phenomenon.
 3             SECRETARY VILSACK:  I'm curious, the word
 4   "relationship" has been used here frequently in the
 5   short time that we've -- that we've been visiting here.
 6             For the producers, I'm interested in your
 7   perception of that relationship, and for the -- and for
 8   the folks who are representing packers or the retail
 9   side, are these relationships, since they're such long-
 10  term, is it more difficult then for someone who wants
 11  to develop a relationship to be able to do that?  In
 12  other words, if you are -- if you have a relationship,
 13  a packer to a retailer, how does another retailer
 14  engage in an opportunity if the relationship is so
 15  strong and so long-term?
 16            Ben.  We'll just go right down the line.
 17            BEN BURKETT:  I'd like to speak from my
 18  producer side; it takes years to build a relationship
 19  and to become a vendor for Whole Foods or Safeway.  To
 20  get into that door, it takes several years.  And if a
 21  producer at my size, it takes a long time to develop
 22  that relationship.
00056
 1             I tend to just disagree that the variety of
 2   food in the supermarket is more.  I think it's even
 3   less.  It's just been repackaged.  You know, it's just
 4   been different branded.  If you go to the supermarket
 5   now, you was buying a pound of leaf lettuce, if you
 6   look at the bag, it says 12-ounces now or 8-ounces. But
 7   I think if we are to continue ten years or twenty years
 8   now, we want more farmers -- more of that retail dollar
 9   have to be returned to farmers.
 10            I know -- they generally state that the
 11  Kroger Supermarket buyers told me they operating off of
 12  two pennies.  I find that hard to believe.  But if
 13  there's anyway possible that we going to increase the
 14  number of farmers we have or even hold onto the one we
 15  have, definite, the margin should be reflect -- return
 16  to the farmer.  And that's the only way we going to
 17  increase the number of farmers or even maintain the
 18  ones we have, because what we are receiving as farmers
 19  is just too low to continue to operate.
 20            BARRY CARPENTER:  When we talk about
 21  relationships, I think they take lots of shapes and
 22  forms in the industry.  But clearly, as you try to
00057
 1   satisfy the need of a customer you build -- there's
 2   this trust that's built up and the -- and the product
 3   development associated with it is built up.  And it
 4   makes it very difficult for others to fit into that
 5   mix, especially between the packer and the retailer.
 6   But, certainly, the overriding factor is competition
 7   and ultimately price and the desire to keep the price
 8   as manageable as possible.
 9             On the other end of the equation, a
 10  relationship with the producers is somewhat different
 11  in the sense that producers, depending on the
 12  complexity of their product, if -- I'll use an example.
 13  If you're producing non-hormone treated cattle for
 14  export to Europe, that's a lifetime commitment to have.
 15  So you're looking at probably 20, 24 months of
 16  commitment on that animal before you can ever market
 17  it.  It's very unlikely that producers will get into
 18  that marketplace unless they know they have a
 19  commitment to buy that product so it can be marketed in
 20  a marketplace that will capture full value and be
 21  passed back.  So those kind of relationships become
 22  fairly firm where they really have to target very
00058
 1   specific attributes.
 2             In the case of lesser demand on the
 3   attributes maybe something like a certified Angus
 4   program or something where there's a larger supply. The
 5   relationship doesn't have to be -- is not going to be
 6   as firm but there still needs to be a relationship
 7   there that says you're going to be able to supply this
 8   product.  And if I supply you this product, I'm going
 9   to -- I'm going to get a premium for it, knowing that
 10  ultimately at the -- at the ultimate consumer there's
 11  going to be a premium paid for.  So there's the
 12  opportunity to pass that -- this on back through and
 13  everybody that added some of the value can capture some
 14  of that value in the process.
 15            So I think the relationship is critical, it's
 16  -- certainly there are opportunities given the cow herd
 17  size right now, especially the demand for livestock
 18  certainly is -- much exceeds the -- the supply side.
 19  Most of our packer members are not getting anywhere
 20  near full capacity, so there's certainly demand there.
 21  We know our export markets are -- have excess demand.
 22  So certainly the demand's there, so if the producer has
00059
 1   a product that fits the needs of the ultimate consumer
 2   and there's a packer that's servicing that consumer
 3   they're all welcome and invited to come in and be a
 4   part of the marketplace, because the demands certainly
 5   exceed the supply in these unique programs.
 6             SECRETARY VILSACK:  Erik.
 7             ERIK LIEBERMAN:  Well, it's all about meeting
 8   consumer demands.  Our retailers work with suppliers,
 9   both large and small.  We're interested in any product
 10  that consumers want.  And, with the smaller guys, many
 11  of our retailers will work with them to help innovate
 12  products that are going to meet consumer demands.  We
 13  have a lot of resources that can help suppliers in
 14  terms of consumer behavior.  So we work closely with
 15  them.
 16            And even on safety standards, we'll help
 17  smaller -- some of our members work with the smaller
 18  producers and suppliers to help them meet the rigorous
 19  safety standards that we have to ensure that all the
 20  foods we're selling is -- are safe.
 21            So we -- yeah, there's lots of opportunities.
 22            VAUGHN MEYER:  If I understood your question
00060
 1   correctly, you kind of related to how does the retailer
 2   get in with the wholesaler, the opportunities once he's
 3   got his own list of clients.
 4             The only connection I would have with that is
 5   through Angus Association and Certified Angus Beef. And
 6   under Certified Angus Beef, we welcome new retailers
 7   all the time.  They have to meet certain specifications
 8   and jump through hoops.  And then we monitor them after
 9   they come on and make sure that they are selling our
 10  product and advertising it correctly and that.  And we
 11  have no problem.  I mean, there's usually quite a
 12  waiting list for people to get on as far as that.
 13            But we work with the -- with them and make
 14  changes where possible and that.  But, as a producer --
 15  there are producers out there.  There's neighbors and
 16  friends that have marketed their cattle through the
 17  various programs like all natural and shooting for a
 18  certain end product, and they've -- you know, been
 19  careful with the shots and this and that, documenting
 20  all that.  And most of them only do it for a year or
 21  two and then they switch, try to go somewhere else
 22  because the premiums are not there is the main reason I
00061
 1   guess.  They start out with great hopes and that and
 2   then they find the extra cost of the workload and that.
 3   Why, it doesn't work that way and you usually see them
 4   switch.
 5             In order to join those verified programs and
 6   that, a lot of them end up having to feed them through
 7   custom lots and signed contracts.  Some of those are
 8   open-ended contracts, un-priced, and that prices will
 9   be on the base price the day that cattle are harvested
 10  and that base price is -- it's usually on a diminishing
 11  scale.  It's usually going down.
 12            I myself, have had cattle for three
 13  consecutive years where some of those cattle went
 14  through a branded program with the Red Angus
 15  Association and some of those cattle that went along
 16  were of the same type and same genetic makeup, were of
 17  a different breed, and they went through the cash price
 18  for that day.  And the cash price or the base price
 19  difference between the ones that went through there was
 20  anywhere from $1 to $2.75 lower.
 21            So as a producer, they usually get
 22  discouraged because there is no firm price at the end
00062
 1   of the rainbow for us.
 2             DAN VINCENT:  I think your question was on
 3   relationships.  And the -- you know, I -- you know, I
 4   think -- you know, the one thing we do bring as a
 5   supplier, like for us as a co-op, is we have -- our
 6   farmers have a relationship with the retailer or the
 7   food service distributor, so that's something we bring.
 8             But -- and with that said, I think it's -- I
 9   think Ben mentioned it, I think it would be very
 10  difficult -- it's very difficult to see a buyer, mainly
 11  because they're buried.  You know, they've been
 12  consolidated too.  They used to buy -- there used to be
 13  ten buyers, now there's one buying ten categories.  So
 14  they're very busy.  And that's the relationship -- one
 15  of the things they value.  If you can take care of
 16  supply chain equality, keep all those things in line,
 17  that's what they value in a relationship and that's how
 18  you keep getting business year-to-year.
 19            Now, with that said, you still have to be
 20  competitive.  Both of our major food service suppliers
 21  put us out to bid this year and about half our
 22  retailers did and we lost -- we just lost business
00063
 1   we've had for years to a Chinese importer in a limited
 2   assortment chain.  So you still have to be competitive.
 3   But I think those things you add, the things that they
 4   value in the relationship are important, or I know they
 5   are, and that we've got to keep earning it every day.
 6             CHRIS WALDROP:  That particular relationship
 7   is sort of outside of where we are on consumers, but I
 8   will say that there is a small but growing segment of
 9   consumers that are trying to establish their own
 10  relationships with farmers and with folks that provide
 11  food through farmer's markets and CSAs and those types
 12  of things that are kind of going directly to the source
 13  and getting their food that way.
 14            ATTORNEY GENERAL HOLDER:  Erik, the issue of
 15  margins is often a topic of discussion that -- whether
 16  it comes from the producer level or the retail level,
 17  someone said that a retailer or a packer profit margin
 18  is very thin.  Now, without getting into any kind of
 19  proprietary information, generally speaking, what are
 20  the sort of margin -- what are the margins that a
 21  retailer contends with or what does it take to generate
 22  a profit?  I mean, what are the fixed or variable costs
00064
 1   that retailers operate under and do retailers then pass
 2   those costs on down the marketing chain?
 3             ERIK LIEBERMAN:  I'm happy to address that,
 4   Mr. Attorney General.
 5             Profit margins in our industry are very thin.
 6   We are talking about a penny on the dollar. And I think
 7   there's a misconception too that meat is a profit
 8   center in the stores.  I know before I joined the
 9   industry I thought that it was, just assumed it, but
 10  it's not the case.  Actually, meat's frequently a loss
 11  leader.  And the margins on meat are considerably lower
 12  than the margin on the average product in the store.
 13            Now, like other products, competition is
 14  really fierce on meat and I know there have been
 15  discussions about the farm to retail spread determined
 16  by ERS and how the long-term trend shows that spread
 17  widening.  But I think it's far too simplistic to just
 18  look at the spread between the farm price and the
 19  retail price and assume that the retailer is making a
 20  lot of profit on meat.  This is simply not borne out by
 21  the facts.
 22            And, in fact, ERS has cautioned about using
00065
 1   the data in that way and they've stated that the retail
 2   value figure that they've calculated overstates retail
 3   values and isn't really a good measure of what
 4   consumers are paying at the store.  One of the reasons
 5   is that because -- is that it is now volume weighted.
 6   When you lower prices, it generates demand. And a huge
 7   proportion of the meat products that we're selling are
 8   on sale or on special.
 9             And there's also an assumption in the ERS
 10  data that supermarkets sell beef in a wholesale carcass
 11  from the day they purchased it from the farmer, which
 12  we know that's not true because weeks elapse from the
 13  time the animal's processed to the day the meat hits
 14  the shelf.  The costs we face, of course, are
 15  transportation, warehousing, labor, refrigeration,
 16  taxes, rent, regulatory costs, over -- other overhead
 17  costs, and those aren't reflected in the spread data.
 18  And these costs are high and they're growing.
 19            And it's also important to consider that we
 20  can't really pass those costs on downstream.  It's very
 21  difficult because of the intense competition on price.
 22            So it's also important to contemplate that
00066
 1   supermarkets are just one of the outlets for meat too.
 2   Restaurants and exports have become more important.
 3             So USDA has, in fact, stated that the
 4   wholesale to retail price spreads probably have less of
 5   an effect on livestock prices than they did in the
 6   past.
 7             ATTORNEY GENERAL HOLDER:  But if meat's a
 8   loss leader, where then do you -- you look for profits?
 9   I mean, where do profits come from if meat is as you
 10  say sometimes a loss leader or the margins there are as
 11  small as they are?
 12            ERIK LIEBERMAN:  Yeah, profits are slightly
 13  higher on packaged goods.
 14            ATTORNEY GENERAL HOLDER:  Okay.
 15            ERIK LIEBERMAN:  And they're a little bit
 16  higher on produce too.  So those are -- those are some
 17  of the areas where the profit margins are a little bit
 18  better.  But they're all really, really narrow.
 19            ASSISTANT ATTORNEY GENERAL VARNEY:  How about
 20  dairy?
 21            ERIK LIEBERMAN:  I don't have the dairy data
 22  in front of me, but I can go through my file and get
00067
 1   that.
 2             VAUGHN MEYER:  May I, sir?
 3             SECRETARY VILSACK:  Sure, go ahead.
 4             VAUGHN MEYER:  To add to your -- what you
 5   just said there about the costs are not passed down
 6   you're stuck with them.  And I'll agree your margins
 7   aren't very big and that, but indirectly, all costs
 8   when the consumer quits buying come back down to the
 9   producer. They come back down to the wholesaler and the
 10  wholesaler has one of two things, he can either drop
 11  his price to you or he can cut production.
 12            Well, he's got fixed costs that he has to
 13  meet and production lines that he to keep busy, so
 14  usually the alternative and I would say in nearly 100
 15  percent of the time is to lower his procurement costs
 16  to us. So indirectly, all costs do come back to the
 17  producer.
 18            SECRETARY VILSACK:  We have also talked in
 19  addition to relationship, the word "transparency" and
 20  "communication," those two words have been used, and
 21  I'm interested in all of the panelists commenting on
 22  this.
00068
 1             Given what you know about the marketing chain
 2   and given what you know about your piece of it,
 3   whatever it might be or whatever your organization --
 4   what piece your organization might be involved in, do
 5   you believe there is adequate transparency and
 6   communication in the chain today?  If you do, fine, if
 7   you don't, what changes would you suggest we consider?
 8             Let me start, Chris, if I can start with you.
 9             CHRIS WALDROP:  Sure.
 10            I would just point again to the information
 11  needs of consumers and how those are not always met. An
 12  example of that is country of origin labeling, which is
 13  something that was fought for for a long time; basic
 14  information about where commodity products come from.
 15  And that was fought by the industry.  They didn't want
 16  to provide consumers with that information.
 17            We do now have that information.  It's not on
 18  all products.  It's only on commodity products so it's
 19  not on packaged goods; it's not the dairy, for example,
 20  and some other areas.  But that's an area again where
 21  consumers could have more information and could be
 22  better informed when they're in the marketplace.
00069
 1             DAN VINCENT:  Yeah, I would say you're right,
 2   Chris.  I didn't even think of the very end of the
 3   transparency but the -- there is transparency in terms
 4   of what our -- our customers ask us, the retailers in
 5   food service about.  They want to know where our
 6   products are grown, and we need that for recall as
 7   well.
 8             But they are interested in who's growing it,
 9   where it's grown.  We have farm visits every year.  And
 10  then on the information side, they need transparency to
 11  know where their products are at all times all the way
 12  to distribution and pickup.
 13            SECRETARY VILSACK:  What about pricing?  Is
 14  there adequate transparency towards the pricing?
 15            DAN VINCENT:  You mean, do I tell them our
 16  cost?
 17            SECRETARY VILSACK:  Well, is there -- is
 18  there adequate information for a producer to know that
 19  they're getting a fair price?
 20            DAN VINCENT:  Oh, for our producers it's
 21  pretty simple cause we're all -- they have commercial
 22  price negotiations.  So all of our products are
00070
 1   represented by associations like the California Tomato
 2   Grower's Association or the Peach Association.  So
 3   there is a mechanism to pool all that and then find a
 4   commercial price.  So I think that -- that transparency
 5   works well, because there is an ebb and flow.  If our
 6   producers aren't getting the price they need, we see
 7   supply go down or pushed back.
 8             And then as a co-op, we don't negotiate but
 9   our target internally is to meet commercial price or we
 10  probably wouldn't have a co-op if we didn't do that
 11  either.
 12            VAUGHN MEYER:  As far as transparency of the
 13  label brings -- there's -- producers out there are
 14  willing and many of them are working with that now
 15  today to identify their product and pass along that
 16  information on to the wholesalers.  Whether it gets on
 17  to the retailer and the customer, that's a big if.  I
 18  suspect a lot of that gets lost along the way.
 19            I've got neighbors that have documented, you
 20  know, that when the calves are born and where they --
 21  and the location and all that and the treatments
 22  they've had, and you never see that when you go to the
00071
 1   retail counter.  It may help them sell that product to
 2   the retailer, but I don't know if the consumer is
 3   getting that.
 4             As far as transparency of price, if the
 5   production level to the wholesaler, there is no
 6   transparency.  We're at the mercy of whatever they want
 7   to give us out there.  66 percent of the markets are
 8   now through contracts and many of them are open-end or
 9   alternative marketing agreements, and those really are
 10  working against us because they're captive supply, that
 11  they got a group of cattle under that contract that can
 12  come -- they know they're coming on such and such a
 13  day.  If they get enough of those cattle in there, they
 14  don't even put bids on any of the -- of the bid cattle
 15  like through the auction markets and that.  They'll
 16  tell their buyers not to even bid on cattle, they've
 17  gotten enough for a week or two.
 18            Or if they've got a fluctuation of import
 19  product coming in or something like that, that works
 20  against us too as captive supply.  And they may even
 21  use that non-bidding process to -- and they own a lot
 22  of cattle their-selves.  Ten percent of the cattle that
00072
 1   go through are packer owned cattle.  They can bring
 2   them in and not have any bids for say, a week or two
 3   and that forces all the cattle that are on feed to wait
 4   longer on feed which increases the amount of product
 5   out there and helps to cheapen our price too.
 6             So basically, there's no transparency, hasn't
 7   been any transparency.  The best reference to this is
 8   the fact that the -- on the -- in farm to retail spread
 9   we've lost 20 percent of our retail value since --
 10  between 1970 and 2002.  And if you check that out, the
 11  wholesale end has picked up 20 percent.
 12            ERIK LIEBERMAN:  There's no question that
 13  prices are more transparent for consumers at the retail
 14  level.  I -- I just got a smart phone not that long ago
 15  and it actually has a barcode application in it, and I
 16  can scan the products on the store and get a price
 17  online for them and see what other retailers are
 18  charging.
 19            So that's quite remarkable and it's driving
 20  competition, it's making the consumer even more aware
 21  of the prices.  So I think the trend is with increased
 22  technology and more of these apps, we're going to be
00073
 1   seeing even more competition and more transparency.
 2             ATTORNEY GENERAL HOLDER:  And Erik will share
 3   the app at the conclusion of the meeting with the
 4   panel.
 5             BARRY CARPENTER:  Transparency in the
 6   marketplace is very effective in the livestock
 7   industry.  It's very well driven by USDA's mandatory
 8   price reporting.  The packers report all of their
 9   transactions on their procurement of livestock as well
 10  as their sale of products.  So that information on the
 11  value of the product is very available, it's online,
 12  it's very timely information, multiple times a day.  So
 13  I think -- I think when you think about pricing in the
 14  livestock area it's all out there for the industry to
 15  look at.
 16            When you start talking about things like
 17  price spread from farm gate to retail, all of a sudden
 18  you start losing sight of what you're trying to be
 19  transparent on.  When you start -- when you look at --
 20  when you look at price spreads and you're trying to
 21  compare it year-to-year, you're really apples and
 22  oranges at best.
00074
 1             Just looking at the meat industry, just a few
 2   key things I would mention that have changed the spread
 3   from farm gate to retail or to food service.  When you
 4   start thinking about regulatory changes, food safety
 5   changes; food safety alone in the last ten years the
 6   number of additional interventions that have been
 7   included in the packing industry, the cost of the
 8   regulatory impact of that, the cost of recall, the cost
 9   of testing, the additional costs that have been
 10  incurred by the industry just to get products through
 11  the process totally differ from the way they were 20
 12  years ago.
 13            And if you start looking at really key
 14  things, product changes, all of you can remember when
 15  you went into the retail market and the traditional
 16  trim on a strip loin was a half-inch of fat up to an
 17  inch of fat. That's not there anymore.  That product
 18  has changed. The further processing of that product has
 19  changed.
 20            So it's really erroneous to start looking at
 21  a spread and comparing it year-to-year.  Yes, it's
 22  interesting information to see that spread, but to try
00075
 1   to tie that to the lack of transparency or a lack of
 2   information, I think, is really misguided.
 3             BEN BURKETT:  From a producer's standpoint, I
 4   don't see any transparency.  From the time a farmer
 5   plant a seed or birth an animal, you're looking at a
 6   long-term commitment there.
 7             In the case of dairy farmers, these cows have
 8   to be milked every day, whether you have a sale for the
 9   milk or not, whether you get 1,600 or $21 per hundred
 10  weight, you still have to milk the cow.
 11            In the case of watermelon that I grow, I
 12  plant a watermelon seed, in 90 days it's ready to be
 13  harvested.  I have a perishable product.  And I think
 14  buyers can use that against us as farmers because they
 15  know what we growing only have a life to it, a shelf
 16  life to it.  We have to move the product.
 17            So we need that support of a safety net from
 18  USDA, from Justice, and from the industry that we are
 19  assured of a fair, equitable marketplace so that we can
 20  survive.  Now, transparency, I personally don't believe
 21  it's there in that sense from the producer side.
 22            ATTORNEY GENERAL HOLDER:  Okay.  Yeah, just
00076
 1   let me -- the last question is a follow-up to what Ben
 2   was saying, I mean, it's obvious, I think that
 3   producers need packers, just as packers need retailers
 4   and other marketing outlets.  And everybody in here
 5   works in agriculture in one form or another.
 6             What I'd like to do is kind of as a wrap-up
 7   make you all kings of this industry.  You've got
 8   absolute power.  What do you think we need to do to
 9   ensure that all segments are profitable and that we
 10  have fairness in the market?  So what would you do,
 11  total power to ensure profitability and fairness?
 12            I'm going to start with you.  You're the
 13  king.
 14            BEN BURKETT:  If I were the king, I'd do away
 15  with all those major corporations.
 16            ATTORNEY GENERAL HOLDER:  Okay.
 17            SECRETARY VILSACK:  That would take care of
 18  it.
 19            BARRY CARPENTER:  I -- while I'm king I'll
 20  take a little different approach.  I'd -- I think -- I
 21  think, obviously, food is essential and the more cost-
 22  effective that process can be, the better.  So I think
00077
 1   that the more we can strengthen the communications and
 2   relationship between the producers of livestock to the
 3   ultimate consumer, the more efficiencies you're going
 4   to build in the system, the more -- the better quality
 5   and the better you're going to satisfy those needs.
 6             Now, with all that said, everybody in the
 7   sector has to be in a profitable situation or it
 8   doesn't exist.  Packers clearly are a pass-through.
 9   There are certain costs that are incurred that have to
 10  be -- have to be dealt with, but, I think, in order for
 11  the whole industry to survive, you have to look at ways
 12  to maximize the total marketplace, and that's looking
 13  at things like exports.
 14            If I was king for a day, we would be -- we'd
 15  do away with all these market access issues we have
 16  with our trading partners, because they certain limit
 17  our ability to capture the full value of livestock.
 18  There are so many things that we really need to focus
 19  on in the marketplace to take out -- take out
 20  restrictions, to take out some of the burden that's in
 21  there to make it more streamlined and more efficient
 22  for everybody in that whole marketing chain to be
00078
 1   successful.
 2             ERIK LIEBERMAN:  America --
 3             ATTORNEY GENERAL HOLDER:  King Erik.
 4             ERIK LIEBERMAN:  Thank you.
 5             America is blessed with the best food and
 6   agricultural system in the world.  We enjoy the safest,
 7   the freshest, best quality and most affordable food on
 8   the planet.  And everyone up here plays a role in that
 9   system.
 10            Advancements in agriculture and vigorous
 11  competition among retailers have expanded access to
 12  quality and nutritious foods for the American people
 13  and both DOJ and USDA deserve a tremendous amount of
 14  credit for that miracle which is our food system.
 15  Without question, this has improved quality of life.
 16  And this abundance is really essential to the American
 17  way of life.
 18            Competition is why our food system is so
 19  phenomenal.  Our retail profit margins are razor thin
 20  and consumers are enjoying a better shopping experience
 21  than ever before.  And a recent survey shows that
 22  shopper satisfaction continues to rise.  Nine out of
00079
 1   ten people would recommend their primary store to a
 2   friend.
 3             So Justice Warren famously said that, "The
 4   purpose of the antitrust laws is to protect
 5   competition, not competitors."  Competition is more
 6   intense than it has ever been in the grocery industry
 7   and consumers are benefiting greatly from this.
 8             So this competition must be maintained.
 9             ATTORNEY GENERAL HOLDER:  Vaughn,
 10  profitability and fairness?
 11            VAUGHN MEYER:  Well, I'll agree with a lot
 12  that's been said about communications.  We have to keep
 13  communications in this industry and we do enjoy the
 14  best and safest food in the world right at this present
 15  time.
 16            But producers out there, a lot of them are a
 17  very patriotic bunch.  Most of them have come many
 18  generations from countries where there was oppression
 19  and they realize what they have in this country and
 20  most of them want to continue to see that this is a
 21  great country.  And there's great concern out there
 22  about the amount of food that's not coming from our
00080
 1   country anymore and that some of our better food that
 2   is being ground and added to that product to make it
 3   better, but there's still a safety factor in there.  So
 4   I would say that a lot of producers are concerned about
 5   that.
 6             As far as competition, we -- the best thing
 7   that the producers could use out there is -- a lot of
 8   people, and I've heard it here since I got here, are
 9   talking we don't need more government telling us what
 10  to do, you know, and all that.  But we have had the
 11  Packers and Stockyards Act since 1921 and it's done
 12  nothing to us.  So we're going to have some sort of
 13  rules if producers are going to remain in this -- in
 14  this game.  Otherwise, we're going to see producers in
 15  Mexico, South America, Canada, Argentina, other places.
 16  You won't know of an American producer pretty soon
 17  probably unless it's a giant firm that's maybe running
 18  tens of thousands cattle out there and he has a
 19  contract with the packer.
 20            The family element is in real danger as far
 21  as production agriculture is concerned.
 22            So I guess the best thing, we need to do
00081
 1   something now, we need to do it quick, and the best way
 2   to enforce these rules has finally been proposed in the
 3   last year and it's these GIPSA's Rules.  And I guess I
 4   would like to see these GIPSA Rules enforced.  There's
 5   things that may have to be addressed in them in the
 6   final rule and changed to make them more workable and
 7   everything on that, but these rules are designed to
 8   prevent the past injustices from happening.
 9             And part of these rules also say that if
 10  those injustices continue, they will give me or any
 11  other producer out there the same option to go into
 12  court just like any other American or any other
 13  American industry or entity.  So we need -- we need the
 14  GIPSA Rules and we need them immediately.
 15                  (Applause.)
 16            DAN VINCENT:  I guess I'll second that
 17  because the -- no one will applaud for me.
 18            You know, I do believe our system is
 19  ultimately effective in terms of competition primarily
 20  because it starts with the consumer.  That's why
 21  retailers have such slim margins, because the consumer
 22  will go next door if they don't get it.  And that goes
00082
 1   all the way down to us, and unfortunately the last
 2   person to get pushed is the producer.  There's no doubt
 3   about that.  But I do think our system works well.
 4             I think the one thing I would ask if I were
 5   king is -- for a day at least, the -- we're asked to do
 6   a lot of things and especially in California with
 7   environmental air, we're -- we have 4,000 teamster
 8   jobs, so we provide good working wages.  We do a lot of
 9   things that I think are important, and I think are
 10  ultimately good for our country.  But it's very
 11  difficult when I have to compete against an import
 12  where none of those things are required except for
 13  price.  And somehow that value that has to be -- is
 14  implied when you farm in America, I don't know where
 15  that comes from but somewhere it has to be recognized.
 16            CHRIS WALDROP:  Well, I'm a consumer advocate
 17  so I have a long list of things that I would change if
 18  I was kind for day, but just to hit on a couple for the
 19  purposes of this discussion, one would be information
 20  as I've said before, that's important for consumers to
 21  be able to have enough information to make decisions
 22  and -- when they're in the marketplace.
00083
 1             Access, I would improve access to food,
 2   period, but specifically healthy, nutritious food
 3   that's affordable, particularly for low-income
 4   consumers.
 5             And then, because I do most of my work on
 6   food safety, I do have to address the safest food
 7   supply in the world comment.  It's not -- it's not as
 8   good as it needs to be and can be.  And we have 5,000
 9   people that get sick every year from -- excuse me, die
 10  every year from food-borne illness and that's something
 11  that we certainly need to -- that I would improve if I
 12  was king for a day.
 13            SECRETARY VILSACK:  Well, thank you all very
 14  much.  We're going to -- I'm going to give the Attorney
 15  General an opportunity to close, but before I do, I
 16  want to thank the panelists for a very informative and
 17  interesting conversation and one that points out the
 18  complexity of these issues that we're dealing with and
 19  the difficulty in determining at what point you got the
 20  proper balance between competition, efficiency, low
 21  prices for consumers, but reasonable profits for
 22  producers.  It is a delicate balance.  There's no
00084
 1   question about that.
 2             We are going to -- after the Attorney
 3   General's comments, we're going to break for a few
 4   minutes and then the second panel will be focused on
 5   margins in the dairy industry.  Mark Tobey, who is the
 6   Special Counsel for Agriculture and State Relations,
 7   Antitrust Division of the Department of Justice will
 8   moderate that panel discussion.
 9             Then that will be followed by public
 10  testimony, an opportunity for people to put their
 11  comments into the public record that's being assembled
 12  from these meetings.  There will be a break for lunch
 13  and then we'll have a third panel focused on issues in
 14  food retailing going into more of the issues that we've
 15  talked about briefly here in greater depth.
 16            Again, Sharis Pozen, who is the Chief of
 17  Staff of the Antitrust Division will be moderating that
 18  conversation.  That will be followed by a break and
 19  then the final panel, which will be margins in the
 20  livestock and poultry industry.  James MacDonald who is
 21  from USDA ERS will be moderating that conversation.
 22            We'll have again additional opportunities for
00085
 1   public testimony if we haven't concluded all of the
 2   remarks earlier and then we will close hopefully
 3   sometime around 5-5:30 this afternoon.
 4             So, again, I want to thank everyone.  I want
 5   to thank the Attorney General.  You know, he made a
 6   pledge to be fully participating in these hearings and
 7   I appreciate the fact that he's traveled and that
 8   Christine Varney has traveled all over the country to
 9   listen to the words and testimonies, the stories of
 10  folks who are farming the land and who are responsible
 11  for this food supply that we take sometimes for
 12  granted, a food supply that is abundant, a food supply
 13  that does provide us greater flexibility with our
 14  paychecks than most folks around the world have.  And a
 15  food supply that comes from folks who really do believe
 16  in the basic fundamentals of this country and just
 17  simply want a fair shake in return.
 18            So, Mr. Attorney General, the floor is yours.
 19            ATTORNEY GENERAL HOLDER:  Well, this, I
 20  think, as all the other panels that I participated in,
 21  the sessions that we've had has been one for me that's
 22  been extremely enlightening.
00086
 1             I think we're talking about, you know, a
 2   segment -- a sector of our economy that's really more
 3   than that.  It has defined, I think, what this country
 4   has been over the years, who we are as a people, who we
 5   are as a nation.  And I think it's an important thing
 6   for us to focus on because I think it will define who
 7   we will become in the 21st century and even beyond.
 8             Our concern at the Justice Department as well
 9   as at Agriculture, is to ensure that we have fairness
 10  in this important part of our economy, that it is as
 11  profitable as it possibly can be and that we put as
 12  much transparency into the system as we possibly can so
 13  that ultimately all components, all parts of this
 14  sector do well and that the American people ultimately
 15  are the beneficiaries of our action.
 16            We are, under Christine Varney's leadership,
 17  bound and determined to stay, you know, tied with our
 18  partners in Agriculture in ensuring those three things.
 19  As I said, fairness, profitability and transparency. I
 20  think there's a partnership that has been established
 21  between Justice and between -- and Agriculture that did
 22  not exist before and frankly should have existed
00087
 1   before.
 2             Our pledge in the Obama Administration is to
 3   stay involved, to continue to listen.  We have
 4   thoughts, we have ideas, but we know that we don't have
 5   all of -- all of the answers and that is, I think, one
 6   of the real values in these workshops that we have had.
 7   We will use the information that we glean from these
 8   workshops and then from the thousands of comments, as I
 9   said, that we have received as we are developing
 10  enforcement policies, enforcement practices, so that we
 11  do all that we can to ensure the continued viability of
 12  this very, very important part of our economy.
 13            So it's been a real pleasure for me to be on
 14  this panel with all of you and a real pleasure to have
 15  this new relationship with my colleague at the
 16  Department of Agriculture.
 17            SECRETARY VILSACK:  Very good.  We'll
 18  reconvene at 10:30.
 19                  (Applause.)
 20                 MARGINS IN THE DAIRY INDUSTRY
 21            MR. TOBEY:  We'd like to get started to stay
 22  in some semblance of being on time, so please come back
00088
 1   in the hall.
 2             Good morning.  My name is Mark Tobey.  I'm
 3   the Agriculture Counsel at the Antitrust Division of
 4   the Justice Department.  We next have this panel on
 5   profit margins or price spreads in the dairy industry.
 6   Just to give you a teaser about what we're going to try
 7   to talk about today or talk about today, we're going to
 8   take aim at two fairly complex questions that have come
 9   up in our past discussions about the dairy industry.
 10            As many of you may know, we had an entire
 11  competition workshop devoted to the dairy industry in
 12  June of this year in Madison, Wisconsin.  And at that
 13  discussion, there were a couple of questions that
 14  seemed to be worth discussing today and having further
 15  discussions about.
 16            One of those questions is:  Does the
 17  available evidence suggest that firms at any particular
 18  stage in the supply chain for milk are making more
 19  profits than in the past and if so, why has this
 20  changed?
 21            The second big general question that I think
 22  we're going to try to take aim at is:  Many industry
00089
 1   participants at that Wisconsin Dairy Workshop say that
 2   they have seen an apparent disconnect between the
 3   grocery store price of milk and the price paid to
 4   farmers.  We would like to figure out what does the
 5   available evidence suggest about the relationship
 6   between grocery store prices and farm prices for milk.
 7             And I will say that our focus today is going
 8   to primarily be on fluid milk rather than on other
 9   dairy products like cheese, although I'm sure it will
 10  come up.
 11            This is a one-hour panel.  Let me tell you
 12  what the procedure will be.  We'll -- I'll try to --
 13  I'll introduce everyone, we'll give a question to
 14  everyone to kind of get the discussion going and then
 15  we'll try to get a discussion going between the panel
 16  members.
 17            I believe that we are prepared, although the
 18  logistics of this are a little not transparent to me,
 19  to take written questions from the audience, and at
 20  some point in time, I think someone will come down both
 21  aisles and pick up written questions.  So if you have
 22  written questions, we're not going to do the mikes for
00090
 1   this session, we'll do the open mike after this
 2   session; if you have written questions that you would
 3   like this panel to address, if we have time to do so,
 4   please pass them to the aisle and someone will come and
 5   collect them, and they will be taken up to my colleague
 6   from the Justice Department, a very fine dairy
 7   economist named Sheldon Kimmel who will go through the
 8   questions and then pass them on to me.
 9             So, in order to address these two rather
 10  complex questions, we have a very distinguished panel
 11  today comprised of two producers from different parts
 12  of the country and different size of producer.  We have
 13  a state regulator from Pennsylvania and we have two
 14  economists who have looked extensively at pricing in
 15  dairy markets.  Let me introduce the members of our
 16  panel today.
 17            Starting at my right, Chuck Nicholson is an
 18  Associate Professor of Agribusiness at California
 19  Polytechnic University.  He grew up in San Diego and
 20  graduated from U.C. Davis.  He subsequently worked for
 21  the Congressional Budget Office here and served as an
 22  agricultural extension agent with the Peace Corps in
00091
 1   Africa.  He also worked for an economics consulting
 2   firm here in D.C., went on to get his MS and doctorate
 3   degree from Cornell and was a Rockefeller Foundation
 4   Social Science Fellow at the International Livestock
 5   Research Institute in Ethiopia.  He has served on the
 6   faculty at the University of Vermont and at Cornell
 7   prior to being at Cal Poly.
 8             Next to him is Eunice Biel, who along with
 9   her husband and son and daughter-in-law, operate a
 10  dairy farm near Harmony, Minnesota in Fillmore County.
 11  Their family operates 950-acres and grows corn,
 12  soybeans, hay and they milk 150 cows.
 13            Eunice's education includes a master's degree
 14  in public affairs from the University of Minnesota and
 15  a Bachelor of Arts degree in communication from Winona
 16  State University.  She's been very involved in farm
 17  policy at many levels, including being an officer in
 18  the Minnesota Farmer's Union.
 19            Next to me here is Buster Goff.  Buster was
 20  raised on a dairy farm in Albuquerque, New Mexico, and
 21  began his own operation in 1973 with 40 cows.  He grew
 22  that herd to nearly 200 cows and spent the next 25
00092
 1   years operating in New Mexico as a producer-handler. In
 2   the late 1990s, Buster and his family decided to become
 3   part of DFA and they expanded their  herd dramatically.
 4   He and his wife milk 8,000 cows today in the Hobbs, New
 5   Mexico area.  Their operation also includes 3,000 acres
 6   that are double cropped in corn and wheat, and 12,000
 7   acres of grassland which satisfy about 30 percent of
 8   their dairy's -- of their dairy feed needs.
 9             He's been a recipient of New Mexico's
 10  Agriculturalist of the Year Award and received an
 11  Entrepreneurial Award and the Free Enterprise Award
 12  from the College of the Southwest.
 13            Next to me on my left is David DeSantis who
 14  currently serves as the Chief of the Enforcement and
 15  Accounting Division of the Pennsylvania Milk Marketing
 16  Board.  This comprises a staff of milk marketing
 17  auditors, market examiners, investigators, accountants
 18  and other specialists who monitor and regulate the
 19  marketing of milk in the state of Pennsylvania.  David
 20  has represented that Board before the state legislature
 21  and in hearings with government officials in an attempt
 22  to improve regional milk marketing in the Pennsylvania
00093
 1   area.
 2             On the end there is Rigoberto Lopez, who is
 3   professor and head of the Department of Agriculture on
 4   Resource Economics at the University of Connecticut. He
 5   is the interim director of the newly created Charles
 6   Zwick Center for Food and Resource Policy.  He received
 7   his PhD in food and resource economics from the
 8   University of Florida in 1983.
 9             Dr. Lopez has published extensively on
 10  industrial concentration and pricing in the food
 11  channels including those for milk products.  And among
 12  his publications was one that won the Outstanding
 13  Journal Article Award in Agribusiness in 2009.
 14            So that's our panel.  We want to talk about
 15  pricing in the food channel for milk, so as an
 16  overview, let me now turn to Professor Chuck Nicholson.
