Order Code RL33325
CRS Report for Congress
Received through the CRS Web
Livestock Marketing and Competition Issues
March 20, 2006
Geoffrey S. Becker
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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Livestock Marketing and Competition Issues
Summary
Changes in the structure and business methods of livestock and meat production
and marketing — sometimes referred to as consolidation, concentration and/or
vertical integration — have long generated interest and controversy in Congress.
Few dispute that the meat industry has changed significantly in recent decades.
USDA still considers beef cattle production (farm level) to be among the least
concentrated agricultural sectors. However, just four firms slaughtered 71% of all
U.S. cattle in 2004. In 1985, the then-top four packers accounted for 39% of all
cattle slaughter, according to industry and USDA statistics. Four firms slaughtered
64% of all U.S. hogs in 2004, compared with 32% in 1985.
Live hog production itself has seen sweeping changes over the past 25 years.
The number of U.S. farms with hogs declined from 667,000 in 1980 to 67,000 in
2005; those remaining have become much larger and less diversified. Operations
with at least 10,000 hogs now represent less than 1% of all producers but more than
half of total U.S. production, USDA reports. Many hogs today are sold through
production contracts, where a pork processor might provide the pigs and other inputs,
and a contracting producer (farmer) provides facilities and labor.
Debate has revolved around the impacts of such changes on farm prices,
consumers, global competitiveness, and the traditional U.S. system of independent
farms and ranches. Inherent in these questions is the role government should play in
monitoring and regulating agricultural markets.
Some groups believe that federal officials have not enforced existing laws
designed to prevent anti-competitive behavior, and/or that the laws themselves
should be strengthened to better address today’s market realities. Others assert that
present competition and antitrust policies remain adequate and effective. They
believe that the sector’s structural changes are a desirable outgrowth of other factors
such as technological and managerial improvements, changing consumer demand,
and more international competition.
A number of bills now pending before Congress would address one or more of
the perceived “competition” problems in livestock markets, their sponsors maintain.
For example S. 818 and H.R. 4713 would prohibit packer ownership or control of
cattle supplies except for just before slaughter. S. 960 and H.R. 4257 would strictly
limit what packers could stipulate in forward contracts with producers. S. 2131 and
portions of S. 2307 would prevent or discourage the use of mandatory arbitration
clauses and/or confidentiality clauses in contracts. S. 2307 also would require a new
USDA special counsel for competition matters to oversee enforcement of the Packers
and Stockyards Act and other antitrust laws, among other provisions.
Some analysts expect these or other so-called competition bills to become the
basis for a proposed competition title in a new farm bill, which lawmakers may write
in 2007 to replace (or extend) provisions of the last omnibus bill, the Farm Security
and Rural Investment Act of 2002 (P.L. 107-171). This report will be updated if
significant developments ensue.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Changes in the Beef and Pork Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Beef Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pork Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Vertical Coordination and Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Historical Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Relevant Authorities and Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Packers and Stockyards (P&S) Act of 1921 . . . . . . . . . . . . . . . . . . . . . . . . . 7
General Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Agricultural Cooperative Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Selected Current Issues and Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research on Competition and Price Impacts . . . . . . . . . . . . . . . . . . . . . . . . . 9
Legal Action: Pickett v. Tyson Fresh Meats, Inc. . . . . . . . . . . . . . . . . . . . . 11
Proposed Legislation in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . 11
Packer Ownership/Captive Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Contract Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Livestock Mandatory Price Reporting (LMPR) . . . . . . . . . . . . . . . . . . 12
USDA Enforcement and Management . . . . . . . . . . . . . . . . . . . . . . . . 13
A Farm Bill “Competition Title”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 1. Top Packers — 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Contract Share of U.S. Production, Selected Commodities . . . . . . . . . . 6

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Livestock Marketing and Competition Issues
Introduction
Farmers and ranchers have had to adjust to significant changes in the structure
and business methods of the livestock and meat sector in recent decades. At the farm
level, animal production in general and hog production in particular have undergone
significant consolidation since 1980. Beef and pork packing (slaughtering) and
processing have consolidated rapidly since 1980 into fewer and larger plants. As an
industry consolidates, it can become highly concentrated, with a relatively small
number of firms accounting for most production or sales.
The successive stages of cattle and hog production, processing, and marketing
also are becoming more carefully managed and aligned, often referred to as vertical
coordination or, in its most advanced form, vertical integration, where most stages
are owned or financially controlled by a single entity.
Some farm constituencies assert that these structural changes have undermined
the more “traditional” U.S. system of smaller-scale, independent, family-based farms
and ranches; created closed markets with less price transparency; eroded farmers’
negotiating power; and contributed to lower prices paid to farmers. These groups
believe that federal officials have not enforced existing laws designed to prevent anti-
competitive behavior, and that the laws themselves should be strengthened to better
address today’s market realities.
A number of bills now pending before Congress would address one or more of
these perceived problems in livestock markets, sponsors maintain, which they often
broadly term “competition issues.” Some analysts expect these or similar legislative
proposals to become the basis for a proposed competition title in a new farm bill,
which lawmakers may write in 2007 to replace (or extend) provisions of the last
omnibus bill, the Farm Security and Rural Investment Act of 2002 (P.L. 107-171).
Others assert that present competition and antitrust policies remain adequate
and effective. They believe that the sector’s structural changes are a desirable
outgrowth of other factors such as technological and managerial improvements,
changing consumer demand, and more international competition. Many of the
changes in business relationships along the livestock and meat marketing chain have
brought U.S. consumers the ample variety of high-quality, low-priced products they
now enjoy, it is argued. New laws or more aggressive interpretation of existing laws
will stifle private investment and innovation, and make the industries less
competitive, defenders of current policies argue.

