Letter: Senator Cramer calls for Congressional review of proposals to improve the meatpacking industry

U.S. Senator Kevin Cramer (R-ND) sent a letter to Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) and Ranking Member John Boozman (R-AR) on Monday urging them to convene a committee hearing to examine legislative proposals for improving transparency and competition in the meatpacking industry. The full letter is published here.

Dear Chairwoman Stabenow and Ranking Member Boozman,

I write to request that you convene a hearing of the Senate Committee on Agriculture, Nutrition, and Forestry to examine the legislative proposals seeking to increase price discovery in the cattle market and create more competition in the meat processing sector. Holding a hearing on price discovery in the cattle market, and consolidation in the meat processing sector, would allow Congress to provide oversight, receive stakeholder input, and address one of the most pressing issues facing the agricultural economy - transparency in the beef supply chain.

On February 24, 2021, President Biden issued an Executive Order (EO) on "America's Supply Chains," which directs several federal agencies to secure and strengthen America's supply chains. One of the directions in the EO is for the Secretary of Agriculture to submit a report to the President that assesses the supply chains for the production of agricultural commodities and food products. On April 21, 2021, the United States Department of Agriculture (USDA) announced that it would start accepting comments on securing the U.S. agricultural supply chain.

As you know, cattle are marketed through four primary transaction types: negotiated, negotiated grid, formula, and forward contract. Negotiated purchases are when the price is determined through buyer and seller interaction on the day of sale. Since 2005, negotiated transactions decreased from ~60 percent to ~20 percent. Formula purchases are the advanced commitment of cattle for slaughter by any means other than negotiated. Since 2005, formula purchases increased from ~25 percent to ~70 percent. Because of this market inversion, some stakeholders believe that there is not enough negotiated trade to accurately determine the value of cattle, otherwise known as price discovery.

Concerns surrounding price discovery are increased when you consider the consolidation that has occurred in the meatpacking industry. Four companies, two of which are foreign-owned, control ~85 percent of the beef processed in the United States. These companies are uniquely situated to control the input of cattle they buy from ranchers through the four primary transaction types, and based on those controlled inputs, control the supply available to downstream purchasers. Put simply, when adequate price discovery is not present, packers have the ability to suppress the value of cattle while increasing the price downstream to the consumer.

I commend my colleague Senator Grassley for introducing his bipartisan "50/14" proposal, and Senator Fischer for her bipartisan "Cattle Market Transparency Act." Both pieces of legislation seek to increase price discovery in the cattle market. However, because of factors such as regional differences in negotiated levels, individual freedom to market, and the possibility of unintended consequences, varying viewpoints on the bills exist.

There are also multiple pieces of legislation seeking to address what I believe is the root of the problem, a lack of competition in the meat processing sector. I have supported Senator Thune's "Strengthening Local Processing Act of 2021;" Senator Rounds' "New Markets for State Inspected Meat and Poultry Act of 2021;" and Senator King's bipartisan "Prime Act" from the 116th Congress. These proposals seek to increase processing capacity, expand markets for smaller processors, and reduce labor shortages. Increasing processing competition will provide greater transparency in the marketplace for ranchers, and produce a more resilient and diversified food supply chain for the American people.

Studies have shown nearly 17,000 ranches have gone out of business each year since 1980. Similarly, the COVID-19 pandemic has revealed serious gaps in our supply chain, leaving customers with higher costs and less choice. Reforms are needed now. It is a disservice to both producers and consumers for Congress to become entrenched in preferred policy positions, while no solutions are actually pursued. I respectfully ask you to hold a hearing so we can start making meaningful progress on this critical issue.