 17  Chuck, can you give us an overview of the supply chain
 18  for dairy products, primarily fluid milk, from the
 19  dairy farmer through product manufacturers and
 20  retailers?  Talk a little bit about how prices and
 21  costs move down that chain and maybe give us a view of
 22  what you think margins look like in the dairy industry.
00094
 1             DR. CHUCK NICHOLSON:  Okay.  Thank you very
 2   much, Mark.
 3             Mark has apparently worked with academics
 4   before because he said he was going to be very strict
 5   about the time we have.  And so the tasks he's given me
 6   to describe the supply chain and the margins and how
 7   they've changed over time is a little bit challenging,
 8   but I'm going to try and do this in about six different
 9   points and not use up more time than he's asked me to.
 10            So the first description of the supply chain
 11  that I would give you for dairy is that it is diverse.
 12  It means that it incorporates a bunch of different
 13  folks who have different roles.  Of course, we have
 14  dairy farmers, dairy co-operatives are also very
 15  important.  We have fluid milk processors and dairy
 16  product manufacturers, we have food retailers, we have
 17  food service, restaurants and food retailers are also
 18  part of the supply chain.
 19            One of the things that we need to keep in
 20  mind is there are a bunch of different dairy products,
 21  even though we'll focus on fluid milk this morning.
 22  And the supply chains and the amount of product moving
00095
 1   directly through to retail is very different for
 2   products.  For fluid milk, the retail share is fairly
 3   high.  For a product like cheese it's less than half,
 4   it's usually about 30 percent, the rest going through
 5   food service and restaurants.
 6             Okay.  I'll also say that foreign buyers of
 7   dairy products have become more important to the U.S.
 8   in recent years.  Dairy co-operatives also play an
 9   important role as manufacturers of dairy products in
 10  addition to providing other services to their members.
 11  And I'll also quickly mention that the dairy supply
 12  chain is influenced to no small amount, by what state
 13  and federal governments do in terms of regulating milk
 14  prices and other programs to support dairy farmers.
 15  Okay.  So that's the brief overview.
 16            What I also want to offer is from my
 17  perspective, one of the key issues that the dairy
 18  supply chain faces and has been dealing with for at
 19  least the past ten years, if not longer, is price
 20  volatility.  And the big issue with price volatility is
 21  that it tends to result in periods where we have
 22  significant financial distress, and it's hard for me to
00096
 1   find the words severe enough to describe that, a
 2   significant financial distress for dairy farmers.
 3             And the past two to three years have been
 4   particularly challenging in that regard with first
 5   record high milk prices in 2007, and then not record
 6   low milk prices, but a very significantly bad
 7   combination of low milk prices and high feed costs.  I
 8   will also note quickly though that I don't think that
 9   the cycles that we've seen that cause so much distress
 10  in dairy are really that closely related to any of the
 11  things that we've seen changing with margins.
 12            Okay.   Moving on to talk about marketing
 13  margins for dairy, I want to focus on a couple of the
 14  challenges of measuring and interpreting them and then
 15  say a little bit about how they've changed over time.
 16            One of the challenges is that the milk price
 17  that farmers see in a milk check every month and we
 18  price milk monthly in the U.S., is not the same price
 19  that any buyer of milk pays.  And that sounds funny,
 20  but the reason for that is that we have federal and
 21  state regulation that provide minimum prices based on
 22  the use to which the milk is put.  And so that means
00097
 1   that different buyers of milk will be paying different
 2   prices even within the same month and the farmers
 3   actually receive a weighted average of those different
 4   prices based on the use that the milk is put to.
 5             Okay.  So the other thing is, related to
 6   that, is that most buyers of milk pay something above
 7   the additional, or the minimum regulated prices but we
 8   usually don't know exactly how much they pay.  So that
 9   makes for some challenges in figuring out exactly what
 10  the costs are to different actors in the supply chain.
 11            The second challenge is that we do have
 12  information on prices at the farm, sometimes at the
 13  wholesale level and at the retail level.  But that
 14  really only tells us what a gross marketing margin is
 15  if we subtract the retail price from the farm price.
 16  And that gross margin is actually different than what
 17  we would usually think of as profit.  That includes the
 18  cost of processing, packaging, transporting and selling
 19  milk and dairy products and it means basically that an
 20  increase in the marketing margin does not necessarily
 21  mean that any particular actor in the chain is seeing
 22  increased profitability.
00098
 1             Public information about the actual costs of
 2   the processing, packaging, transporting and selling
 3   otherwise is much more limited than the information we
 4   have about prices and that was mentioned for beef
 5   during the first panel.
 6             So with those challenges in mind, I will say
 7   that the average gross marketing margins for both
 8   cheese and the focus of this panel, fluid milk, have
 9   increased in the past ten years, but I'll also note
 10  that they have varied over time and to a certain
 11  extent, they appear to be related to cost increases in
 12  the rest of the milk supply chain.  As quick examples,
 13  the gross margin for fluid milk by at least one
 14  calculation that I've done, increased from $1.60 a
 15  gallon in 2000 to about $1.75 a gallon in 2010.  The
 16  gross margin between the wholesale and retail price for
 17  cheese increased from about 2.75 a pound to about $3.00
 18  a pound, again, in the period from 2000 to 2010.
 19            Associated with that, however, are costs
 20  increase for labor, energy and packaging that dairy
 21  processors and fluid milk processors paid during that
 22  same time period.
00099
 1             And, finally, to wrap this up, I want to
 2   state that the prices that we have at the different
 3   market levels in the dairy supply chain do, in general,
 4   at least when measured at a national average level,
 5   tend to move fairly closely together.  And as you can
 6   clearly see from the handout that I -- well, I guess
 7   that's not going to work so much.  So, basically, the
 8   farm equivalent price, that is what first buyers of
 9   milk are paying, the wholesale and retail prices for
 10  cheese, tend to move together over time.  And the same
 11  is true actually also for fluid milk.
 12            We don't see full and complete what's called
 13  pass-through of cost increases or decreases from the
 14  farm level to the retail level for dairy products in
 15  general.  We see that retailers are known to practice
 16  what's called price smoothings so they don't fully pass
 17  through the increases or decreases and this is meant
 18  that the farm share of the fluid milk retail value has
 19  varied over time from 30 percent at a low when farm
 20  milk prices are low to about 50 percent when farm milk
 21  prices are high.
 22            And I'll close by saying there appears to be
00100
 1   a common perception that retailers in particular don't
 2   pass through cost decreases from the farm level to
 3   consumers.  It's true that we don't see necessarily
 4   full pass through but they do, in fact, pass through
 5   some portion of price decreases when the farm milk
 6   price goes down based on data from a variety of cities
 7   and a variety of time periods.
 8             So I hope that met the criteria for time and
 9   for content.
 10            MARK TOBEY:  I am truly amazed, Chuck.  You
 11  can be on a panel of mine anytime.  We'll come back to
 12  some of the points that you've made as an overview but
 13  I think we want to step back now and hear from our
 14  producers, the people that actually, you know, produce
 15  the fluid milk that we buy in the stores and look at
 16  the world from their perspective.  And so now let's
 17  turn to Eunice Biel.
 18            Eunice, I've talked a little bit in your
 19  introduction about your farming operation in Minnesota,
 20  but could you tell us a little bit more and then talk
 21  to us a little bit about how your milk gets marketed,
 22  what options you might have if you were dissatisfied
00101
 1   with the way your milk was marketed and what you see
 2   happening to the price of milk as it moves from your
 3   farm to the grocery store?
 4             EUNICE BIEL:  Okay.  Thank you.
 5             Well, as you said, we raise corn, oats and
 6   soybeans.  We market some of our corn and some of our
 7   soybeans and we raise all of our replacement heifers
 8   and we also feed out our Holstein steers.
 9             Our son does -- our son and his wife, Kelly,
 10  help us.  They do like a lot of the herd maintenance
 11  and the breeding.  And I just wanted to say that in
 12  2009 when prices were so low, it was very -- it was
 13  quite a struggle to do the basic maintenance with the
 14  cattle to keep them fed correctly, do -- we didn't even
 15  do the dairy herd improvement every month where they
 16  measure our milk, we kind of had to put that on hold.
 17            You cannot stop doing herd health, you cannot
 18  stop doing, like, hoof trimming, the basic -- you have
 19  to feed your cows, you have to take care of them, you
 20  have to keep them bedded, you have to keep them fed.
 21  And the expenses with the fuel, the cost of the fuel,
 22  the cost of feed, at one time the -- several times the
00102
 1   cost, the feed bill would be higher than the milk
 2   check.
 3             And our -- we are -- our only saving grace
 4   was that we had Holstein steers to market.  I mean, we
 5   had enough room and not very many people do that, not
 6   many people are able to do that.
 7             Our milk goes to AMPI, Associated Milk
 8   Producers, in Rochester, Minnesota, and 85 to 90
 9   percent of the milk in Rochester goes to cheese and
 10  then 10 to 15 percent goes to fluid milk and it's sold
 11  to Kemps.  And there's 14 different cheese
 12  manufacturing divisions in the Midwest.
 13            We're strictly regulated, as you well know,
 14  dairy is a very strictly regulated industry.  Every
 15  time the milk truck comes to pick up our milk, they
 16  take a sample, and that sample has to pass muster
 17  before they can -- every sample from the tank of the
 18  truck has to pass or else the truck can't be unloaded.
 19  And if there is anything wrong with the load of milk,
 20  they could trace it back to the dairy producer.  So
 21  we're very strictly regulated and that's fine.  We're -
 22  - we like to -- we're proud of the fact that in the
00103
 1   United States we have the most safest, purest dairy
 2   products in the world.
 3             But, after 2009, I guess I'd like -- we have
 4   never -- we'll never regain the assets that we lost.
 5   We're still struggling.  That's the -- everybody thinks
 6   that the price went up a little bit, but the expenses
 7   have also risen significantly.  And now the futures for
 8   -- the first quarter of 2011, it's hit a new low of
 9   $13.41.  Our last milk check was an average of $16. And
 10  you can kind of -- we don't know exactly the cost of
 11  production, they're around $15, so it's pretty tight
 12  just to make ends meet on $16.
 13            I guess if we didn't sell our milk to AMPI,
 14  we could -- there are other costs co-ops in the area.
 15  We could sell to Land O' Lakes, Foremost Farms and
 16  there's the Plainview Dairy, Plainview Milk Co-op.  But
 17  the problem is we're 50 miles from Rochester and we
 18  have enough neighbors so the milk truck will come down
 19  and pick up our milk and he'll get a load.  Well, if
 20  all of our -- if many more dairy farmers in our county
 21  that our neighbors, go out of business, will they want
 22  to come down for our milk for 140 cows?  And that's
00104
 1   kind of a -- and will we be able to get a veterinarian,
 2   and will we be able to get other services in our area?
 3             Minnesota currently has 4,500 dairy farmers;
 4   it's an average herd of -- the average herd size in
 5   Minnesota is 105 cows.  And we're right now in --
 6   planning on -- we're working with Manure Feed Lot Rules
 7   in Minnesota.  And that's going to be a big expense
 8   even with cost sharing.
 9             And our question is if the corn gets to be $6
 10  and milk stays around $13, will we want to spend
 11  several hundred thousand dollars to upgrade our
 12  facility so that our -- a young farmer who dearly wants
 13  to raise cattle and milk farm with us, our son, and his
 14  family, he would -- he was even thinking of -- if
 15  milker prices were staying high, they're thinking of
 16  looking into robotic milkers because that's -- that's
 17  kind of turning into be the thing for medium sized --
 18  any sized farmer.  But the cost is quite -- it's quite
 19  a commitment for the future if you don't know if you'll
 20  be able to make a -- meet your expenses.
 21            If the milk price had kept up with the price
 22  of parity which was taken away in 1981, we wouldn't be
00105
 1   getting such a poor price, we'd be getting a much
 2   better price and there wouldn't have been the
 3   volatility.  I feel that the volatility really started
 4   in -- after 1981 when the price of parity was taken
 5   away.
 6             MARK TOBEY:  Thank you very much.
 7             Buster Goff, you're in New Mexico and you
 8   have a substantially larger operation.  Do you have
 9   some of the same issues?
 10            BUSTER GOFF:  Yes, thank you, Mark.
 11            Yes, we have a lot of the same issues that
 12  Eunice has talked about.  It seems like 2009, was the -
 13  - was the lowest that we've -- we've experienced since
 14  I've been dairying.
 15            MARK TOBEY:  Can you hear okay or is it?
 16                  (Audience responds negatively.)
 17            MARK TOBEY:  Okay.  Let's see if we can --
 18  maybe that mike is not doing well.  Let's give you
 19  mine.
 20            BUSTER GOFF:  I don't want yours.  Just bring
 21  them all together.  Just get them all here.
 22            Yes, we've experienced the same, a lot of the
00106
 1   same things.  We -- in 2009, we had three months that I
 2   went -- I had to go all the way back to the mid-'70s to
 3   compare the milk price.  And with that, we didn't -- we
 4   saw, of course, the -- the feed costs and the
 5   operational costs much different than we had in the
 6   '70s.
 7             Because of what we've experienced in
 8   volatility, we had began to look more and more into
 9   risk management of our feeds and our milk.  We think
 10  that's going to help.  It's not -- it certainly isn't
 11  the solution but I think our lenders -- I know our
 12  lenders are very interested in us trying to take out
 13  some of these lows that we've experienced the last
 14  couple of years.  The lows are longer and the highs
 15  don't last very long anymore and that's -- that's one
 16  of the reasons why we haven't been able to get through
 17  very well these last few years.  We've always operated
 18  on highs and lows but it's just been the lows just keep
 19  getting longer.
 20            I spent most of my career as an independent
 21  producer-handler, where I operated a dairy and a small
 22  bottling plant and marketed my milk direct to the
00107
 1   consumer or into stores.  And so in 1998, I had decided
 2   to close that plant and focus strictly on a dairy herd.
 3             I have a choice of four co-ops that I can
 4   market my milk with and one independent cheese plant is
 5   available.  In the last couple of years there's been at
 6   least one Class 1 processor that has started
 7   contracting some small amounts of milk in our area.
 8             We've chosen to market our milk with DFA.
 9   We're very happy with DFA.  We -- we like the security
 10  of knowing that we get paid on a regular basis and I
 11  think you get that when you operate with co-ops. I
 12  guess as an independent, I wasn't always that secure. I
 13  did worry a little bit about accounts receivable and
 14  about the balancing of my milk on exactly where --
 15  where I'm going to sell my milk the next day.  So the
 16  co-op has really helped level that out and help us know
 17  that we do have a market for our milk.
 18            MARK TOBEY:  Alright.  Thank you, Buster.
 19  Obviously, the ups and downs and the cost structure of
 20  being a dairy farmer these days presents a lot of
 21  challenges and the state of Minnesota has taken a
 22  different -- or the state of Pennsylvania has taken a
00108
 1   different approach to some of these problems.
 2             And with me today is David DeSantis.  David,
 3   can you tell us a little bit about how Pennsylvania has
 4   decided to approach the issue of the pricing of milk?
 5             DAVID DESANTIS:  Yes.  Good morning.
 6             Just to give you a brief overview of the
 7   Pennsylvania program, it's one of the most
 8   comprehensive pricing programs anywhere in the states.
 9   We start with a producer price which is pretty much the
 10  same classified pricing system that the feds have
 11  established.  Our price for a Class 2, 3 and 4 milk, 3
 12  and 4 being manufactured type grades, is identical to
 13  the feds.
 14            Where we differ from the feds is in our Class
 15  1 program.  We have a premium that is mandated to be
 16  paid for all milk that is produced in Pennsylvania,
 17  processed in a Pennsylvania plant and resold in a
 18  Pennsylvania store.  To date, that premium has
 19  generated over $560 million to our Pennsylvania dairy
 20  farmers.
 21            To ensure that that pricing is paid to our
 22  dairy farmers, we have a very aggressive auditing
00109
 1   program.  We audit every dealer that buys Pennsylvania
 2   milk every month to make sure it's paid at the right
 3   price and on time.
 4             Moving on through the chain, we also have a
 5   regulated wholesale price for fluid milk.  That
 6   wholesale price is built based on one, the farm costs
 7   which includes all premiums not just the mandated
 8   premium, but any voluntary premiums or fees that a
 9   dairy may pay to a co-op.  And we add to that their
 10  processing costs, the cost of bringing the milk into
 11  the plant, receiving it, standardizing and pasteurizing
 12  it, moving it through the bottling area into the cold
 13  room and then delivering that milk.  So that's all part
 14  of our mandated minimum wholesale price.
 15            And moving on through to the retailer, the
 16  retailer is now paying a wholesale price that includes
 17  all costs including the costs for the premiums to the
 18  farmers.  And we establish a retail minimum that is --
 19  adds to that wholesale price the cost of getting the
 20  milk through the store, getting it in the backdoor,
 21  putting it in the cooler, stocking, rotating, moving it
 22  through the checkout, operating the cooler and any
00110
 1   overhead costs.
 2             So whenever you look at our system, whenever
 3   we do retail price surveys in similar markets, New York
 4   being similar to Philadelphia; Baltimore being somewhat
 5   similar, we find that Pennsylvania producers or
 6   Pennsylvania consumers are actually paying about the
 7   same or maybe a little less for the products that are
 8   most often purchased by consumers.
 9             So putting it all together, we have producers
 10  that are getting a little bit more through our over-
 11  order premium mandated and consumers that are paying
 12  about the same or maybe a little bit less for the
 13  products they'd most like to buy, and everyone in
 14  between is happy.  It's magic.
 15            MARK TOBEY:  I've come to understand that
 16  there's very little magic available in agriculture but
 17  I'm glad to hear that some of it exists in
 18  Pennsylvania.
 19            I was just curious, this is a totally -- this
 20  is a regulated margin approach?  In other words, both
 21  the wholesale and the retail margins are regulated by
 22  statute.  What is the band for those margins?
00111
 1             DAVID DESANTIS:  The wholesale and retail
 2   price generate two-and-a-half to three-and-a-half
 3   percent at wholesale and retail.  Our law also provides
 4   that farmers should also make a profit on selling milk;
 5   however, given the nature of how milk moves across
 6   state lines, the Board has the authority to set the
 7   price where it will allow the milk to be marketed.  So
 8   our farm price fluctuates in lockstep with the national
 9   farm price.  It's just that it's a little bit higher.
 10  We keep that premium at a set rate, about $3 a hundred
 11  weight on that Class 1 milk produced process and sold
 12  in Pennsylvania.
 13            MARK TOBEY:  I do want to get some discussion
 14  going between the various panel members that we have
 15  here, but let me turn to Rigoberto Lopez now and then
 16  we'll get some discussion going.
 17            I will remind you again, if you do have
 18  written questions for this panel, go ahead and write
 19  them out on a piece of paper and we'll have someone
 20  come through and collect them in a few minutes.
 21            But, Rigoberto, we want to look a little more
 22  in-depth now at this issue of margins or price spreads,
00112
 1   profit margins or price spreads in the supply chain
 2   from farm to retail.  And I know you've studied, you
 3   know, the issue of market power and market
 4   concentration from the industrial organization
 5   economics point of view.  Where do you come out on the
 6   broad question of price spreads and who's making the
 7   profit in the supply chain for fluid milk?
 8             DR. RIGOBERTO LOPEZ:  First of all, thank you
 9   for inviting me.
 10            With the exception of Pennsylvania, I'm going
 11  to talk about the rest of the country.  Like the farm
 12  milk price, which is regulated, the fluid milk retail
 13  price is not regulated.  So the margin between the two
 14  reflects, of course, you know, value added, costs such
 15  as labor, packaging and fuel.   But it also reflects
 16  the result of consolidation of firms in milk processing
 17  and the resulting increase in market power and
 18  efficiencies.
 19            So my research shows that while milk
 20  processor consolidation leads to significant cost
 21  efficiency gains, it also leads to significant
 22  increases in market power, pricing power, milk power.
00113
 1   So this leads to higher prices charged for milk sold.
 2   As you sell less milk you buy less milk and this will
 3   put a downward pressure on either the farm milk price
 4   and/or the over order premium.  So that is the
 5   efficiency effects are not passed on to the consumers
 6   or passed down to the farmers, they are retained in the
 7   market channel.  And I will show you some numbers a
 8   little bit later.  So my research also shows that there
 9   is significant market power of supermarkets over
 10  consumers having the same effect.
 11            So the two things combined to produce
 12  coalescing power, that is adversaries would combine to
 13  effectively increase the exercised market power up and
 14  down the channel.  And this will increase, of course,
 15  the spread.
 16            So I want to show you a quick picture from
 17  the USDA data actually, October 2008, the raw milk
 18  price was 1.61 per gallon.  The retail price, okay, was
 19  3.88 per gallon at supermarkets.  That is a spread of
 20  $2.27. Six months later, we hit February 2009, dollar
 21  spread increased to 2.63, the difference between the
 22  retail and the raw milk price.
00114
 1             What happened?  The retail price dropped 6
 2   cents from 3.88 to 3.82, but the raw milk price dropped
 3   42 cents, a much bigger drop.  It's leaving like a
 4   watermark.  So that explains the widening of the
 5   margin.  So that, you know, provides some, you know,
 6   evidence that there is, you know, a pricing power.
 7             When a farmer has an increasing production
 8   cost, they cannot pass on that increasing fifth cost,
 9   for example, like Buster and Eunice mentioned, to up
 10  the channel.  However, when the retailers or
 11  wholesalers face an increasing cost, they are -- they
 12  have the ability to pass those costs on to -- up the
 13  channel or up to the consumers.
 14            MARK TOBEY:  Alright.  Thank you, Professor
 15  Lopez.
 16            Alright.  So let me then take a couple of
 17  your statements and, first of all, maybe ask Professor
 18  Nicholson, to react and give us your views.
 19            Professor Lopez believes that the fact that
 20  say in 2009, we saw much more dramatic decrease in the
 21  farm level price for milk than we saw in the retail
 22  price as evidence that there's pricing power on the
00115
 1   part of retailers.  Chuck, do you have reaction to
 2   that?
 3             DR. CHUCK NICHOLSON:  First, my reaction is
 4   that must be why they put Rigo and I on opposite ends
 5   of the table or something.  I'm not sure.
 6             But I don't do nearly as much work as Rigo
 7   does in this particular area so I don't want to
 8   overstep the bounds of my experience or my direct
 9   research efforts.  But one of the things that I do want
 10  us to keep in mind is that we shouldn't use any one
 11  year, we shouldn't use any one month, you now, or a
 12  comparison of two different months as a really
 13  definitive comparison of what's happening with the
 14  gross marketing margin in part because of the pricing
 15  dynamics, again, that retailers practice.
 16            And I'm sure Rigo's done more than I have in
 17  this area, but when I've looked at this there are
 18  delays both in raising fluid milk prices when the farm
 19  milk costs to fluid milk processors and retails goes up
 20  and there are also delays bringing those prices back
 21  down and that's the essential nature of price
 22  smoothing.
00116
 1             So there was a period of time during 2008,
 2   when we were seeing actually record high, never seen
 3   before milk prices, where fluid milk prices went up by
 4   -- not by as much as the actual costs, probably to the
 5   folks who were -- throughout the rest of the supply
 6   chain for fluid milk and that meant that they were not
 7   doing so well financially, presumably and that's one of
 8   the reasons that there was probably some delay in
 9   bringing back down the prices.   And that's the essence
 10  of having a widening marketing margin at that period of
 11  time.
 12            Since then, we actually have seen the
 13  marketing margin, calculated again as a gross marketing
 14  margin, fall back into a range that's lower than the
 15  kind of numbers that we saw from the specific data
 16  points that Rigo is talking about.
 17            So I guess I'm not convinced there isn't an
 18  issue with margins in fluid milk pricing, but I think
 19  we need to be fairly careful in assuming that the kinds
 20  of changes we've seen, particularly in the last few
 21  years, are really indicative of that.
 22            MARK TOBEY:  Alright.  Rigo, let me give you
00117
 1   a chance to respond and then maybe we can ask our
 2   producers from their point of view, I'm sure they
 3   remember 2009, and what they may recall about how they
 4   felt about grocery store prices, or maybe they even
 5   talked to their grocers, but let's talk, let's go first
 6   to you, Rigo.
 7             DR. RIGOBERTO LOPEZ:  Well, I want to clarify
 8   that those were only two pictures, but we have done
 9   more in-depth studies, you know, to prove the point.
 10            So, second, you know, we should keep in mind
 11  that the milk is not the only cost, you know, in
 12  retailing milk.  So there is a lot of no milk costs
 13  without -- usually more -- much more stable such as
 14  wages, for example, and fuel -- well, that depends on
 15  the month as well, but capital prices.
 16            So, but nonetheless, you know, the fact
 17  remains, I think, that the -- even if you account for
 18  costs and we have done that, you know, by calculating
 19  processing costs, maybe in a similar fashion to what
 20  Pennsylvania has done, and we have also calculated,
 21  other stuff calculated, retailing costs.  Even
 22  accounting for those costs, I think that there is over
00118
 1   a dollar in profit margin that are left in the market
 2   channel beyond the farmer.  Otherwise, I don't think
 3   you can justify a 2.50, 2.63 margin when the prices are
 4   1.19 to the farmer, for example.
 5             MARK TOBEY:  Alright.  Let me follow up with
 6   that.  We heard on the earlier panel from the
 7   representatives from the Food Marketing Institute,
 8   among others, that retail grocery store competition is
 9   vigorous and that their margins are very, very thin.
 10  How can you square that with what your research shows?
 11            DR. RIGOBERTO LOPEZ:  Well, the -- we have
 12  estimated the retailing costs of milk to around 50
 13  cents, for example, and processing around 80 cents. So,
 14  I guess, you know, I'd just say also that retailing is
 15  now facing new forms of competition from big box
 16  stores, for example, that are, you know, cutting into
 17  their profits.
 18            But, however, you know the prices of milk at
 19  the supermarket remain much higher than those prices
 20  charged by big box stores.  So I don't think that the
 21  price is not high enough and stable enough that it will
 22  have to exceed the cost that we had calculated for
00119
 1   retailing milk, and the costs beyond the wholesale.
 2             MARK TOBEY:  Alright.  Either, Eunice or
 3   Buster, do you have thoughts about retail pricing of
 4   milk and what happens to your milk in the food chain?
 5             This may be a little beyond your area of
 6   expertise, but let me give you a shot.
 7             EUNICE BIEL:  Well, when I go -- when I go
 8   grocery shopping for milk, I never look at the price
 9   because I figure -- I feel that milk is a bargain at
 10  any price and it should be.  When people said to me,
 11  oh, milk -- people I work with say, "Oh, milk is high."
 12  And I says, "Good.  You should be paying more."  I feel
 13  that way.
 14            But I think there's a disconnect, because
 15  when people pay more in the grocery store and our
 16  prices are low, they think that we're getting all this
 17  money -- all the money.  We're getting all of it, and
 18  they don't understand that there's a lot of complicated
 19  issues and there's a lot of external factors affecting
 20  the milk price.  And I guess we don't have -- we just
 21  don't have confidence in the -- it's a very complicated
 22  system, we just don't have confidence, and I don't feel
00120
 1   that there's a true supply and demand.
 2             And we're exporting a lot and that's helping.
 3   And then we got lots of stock of cheese and we got low
 4   inventory butter and -- but -- and -- but, yet, we --
 5   there's no mention also of the milk protein
 6   concentrates that are imported in this country. There's
 7   -- I don't know if that's ever factored in.
 8             So I guess -- I think that there is -- the
 9   people who -- the people who get to it before it gets
 10  to the shelf are the ones that make the money.  I think
 11  -- my father always said to me, "There's money in
 12  farming, but it's after it leaves the farm gate."
 13            MARK TOBEY:  Buster?
 14            BUSTER GOFF:  It's hard to follow Eunice, by
 15  the way.
 16            You know, when we had the record highs in '06
 17  or '07, I forget now it's so far away, but there was a
 18  lot of national press talking about the high milk
 19  prices and what the farmer was receive -- excuse me,
 20  was receiving.  So, you know, we really -- or the
 21  retailers had the opportunity to say, here, this is why
 22  we're selling our milk at a higher level, because of
00121
 1   what you hear in the press that the farmers are getting
 2   the higher price.
 3             But, another thing, Rigo, I did a little
 4   research myself.  It's kind of old research.  It was
 5   between '73 and '98 when I was marketing milk into
 6   grocery stores.  But every -- every day I walked into
 7   these grocery stores and marketed my milk on a
 8   wholesale level and this was wholesale through our
 9   dairy herd and then wholesale through our milk plant.
 10  And it was -- it was always a pretty standard 30
 11  percent increase from what I sold milk to the store and
 12  what the store sold to the customer.  I don't know what
 13  their costs are, but it -- it was pretty general that
 14  that was what the difference in the margins were
 15  between what I sold to them and what they sold to the
 16  consumer.
 17            You hear a lot about milk being a loss
 18  leader, and the only experience I have with that is if
 19  I ever wanted to be a part of that I would be the one
 20  that had to reduce my price.
 21            MARK TOBEY:  Thank you.
 22            You brought up the topic of milk as a loss
00122
 1   leader but let me go to that.  First of all, David
 2   DeSantis, I guess, because of the way that Pennsylvania
 3   regulates the retail margins, minimum margins, milk
 4   can't be sold as a loss leader in Pennsylvania; is that
 5   right?
 6             DAVID DESANTIS:  Yeah, that's absolutely
 7   true. Actually, you have the opposite occurring.  There
 8   seems to be in some markets a retail culture that puts
 9   the price up a little bit, and you can understand why
 10  that would happen.  If you have a inner-city store that
 11  is buying two or three cases of milk, it's quite
 12  expensive for them to market that milk.  So you're
 13  going to find that well over our minimum price.  But on
 14  the other side of it, stores that are in highly
 15  competitive areas will go down to our minimum.  Our
 16  minimum becomes the maximum.
 17            And the good thing about our system is that
 18  the price wars can be very destructive to the people
 19  that are supplying the stores.  If you're in
 20  competition with a store down the street to lower the
 21  price of milk, you're going to ask your supplier for a
 22  better price or you're going to lose the business.  The
00123
 1   supplier in turn is going to go back to the farmer and
 2   say, we can't pay premiums this month.  You don't see
 3   that in Pennsylvania.  You don't see it in a regulated
 4   environment like we have.
 5             MARK TOBEY:  So, alright, this is the
 6   approach in Pennsylvania.  I understand New York has a
 7   slightly different approach, New York state, where they
 8   -- they tie the retail price of milk to some multiple
 9   of a farm level price.
 10            I guess my question to the economists would
 11  be is this type of regulation a good thing or a bad
 12  thing, regulation that would prevent a retailer from
 13  having full pricing flexibility for fluid milk?
 14            Maybe we'll go to you, Chuck.
 15            DR. CHUCK NICHOLSON:  Alright.  Just -- since
 16  I used to work in New York at Cornell before I went to
 17  Cal Poly, I'll just say a bit about the New York,
 18  what's called the Milk Price Gouging Law which was
 19  passed in 1991, largely in response to the kind of
 20  issue where the farm price had dropped and the retail
 21  price didn't come down as quickly as the farm price.
 22            That law basically specifies a maximum margin
00124
 1   that can be earned by other agencies in the marketing
 2   chain; that is the processors and the retailers.  And
 3   that multiple is something like the number 2.  And what
 4   has been observed is that that ratio is pretty the
 5   price that gets charged or maybe actually even a little
 6   bit more, there are certain allowances in New York
 7   City, but in most of the upstate markets that markup is
 8   not binding, it's not something that sets actually what
 9   the price of milk will be.
 10            So it's interesting that New York and
 11  Pennsylvania, two neighboring states, you have a
 12  minimum margin law and a maximum margin law presumably
 13  designed to try and achieve the same thing.
 14            What I'll say in terms of the kind of general
 15  approach to thinking about doing something about
 16  margins, again, I think the -- the challenge that I
 17  have in sort of warming up to the idea that this is
 18  something that should be addressed, is that I think we
 19  lose sight of probably the more important issue for
 20  dairy producers, which is really the tremendous price
 21  volatility and the periods of particularly low prices
 22  and high costs that cause them significant financial
00125
 1   distress.
 2             And I have done some recent work in
 3   preparation for this workshop that tends to suggest
 4   that if we really want to deal with the issue of those
 5   low price periods, we need to be thinking about other
 6   programs and not so much worrying about what the margin
 7   is between the farm and the retail level.  And that may
 8   sound kind of funny, but the basic idea though is that
 9   we have programs in place that could probably be more
 10  effectively used to support dairy farmers.  We have new
 11  proposals from the National Dairy Organizations that I
 12  think would actually be much more effective in trying
 13  to deal with the severe pain that we've seen as
 14  typified by the last couple of years.
 15            MARK TOBEY:  Okay.  Rigoberto, do you have
 16  any thoughts?
 17            DR. RIGOBERTO LOPEZ:  Okay.  So, there are
 18  two important -- there are two important
 19  characteristics of this type of proposal that I see
 20  from Pennsylvania and from New York is that they
 21  pertain to a state regulation, first of all.
 22            And second, the second important
00126
 1   characteristic is that we are getting the money to
 2   rebalance the margins in the channel from the market
 3   itself.  It's not coming from government subsidies,
 4   it's coming from the market channel itself.
 5             So those are the two important points I
 6   think. So that -- I think that -- another point that I
 7   wanted to make is that an unregulated market or a so-
 8   called free market, is not necessarily a fair market.
 9   It's not necessarily competitive either.  So we have to
 10  really address this question in the context of whether
 11  the status quo is competitive and it is fair.  So I
 12  think that this would be a good start, this type of --
 13  looking at this type of regulation, to start addressing
 14  some of these questions on behalf of all institutions
 15  in the vertical market channel.
 16            And I want to make one last point about being
 17  a loss leader.  I think that the people just to talk,
 18  Mark, about milk, about 20 years ago, and it's clearly
 19  a loss leader in some of the gas stations perhaps, some
 20  news stores, like Aldi perhaps that is employing
 21  penetration pricing, but is no longer the case.  I
 22  think the dairy section of supermarkets, for example,
00127
 1   is among the most profitable ones in the -- for
 2   supermarkets.  So the leader has found its way if he
 3   was ever lost in the last 20 years.
 4             BUSTER GOFF:  Yeah, thank you.  I'd like to
 5   kind of comment a little bit about what Chuck was
 6   talking about.  I believe we as producers, are probably
 7   closer to agreeing with some sort of program than we've
 8   ever been.  Of course, not all of us, but some of the
 9   things that we've worked towards is putting something
 10  called "Foundation for the Future."
 11            And some of the things that are in this is
 12  readdressing how we look at federal orders, addressing
 13  market margin insurance, that's tying your feed costs
 14  with your milk price and having some sort of insurance
 15  for that margin, and also addressing supply management.
 16            So hopefully, this is going to continue to go
 17  forward and hopefully it will be considered sooner than
 18  later.
 19            MARK TOBEY:  Did you want to say anything,
 20  Eunice?
 21            EUNICE BIEL:  Well, there's been a lot of
 22  proposals and I'm not real -- I heard from our
00128
 1   Congressman from Minnesota, Collin Peterson, some of
 2   his ideas and he's not -- right now everything's in the
 3   discussion stages and nobody's really signed on to
 4   anything because there's problems with all of them. But
 5   I do think we need supply management and I think that's
 6   very important.
 7             And we also need to deal with the phantom
 8   milk supply of milk protein concentrates that's coming
 9   in and it's not recognized as a dairy product, so it's
 10  not assessed as an import.  It just has to be dealt
 11  with because it's there and it's generally accepted but
 12  it should be dealt with because it isn't really
 13  factored into the pricing.  So I just -- hopefully that
 14  this today will bring an awareness so that we realize
 15  the importance of getting a strong dairy policy.
 16            MARK TOBEY:  Thank you.  I think what we'll
 17  do since we're getting near the end of this panel, is
 18  we'll take one audience question that we've gotten.
 19  It's a good question and it would be directed at our
 20  colleague from Pennsylvania.
 21            The question is:  What are the barriers to
 22  entry in Pennsylvania to keep all dairy producers from
00129
 1   coming in and taking advantage of the magic in
 2   Pennsylvania?
 3             DAVID DESANTIS:  And the answer is:  You
 4   can't put up barriers.  We try to encourage the
 5   Department of Transportation to not plow the roads at
 6   the borders, but that won't work, you know.
 7                   (Laugher.)
 8             DAVID DESANTIS:  So, the adage is:  "Money
 9   moves milk and more money moves more milk."  So if our
 10  price is very disparate from the surrounding markets
 11  then we will invite milk in, usually from west to east
 12  and from north to south.  There's a lot of milk in New
 13  York that could invade our markets very easily.
 14            Plus, we have importing retailers that don't
 15  buy their milk in any regulated way from -- that's
 16  under our control, so someone like Aldi or Costco does
 17  bring milk into the state and they bought it at prices
 18  that were not under our control.
 19            So we have to be very sensitive whenever we
 20  set the over-order premium so that it doesn't create
 21  such an incentive that dealers and retailers don't
 22  bring the milk in just to evade the premium.
00130
 1             MARK TOBEY:  Well, thank you very much, all
 2   the members of this panel.  Obviously, this dialogue
 3   will continue to be ongoing and thank you very much for
 4   being here today.
 5                   (Applause.)
 6             MARK TOBEY:  I think what we'll do next is go
 7   directly into the public participation phase of the
 8   workshop.  We'll have open microphones.
 9             John Ferrell from the U.S. Department of
 10  Agriculture and I think my colleague Bill Stallings
 11  from the Department of Justice will sit up here and
 12  listen to your comments and John will probably describe
 13  a little bit more about what the -- what the rules will
 14  be.
 15            Thank you all.
 16                 PUBLIC TESTIMONY
 17            JOHN FERRELL:  Well, I think we will go ahead
 18  and get started for the public testimony section of
 19  today.  We will -- we will have people provide comments
 20  that want to come up to the microphone for the next
 21  hour and then at 12:30, we'll go to lunch then.