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Structural Trends
Changes in the Beef and Pork Industries
Although observations about concentration and vertical integration are often
ascribed to the meat and poultry sector as a whole, individual industries within the
sector do differ in how they are structured and function. The following discussion
focuses primarily on the beef and pork industries.1
Beef Production. Most U.S. beef cattle are born, bred and pastured on a large
number of widely dispersed, often small-sized farms and ranches, called cow-calf
operators. These operators keep some heifer calves from each year’s crop for
breeding herd replacement; the rest generally are sold at from 6 to 12 months of age
to feedlots (or sometimes to an intermediary known as a backgrounder who readies
them for feedlots). These lots fatten them to slaughter weight and sell them to the
packing houses.
Cow-calf operations that hold fewer than 100 cows are responsible for more
than half of all U.S. marketings, statistics indicate. “A number of small herds
providing calves to feedlots and backgrounding operations is a key component of the
cattle industry,” notes an American Farm Bureau Federation (AFBF) report (footnote
1). “While other components of agriculture in crops and livestock have seen
noticeable concentration in larger operations, cattle remains structurally diverse.”
A relatively small number of feedlots, on the other hand, fatten and market a
significant portion of fed cattle (those ready for slaughter). During 2005 the top 10
companies had the capacity to feed more than 3.1 million cattle in 55 feedlots,
representing about 23% of the approximately 13.7 million cattle on feed on January
1, 2005. The top 30 operations could feed more than 5.6 million head or 41% of all
cattle on feed.2 Nonetheless, the U.S. Department of Agriculture (USDA) counted
a total of more than 88,000 lower-capacity (less than 1,000 head) feedlots in 2005.
Beef packing is much more concentrated than cattle production. Four firms
slaughtered 81% of all young cattle (steers and heifers) in 2004, and 71% of U.S.
1 This section is based in part on: Barkema, Alan, and others, “The New U.S. Meat
Industry,” Economic Review of the Federal Reserve Bank of Kansas City, Second Quarter
2001; O’Brien, Doug, Developments in Horizontal Consolidation and Vertical Integration,
National Agricultural Law Center and The Drake Agricultural Law Center, January 2005;
American Farm Bureau Federation, Making American Agriculture Productive and
Profitable, December 2005; and various reports from USDA’s Economic Research Service
(ERS), including Structural Change in the Meat, Poultry, Dairy, and Grain Processing
Industries, March 2005.
2 “Feeding Sector Consolidates,” Cattle Buyers Weekly, December 5, 2005, and
USDA/National Agricultural Statistics Service (NASS), “Cattle on Feed,” at
[http://www.nass.usda.gov/Statistics_by_Subject/index.asp]. Another statistical illustrator
of recent change: feedlots that could hold more than 32,000 cattle each accounted for less
than a third of all cattle marketed in the leading cattle feeding states in 1980; by 2005 these
large feedlots were marketing approximately half of all U.S. fed cattle (USDA data).

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cattle of all types. In 1985, the then-top four firms claimed 50% of all steer/heifer
slaughter and 39% of all cattle slaughter.3 Recent concentration numbers approach
those of the early 1900s when 50% to 75% of the market was dominated by five
firms which slaughtered several species.4
Another way the federal government weighs concentration is the so-called
Herfindahl-Hirschman Index (HHI), which is considered to be a more comprehensive
measurement than the four-firm percentage cited above. An industry with an HHI
below 1,000 is considered to be unconcentrated. An industry with an HHI between
1,000 and 1,800 is considered to be moderately concentrated; an HHI above 1,800
is highly concentrated. The beef packing industry reached the highly concentrated
level by the mid 1990s; its 2003 HHI was 1,842.5
Table 1. Top Packers — 2004
Cattle Slaughter
Hog Slaughter
Company
Market Share*
Company
Market Share*
Tyson 25.6%
Smithfield
26.1%
Cargill
20.5%
Tyson
18.5%
Swift
15.3%
Swift
10.8%
National
9.5%
Cargill
8.9%
Source: Cattle Buyers Weekly.
* Market share: percentage of total number of U.S. commercial cattle and hog slaughter.
Pork Production. Hog production has experienced perhaps the most
sweeping changes over the past 25 years. The number of U.S. farms with hogs
declined from 667,000 in 1980 to 67,000 in 2005; those remaining have become
much larger and less diversified. The average 1980 farm with hogs had less than 100
head and likely raised them from birth to slaughter weight as part of a more
diversified crop-livestock operation. In 2005, the average hog farm had more than
900 head and might typically specialize in a single stage of hog production, such as
finishing, according to USDA. Operations with at least 10,000 head now represent
less than 1% of all producers but more than half of total U.S. production, USDA
reports.
3 The 2004 figures are from Cattle Buyers Weekly, October 31 and December 6, 2005. The
1985 figures are from various USDA data sources.
4 USDA/ERS, U.S. Beef Industry: Cattle Cycles, Price Spreads, and Packer Concentration,
Technical Bulletin No. 1874, April 1999.
5 Barkema; and USDA, Grain Inspection, Packers and Stockyards Administration (GIPSA),
Assessment of the Cattle, Hog, and Poultry Industries, 2004 Report, April 2005.

