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The Farm Bill

[ 11 ] June 18, 2012 |

Philip Bump has a nice run-down of the important things to look for in the upcoming farm bill/massive subsidization of agribusiness thanks to the incredible power held by rural state senators. One point I would like to bring your attention to is an amendment that would limit meatpackers to owning animals directly for no more than 2 weeks before slaughter. This is important because the big meatpackers are monopolizing the market:

Meatpackers increasingly own their own cattle in order to manipulate the market. The companies buy livestock on the open market when prices are low but slaughter their own livestock when bidding prices rise. This puts long-term, downward pressure on the price of livestock and allows meatpackers to manipulate what farmers and ranchers earn. These persistently low livestock prices effectively work to push small and medium-sized farmers out of business, while still leading to increased consumer food prices because large meatpackers don’t face enough competition to force them to pass on savings to consumers.

Grassley and Conrad are the co-sponsors so maybe it does have a chance to pass.

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  1. greylocks says:

    Exhibit 12,566,307-C for the argument that overly free markets destroy rather than foster competition.

  2. ajay says:

    The companies buy livestock on the open market when prices are low but slaughter their own livestock when bidding prices rise. This puts long-term, downward pressure on the price of livestock

    NO, IT DOESN’T.

      • JohnR says:

        Sorry, Fosco – he said it very loudly, so of course, he must be correct. No more needs be said.

        • ajay says:

          As Gareth Wilson said below: there’s no economic reason that this arrangement, which is basically just a hedging arrangement, should put long term downward pressure on livestock prices. It will have a small net downward effect, because on average the farmers will be selling earlier and so will need to buy less feed, and the meatpackers will have to buy more. But that aside, no. When prices are high, meatpackers will stop buying and slaughter their own herds instead – demand drops, prices drop. When prices are low, meatpackers will buy more cattle on the hoof and keep them – demand rises, prices rise.

          The effect it should have is to make prices not lower but more stable – which would be a good thing for small farmers.

        • ajay says:

          Now, the rest of the article – and the links – say that increased consolidation is hurting the farmers, because the meatpackers can dictate prices – effectively operating as a purchasing cartel. That’s a good argument. But the ability to buy cattle in advance is a separate thing as far as I can tell.

          • Voice of Reason says:

            …increased consolidation is hurting the farmers, because the meatpackers can dictate prices – effectively operating as a purchasing cartel..

            And how is this different than a labor union? Isn’t the whole idea to coordinate labor prices to dictate the market effectively operating as a labor sales cartel…hurting the consumers?

  3. Gareth Wilson says:

    That’s just a standard hedging arrangement, isn’t it? And it would tend to stabilise livestock prices by bidding them up when they’re low.

    • JohnR says:

      Seems to me it’s just a standard profit-maximizing arrangment – decrease expenses or increase income (or preferably both). The added bonus, of course, is that you screw out of business anyone too small to compete. Old, old business model. The family farms/dairy farms know this one pretty well.

      • Gareth Wilson says:

        I’m open to the idea that corporations might do evil things to decrease expenses, increase income, or compete against smaller corporations. I’m not quite convinced that decreasing expenses, increasing income, and competing against smaller corporations is inherently evil. But by all means, enlighten me.
        On the original topic, we have lots of commodity exporters in New Zealand. They tend to set up currency hedges to protect against an increase in the value of the New Zealand dollar, which would reduce their profits on the international market. This gives them an advantage against exporters which are too small to afford hedging. Is this evil too?

  4. Ben C. says:

    If this puts too much downward pressure on the people raising cattle, then they would have to raise the price of the cattle in order to survive. This would make it so that the big guys have to pay more. The only time the buyer can determine the price at a rate lower than the seller can afford to sell it for is when there’s competition from bigger sellers, not just competition among bigger buyers. So the problem then is that there are cattle producers that are making it too hard on the little guy. That is a separate concern from anything regarding how long the purchaser keeps the cow before it’s killed. Anyone who can afford to support livestock is wise to buy when it’s cheap. Heck, I buy meat when it’s cheap and freeze it until I’m ready to eat it. Is that putting undue downward pressure on the sale price of beef and thus undermining the farmers? then get a different job! If cattle farming doesn’t pay enough, then there are too many cattle farmers. Do something else. Grow some wheat, corn, etc. Start raising Ostrich, they’re always tasty.

    The point is that our economy has never been one that aid failure isn’t possible. Our country only works if those who don’t make enough money at something, stop doing it! Then the supply shrinks, the prices go up, and those who were good at it make money. It’s a matter of Supply and Demand working in harmony. And if you inflate either, you must inflate both, and it costs tax payer money every single time you do it.

    I used to live on a farm, and teh landlord who ran the farm got paid whether or not he planted anything. The government pays farmers to NOT grow tobacco, so he started off in the black. All he had to do was look at the market, decide what was selling best based on his acreage, and grow that. He was smart, he took what was given for free, and he looked at what made him money, and that’s what he grew. He would have still been a farmer even if he didn’t get paid to not grow tobacco. He also worked a boat and make his real living off fishing the Chesapeake Bay. So he had a diverse base of income. If Crabs were scarce, he made his money in Soybeans. If corn paid more, he grew corn. We need to stop thinking that it’s the government’s job to make sure we make enough money doing things that aren’t profitable. We are a profit driven country, and despite Gene Roddenberry’s villainization of that in the race of Ferengi, Profit-based economics are not evil. It’s how the real world works. The only way to create wealth instead of redistributing it is to allow bad businesses to fail, including family farms, so that the economy can be allowed to balance. Once there is balance, then we can see what makes money and what doesn’t.

    That’s how it works in reality, folks.

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