 22            So what we'll do is if you wanted to provide
00131
 1   a comment, we had tickets out front that you could get
 2   and what we'll do is if you have a ticket and want to
 3   provide a comment to line up on either one of the
 4   microphones up front here.  We're going to ask that you
 5   limit your comments to two minutes each and we do so
 6   just so we can ensure to get as many people as possible
 7   who want to provide a comment to be able to do so.
 8             We do have a timer over here and he'll help
 9   keep track of our time and make sure we're getting as
 10  many people through as we possibly can because we want
 11  to hear from as many of you as possible.
 12            So, again, if you want to provide a comment
 13  go ahead and come up to the microphone and we'll -- we
 14  can go ahead and get started.
 15            Right over here.
 16            ED KING:  Good morning.  I assume this is on.
 17  Yes, it is.  My name is Ed King and I'm a dairyman from
 18  New York State, the eastern edge of the state.  And I
 19  sit on the Board of Directors of the Dairy Lee Co-
 20  operative.
 21            I was fortunate enough to be able to be
 22  offered the opportunity to back in June, to testify in
00132
 1   Madison.  And I really appreciate the fact that the
 2   interest in both the Department of Justice and USDA
 3   continues in the dairy industry and its economic
 4   viability.  So I'm -- we really appreciate that.
 5             Second of all, I really appreciate the fact
 6   that we have strong support that's been voiced by both
 7   the Secretary and the Attorney General for the Capper-
 8   Volstead Act.  That's extremely important to us as co-
 9   operative members going forward.
 10            A couple of my main points in Madison were
 11  the fact that retailers, large retailers, supermarkets,
 12  are able to extract concessions from processors that
 13  say, well, okay, here's the price and these are the
 14  movers and the price of the contract but then when it's
 15  all finished, the supplier has to keep quote-unquote,
 16  "keep the retail marketer competitive."  Those same
 17  demands are passed from the processor back to the
 18  cooperative; therefore, to the farmer.  And it's pretty
 19  clear.  The farmer doesn't have anyone to turn to to
 20  keep them competitive.
 21            We've heard a lot of discussion here today --
 22  and I think that's an area that certainly needs
00133
 1   investigating.
 2             We've heard a lot of discussion about price
 3   and margins, et cetera.  I would tell you that the
 4   comment that was made about New York State's anti-
 5   gouging law and the fact that there is a law, but
 6   currently it's not being enforced.  I assume that's
 7   because of budgetary restrictions and lack of
 8   personnel, et cetera, but the State of New York would
 9   be better off commenting on that than I.  But I know
 10  for a fact that that anti-gouging law is not being
 11  enforced in New York.
 12            And we've had a lot of good testimony but
 13  another -- another certainly extremely important factor
 14  in all of this is that we talk about margins but the
 15  spread between the farmer and retail, but no one has
 16  spoken about -- only in a tertiary way about how
 17  drastically the cost of production of milk on farms has
 18  increased.  And if those, that factor is not taken into
 19  consideration, then some of the margins that are quoted
 20  are meaningless until you -- until you take a look at
 21  that.
 22            So there's -- those are the points.  And,
00134
 1   again, I appreciate the opportunity to be here today
 2   and the focus of attention that you folks have given to
 3   the dairy industry.
 4             Thank you very much.
 5             JOHN FERRELL:  Thank you.
 6             JOEL GREENO:  I have to turn it on or --
 7             JOHN FERRELL:  It's on.
 8             JOEL GREENO:  It's on?  Okay.  Good.
 9             Hi, I'm Joel Greeno, dairy farmer from
 10  Kendall, Wisconsin and I also had an opportunity to be
 11  on the panel in Madison, Wisconsin, June 25th.
 12            And I just would like to remind everyone that
 13  rural America is in serious trouble, that our small
 14  communities are failing because the farmers that live
 15  around those communities don't have any money.  And
 16  especially in my area of dairy, things are extremely
 17  bad, you know, due to the last two years of extremely
 18  low prices.
 19            I've seen more farm equipment hauled off to
 20  the salvage yard than I've ever seen ever before.  I've
 21  seen dairy farmers sell their corn crop because it's
 22  the only thing they had that was of any value and I
00135
 1   don't know if they're banking on a better milk price by
 2   spring, which the way it looks isn't likely, or if
 3   they're planning on selling their cows soon, because in
 4   Wisconsin once you're out of feed, and that with cold
 5   weather the situation's drastic.
 6             And so we need the milk pricing system fixed.
 7   If we want young farmers to come into the industry they
 8   need to be paid a living.  Everyone in the chain can
 9   adjust their margin accordingly and earn a living
 10  except for the farmer.  And if Antitrust Division and
 11  USDA doesn't step it up and ensure that farmers earn a
 12  living first, and everyone else adjusts their margins
 13  accordingly thereafter, the entire system will fail,
 14  rural America will fail, our farmers and our nation as
 15  a whole will fail, just because our whole
 16  infrastructure relies on our farmers who produce 70
 17  percent of our -- the world's raw material and we're
 18  absolutely vital.
 19            And, you know, we're depended on and we're
 20  the people that create the economic activity that
 21  creates jobs and puts people back to work and all that
 22  needs to be taken into consideration when all these
00136
 1   decisions are being made.  And for dairy farmers, you
 2   know, time is critical and these decisions need to be
 3   made in short order and far sooner than the 2012 Farm
 4   Bill.
 5             And ongoing investigations need prompt
 6   attention such as the one into Dairy Farmer's of
 7   America, Dean Foods and National Dairy Holdings that
 8   I've spoke of before.
 9             Thank you.
 10                  (Applause.)
 11            KATHY MULVEY:  Good morning, I'm Kathy Mulvey
 12  speaking on behalf of the Community Food Security
 13  Coalition which includes more than 400 social and
 14  economic justice, anti-hunger, environmental, community
 15  development, sustainable agriculture, community
 16  gardening and other organizations who are working to
 17  catalyze food systems that are healthy, sustainable,
 18  just and democratic by building community voice and
 19  capacity for change.
 20            And really alarming levels of corporate -- of
 21  concentration in agriculture and lack of enforcement of
 22  antitrust regulations and laws are inhibiting
00137
 1   development of our local and regional food systems. Our
 2   members are concerned about corporate consolidation in
 3   the agriculture and production and retail sectors
 4   because it negatively effects both producers and
 5   consumers.  Producers are receiving less of the retail
 6   dollar and consumers are paying more for food.
 7             And in an industry that's dominated by a
 8   handful of corporations we're finding producers
 9   struggling for access to markets, land, fair wages and
 10  non-GMO seeds.  And consumers struggling for access to
 11  affordable healthy food, transparent food origination
 12  information, market diversity and in rural and limited
 13  income areas, particular concern about lack of access
 14  to healthy food, healthy grocery stores.
 15            So really after -- now is the time to move
 16  from study to action to ensure that consumers and
 17  farmers receive fairness in the marketplace.  So we're
 18  encouraged by this process, we look forward to seeing
 19  DOJ and USDA work together to enforce antitrust
 20  legislation, stop anti-competitive behavior and also to
 21  recommend new laws coming out of this process to
 22  encourage more regionally-based food infrastructure.
00138
 1             Thank you very much.
 2                   (Applause.)
 3             PAUL SOBOCINSKI:  My name is Paul Sobocinski.
 4   I'm a crop and livestock farmer from southwest
 5   Minnesota.  I'm with the Land Stewardship Project and
 6   I'm now producing hogs for Nieman Ranch.
 7             In my neighborhood where there was once ten
 8   of us producing hogs I'm the only one left.  I want to
 9   be clear that the National Pork Producer Council does
 10  not represent me as an independent pork producer.  In
 11  my opinion, with my money, and on their watch, 90
 12  percent of the hog producers have been eliminated since
 13  I've been farming.
 14            So what do independent family farmers need?
 15  We need better market access.  We need real discovery
 16  of price in terms of sales being offered for livestock.
 17  We need real fairness.  We need USDA to swiftly enact
 18  and enforce the proposed GIPSA Rules.
 19            I'd like to tell a story and hope that maybe
 20  you can remember.  It's my pie story.  When my mom made
 21  a pie for our family with seven kids in the family,
 22  that pie was divided up all equally.  Right now, both
00139
 1   USDA and Justice have got to decide with the GIPSA
 2   Rule.  Are you going to take that pie, are you going to
 3   put that hand on the pie on the hand of Wal-Mart and
 4   the multinational packers, put your hand on it and
 5   guide that pie slicer back to fairness just like my mom
 6   did for each of us so that farmers get a fair share of
 7   that pie?
 8             That's what needs to happen.  What also needs
 9   to happen, if they can't get their hand moved over for
 10  fairness, Wal-Mart's hand moved over for fairness,
 11  along with the packers, you need to take that slicer
 12  and start cutting them up and splitting them up.  They
 13  don't need to be that big if they can't be fair.
 14            Thank you.
 15                  (Applause.)
 16            STEVE MEYER:  Hi, my name is Steve Meyer. I'm
 17  an industry consultant and an analyst and I run a
 18  company called Paragon Economics in Iowa.
 19            I'd like to bring a couple of points to the
 20  attention of the panel today.  And the first two are
 21  really about the elephant in the room, I've been to
 22  four of these things, and it seems as though everybody
00140
 1   forgets that one of the best ways to help the
 2   livestock, poultry, dairy and egg industries in these
 3   United States would be for USDA to quit working against
 4   meat and animal protein demand by promoting other diets
 5   through the dietary pyramid, the food guide pyramid and
 6   other ways.  We don't feel like you've done us very
 7   much good on that count.
 8             The second elephant in the room is the fact
 9   that over the last five years, the number one
 10  determinant and the number one damage to profitability
 11  in the livestock and egg and dairy industries and
 12  poultry has been the run-up in feed costs due to the
 13  subsidization of ethanol production from corn. If you
 14  want to help profits, do something about that and help
 15  our costs getting back to a more reasonable -- and put
 16  us on an even playing field on buying corn.
 17            The last point I would make is that these
 18  price spreads that we're talking about today are
 19  spreads.  They do not indicate profits.  The major
 20  component of any of the prices that you talk about in
 21  the ERS price spread data is cost.  There's a lot more
 22  costs than there are profits.  And one of the ways that
00141
 1   USDA can help in keeping prices spreads low is to make
 2   sure they don't add to our cost in some fashion.  This
 3   would -- with this in mind, it doesn't mean do nothing,
 4   but it does mean do what you do carefully.  Now the
 5   Hippocratic Oath says first "Do no harm."  And I would
 6   really urge you to do that in this case as well.
 7             Price spreads are wide for some goods because
 8   the finished good doesn't look very much like the good
 9   that comes off of the farm.  In the case of beef and
 10  pork, for example, the farmer's share of the pork
 11  dollar is lower because there's a lot more processing
 12  that goes into pork than there is to beef.  And so the
 13  level of these price spreads in and of themselves,
 14  don't mean very much.  They're the function of how much
 15  processing needs to be done to a given good and the
 16  costs of doing it.  You can help us by making sure that
 17  you don't add to those costs.
 18                  (Applause.)
 19            WES SHOEMYER:  Good morning.  I'm Wes
 20  Shoemyer and I'm a family farmer from northeast
 21  Missouri and I'm going to shift gears just a little
 22  bit.  The last time I was out here was 12 years ago and
00142
 1   we were talking about COOL and those type of products
 2   and mandatory price reporting.  Today, we're here --
 3   and the two words we hear today are "fairness" and
 4   "competition."
 5             And I'm going to shift gears just a little
 6   bit and talk about the supply side.  There is nothing
 7   in this country that eliminated competition and created
 8   a monopoly faster than the general utility patent.  And
 9   I'm going to talk about our seed industry, and the
 10  access that we have to seed.  And what needs to happen
 11  is one of two things.  If you're not going to have
 12  competition, which that patent has eliminated, then we
 13  need to seek the fairness.
 14            And there's two ways that we can grab that
 15  fairness if we have the political will.  One is to go
 16  back and visit the Plant Variety Protection Act and
 17  allow farmers to retain their own seeds once again,
 18  which will create competition and fairness in the
 19  market.
 20            The other thing I was just reading my
 21  Blackberry from Missouri and I read the headlines.  It
 22  said, "The Public Service Commission celebrates 97
00143
 1   years of operation."  Well, when the Public Service
 2   Commission was created, it was to regulate those things
 3   that are so important to us like the electricity,
 4   water, but we allowed monopolies to happen in Missouri.
 5   But we said if we are going to allow a monopoly to
 6   exist there has to be fairness to consumers.  And we
 7   forced those monopolies to open their books, justify
 8   their costs so that there is fairness to those people
 9   that they are selling to.
 10            We either need to have the political will to
 11  create a Public Service Commission for intellectual
 12  property in this country to force them to open their
 13  books to justify their investment and the cost, because
 14  since the time of Round Up Ready and the tech charge
 15  has gone up from $6 to well into the 20s with no
 16  additional investment by the holder of that patent.  It
 17  is time for fairness on this side of the market too.
 18            Thank you.
 19                  (Applause.)
 20            RUDY ARRENDONDO:  Good morning, my name is
 21  Rudy Arrendodo, President of the National Latino
 22  Farmers and Ranchers Trade Association.  And one of the
00144
 1   things that we truly would want to express our
 2   appreciation to Secretary Vilsack and General Holder
 3   for getting us to this juncture, because in the past we
 4   couldn't even get past that door.
 5             So it is important that at this juncture that
 6   the leadership continue to move forward and ensure that
 7   those markets are regulated.  We are continuing to --
 8   we are small producers.  So we have a tremendous amount
 9   of concern with regard to this concentration and these
 10  monopolies in poultry, beef and pork, and we would like
 11  to have the Department of Agriculture look towards, you
 12  know, those small producers who are really trying to
 13  re-retrofit the decimation that this concentration has
 14  done to our rural infrastructure.
 15            And, you know, sharecropping has -- has
 16  become contracting on steroids with regard to these
 17  monopolies that have -- that has -- that are now in
 18  place.
 19            So I appreciate very much if you continue to
 20  do this, we'll be willing to be very helpful to you as
 21  you move forward.  Thank you.
 22                  (Applause.)
00145
 1             DAVID COOPER:  Hi, my name is David Cooper
 2   and I represent Family Dairies USA, a dairy co-
 3   operative in the upper Midwest based in Madison,
 4   Wisconsin.
 5             But more importantly, I'd like to say that
 6   I've spent 44 years in agriculture.  My parents have a
 7   farm, my brother is a fourth generation farmer and so
 8   I've been in agriculture and around dairy farmers all
 9   my life.  They work hard, they re-invest in their
 10  operations and they support local communities.
 11            Agriculture, specifically the dairy industry,
 12  has changed a great deal in the past ten years with
 13  vertical integration, operational size and profit in
 14  their operations.  The percentage return to producers
 15  in these products has been reduced greatly over those
 16  years.  Despite operational efficiencies obtained on
 17  the farms which has helped reduce costs and provide
 18  greater supply to support the growing population, input
 19  costs relating to that has increased dramatically when
 20  you talk about feed and fuel and fertilizers who have
 21  skyrocketed over the past several years because of the
 22  energy policies that are being introduced or
00146
 1   competition that's being increased.
 2             So the ability for producers to obtain equal
 3   percentages or even greater percentages from the
 4   marketplace are not required -- or have not occurred.
 5   Someone, not the producer of the product, has reaped
 6   huge rewards over the years.
 7             I'd like to illustrate a few things to bring
 8   this to light.  The consumer price index for whole,
 9   fresh milk based on U.S. city averages from 2000 to
 10  2010 showed that in year 2000 the price of a gallon of
 11  milk was $2.78.  At the time Class 1 in the Midwest,
 12  price to the farmer was 13.35 per hundred weight versus
 13  $32 per hundred weight that that gallon of milk would
 14  have equated to.  With premiums to producers, the
 15  farmers received $1.26 of that 2.78, leaving a balance
 16  of $1.52.  When I fast-forward that ten years, the
 17  price for a gallon of milk is $3.11 and producers are
 18  receiving approximately $1.25, leaving the balance at
 19  $1.85 or 5 percent disappearing.
 20            I want to explore a little bit in the cheese
 21  market because that's certainly what the Midwest is
 22  familiar with and a large amount of that coming from
00147
 1   their cheddar cheese, has a standard of identity.  You
 2   can buy it on the CME for $1.50 a pound.  Producers
 3   basically are getting about $1.60 a pound, yet it's
 4   being sold in the store anywhere from $3.39 to $6.38 a
 5   pound.  There is a spread there and I recognize that
 6   all cheeses aren't created equal.  The standard used to
 7   be 10 pounds per hundred pounds of milk.  Some vats are
 8   coming out with 15 pounds per hundred pounds of milk,
 9   so there is a difference there.
 10            And when you see spreads of anywhere from $22
 11  to $47 per hundred weight for that same milk that's
 12  being made into that cheese, someone is making that
 13  money.  And I realize that dairy producers can't reap
 14  all of that, there's certainly energy costs that
 15  processors and the food chain has experienced, but the
 16  difference that producers have experienced as well is
 17  greater.
 18            Price discovery and transparency in those
 19  systems need improvement and they need improvement
 20  because the fabric and the backbone of the America that
 21  we know being agriculture, will not survive without it.
 22            Thank you.
00148
 1                   (Applause.)
 2             MARCIA ISHII-EITEMAN:  Thank you.  I'm Marcia
 3   Ishii-Eiteman from Pesticide Action Network, PAN, a
 4   global network of scientists, family farmers, consumers
 5   and farm workers working towards a fair and healthy
 6   food system.  PAN has 35,000 supporters in the U.S.
 7   many of whom have written to us this pastweek bringing
 8   us messages to share with this workshop.
 9             Our supporters are deeply concerned about the
 10  fact that, right now, the top six chemical companies
 11  control 75 percent of the global pesticide industry.
 12  And one corporation, Monsanto, controls 60 percent of
 13  the U.S. corn and soybean seed supply.  This level of
 14  consolidation is unprecedented and is dangerous.
 15            Our supporters are concerned in particular
 16  about lack of access.  Farmers today can barely access
 17  non-GMO seeds.  This lack of market choice deprives
 18  farmers of any real control over what to plant and how
 19  to tend their crops.
 20            Meanwhile, the agricultural biotech industry
 21  has lobbied aggressively to prevent labeling of food
 22  products containing GMOs or pesticides.  But American
00149
 1   consumers want to know what's in and on our food, how
 2   it's produced, where it's produced in order that we can
 3   make informed choices about how to feed our families.
 4             Health and safety:  Local and organic farmers
 5   and ranchers have a hard time finding markets for their
 6   products.  They can't get a fair price from corporate
 7   buyers, they have a hard time getting a fair deal for
 8   supermarket shelf space, and on the other hand,
 9   consumers have difficulty finding, accessing and
 10  affording healthy local and organic food.
 11            What is available in our large supermarkets
 12  tends to be highly processed food-like products linked
 13  to obesity and diabetes that ultimately cost consumers
 14  more in healthcare expenses, in lost employment
 15  capacity and reduced quality of life.
 16            Our supporters are also deeply concerned
 17  about threats to the environment posed by corporate
 18  agriculture.  It's this kind of agriculture that
 19  poisons our air and water, wears out our soil,
 20  threatens biodiversity and the very eco-system
 21  functions on which agriculture depends and weakens food
 22  security.  It does not have to be this way.  There are
00150
 1   other ways of farming that are sustainable and highly
 2   productive, less costly to the environment and public
 3   health.  Farmers just need a fair chance and a fair
 4   marketplace to make this happen.
 5             And that brings me to my final point,
 6   fairness.  Our supporters want fair prices for farmers
 7   and ranchers and fair wages for farm workers.  We want
 8   an end to the revolving door between the ag lobby, the
 9   corporate actors and the government agencies that are
 10  responsible for regulating the industry.  It's this
 11  kind of corruption that enables corporations to
 12  indirectly set public policy for their benefit at the
 13  expense of ordinary farmers, workers, consumers and the
 14  environment.
 15            In sum, Pesticide Action Network and our
 16  supporters are urging the Justice Department having had
 17  a year to review the evidence, to take decisive action,
 18  vigorously enforce existing antitrust laws, break up
 19  Monsanto's monopoly control and give farmers back the
 20  right to freely save and exchange seed.
 21            So, in essence, we urging public agencies and
 22  lawmakers to return control of agriculture to the real
00151
 1   farmers and ranchers of America, restore fairness to
 2   our food and agricultural markets and allow consumers
 3   to have a real meaningful choice and all consumers at
 4   all income levels, to buy healthy food at affordable
 5   prices.
 6             Thank you very much.
 7                   (Applause.)
 8             JOHN FERRELL:  Thank you.
 9             I do ask if you can keep your comments to the
 10  two minutes just out of fairness to everybody.
 11            So right over here.
 12            PETER MICKELSEN:  My name is Peter Mickelsen.
 13  My wife and I own a ranch, cattle ranch near Lewistown,
 14  Montana.  And I'm here in strong support of the
 15  proposed GIPSA Rules.
 16            I'm going to tell a quick little story
 17  because it is absolutely typical, not atypical, of
 18  what's happened in rural America.  When I first owned
 19  my first calf and was responsible for the raising of
 20  that calf, in 1942, our ranch today was three ranches
 21  then, supporting four families, the three owner
 22  families and one ranch had a full-time hired family.
00152
 1             Today, that same ranch cannot support one
 2   family.  And there is one reason and one reason only
 3   and it's been very well spelled out, by the Secretary
 4   and by the Attorney General, and that is we do not have
 5   a fair marketplace.  As a matter of fact, it's only
 6   unjust, I consider it dishonest and illegal.  Why?
 7   Because it's controlled by monopoly.
 8             Now, USDA knows this, the Department of
 9   Justice knows this, most of us in this room know this
 10  and it's now time to act and put these proposals into
 11  effect.
 12            I would like to make a couple comments about
 13  some of the things we heard from the panelists this
 14  morning.  If anyone in this room thinks that we have a
 15  fair, competitive market it's a myth.  And one other
 16  thing, if anyone in this room thinks we have the best
 17  marketing system for our livestock, they're very well
 18  ill informed.
 19            I've lived a good part of my life overseas
 20  and I can tell you that this monopoly, four companies
 21  controlling over 80 percent of the red meat and I think
 22  I've said my piece.  I thank you, but let's do the
00153
 1   action.  USDA and the Department of Agriculture have
 2   had since 1921 to do something about this and it has
 3   not been done and now you're doing it, do it.
 4                   (Applause.)
 5             STEPHEN WAGNER:  Hi.  My name is Stephen
 6   Wagner.  I'm a student from Bar Harbor, Maine.  And I'm
 7   also a volunteer with Slow Food.  And I do this because
 8   I want to see a food system that is fair and equitable
 9   for all actors in the food system.  That includes
 10  growers, producers, consumers, retailers, and also the
 11  future generations.
 12            And, specifically, I'm here as a consumer
 13  because I'm concerned about the safety of our food
 14  supply.  There was a panelist previously who said it
 15  was the safest food supply in the world and a high
 16  quality of life.  With all due respect to the
 17  gentleman, I would like to see what those definitions
 18  of "safe" and "quality" are because that is not what
 19  Americans have been seeing.
 20            Every year this country has 5,000 people die
 21  and over 300,000 people hospitalized for food
 22  contamination.  And the link between our food -- the
00154
 1   safety of our food supply and corporate consolidation
 2   is very clear.  The bigger the farms, the larger the
 3   distribution; the larger that distribution, the
 4   accountability and the transparency disappear and an
 5   outbreak cannot be controlled as it can on a smaller
 6   farm.  This is why -- this is why an outbreak in just
 7   two egg laying facilities only a couple of months ago
 8   led to a recall of over a half a billion eggs
 9   nationwide.
 10            I am not alone in my concern.  I am speaking
 11  for over 10,000 people who signed a Slow Food petition
 12  that demanded the government take action and create a
 13  safe food system for this country.  5,000 deaths a year
 14  is not only outrageous but it is preventable.
 15  Therefore, I ask the DOJ to please enforce existing
 16  antitrust legislation that will begin to break up the
 17  corporate consolidation and take a significant step
 18  toward ensuring our nation's food supply.
 19            Again, I thank you for your time and this
 20  opportunity to speak.
 21                  (Applause.)
 22            CHRIS SANDERS:  Good morning.  I'm Chris
00155
 1   Sanders with the Food and Commercial Workers Union in
 2   Kentucky.  I'm here with all these gold shirts down
 3   front.
 4             I've been to several of these hearings.  I've
 5   been to Normal, Alabama, and to Fort Collins, Colorado,
 6   and I really wanted to be here in Washington, D.C. to
 7   talk about profit margin and talk about the retailer.
 8             Now, first, I wanted to say a word about
 9   fear. When we were in Normal, Alabama, a grower stepped
 10  up to the microphone and said, "I'm speaking for
 11  another who is afraid to speak for fear of
 12  retaliation."  And I really appreciated it, it's one of
 13  the kindest things I've ever seen.  The Attorney
 14  General running that hearing from the Justice
 15  Department, took that man aside and said, "You speak
 16  freely without fear of retaliation, nothing will -- no
 17  harm will come to you or anyone else you speak for."
 18  And that kind of reassurance has emboldened many, many
 19  people to speak freely in these hearings with the trust
 20  that our government can provide.
 21            But since I've been to these hearings, I've
 22  talked to several of our major suppliers with whom we
00156
 1   have collective bargaining agreements.  I'm talking
 2   about names that you know, names that have been
 3   mentioned in this room and in other hearings, who said,
 4   "I appreciate you speaking up about the tyranny of the
 5   retailer" -- in fact, I was the first person to name
 6   Wal-Mart in these hearings.  "I appreciate you speaking
 7   up about the tyranny of the retailer in these hearings
 8   because we're afraid to do that."
 9             So there's two things I want to say to
 10  Justice and to the suppliers.  Please assure everyone
 11  under this flag and under God, that they can speak
 12  freely without fear of retaliation in their business
 13  relationships.
 14            And to the suppliers, do like us in our gold
 15  shirts, stand up, speak freely.  If you feel like
 16  you're being treated unfairly, participate in these
 17  hearings and explain what you think about the
 18  retailers.
 19            Thank you.
 20                  (Applause.)
 21            MICHAEL SLIGH:  Good morning.  I'm Michael
 22  Sligh. I work for the Rural Advancement Foundation
00157
 1   International.  We are a not for profit foundation
 2   dedicated to equity, justice and sustainability in
 3   agriculture.  We trace our roots back to the last great
 4   depression where solutions such as the reform of share
 5   croppers rights, the establishment of supply management
 6   and parity, legislation for agriculture helped mightily
 7   to pull both agriculture and our country out of the
 8   last great crisis.  Now is the time to provide such
 9   leadership again.
 10            If the goals of this process are aimed at
 11  restoring resilience, fairness and economic prosperity
 12  to our rural communities and to family farmers that we
 13  are so indebted, then we must cut to the core of this
 14  ongoing crisis.
 15            I call for several of the key things that we
 16  need to get to the bottom of.  First, we need to
 17  rapidly decentralize our packing, processing and
 18  cleaning slaughter facilities to ensure that the value
 19  added dollars flow back to the desperately needed rural
 20  communities.
 21            Secondly, we need to reinvigorate public
 22  cultivars and breeds development through classical
00158
 1   plant breeding to ensure that farmers and consumers
 2   have choice and tools to meet the regional climate
 3   adaptation, the challenges of nutrition and growing
 4   demand for healthier, fresher fibers, foods and fuel
 5   choices.
 6             We need to repeal utility patents on seeds,
 7   breeds and planting stock as these patents are wholly
 8   inappropriate for agriculture and present monopolistic
 9   control over the very building blocks of our food
 10  system and have paralyzed real research innovation,
 11  scientific exchange and have been a very costly
 12  failure.  Farmers should not be renters of patented
 13  germ plasm, but seed savers of a global heritage.
 14            We should also not only enforce strong GIPSA
 15  rules but we must create federal rights and protections
 16  for all farmers and workers to fair contracts and
 17  licensing agreements whether as individuals or in
 18  associations.
 19            We must also mitigate the growing market and
 20  ecological crises due to GMO contamination and shift
 21  this liability back to the patent holders.
 22            We must enforce antitrust powers where
00159
 1   appropriate.  And we must, in the future, have public
 2   evaluation on such considered mergers prior to any such
 3   considerations.
 4             And we must also develop transparent and full
 5   cost analysis of our food system so that we incorporate
 6   the currently externalized cost so that we get at the
 7   real full cost accounting of our food system, because
 8   it is not antithetical for farmers and workers for
 9   farmers and workers to have fair prices and for
 10  consumers to have reasonable prices.
 11            And, finally, we must ensure the next
 12  generation of family farmers through the expansion of
 13  beginning and re-entry programs for farmers back into
 14  agriculture.  We need one-stop full shop type models.
 15  To be clear, minor tweaking and adjustments and
 16  recommendations will not get us there.  If we are to
 17  create the kind of renaissance needed, we must do
 18  justice.
 19            Thank you.
 20                  (Applause.)
 21            LEE RAMSBURG:  My name is Lee Ramsburg and I
 22  have 100 cow dairy farm in southern Pennsylvania.
00160
 1             I'm here this morning to testify as to the
 2   need for dairy cooperatives in this country today.  In
 3   my area, there are four or five dairy co-operatives
 4   active and lots of independents.  I chose DFA because I
 5   think they are the most concerned about keeping their
 6   producers in business.  I use, for an example, they
 7   have a grazing program, which educates farmers on
 8   grazing management, which is a viable option for a lot
 9   of struggling farmers nationwide.  They also have
 10  extensive education on risk management which helps to
 11  minimize the volatility that we're experiencing in the
 12  dairy price cycling today.  They also have field staff
 13  that help you work out quality and management problems
 14  on your individual farms.
 15            DFA is big enough that it has research and
 16  development that allows them to explore new uses for
 17  milk and expanded dairy products.
 18            I think that dairy cooperatives are the
 19  essence and the structure of milk management in this
 20  country today and without them I don't know who would
 21  perform all these functions that I've just named and
 22  this is just a partial list, and I think that without
00161
 1   them, the milk marketing would be chaotic in this
 2   country.
 3             Thank you for listening to me.
 4                   (Applause.)
 5             MEGAN LOTT:  My name is Megan Lott.  I work
 6   with the Community Food Security Coalition.
 7             A comment was made this morning on people are
 8   now spending less on food now than they have in the
 9   past and I just want to speak to that, because I think
 10  the reality of that is that the food that people can
 11  afford is bad for them, it's not healthy.
 12            I'm also a registered dietician.  I've worked
 13  with clients, senior citizens, who I've seen been in
 14  their homes making tuna noodle casserole from cat food
 15  because that was an available cheap option.  I've seen
 16  them making tomato soup from a bottle of Heinz ketchup
 17  because they could get more price-wise out of volume by
 18  watering that bottle of ketchup down than buying a can
 19  of soup in the grocery store or buying fresh produce.
 20            The reality is, a lot of low income Americans
 21  live in quote-unquote "food deserts" and don't have
 22  access to healthy food options.
00162
 1             More people are dying today from diet related
 2   chronic disease than any other cause of death.  If we
 3   don't have healthy food options available, affordable,
 4   how can they make the right choice?
 5             The contrast between this industrialized high
 6   yield corporate food production and growing world
 7   hunger suggests that it is time to reevaluate the
 8   effectiveness of a dominant industrial agribusiness
 9   model that is not solving the problem of hunger. Please
 10  don't let these workshops be the last step in this
 11  examination.  We need more action to ensure that
 12  people, all people, have access to affordable, high-
 13  quality healthy food items.
 14            Thank you.
 15                  (Applause.)
 16            ALICIA HARVIE:  My name is Alicia Harvie and
 17  I'm here representing Farm Aid.
 18            Farm Aid is a nonprofit organization who has
 19  worked for 25 years to keep family farmers on the land
 20  and thriving.  We hear from farmers and ranchers every
 21  day.  And we're concerned by the stories we're hearing
 22  of increased economic pressures, intimidation and
00163
 1   unfair contracting terms farmers faced at least in part
 2   from an overly concentrated agricultural market.
 3             We're also concerned about the impact this
 4   has had on rural communities.  America's farmers are
 5   the foundation of our economy and as hundreds of
 6   thousands of farmers have been forced off their land
 7   from both rising production costs and downward pressure
 8   on the prices they receive, jobs disappear, rural
 9   wealth disappears and the fabric of rural communities
 10  are eroded.
 11            Lastly, we're concerned by what we hear from
 12  the general public, from consumers who want to support
 13  America's family farmers and want good food, but don't
 14  know how to do so in a marketplace that lacks
 15  transparency and has too few options, too few
 16  retailers, too few corporations, masked by the
 17  appearance of thousands of brands.
 18            We are encouraged by the development of new
 19  market models that have developed despite these
 20  pressures, local and regional markets and other
 21  arrangements that deepen the relationship between
 22  farmers and consumers.  Yet, these markets are also
00164
 1   stymied by the marketplace.
 2             The point is, there is a real problem here.
 3   Please do not take your eye off that mark. Please take
 4   strong action after this year of study. Please pass and
 5   implement the GIPSA Rule.  Please follow through on the
 6   Department of Justice investigations in the dairy
 7   industry and release the results of your investigation.
 8   Encourage the Federal Trade Commission to join both the
 9   DOJ and USDA and this task force on antitrust issues
 10  and agriculture, including retail markets.  And,
 11  please, recommend laws that encourage regionally based
 12  food infrastructure that will give farmers a fair
 13  shake.
 14            Thank you.
 15                  (Applause.)
 16            LISA MITTEN:  Hi, my name is Lisa Mitten.  I
 17  am a consumer and a small scale food producer from
 18  Huntington, Long Island and a member of the NOFA New
 19  York Slow Food and the Long Island Small Farm
 20  Initiative.
 21            I'm here to say that myself and many other
 22  consumers on Long Island want to pay farmers, growers
00165
 1   and ranchers the real cost of food.
 2             Earlier today, Erik Lieberman of the Food
 3   Marketing Institute and earlier this fall, Secretary
 4   Vilsack on the Colbert Report, touted the fact that
 5   Americans spend less of their disposable income on food
 6   than just about anybody on the face of this Earth. This
 7   is not something to be proud of and is incredibly
 8   shortsighted.
 9             I do not want cheap food because I prioritize
 10  the future over the present.  I prioritize my current
 11  and future health, the future health of the children
 12  that I will bear, the economic health of farmers and
 13  the ecological health of our country and our world.
 14            I only earn an average income and I am able
 15  to buy good quality food because I prioritize it and do
 16  not purchase other things that are associated with a
 17  high standard of living like Starbuck's lattes, iPhones
 18  and even home ownership.
 19            I want to pay the real cost of food, the real
 20  cost of high quality food like raw dairy, meat and eggs
 21  raised from pastured animals and produce raised in
 22  nutrient-dense soils.  If I can purchase a product --
00166
 1   if I can't purchase a product from a farmer I know,
 2   then I'm going to have to turn to the food industry and
 3   a food producer from farther away.
 4             But how am I going to make these decisions?
 5   Brands and distinctions like natural, cage- free,
 6   antibiotic-free and even organic are just baby steps in
 7   the quality that I and many other consumers are looking
 8   for.  They do not represent the quality that Americans
 9   are demanding.
 10            Take, for example, an egg.  When I crack an
 11  egg and open it, I ask myself, "How much integrity does
 12  that eggshell have?  How vivid orange is the egg yolk?
 13  How firm and upright is that egg yolk?"  The goal of
 14  cheap food in the United States is only weakening our
 15  country, not strengthening it.
 16                  (Applause.)
 17            TANIKKA CUNNINGHAM:  Hi.  I'm Tanikka
 18  Cunningham.  I'm the executive director of Healthy
 19  Solutions and I bring you greeting also from Safaronda
 20  (ph) Southeast, an African-American Organic member.
 21            I'd like to speak today because I've heard of
 22  two things about the price of food.  And what Healthy
00167
 1   Solutions does is that we work with communities of
 2   color to be able to impact themselves by helping them
 3   to resource directly from farmers into the community.
 4   And I hear a lot of things about the price of food and
 5   everyone talks about inner cities, we're here in D.C.
 6   where we function and work.  They talk about dairy
 7   coming in two cases is a lot and no one wants to
 8   purchase it.  But a lot of our retailers in our stores,
 9   those prices aren't real.  When you go to a corner
 10  store in D.C., the price of milk is $5.99.  The price
 11  of an orange is $1 each.  So when you talk about -- and
 12  they're gone off the shelves because people have to
 13  eat.  They're suddenly in a disconnect from farm to
 14  community.
 15            Myself, I'm the only African-American female
 16  to ever own a produce distribution company.  I moved
 17  about 100,000 pounds of produce a day to military
 18  troops supporting schools.  But within that role I
 19  realized the disconnect in our communities.  And there
 20  needs to be a bridge of a gap.  It makes no sense that
 21  our farmers are suffering and it makes no sense that
 22  our producers can't sell, but we have these
00168
 1   corporations, small, large, in between, it doesn't
 2   matter the size, that aren't -- aren't buying directly
 3   from our producers and aren't giving  to our consumers.
 4             Our farmers are suffering, our communities
 5   are suffering because they can't afford the food.  So
 6   within this conversation I'd like to say do not forget
 7   the communities that are suffering.  And we talk about
 8   all foods and all people, and I'm also going to strike
 9   the African-American community cause that's where our
 10  farmers are suffering, we're down to one percent.  And
 11  our community members all live in these food deserts.
 12            Thank you.
 13                  (Applause.)
 14            HELEN STARR:  My name is Helen Starr.  I
 15  practiced law in private practice in Washington, D.C.
 16  for about 30 years, and about a year ago I changed
 17  direction.  I went to Italy where I earned a master's
 18  degree in food studies at the University of Gastronomic
 19  Sciences which is related to Slow Food.  So I speak
 20  today as a consumer, an academic and founder of a Slow
 21  Food chapter devoted to the Chesapeake Bay Watershed on
 22  the eastern shore.
00169
 1             Anti-competitive behavior in agriculture has
 2   impacts far beyond prices and far beyond negative
 3   impacts on small farmers and family farmers.  The grip
 4   that a monopolistic agriculture has on markets
 5   contributes to poor health of Americans.  It drives
 6   what Americans eat and drives them to eat highly
 7   processed foods lacking in variety and to depend
 8   unnecessarily on inexpensive meat.