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In fact, the hog production segment of the industry now has about 30 key firms,
plus several hundred additional “significant” operators.6 Rapid adoption of vertical
coordination methods (see below) drove much of the consolidation in the hog
industry, particularly during the 1990s, when farm prices declined to historic lows,
causing tens of thousands of small operators to cease raising hogs. From 1993 to
1998 alone, U.S. farms with one or more hogs declined by nearly half, from 218,060
to 114,380, according to USDA. Six large producers — Smithfield, Premium
Standard Farms, Seaboard, Prestage, Cargill, and Iowa Select — together accounted
for nearly 30% of U.S. hog production in 2003.7
In hog packing in 2004, four firms slaughtered 64% of all U.S. hogs, compared
with 32% in 1985. The HHI for the hog slaughter industry climbed above 1,000, the
numerical threshold for moderately concentrated (see above) during the 1990s.8
Vertical Coordination and Contracting
Also apparent in the red meat industry in recent decades is the trend toward
vertical coordination of production with processing and marketing. The Barkema
article has characterized this trend as “... supply chains — tightly orchestrated
production, processing, and marketing arrangements stretching from genetics to
grocery. Supply chains bypass traditional commodity markets and rely on contractual
arrangements among the chain participants to manage the transformation of livestock
on the farm to meat in the cooler.”
This business model was pioneered in agriculture by the poultry industry, which
began to integrate shortly after World War II.9 Poultry producers were “the clear
leader” in delivering nutritional and convenient products to consumers while at the
same time sharply controlling costs, according to Barkema. The hog industry has
been closely following in poultry’s footsteps. Now typical are contract production
arrangements with large integrators who may provide the genetics, pigs and other
inputs, and a contracting producer (farmer) who provides facilities and labor.
For those who raise livestock, all of these changes have meant fewer options for
selling for cash at auctions or other open markets, and more pressure to enter into a
longer term arrangement with a buyer and/or processor. Generally these
arrangements take the form of agricultural contracts, which USDA defines as
agreements between farmers and their commodity buyers that are reached before
harvest or the completion of a livestock production stage.
6 Informa Economics, Special Report: The Changing U.S. Pork Industry, November 1, 2004,
at [http://www.informaecon.com/LVNov1.pdf]. Informa is an economics consulting firm.
7 Informa.
8 Barkema; and GIPSA.
9 Although this CRS report focuses primarily on beef and pork, references are made to the
poultry sector when pertinent, particularly since this sector competes with beef and pork for
the consumer dollar.

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Contracts can govern the terms for a promised transaction such as date of
delivery, the expected price, and other specifications. Contracts enable a farmer to
shift some financial risk to the buyer, cushion widely fluctuating price swings, and
guarantee an outlet for production. In return, buyers gain a reliable and uniform
supply of raw material. Consumers also benefit through lower prices, consistently
higher quality, and a wider array of convenient products, it is argued. “The growth
in contracting has come largely at the expense of spot (or cash) markets, where
farmers retain full autonomy and receive prices based on prevailing market
conditions and product attributes at the time of sale,” USDA observes.10 It
distinguishes two types:
! Production contracts are when the farmer provides a service to the
contractor who usually owns the commodity. The farmer’s payment
may resemble a fee for service rather than a payment for the
commodity’s value. For example, in poultry production, processing
companies provide the chicks, feed, veterinary services,
transportation and production specifications, to farmers who raise
the chicks for the companies, usually in facilities the farmers own.
! Marketing contracts emphasize the value of the commodity rather
the farmer’s services. They can specify in advance the basis for the
price that will be paid, the quantity to be delivered and where, and
product attributes, but the farmer retains major management control
and ownership of the commodity until delivery.11
In 2003, contracts (production or marketing) covered 47% of all livestock
production value, up from 33% in 1991-93. This compares with 31% of all crop
production in 2003 and 25% in 1991-93, according to USDA (see table 2 for
breakout by selected commodity).
Examining the data more closely, use of production (as opposed to marketing)
contracts in the hog industry grew sharply from 29% of production value in 1994-95
(1991-93 data not available) to over 50% in 2003, according to USDA. In cattle
production, production contracts grew from 15% in 1994-95 to 25% in 2003. Poultry
has long been raised by farmers under contract with a processing firm; today the
value of production under contract is approximately 85-90%. Marketing rather than
production contracts are the prevalent types in dairy with more than 50% produced
under a marketing contract in 2003. Regardless of commodity type, larger farms tend
to use contracts much more than smaller farms, USDA and the Farm Bureau study
note.
10 USDA/ERS. “Agricultural Contracting: Trading Autonomy for Risk Reduction,” Amber
Waves, February 2006.
11 Amber Waves.