 9             The production systems of a large scale
 10  monopolistic agriculture are more likely to damage
 11  soil, water and air on a global scale.  Failure to
 12  enforce antitrust laws in agriculture will, therefore,
 13  eventually contribute to economic decline in the United
 14  States.  We will have higher health costs, and there
 15  will be externalities from the large scale farming that
 16  have not been paid for by the industry that's created
 17  them.
 18            Therefore, I urge the Department of Justice
 19  and the USDA to enforce the laws for which they have
 20  authority and to save the health, economy and
 21  environment of our nation.
 22            Thank you for your time.
00170
 1                   (Applause.)
 2             CECELIA KLUDING:  My name is Cecelia Kluding.
 3             I am in high school and I came here from
 4   Boulder, Colorado.  I missed a day of school to come to
 5   talk to you today.
 6             I have just returned from the climate talks
 7   in Cancun where indigenous farmers south of our border
 8   from various other countries report their destruction
 9   of their lands and resources by multinational
 10  corporations in the industry of mining, gas and trade
 11  agreements.
 12            There need to be discussions happening
 13  between and/or within the Department of Agriculture and
 14  the Department of Justice that are addressing the
 15  working conditions that these farmers who do much of
 16  the labor producing harvesting -- and harvesting the
 17  food that we eat.  Having left a bad situation and
 18  entering a bad situation on this side of the border.
 19  Specifically, I would like there to be accountability
 20  for the stated issues of the Immokalee farm workers of
 21  Florida and the United Farm Workers of California who
 22  report that their working conditions resemble slave
00171
 1   conditions.
 2             This is not okay for our country and I think
 3   this needs to be -- I demand accountability on the part
 4   of the Department of Justice and Agriculture.
 5             Thank you.
 6                   (Applause.)
 7             SIENA CHRISMAN:  My name is Siena Chrisman.
 8   I'm here from Why Hunger in New York City. I've been to
 9   three of the other workshops as well, organizing with a
 10  larger coalition of groups who have been trying to get
 11  many voices out to speak with you as you're conducting
 12  this investigation.
 13            I'd like today to really echo Chris Waldrop
 14  from this morning's panel when he mentioned that many
 15  Americans are being left out of the safest and best
 16  food system in the world as another gentleman called
 17  it.  Both obesity and eye-related disease and also SNAP
 18  participation are high and growing every day.  Both of
 19  these are directly related to the consolidation of our
 20  food system.  Nutritious food is too expensive,
 21  producers of fresh and local foods can't get their
 22  products into grocery stores, grocery stores have
00172
 1   abandoned low income communities, many of these issues
 2   that we've heard from the other commenters today.
 3             We at Why Hunger have been hearing from
 4   thousands of our constituents that these issues matter
 5   to them too.  I'm here -- many of us who have commented
 6   are here representing thousands, tens of thousands of
 7   other people as well for whom these issues are vitally
 8   important.
 9             We have just submitted almost 11,000
 10  signatures on a comment to the DOJ website requesting
 11  strong action on this investigation.  Those 11,000
 12  signatures are part of a network of about seven other
 13  NGOs who have among us collected almost a quarter of a
 14  million signatures, 240,000 signatures, on similar
 15  comments which we've all submitted in the past week to
 16  you folks urging you to really take very strong action
 17  at the end of this year of investigation.  An action
 18  which will really benefit both farmers and consumers.
 19            Thank you.
 20                  (Applause.)
 21            JOHN FERRELL:  Well, I appreciate everyone
 22  providing comments.  We will go to a lunch break right
00173
 1   now.  We will have another opportunity for people to
 2   provide comments later on this afternoon, so you can be
 3   free to go to lunch right now and we will ask that you
 4   come back at 1:15 for the panel on issues in food
 5   retailing.
 6             Thank you.
 7                  ISSUES IN FOOD RETAILING
 8             MS. POZEN:  Good afternoon.  If you could
 9   take your seats, we'd like to get started with Panel 3,
 10  Issues in Food Retailing.  This afternoon we are going
 11  to add to the already wonderful discussion that went on
 12  this morning and talk about issues in food retailing.
 13            With the increasing consolidation in the
 14  retail sector, specifically in certain regions, it's
 15  raised questions about the impact on consumer prices
 16  and viability of smaller stores to compete and the
 17  impact on suppliers down the marketing chain.  There's
 18  also been changes in industry structure and some new
 19  trends that we're going to touch on.
 20            I am delighted today to be joined by
 21  panelists of all kinds and from all different
 22  organizations, and I'm a little worried.  We put the
00174
 1   two economists side by side, so we'll have to sort that
 2   out as we go forward.
 3             Let me start by introducing the panelists and
 4   then Howard Shelanski is going to tee up the issues for
 5   us and then we're going to go through a question and
 6   answer and hopefully have a really fulsome dialogue
 7   about what I think are very important issues that we
 8   face in the agricultural context and in retailing, food
 9   retailing.
 10            So I will start and introduce Howard.
 11            Howard Shelanski is the Deputy Director of
 12  the Bureau of Economics at the Federal Trade Commission
 13  where he's responsible for the Bureau's antitrust
 14  portfolio.  Since 1997, he's been a professor of law at
 15  University of California, Berkeley.  Howard recently
 16  joined the faculty at Georgetown Law Center from which
 17  he's on leave while at the FTC. His research focuses on
 18  antitrust and regulation.
 19            Howard has twice before served in government
 20  as a senior economist at the President's Council of
 21  Economic Advisors and as Chief Economist at the Federal
 22  Communications Commission.  Before joining the Berkeley
00175
 1   faculty, he practiced law in Washington, D.C., served
 2   as a law clerk to Justice Antonin Scalia in the U.S.
 3   Supreme Court, Judge Louis Pollock in the District
 4   Court of Philadelphia, Judge Stephen Williams on the
 5   U.S. Court of Appeals in Washington, D.C.  Dr.
 6   Shelanski earned his J.D. and Ph.D. in economics at the
 7   University of California, Berkeley and his B.A. from
 8   Haverford College.  Welcome, Howard.
 9             To my far right is Bert Foer, a very familiar
 10  face to us antitrusters and we're so pleased you're
 11  here today, Bert.  Bert is the President of the
 12  American Antitrust Institute.  His career has included
 13  private practice in Washington, D.C. at my old stomping
 14  ground, Hogan & Hartson, and also at Jackson &
 15  Campbell.  He has also served in various positions in
 16  the federal government. Bert was the Assistant Director
 17  and Acting Deputy Director at the Federal Trade
 18  Commission's Bureau of Competition.  He was also a CEO
 19  of a midsized chain of jewelry stores for 12 years, has
 20  had trade association and nonprofit leadership.  He's
 21  also taught antitrust to undergraduate and graduate
 22  business students.  Bert has published a number of
00176
 1   articles, book chapters and reviews related to
 2   competition policy, including in particular for us
 3   today the topic for us today of buyer power.  He's a
 4   graduate of University of Chicago law school and magna
 5   cum laude from Brandeis and also an MA in political
 6   science from Washington University, my old law school.
 7             Next to Bert is Wenonah Hauter.  Wenonah,
 8   welcome.
 9             Wenonah is the Executive Director of Food &
 10  Water Watch.  She has worked extensively on energy,
 11  food, water and environmental issues at the national,
 12  state and local level.  She's experienced in developing
 13  policy, position and legislative strategies, also a
 14  skilled and accomplished organizer, having lobbied and
 15  developed grassroots field strategy and action plans.
 16            From 1997 to 2005, she served as the Director
 17  of Public Citizen, their energy and environment
 18  program, which focuses on water, food and energy
 19  policy.  From 1996 to 1997, she was the Environmental
 20  Policy Director at Citizen Action where she worked with
 21  the organization's 30 state-based groups. And then
 22  before that she was with the Union of Concerned
00177
 1   Scientists where she was a senior organizer
 2   coordinating broad-based grassroots sustainable energy
 3   campaigns in several states.  She has her M.S. in
 4   applied anthropology from University of Maryland.
 5   Welcome, Wenonah.
 6             Next to Wenonah is Mary Hendrickson.
 7             Mary is from my home state of Missouri, so
 8   I'm thrilled that she's here as well.  Go Mizzou.  I
 9   can't help myself.  Mary is an extension associate
 10  professor in rural sociology and Director of Food
 11  Circles Networking Project at the University of
 12  Missouri.  Her research and extension program focuses
 13  on understanding the changes taking place in the global
 14  food system and helps farmers, eaters and communities
 15  create profitable alternatives.
 16            Dr. Hendrickson serves as the Associate
 17  Director for the University of Missouri community food
 18  systems and sustainable agricultural program. She's
 19  also served as President of the Agriculture, Food, and
 20  Human Values Society and as President of Community Food
 21  Security Coalition.  Dr. Hendrickson is a recipient of
 22  the 2002 Cooperative Servers Award presented by the
00178
 1   National Farmers Union.  She holds a B.S. in
 2   agribusiness from the University of Nebraska and a
 3   Master's and Ph.D. in rural sociology from the
 4   University of Missouri.
 5             Welcome, Mary.
 6             To my right is Erik Lieberman.  Those of you
 7   who were here this morning saw Erik and heard his bio
 8   in the Food Marketing Institute.  We are so pleased
 9   that you are here.  We know that you did a lot of work,
 10  and I won't repeat your bio if that's okay.
 11            MR. LIEBERMAN:  That's fine.
 12            MS. POZEN:  And we'll move along so we get to
 13  the good stuff.
 14            I'll move on to Kyle if I can find my notes
 15  here.  Here we go.  Kyle is a professor -- Stiegert is
 16  the Director of Food System Research Group, the
 17  Department of Agriculture and Applied Economics at the
 18  University of Wisconsin in Madison, Wisconsin.  Kyle is
 19  widely published in economics and agriculture economics
 20  and food journals.  His research interests include
 21  investigating the competitive structures of agriculture
 22  markets, trade policy, issues in international
00179
 1   agriculture, competition and policy in food retailing.
 2   So welcome, Kyle.  We're so glad you're here.
 3             Sorry.  I'm fumbling around a little bit
 4   here. Al, I'm looking for your bio.  I want everybody
 5   to get credit for all that they've done here.  Al
 6   Vincent, Junior is the International Vice President and
 7   Director of Region 2 of the United Food and Commercial
 8   Workers International Union, which represents over 1.4
 9   million members in the United States and Canada.  Mr.
 10            Vincent has been with a UFCW since 1990.
 11  However, he first became a member of Local 204 in
 12  Charlotte, North Carolina while employed at A&P.
 13  Before being named in his current position, he served
 14  as an international representative and collective
 15  bargaining representative and national poultry
 16  coordinator, Executive Assistant of the New York Region
 17  and Assistant to the National Director of Organizing
 18  and Director of Region 5 South Central.
 19            Mr. Vincent serves as the Executive Vice
 20  President and Chairman of the UFCW Minority Coalition's
 21  scholarship fund.  He's a member of the Coalition of
 22  Black Trade Unions and serves on the Board of Directors
00180
 1   of the Keystone Research Center. He's also a former
 2   teaching fellow of the AFL-CIO Institute.  Mr. Vincent
 3   holds his Bachelor degree in political science from the
 4   University of North Carolina and a Master's degree in
 5   public administration from the University of Baltimore
 6   Yale Gordon School of Business.  He's also attended
 7   John Hopkins University, Peabody Preparatory School of
 8   Music.  So we have that as well.
 9             We have Tom Wenning next to him.
 10            Tom is the Executive Vice President and
 11  General Counsel of the National Grocers Association, a
 12  national trade association representing the retail and
 13  wholesale grocers that comprise the independent sector
 14  of the food distribution industry, and has served in
 15  this capacity since its inception in 1982.  Prior to
 16  joining the NGA, he was a partner at a Washington, D.C.
 17  law firm of Bison & Wenning and served as general
 18  counsel to the National Association of Retail Grocers
 19  in the United States, predecessor to the NGA and the
 20  National Food Brokers Association.Tom is a graduate of
 21  the University of Akron School of Law and Miami
 22  University and also a member of the D.C. Bar as well.
00181
 1             And to his left we have Bob Young.  Bob, let
 2   me find my notes here.  I'm fumbling around a little
 3   bit.  There we go, Bob.  Bob joined the American Farm
 4   Bureau Federation in 2003 as a chief economist
 5   coordinating the activities of the economic analysis
 6   team.  Dr. Young came to the Farm Bureau from the Food
 7   and Agriculture Policy Research Institute where he was
 8   Co-director from 1992 to 2003.
 9             Before becoming Co-director of FAPRI, Bob
 10  served as a Chief Economist in the United States Senate
 11  Committee on Agriculture from 1987 through 1991. Bob
 12  has a Ph.D. in agricultural economics from University
 13  of Missouri and a B.S. and M.S. in atmospheric sciences
 14  from the University of Missouri as well.  So another
 15  Missourian.  I love this. Boy, I feel right at home.
 16  Also, Bob's a former Lieutenant Commander in the U.S.
 17  Naval Reserve and has toured the South Pacific as well.
 18            So welcome, everyone.  I'm so pleased that
 19  you're here.  We got through all those very impressive
 20  bios, and I hope you all are as impressed as I am with
 21  this panel.  I asked Howard if he would sort of kick
 22  off our discussion because he's done some really
00182
 1   interesting work in food retailing and can identify
 2   some of the trends that we're seeing and foster a lot
 3   of our discussion.  So Howard, if you could.
 4             MR. SHELANSKI:  Thanks very much, Sharis.
 5             I'd like to start by thanking the Antitrust
 6   Division of the Department of Justice and the
 7   Department of Agriculture for inviting me to
 8   participate in today's workshop.  The issues before us
 9   are obviously vital to the country, and they merit I
 10  think the important leadership the DOJ and the USDA
 11  have shown in organizing this and the previous
 12  workshops.
 13            I'm going to present a brief discussion of
 14  some issues related to consolidation in the retail
 15  grocery market, and my job here is really just to tee
 16  up a number of issues.  Coming from an antitrust
 17  agency, I'm going to focus on some of the consumer
 18  welfare issues that are usually the concern of
 19  antitrust or really the central concern of antitrust.
 20  There are obviously very important food safety, labor
 21  and other kinds of issues that I will mention and
 22  raise, but that will obviously merit further
00183
 1   discussion.
 2             Consolidation has been an ongoing process in
 3   grocery retailing for many years.  USDA data show that
 4   the top 20 retailers accounted for about 39 percent of
 5   U.S. grocery sales in 1992.  Between 1997 and 2000,
 6   more than 4,000 stores were acquired, amounting to
 7   almost a fifth of all U.S. supermarkets, and that trend
 8   of consolidation has continued.  The top 20 grocery
 9   stores today account for roughly 65 percent of U.S.
 10  grocery store sales, so a tremendous increase from that
 11  1992, 39 percent figure.  And sales by the 20 largest
 12  food retailers totalled approximately 725 billion
 13  dollars in 2009, according to Supermarket News.
 14            One important contributor, other than mergers
 15  and acquisitions, to the increased volume and share of
 16  the top 20 retailers over the past two decades has been
 17  the rapid growth of what are often called
 18  nontraditional grocery retailers like Walmart, Target
 19  and Costco.  Walmart's food and nonfood grocery sales
 20  amounted to an estimated 258 billion dollars in 2010
 21  according to Supermarket News, making Walmart the
 22  largest U.S. retailer of grocery products.  In
00184
 1   comparison, second place Kroger, which is the largest
 2   traditional grocery retailer, had estimated sales of 77
 3   billion dollars in this 2010 year.
 4             Many studies and commentaries show that this
 5   growth and consolidation has helped food retailers to
 6   reduce costs and made grocery retailing more efficient.
 7   Nontraditional grocery retailers have prices that are
 8   on average seven and a half percent below the prices of
 9   traditional supermarkets for identical products and
 10  packaging, according to a USDA Economic Research
 11  Service study.
 12            Consolidation and growth through productivity
 13  increases may make it harder, however, for smaller
 14  grocery stores to stay in business and may decrease the
 15  margins earned by suppliers to large grocery chains,
 16  and I include in suppliers not just farms and
 17  manufacturers but those of you who supply your labor to
 18  those chains.  Smaller chains and independents have
 19  been seen to exit some markets in which Walmart has
 20  entered.
 21            Monopsony, the power of buyers, can become a
 22  concern when buying power becomes concentrated in too
00185
 1   few hands, although reduced payments to upstream
 2   suppliers may not harm and instead can benefit final
 3   consumers when benefit is measured in terms of their
 4   food bills.  So some of the buying power that
 5   agricultural providers make in front along the supply
 6   chain may be beyond the scope of traditional antitrust
 7   enforcement.  That's not to say that monopsony is not
 8   an antitrust concern.  It is just, as many have
 9   acknowledged, a very difficult issue for antitrust
 10  because what amounts to lower payments upstream can
 11  lead to lower prices downstream.
 12            The available evidence we have examined does
 13  not show that changes in the retail grocery markets
 14  have been bad for consumers when measured in terms of
 15  consumers' food bills.  The consumer price index for
 16  food at home, which roughly includes all food, prepared
 17  and otherwise, sold by grocery stores, has tracked
 18  closely but just below the overall consumer price index
 19  for the U.S. economy over the last 30 years. The
 20  producer price index for retail grocery stores has
 21  risen steadily but modestly for the past decade which
 22  is as long as the Bureau of Labor Statistics has
00186
 1   reported data on grocery retailing.
 2             The retail grocery PPI has been in the
 3   midrange of PPIs for other industries.  For example, it
 4   lies below the overall manufacturing PPI and the
 5   finished consumer goods PPI but above the farm products
 6   and crude foodstuffs PPI.  One question that might
 7   arise from the fact that the retail grocery services
 8   PPI is above the farm products and crude food stuffs
 9   PPIs is whether grocery retailers have gained market
 10  power that allows them to squeeze the margins of their
 11  suppliers without passing through the savings to
 12  consumers.  The economic evidence, however, suggests
 13  some other explanations for the retail grocery producer
 14  price index.
 15            First, supermarkets have increased their
 16  provision of value added services over time.  The price
 17  index for farm goods includes lettuce, cucumbers, corn,
 18  wheat, et cetera.  The price index for supermarkets a
 19  generation ago included such commodities but now
 20  captures much more of such items as bagged salad,
 21  processed foods, salad bar sales, prepared meals and
 22  gourmet items.  One would therefore expect the price
00187
 1   index based on supermarket sales to diverge over time
 2   from the price index for farm goods because what
 3   supermarkets sell has diverged increasingly from farm
 4   goods over time.
 5             Second, the wholesale costs that BLS
 6   subtracts from revenues to measure the margin on retail
 7   grocery services do not include an important set of
 8   available costs, notably processing and food
 9   preparation costs, a grocery retailer itself incurs. So
 10  the cost of in-store baking, cooking or other food
 11  preparation may not be counted in the higher grocery
 12  retailing PPI.  As a result, the retail grocery
 13  producer price index may appear artificially high.
 14  Retail grocers have in fact been increasing the total
 15  proportion of total sales made up of post- wholesale
 16  value added products.
 17            This increase in sales of retailer prepared
 18  food is consistent with data showing that consumers
 19  have been steadily increasing the proportion of
 20  commercially prepared food in their overall food at
 21  home budgets.
 22            Compared to the producer price index for
00188
 1   other links in the chain of food supply from farmers to
 2   consumers, the retail PPI lies far below the PPIs for
 3   food manufacturing and finished consumer goods for
 4   example.  Changes in the market structure for retail
 5   groceries therefore do not translate into a simple
 6   story of increased market power over consumers, even if
 7   the power of those increasingly large buyers, that is
 8   to say the grocery retailers, may be felt in various
 9   upstream markets.  If one measures consumer welfare by
 10  the variety of products and services consumers receive
 11  from retail grocers and from the prices they are
 12  charged, we do not see evidence of a general decrease
 13  in consumer welfare from retail grocery consolidation.
 14            A broader set of policy considerations might
 15  take into account important issues related to the
 16  effects of consolidation on market structure in other
 17  parts of the food supply chain and address food
 18  security and safety, labor and environmental concerns.
 19  This overview is focused only on the question of market
 20  power through consolidation of the retail grocery
 21  segment. It is prevention of such market power that is
 22  the central concern of the antitrust agencies, but I
00189
 1   look forward to hearing some comments on these other
 2   issues as well as this panel goes forward.  Thank you.
 3             MS. POZEN:  Thank you, Howard.  Thank you for
 4   teeing up those issues, and now I think it's our job,
 5   panelists, to unpackage those a little bit if we could.
 6   So I would like to -- I think it's a great foundation
 7   for us.  What I'd like to do is turn to Wenonah and to
 8   Bob, and I know your organizations have been involved
 9   in looking at these issues as well, and if you could
 10  comment or elaborate on some of the points that Howard
 11  made.  Wenonah, you want to go first?
 12            MS. HAUTER:  Sure.  Well, the consolidation
 13  of the last two decades has created a food chain that's
 14  shaped like an hourglass.  We have a large number of
 15  very powerful companies that stand between 300 million
 16  citizens and two million farmers, and the retail
 17  consolidation is one of the tightest links in that
 18  chain.  The dominant grocery stores of the 1980s were
 19  gobbled up in the 1990s as we've heard from Howard, and
 20  we had about a hundred mergers a year. By 2009,
 21  Walmart, Kroger, Costco and Supervalu controlled more
 22  than 51 percent of sales, more than double the four-
00190
 1   firm concentration of a dozen years earlier.  And on
 2   the local level, that consolidation and lack of
 3   competition is even higher. In 1998, the four largest
 4   retailers controlled 72 percent of sales in the hundred
 5   largest metro areas.  Today that figure is considerably
 6   higher. Walmart alone has more than 50 percent market
 7   share in 29 markets, and consumers haven't benefitted
 8   from this increased efficiency that's been touted by
 9   the industry.
 10            And I'd like to begin by correcting a
 11  misimpression that I think Erik left us with this
 12  morning, that figure, that 5.5 percent of a consumer's
 13  budget is spent on food, this figure is of food eaten
 14  at home and it also includes earned income along with
 15  noncash benefits, things like food stamps and rent
 16  subsidies.  Nine percent of all food -- that's home and
 17  restaurant -- rather, nine percent of income is spent
 18  on all food, home and restaurant, and that's earned and
 19  noncash benefits.  If you're looking -- if you subtract
 20  the noncash benefits from that -- that's the food
 21  stamps and rent subsidies -- eleven percent of
 22  consumers' dollars are being spent at the grocery
00191
 1   store. And if you look at people in the United States
 2   who make under $39,000 -- and that's 40 percent of
 3   Americans -- 15 percent of their income goes to food.
 4   And this is a very poor measurement anyway because
 5   we've had much higher health care costs, much higher
 6   housing costs and much higher energy costs.  So if
 7   people are spending less on food, it's because they're
 8   spending more on these essential things.
 9             In fact, consumer spending on groceries has
 10  been on the upswing.  Real expenditures in food have
 11  risen 12 percent over the past decade and food
 12  inflation was especially high during 2007 and 2008.
 13  These growing prices are especially difficult for low
 14  income consumers.According to a 2008 Congressional
 15  Research Service report for Congress, even a four or
 16  five percent increase in the price of food has a
 17  significant impact on lower income consumers. Today
 18  with 40 percent of income or households earning $39,000
 19  or less, a small increase can dramatically erode food
 20  security, and USDA recently reported that one out of
 21  seven households are suffering from hunger and one out
 22  of four children do not have enough food to eat.
00192
 1             At the other end of the food chain, farmers
 2   are also suffering.  Real inflation adjusted prices
 3   that farmers receive for livestock and crops has been
 4   falling for decades, but the savings is not passed on
 5   to consumers.  In 1990, the farmer received 24 cents of
 6   the grocery store dollar.  It's now 19 cents. That's a
 7   21 percent decline.  In 1990, out of every dollar spent
 8   on beef, 60 cents went to the producer. Now it's 43
 9   cents.  Down by a third. In 1990, a pork producer
 10  received 46 cents 00193 1   out of a dollar.  They now
 11  receive 25 cents. Down by almost 50 percent.  And
 12  fruits and 3   vegetables have experienced the same
 13  decline. Farmers get only 35 cents of the strawberry
 14  dollar and 14 cents of the orange dollar, and they've
 15  fallen about a third since the 1990s.
 16            And dairy is a good example of consumer
 17  prices increasing while farm gate prices decrease. When
 18  milk prices fell during the latter half of 2009, the
 19  consumer price of milk fell only by 22 percent, and the
 20  price of cheese actually went up six percent.  So
 21  sometimes prices rise slightly, but consumer prices
 22  rise much faster.  For example, ground beef prices
00193
 1   increased 24 percent between 1999 and 2008, but cattle
 2   prices rose less than nine percent, a third as fast as
 3   retail.
 4             But you know we can throw out all of our
 5   statistics and all we need to do is ask our friends and
 6   family does your grocery store dollar go as far as it
 7   used to, and across the board the answer is going to be
 8   yes.  The real consumer welfare measurement should be
 9   that people have enough food to eat and that farmers
 10  are making a living, and I say the system isn't
 11  working.
 12            MS. POZEN:  Wenonah, thank you very much.
 13            Thank you.  Thank you for giving us your
 14  perspective.  Also would like to hear the perspective
 15  of the farm and ranch families from Bob Young and from
 16  your organization.  You've touched on some of the
 17  farming issues, Wenonah.  Let's hear from Bob on those
 18  issues.
 19            MR. YOUNG:  Thank you very much.  First, let
 20  me say that whether the number's 6 percent, 11 percent
 21  or 12 percent in terms of what the consumers are
 22  spending on food, it seems to me like that's a pretty
00194
 1   good deal, that they've received a pretty good deal for
 2   a number of years and, you know, I think that's just a
 3   fact of life.
 4             Let me follow up on some of the points that
 5   Howard made if I could, and also that Wenonah made as
 6   well.  Farmers' share of the food dollar has shrunk
 7   substantially over the course of the last 40 years. It
 8   was 37 percent in 1973 and to 19 percent that Wenonah
 9   discussed in 2006.  Most recently, it's kind of crept
 10  back up into the 22 percent level in the last few
 11  months or so.  But I'd also tell you out loud to this
 12  group, that changes in the value of farmer's share is
 13  not really particularly indicative of much of anything
 14  at all when it gets right down to it.
 15            We buy a very different package mix today in
 16  the grocery store than we did in 1973.  Let's think
 17  about chicken as a particularly good example. We don't
 18  typically buy all that many fresh whole broilers as our
 19  primary source of poultry anymore. Now, the real story
 20  in my family is my wife trying to instruct my son over
 21  the phone as to how to cut up a whole broiler when he
 22  was in seventh grade, and this would have been about 20
00195
 1   or so years ago, trying to get the evening meal put
 2   together.
 3             Let's also not forget that in 1973 we were
 4   kind of just beginning the whole microwave boom. I can
 5   remember buying our first microwave in 1974. Think
 6   about how much shelf space we dedicate today in the
 7   grocery store to microwave-ready products as opposed to
 8   how much shelf space we dedicated in 1973. Our
 9   consumers are spending much more on service today, and
 10  if we look only at market share or our slice of the
 11  pie, we're failing to recognize that with product
 12  innovation the whole pie is bigger today than would
 13  have been the case without that product innovation.
 14            Even so, within product categories, farmer's
 15  share can show some market resiliency.  In 2000, the
 16  farmer's share of the beef dollar was 48 percent.  For
 17  2001, it's probably going to average 47 percent.  For
 18  2000, the farm share of dairy averaged 30 percent and
 19  for the first half of 2001 it has averaged 30 percent.
 20            Finally, let me say that in 1973, labor and
 21  farm supplied inputs combined to account for about two
 22  thirds of the consumer food dollar.  The farm share was
00196
 1   about 37 percent.  Labor accounted for about 29
 2   percent.  In 2006, the last easily available set of
 3   data, the two combined to account for about 57 percent
 4   of the food dollar. Agriculture's share in that year
 5   was 18 percent, while labor's share had ballooned to 39
 6   percent.
 7             This is not a poke at the labor sector of
 8   food processing.  Rather, it's to point out that we are
 9   providing much more of the food processing out of the
 10  home today than used to be supplied in the kitchen in
 11  days past.
 12            Let's not get too hung up about these
 13  changing share values because they're really not
 14  telling you very much about what's going on in the
 15  various different processing levels.  I will also tell
 16  you that they're not necessarily telling you all that
 17  much about what's going on at the farm level either,
 18  and we need to make sure we understand what's happening
 19  to the size of the pie as we go through these changes
 20  as well.  With that, let me try to get us back on time.
 21            MS. POZEN:  Thank you very much. Thank you,
 22  Bob, I appreciate that.  And Erik, it's only fair I
00197
 1   think as moderator to let you respond.  Wenonah had
 2   some -- I'll call them criticisms of some of the
 3   figures you had this morning.
 4             MR. LIEBERMAN:  Sure.
 5             MS. POZEN:  Do you want to say something
 6   back?
 7             MR. LIEBERMAN:  Yeah, I would like to
 8   respond.  The argument that food prices have been going
 9   up over the past several decades just isn't borne out
 10  by the facts.  In the 1940s, Americans spent about 19
 11  percent of their income on food.
 12            Today it's 5.5 percent, and those are the
 13  numbers that USDA uses and they represent the real cost
 14  of food.  Even if we do use the special metric that Ms.
 15  Hauter came up with, she said it was 11 percent. Well,
 16  that's still about half of what folks were paying in
 17  1940.  So it's because of advances in agriculture and
 18  intense competition in the retail marketplace that food
 19  costs have come down, and American consumers are
 20  benefitting from this and it's raising the quality of
 21  life in our nation.
 22            MS. HAUTER:  Can I just respond quickly?
00198
 1             MS. POZEN:  Sure.  Sure.  Why not?  Keep it
 2   lively.
 3             MS. HAUTER:  I'd just like to say that in the
 4   1940s we had food rationing, so I don't think that's a
 5   really fair point to start from.  And I think I agree
 6   that it's a very poor metric, and it's not a metric we
 7   should be using because if people are paying more for
 8   energy, health care and other costs that are more
 9   expensive, of course the food -- it looks like the food
 10  has shrunk.  So let's all agree it's a really bad
 11  statistic and we shouldn't use it.
 12            MS. POZEN:  Well, maybe that speaks to better
 13  data that would give us better insights.
 14            How's that?
 15            MR. LIEBERMAN:  And if you start in 1900,
 16  it's 50 percent.
 17            MS. POZEN:  Okay.  Alright.  So let's move on
 18  and talk about what's happening to the grocery stores.
 19  And I'd like to turn to Tom.  With this growing
 20  concentration we've heard about, we've heard sort of
 21  the pros and cons.  Tom, can you speak to some of those
 22  issues from a grocery association perspective?
00199
 1             MR. WENNING:  Thank you.  I don't know if
 2   this -- is this working?  Can you hear?
 3             MS. POZEN:  Yep.
 4             MR. WENNING:  Okay.  Sharis, thank you for
 5   being here.  I appreciate the opportunity, both the
 6   invitation from the Department of Justice and the
 7   Department of Agriculture.  We've worked together on a
 8   number of these issues, particularly with the Federal
 9   Trade Commission and I really appreciate Howard's
 10  introduction.
 11            I think the question of the growing
 12  concentration, including mergers and its effect on
 13  prices, is certainly not something that I feel
 14  qualified to address because of the fact that we don't
 15  track prices.  We don't set prices.  We don't have any
 16  great assessment of being able to determine whether the
 17  10 or 20 thousand items that we carry in supermarkets
 18  these days have gone up, and certainly not as the
 19  result of a merger I think.  To Howard's point, and the
 20  part that I addressed in my statement that I filed with
 21  the DOJ, was that we've been engaged in addressing the
 22  issue of concentration before its inception when a
00200
 1   merger is being developed and, as Ms. Hauter mentioned,
 2   there was a rush of mergers in the late 1990s and the
 3   early 2000s.  We addressed a number of those,
 4   particularly in Ahold's attempt to acquire Pathmark and
 5   Big V Supermarkets in various markets, Walmart's
 6   attempt to acquire Super Americanos Amigos in Puerto
 7   Rico and a couple others.
 8             I think our point there was that it's
 9   important to address potential concentration issues
 10  before their inception.  Merger policy has been a long-
 11  term effort, and there are variables that go into
 12  deciding what market share goes into consideration,
 13  what the market is, the various aspects that have to be
 14  addressed as mergers go forward.  So I think it's
 15  difficult to measure what the impacts are in prices.
 16  I'm not aware of any studies by FTC or others that have
 17  measured what the increase in prices have been.  I also
 18  think that it doesn't address the issue of organic
 19  growth and the effect of concentration in markets, so I
 20  don't think that there's any conclusive answer to the
 21  question as to what has been the impact of ultimate
 22  long- term concentration, but I do think that it's
00201
 1   important to address it before there is such a high
 2   increase in concentration as is outlined under the
 3   merger guidelines that the FTC follows.  That's what
 4   got us engaged in those mergers in the early 19 -- the
 5   early 2000s, late 1990s is to address those issues,
 6   challenge the concentration that would have resulted.
 7             I also think that what we also said that, as
 8   a result of those mergers, when stores are divested, we
 9   believe that they should be given an opportunity to the
 10  independent sector to acquire those stores, to give an
 11  opportunity for market competition to be perpetuated in
 12  the market where those mergers take place.
 13            And I guess in concluding part that I would
 14  say is that even though those mergers took place in the
 15  early 2000s, some of those divestitures did make stores
 16  available to independents that are now successful
 17  today, and there is also the fact that some of those
 18  mergers did not turn out as great as what the forecast
 19  was.
 20            MS. POZEN:  Alright.  Thank you.  Thank you,
 21  Tom.  I'd like to turn to Kyle actually for you to take
 22  this to a different place in talking about
00202
 1   concentration.  Can you talk to us a little bit about
 2   the prices that consumers pay and the prices that the
 3   stores pay to suppliers, sort of that dynamic, sort of
 4   again teeing off the idea that we know there's been
 5   increased merger activity and we know that there's been
 6   increased concentration?
 7             MR. STIEGERT:  Sure.  Thank you, Sharis, and
 8   I want to thank the Department of Justice and the
 9   United States Department of Agriculture for inviting me
 10  to this panel.
 11            My first thought when I was -- we were
 12  kicking around this idea of what is the impact of
 13  increased concentration, and it's -- my answer to that
 14  thought is really where is this concentration really
 15  coming from?  That's the fundamental point that I would
 16  like to make here before I talk about pricing per se.
 17  Really, what got the ball rolling in terms of all the
 18  public outcry in the retail sector has been the
 19  emergence of Walmart and Targets in these larger
 20  warehouse store formats.
 21            That put in motion several other events that
 22  have really impacted the food market. One of those
00203
 1   points is the exit of the smaller, localized grocers
 2   and smaller supermarket chains around the country, and
 3   that's had a pretty big impact in my estimation on poor
 4   people, people living in rural sectors, poor people
 5   living in, say, blighted urban regions, et cetera. It's
 6   required those people, many of them that don't have
 7   cars, to get their food source maybe by taking a bus or
 8   driving with a friend or something like that. So that's
 9   had a pretty big impact on those lives.
 10            The other consequences of the arrival of
 11  these large warehouse store formats has been increased
 12  consolidation in sort of the more general supermarket
 13  sector.  What we're talking about here is large chains
 14  such as Kroger, Safeway, et cetera. These chains have
 15  been involved in mergers. Other chains have been
 16  involved in mergers, sort of consolidation across large
 17  urban sectors, and the pattern there we're observing is
 18  for higher prices in that part of the market.
 19            Now, you say, higher prices in that market,
 20  that must mean market power.  Well, not per se. These
 21  companies are smart.  They know they can't just raise
 22  prices in every context, so they've also offered a lot
00204
 1   more services.  They've increased their store ambiance
 2   and things along that nature, so there may be an
 3   exercise in market power.  The crystal ball begins to
 4   look a little foggy at that point.  There may be market
 5   power at play here, but there's also some changing in
 6   their strategies.  Okay?
 7             So the other issue I want to address on the
 8   issue of Walmart and warehouse store formats has been
 9   one that's been studied and talked about a lot at the
 10  University of Wisconsin, and that's this issue of buyer
 11  power.  That stands to me right now as the relatively
 12  more important issue in terms of the food system,
 13  because a company like a Walmart has come in and
 14  they've really flown under the radar of any of the
 15  antitrust authority's sort of criteria for evaluating
 16  markets.  Their concern at the Department of Justice is
 17  largely on consumer welfare.
 18            There's been a lot of push -- and I think one
 19  of the members of our audience, Peter Carstensen here
 20  today, has been making that point for quite some time -
 21  - that we really need to broaden our perspective on
 22  what constitutes power. And his point is very relevant
00205
 1   to this audience because one of the, one of the issues
 2   with a company like a Walmart is their ability to push
 3   down prices through the food system all the way to the
 4   farm sector.  And so -- and I would encourage the
 5   Department of Justice, United States Department of
 6   Agriculture, Federal Trade Commission to really broaden
 7   their scope a little bit here.  We're really dealing
 8   with a vertical sector that has been hammered over the
 9   last 10, 20 years, and I think it's pretty relevant in
 10  terms of income distribution and the way rural sectors
 11  have participated in the larger economy and the way
 12  urban areas have been impacted as well. So -- thank
 13  you.
 14            MS. POZEN:  Thank you.  Thank you, Kyle. I
 15  appreciate that.  I'd like to focus a little bit -- so
 16  we've talked a little bit about concentration.  We've
 17  talked a little bit about pricing.  I'd like to focus a
 18  little bit on retail consumers' experience beyond
 19  prices.  Quality and variety come to mind.  And I
 20  think, Mary, can I start with you to speak about those
 21  issues?  As a rural sociologist, can you enlighten us
 22  on those?
00206
 1             MS. HENDRICKSON:  Well, and I think that this
 2   is really important to understand.  I want to build on
 3   something that Kyle talked about and a little bit on
 4   what Howard talked about earlier is that we've been
 5   narrowly focused on consumer welfare as price and we've
 6   been focused on what does market power do to the price,
 7   and I think we have to really expand both our
 8   definitions of what is consumer welfare and then where
 9   does power reside in the food system.  And as a
 10  sociologist, this is critical for us, because power is
 11  about can you control your life chances.
 12            Some actors in the food system have more
 13  power over their life chances than others, and this is
 14  particularly important for farmers and for workers. And
 15  how does this power come about?  It's not just about
 16  the economic definitions of power -- and I'm really
 17  glad that Peter Carstensen and so on, these folks have
 18  been working on buyer power -- but it's also about
 19  power.  Power comes from lots of different places.
 20  Control over intellectual property, we heard about that
 21  this morning.  It's through the standard setting. And
 22  we talked a little bit about food safety and so on, but
00207
 1   those food safety standards are now being set largely
 2   in the private sector and the people that can help,
 3   farmers and workers don't actually get to be at the
 4   table in this -- in much of that standard setting, and
 5   I would argue a lot of consumers aren't either.
 6             And so we also have powers accumulated in
 7   access to markets, and this is really critical for
 8   farmers.  It's also critical for consumers, but I think
 9   also the big elephant in the room that we're not
 10  talking about too is access to capital.
 11            Capital's really the name of the game, and
 12  how capital plays out in the food industry I think is
 13  really important.  Bob Taylor from Auburn has done some
 14  really interesting research on return on investment,
 15  which is of course a much -- return on investment's
 16  really return on capital.  It's a much better way to
 17  gauge what's happening in food the system for farmers,
 18  for producers, than some of the other things we've been
 19  talking about, and the farmers haven't done very well
 20  in that.
 21            So let's talk about consumers for a minute.
 22  Access.  Kyle started to talk about rural areas. What I
00208
 1   think that the power is translated into is some
 2   entities have the ability to impose their business
 3   models on others, and these business models have really
 4   left out rural areas and they've left out inner-urban
 5   areas quite frequently.
 6             I'd give you an example of my home town of
 7   Schickley, Nebraska, population 350 people. There is
 8   still a grocery store in that town, but it's hard for
 9   them to get deliveries. Because of the restructuring,
 10  the consolidation that's happened in the grocery
 11  industry and the restructuring that's happened among
 12  distributors, it's really hard for them to get the
 13  deliveries. My 80-year old mother is spry enough to
 14  still drive.  Others can't. So what happens if they go
 15  out of business?
 16            But the same situation exists in Old North
 17  St. Louis within view of the arch, and folks there,
 18  it's at least three miles, many without cars, two
 19  grocery stores and they live in a food desert. These --
 20  the quality of things that they can get in Old North,
 21  the quality of things that we can get in my hometown of
 22  Schickley are vastly different than -- and a lot of
00209
 1   this is due to the restructuring of what's happened in
 2   the grocery industry, and I think those are really
 3   important things to point out and think about power in
 4   much broader terms in impacting people on the ground,
 5   producers, labor, consumers on the ground, and it's not
 6   just about prices.
 7             MS. POZEN:  Okay.  Erik, you represent the
 8   large retailers.  Do you have a perspective on this as
 9   well?
 10            MR. LIEBERMAN:  Yeah, absolutely.  And thanks
 11  again for giving me an opportunity to participate.
 12  There's no question that the marketplace has changed
 13  dramatically in the past several decades. Thirty or
 14  forty years ago, consumers pretty much had to purchase
 15  all of their groceries at conventional supermarkets,
 16  but today the marketplace is much more diversified.
 17  Shoppers can purchase items through so many more retail
 18  channels now.  You have super centers, warehouse club
 19  stores, limited assortment stores, convenience stores,
 20  chain drugstores, natural and organic stores, and even
 21  online retailers are now selling groceries. And all of
 22  these retail channels are competing vigorously with one
00210
 1   another. Competition is extremely robust.  I would say
 2   it's more robust than it was back in those days, and
 3   this is resulting in low prices for consumers and more
 4   convenience too.
 5             Many stores are open 24 hours, and the
 6   variety of items that are carried in stores has
 7   expanded.  And there's not only competition on price.
 8   There's very vigorous competition on services now too.
 9   More stores are offering prepared foods. This provides
 10  value to the consumer.  It saves them time. Sushi,
 11  gourmet bakeries and top notch delis are more
 12  commonplace. Stores are even offering cooking classes,
 13  wine tastings, flower arranging classes and dieticians
 14  on site, and our latest poll found that store
 15  satisfaction is rising and nine out of ten shoppers
 16  would recommend their primary store.
 17            MS. POZEN:  Thank you.  So they're offering
 18  more, but I guess to Mary's point, the question is
 19  where are those stores.  And Wenonah, do you have
 20  anything you want to add to this as well from your
 21  perspective?
 22            MS. HAUTER:  Yes, absolutely.  Well,
00211
 1   supermarkets exert power over consumers based on
 2   location, and so consumers have to spend their time and
 3   their travel dollars to get to a store.
 4             Research has shown that women spend twice as
 5   much time shopping as men, and women often also have
 6   jobs outside of the home, so they don't have time to
 7   travel around to different stores to get the best deal,
 8   and probably at least 60 percent of Americans don't
 9   have an iPhone with an app on it to find the best deal.
 10            As far as the food deserts go, I think
 11  there's some really interesting information from some
 12  studies on rural nutrition that show that, as we would
 13  think, in these food deserts in rural counties, there's
 14  not enough nutritious food, fruits, vegetables, dairy
 15  products.  But the study also found that many local
 16  grocery stores actually charged lower prices for basic
 17  food products that are important to a healthy diet than
 18  the super stores did.
 19            I think also that we really -- we have this
 20  illusion of choice, and grocery stores present this
 21  illusion by having many, many similar products sold by
 22  only this handful of companies.  So there may be 50
00212
 1   kinds of potato chips, but 75 percent are sold by the
 2   top four firms, or there are enough kids' cereals to
 3   take up a whole aisle, but they're sold by the same
 4   four companies.  So this gives the illusion of choice,
 5   but what's actually happening is that the food and
 6   retailing industry is -- largely, they're marketing
 7   machines and they often target children, which is
 8   really contributing to the epidemic of childhood
 9   obesity with all of these marketing tie- ins.  So foods
 10  are targeted at children by placing them at eye level,
 11  and then they're cross-marketed with cartoon or movie
 12  characters that kids recognize. And a recent Yale study
 13  found that the number of products with these commercial
 14  tie-ins to other kid friendly products increased 78
 15  percent between 2006 and 2008.
 16            And then I guess the other elephant in the
 17  room is what is the food that's actually being sold?
 18  And I think that Dr. David Kessler, who is the former
 19  Surgeon General, had some very important points about
 20  this in his book The End of Overeating.  He basically
 21  documented that the food industry scientists have
 22  developed this formula that is based on sugar, fat and
00213
 1   salt that alters the brain's chemistry and compels
 2   people to overeat. And grocery stores along with the
 3   food processors have every incentive to sell this
 4   highly processed food because that's the most profit
 5   making -- those are the most profit-making items.
 6             And then I guess I would have one more point
 7   around concentration and food safety.  When there are
 8   only a few companies that are providing the ingredients
 9   for an entire food system, we have a real problem.  So
 10  we've seen it with the egg factory and the salmonella
 11  outbreak.  We've seen it with peanut butter.  Peanuts
 12  are in all sorts of products, and so it ends up
 13  destroying all sorts of food items and poisoning
 14  people.  And as others have noted, many of the food
 15  companies and the farm marketers have merged in part
 16  because they're responding from the pressure from the
 17  big supermarket chains.  So we've seen this kind of
 18  consolidation and these other food products that
 19  comprise the processed foods that we eat.
 20            So we have two firms, for instance, that
 21  control all bagged, leafy greens and they're mostly
 22  produced in two counties in California.  So when there
00214
 1   is an E. Coli problem in spinach, it means that most
 2   spinach has to be pulled off the grocery store shelves.
 3             These are the impacts that aren't generally -
 4   - that people, even consumers, aren't generally aware
 5   of.
 6             MS. POZEN:  Thank you, Wenonah.  Thank you.
 7   I'd like to turn to you, Al, and talk a little bit
 8   about the impact --
 9             MR. VINCENT:  Did you see me twitching?
 10            MS. POZEN:  I did.  I knew it was you. We
 11  definitely needed to hear from you because we wanted to
 12  -- we've discussed there's been a lot of changes. We've
 13  heard concentration.  We've heard some of the suggested
 14  impacts from that concentration in grocery stores and
 15  in other food retailers.  But I'd like to talk to you
 16  about sort of the supply chain, and with your
 17  organization and the folks that you represent who are
 18  literally lifting and moving the items through the food
 19  chain.  Can you talk to us a little bit about what
 20  you're seeing?
 21            MR. VINCENT:  Sure.  Before I start, let me
 22  say it's a pleasure to be here with Department of
00215
 1   Justice, Department of Agriculture.  I'm really happy
 2   to see Howard here with the Federal Trade Commission.
 3   From the onset, we thought it was very important to
 4   have the FTC in this process. We're really happy you're
 5   here.  And to follow up on what Secretary Vilsack said
 6   this morning, this may be the last hearing, but it's
 7   definitely not the last chapter.  So let's make sure we
 8   push this work forward.
 9             I also just want to thank Brother Lieberman
 10  down there for a great opening for me, in that I
 11  probably have a long list of retail grocery employers,
 12  suppliers and others, probably two reams of paper, of
 13  people that would not agree that competition is
 14  thriving and that everything's well and good on the
 15  ground in communities because we've talked about the
 16  elephant in the room, but let's really talk about the
 17  elephant in the room: Walmart.
 18            If, as Howard said, the top 20 companies make
 19  up 725 billion dollars in sales, let's look at Walmart.
 20  They comprise 150 billion dollars of those sales.  So
 21  when you talk about their size, let's really talk about
 22  their size.  Their percent of the grocery industry went
00216
 1   from six percent in 1990 to 23 percent in 2009.  If you
 2   look at their -- if you look at the top five U.S.
 3   companies, Walmart makes twice as much as their closest
 4   competition, which is Kroger as Howard pointed out, but
 5   they make more than Costco, Home Depot, Target, CVS,
 6   combined.  So really they're not -- when we talk about
 7   consolidation, when we talk about the Kroegers and
 8   Safeways, they're not the ones wielding the power.
 9   Walmart's wielding the power.
 10            Talk to any supplier, probably off the record
 11  and one- on-one in a closet usually, but they will tell
 12  you that it's not been a fun ride.  The best example is
 13  one that's familiar to everyone in this room which is
 14  Vlasic pickle. Vlasic pickle -- many suppliers find
 15  themselves in the same situation. They go to Walmart.
 16  They're really happy to get the contract with Walmart,
 17  but they don't know what's happening until they really
 18  get in and they become dependent.  It's like the drug.
 19  They're dependent.  They're set.  They hire based on
 20  this business, and then Walmart takes -- dictates the
 21  price. In the example of Vlasic pickle, Walmart said we
 22  will pay you $2.97 for a gallon of pickles, so for a
00217
 1   short period of time it looked like great business,
 2   until their other sales in sliced pickles, cut pickles,
 3   started to decline.  And so Vlasic went to their
 4   biggest contract and said look, we need a little help
 5   here.  We need you to raise the price on one of these
 6   items or else let us cut the cost of this gallon
 7   product from the $2.97.  So Walmart refused and
 8   basically said if you try to change the price, we won't
 9   sell any of your products.  That's bully tactics.
 10  That's not how the supply chain should work. That's why
 11  we need the FTC to stand in here, come in here and
 12  ensure the fairness in the supply chain.
 13            Farmers are not getting enough of this pie.
 14  If you look at what farmers got in 1990, they got 59 of
 15  the consumer beef dollar.  If you look at what they got
 16  in 2009, it was 42 percent.  If you go back to these
 17  communities where the Vlasics exist, Vlasic has to go
 18  back to the workforce and say you no longer have jobs.
 19  The only way we can compete now that we've lost our
 20  biggest customer is to cut jobs, cut labor costs.  And
 21  if you don't think that that reverberates into the
 22  community, then we're all kidding ourselves.
00218
 1             So really the question here is, as we look at
 2   the supply chain, is we've had kind of a missing link.
 3   We've had no oversight over the retail grocery sector.
 4   But with that said, let's put a little asterisks on
 5   that because we're really just talking about Walmart.
 6   They're the only ones that control the process.  They
 7   control the biggest employer in the United States,
 8   biggest private sector employer, and they're dictating
 9   to suppliers, to farmers, to everyone down the chain.
 10            It is the number one issue that we hear at
 11  the bargaining table in negotiations from these
 12  supposedly thriving competitors.  They don't look at it
 13  that way.
 14            So if I say anything here today, it's that
 15  the FTC has to remain a true partner in this process.
 16  We can't let this be the final stop in terms of
 17  bringing equality and fairness into this process.
 18  Unfortunately, I have example after example of
 19  suppliers that have just about totally cut out of this
 20  process, so let's -- one last note, just to give you
 21  one more piece of information about how big Walmart is.
 22  Walmart controls -- has a 30 percent market share in
00219
 1   168 markets across the country.  In 29 markets they
 2   have 50 percent market share, and probably the best
 3   resource to talk about how we should handle that was
 4   former Walmart CEO Lee Scott himself who said that any
 5   company that has over 30 percent of the market share
 6   should surely have oversight and investigation by the
 7   government.  So I'll use Walmart's own former CEO's
 8   words in saying it's time for us to have action because
 9   everybody else we talk about, it's not a waste of time,
 10  but we're not talking about the real issue, we're not
 11  talking about the power that Walmart wields in this
 12  arena.
 13            MS. POZEN:  Thank you.  I appreciate that
 14  perspective and I'd like to help.  Help us at the
 15  Department of Justice Antitrust Division, Bert. You're
 16  with the Antitrust Institute.  We've heard a lot of
 17  talk about concentration and power and its impact on
 18  the supply chain.  Help us frame it from an antitrust
 19  perspective if you could.
 20            MR. FOER:  Let me elaborate on what Kyle and
 21  Mary said about broadening the concept about consumer
 22  welfare.  When we put this into context, antitrust has
00220
 1   focused over the years mostly on seller power.
 2   Concentrated buyer power is relatively new and we have
 3   not put the resources into a full understanding of its
 4   impact or how it relates to an entire supply chain, the
 5   whole system.  Antitrust tends to focus on narrowly
 6   defined product in geographic markets and does not take
 7   a sufficiently systemic view. Let me say that.
 8             Now, one thing that comes out of that I think
 9   is we've looked at monopoly as the model, and then we
 10  come to monopsony, which is where there's buyer
 11  concentration, and we try to live from the monopoly
 12  model.  We say it's a mirror image, but it's not really
 13  a mirror image for a number of reasons.
 14            One is that the level of market share
 15  necessary to have disproportionate bargaining power at
 16  the buyer's side is much smaller than at the seller's
 17  side.  For monopoly we talk in terms of 60, 70 percent
 18  of the market or more.  You don't find that among
 19  buyers typically, but when a buyer has 20 percent of a
 20  national market it's got life and death ability with
 21  respect to the suppliers.
 22            So a couple of conceptual problems come up,
00221
 1   one Howard mentioned, which is you might exercise buyer
 2   power in such a way that it knocks down prices to the
 3   consumer at the end of the day, and maybe that's good.
 4   But if that's all you look at, maybe it's not so good.
 5   On top of that, maybe it won't get passed on to
 6   consumers.  Maybe the power buyer has so much market
 7   power in a horizontal level at the retail level it has
 8   no need to pass it on.
 9             But let's leave that aside for the moment and
 10  talk about another difference with consumer welfare
 11  focusing on the reduction of output. That's what we've
 12  been focused on for 30, 40 years primarily, because if
 13  you have concentration and you reduce the amount of
 14  goods being produced, the price will go up, and we
 15  worry about that properly.
 16            But when we talk about buyer power, the
 17  buyer, especially if it's a Walmart, which we take as
 18  the icon of buyer power, has the ability to offer an
 19  all or nothing arrangement.  And if it's nothing, the
 20  supplier is out cold and probably can't survive.  So
 21  what the buyer has is an inordinate amount of power.
 22  Mary's right.  We've got to be looking at power. We've
00222
 1   got to be looking at the negotiating realities that
 2   occur in the marketplace and not simply what the effect
 3   on the consumer price is going to be, although that's
 4   important, but it's not the only thing of importance.
 5             So I think there may be really a third
 6   category we should look at, monopoly, monopsony and
 7   disproportionate bargaining power.  Now what we do
 8   about that maybe I'll save for another time, but I do
 9   want to raise another point here, and that's something
 10  called the waterbed effect.  It's not necessarily
 11  something all economists agree happens, but let me
 12  explain it because I think it's logically sensible.
 13  Let's again take Walmart as the example.
 14            If Walmart can batter down its supplier and
 15  get a lower price, a discriminatorily low price as
 16  compared to its horizontal competitors, the other
 17  retailers, then, number one, it gains a competitive
 18  advantage.  Because it's got lower costs, it can choose
 19  to pass that on to consumers in lower prices or it can
 20  keep it as additional profit, in which case it's got
 21  more ability to expand and do other things.
 22            The other side of that is what happens to the
00223
 1   other retailers.  If I'm a supplier and I've got to
 2   earn a certain return on investment, a certain profit
 3   level, and as a supplier I have to give Walmart this
 4   lower price than I'm giving to my other customers, I
 5   have to find some way to maintain my profit margin,
 6   which could be to raise prices, at least relatively, to
 7   the other people I sell to. Now, that's not an easy
 8   thing to do and you may get away with it partially. You
 9   may not get away with it, but you're put in that
 10  position.
 11            So I'm saying that this idea of
 12  disproportionate buyer power can lead to a double
 13  whammy where the big buyer benefits from the lower
 14  price that it gets and at the same time probably I
 15  think -- and this is worth a lot of study -- raises the
 16  rivals' costs at the horizontal level.  It's a double
 17  whammy, and what it leads to is an ever- increasing
 18  behemoth.
 19            MS. POZEN:  Well, since we're talking
 20  antitrust and delving into antitrust economics, Howard,
 21  can I ask you to respond to the issues that Bert has --
 22  we all struggle with monopsony power issues.  I know at
00224
 1   the Department we do.
 2             MR. SHELANSKI:  Yeah.  Absolutely.  Let me
 3   make just a few brief remarks about this.  Bert is
 4   absolutely right that monopsony is not in fact the
 5   mirror image of monopoly and that you get all kinds of
 6   localized effects, and when you look at the margins
 7   that a supplier is working off of, which can be very
 8   slim, a much smaller market share than can give you
 9   monopoly power can give you monopsony power.  And I
 10  think that this is right.
 11            There are a number of problems from an
 12  antitrust standpoint with attacking monopsony power.
 13  And let me just give -- this is not to say it's not a
 14  problem, but let me talk about it as an antitrust point
 15  first.
 16            If a powerful buyer is making final prices
 17  cheaper to consumers, antitrust is generally not going
 18  to be able to turn around and say well, you're making
 19  things cheaper for final consumers, but there's
 20  something that you're doing in terms of bargaining with
 21  your suppliers that is unfair. That's typically not an
 22  antitrust concern. We can't get in and start to set
00225
 1   intermediate input prices.  Now, what we can do is, in
 2   the context of a merger or a consolidation event, we
 3   can look at whether such outcomes are likely, whether
 4   monopsony power is likely to be increased through the
 5   merger and say that's a harm that we don't want to see
 6   happen and stop the merger.
 7             But what do you do when you have a firm that
 8   has gotten big not by merging but by virtue of internal
 9   growth, like Walmart?  Can we tell a Walmart you cannot
 10  use all of your bargaining power to buy at the lowest
 11  price?  That is, at least, well beyond the understood
 12  purview of the antitrust authorities.  That gets to the
 13  -- that gets to an issue essentially of regulation,
 14  which is something the agencies don't do. So when you
 15  talk about unfair bargaining power, I don't mean to say
 16  that that's not a problem and I don't mean to say that
 17  there aren't possible ripple effects from that that
 18  affect workers and communities and many kinds of
 19  things.  But it's certainly never been in the purview
 20  of the -- it's hard enough for the antitrust agencies
 21  to say that a monopolist is charging too high a price.
 22  To say that a powerful buyer is acting in its self
00226
 1   interest and getting as low a price as possible and
 2   that that's an antitrust problem is, I think, an
 3   extremely difficult thing for us to do outside of a
 4   merger kind of event.
 5             MS. POZEN:  So we have several folks that
 6   want to comment on that.  Al has some comments, and
 7   Bert and Mary as well.  So why don't we start?  Al, you
 8   want to comment on this from the workers' perspective?
 9             MR. VINCENT:  Sure.
 10            MS. POZEN:  Because you've heard from the
 11  antitrust works now.  We've heard there may be some
 12  other theories we should be pursuing and now you've
 13  heard well, we pursue those and what really happens in
 14  terms of what our antitrust laws are aimed at.
 15            MR. VINCENT:  Sure.  I'm not so sure it's
 16  definitely aimed towards just the workers, but what I
 17  would say is I think everyone here would recognize and
 18  admit that, you know, as you said, Howard, this isn't
 19  the merger.  They grew in a way that was not customary
 20  in past trending over the years. But that doesn't mean
 21  that we shouldn't fix it.
 22            And I guess what I would say is that they've
00227
 1   flown under the radar.  If you look at, as Bert said
 2   down there, that you have to look at more factors than
 3   just the sales impact in terms of what happens with
 4   quality.  If you go down the chain and the supplier has
 5   to make changes just to maintain a relationship with a
 6   Walmart, then they're going to do things that are
 7   unheard of, meaning they're going to cut labor costs or
 8   they're going to comprommise safety, food safety, to
 9   meet those demands.  So I think that we are almost
 10  challenged and we almost have responsibility to change
 11  the way we look at this from an antitrust perspective.
 12  I'm not saying the process exists today, but I think
 13  that again, if I think about what Secretary Vilsack
 14  said this morning, there's the beginning of a process.
 15  So we can't ignore it.  It's happening, but by not
 16  having the process in place to address it now doesn't
 17  mean -- maybe that's a priority is to develop a process
 18  to challenge this type of behavior. It's ruining
 19  American communities.  It's ruining -- we heard from
 20  farmers earlier, from packers.  Virtually everybody in
 21  the supply chain is getting stripped of everything they
 22  have because of this dominance by a Walmart, and to do
00228
 1   nothing is negligent on all our parts.
 2             MS. POZEN:  Alright.  One second and then
 3   Bert.  Bert, you want to retort and then we'll -- I
 4   love it.  Everybody wants to talk.  This is great. Then
 5   Mary.
 6             MR. FOER:  A couple of quick points.
 7             Howard, Justice Department has gone after
 8   buyer cartels for a long time and a buyer cartel where
 9   they fix prices, it's not because they're going to pass
 10  anything on to consumers.  That's well known to be
 11  illegal, number one.
 12            Number two, we say that competition is a good
 13  thing and it's a good thing for consumers to be able to
 14  buy from competitive sellers.  Why is it that suppliers
 15  don't have a right to sell into a competitive market.
 16  And I know you've got good complicated questions there,
 17  but as a matter of theory and justice it seems to me
 18  that we need to work on that.
 19            And the country in fact did work on that
 20  once.  It was called the Robinson-Patman Act.  When A&P
 21  and others were growing so strong as chains, we worried
 22  about it, but we were worried then about buyer power.
00229
 1   We came up with a test regarding price discrimination
 2   and we said that abuse of buyer power to get
 3   discriminatorily low prices that would give you
 4   competitive advantage is illegal.
 5             Now, as it happened over the years, it's been
 6   a very difficult law to interpret and it's been
 7   interpreted in such a way that it doesn't work that way
 8   at all.  But that's another approach we have is to
 9   either reincarnate the good parts of the Robinson-
 10  Patman Act or to legislate or to figure out some way to
 11  arrive at a comparable type of approach.
 12            MR. SHELANSKI:  Let me just respond very
 13  briefly.  Buyer cartels are a different matter. Any
 14  time you've got a horizontal dimension I think that the
 15  antitrust basis is much clearer.
 16            Just a couple of very quick things.  I think
 17  that we certainly can, and indeed the Justice
 18  Department recently has, pursued agreements that say
 19  you cannot give our competitors as good a deal. In
 20  those kinds of situations, the raising rivals cost
 21  arguments are very high and we've got a conduct basis
 22  for going after a firm, because it's not about the
00230
 1   price they're paying.  It's about their control over
 2   the prices their competitors are paying, and that's the
 3   kind of thing that we can and do look at.
 4             The second thing is that the antitrust
 5   agencies have not ignored monopsony.  We at the FTC
 6   have had a monopsony investigation.  It's public -- by
 7   a company that's been oft mentioned -- against a
 8   company that's been oft mentioned here this afternoon.
 9   So we -- it's not a question of ignoring it. It's a
 10  question of finding the antitrust hook, which brings me
 11  just to one broader point that I would mention.
 12            To look to antitrust alone as the policy
 13  avenue for getting at the kinds of problems that people
 14  are talking about here, I think is a mistake, and I
 15  think that a lot of communities have engaged in self-
 16  help through zoning, through other kinds of things. And
 17  I would just like to mention antitrust can be a piece
 18  of the puzzle here, but I think there are good reasons
 19  that it's got to be a limited piece of puzzle, lest we
 20  punish the very thing antitrust is supposed to promote,
 21  which is vigorous competition which occasionally
 22  results in a winner.  And we don't want to turn around
00231
 1   to that winner and say now that you've won and you're
 2   the one firm to who these suppliers can sell to, we've
 3   got bad news for you. Suppliers have a right to sell to
 4   a competitive market, so we're going to come in and
 5   break you up. I think we can all admit that would be an
 6   extremely radical approach to antitrust, one that might
 7   bring down the whole enterprise were we to attempt it.
 8             So antitrust can be a piece of the puzzle
 9   here, but I think it's important to recognize that
 10  there are other policy avenues that are going to have
 11  to work in concert.
 12            MS. POZEN:  Well, and I think that takes us
 13  to Mary.  And just to note, the case that Howard's
 14  referencing at the Department of Justice Antitrust
 15  Division is the MFN litigation that's ongoing against
 16  Blue Cross Blue Shield of Michigan for their pernicious
 17  MFNs that they had in place.
 18            But Mary, let's -- there are other issues,
 19  other ways of looking at these issues other than our
 20  antitrust wonks looking at them.  Help us with that.
 21            MS. HENDRICKSON:  Well, I'm absolutely not an
 22  antitrust wonk.  I don't know the law on this
00232
 1   particular issue like Bert does, like Howard does. But
 2   I think it's important to remember that the historical
 3   antecedents of antitrust came out of a movement that
 4   was about what can competition do for citizens and for
 5   communities, and that's what we have to keep front and
 6   center.  Okay, as lawyers you're going to have to
 7   figure out how are we going to manage that, how are we
 8   going to do that, but that is essentially what we are
 9   talking about is what can competition do for
 10  communities and citizens.
 11            And we are now operating in a global world.
 12  We have a food system that is a global food system.
 13  Smaller entities across the board are being left out of
 14  the reorganization of the food system. I've got people
 15  that are working on international agriculture who talk
 16  to me about the same issues that our farmers are facing
 17  in terms of being able to provide volume, talking about
 18  standard setting, all of these kinds of things. This is
 19  at a global level.  So we have got to figure out how
 20  are we going to promote competition at a global level
 21  in terms of the benefits for communities and citizens.
 22  And if we don't figure that out quickly, it's not
00233
 1   really going to matter for the farmers who -- Bob
 2   Taylor just told me that zero percent return on
 3   investment for farmers over the last 13 years.  That
 4   means that farmers are eating their equity.  What does
 5   that mean for rural communities? That means that rural
 6   communities are eating their equity.  There is -- Al
 7   was talking what's happening in terms of the bargaining
 8   power for laborers, which means that they're not
 9   getting wages back to them, which means that we're
 10  eating up the ability of workers to participate in the
 11  economy. Somewhere this has got to stop.  We've got to
 12  look at the historical antecedents of antitrust law,
 13  and we've got to make some policies that make sense.
 14            MS. POZEN:  Thank you.  I think Erik --
 15            MR. LIEBERMAN:  I just want to emphasize that
 16  it's essential to consider consumers, and we're seeing
 17  more competition on price and services than ever before
 18  and consumers are clearly benefitting. The real cost of
 19  food continues to decline, and this is so important,
 20  especially during these tough economic times.
 21            MS. POZEN:  Well, and let me take it -- I
 22  want to take it sort of to, you know, one more level
00234
 1   down to talk a little more specifically about price
 2   increases.  Some observers have said that price
 3   increases are quickly passed on, but price decreases,
 4   or cost decreases, are not.  And I think this is a
 5   critical issue to the discussion we're having about
 6   power and what that means.  And Kyle, you've done some
 7   work in this area and I'd love to get your perspective
 8   on that as well for all of us to benefit from.
 9             MR. STIEGERT:  Sure.  The issue here is
 10  phrased asymmetric pricing in the market, and what's
 11  been observed over the years in many, many industries
 12  has been this phenomena that cost increases, upstream
 13  cost increases, quickly get passed on to consumers, but
 14  cost decreases, for a variety of reasons, do not get
 15  passed on to the consumers.  And so the firms that are
 16  in the vertical channel, retailers included, are taking
 17  a larger share of the pie, while those cost decreases
 18  are being noted.  So, and this is a phenomena that has
 19  a lot of theories that are being posited, that are
 20  being tested, and there really is no consensus about
 21  why this occurs.
 22            I have my own reasons.  Clearly, one
00235
 1   potential reason is this issue of oligopoly or
 2   oligopsony power. Another issue is perhaps the issue of
 3   risk management. Maybe this is one way for firms to
 4   manage uncertainty and risk in their day-to-day
 5   business.
 6             Another possibility I'm pretty sure is
 7   occurring in the food sector, and that's this imperfect
 8   information or asymmetric information. Supermarkets,
 9   whether they be convenience stores or Walmarts or
 10  whatever, they know they have a fairly loyal clientele.
 11  They know that consumers aren't necessarily aware of
 12  what all prices are, whether they have information
 13  through the; internet or through some other new modern
 14  device, they're not really comparing prices.  We're
 15  busy people. Right?
 16            So you're going to go to the supermarket
 17  you've always gone to or you're going to go to the
 18  Walmart you typically have gone to in the past and
 19  you're going to pay those prices and you're not really
 20  going to know.  You have 40,000 items in the
 21  supermarkets these days.  I mean, you're not going to
 22  notice these kinds of things.  So the retailer in this
00236
 1   context is aware of that and can say "okay, I've got a
 2   price decrease today on ketchup, so I'm not going to
 3   lower the price to the consumer. I'll just take that as
 4   profit."  But if they get an increase in the price of
 5   ketchup, they say "Hey, I'm not going to eat that.  I'm
 6   passing it on, because frankly nobody really pays
 7   attention to a nickel or a dime change in the price of
 8   ketchup."  Right?  And that's really what's going on
 9   here.
 10            So what does this mean?  I don't think per se
 11  this means -- is not a gigantic issue for the consumer,
 12  but what does this mean for the farm sector?  And I
 13  think it's a big issue and here's why. When we're
 14  talking about food, most of the cost changes through
 15  the system are related to supply shocks.  Yeah, there's
 16  some big demand shocks, but they're pretty rare.  You
 17  have to have some health scare or something like that
 18  to get a big jump in demand.  Demand's pretty constant.
 19  So what's going on here is that the cost movements in
 20  the system are largely related to supply changes.
 21            Well, so what happens when you have a cost
 22  decrease?  Well, that typically is associated with a
00237
 1   large supply coming through the system.  So the farmers
 2   are for some reason producing a lot of beef right now.
 3   Cost decreases go into the system and it's not being
 4   passed on to the consumer.
 5             Well, what happens?  The market doesn't
 6   clear.  The market doesn't clear the supply at those
 7   previously higher prices.  So subsequently, without the
 8   market clearing, if there's still more supply coming
 9   in, that's even going to lower the farm price even
 10  more.  So what happens in this context is the farmer
 11  gets whipsawed, gets whipsawed, and most of the time it
 12  would tend to be on the down side.
 13            If cost increases are being passed on to
 14  consumers, consumers are consuming less of that
 15  product, and so the farmer isn't necessarily
 16  benefitting from -- they're going to get hurt by
 17  decreased demand at those higher prices.  So it's
 18  really -- in some ways this whole issue of asymmetric
 19  pricing in the food sector is really stacking the deck
 20  against the farmer, and it's a problem I think as we've
 21  gotten into greater consolidation.  It's a problem that
 22  could crop up and it could become much more severe as
00238
 1   we move forward.  So one of my recommendations on this
 2   issue is we need to be very vigilant about this topic.
 3             I know this morning Tom Vilsack's comment
 4   about the hog industry was -- brought back some
 5   memories.  I think he mentioned there was 670,000 hog
 6   priors in 1980 and now there's 67,000.  You could go
 7   back to the late 1990s and you could make the point and
 8   be pretty accurate that the number one reason why we
 9   had such mass exodus in the hog sector occurred when we
 10  had this phenomena where hog prices basically fell to
 11  zero while retail pork prices didn't drop all that
 12  much.  Markets didn't clear.  There was an
 13  overabundance of supply.  Meat packers couldn't even
 14  manage it.  Coolers were full.  Farmers were letting
 15  their hogs go free in Iowa just to eat the corn. They
 16  weren't even -- it was a disaster of monumental
 17  proportions, and I think one of the major reasons this
 18  occurred was this phenomena of asymmetric pricing.
 19            And nowadays, these 67,000 hog farmers that
 20  are remaining are almost all under contract now, which
 21  really brings up a whole other issue of bargaining
 22  power and contracts.  We don't want to go into that
00239
 1   right now, but the whole impetus of this major move was
 2   related to this phenomena.  So as we move forward I
 3   think that's a phenomena that we have to pay attention
 4   to, and I think if we can devise methods to decrease
 5   the impact -- I don't know that you're really ever
 6   going to get it to go away, but if we can improve the
 7   reaction time on retail food prices to react to these
 8   lower costs that are coming through the system, the
 9   system would work more efficiently.
 10            MS. POZEN:  Thank you, Kyle.  Bob, from the
 11  farmers' perspective?
 12            MR. YOUNG:  Well, you're right.  In thinking
 13  back through some of those periods of time, I think we
 14  were down to $8 hogs for a while there, and it was
 15  cheaper to kind of park the truck at the local coffee
 16  shop and just kind of go in and beg somebody to drive
 17  that truck away for you. "Take the truck. Just make
 18  sure you take the hogs with you when you go."
 19            This is a challenge of price changes and the
 20  stickiness of prices at retail.  I think as, Kyle, as
 21  you've mentioned, there's been quite a bit of research
 22  in that direction that would suggest that yes, when
00240
 1   prices go up, they do certainly tend to move up at
 2   retail, but when they come down, it does seem to take
 3   them a while to come down at retail as well, is
 4   something that we have watched.
 5             Don't forget though that there are reasons
 6   why some of that happens.  I'm not saying I like it by
 7   any stretch of the imagination, but certainly on the
 8   dairy side, for example, some of the dairy pricing
 9   schemes that are in place and federal milk market
 10  orders because of the timing in which that price
 11  information is actually passed through, it kind of has
 12  to work the way that it works.  I don't like it.  I
 13  don't think it's necessarily the right way for things
 14  to work, but price stickiness on the retail side is
 15  certainly one of the concerns.
 16            But understand that whether it be a Walmart,
 17  whether it be a Costco, whether it be a Kroger for that
 18  matter, that they will tend to try to price their
 19  product for a long period of time. They don't want to
 20  change the price at retail very often if they can avoid
 21  it.  They want to try to avoid those price changes at
 22  the retail level. And so yes, it does tend to get mean
00241
 1   thenwhen prices move  down.  We tend to be aware of
 2   that, hyperaware of that if you will.  So I understand
 3   what you're saying, Kyle. I don't disagree with you at
 4   all.
 5             MS. POZEN:  And I think we're running short
 6   of time, so I think I'm going to ask one more question
 7   just to try to overlay the current economic times that
 8   we're living in and get a sense of folks, how folks are
 9   doing and what changes you're seeing in food retail as
 10  a result.
 11            And can I start with you, Tom, on that?
 12            MR. WENNING:  Sure.  I think, as I said in my
 13  statement, certainly beginning in the fall of 2008 with
 14  the change in the economic climate, we saw probably the
 15  beginning of the biggest financial crisis and the
 16  economic depression since the greatest depression. And
 17  that has affected not only retailers, but the whole
 18  food industry. And that has been something that we've
 19  all been adjusting to.  I think if you look at our
 20  membership maybe initially in 2008, they felt that
 21  well, it's not too bad. People are not going out to eat
 22  as much. Things are okay.  We're taking food back from
00242
 1   the restaurant people.
 2             After about six months and we start seeing
 3   what's happening in the commodity markets, and 2009
 4   being what it was with actually commodity deflation,
 5   meat starting to fall, dairy starting to fall,
 6   retailers started to say "hey, we're not having
 7   inflation anymore where we make dollars on increasing
 8   sales, we've got deflation, commodity prices are
 9   falling."  Now all of a sudden retailers are starting
 10  to talk about "well, in order to make a dollar we have
 11  to sell more commodities, we got to move more tonnage."
 12            And I think that is one of the things that,
 13  when you look at independent retailers and wholesalers,
 14  what they've focused on and what they've done as a
 15  result to change their model is they've promoted more
 16  of the perimeter departments that engage in meat,
 17  produce, dairy to compete against larger operators, and
 18  that is something that I think we have tried to
 19  partner.  And I think I talked with Mary.  There are
 20  more and more state associations where retailers are
 21  promoting buying local produce, bringing it on, making
 22  it available on their parking lots, promoting it in
00243
 1   their stores.  So there are independent operators out
 2   there and local regional companies that are trying to
 3   produce and to promote products in which there is added
 4   value not only to consumers, but added value to
 5   companies that are producing within their own state,
 6   farmers and others that are growing products within
 7   their state, whether it's Ohio, Missouri, whatever.
 8             We spent yesterday, Erik and I, talking about
 9   how we address with USDA bringing operators into
 10  underserved areas, whether it's urban areas or it's
 11  rural areas. Mary mentioned a community that's only got
 12  350 people. Our wholesalers that service those rural
 13  states like South Dakota, North Dakota, Nebraska where
 14  there's not a whole lot of people, we're looking for
 15  alternative ways to get food there, whether it's
 16  through farming communities or others. So we're not
 17  burying our heads in the sand here. We're working to
 18  make the food system better for everyone from farm to
 19  table.
 20            MS. POZEN:  Okay.  Well, I can't help but ask
 21  my last question.  I have one more question, and I need
 22  really like 20, 30 second answers from each of you. And
00244
 1   I had posed this before, so the folks had a chance to
 2   prepare for this.