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Table 2. Contract Share of U.S. Production, Selected
Commodities
(Percent of Production Value Under Contract)
Commodity
1994-95
2003
All Livestock
42.9
47.4
Cattle
19.0
28.9
Hogs
31.1
57.3
Poultry & Eggs
84.6
88.2
Dairy
56.7
50.6
All Crops
25.4
30.8
Corn
13.9
14.3
Wheat
6.2
7.6
Sugar Beets
83.7
95.5
Fruits
64.2
68.1
Source: USDA/ERS, Agricultural Contracting Update: Contracts in 2003, Economic Information
Bulletin No. 9, January 2006.
Historical Context
Concerns about the growing market power of large corporations in general, and
of meat packers in particular, were widespread by the late 1800s and culminated, by
the early 1900s, with the passage of several major antitrust laws, including the
Sherman and Clayton Acts (see below).
These laws notwithstanding, five large meat packers were continuing to make
agreements that set prices and divided their territory and business, effectively barring
others from entering the market. The so-called Big Five — Armour, Morris, Swift,
Cudahy and Wilson — had exercised monopolistic control over the livestock
industry by owning and/or controlling public stockyards, transportation and
distribution, slaughter plants, and even retail outlets, according to a 1917-18
investigation by the Federal Trade Commission (FTC). The Commission reportedly
found that the Big Five’s share of interstate slaughter was 75-82% of the cattle
market, 77% of calves, 61% of hogs, and 86% of sheep and lambs.12
12 Rosales, William E. “Dethroning Economic Kings: The Packers and Stockyards Act of
1921 and Its Modern Awakening.” Journal of Agricultural & Food Industrial Organization,
Vol. 3, 2005. Other sources for the historical material in the section are: Lauck, Jon.
“Concentration Concerns in the American Livestock Sector: Another Look at the Packers
(continued...)

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Threatened with government legal action, the Big Five in 1920 agreed to a
consent decree whereby they would refrain from: owning any interest in a stockyard;
owning retail meat markets or cold storage facilities except for their own products;
or entering other food processing and marketing sectors (like fruits and vegetables,
fish, grain products, and so forth). Still, there was continuing dissatisfaction in
Congress with the performance of the markets.
Relevant Authorities and Agencies13
Packers and Stockyards (P&S) Act of 1921
Passage of the P&S Act in 1921 was “in response to concerns that, among other
things, the marketing of livestock presented special problems that could not be
adequately addressed by existing antitrust laws.”14 Parts of the Act, as amended (7
USC §181 et seq.) prohibit unjustified discriminatory practices, as well as certain,
specific activities that might adversely affect competition. As stated in 7 USC §192
of the Act, it is unlawful for a packer or poultry dealer to: “engage in or use any
unfair, unjustly discriminatory, or deceptive practice or device; give
undue/unreasonable preference/advantage to [persons or localities]”; apportion
supply among packers in restraint of commerce or create a monopoly; trade in articles
to manipulate or control prices, if such apportionment tends to restrain commerce or
to create a monopoly; or conspire to apportion territory, or sales, or to manipulate or
control prices.
The Secretary of Agriculture has assigned regulatory responsibility for the Act
to the Department’s Grain Inspection, Packers and Stockyards Administration
(GIPSA). GIPSA does not have a direct antitrust authority, and the P&S Act does
not provide the agency with premerger review authority. The agency’s role, however,
is to maintain fair competition regulations. GIPSA is authorized to initiate and
conduct investigations of alleged violations in the livestock industry, but generally
not in the poultry industry. A violator of GIPSA regulations may, after a hearing
before a USDA administrative law judge, be served a “cease and desist”order, and
civil fines may be imposed.
If a packer disregards an order or refuses to pay fines, GIPSA may refer the case
to DOJ, which can enforce the order/fine through court action. According to GIPSA,
12 (...continued)
and Stockyards Act,” October 2004, and Pittman, Harrison M. “Market Concentration,
Horizontal Consolidation, and Vertical Integration in the Hog and Cattle Industries: Taking
Stock of the Road Ahead,” August 2005, both National AgLaw Center research articles
accessed at [http://www.nationalaglawcenter.org/research/#marketconcentration].
13 Portions of this section are from CRS Report RS20562, Merger and Antitrust Issues in
Agriculture: Statutes and Agencies, by Jerry Heykoop.
14 Government Accountability Office, Packers and Stockyards Programs: Continuing
Problems with GIPSA Investigations of Competitive Practices, March 9, 2006 testimony
before the Senate Agriculture Committee.