 3             If you had the opportunity to offer one
 4   policy recommendation in the area of food distribution
 5   and retailing, what would it be?  What would be the one
 6   thing you think would have the most impact?  And we'll
 7   start down at this end.
 8             Bert?
 9             MR. FOER:  I would propose a Blue Ribbon
 10  Study Commission on buyer power made up of a variety of
 11  stakeholders given ample opportunity to do something
 12  serious, to subpoena information and to come out with
 13  specific recommendations based on empirical analysis
 14  which I think would impact on merger enforcement on
 15  Section 1, Section 2 and sectoral regulation I think
 16  would be a good investment.
 17            MS. POZEN:  Okay.  Wenonah?
 18            MS. HAUTER:  I think that the Obama
 19  administration should make this competition and
 20  consolidation issue a top priority and that the
 21  Department of Justice should review all of the large
 22  agriculture mergers over the past decade to determine
00245
 1   the impact that these corporate combinations have had
 2   on the marketplace.
 3             MS. POZEN:  Okay.  Mary?
 4             MS. HENDRICKSON:  I would think that what we
 5   need to do is expand our understanding of antitrust to
 6   create some sort of legal policy framework.  I'm glad
 7   you guys are invested, that you can enforce the laws
 8   that are on the book right now, but we have to create
 9   some sort of policy framework that allows us to really
 10  focus on citizen welfare, not consumer welfare, but
 11  citizen welfare and what competition really means for
 12  our communities.  Quit privileging financial capital
 13  and start to talk about all of the other social public
 14  goods, about thriving communities, good health, you
 15  know, healthy environments.  These are all antitrust
 16  issues and they're critical.
 17            MS. POZEN:  Thank you.  Erik?
 18            MR. LIEBERMAN:  Thank you.  We have the
 19  safest, freshest, most affordable food and agricultural
 20  system in the world, and this is because of vigorous
 21  competition in the retail sector.  So this competition
 22  must be maintained.
00246
 1             And I also think that antitrust policy must
 2   acknowledge the realities of the 21st century
 3   marketplace.  There are many different new channels
 4   where retailers are getting -- where consumers are
 5   getting their groceries from, and the policies should
 6   acknowledge that the marketplace is more diverse than
 7   it was 20 or 30 years ago.
 8             MS. POZEN:  Howard, do you want to take a
 9   stab or do you want to pass?
 10            MR. SHELANSKI:  I'll just say that antitrust
 11  is constrained ultimately not these days by its
 12  original purposes, and I agree very much with Mary on
 13  what those were, but on what the Supreme Court has done
 14  in translating those original purposes into a very
 15  narrow set of constraints within the agencies, within
 16  which the agencies must operate. So I think we need to
 17  look beyond antitrust.  And one of the most important
 18  things that I think we can do is to put power in the
 19  hands of consumers and information for consumers about
 20  what the impact is of where they spend their dollar may
 21  be one of the most important effects and get consumers
 22  to understand when you spend a dollar on a certain
00247
 1   product in a certain place it has certain kinds of
 2   ripple effects, or I think Bert called them waterbed
 3   effects.  But I think we need to make sure consumers
 4   understand what's happening with their food supply and
 5   what the impact of their expenditures is.  So some kind
 6   of transparency of consumer information would be a very
 7   important policy step.
 8             MS. POZEN:  Okay.  Kyle?
 9             MR. STIEGERT:  I would echo Howard's policy
 10  recommendation in that I would like to see some sort of
 11  experiments, natural experiments, being conducted on
 12  the impacts of information.
 13            Information can be a double-edged sword at
 14  times because sometimes it can give the actual
 15  oligopolists opportunities to coordinate.  So we want
 16  to move cautiously in that direction, but I think I'd
 17  like to find out more about that.  If we took a case
 18  such as Madison, Wisconsin, 250,000 people in a very
 19  small supermarket sector of maybe 30 stores, we really
 20  could do something interesting and look at the impacts
 21  of what happens when consumers have more knowledge
 22  about pricing and products and how different those
00248
 1   prices are across that space.
 2             MS. POZEN:  Thank you.  Al?
 3             MR. VINCENT:  Can I answer one question with
 4   15 parts?
 5             MS. POZEN:  We're running out of time
 6   already, so --
 7             MR. VINCENT:  It would be pretty simple in
 8   some respect in that we would -- I would like to see
 9   the FTC's increased participation in this process, and
 10  by that I would mean the FTC should appoint a senior
 11  person to the Interagency TaskForce that's already been
 12  established by the Department of Justice and USDA to
 13  look at antitrust issues. And to also launch a detailed
 14  investigation into potential anticompetitive practices
 15  and look beyond just a price.  Look at quality, look at
 16  food safety and look at updating antitrust laws, which
 17  I believe may be outdated and not relative to what's
 18  happening in today's marketplace.
 19            MS. POZEN:  Thank you.  Tom?
 20            MR. WENNING:  Well, I'm going to follow Al
 21  and expand.  There are two things that I think that
 22  were really pushing retail merchants from this
00249
 1   perspective.  One is health care.  Our independents
 2   reported that their health care costs the last two
 3   years have gone up an average of 13 percent.  When you
 4   have those type of cost pressures being put into your
 5   operations, that obviously pushes up your margins.  It
 6   pushes down our profitability.
 7             The second is -- and I want to commend the
 8   Department of Justice on this -- is for the actions
 9   that they brought against Visa, Mastercard and American
 10  Express for the anticompetitive market power that they
 11  exert on the retail community in terms of charging
 12  interchange fees that you never see every time you
 13  swipe a credit card or a debit card.  It costs us two
 14  or three or, if you're an independent operator,
 15  sometimes four percent on every transaction that is
 16  swiped through the grocery store.  And every consumer,
 17  whether they pay by cash, check, debit, SNAP, WIC, they
 18  pay for that in the cost of their goods in the
 19  supermarkets, and we need to fix that problem.  We need
 20  to eliminate the market power of those companies and
 21  their largest banks in passing that charge on,
 22  something that we have no control over, but it is
00250
 1   something that we have to absorb as a cost of
 2   operation.
 3             When you think that you can swipe a debit
 4   card and it costs us three percent or two and a half
 5   percent on that transaction when it's nothing more than
 6   an electronic check that comes out of your account,
 7   that is unfair and that is something that we can work
 8   together on, and that's something that I commend the
 9   Department of Justice for attacking.
 10            MS. POZEN:  Thank you.
 11            MR. WENNING:  And I wish that they would
 12  continue the work.
 13            MS. POZEN:  Thank you.  Well, we need
 14  witnesses.  We got a trial coming up.
 15            And Bob, play clean up for us here.
 16            MR. YOUNG:  Well, this is going to sound
 17  strange, but I'm going to agree with Erik, but I'm also
 18  going to agree with Mary and Bert as well.
 19            MS. POZEN:  Okay.  Okay.
 20            MR. YOUNG:  I work for the farmers in the
 21  United States.  I work for American farmers, and I'm
 22  very proud to work for American farmers because I do
00251
 1   think they deliver the safest, most abundant, most
 2   affordable food supply on the planet.  Thank you very
 3   much for doing that.
 4             I'd also like to say that I agree with Bert
 5   and Mary as well, in that I think really the biggest
 6   challenge that we're facing right now for this problem
 7   is this issue of how do we deal with monopsony, how do
 8   we deal with buyer power if you will.  And I want to
 9   take you down a slightly different path than what we've
 10  talked about before in that, when you recognize that
 11  this large corporation that begins with a W who I shall
 12  not mention but -- and recognize that they can decide
 13  that they want to impose production practices, for
 14  example, on our sector and they can make that decision
 15  (snaps fingers) and as I recall they don't go through a
 16  comment and discussion period.  They just decide. Thank
 17  you very much.
 18            And so I think that that's very important for
 19  us to figure out what the right legal recourse is. Also
 20  very important, the right economic structures to put in
 21  place around that in order to make sure that we're not
 22  making -- running into problems of unintended
00252
 1   consequences.  So I would put that at the very top of
 2   the list.
 3             Since we don't have that figured out though,
 4   in the meantime, I think we also need to make sure that
 5   we do keep Copper-Volstead and the ability to allow
 6   farmers to form cooperatives to help deal with that on
 7   the other side of the house. Very important that we
 8   keep that in place. Thank you very much.
 9             MS. POZEN:  Thank you, and thank you all.
 10            Let's give a round of applause to our
 11  fabulous panel.  Thank you very much.  I appreciate
 12  your views.
 13                  (Whereupon, a recess was taken.)
 14                 MARGINS IN THE LIVESTOCK INDUSTRY
 15            MR. MACDONALD:  I do have an important
 16  announcement before we start, and that announcement is
 17  the District of Columbia enforces its parking laws.  If
 18  you are parked on Independence Avenue right in front of
 19  the building and if you're still there at 4:00 p.m.,
 20  you will be ticketed and towed.
 21            So if you have a car on Independence Avenue,
 22  you probably need to think about moving it now or some
00253
 1   time during this session.
 2             Good afternoon and welcome to our final panel
 3   session on margins in livestock and poultry industry.
 4   My name is Jim MacDonald.  I'm with the Economic
 5   Research Service at USDA.  We have a panel of three
 6   producers and three economists.
 7             I'll introduce the speakers now.
 8             Starting all the way over to my right, John
 9   Crespi is professor of agricultural economics at Kansas
 10  State University where his research focuses on product
 11  differentiation and marketing issues in food and
 12  agriculture.
 13            Just next to John is Allen Lund.  Allen is a
 14  third generation rancher in North Dakota where he's
 15  owned and operated a cow/calf operation for the last 18
 16  years.
 17            To my immediate right is Valerie Ruddle.
 18  Valerie is currently the Secretary of the Contract
 19  Poultry Growers Association of the Virginias and for
 20  the past five years has been a contract grower of
 21  broilers in West Virginia.
 22            To my immediate left, Bob Taylor is a
00254
 1   distinguished university professor in agriculture and
 2   public policy at Auburn University where his recent
 3   work focuses on competition issues in the food system.
 4             Next is Gene Versteeg.  Gene raised swine and
 5   grows corn and soybeans with his son in Iowa. Gene is a
 6   veterinarian and a former President of the Iowa Pork
 7   Producers Association.
 8             And at the far left end of the table, Mike
 9   Wohlgenant is the distinguished professor of
 10  agricultural economics at North Carolina State
 11  University where he specializes in the development of
 12  economic models of agricultural marketing, policy
 13  demand and price analysis problems.
 14            Now, what I'm going to do in this panel is
 15  put out a few questions and try to get some discussion
 16  going.  I'm going to start by getting some questions
 17  going on price spread data. Each of the last few panels
 18  has referred to data on price spreads for cattle and
 19  for hogs. That data is produced by my agency, the
 20  Economic Research Service, and I had several people on
 21  the panel who have some experience in analyzing it.
 22            And so I'm going to set up an initial
00255
 1   question to talk about long run changes in spreads as
 2   well as long run changes in the farm share of those
 3   spreads.  Later I'm going to shift over and talk a
 4   little bit about a topic that came up in the last
 5   panel, that is retail reactions to sharp movements over
 6   shorter periods of time in livestock prices, whether we
 7   see AA what Kyle Stiegert in the earlier panel referred
 8   to it as asymmetry.
 9             But let me start with the long run.  I'm
 10  going to refer to -- I'll start with a few bits of data
 11  and I'm going to throw this question out to Mike
 12  Wohlgenant to explain what we have and then get some
 13  discussion going.
 14            I'm going to cite two years 20 years apart,
 15  1989 and 2009.  In that 20-year time period, the
 16  overall Consumer Price Index for all items rose by 73
 17  percent over that 20-year period.  If we look at our
 18  data for beef and for pork spreads, the -- from the
 19  USDA price spread data, the retail value for choice
 20  beef rose from $2.66 to $4.26, about a 60 percent
 21  increase for those of you who still don't do
 22  percentages all that quickly.
00256
 1             If we look at the farm value, in 1989 it was
 2   $1.78 out of a $2.66 retail value.  In that 20- year
 3   period, it rose from $1.78 to $2.  That is about a 12
 4   percent increase compared to the 60 percent increase in
 5   retail and compared to that 70 percent overall increase
 6   in consumer prices.  Qualitatively, you see similar
 7   changes in pork, that is the retail value went from
 8   $1.94 to $2.92, about a 50 percent increase in the 20
 9   years. We've picked 2009 so those of you who are in the
 10  hog business -- I'm sure Gene is shaking a little on
 11  that.  Prices actually fell in that 20-year period from
 12  87 to 77 cents a pound.  But you get a similar
 13  qualitative story.  Right?  Retail prices rose by a
 14  little bit less than the overall Consumer Price Index.
 15  Farm prices rose a little in the case of beef, fell in
 16  the case of pork, and as numerous people on previous
 17  panels have said, the share, therefore, of the farm
 18  value in the final retail dollar fell pretty noticeably
 19  in that 20- year period.
 20            So what I'd like to do is kick this off and
 21  ask Mike Wohlgenant if he can talk about what the
 22  driving forces were in that long run shift towards a
00257
 1   lower farmer share, and then we'll get some discussion
 2   going on.  Mike?
 3             MR. WOHLGENANT:  Before I give some specific
 4   numbers in regard to those statistics that you gave, I
 5   wanted to first state that I really believe based on
 6   our research, which it's been ongoing for years on this
 7   topic, that I think it's very difficult to say that we
 8   can first of all say that this, when we're looking at
 9   long-term changes, has much to do with market power,
 10  particularly on downstream purchases of farm products.
 11  But I think we can explain a lot of these changes by
 12  long-term movement in supply and demand, demand mainly
 13  by consumers, which on the face of it might not sound -
 14  - might sound a little strange, but it's actually
 15  consistent with some things Bob Young was saying on the
 16  previous panel, and some other people, that one thing
 17  that the marketing system has characterized, not just
 18  in beef and pork, but also in other commodities as
 19  well, is that we've seen increased marketing and
 20  distribution costs over time.  And if you look at --
 21  and what's important to understand here is that when we
 22  talk about costs, that we're not talking about just the
00258
 1   marketing input prices like wage rates and price per
 2   unit of marketing inputs that are purchased, but we're
 3   talking about the costs which is the product of those
 4   prices and quantities. And those quantities, or those
 5   expenditures I should say, or costs if you like,
 6   relative to outputs in terms of the inputs, raw
 7   materials that are purchased has gone up considerably,
 8   and it's because of, mainly because of consumers
 9   demanding more convenience, demanding more services.
 10  And, you know, in terms of having full service
 11  supermarkets, I'm thinking of one in my community that
 12  I shop at, Whole Foods, which some of you may be
 13  familiar with.  I go there.  My wife goes there.  We go
 14  to the meat counter and we get meat cut to our
 15  particular specification. If we want to have skewers
 16  for a particular barbecue or something, then the
 17  butcher there will cut it, you know, in the way that we
 18  want it.
 19            I can remember 20 years ago there was
 20  certainly no place that you could go to, other than a
 21  very specialty meat-type shop, to get something done
 22  like that.  It's also the case, in this Whole Foods,
00259
 1   you can go there and you can -- I have a lot of food
 2   allergies, so you can buy food where you can avoid
 3   those food allergies.  You can also buy things like
 4   flowers and other items that, if you go to even other
 5   supermarkets you can buy, you know.  You do your
 6   banking there.  You do prescriptions.  You can do --
 7   get your lunch.  You can go there and have a salad bar
 8   or sushi bar or whatever, sort of a one-stop shopping.
 9   All of these things cost and -- but they're values to
 10  the consumer, things the consumer wants.  So they add
 11  to the overall marketing and distribution costs, and
 12  that's sort of the thing that we've seen over time.
 13            Now, what happens then over time is the
 14  consumers, what -- they're willing to pay for this, but
 15  they're only willing to pay so much for it. And some of
 16  the increased incidents of these marketing and
 17  distribution costs does get -- puts pressure on the
 18  prices paid by farmers that we heard in the previous
 19  panel about some of the actors, and the buying power
 20  can be substantial in putting farm prices of raw
 21  materials that are purchased.
 22            So now I want to get specifically to the beef
00260
 1   price spread and looking at what's happened there.  And
 2   USDA constructs the beef price spread data by taking
 3   the net farm value of each one of those products, beef
 4   and pork respectively, and what they do is adjust for
 5   byproducts.  They extract out byproducts and they
 6   express those per unit retail product.  And so when you
 7   look at the beef price spread, that increased 126
 8   percent over the 20 years. Inflation accounted for 73
 9   percent, which leaves 52 percent if my math is correct.
 10  126 minus 73, yeah, is 53 percent.  I even made a
 11  simple math error there. Fifty-three percent increase
 12  to explain after accounting for inflation.  And of that
 13  53 percent, real disposable personal income, which
 14  reflects over longer periods of time now, consumers'
 15  increase in buying power and demand for more value
 16  added, accounted for 42 percent of that increase.  So
 17  there was essentially just ten percent unexplained
 18  remaining there, which is not zero obviously, but it
 19  was not -- there's not anything significant in terms of
 20  major factors to explain what the residual was.
 21            Now, if we're looking at pork price spreads,
 22  we'll see that there was an increase of 99 percent over
00261
 1   that period, and again inflation accounting for 73
 2   percent means there was 26 percent of that increase
 3   that needed to be accounted for by other factors.  And
 4   of that 26 percent again, disposal personal income
 5   after accounting for inflation accounted for 16 percent
 6   of that 26 percent.  So again we have about ten percent
 7   that's unexplained, and again there was nothing I could
 8   identify as being particularly significant accounting
 9   for that.
 10            MR. MACDONALD:  Mike, can I quickly follow-
 11  up?
 12            MR. WOHLGENANT:  Yeah, sure.
 13            MR. MACDONALD:  How is it that personal
 14  disposal -- can you walk us through a channel by which
 15  increases in real spending power, those increases in
 16  people's income, affects that spread?
 17            MR. WOHLGENANT:  Okay.  Consumers demand more
 18  services.  Okay?  So the retail store is going to
 19  provide those.  Now, that's going to be mainly, and as
 20  it shows up in the data overall -- I don't have it
 21  specifically for meats, but we have it for the whole
 22  marketing system in terms of higher unit labor costs.
00262
 1   So more -- it's very labor intensive, a lot of the
 2   services, so you get more labor costs being when demand
 3   for value added goes up.
 4             MR. MACDONALD:  So if I can summarize it,
 5   you're using -- for you, if we use disposable income to
 6   -- growth in disposable income, spending, to reflect
 7   the increased services that consumers want, that
 8   accounts for some part of the spread, and the growth in
 9   the Consumer Price Index for you accounts for the
 10  increased prices, increased costs that have to occur at
 11  that stage.  Is that a fair summary?
 12            MR. WOHLGENANT:  That's correct.  It's not to
 13  say that I don't look at other things,I do, but they're
 14  like real wages, real energy costs, things like that.
 15  But after -- their net effect is very, very small. It's
 16  suggesting to me that it's more in terms of the amount
 17  of labor that's being added in terms of the value of
 18  the products -- not just the product, but the services.
 19  Okay?
 20            Now, if you go from one -- there was a
 21  comment made before in the previous panel that I
 22  thought was interesting talking about how you want to
00263
 1   compare products that are identical with identical
 2   packaging.  I think one difficulty we run into here in
 3   understanding price spreads is that if you found an
 4   identical product -- and you can go to different
 5   stores, you know, there's national brands -- find
 6   identical products and they themselves are different
 7   amounts.  Well, why is that?  Well, one explanation is
 8   that, you know, those supermarkets offer different
 9   services.  If you go into a supermarket, it might be
 10  closer to your home.  It might be open 24 hours a day.
 11  It might offer some other things, you know, like dry
 12  cleaning services or something like that. Whereas,
 13  another one doesn't.
 14            Well, those are real costs to the
 15  supermarkets, so they're going to have to add a margin
 16  on to all their products in order to get their -- cover
 17  their -- all their costs.  So there's a difficulty, I
 18  think, there in terms of comparing at that point
 19  anyway, you know, products and what they mean.
 20            But I wanted to qualify all of this by saying
 21  too at the end that I'm looking at long run trends
 22  here.  And I think it was Bob Young mentioned this in a
00264
 1   previous panel.  We've seen a huge difference in the
 2   type of -- I think most people would acknowledge that -
 3   - of how we've gotten food 20 years ago even compared
 4   to now.  Not just away from home as in restaurants.
 5   That certainly has changed a lot too.  But at home as
 6   well.  I just want to make that point that this is what
 7   these margins are reflecting, that change, and that in
 8   terms of empirical analysis seems that these factors
 9   are very, very important in understanding why these
 10  spreads continue to increase and why the farmer's share
 11  of the retail dollar tends to decline.
 12            MR. MACDONALD:  Any reactions on the panel?
 13  Any further discussion on this?  There's a few things
 14  I'd like to follow-up on, but -- alright.  Let me - -
 15  I was just going to add in.  One thing I was struck by
 16  was both the cogent explanation, Mike, that you had of
 17  the growth in the spread, but I also noticed there
 18  really didn't have any discussion of why the growth and
 19  the farm value was so limited.
 20            So it seems to me if I'm thinking in terms of
 21  a farm share, part of that is the growth in the retail
 22  value, but part of that is very limited growth at the
00265
 1   farm level price.
 2             Any reactions on that?  Any?
 3             MS. RUDDLE:  Well, I would like to make a
 4   comment.  I have been here all day and I've heard a lot
 5   of numbers tossed around.  I've heard a lot about
 6   packers all the way up through retailers. I've heard
 7   very little about the farmer, and I have heard almost
 8   zero about poultry growers while  we've been here
 9   today.  Just since I've been sitting here, you've
 10  discussed  beef and pork stats.
 11            Nothing was mentioned, period, regarding
 12  poultry stats.  Why is that?  Is it because they're not
 13  existent.  If they are not existent, why are they not
 14  existent?  And that I know has a lot to do with the
 15  vertical integrator, and I'm sure we'll get into that
 16  later.
 17            But just while I'm thinking about this and
 18  this is in my hand, here's a lunch slip from the
 19  cafeteria here today.  As a chicken grower, one of our
 20  fellows that are here with us got a small chicken
 21  rollup.  I'll bet there was not even a fraction of a
 22  pound of chicken on there.  It cost him 99 cents for
00266
 1   that and I'll bet he got paid a whole whopping two or
 2   three cents for that, but his whole meal here today,
 3   $8.66.  And 79 cents went to the District of Columbia
 4   in taxes, which is more than he got for his chicken.
 5             MR. VERSTEEG:  I think one of the
 6   explanations for the decrease in farm value is the
 7   farms have got so much more efficient.  For example,
 8   I'm most, of course, familiar with the swine industry.
 9   Twenty-five, thirty years ago, the average sow would
 10  produce about 15 pigs per year. Today many sows are
 11  producing 25 or more pigs per year.  Twenty- five years
 12  ago, it took about three and a half pounds of feed to
 13  produce a pound of gain in a pig.  Today it only takes
 14  about two and a half pounds of feed per pound of gain.
 15  Farming has gotten so much more efficient, and farming
 16  is also a worldwide market these days. We got to
 17  compete with everybody in the world.
 18            MR. LUND:  If I could weigh in --
 19            MR. MACDONALD:  Go on.  I think everybody
 20  wants to, and that's good.
 21            MR. LUND:  First off, I'd like to say it's
 22  nice to see a whole room of people that agree on one
00267
 1   thing, and that is the livestock producer isn't getting
 2   rich.  Second, I'd like to kind of make a couple of
 3   comments on the growth in livestock prices. Back in
 4   1993, that would have been the year that I sold my
 5   first set of calves. I averaged a dollar a pound on
 6   those calves. In 2009, we averaged a dollar and one
 7   cent a pound on them, an increase of one cent in 16
 8   years.
 9             Then I'd like to kind of comment on another
 10  thing.  I was reading a paper by Professor Robert
 11  Taylor.  He was explaining where he did a study over
 12  six years on return on equity.  Well, the retailer's
 13  return on equity was -- averaged 22 percent at that
 14  time.  The packer averaged 17 percent.  The cattle
 15  producer averaged negative one half of a percent.  So
 16  what do I do?  I go back and I go over my records over
 17  the last six years.  I go over my profits.  I go over
 18  my expenses.  I averaged them all out.  And wouldn't
 19  you know it, I made some money.  Why did I make money?
 20  Well, I forgot to factor in any wages for myself.  So
 21  the next thing I did was well, what am I worth?  I own
 22  and operate my ranch.  I do a hundred percent of the
00268
 1   labor on it, do the books. I should be worth $25,000 a
 2   year I figure.  So then I go and I do these factors
 3   again.  Whoa, I lost a ton of money in six years.  Now
 4   what do I do?
 5             What I ended up doing is going back and
 6   averaging my income where I could show a break-even on
 7   my ranch over six years, and I found out that all I'm
 8   worth is $11,800.
 9             MS. RUDDLE:  Well, you're worth more than me.
 10            MR. VERSTEEG:  A year, by the way.
 11            MR. TAYLOR:  Jump in on several things.
 12            First, just a comment that in my academic
 13  life I love numbers and math and all of that, and I
 14  don't like words, but we've had a dizzying array of
 15  numbers thrown out today and I've almost overdosed on
 16  numbers.  I may add to that a little bit.  Forgive me
 17  for that.
 18            Discussion of the spreads, it is complicated.
 19  There are a lot of complicated issues that Michael
 20  referred to, data limitations that are pretty severe.
 21  ERS collects the pork and beef price spreads.
 22  Therefore, spec animal, spec cuts of meat, so there are
00269
 1   no quality changes supposed to be in that. They have
 2   spread data from wholesale to retail for poultry. There
 3   is absolutely nothing from USDA or other public sources
 4   on grower pay, what Valerie was talking about.
 5             The integrators have detailed information
 6   they share with each other, but it's not publicly
 7   available.  It is extreme information asymmetry. They
 8   also have a lot of detailed information they share with
 9   each other, the processor and the retailer, on many
 10  different kinds of products, prepared ones, whole
 11  chickens, steaks and so forth. Some of that is publicly
 12  available through private companies that collect and
 13  report that, but you got to buy it and most of us can't
 14  afford to buy it. So we're limited with the public
 15  information and it is a very complicated issue.
 16            But I would like to comment on the farm to
 17  retail price spread for beef.  It has increased after
 18  adjusting for inflation, as Michael mentioned.  He also
 19  mentioned that labor is a big component of that. The
 20  government statistics, Bureau of Labor Statistics, show
 21  that labor productivity in animal slaughter and
 22  processing has increased over this 20-year period. Not
00270
 1   a lot, but it has increased. It's increased in food
 2   manufacturers, food manufacturing.  It has increased
 3   slightly in supermarket stores, excluding the
 4   convenience stores. Wage rates paid for animal
 5   slaughter and processing adjusted for inflation have
 6   gone down 23 percent in that 20-year period.
 7             Benefits have gone up during the period, even
 8   adjusted for inflation. You put increasing productivity
 9   together with declining inflation adjusted wage rates
 10  and increasing benefits, the net effect is that the
 11  labor costs in animal slaughter and processing has gone
 12  down somewhat.
 13            Since labor's such a big part of farm to
 14  wholesale in particular, it suggests that market power
 15  is being exerted.  It's not definitive because the data
 16  are just not good enough to come to definitive
 17  conclusions either way.
 18            We have done extensive analyses of the
 19  effects of market power on cattle prices, fed cattle
 20  and cow/calf.  There are -- well, what economists look
 21  for is a balance of power.  Gets out of whack either
 22  way, it is bad.  And in a sense information is power,
00271
 1   and if that gets out of whack, it will favor one side
 2   and be used to their advantage.  There is definite
 3   information asymmetry here.
 4             And finally, we've heard a lot of
 5   concentration statistics that the four biggest beef
 6   packers have 80, 85 percent of the market.  That is a
 7   seller side number.  There are numerous studies done by
 8   academics and other economists that are using supply
 9   side concentration to try to measure buyer power, and
 10  that is just not appropriate.  So if you look at seller
 11  side in beef, four biggest firms, 80 to 85 percent of
 12  the market.  The Fort Collins meeting -- Bruce Collins,
 13  who is -- Bruce Cobb, who is CEO of Consolidated Beef,
 14  a large independent cooperative feed lot in the
 15  Amarillo area, I know he sells 10 to 20 thousand head a
 16  week, and as most of you know fed cattle are a
 17  perishable commodity. For the last year, there were
 18  four out of the 52 weeks when there was not a single
 19  bid.  That's no market. There were 18 weeks when there
 20  was only one bid, and we're not talking negotiated.  So
 21  40 percent of the time there was either no market or a
 22  single bid. That is not a competitive market.
00272
 1             MR. MACDONALD:  Any others?  Jump in. Mike?
 2             MR. WOHLGENANT:  Can I make a -- ask for a
 3   point of clarification here?  You said the labor costs
 4   have gone down in slaughtering.  Right?
 5             MR. Taylor:  Yes, BLS.
 6             MR. WOHLGENANT:  So that would mean there's
 7   the other costs too in terms of between wholesale and
 8   retail, the labor costs, and I think those have
 9   probably gone up.  I have measures for all food
 10  marketing.  I haven't gone in on --
 11            MR. Taylor:  I do too.  It's food
 12  manufacturing, the combined effect of wage rates and
 13  benefits and labor productivity adjusted by the CPI has
 14  gone down 19 percent.  Supermarkets and other grocery
 15  stores has gone up somewhat, six percent.
 16            MR. WOHLGENANT:  Yeah.  And when I was
 17  talking about what's, at least empirically what I'm
 18  finding, that other part is -- I mean, I'm not arguing
 19  with what you're saying, but I'm saying that there are
 20  other things going on there in terms of looking at that
 21  full spread.  When you do break it out looking at
 22  wholesale to farm, you're going to find some different
00273
 1   relationships there as well.
 2             MR. Taylor:  And you also have the effect
 3   from farm to retail and the wholesale that in meat and
 4   poultry industry you have some cases where the
 5   integrator or packer is actually managing the meat case
 6   and others where the retailer is, and you know, we
 7   don't have good data on the breakout of that.
 8             MS. RUDDLE:  And again, I'm going to jump in
 9   here.
 10            MR. WOHLGENANT:  Sure.
 11            MS. RUDDLE:  You talked about asymmetry. They
 12  have a lot of that in the poultry industry. It's called
 13  vertical integration.  The people that we grow for, and
 14  specifically myself and some others in this room, we
 15  have one person to do business with.  If they would
 16  close today, we'd have no one else that will take our
 17  farms.
 18            First of all, they supply everything to us.
 19  They supply our birds.  They supply our feed. They
 20  supply their medications that they need. Everything
 21  comes from them. However, we supply one hundred percent
 22  of the labor. We supply one hundred percent of the
00274
 1   utilities.  We supply the mortgage for the buildings
 2   that these birds are grown in, and they are specific
 3   buildings for a specific purpose and cannot be used for
 4   just anything you would so desire to use if you had to
 5   close them down.
 6             I've only been actually in this business for
 7   five years.  However, I have watched it for many years.
 8   I've worked in the propane business for 21 years, and
 9   in 2001 in February the laid in price to my office was
 10  23 cents a gallon. Today that very same gallon of
 11  propane laid into me as a retailer is $1.49. That's
 12  today.  Yet, you know what?  And I have documentation
 13  to prove it.  Back in 1975, these growers were getting
 14  paid $.059 per gallon -- I'm sorry -- per pound -- back
 15  on the propane -- per pound for their birds.  1975.  By
 16  1985, they had fallen off to .0485.
 17            Now we're into 2010 and we're only backed up
 18  to .05.  Yet instead in only nine years our propane
 19  expenses have raised, and I can't give you the
 20  percentages either, but you can do the math. From $.23
 21  a gallon at the retailer's level to $1.49 alone
 22  propane.  Electricity has taken a 24 percent hike in
00275
 1   two years.  So everything has gone up but these wages.
 2             They do not tell us what's in our feed. They
 3   will not allow us to have feed analysis done. If our
 4   birds get sick, then they medicate them, but guess who
 5   gets billed for that medication? The grower gets billed
 6   for that medication. They don't give us anything. And
 7   when we do our settlement at the end, not only that,
 8   we're ranked based on the inputs that those people give
 9   us and they can manipulate the figures any way they
 10  choose to do it, which is where we lose our
 11  transparency.
 12            And I have a paper here as well that I
 13  shouldn't have, but I have three sets of weights for
 14  one flock of birds that went out of my farm.
 15            MR. MACDONALD:  Valerie, you're killing all
 16  my questions here.  I got this little list script here,
 17  and I got things to set up Valerie with, but --
 18  Valerie's not going to get set up.  She's going to jump
 19  right in with it.  But while we're there, let me get on
 20  this.
 21            You're a grower for an integrator.  I mean,
 22  what I'm going to do is, as long as we're here, shift
00276
 1   some questions around a little bit in time and I'll get
 2   us back to this in just a little bit.  As a broiler
 3   grower in West Virginia, you have one integrator that
 4   you deal with.  Is that correct?
 5             MS. RUDDLE:  That's correct.  That's correct.
 6             MR. MACDONALD:  And that's fairly consistent
 7   with our own survey data.  About a quarter of our
 8   broiler grower respondents deal with a single
 9   integrator.  Another quarter have two in their area,
 10  although they may not often -- that second grower may
 11  not be taking people on.  Let me do some comparisons,
 12  if I can, across commodities so we get a little bit of
 13  grower perspective on this.
 14            Let me shift over a little bit to Gene. Gene
 15  is in a couple of markets as I understand it. You raise
 16  and sell hogs in Iowa and you also contract with some
 17  growers to raise hogs for you. So what I'd like to ask
 18  you is, we've heard from Valerie. She has a single
 19  integrator. I'd like to get a sense of how many
 20  different people you can sell your hogs to. But
 21  separately think also about your growers, how many
 22  different integrators they might be able to work with.
00277
 1   Can you give me a perspective on that?  Okay?
 2             MR. VERSTEEG:  I sell to two packers
 3   regularly.  I don't have a written contract.  We have a
 4   -- just an oral agreement as to how the price is
 5   established.  If I would not like what they pay me,
 6   there's probably another six packers within 200 miles
 7   of my farm that I could sell to, so I'm not tied into
 8   those.  So I can move around very well.
 9             In regards to the people that grow pigs for
 10  me, which we would classify as growers, I have two, and
 11  I pay them on a so much per head depending on the size
 12  of their buildings.  It's a per head basis and on a
 13  yearly basis divided by 12 and they get a check every
 14  month.  If I should not treat any of these two growers
 15  fairly, they could drop me very quickly and they could
 16  find a dozen other contractors that they could grow
 17  pigs for immediately because there's lots of them in
 18  the area and lots of opportunities for them to grow for
 19  whoever they would want to and they can negotiate that
 20  price and those terms very easily.
 21            MR. MACDONALD:  So I've got one comparison to
 22  both.  Broiler producer in West Virginia with a single
00278
 1   integrator.
 2             MS. RUDDLE:  Which owns the birds.  We don't
 3   have an option to go somewhere else and sell them.
 4             MR. MACDONALD:  That's right.  As a contract
 5   grower, your integrator owns the birds. In Gene's case
 6   I presume you own the pigs that your grower grows for
 7   you?
 8             MR. VERSTEEG:  Correct.
 9             MR. MACDONALD:  But in that fairly dense
 10  production area you have a fairly wide range of outlets
 11  for your pigs and your growers also have a wide range
 12  of outlets --
 13            Let me bring in Allen.  Allen's a cow/calf
 14  producer in North Dakota.  Let me ask you how many
 15  outlets that you have for your animals and if you felt
 16  you were being treated badly what other types of --
 17  what else could you do?
 18            MR. LUND:  We have -- now, of course we sell
 19  our calves now through local -- through one of two
 20  local sale barns.  I guess another alternate I would
 21  have would be to contract our calves through
 22  independent buyers.  We could contract these calves
00279
 1   earlier, earlier for a later delivery on it.  If we
 2   felt we were treated badly, what could I do?  Call up
 3   the Department of Justice and tell them to get the
 4   GIPSA proposed rules in place.  I don't know.
 5             But I mean we would -- we do have, as other
 6   people mentioned today, we have a perishable product,
 7   you know.  If we're treated badly, if we're not treated
 8   good, which would be in poor prices for these calves,
 9   there is a certain date that we're forced to move the
 10  cattle.  So basically we would take a licking and keep
 11  on ticking.
 12            MR. VERSTEEG:  Can I jump in here?
 13            MR. MACDonald: Yeah.
 14            MR. VERSTEEG:  So now we see three different
 15  species here.  It's a huge difference in the whole
 16  array of what our economic conditions are. If USDA is
 17  going to draft GIPSA rules that are not species
 18  specific, they are making a huge mistake.
 19            MS. RUDDLE:  I believe there's something
 20  actually in the rule about like-type animals, at least
 21  in the poultry industry as far as like types in their
 22  settlements.  You know, we're in a situation where I
00280
 1   grow that we're not only competing with a single
 2   integrator, but only a few miles, within 50 miles, if
 3   you cross the state line, and there are other
 4   integrators over there.  But this particular company we
 5   raise for goes as far as 80 miles from its plant into
 6   Virginia, raises these birds.  Those birds come from a
 7   different state. Their feed comes from a different feed
 8   mill. The only thing the same is they come to the same
 9   slaughterhouse to be killed.  We are forced to compete
 10  with those separate inputs against one another and be
 11  ranked on that.
 12            Based on your ranking, they determine whether
 13  you're a good grower or you're a bad grower. So they
 14  may penalize you or they may give you what they call an
 15  incentive.  However, the incentive is .02 and what they
 16  take away is .025. Well, where does that other go?  It
 17  goes right back into the integrator's pocket, but they
 18  don't particularly tell you that.
 19            MR. MACDONALD:  Let me set you up a little
 20  better.
 21            MS. RUDDLE:  Okay.
 22            MR. MACDONALD:  We just heard Gene, the way
00281
 1   you pay your growers in the hog business is -- can you
 2   quickly repeat that for me?  And let me come back to
 3   Valerie and talk about how pay works in broilers.
 4             MR. VERSTEEG:  They get paid based on the
 5   size of their building.  It's so much per head per year
 6   divided by 12 and they get a check every month.
 7             MR. MACDONALD:  And so, if we look at that,
 8   we can quickly identify the size of your building. And
 9   so you're going to have a difficult time. manipulating
 10  that pay.  Is that right?
 11            MR. VERSTEEG:  Oh, it can't be manipulated,
 12  no.
 13            MR. MACDONALD:  Now, as I understand from
 14  Valerie, you have concerns about the opportunity--
 15            MS. RUDDLE:  We get paid by the pound.
 16            MR. MACDONALD:  -- for your integrator to
 17  manipulate your pay?
 18            MS. RUDDLE:  Correct.  We get paid by the
 19  pound, not by the square foot, nor the head that goes
 20  in our house.  The only way that the head is based is
 21  by they tell you how many birds they're putting in your
 22  houses so they can supposedly track how many die so
00282
 1   they know what's going into market.
 2             MR. MACDONALD:  But if I can get in here,
 3   you're not being paid a flat fee per pound.  Are you?
 4             MS. RUDDLE:  Never.
 5             MR. MACDONALD:  So how are you paid?
 6             Ms. RUDDLE: Well. they promise us in our
 7   contract we'd have a base pay.  My house is relatively
 8   new, as again I've only been in it five years.  So my
 9   base pay is supposed to be .055 per pound.  With
 10  numbers manipulations, thanks to our folks down there
 11  at the integrator that I work for-- and I do work for
 12  them every day.  We work very hard. The labor is not
 13  simple and it is very time consuming. If I can find my
 14  paper, I sent 379,000 pounds, over 379,000 pounds, of
 15  meat to market in that flock of birds.  Because I was
 16  below -- well, here they show me at 40 full-on days. My
 17  birds were 38 days old when they went to market. Some
 18  more number manipulation.
 19            They say we're paid based on our weight gain
 20  per day and our feed conversion, yet they also tell me
 21  these numbers don't count.  The days don't matter.
 22  Well, if our feed conversion based on gain per day, how
00283
 1   can that gain not matter?  And if they arbitrarily
 2   stretch those days by four, that's certainly going to
 3   make a big difference in where we land in our
 4   performance.  My performance adjustment, they took away
 5   almost an entire penny per pound from my flock that I
 6   sent to market because they manipulated these numbers.
 7             MR. MACDONALD:  Well, let me just jump in on
 8   this.  You have a base pay, but the variation, what
 9   you're actually paid and the variation from that base
 10  pay, as I understand it, depends upon the measure of
 11  feed conversion and of gain per day.  Is that right?
 12            MS. RUDDLE:  That's what they tell us.
 13            MR. MACDONALD:  I'm just following up on
 14  this. And who measures feed conversion and gain per
 15  day?
 16            MS. RUDDLE:  The producer does.
 17            MR. MACDONALD:  So your concern on this--
 18            MS. RUDDLE:  Not the grower.  The integrator.
 19            And this is an example -- and I'll let you
 20  take a copy of this you can look at.  This is a ranking
 21  sheet that was given to someone, and it shows they
 22  determine who is average. They determine who is not
00284
 1   average.  There is headings there. You can see what
 2   your pounds are, what they claim the pounds -- the feed
 3   conversion was, which gets you into your rate per day.
 4   However, if your birds go to market and you have feed
 5   left in your feed tank, they come and get them with
 6   what they call an evacuation truck. Well, this
 7   evacuation truck has a scale on it, but that scale
 8   doesn't work.  So they take it back to their plant and
 9   they run it across a scale, so they say, and then when
 10  we get our settlement paper after it's all been
 11  determined, they tell us how much feed that they took
 12  out of our plant.
 13            We have no transparency in the poultry
 14  industry, nor do we have any access to this
 15  information.  That's why GIPSA needs to use the laws
 16  that they have in place now.  They need to use them
 17  quickly.  It's been two years since this started, the
 18  2008 Farm Bill, and it is time to quit beating this
 19  horse and let's do it.
 20            MR. MACDONALD:  Let's see if we can just sum
 21  up what we mean on the lack of transparency, which is
 22  some of your pay is based on production characteristics
00285
 1   that are measured by the people paying you.
 2             MS. RUDDLE:  That's everything.
 3             MR. MACDONALD:  And your concern is both that
 4   that's not objectively determined and can be
 5   manipulated by the buyer?
 6             MS. RUDDLE:  That is absolutely my opinion,
 7   and it is shared by many.
 8             MR. MACDONALD:  Let me throw this broader
 9   question out and ask do we think this -- based on what
 10  we know, is this common in poultry and do we see this
 11  sort of thing in hogs and cattle as well?
 12            MR. TAYLOR:  It is universal in poultry that
 13  a grower cannot verify the numbers used in calculating
 14  their pay.
 15            MR. VERSTEEG:  It's not heard of in hogs.
 16            MR. MACDONALD:  Want to say anything about
 17  cattle, Al?
 18            MR. LUND:  We're talking lack of
 19  transparency.  Is that correct?
 20            MR. MACDONALD:  Yeah.
 21            MR. LUND:  I really don't have any in selling
 22  my calves, but I realize that there is a tremendous
00286
 1   amount of lack of transparency when the feeders sell
 2   their calves at a packing industry and anything, if
 3   there is a lack of transparency there that is affecting
 4   their prices, say losses, I do realize the next time
 5   they buy calves that they are going to be passing those
 6   losses on to me and I'm at the bottom of the food
 7   chain.  I have nowhere to go down from my place.  So
 8   yes, I would have a problem with lack of transparency.
 9             MR. MACDONALD:  Let me try to cycle back on
 10  to some of the questions we had earlier because we're
 11  getting a little bit pressed for time.  We have about
 12  15 minutes left in this session.
 13            We had earlier talked about some price spread
 14  numbers and long run changes.  That's where we started
 15  in the discussion with Mike Wohlgenant and others on
 16  the panel.  Let me now talk a little bit about short
 17  run changes, and I'll quote some other USDA numbers and
 18  I'm going to bring in John Crespi and ask him about
 19  this.
 20            First week of September this year, September
 21  2010, according to USDA data, the average price for
 22  slaughter hogs on a carcass weight basis was $77 a
00287
 1   hundred weight.  A year before, September '09, they
 2   were 48.  The year before that they were 68.  Very
 3   sharp fluctuations in hog prices over time. Not quite
 4   as sharp for cattle over those recent years, but still
 5   pretty sharp.  September for dressed steers, the
 6   average price in September is $156 a hundred weight.
 7   The year before, $130. The year before that, $153. So
 8   full sharp rises. That's fairly common. There's a
 9   pretty good chance we'll see widerswings for a variety
 10  of reasons in the future.
 11            Let me go back to a question that came up in
 12  the last panel.  How does that pass through to retail
 13  prices?  Let me bring John Crespi in and see what John
 14  has to say about passthrough from fluctuation in 18
 15  livestock prices to retail prices.
 16            MR. CRESPI:  If you ever wondering what the
 17  difference is between a distinguished professor in
 18  economics and an undistinguished professor in
 19  economics, the undistinguished professor has to wait 40
 20  minutes before getting to answer a question.
 21            MR. MACDONALD:  Everybody's picking on me.
 22            MR. CRESPI:  And with that, I'll show you
00288
 1   even more why I'm the undistinguished professor of
 2   economics here.  The reason I think you're asking these
 3   questions, we've been talking a lot about margins, and
 4   Mike does more than anybody on looking at these
 5   margins, outside of ERS.  But a lot of the things we've
 6   been talking about, value added and whatnot, you can
 7   look at as well.  Maybe those are -- and labor of cost
 8   movements and whatnot, but those are long run changes.
 9   And so what is the margin long run?
 10            Jim, your question is getting at okay, now
 11  we're talking short run.  So it's probably not a value
 12  added issue.
 13            In general, the answer to the question -- and
 14  Valerie's going to be mad, but she already knows the
 15  answer.  I don't have any poultry numbers because we
 16  don't know what the numbers for poultry are.
 17            MS. RUDDLE:  You call me up and I will supply
 18  you with five years' worth of data.
 19            MR. CRESPI:  I'll take your receipts.
 20            And so I'm going to have to talk about hogs
 21  and cattle.  But the short way to answer your question,
 22  of course we study this stuff.  Anything that USDA
00289
 1   produces in numbers, I guarantee you there's a hundred
 2   economists out there in academia crunching through
 3   those in some way, shape or fashion and there's people
 4   that do this a lot better than I do.
 5             But historically, again, this is historical,
 6   but the short run changes, a ten percent
 7   increase/decrease in the farm price of cattle will see
 8   about, almost immediately, a six percent change up the
 9   channel, or down the channel to the retailer.  And that
 10  same ten percent change for the hogs will go down to
 11  about a three percent change to the retailer.
 12            And the reason that I want to bring that up
 13  is because it gets at something we talked about all
 14  day, which is -- some of the people have talked about
 15  this a little bit.  In our economics studies of whether
 16  or not these price margins and the things that USDA is
 17  collecting and trying to get at in talking about farm
 18  share of these, if that retailer isn't passing along
 19  all of that cost, then it gets really hard to ferret
 20  out changes between farm and retail are due to market
 21  power, which is what a lot of people are talking about
 22  today, or whether they're just part of the normal
00290
 1   inventory process of a retailer of the -- and don't
 2   shoot the messenger.  We've done -- we as an academic
 3   economist have done hundreds and hundreds of studies,
 4   and Mike's colleague at North Carolina state, Barry
 5   Giblin, has done a lot of these very, very well and you
 6   know, as one economist put it in one of the studies,
 7   we're really good at showing what the markets are
 8   doing. We're really bad at explaining why it's
 9   happening.
 10            And you can get an increase in a margin even
 11  in a short run between farmer and retail with the
 12  movements you're talking about, Jim, if the cost
 13  doesn't get passed all the way on to the consumer in
 14  that first period.
 15            So a retailer doesn't pass it on because, for
 16  whatever reason, they don't want to go hire all the
 17  labor to change over all the items in the store or they
 18  don't want to shock their consumers with big price
 19  changes because they're their clientele. They want them
 20  to come back to them and not search around for other
 21  places. If they don't pass everything along that first
 22  period, well then unless they don't, unless they bring
00291
 1   the prices down slowly after the shock has gone away at
 2   farm, they're going to lose money.  Because they took
 3   out some of that risk of the price movement in the
 4   first period, they have to recoup some of that margin
 5   in later periods.The problem is -- and you can pull out
 6   a napkin or a scratch paper and do this yourself--the
 7   problem is that when the costs go back to sort of
 8   normal at the farm level but the retailer is coming
 9   down slowly because they're trying to recoup some of
 10  those costs, that margin in the short run, you'll see
 11  it spread.  It just does.  Unfortunately, that looks
 12  exactly the same thing as if we were -- any number of
 13  us, Mike or Bob or I, could do it and we have done it,
 14  if we model that as suppose this is a model of a
 15  retailer that has market power, buying market power, or
 16  even a processor who has buying market power, if we
 17  model it that way and then we go and get these same
 18  data and we run it through our regression models, we
 19  will also see a spread that's consistent with a market
 20  power story.
 21            What's almost impossible right now, because
 22  there aren't enough smart people, believe it or not, in
00292
 1   academia to figure this out, is how you discern the
 2   difference between this price spread being a price
 3   spread due to market power and a price spread being a
 4   price spread due to normal reactions at the retail
 5   level.
 6             Sorry. I have novested interest in finding
 7   this one way or another. I'm one of the people that has
 8   done the most to try to find it on the cattle side, and
 9   I've actually been you know -- by various people --
 10  I've actually found on the buying side in cattle at the
 11  processor level, some of the biggest margins that I've
 12  attributed to market power of any academic economist.
 13            Nonetheless, I'm sitting here and telling you
 14  that it is really, really hard to figure out whether or
 15  not the margins like what we've been talking about all
 16  day that USDA produces and the margins that our
 17  textbooks tell us would be attributable to market
 18  power, once we actually have the data in front of us,
 19  it's really difficult to tell which one of those two
 20  stories, which one of those two hypotheses is the right
 21  one.
 22            MS. RUDDLE:  Well, I think I can help you
00293
 1   out.
 2             MR. CRESPI:  I know you can, but --
 3             MS. RUDDLE:  You know, I'm Josephine Plumber,
 4   you know.  I'm a woman.  I'm a poultry farmer. I'm a
 5   mother.  I'm a full-time worker. I'm a tax payer, and
 6   by gosh I'm a consumer. And right here I raise chicken
 7   for an integrator that sells to this particular
 8   company. For this 16 pieces of chicken that were
 9   purchased, the grower made approximately 80 cents.  Now
 10  you tell me where the fairness is that it costs me
 11  $37.73 to buy that back?
 12            MR. CRESPI:  Well, I would tell you --
 13            MS. RUDDLE:  That is a spread.
 14            MR. CRESPI:  And again, I will plead
 15  ignorance on lots of things, including poultry. But a
 16  lot of the things -- we're talking about the margin, I
 17  mean poultry's -- I don't want to say a different
 18  animal but it is, but it's certainly a different animal
 19  than this because of the way it's integrated.
 20            MS. RUDDLE:  But -- I'm sorry, but you're
 21  exactly right.  Packers and stockyards has been since
 22  1921 and factory farming for poultry is not that old.
00294
 1   It's something that has come in probably been -- well,
 2   in my first experience not as a grower but in actually
 3   seeing what was going on was in 1986.  So I will go
 4   back that far, but it started out as a gentlemen's
 5   business and now it has grown out into this vertical
 6   integration where they are dictators and we are stuck
 7   to contracts of adhesion.  And you're basically back to
 8   the days of servitude. We have no opportunity to
 9   manipulate or raise or anything else.
 10            They try to tell us that we are being
 11  insulated from this risk.  However, when they are
 12  making more and more profits, they are not sharing the
 13  wealth.  It's "oh, we're sorry, but you know, it's
 14  costing us money."  I have overhead as well as they do.
 15            MR. CRESPI:  All I'm trying to -- and I
 16  appreciate it.  I hope that you don't hear an
 17  insensitivity when I'm just saying objectively looking
 18  at the numbers -- and we have done hundreds of studies
 19  -- it's just really difficult for us to find it in
 20  places where we think it ought to be there.  You hear
 21  about the concentration and you go we ought to be
 22  finding it.
00295
 1             But even going back to -- and sorry, I'm
 2   going to do hogs and cattle again.  Going back to the
 3   numbers that Mike was talking about earlier, just using
 4   the USDA numbers, there's been a lot of talk about
 5   things that have to be done at the processing level
 6   where there's buyer power at the processing level.  But
 7   even just using USDA numbers, the farm share -- so take
 8   the farm prices divided by the retail price, and that's
 9   been the farm retail share we've been talking about
 10  today -- certainly has been declining.
 11            But you do the same thing with the farm
 12  prices divided by the wholesale prices that USDA
 13  publishes, and that thing has been constant.  That
 14  share has been pretty darn constant for the last 40
 15  years.  So if the issue is the buyers at the processor
 16  level are causing the problem and if we agree, whether
 17  we do or not, that the farm retail price share is out
 18  of whack, you really don't see it in the USDA numbers,
 19  which is why economists like myself try to find other
 20  ways of measuring the margin other than the prices,
 21  because one of the things the prices don't do is they
 22  don't take into account the volume.  You know, would
00296
 1   you rather get, you know, ten percent of a hundred
 2   dollars or five percent of a thousand dollars?  I mean,
 3   we don't know what the volume is of something going
 4   through these chains.
 5             So just talking about the price changes going
 6   on without taking into account what's actually being
 7   sold, which is where the numbers directly out of your
 8   farming operation really helped us, or would help us,
 9   Valerie, it's just difficult for us to figure this out.
 10  I mean, Mike can talk about this. I know Bob can talk
 11  about this too.  I'm just saying the one thing that
 12  academics can do is to provide, I think, objective
 13  research.
 14            When we move into the advocacy stage, we're
 15  hurting all of us.  When we move into the stage of
 16  saying there's a consensus on all of this, it's not
 17  true.  We have people like myself and Bob and Mike who
 18  write papers and do the best we can, but at the end of
 19  the day we're constrained by the data that we have, so-
 20            -
 21            MS. RUDDLE:  And again, I appreciate that and
 22  I certainly appreciate Bob Taylor because he has
00297
 1   actually gone out and tried to get this information,
 2   which is something you don't hear of very often, or at
 3   least since I've been involved in this.
 4             And now that I know that you're an economist
 5   for the Department of Justice or whomever it is you're
 6   for, I expect you to be calling me up for this
 7   information and I will be sure to get a lot of my
 8   friends out to have their information for you.
 9             MR. MACDONALD:  I have a broiler survey. We
 10  did a broiler survey 2006.  We're going out again in
 11  2011.  It's going to take you an hour and a half to
 12  fill that survey out.  You going to fill that out?
 13            MS. RUDDLE:  Absolutely.
 14            MR. MACDONALD:  I'll put you on the list--
 15            MS. RUDDLE:  Come see me and I'll bring them
 16  to you.
 17            MR. MACDONALD:  Right there.
 18            MS. RUDDLE:  That's right.
 19            MR. MACDONALD:  Get that one.  Let me cycle
 20  around to something that I was puzzled by when we
 21  started with, and I'll take the chance of being the
 22  Chair of this panel to squeeze out something of my own
00298
 1   bias or information on this.
 2             Mike, when you talked about long run changes
 3   in spreads and you attributed 73 percent to the growth
 4   in the CPI, and that was the growth in input, does that
 5   suggest, in making that calculation, that there is no
 6   productivity growth in retailing?
 7             MR. WOHLGENANT:  No.
 8             MR. MACDONALD:  Why not?  I thought it did.
 9             MR. WOHLGENANT:  I mean, there certainly can,
 10  but I mean, as Bob alluded to in the meat packing, it's
 11  been happening in the retailing part too.  I know
 12  benefits costs have been going up, and so you have
 13  things offsetting that.  I haven't looked recently at
 14  the productivity numbers to know what they are for
 15  retail.
 16            MR. MACDONALD:  I just wondered if it was
 17  implied in using the price index.  In other words,
 18  shouldn't their cost rise by the rate of increase in
 19  their input prices minus productivity growth?  And so
 20  if you use the price index to say their costs are
 21  increasing that much, doesn't that imply that they
 22  don't have any productivity growth?
00299
 1             MR. WOHLGENANT:  No, it doesn't.  I made
 2   adjustments for that.  And there's some indication that
 3   there might be some effect, but it's dwarfed by these
 4   other variables, in particular the income that is
 5   suggesting the increase in the amount of labor that's
 6   going into this.  Even though some of that labor is
 7   becoming more productive, there's just a lot more
 8   demand that I think it's reasonable to say consumers
 9   have for services that are more constant.
 10            MR. MACDONALD:  We have hit -- we've hit an
 11  hour.  Does anybody have any wrap up statements that
 12  you'd like to make on this?
 13            MR. VERSTEEG:  I'd like to say that I've been
 14  selling pigs for 40 years.  The markets go up. The
 15  markets go down.  When we overproduce they go down.
 16  When we underproduce, they go up. I think the markets
 17  are working pretty good.
 18            MR. MACDONALD:  Anything else?
 19            MR. LUND:  I've got one.  I've heard a few
 20  comments on vertical integration and consolidation and
 21  whether it's consumer driven or not.  It might have
 22  started out being consumer driven, but what I see today
00300
 1   is the consumer puts much more trust in buying a
 2   product from a smaller independent company.  So if it
 3   is consumer driven now, I think it will be going the
 4   other way. The consumer will be for downsizing.
 5             MR. MACDONALD:  You mean a smaller retailer
 6   or a smaller packer or both?
 7             MR. LUND:  Smaller everything.
 8             MS. RUDDLE:  And personally, I would like to
 9   see someone take more interest in the poultry industry
 10  and what's happening with these poultry growers.  These
 11  people are suffering.  They're suffering every day.  If
 12  I didn't work an outside job from my farm, I wouldn't
 13  be able to support my farm. And quite frankly, two jobs
 14  a day is very tiring, and especially if you want to
 15  have any kind of life with your family, your children.
 16  It makes it very difficult.
 17            And again, I have to repeat, there are rules
 18  in place already through GIPSA.  There are new ones on
 19  the way that need to be maybe clarified. It's been two
 20  years.  I can't reiterate this.  I get so tired.
 21  Everybody wants to study everything to death, and I
 22  would certainly like to see you folks get it pulled
00301
 1   together.  Quit bickering and arguing over things that
 2   don't even include me and get it done so that people
 3   like me that have no transparency, no way to verify how
 4   I'm getting paid, yet someone can tell me I'm a bad
 5   person for it, can no longer do this.  I want these
 6   rules taken care of quickly and efficiently.
 7             MR. MACDONALD:  I think that gives Valerie
 8   the last word.  Thank you.  I think we have a public
 9   comment session, a second public comment section,
 10  coming up if I remember the agenda properly. Thank you.
 11                  (Whereupon, a recess was taken.)
 12            MS. VARNEY:  Okay.  So it's been a long day,
 13  and we appreciate everybody's attendance.  Why don't we
 14  try to get started for our conclusion here? Or not.
 15  Okay.  Can I ask everybody to take their seats and if
 16  we're going to keep talking, which we're welcome to do,
 17  to take it outside so that we can get started with our
 18  final session?
 19            I'm Christine Varney.  I'm the Assistant
 20  Attorney General for Antitrust at the Department of
 21  Justice.  Thank you.  I know you're tired.  I think
 22  you're clapping because it's the end.  We're going to
00302
 1   begin the public testimony in just a few minutes and as
 2   soon as everybody's able to sit down.
 3             I'm just going to give you a couple of final
 4   thoughts before we go into our public testimony.  And I
 5   want to thank you all for joining us at this final
 6   workshop.  And thanks, Secretary Vilsack and the
 7   Department of Agriculture, for hosting this event, and
 8   more importantly for their partnership in these
 9   workshops.  We also want to thank the staffs at both
 10  the Departments of Justice and Agriculture for their
 11  efforts in planning and executing these workshops.  It
 12  is their hard work and dedication that made this
 13  conversation possible and productive.
 14            In August 2009, when we announced these
 15  workshops, we set an ambitious agenda.  The Departments
 16  of Justice and Agriculture share a strong conviction
 17  that a healthy, competitive agricultural sector is
 18  vitally important to our nation's economy as well as a
 19  matter of national security and public health.
 20            Hearing concerns from producers about changes
 21  in the agricultural marketplace, we decided to explore
 22  competition issues affecting the agricultural sector in
00303
 1   the 21st century.  We resolved to explore different
 2   commodities and to tackle a number of important issues,
 3   including concentration in processing, buyer power and
 4   vertical integration. Never before had the Department
 5   of Justice and the Department of Agriculture worked
 6   together on this scale to address competition and
 7   regulatory issues, but as you've heard everywhere and
 8   from everyone, the time is right.  Our organizations
 9   are committed to these workshops at the highest levels,
 10  with Attorney General Holder and Secretary Vilsack
 11  attending individual workshops and providing strong
 12  support and encouragement.
 13            We have covered a lot of ground both
 14  substantively and geographically, travelling around the
 15  country to discuss a wide range of issues and industry.
 16            In March, we inaugurated the workshops in
 17  Ankeny, Iowa focussing on crop and hog farming. Topics
 18  that generated intense discussion included
 19  technological developments, intellectual property
 20  rights and genetically modified seeds, market
 21  transparency and the increase in contract production in
 22  the hog industry.
00304
 1             In May, we moved to Normal, Alabama where we
 2   talked about the poultry industry.  Participants
 3   examined issues such as vertical integration, grower
 4   compensation, farm upgrades and other contracting
 5   issues.
 6             In June, it was Madison, Wisconsin to discuss
 7   the dairy industry.  The audience and panelists
 8   highlighted a number of crucial issues, including the
 9   thin spot market for cheese, milk marketing order
 10  system, the impact of consolidation at the processor
 11  and retail levels.
 12            Then we went to Fort Collins in August to
 13  explore the livestock sector.  We heard discussion of
 14  increased use of contracting for risk management,
 15  concentration and processing, packer ownership of
 16  livestock and trends in value added products in niche
 17  marketing, among other issues.
 18            Today, these workshops conclude with an
 19  examination of margins along the supply chain from
 20  producers to consumers.  This was a recurring theme at
 21  all the workshops, with consumers and producers alike
 22  wondering about the difference between prices farmers
00305
 1   get for their crops and animals and the prices they pay
 2   at grocery stores.
 3             We've enjoyed broad participation in the
 4   workshops with more than 3,500 participants in the
 5   first four workshops. Farmers, ranchers, co-op members,
 6   processor and other stakeholders from Maine to
 7   California travelled to these workshops to listen and
 8   share their thoughts.  They came from farms ranging
 9   from few hundred acres to several thousand, each
 10  bringing a unique perspective.
 11            The panels included testimony from farmers,
 12  other industry participants and academic experts who
 13  delved into specific issues like market concentration
 14  and market transparency.  In addition, we heard public
 15  testimony from those in the fields and on the ranches
 16  every day.
 17            In these sessions a recurring message was
 18  that many of America's producers are struggling to keep
 19  their farms and ranches afloat.  Many producers talked
 20  about lower prices and a lack of transparency as to how
 21  prices were set.  Some producers discussed a lack of
 22  market access and the power buyers can exercise in the
00306
 1   market.  For many producers higher input costs
 2   exacerbated their woes.  Many crop farmers talked about
 3   the high cost of seeds, and one poultry farmer told us
 4   his propane costs had jumped from $42,000 to $92,000 in
 5   just a decade.
 6             Other producers claimed that the farmers who
 7   contract to raise animals are forced to accede to
 8   onerous terms. At the poultry workshop in Normal, one
 9   grower told me that he feared his processor would
 10  retaliate against him for speaking his mind. Let me be
 11  clear.  The Department of Justice and the USDA will not
 12  tolerate any retaliation or intimidation.
 13            Some farmers and ranchers pondered the fate
 14  of America's rural communities.  Some whose families
 15  had farmed for generations voiced concern about whether
 16  their sons and daughters would be able to follow them.
 17  One participant told us of the passing of once vibrant
 18  communities that were built upon hog production but are
 19  now deserted.  Some talked about the human cost of a
 20  declining rural economies, including bankruptcies,
 21  foreclosures and suicide.  These stories were at times
 22  heartbreaking and painful to hear, but they provide a
00307
 1   visceral understanding of the hardships that government
 2   statistics cannot.
 3             We also heard that producers are meeting
 4   these challenges with the vigor and determination that
 5   has characterized our agricultural sector throughout
 6   our country's history.  Producers are thinking about
 7   ways to add value to their products and exploring new
 8   marketing opportunities.  Some producers described how
 9   advances in science and technology and new management
 10  techniques have led to greater productivity.  A number
 11  of producers saw potential for expanded sales in
 12  foreign markets. Finally, many, many producers told me
 13  how cooperatives empowered them to bargain effectively
 14  and expressed great pride in the quality of the
 15  products that their cooperatives bring to markets.
 16            At the Department of Justice, we believe that
 17  vigorous enforcement of the antitrust laws and
 18  competition advocacy are key to ensuring competitive
 19  agricultural markets, but we know that our efforts are
 20  only one part of the solution.  We are committed to do
 21  our part to help resolve these issues and to continue
 22  to bring others together to work on solutions to these
00308
 1   challenges.  The Obama administration is committed to
 2   ensuring that America's rural economy is vibrant.  Last
 3   year, at the President's direction, Cabinet members
 4   visited rural communities across the country and
 5   engaged in thousands of conversations about how the
 6   private sector and government can work together to
 7   strengthen rural America.  The administration has made
 8   major investments in the farm safety net, provided
 9   emergency support to struggling dairy farmers, opened
 10  important international markets to agricultural
 11  products, invested in teachers and rural colleges and
 12  modernized infrastructure including roads, police
 13  stations, libraries, health clinics and community
 14  centers across rural America.
 15            We know, however, that there is more
 16  potential for economic growth in rural America, and we
 17  will continue to pursue the successful strategies of
 18  today and the compelling opportunities of tomorrow.
 19            Before I bring John Ferrell and Mark Tobey
 20  back to the center to start the public testimony, let
 21  me assure those of you who shared their time and
 22  expertise with us that it has been invaluable, and I
00309
 1   thank you deeply.  The woman who was just here who
 2   talked about two jobs to keep her farm afloat and being
 3   a working mom, I know how hard it must have been for
 4   her to make the time to come here, and we saw that
 5   across every workshop, and we deeply appreciate it.
 6             You've given us not only a better
 7   understanding of how agricultural markets function and
 8   of the difficulties facing farmers and others in the
 9   sector, but also reinforced the importance of our
 10  efforts to promote a more competitive and fair
 11  marketplace.
 12            We have already begun to take action at both
 13  our departments to address some of these issues. As
 14  we've discovered bottlenecks, we have sought to ease
 15  them.  Recognizing there is no one clear solution to
 16  the many problems that we have heard, we have
 17  instituted a number of things.  First, we have a
 18  working group made up of lawyers and economists and
 19  other staff from the Department of Justice, the
 20  Department of Agriculture and across all parts of the
 21  Department of Justice, not just the Antitrust Division,
 22  but the Civil Division and others as necessary, to
00310
 1   tackle those issues that we've heard about and the
 2   matters that have been brought to our attention.
 3             I hear you about GIPSA.  We're working at the
 4   Department of Justice very closely with USDA to help
 5   them get through the comments and to help them
 6   formulate a rule that can get out there quickly and
 7   withstand any attack.  We will continue working with a
 8   variety of stakeholders who we've engaged with
 9   throughout the past year.  Some of you have called me,
 10  and I encourage you to continue to do that.
 11            Each of us, federal agencies, state
 12  governments, private corporations and producers, has a
 13  stake in an open and competitive agriculture industry,
 14  and the Antitrust Division is dedicated to doing its
 15  part. Government does not have all the answers to these
 16  challenges.  Certainly, I don't have all the answers,
 17  but I promise you I will do my best to help you find
 18  the answers.
 19            And with that, I'd like to bring Mark and
 20  John back up to hear our public testimony.  Thank you.
 21            MR. FERRELL:  Well, good afternoon, and I
 22  think you know how this works.  We will follow the same
00311
 1   pattern that we did this morning for our public
 2   testimony section.  Again, we ask that comments be
 3   limited to two minutes each, and we'll just go
 4   microphone to microphone and work through as many
 5   people as we possibly can that would like to provide a
 6   comment.  And so, with that, we will start right over
 7   here.
 8             MS. BORRON:  Thank you.  My name is Sarah
 9   Borron, and I'm here today representing Food & Water
 10  Watch.  We want to thank the Department of Justice and
 11  USDA for holding these hearings and dedicating the
 12  important time and energy necessary to investigate
 13  these matters.  We, along with 32,000 other petitioners
 14  who have signed a petition we submitted, recently urged
 15  the Department of Justice and USDA to continue to take
 16  action to investigate and change the antitrust
 17  situation for agriculture. We submitted 32,000 names.
 18  As Sienna from WhyHunger mentioned earlier today, other
 19  organizations have worked together to submit over
 20  240,000 signatures urging action.  That's over a
 21  quarter of a million people who are concerned about how
 22  corporate control is affecting their food choices,
00312
 1   affecting farmers' abilities to make a living,
 2   affecting what they see on the ground every day,
 3   affecting low income people.
 4             We want to urge the DOJ and USDA to implement
 5   the GIPSA rule, a message that I hope has come through
 6   loud and clear from several people who've spoken today.
 7   We also urge you to complete the look-back
 8   investigation over agribusiness mergers that occurred
 9   over the last decade and also to work with the FTC to
 10  include food retail and processing in your
 11  investigations. Thank you.
 12            MR. HUTCHINS:  Yes.  My name's David
 13  Hutchins.  I'm from Ohio.  I started raising cattle in
 14  1955.  Plus, over the years my wife and I and our
 15  family has raised thousands of head of sheep, hogs and
 16  cattle.  The one thing I've heard here today is I
 17  haven't heard anybody come here asking for a handout.
 18  All we're asking for is a fair market.  The hog guy
 19  here from Iowa, he must do a really good job. He must
 20  treat his cooperatives right.  And he lives in a
 21  particular area.  But I used to raise from farrow to
 22  finish -- it was a family operation -- 4,000 head of
00313
 1   hogs from farrow to finish.  You know why I can't now.
 2   All the auction markets I took them to are gone.  All
 3   the local hog markets are gone, high-end holding hog
 4   markets are gone. There's not a packer in the state of
 5   Ohio that kills many hogs.  There's not a packer in the
 6   state of Ohio that can kill a 50,000-pound load of
 7   cattle, but yet Wood County, Ohio fed more fat cattle
 8   than anybody in the United States years ago. Washington
 9   and Knox County were the largest sheep producers in the
 10  United States, Fayette and Clinton County used to be
 11  the two largest except for near Quincy, Illinois -- I
 12  can't think of the county, in Illinois were the largest
 13  hog producers.
 14            We have lost all the feeders in northwest
 15  Ohio.  A 90-year old guy called me last week and he
 16  said, "Dave, I'm 90 years old.  I'm broke.  We're
 17  having to put our farms up for auction.  We used to
 18  feed thousands of head of cattle.  We used to own 600
 19  acres of ground.  We used to own one of the largest
 20  livestock yards in Ohio and here, after all that work
 21  and everything, I'm now broke."
 22            It's not that we're asking for a handout.
00314
 1   It's -- all that we're asking for is our share of the
 2   market and a fair playing field.  We talk about Walmart
 3   and these big companies.  It's up to Justice Department
 4   what you do to them, not me.  We do live in a democracy
 5   in a capitalistic society where everyone should be able
 6   to make money.  If we can work together -- and I want
 7   to thank you for letting me get up here on the
 8   microphone today and holding this event today because
 9   it proves the democracy system's still working.
 10            I have six children and 16 grandchildren. I
 11  spent my own money to come here today. My wife took off
 12  work to take care of the cattle, you know, she also
 13  baby sits grandchildren and everything else.  That's my
 14  problem.  I don't care about that. I thought it was
 15  worth the time to come. But if we look at the future --
 16  and as Christine Varney said, even the security of this
 17  country, the foundation of this country, if 50 percent
 18  of the GNP is agriculture and the foundation is the
 19  family farm.
 20            Thank you.
 21            MR. FOX:  Hello.  My name is Kenny Fox. I'm
 22  President of the South Dakota Stockgrowers Association.
00315
 1   We wholeheartedly support these rules and appreciate
 2   what you are trying to accomplish for us. I'm going to
 3   give you a little bit of a story about my life and my
 4   family. My wife and I are both third generation cattle
 5   producers.  I got started in the business in 1973.  It
 6   took 12 calves to buy a brand new pickup. Today it
 7   takes 40 to 50.  I haven't been able to purchase a new
 8   one since 2001.  Yes, we've got an increase in prices
 9   this year, and I'm grateful for it and I think it's due
 10  to the fact that USDA and the Department of Justice has
 11  been investigating our markets.  Thank you for doing
 12  that.
 13            With that said, in 2005, we received the
 14  highest prices we ever got for our cattle.  This year
 15  we got $100 a head less.  In 2005, our input costs were
 16  considerably less than they are today. The prices
 17  received today don't necessarily reflect what it takes
 18  to keep an operation going, and so I -- we need a
 19  better price to stay in business.
 20            I've been in business for 37 years, and I'm
 21  grateful to be in business that long.  But I seen a lot
 22  of my friends and neighbors that couldn't survive, and
00316
 1   I don't know why we have because with these prices it's
 2   very difficult to do that.
 3             At the same time in 2005 when we received
 4   these high prices for our calves, choice retail beef
 5   was at $4.90 a pound.  We received $100 less as I
 6   stated before for our calves this fall, and in June of
 7   2010 the choice retail meat price was at a near record
 8   of $4.49 a pound.  So producers like myself are being
 9   gouged as well as consumers and we need enforcement of
 10  the Packers and Stockyards Act.
 11            Thank you.
 12            MR. CARSTENSEN:  I'm Peter Carstensen from
 13  University of Wisconsin Law School.  I'm sorry that
 14  Christine has left.  I had a chance yesterday to speak
 15  directly to Jon Liebowitz in a public meeting about the
 16  -- push him a little bit about the FTC's side of this
 17  equation, and I have a sense that there may be more
 18  responsiveness there.  But I take it, Mark and John,
 19  you have access to your superiors, and the real central
 20  question right now at the end of this meeting is what
 21  the USDA and the Division are going to do about the
 22  issues that have been raised.
00317
 1             Right now I'd have to say that we are seeing
 2   movement at the USDA and inertia at the Justice
 3   Department.  USDA has the PSA rules under way. I
 4   understand that the Dairy Advisory Committee is
 5   considering some reforms of the milk marketing order
 6   system that could address some of the serious problems
 7   there.  From the Division on the other hand, we have in
 8   the dairy area a modest merger case, but we also have a
 9   major investigation that was commenced a number of
 10  years ago by the Division which has been updated
 11  substantially by private litigation to which the
 12  Division can have access at its request.  And the
 13  Division, so far as I know has, failed totally to take
 14  advantage of that to understand what has been going on
 15  in the dairy market for the last three or four years.
 16  Moreover, those private cases are now on the verge of
 17  being settled, so private parties are going to be
 18  deciding what is the shape of dairy markets in the near
 19  future.  The Justice Department definitely needs to get
 20  into that area so that it's not ignorant of the issues
 21  and knows what's going on.
 22            With respect to seed technology, the
00318
 1   Department is allegedly looking for a monopoly case to
 2   bring.  There is one that has been investigated for a
 3   substantial period of time.  The investigation has gone
 4   on long enough.  It needs either to say that there is a
 5   violation that it wants to pursue or acknowledge that
 6   it does not believe the antitrust laws can get at that
 7   kind of monopoly.  Today I heard some very plausible
 8   kinds of information with respect to both beef and
 9   poultry that I would hope Bill Stallings has run out of
 10  here to start an investigation on.  If so, it will be
 11  the first word of any investigation from the Justice
 12  Department in the beef or poultry area so far.  It's
 13  time, in other words, now that the hearings are over,
 14  for the Justice Department to get to work.
 15            MS. CAERTAS:  My name is Becky Caertas, and
 16  I'm the Program Director for the Contract Agriculture
 17  Reform Program for the Rural Advancement Foundation
 18  International USA, which is a nonprofit organization
 19  based out of North Carolina.
 20            And today we have many poultry growers here
 21  in the crowd, everyone with not the cowboy hat on but
 22  the ball caps, the blue ball caps, are all contract
00319
 1   poultry growers from Virginia and West Virginia, and we
 2   also have some from Alabama as well.  So we really
 3   appreciate them taking their time to come and listen to
 4   this final workshop.