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most violations are corrected voluntarily by the individuals or firms when a violation
is brought to their attention. Except for serious violations, disciplinary action tends
to be the last resort, and is imposed only after substantial efforts to obtain compliance
have failed.
General Antitrust Laws
Several laws, which cover but are not specific to agriculture, prohibit certain
activities, such as mergers and acquisitions that may restrict market access or
suppress competition. These laws are the Sherman Act (15 USC §§1-8) and
Clayton Act (15 USC §12 et seq.). In addition, Title II of the Hart-Scott-Rodino
(HSR) Act (15 USC §18) requires parties to file notification of proposed mergers or
acquisitions if the action will trigger certain size and/or ownership criteria set forth
by HSR.
Such notifications must be made to the agencies that administer these laws [the
Department of Justice (DOJ) and the Federal Trade Commission (FTC)], which have
30 days to review them and to determine the need for any further information.
(USDA’s role here is advisory.) Mergers or acquisitions likely to substantially lessen
market competition are a violation of Section 7 of the Clayton Act. DOJ or FTC
merger review is intended to prevent anti-competitive conduct before it occurs. The
principal focus during merger review is not on the merging parties, but on whether
the merger would change the market structure to such a degree that competition
likely would be substantially lessened. The pre-merger remedies DOJ/FTC might
seek with respect to a proposed merger that would violate Section 7 of the Clayton
Act are either filing legal action to stop the merger, or else conditioning federal
approval on modifications to remove perceived antitrust concerns [e.g., divestiture
by one or another party of assets/operations that duplicate or overlap those of the
other part(ies)]. Negotiating such changes often is seen as in the interests of all
parties, because going to court can be expensive, time-consuming, and risky.
Two other classes of anti-competitive behavior may be subject to findings of
antitrust unlawfulness. First, a violation of Section 1 of the Sherman Act (collusion)
can occur when separate firms agree among themselves not to compete with each
other; this would include such matters as the prices to be paid for product resources
or prices charged to consumers. Second, a violation of Section 2 of the Sherman Act
(monopolization or attempt to monopolize) can occur in several ways, including the
use of predatory practices and/or exclusionary conduct. (See CRS Report RL31026,
General Overview of United States Antitrust Law.)
Agricultural Cooperative Protections
The Capper-Volstead Act (7 USC §§291-292) confers limited exemption from
antitrust liability to farmer cooperatives, both for their existence and their joint
processing and marketing of their commodities. The Act specifically states, in part:
“Persons engaged in the production of agricultural products as farmers, planters,
ranchmen, dairymen, nut or fruit growers may act together in associations, corporate
or otherwise, with or without capital stock, in collectively processing, preparing for
market, handling, and marketing in interstate and foreign commerce, such products

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of persons so engaged.”15 USDA may, but has never utilized its power to, file
complaints against cooperatives that monopolize or restrain competition to the extent
that the price of any agricultural product is “unduly enhanced.”
This law and farmer antitrust immunity are among the topics now under review
by the Antitrust Modernization Commission, an expert panel established by Congress
in 2002 (P.L. 107-273; §§11051-60). The commission is to report its findings to
Congress and the President by Spring 2007.
The Agricultural Fair Practices Act (AFPA; 7 U.S.C. 2301 et seq.) was
enacted in 1967 to protect farmers from retaliation by handlers (buyers of their
products) because the farmers are members of a cooperative. The act permits farmers
to file complaints with USDA, which can then institute court proceedings, if they
believe their rights under the law have been violated.
Selected Current Issues and Legislation
Research on Competition and Price Impacts
Have increased market concentration and vertical integration, including
production contracts, made livestock markets less competitive and depressed farm
prices? Answering this question might help lawmakers in deciding future
competition policy. After Congress in 1991 provided funding for one of the most
extensive recent examinations of meatpacking concentration, GIPSA contracted six
projects to five universities. It also helped researchers collect, organize and analyze
livestock transaction data over several years, according to an Oklahoma State
University fact sheet.
Among the consistent findings from the six projects were that:
! A few major cattle feeding states including Texas, Nebraska and
Kansas represent the core geographic market for fed cattle and price
discovery;
! All other areas are linked to this market center, although the strength
of the linkage diminishes as plants are located farther from the core
(where the highest cattle prices are paid by packers);
15 7 U.S.C. §291. According to the National Agricultural Law Center, “Although there is
no universally accepted definition, a cooperative can be defined as a legal business entity
created under state law that is owned and operated for the purpose of benefitting those
individuals who use its services. A farmer cooperative can serve one or more functions
including but not limited to providing loans to farmers, supplying information pertinent to
agricultural production, selling inputs necessary to agricultural production, bargaining on
behalf of its members, providing transportation services, and marketing agricultural products
for its members.” See [http://www.nationalaglawcenter.org/readingrooms/cooperatives/]
for more information on agricultural cooperatives.