 5             Now, I've had the, really the great
 6   opportunity to travel throughout the southeast once the
 7   GIPSA proposed rules came out and listen and talk with
 8   growers about what these new proposed rules would do,
 9   and you know, most of the growers that I spoke with,
 10  they were very pleased with the rules, actually they
 11  were ecstatic that finally somebody in the Department
 12  of Justice, the Department of Agriculture finally
 13  realized the abuses that they are under and actually
 14  are doing something about it. They felt that they are
 15  actually addressing protecting their investments,
 16  protecting them against retaliation and making sure
 17  their pay is based on what the grower does and not the
 18  company decisions.
 19            Valerie touched on part of that on the other
 20  end, that the company can decide the amount of feed and
 21  the weight of the birds.  However, the company
 22  decisions in terms of the inputs that they get on the
00320
 1   front end makes a large difference in how much they are
 2   paid, and ultimately, unfortunately, if they are cut
 3   off with a million dollar investment left hanging.
 4             However, many of these growers that I spoke
 5   with that were ecstatic about the rules and felt like
 6   they would directly impact and improve their lives were
 7   afraid to even sign a comment because of how easy it is
 8   for a company to ensure that they're paid less,
 9   thousands of dollars less, or even cut off, again with
 10  a million dollar investment hanging over their head,
 11  just for submitting a comment.  This should not happen
 12  in America, but it is.  These companies were also
 13  directly intimidating growers to sign comments against
 14  the rules by having their field service people come out
 15  and say, "You need to sign this," not telling them what
 16  it was, and the grower knew that the field service
 17  person knew that if they didn't sign it, that they were
 18  supporting the rules and they might be retaliated
 19  against.
 20            So USDA and Department of Justice can do
 21  things right now to solve this.  Publish the final
 22  GIPSA livestock rule.  Be proactive in enforcing this
00321
 1   and other Packers and Stockyards regulations through
 2   collection of information and investigations instead of
 3   having individual growers file complaints because of
 4   retaliation.  Issue a final report on the amount of
 5   regional competition in the poultry industry and use
 6   this regional measure when examining mergers in the
 7   poultry industry. And finally, collect and publicly
 8   report income that poultry growers make just like beef
 9   and cattle producers.  Thank you.
 10            MS. OZER:  I'm Kathy Ozer, and I work with
 11  the National Family Farm Coalition here in Washington,
 12  D.C., and basically the last two comments, both what
 13  Becky just discussed about poultry and about GIPSA and
 14  the earlier comment by Professor Peter Carstensen
 15  around action on dairy and really seeing some movement
 16  quickly on these issues is the core of my comments
 17  right now.
 18            Joel Greeno, who spoke earlier today and has
 19  spoken at earlier events, has just left to take his
 20  plane to get home so he can be milking his cows at 6:00
 21  a.m. and 7:00 a.m. tomorrow morning.  The level of
 22  desperation that I think has been reflected today and
00322
 1   reinforced by comments of both Secretary Vilsack and
 2   both Department of Justice speakers as well that
 3   they've heard across the country is deepening.  As
 4   winter comes on and the holidays, we're dealing with
 5   farmers who are in some of the worst conditions that
 6   they've felt in 20 years and that the need for
 7   government to take action and to be proactive and to
 8   move forward on these issues has never been greater.
 9             So I know there's been today a really good
 10  opportunity for a public comment, a really good
 11  opportunity for the panels to get at some of the issues
 12  that haven't been addressed as much during the earlier
 13  sessions, and really hope that going into 2011 we will
 14  see real action on these issues and not a continuation
 15  of discussions or studies or excuses. But given the
 16  political realities and the economic conditions facing
 17  farmers, their families and their communities, we
 18  really need to see that movement forward as soon as
 19  possible.  So thank you for all the hard work that's
 20  gone into this and we know that doing these kinds of
 21  events are not easy, but at this moment they're the
 22  most critical thing that is being done on these issues
00323
 1   by the government, and we look forward to working
 2   closely and seeing the next steps and working with you
 3   on those.  Thank you.
 4             MS. ELLINGER-LOCKE:  Hello.  My name is
 5   Maggie Ellinger-Locke.  I'm a 3L law student at CUNY
 6   School of Law in New York, and I'm involved with a lot
 7   of different organizations, but I'm here today just
 8   representing myself.  My comments are brief and maybe a
 9   little activisty.
 10            We've heard from a lot of different
 11  stakeholders today and from many different
 12  perspectives, but the audience response has without
 13  question been most positive to the voices that are
 14  supportive of food sovereignty.
 15            Food sovereignty is defined as democratic
 16  control over the food system.  The world wants food
 17  sovereignty.  Look to La Via Campesina, the world's
 18  largest social movement, for evidence of this.  The
 19  people of the United States want it too.
 20            Can we get a commitment from the USDA, the
 21  DOJ and the people in this room to give the people what
 22  we want?  The people want democratic control over the
00324
 1   food system.  We demand food sovereignty.
 2             MR. WEAVER:  Hi.  My name's Mike Weaver, and
 3   I'm here representing the poultry growers in Virginia
 4   and West Virginia.  I want to start out by thanking
 5   USDA and DOJ for holding these workshops. I think
 6   you've made history here, but the true test of whether
 7   it's all going to be worth it is what you do with it.
 8   So we're hoping you take this information and act on
 9   what you've gathered here.
 10            I also wanted to thank the nongovernment
 11  organizations that are here supporting us.  We
 12  appreciate you folks.  You do a lot for us.  Thank you.
 13            This workshop was supposed to be about the
 14  retail disparity in what the farmer receives for their
 15  hard work and the retail price of food that consumers
 16  pay.  Well, Valerie Ruddle was up there earlier today
 17  trying to explain about a receipt, and I want to give
 18  you a little more detail about it.  We have a copy of a
 19  receipt from KFC for a 16-piece chicken meal that was
 20  purchased in Virginia and that 16-piece chicken meal
 21  cost $36.99. Well, out of that $36.99, the company who
 22  sold that chicken to KFC made five to six dollars. KFC
00325
 1   made about $30.  The grower who raised that chicken
 2   made 40 cents.  Now, think about that. Out of $36.99
 3   the grower got 40 cents.  Quite a disparity there, huh?
 4             Currently, we have no say in our contracts.
 5   They're take it or leave it.  We're forced to compete
 6   against each other based on the inputs that the company
 7   supplied us that we have no say in, and just in general
 8   the way that poultry is produced in this country is not
 9   fair.  It needs to be changed.
 10            I thought it was curious that the grocery
 11  representatives that were here today on this panel, I
 12  don't recall one of them mentioning the farmer and his
 13  situation you know.  None of them try to explain the
 14  fact that the farmer hasn't had an increase in how many
 15  years.  Way too long.  I think that the new GIPSA rules
 16  that have been mentioned today, I think that overall
 17  they're good.  They need some amendments, we've
 18  suggested some amendments and some clarification to
 19  them, and I think they ought to be enacted as soon as
 20  possible.  Thank you.
 21            MR. FORTUNE:  Thank you for giving me the
 22  chance to comment and for the Department of Justice and
00326
 1   USDA for holding these hearings.  I rise in support of
 2   the new GIPSA rules that have been proposed.  I'm a
 3   cattle producer.  I'm Bob Fortune from western South
 4   Dakota, and I'm a cow/calf/yearling operation, and as
 5   the way things are going -- I'm very nervous in front
 6   of a microphone in case you hadn't noticed.
 7             But our cost of production has increased
 8   steadily for the last few years and the last couple
 9   years has went up dramatically, and our costs or what
 10  we're receiving for our product has gone up just
 11  slightly.  And if it keeps going this way, then we'll
 12  be out of business too.
 13            But as you look across rural America, all the
 14  small towns, half Main Street is boarded up because
 15  there's no money coming back into the rural communities
 16  from agriculture and production.  It's all going out
 17  into the big corporations who are siphoning this money
 18  off into the -- into Wall Street the way it seems to
 19  me.  So I'm supporting the new GIPSA rules and I thank
 20  you for the chance to comment.
 21            MS. MUGAR:  Hi.  My name is Carolyn Mugar,
 22  and I'm with Farm Aid and I've been before you both
00327
 1   before in Madison and I'll be very brief.
 2             But I do want to say I think Mike Weaver said
 3   it all in a way, and he said "is this all going to be
 4   worth it?"  And I think it would be -- we all are here
 5   today.  People have come with great difficulty. Farmers
 6   from all over the country have been coming for nine or
 7   ten months now, and it's been an opportunity that we
 8   hugely appreciate.  But I think communicating with all
 9   of us as quickly as possible what is going to be done -
 10  - and I know it's different for different areas of your
 11  work and for your follow-up, but I think it's hugely
 12  important because we really, really need to know when
 13  things are going to be happening and what is going to
 14  be happening.  As Kathy pointed out, it's very dire in
 15  a lot of sectors and people have poured their hearts
 16  out to you, for which I'm sure you're very grateful,
 17  but we really need to know soon.  We need to know as
 18  you know what you're going to be doing.  Thank you so
 19  much.
 20            MR. TURNER:  My name is Jerry Turner. I'm a
 21  poultry and beef cattle producer from the beautiful
 22  Shenandoah Valley of Virginia.  I think the average
00328
 1   American citizen does not understand or have a clue
 2   that the challenges that the American farmer faces
 3   today.  Unfortunately, I think the federal government
 4   is in that shame shape.  I don't think they quite
 5   understand our challenges either. You know, there's
 6   been a lot of good information shared here today, and I
 7   think we can say from that information that we as
 8   American farmers are not receiving our fair share of
 9   the markets.  Something that maybe has not been brought
 10  out is our investment. We have a huge amount of money
 11  tied up in our land, our livestock, our equipment, our
 12  time and our labor, and I'm not sure that -- in fact, I
 13  know that we're not receiving the return on that
 14  investment that we should.
 15            You know, the American people here enjoy the
 16  most abundant food supply in the world, the safest and
 17  the cheapest food supply in the world, but yet the
 18  American farmer is struggling financially. Now, there's
 19  something wrong with that picture. Things needs to
 20  change and they need to change quick or else you may
 21  have to put the American farmer on the endangered
 22  species list.
00329
 1             Thank you.
 2             MR. MEYER:  I'm Vaughn Meyer.  I feel a
 3   little guilty using this again today and taking a spot
 4   up, but first off I shouldn't be here.  It's not
 5   because there's something to do at home.  It's because
 6   in 1980 I almost lost my place.  We came close to
 7   losing it by the skin of our teeth.  We rebounded a
 8   little during the 90s.  And how did we do it?  My wife
 9   worked off the farm and I worked my three children to
 10  death, and that's how we got there. We built equity
 11  back into our place.
 12            Times are a little better, but I will say in
 13  the last three years we're losing equity again. We're
 14  rebounding right back to where we were in the 80s.
 15            There's been a couple points here that I want
 16  to talk about today that we've been close to but we
 17  haven't real addressed a couple of them, or one of them
 18  in particular.
 19            I'm a great admirer of Carl Wilkins who is
 20  the economist who did a lot of advisory work for this
 21  city down here through three decades of the 40s, 50s
 22  and 60s.  And as you probably know, Carl said that the
00330
 1   only true wealth comes from the land, and the only
 2   renewable wealth comes from agriculture.  And most of
 3   us are proud to be the fact that we are the true wealth
 4   of the land. Anything but is unearned income.  It's in
 5   the form of loans and subsidies and that sort of thing,
 6   and that's all a negative drain on our economy.
 7             And my point is here that this year animals
 8   and agriculture committed $50,000 of that new wealth,
 9   or 50 million dollars -- excuse me -- of that new
 10  wealth to our nation, but we still feel pretty about it
 11  out in agriculture because the parity level's been 67.2
 12  percent:  if you take in from 1962 from 19 -- 2002.
 13  Excuse me.  And if that parity level would have been a
 14  hundred percent, we could have contributed another 25
 15  million to that.
 16            And then if you take Carl's multiplication
 17  factor times seven, that would have been another 175
 18  million dollars that we would have contributed to this
 19  nation and to our country.  And if you stop and think
 20  about that and go back over all the years and calculate
 21  it out -- I haven't had the time to do that, but in
 22  compounding interest on that, that maybe is what has
00331
 1   brought up this national debt that we have now.  That
 2   figure would probably be equal to that.
 3             So if that parity had been there a long time
 4   ago for our products, we probably wouldn't be where we
 5   are in the national debt today. And if we return that
 6   parity to -- and agriculture is one of the few
 7   industries that are left in this country that is
 8   produced and processed and everything in the United
 9   States.  Every other industry is exiting us real fast
 10  and that we are the only hope for democracy in this
 11  country, because as Carl Wilkins points out, the
 12  countries like Russia that have lost their income when
 13  they went into a socialist system, the animals became
 14  worthless.  They butchered them.  Right now Russia's
 15  trying to rebuild that.
 16            I sold cattle to Russia last year to help
 17  them rebuild their herds.  Countries like India that
 18  never had a value because they were religious purposes
 19  on their cattle, they've been struggling for years.
 20  Animal agriculture and all of agriculture in general
 21  are the only hope for democracy in this country.  It's
 22  not just about keeping farmers on the land.  It's about
00332
 1   keeping democracy in the United States.
 2             And the other point I want to bring up here
 3   real quick, and I know I'm out of time, but today we've
 4   not heard much about these free trade agreements. These
 5   free trade agreements are one of the biggest hindrance
 6   on agriculture that we have right out here today.  I
 7   thank you.
 8             MR. ANDREWS:  Thank you.  My name is brother
 9   David Andrews.  I work for Food & Water Watch.  I have
 10  been a participant in the agricultural work of this
 11  country for the last 30 years at least. I travelled
 12  throughout the south with RAFI and Mary Klaus working
 13  for the Poultry Growers Associations. I've been a
 14  member of OCM for 15 years, an officer of the board.  I
 15  served on the Farm Foundation's Future of Animal
 16  Agriculture in north America and the Pew Commission's
 17  study of industrial agriculture and I've listened to
 18  the voices of the people of the land. And I have to say
 19  that I appreciate all that you have been doing at the
 20  Department of Justice and the Department of
 21  Agriculture.  But I also look at these issues not
 22  simply as legislative or governmental.  I look at these
00333
 1   issues as moral issues.
 2             You've heard these stories, and how can you
 3   not attach a moral meaning to the stories of the
 4   suffering of our farmers and of our landscape and of
 5   our animals and of our environment?  There are many
 6   levels at which this issue comes together here around
 7   the issue of concentration, many ways in which the
 8   issue of competition is a part of the analysis, and my
 9   hope is that as we go along that we will use the moral
 10  force of our consciences to make the dramatic changes
 11  beyond what we're proposing now that need to happen in
 12  rural America in order to revitalize our landscape.
 13  Thank you.
 14            MS. ROMER:  Hi.  Good afternoon.  My name is
 15  Nancy Romer and I'm with the Brooklyn Food Coalition.
 16  We're an advocacy and educational group that's trying
 17  to make changes in the food system and to mobilize
 18  people around it.  And I want to thank the Department
 19  of Agriculture and Department of Justice, but
 20  particularly I want to thank all the farmers here and
 21  all of the advocates who've really given me an
 22  education that I will try to bring back to the people
00334
 1   that I work with.
 2             The problem I want to address is climate
 3   change, and I don't know if was addressed in the very
 4   first session because I didn't get here until after
 5   that.  But the intense concentration of agribusiness
 6   and food retail forces growing transportation and
 7   packaging practices that are harmful to the environment
 8   and contribute to climate change.  They make local and
 9   regional food systems less viable because of their
 10  competitive edge because they control so much of the
 11  market.
 12            The high social cost of corporate industrial
 13  agriculture and food retail are going to be a major
 14  factor in undoing our nation in terms of climate
 15  change.
 16            If you look at some of the research that's
 17  been organized by Bill McKibben with his latest book
 18  Earth, by Anna Lappe, Diet For a Hot Planet, the wisdom
 19  is that about one third of greenhouse gases that are
 20  being emitted today are due to agriculture and that the
 21  full oil based practices where the agriculture is
 22  expelling carbon rather than sequestering it, all of
00335
 1   the transportation and retail costs associated with it.
 2   So if that figure is accurate, and it seems to be, the
 3   forced farming techniques that the major players are
 4   putting upon all of our farmers are forcing people to
 5   contribute to all of this climate change.
 6             The large contractors seed and input
 7   companies and retail corporations are dictating methods
 8   and prices.  We need to mitigate climate change to
 9   adopt to climate change.  We're going to see increased
 10  flooding.  We're going to see increased hailstorms,
 11  tornados, hurricanes.  This is all going to happen.  We
 12  need to have regional and local food systems.  And I'd
 13  like you to take all of the capacities of your
 14  departments and help to change some of the rules to
 15  support local and regional agricultural systems so that
 16  we can survive climate change when it happens.
 17            MS. SALVALEM:  Hi.  My name is Angelia
 18  Salvalem.  I'm from New York.  I'm representing Slow
 19  Food, an organization of thousands of people across
 20  this country who are interested in food and farming and
 21  sustainable food and farming.  And first, I want to
 22  thank the USDA and the DOJ for having these hearings,
00336
 1   and also I really want to thank the farmers. I am one
 2   of those consumers that does not know a lot about our
 3   farm system.  I grew up in the Bronx, and we don't have
 4   a lot of farming happening in the Bronx, and I really
 5   appreciate all of the things that I have learned today.
 6             I wanted to talk a little bit about
 7   biodiversity and how consolidation of big agriculture
 8   is less -- causes a less diverse system.  Has anybody
 9   heard of a Newtown Pippin Apple?  Anybody from New York
 10  know what that is?
 11            Not a lot of hands.  A few though.  The
 12  Newtown Pippin Apple is a delicious green-skinned apple
 13  that comes from New York, that actually comes from New
 14  York City from Queens County, and I did not learn about
 15  this until about six months ago.  I was born and raised
 16  in New York and have been going to different outlets
 17  and different food markets in New York my whole life
 18  and I have never seen a Newtown Pippin Apple.
 19            The thing about corporate consolidation of
 20  agriculture from seed supply to farming to packing to
 21  all of these different layers involved in the food
 22  system is that it doesn't allow us to have choice, and
00337
 1   Right?  Freedom of choice.  This is what democracy is,
 2   that we have a choice.  It reduces our choice. It
 3   doesn't allow us to choose different options.
 4             So there's about five to seven varieties in
 5   my local store, and pretty much anyone can name them,
 6   from Kansas to Missouri to Oregon, we all have the same
 7   ones, right, Red Delicious, Granny Smith and some other
 8   ones, Rome apples, but the Newtown Pippin is an apple
 9   that does not -- is not represented in my local store
 10  and I can only go to a farmer's market to get it.  And
 11  part of that is because of the seed supply and also
 12  because of the consolidation of retail outlets that
 13  only choose very specific kinds of produce and kinds of
 14  products to sell, and so it's reducing my choice as a
 15  consumer.
 16            And I would say to you that I urge you that
 17  after a year of study to please take action because I
 18  would like to choose what kind of food I have and I
 19  would like more options.  Thank you.
 20            MR. ROENIGK:  Thank you.  I'm Bill Roenigk
 21  with the National Chicken Council.  I would like to say
 22  for the record that with corn at $6 a bushel, soybean
00338
 1   meal, $350 a ton, I'm not aware of any chicken
 2   companies that are currently making any profits.
 3   Nonetheless, we continue to increase production, and I
 4   think at least for the growers and other parts of the
 5   food chain that's a good thing, but at the moment it's
 6   not a good thing for our profits.
 7             The broiler industry has been vertically
 8   integrated for five decades, so we have a history. We
 9   have a track record.  Most broiler companies have a
 10  listing of farmers, family farmers, who would like to
 11  grow chickens or would like to add capacity to the
 12  houses they already have.  With all due respect to Ms.
 13  Ruddle, I would like to ask a question if I may.  If
 14  she's still here, perhaps she'd like to answer.  But I
 15  understand her comments -- and if I'm incorrect, please
 16  correct me -- but five years ago Ms. Ruddle said she
 17  decided to begin to grow chickens. That's good.  We
 18  appreciate the 20- some thousand family farms who grow
 19  chickens for us. They're dedicated. They're
 20  hardworking.  They are a major part of why we are
 21  successful as an industry, why we're able to offer the
 22  best meat value to consumers.  So without growers we
00339
 1   would not be successful, and if we keep growing we're
 2   going to need more growers.
 3             But my question would be, we have a track
 4   record.  We have a history.  If you -- five years ago
 5   you either went to the company or you went to the
 6   lender or you went to both and said okay, is this a
 7   wise investment?  Is this going to cash flow?  Is this
 8   going to work?  Somebody must have said "yes" or you
 9   must have said "okay, I'm going to take a risk and hope
 10  for the best." But if I understand her comments
 11  correctly - - and I don't mean any disrespect, Ms.
 12  Ruddle, if you're still here -- but why five years ago,
 13  knowing what you know, or at least I think knowing what
 14  you've known, why would you get into a business that
 15  you feel, at least from your comments, that's not a
 16  very good business?  And if that could be explained to
 17  me, that would be a good takeaway I'd like to have from
 18  the meeting.  And I appreciate it. Thank you.
 19            MS. BERNHARDT:  Hi.  My name is Hannah
 20  Bernhardt, and I'm here on behalf of the National Young
 21  Farmers Coalition and the nonprofit organization the
 22  Greenhorns, whose mission is to recruit, support and
00340
 1   promote young and beginning farmers in America.
 2             Secretary Vilsack has stated a goal of
 3   recruiting a hundred thousand new farmers as the
 4   current population of farmers rapidly retires. We're
 5   working hard to help our country reach this goal, but
 6   young and beginning farmers face many barriers
 7   including access to land and access to capital.  In the
 8   current marketplace, young and beginning farmers can't
 9   begin to compete with large corporations who do have
 10  that access.
 11            Additionally, I grew up on a farm in southern
 12  Minnesota, but I was never encouraged to pursue farming
 13  as a career because all the farmers I knew were in
 14  agreement that farming is a terrible way to make a
 15  living.  My dad took an off-farm job in the 80s to
 16  supplement our farm income, and statistically in 2007,
 17  90 percent of all farm household income in our country
 18  came from off-farm sources. My own parents and families
 19  of other young farmers I know are reluctant to support
 20  our efforts to farm because they know how hard we will
 21  struggle to make a profit in this industry.
 22            So if we're to reach Secretary Vilsack's goal
00341
 1   of a hundred thousand new farmers in America, aspiring
 2   farmers need to feel confident that they are entering a
 3   fair marketplace and that they will be able to support
 4   themselves and their families when they pursue farming
 5   as a career.
 6             Before I finish, I want to also take a moment
 7   to thank the many farmers in the room who, despite
 8   enduring years of frustration with the industry and
 9   likely quickly approaching retirement, have not given
 10  up on advocating for the future of American
 11  agriculture.  Your perseverance and patriotism inspires
 12  us, and we really thank you for being here today.
 13            And additionally, we also want to thank the
 14  sign language interpreters in the room.
 15            Thanks.
 16            MR. STAPLES:  John, I sit back here and I
 17  listen to this and I wasn't going to say anything until
 18  this guy from the Chicken Council got up. And I'm going
 19  to be honest with you, I'm the one that Ms. Varney was
 20  talking about in Normal, Alabama.  I represent, or help
 21  represent, 650 chicken growers in the state of Alabama,
 22  and out of all the 650 of them there's two that was not
00342
 1   afraid to come up here.  I'm not saying I'm brave.  I'm
 2   saying I'm a proud American, I'm a veteran and I need
 3   the right to be able to talk to you all today.
 4             This guy says that there's people waiting in
 5   line, and he's probably right because they want to be a
 6   part of somebody that produces cheap food for you all.
 7   The problem we've got, John, is we don't have anybody
 8   to monitor them and work to take care of us.
 9             These GIPSA rules will probably be the best
 10  thing we've ever had if they pass, and I hope they do.
 11  You know, it's hard for me to talk to people about
 12  something like he's talking about there when I know for
 13  a fact that I got 45 growers in my county in St. Clair
 14  County, Alabama.  Out of the 45 growers, 42 of them are
 15  not making a decent living.  If they're making money,
 16  why do they need more growers?  If they're not making
 17  money, they'd be just like us. They'd go out of the
 18  business.  I could rant and rave all day, y'all, but
 19  this is a proud country and I'm probably one of the
 20  proudest that are in here, other than the rest of the
 21  chicken growers.  John, we need you all's help.  We
 22  need the rules passed, but we need you to be watchdogs
00343
 1   for us as farmers.  Thank you.
 2             MS. PERRY:  I knew I should have gone before
 3   him.  My name is Rhonda Perry.  I'm a livestock and
 4   grain farmer from central Missouri. I'm with the
 5   Missouri Rural Crisis Center, and as part of our
 6   organization we work with family farmers to direct
 7   market independent family farm raised pork. And I just
 8   feel like saying after what we've just heard that we
 9   desperately need you to act on behalf of independent
 10  family farmer and livestock producers so that we are
 11  not in the situation that we just heard from from the
 12  poultry growers.
 13            We can't afford to take hogs and cattle down
 14  the road of poultry, especially after what we heard
 15  today and that I know you've heard over this entire
 16  period of time of listening sessions.  In the hog
 17  industry, because I tend to represent hog farmers, what
 18  we've seen in Missouri is we've lost 90 percent of the
 19  hog farmers in our state in the last 25 years.  We went
 20  from 23,000 hog farmers marketing three million head of
 21  hogs to 3,000 hog farmers marketing three million head
 22  of hogs.  We didn't change the number of hogs that were
00344
 1   being marketed or produced in our state.  We just
 2   transferred that wealth and that knowledge and that
 3   economics from our rural communities from independent
 4   family farmers to a few very small number of corporate
 5   packers who now own the hogs in our state.  We didn't
 6   do that because hog farmers just decided, "you know,
 7   this is a lot of work, I think I'll just get out of the
 8   business, take a vacation, work two jobs in town to
 9   maintain my row crop operations."  This happened
 10  because family farmers like myself and my family went
 11  from having five markets to market our hogs on a weekly
 12  basis to being lucky if we had one take it or leave it
 13  opportunity to market our hogs on a weekly basis.
 14            I think I just got to address the Iowa hog
 15  farmer.  I am so glad that somebody in Iowa is doing
 16  well raising hogs, but I think it's USDA's job to deal
 17  with and address the issues that put those 90 percent
 18  of hog farmers out of business.
 19            And I just -- I'm going to skip right to the
 20  consumer piece.  It's been a really fun day hearing how
 21  a lot of what's going on in this industry has been
 22  consumer driven.  Apparently, consumers are demanding
00345
 1   sushi bars in their stores. They're demanding dry
 2   cleaners.  It's amazing all the things consumers have
 3   been demanding, and as a consumer I have missed out on
 4   all that.  But what I think what we heard today is that
 5   consumers are joining with family farmers in demanding
 6   what they really need and what family farmers really
 7   need, and that's level playing field and the ability of
 8   family farmers to make a decent living and consumers to
 9   have access to quality healthy food.
 10            That's all we're asking from our government.
 11  We're not asking for a handout or a hand up or anything
 12  else.  We're just asking for the ability to compete and
 13  we can compete.  We can out compete.  The reality is if
 14  you're the only player left standing, you can say
 15  you're the most efficient one, but if you have to
 16  compete with independent family farmers, you're out of
 17  business, and we hope you'll make that a reality for
 18  us.
 19            MR. HEDRICK:  My name is Eric Hedrick.
 20            I'm from the Contractor Poultry Growers of
 21  the Virginias, and my comment is directed towards the
 22  gentleman that said he wondered why Valerie Ruddle got
00346
 1   into the business.  Well, I bought the largest poultry
 2   farm in West Virginia and Virginia five years ago too,
 3   and I can tell you the reason why she got into it is
 4   the company lied.  When you put numbers down on a piece
 5   of paper to get the bankers to loan you the money and
 6   then it don't follow through, how do you make bank
 7   payments?  I started raising, five years ago raising a
 8   four-pound chicken in about 37 or 38 days.  Last year
 9   the company says well, we're sorry, sir, we want to cut
 10  back to a 375 chicken. Where's my other payments coming
 11  from?  We've heard a lot of information here today, and
 12  I really didn't want to get up here and speak, but we
 13  really need these rules and we need them quick.  Thank
 14  you.
 15            MR. VAN SCHAICK:  I'm Peter van Schaick. I'm
 16  from Vermont, came down here and I don't represent
 17  anybody except myself.
 18            I'm somebody who started looking at the food
 19  I eat a couple of years ago, and what I found was
 20  confirmed by what I've been reading about the
 21  workshops.  People who are growing the food that I
 22  consume don't make a sustainable living.  I've talked
00347
 1   to and done some numbers and talked to farmers, dairy
 2   farmers, and I did some wage calculation using the
 3   Vermont living wage for what farmers should be paid for
 4   the amount of time they spend producing the milk that I
 5   consume and it was over a hundred thousand dollars a
 6   year.  I mean, if you figure out 110 hours a week, if
 7   you're doing a concentrated operation, maybe more.  If
 8   you got labor to supervise, maybe more.  If you're
 9   doing locational grazing, maybe it's a little less. But
 10  it's not a sustainable way to earn a living.
 11            So when Bert Foer talked about the notion
 12  about suppliers and the notion of water bedding when
 13  the supplier drives down the price that is paid, that
 14  it pays to a particular supplier and yet the whole
 15  industry of suppliers needs a certain amount, or a
 16  particular supplier needs a certain amount of money to
 17  get by, what happens?
 18            Well, increased prices for other customers,
 19  but there are other kinds of shortcuts that happen, and
 20  those shortcuts relate to the problems that were
 21  identified by the woman from Brooklyn, and that is you
 22  end up having shortcuts taken in terms of the
00348
 1   environmental sustainability of the practices.  You
 2   start taking shortcuts in terms of like do you do a
 3   winter cover crop, do you not?
 4             I ended up going up and talking to people
 5   that ran a two-day conference on phosphorous in Lake
 6   Champagne, and boy, is that a hot topic.  I talked to
 7   the guy who ran agriculture and markets, and as soon as
 8   I just whispered the word "phosphorous" (makes sound)
 9   and it's because he knows that every time there's a
 10  heavy rain phosphorous is running off of those lands
 11  that are being overworked and aren't being properly
 12  attended to because people have got bank payments and
 13  they've got mortgages to pay and they just can't make a
 14  go of it.
 15            So when Bert talked about the need for study
 16  of monopsony, I really thought that made sense, and
 17  when I heard the woman, Mary Henderson I think her name
 18  is, talk about how there are other things that need to
 19  be considered within adequate antitrust jurisprudence,
 20  it's obvious that consumer welfare is only a part of
 21  the picture.  We've got to have an antitrust law that
 22  looks up and down the whole supply chain and looks at
00349
 1   farmer welfare and not just consumer welfare, looks at
 2   farm labor welfare and not just these other things and
 3   then looks at the welfare of the environment in which
 4   the farmers are producing.  And it's the monopsony
 5   power of these concentrated purchases of farm goods
 6   that are stressing the people and the natural systems
 7   that are producing food.
 8             So one thing you might do on the long-term is
 9   to follow Bert's suggestion, which is to really take a
 10  look at what's different about monopsony power.  Right
 11  now antitrust jurisprudence isn't solving the problem.
 12  Thank you very much.
 13            And by the way, I appreciate the workshops
 14  because they brought out the fact to national attention
 15  that we've got a whole lot of people besides consumers
 16  that are very concerned about fairness within the
 17  antitrust system that's creating low -- or is
 18  contributing or is allowing to happen these low prices
 19  for producers.  Thank you very much.
 20            MR. SEN:  Good afternoon.  My name is Basav
 21  Sen, and I'm with the United Food and Commercial
 22  Workers.  I want to thank the Justice Department and
00350
 1   the USDA for holding this series of workshops.  And
 2   since the subject of today's workshop is retail, I'd
 3   like to bring us back to retail for a little bit and
 4   talk about international precedents.
 5             The Competition Commission in the United
 6   Kingdom has investigated Walmart and Tesco and
 7   Sainsbury for anticompetitive practices.  The
 8   Competition Commission in Mexico has similarly
 9   investigated Walmart, and their counterparts in South
 10  Korea have investigated Walmart and (inaudible) and we
 11  would strongly urge the antitrust authorities here in
 12  the U.S. to follow these international leads by
 13  investigating concentration in food retailing here in
 14  the United States.  Thank you.
 15            MR. BULLARD:  Thank you.  I'm Bill Bullard
 16  representing R-CALF USA.  And the industry segments
 17  that are working hard to oppose what you're doing and
 18  to oppose the GIPSA rules are attempting to
 19  aggressively to dismiss all the evidence out there that
 20  we are in a state of crisis and this crisis is urgent.
 21  For example, they claim that for the last 20 years
 22  we've had four packers controlling about 80 percent of
00351
 1   the industry. Therefore, there can be no urgency
 2   associated with this.  But in 1990, 20 years ago, we
 3   had 250 firms that actually slaughtered cattle for
 4   market outlets. Today we're down to fewer than 92. So
 5   those four major packers in 1990 reigned over 250
 6   market outlets.  Today they reign over less than one
 7   hundred.
 8             Also during that period we saw a tremendous
 9   consolidation in the feeding sector. Thirty thousand
 10  independent feeders left the industry.  What we're
 11  seeing is the control that the packers had exclusively
 12  over the feeders is now being pushed into the supply
 13  chain and is affecting the cow/calf producers.  We've
 14  never witnessed this level of concentration in the
 15  history of our industry, and the situation is urgent.
 16            We also hear that we can justify the loss of
 17  farmers and ranchers because they're more efficient.
 18  They're producing more beef on the hoof than ever
 19  before.  That is true.  They are.  But at the same time
 20  our industry is shrinking in terms of the size of the
 21  cattle herd, in terms of the size of the number of
 22  producers, and as our industry shrinks, we are unable
00352
 1   to keep pace with the growth in domestic beef
 2   consumption, and we're making up the difference with
 3   imports.  And if you calculate the beef equivalent of
 4   the live cattle and the beef we import, we import about
 5   five million cattle, which is approximately about the
 6   same amount of cattle that they claim have been
 7   displaced because of our increased productivity.
 8             They also claim that the price spreads do not
 9   matter.  They claim that we've introduced boxed beef
 10  and other market efficiencies and other processes that
 11  cost more.  Fact of the matter is when ERS calculates
 12  that data they use a standard animal in 1980, cut in a
 13  standard way, sold in standard form. In 2009, they used
 14  that same standard animal, cut up the same standard way
 15  in standard form.  Thank you.
 16            MR. MURPHY:  Hi, John.  How you doing?
 17            My name is Dave Murphy.  I'm the founder and
 18  Executive Director of Food Democracy Now.  We're a
 19  grassroots sustainable agriculture advocacy group based
 20  in Clear Lake, Iowa.  I'd just like to say it's really
 21  an honor to be here today. We've travelled, like many
 22  of the other people in this room, to every one of these
00353
 1   hearings because we think it's an important process to
 2   witness.  We also think it's one of the most important
 3   things that you can do, that this administration can
 4   do, to restore a basic sense of fairness and justice
 5   and democracy to how our food is produced.  And I'd
 6   like to say on behalf of CREDO Action and Food
 7   Democracy Now, we'd like to submit over 200,000
 8   comments and signatures to the USDA and the DOJ. And I
 9   also want to thank all of our coalition partners.
 10  Together we made over -- we got 250,000, a quarter
 11  million, signatures.
 12            I think that's a very significant number. It
 13  says one, that the American people really, really
 14  realize that there is something fundamentally wrong
 15  with our food system.  It's pretty incredible that you
 16  can get a quarter million people to make a comment on
 17  enforcement of antitrust laws in food and agriculture.
 18  A few years ago, five, ten years ago, most people would
 19  not have known that. Today there's a growing movement
 20  of people out there, and you know, the fact is the
 21  facts are getting out.
 22            I'd like to say the American Farm Bureau says
00354
 1   they're the voice of agriculture.  Well, today Food
 2   Democracy Now would like to announce that we're the
 3   voice of the American people and people -- that's
 4   pretty funny, but it's about -- the truth is about the
 5   same in the first statement, and that's a sad fact.
 6   We're here today because agribusiness has walked all
 7   over justice, the laws and democracy in this country,
 8   and I think it's time for this administration to do the
 9   right thing.
 10            I want you to know that a quarter million
 11  people stand behind you as you take action and you
 12  enforce these laws. We don't want just some simple
 13  enforcement, some simple fines.  We really want some of
 14  these worst violators broken up, and I think that's the
 15  type of action that the American people and our family
 16  farmers deserve.  Thank you very much.
 17            MR. FERRELL:  Well, I think that concludes
 18  our public testimony section, and I appreciate
 19  everybody who has come here today here to either
 20  provide comments or if you just came here to listen,
 21  all of our panelists that came here and I thank all the
 22  panelists that have participated in all of our
00355
 1   workshops and anybody who has come and visited with us
 2   and talked to us and provided us comments.  I also
 3   thank all the institutions all over the country that we
 4   went and visited who were very gracious to us to allow
 5   us to come there and take over their place and
 6   completely run the workshop from there.  So I just want
 7   to thank everybody for attending.  I don't know if you
 8   have any comments you'd like to make, but I just --
 9   again, I thank you, and have safe travels.
 10                  (Whereupon, at 5:07 p.m., the meeting
 11                  was concluded.)
 12  
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00356
 1                CERTIFICATE OF NOTARY PUBLIC
 2        I, NATASHA KORNILOVA, the officer before whom the
 3   foregoing hearing was taken, do hereby certify that the
 4   testimony that appears in the foregoing pages was
 5   recorded by me and thereafter reduced to typewriting
 6   under my direction; that said deposition is a true
 7   record of the proceedings; that I am neither counsel
 8   for, related to, nor employed by and of the parties to
 9   the action in which this testimony was taken; and
 10  further, that I am not a relative or employee of any
 11  counsel or attorney employed by the parties hereto, nor
 12  financially or otherwise interested in the outcome of
 13  this action.
 14  
 15  
 16                      ____________________________
                              NATASHA KORNILOVA
 17                      Notary Public in and for the
                            District of Columbia
 18  
 19  
 20  My Commission Expires: April 14, 2012
 21