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! Larger and more efficient packers appeared to be passing back some
of their efficiency gains to the feeders, with higher prices paid for
larger sale lots of cattle and to the largest feedlots;
! Higher prices were paid by larger packers with larger slaughter
capacities and high plant utilization, and higher prices were paid for
cattle purchased closer to their plants;
! Higher prices were paid for marketing agreement cattle relative to
cash market cattle, but lower prices were paid for contract cattle
relative to cash market cattle.16
A related Oklahoma fact sheet also summarizes the price impact research:
Concentration in meatpacking is high, especially for fed cattle slaughtering and
fabricating. We must not lose sight of the fact that concentration has increased
in part as meatpacking firms increased industry efficiency. Research to date
suggests price impacts from packer concentration have been negative in general,
but small. Also, research shows that efficiency gains from moving to fewer and
larger meatpackers have more than offset any market power impacts. Use of
captive supply methods remained reasonably stable from 1988 to the mid-1990s.
Captive supply usage has a seasonal component and can vary widely from plant
to plant and week to week. Evidence suggests captive supplies increased in the
last half of the 1990s. Buyers and sellers use captive supplies for various reasons
but most believe they are beneficial or they would not be used. Research
suggests that larger plants make greater use of captive supply procurement
methods to keep plant utilization high. Evidence suggests larger plants use
captive supplies strategically, i.e., increasing the use of captive supplies as cash
market prices and price variability increased. Price impacts from captive
supplies have been negative in general but small.17
Other research has documented either negative or positive price impacts, with
each study’s outcome dependent upon what assumptions were used and what
particular aspect of livestock marketing was examined. Noting the particular
controversy over whether contracts and other marketing arrangements besides open
cash transactions could lead to abuse of market power, a USDA official commented:
Typically, contract prices for cattle and hogs are tied to the spot market price.
As a result, as more animals are sold through contracts or other arrangements and
fewer through the spot market, the actual number of transactions on which
contract payments are based becomes smaller. This “thinning of the market” is
often alleged to increase the ability of large buyers to manipulate prices.
Research on this issue has been mixed.18
16 Ward, Clement E., Oklahoma Cooperative Extension Service, “Summary of Results from
USDA’s Meatpacking Concentration Study” (fact sheet F-562), last edited December 2004.
This and other fact sheets on livestock pricing research and information may be accessed
at [http://pods.dasnr.okstate.edu/docushare/dsweb/View/Collection-236].
17 Ward, “Packer Concentration and Captive Supplies” (fact sheet F-554), last edited
December 2004. “Captive supply” generally refers to animals that are either owned by, or
committed to, a meat packer except for the short time just before slaughter.
18 Link, James E., March 9, 2006, testimony before the Senate Agriculture Committee.

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Legal Action: Pickett v. Tyson Fresh Meats, Inc.
The U.S. Supreme Court could soon decide to hear what many analysts consider
to be a landmark legal case under the P&S Act. In Pickett v. Tyson Fresh Meats,
Inc., a group of cattle feeders in 1996 sued Iowa Beef Packers (IBP), now part of
Tyson, for violating the P&S Act, reportedly the first class action certified for
producers against a packer under in the Act’s long history.19 Following eight years
of litigation, a jury in early 2004 agreed with producer arguments that the packer had
used captive supplies to control the supply of cattle available on the market, thereby
causing lower cattle prices. The jury set damages at more than $1.2 billion.
However, the federal judge in the case set aside the verdict on the grounds that the
jury had insufficient evidence to find that Tyson had no legitimate business reason
for using captive supplies.
The plaintiffs appealed, but a U.S. Court of Appeals in August 2005 upheld the
lower judge’s decision. The appeals court rejected the plaintiffs’ argument that there
was a violation of the P&S Act. “If a packer’s course of business promotes
efficiency and aids competition in the cattle market, the challenged practice cannot,
by definition, adversely affect competition,” the court declared.20 The plaintiffs and
their supporters have asked the U.S. Supreme Court to review the case. A decision
could clarify the intent of the P&S Act, one supporting group stated.21
Proposed Legislation in the 109th Congress
Packer Ownership/Captive Supply. Producers facing fewer buyers for
their livestock frequently express concerns about “captive supply,” meaning animals
that are either owned by, or committed to, a meat packer except for a short period
directly before slaughter. When packers buy fewer animals on the spot (open cash)
market, reported prices may no longer accurately reflect the preponderance of prices
paid, it is argued. Reduced transparency (i.e., prices and terms that all market players
can view equally), works to the disadvantage of the far larger number of producers
trying to sell their livestock to the relatively few packers who buy them, it is argued.
In the 109th Congress, a measure by Senator Grassley (S. 818) and
Representative Boswell (H.R. 4713) would amend the P&S Act to make it unlawful
for a packer or its representative, except within 7 working days of slaughter, to
“[o]wn or feed livestock directly, through a subsidiary, or through an arrangement
that gives the packer operational, managerial, or supervisory control over the
livestock, or over the farming operation that produces the livestock, to such an extent
19 Pickett v. Tyson Fresh Meats Inc., 11th Cir., No. 04-12137.
20 Pickett v. Tyson Fresh Meats Inc., as reported in Daily Report for Executives, August 24,
2005. Some discussion of the case also is from Domina, David A., “Proving Anti-
Competitive Conduct in the U.S. Courtroom: The Plaintiff’s Argument in Pickett v. Tyson
Fresh Meats, Inc.,” Journal of Agricultural and Food Industrial Organization, Vol. 2, 2004;
as well as Rosales and O’Brien.
21 “Producers ask Supreme Court to hear Pickett/IBP appeal,” Feedstuffs, March 6, 2006.

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that the producer is no longer materially participating in the management of the
operation...” Producer cooperatives and smaller packers would be exempt.
Bill opponents counter that evidence of price manipulation is lacking, and that
a ban could reverse many of the efficiency gains made by the livestock industry in
recent years through closer packer-producer alliances. In the 107th Congress, during
floor action on its version of the 2002 farm bill (S. 1731), the Senate approved a
similarly intended amendment that conferees deleted from the final version.22
Other Contract Terms. A number of other bills attempt to address what
their sponsors view as inequities in contracting between agricultural producers and
those who buy their commodities. Identical bills introduced by Senator Enzi (S. 960)
and Representative Pomeroy (H.R. 4257) would make it unlawful under the P&S Act
for packers to use forward contracts that are based on a formula price, or that do not
contain a firm base price. The bills also would limit the size of all contracts to no
more than 40 cattle, 30 swine, or equivalent groups of other livestock, and would
require packers to offer contracts for public bidding open to all traders. Senator Enzi
and other supporters argue that packers now can use formula pricing arrangements
to avoid participating in a more transparent open market and to unfairly change the
prices they pay producers after a sale is made.
Bill opponents assert that packers use these and other contracting arrangements
to ensure a steady supply of animals to keep high-capacity plants operating
efficiently; such arrangements also allow for necessary price adjustments for quality,
grade, or other market-prescribed factors. These types of bills would hurt producers
too, because many of them use contracts or other marketing agreements with packers
to limit their own exposure to price volatility and to obtain capital, opponents add.
A 2005 bill by Senator Grassley (S. 2131) would amend the P&S Act to prevent
use of mandatory arbitration clauses in contracts, which greatly limit farmers’
avenues for resolving disputes with agribusinesses, bill supporters argue. The bill
mirrors a 2001 floor amendment to the farm bill (S. 1731, §1046) that was adopted
by the Senate but was deleted by conferees. Portions of a bill (S. 2307) introduced
by Senator Harkin would amend the AFPA to: discourage mandatory arbitration and
confidentiality clauses in contracts; require that each contract clearly state such
prescribed terms as its duration, termination date, and payment factors; and give
producers rights to cancel contracts, among other provisions.
Livestock Mandatory Price Reporting (LMPR). LMPR was first passed
in 1999 to address some producers’ concerns about low livestock prices, industry
concentration, and the availability of accurate market information. The original
authority, Title IX of P.L. 106-78, USDA’s FY2000 appropriations, lapsed briefly on
October 22, 2004, but President Bush signed legislation (P.L. 108-444) extending the
program through September 30, 2005, when it again expired. The program is
currently operating on a voluntary basis, as the 109th Congress considers whether to
reauthorize LMPR, for how long, and what if any changes should be made. Taking
22 See also CRS Report RL31553, Livestock: A Proposed Ban on Ownership and Control
by Packers, by Jerry Heykoop.

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differing approaches in September 2005, the House approved a bill (H.R. 3408) to
extend LMPR for five years and to amend hog reporting provisions, while the Senate
approved a simple one-year extension (S. 1613). (See CRS Report RS21994,
Livestock Price Reporting: Background.)
USDA Enforcement and Management. S. 2307 also would require a new
USDA special counsel for competition matters to oversee enforcement of the P&S
Act and other antitrust laws, authorize USDA to promulgate regulations defining the
types of deceptive acts or practices in agricultural commerce that will be prohibited,
and stipulate new enforcement procedures. Among other things, S. 2307 would
relieve producers affected by an unfair practice under the P&S Act of a requirement
that they prove predatory intent, competitive injury, or likelihood of injury.
Sponsors of this proposal say stronger enforcement authorities are needed in part
because GIPSA officials have largely failed to enforce existing laws. They point to
a recent report by the Department’s Office of Inspector General (OIG) which
concludes that GIPSA has not been able to adequately oversee and manage its
investigative activities. GIPSA had difficulties defining and tracking investigations,
planning and conducting complex investigations, and making agency policy, OIG
found. For example, databases are incomplete, and investigations are often broadly
defined to count even routine letters to companies and monitoring of publicly
available records, OIG said. USDA’s general counsel had not filed an administrative
complaint on anti-competitive practices since 1999, due to GIPSA’s failure to refer
cases — although agency staff were considering dozens of investigations at the time,
OIG concluded.23
The OIG report was discussed at a hearing on GIPSA’s management of the P&S
Act, which was convened on March 9, 2006, by the Senate Agriculture Committee.
At the hearing, GAO also testified that in 2000 it had “identified two critical factors
that detracted from the agency’s ability to investigate anticompetitive practices in
livestock markets”: (1) investigations were being planned and conducted by
economists without formal involvement of attorneys from USDA’s Office of General
Counsel (OGC), resulting in a lack of legal perspective on potential violations; and
(2) the agency’s investigative practices were not suited for the more complex
competition-related concerns recently being raised. Moreover, USDA has not
fulfilled promises to implement the 2000 GAO recommendations — such as
integrating OGC attorneys into GIPSA investigations, and improving more effective
management procedures for approving and reviewing investigations.24
At the Senate hearing, GIPSA’s new administrator said that USDA generally
agrees with and is implementing the OIG recommendations, such as the development
of a management structure for receiving, reviewing, and acting on policy issues and
internal requests for guidance; clarification of agency policy directives on
investigations versus routine regulatory activities; and encouragement of GIPSA legal
specialists to work more directly with OGC. At the March 9, 2006 hearing,
23 Grain Inspection, Packers and Stockyards Administration’s Management and Oversight
of the Packers and Stockyards Programs, OIG Audit Rept. No. 30601-01-Hy, January 2006.
24 GAO, March 9, 2006 testimony before the Senate Agriculture Committee.

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Agriculture Chairman Chambliss asked for a progress report in 90 days on
implementation of the OIG recommendations.
The agency also was asked about the status of a “top-to-bottom review of the
P&S Act and its regulations” that USDA had stated in 2003 it would undertake “to
help ensure that the P&S Act continues to help assure a healthy, efficient, fair, and
competitive market for everyone competing in today’s livestock, meatpacking, and
poultry industries.”25 USDA had sought $500,000 for the review in its FY2004
budget request. Congress did not subsequently specify that the money be spent —
although it did not explicitly prohibit such an expenditure, either.
However, Congress did provide $4.5 million in P.L. 108-7 (consolidated
appropriations resolution for FY2003) to GIPSA for a packer study. Accompanying
report language stated that the funds, to be available until expended, should be used
for a “study on the issues surrounding a ban on packer ownership,” with the results
reported within 24 months of enactment. This deadline was February 20, 2005.
GIPSA has contracted with a private firm, RTI International, to conduct what it is
now calling the Livestock and Meat Marketing Study. The study will broadly
examine marketing practices in the livestock and red meat industries. “The overall
objective was to develop foundation information to understand economic changes
occurring, why they are occurring, what changes are likely to occur in the future, and
their implications for market participants and the structure of the livestock and meat
industries.”26 RTI was seeking, by April 14, 2006, detailed transaction data — some
of it being required by GIPSA — from meat packers and processors and others.
A Farm Bill “Competition Title”?
The Pickett case has loomed over efforts by a number of producer and allied
groups that want a so-called competition title to be included in an omnibus 2007 farm
bill. Many provisions of the Farm Security and Rural Investment Act of 2002 (P.L.
107-171, the 2002 farm bill) expire in 2007.
In legislative activity leading to enactment of the 2002 farm bill, the Senate
Agriculture Committee had voted in November 2001 to delete a competition title
from the omnibus farm bill (S. 1628) proposed by its chairman, Senator Harkin.
During subsequent floor action on the bill, the Senate did approve a number of
individual “competition” amendments. Although several of these amendments were
dropped by House-Senate conferees in early 2002, two amendments were retained
in the final version (H.Rept. 107-424). One gives producers the right to discuss their
contracts with family members and advisors. The other extends some new P&S Act
protections to swine producers with production contracts. Conferees also included
in the final farm bill a new program requiring many retailers to provide country of
origin labeling (COOL) for red meat and several other commodities. Since then,
25 Hawks, Bill, Under Secretary for Marketing and Regulatory Programs, February 24, 2003,
letter to the Honorable Tom Harkin.
26 GIPSA, “Livestock and Meat Marketing Study,” accessed March 16, 2006, at
[http://www.gipsa.usda.gov/GIPSA/webapp?area=home&subject=lmp&topic=ir-mms].

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Congress has twice postponed mandatory meat COOL and now appears divided on
whether it should be implemented.27
Many observers believe that the debate over a competition title will be replayed
when Congress takes up consideration of a new farm bill in 2007. Whether there will
be wider support in the Senate and House Agriculture Committees than in 2002
remains to be seen.
27 Though COOL has been raised by some as relevant in the competition debate, it is not
discussed here; see CRS Report 97-508, Country-of-Origin Labeling for Foods, by Geoffrey
S. Becker.

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